UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
(Amendment
No. 1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): November 12, 2015
Synergy
CHC Corp.
(Exact
name of registrant as specified in its charter)
| Nevada |
|
000-55098 |
|
99-0379440 |
(State
or other jurisdiction
of incorporation) |
|
(Commission
File Number) |
|
(IRS
Employer
ID Number) |
| 865
Spring Street, Westbrook, ME |
|
04092 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code (615) 939-9004
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
[ ] Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY
NOTE
This
Current Report on Form 8-K/A (Amendment No. 1) amends the Current Report on Form 8-K we filed with the Securities and Exchange
Commission (the “SEC”) on November 18, 2015 (the “Original 8-K”). Among other things, the Original 8-K
reported our acquisition of Breakthrough Products, Inc., a Delaware corporation (“Breakthrough”), through the purchase
of all of its outstanding capital stock.
The
purpose of this Amendment No. 1 is to provide financial statement information required by Item 9.01, which was excluded from the
Original 8-K in reliance on Items 9.01(a)(4) and 9.01(b)(2).
Item
9.01. Financial Statements and Exhibits.
(a)
Financial statements of businesses acquired.
The
financial statements for Breakthrough required by Item 9.01(a) of Form 8-K are included as Exhibit 99.1 and Exhibit 99.2 to this
Amendment No. 1 to the Original Form 8-K and incorporated herein by reference.
(b)
Pro forma financial information.
The
pro forma financial information for Breakthrough required by Item 9.01(b) of Form 8-K is included as Exhibit 99.3 to this Amendment
No. 1 to the Original Form 8-K and incorporated herein by reference.
(c)
Shell company transactions.
Not
applicable.
(d)
Exhibits
| Exhibit
No. |
|
Description |
| |
|
|
| 99.1 |
|
Audited
financial statements for Breakthrough, including notes thereto, as of and for the years ended December 31, 2014 and 2013. |
| |
|
|
| 99.2 |
|
Unaudited
financial statements for Breakthrough, including the notes thereto, for the nine months ended September 30, 2015 and 2014. |
| |
|
|
| 99.3 |
|
Unaudited
pro forma financial information of Synergy CHC Corp. as of and for the nine months ended September 30, 2015 and as of and
for the year ended December 31, 2014, giving effect to the Breakthrough acquisition. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
| |
SYNERGY
CHC CORP. |
| |
|
| Date: February
11, 2016 |
/s/
Jack Ross |
| |
Jack
Ross |
| |
President
and Chief Executive Officer |
Exhibit 99.1
Breakthrough
Products, Inc.
(A
Corporation)
Audited
Financial Statements
For
the years ended December 31, 2014 and 2013
INDEX
TO FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The Board of Directors and Shareholders
Breakthrough
Products, Inc.
Westbrook,
Maine
We
have audited the accompanying balance sheets of Breakthrough Products, Inc. (the “Company”), as of December 31, 2014
and 2013, and the related statements of operations, stockholders’ equity and cash flows for each of the two years in the
period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We
have conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of
America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Breakthrough
Products, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 11 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which
raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are
also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
| /s/
RBSM LLP |
|
| |
|
| New York, New York |
|
| February 11, 2016 |
|
BREAKTHROUGH
PRODUCTS, INC.
BALANCE
SHEETS
AS
OF DECEMBER 31, 2014 AND 2013
| | |
2014 | | |
2013 | |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 9,130,895 | | |
$ | 2,391,695 | |
| Accounts receivable, net | |
| 806,076 | | |
| 692,669 | |
| Inventories, net | |
| 1,287,684 | | |
| 979,543 | |
| Prepaid and other current assets | |
| 874,239 | | |
| 93,474 | |
| | |
| | | |
| | |
| Total current assets | |
| 12,098,894 | | |
| 4,157,381 | |
| | |
| | | |
| | |
| Fixed assets, net of accumulated depreciation of $55,291 and $3,492, respectively | |
| 133,278 | | |
| 12,189 | |
| | |
| | | |
| | |
| Other assets | |
| | | |
| | |
| Organizational expenses, net of accumulated amortization of $28,606 and $7,628, respectively | |
| - | | |
| 20,978 | |
| Deposits | |
| 41,026 | | |
| 30,028 | |
| Total other assets | |
| 41,026 | | |
| 51,006 | |
| TOTAL ASSETS | |
$ | 12,273,198 | | |
$ | 4,220,576 | |
| | |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY
| |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 876,558 | | |
$ | 485,316 | |
| Convertible Note Payable – Series C | |
| - | | |
| 2,211,619 | |
| Total current liabilities | |
| 876,558 | | |
| 2,696,935 | |
| | |
| | | |
| | |
| Total liabilities | |
| 876,558 | | |
| 2,696,935 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| - | | |
| - | |
| | |
| | | |
| | |
Stockholders’ Equity
| |
| | | |
| | |
| | |
| | | |
| | |
| Preferred Stock, $0.0001 par value, all series: 31,888,895 and 16,662,314 shares authorized;
respectively | |
| | | |
| | |
| | |
| | | |
| | |
| Series A Convertible Preferred Stock, $0.0001 par value, 6,882,241 shares
designated 6,882,241 shares issued and outstanding | |
| 688 | | |
| 688 | |
| Series B Convertible Preferred Stock, $0.0001 par value, 9,780,073 shares
designated 9,780,073 shares issued and outstanding | |
| 978 | | |
| 978 | |
| Series C Convertible Preferred Stock, $0.0001 par value, 15,226,581 and 0
shares designated, respectively; 15,226,571 and 0 shares issued and outstanding, respectively | |
| 1,523 | | |
| - | |
| Common Stock, $0.0001 par value, all series: 42,786,899 and 23,755,245 shares authorized, respectively
4,371,793 and 4,339,429 shares issued and outstanding, respectively | |
| 437 | | |
| 434 | |
| Additional paid-in capital | |
| 26,941,097 | | |
| 7,408,386 | |
| Accumulated deficit | |
| (15,548,083 | ) | |
| (5,886,845 | ) |
| Total stockholders’ equity | |
| 11,396,640 | | |
| 1,523,641 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 12,273,198 | | |
$ | 4,220,576 | |
See
the accompany notes to these financial statements
BREAKTHROUGH
PRODUCTS, INC.
STATEMENTS
OF OPERATIONS
| | |
Year ended December 31, | |
| | |
2014 | | |
2013 | |
| Revenues: | |
| | | |
| | |
| Net revenues | |
$ | 2,713,130 | | |
$ | 2,374,966 | |
| Cost of goods sold | |
| 1,573,285 | | |
| 687,135 | |
| Gross profit | |
| 1,139,845 | | |
| 1,687,831 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Selling and marketing | |
| 5,111,184 | | |
| 1,008,932 | |
| Payroll and employee benefits | |
| 2,574,353 | | |
| 1,037,589 | |
| General and administrative | |
| 1,294,674 | | |
| 599,278 | |
| Research and development | |
| 131,287 | | |
| 21,848 | |
| Warehousing costs | |
| 530,448 | | |
| 227,949 | |
| Depreciation and amortization | |
| 72,777 | | |
| 9,824 | |
| Product display costs | |
| 1,028,406 | | |
| 1,672,587 | |
| Total operating expenses | |
| 10,743,129 | | |
| 4,587,007 | |
| | |
| | | |
| | |
Loss from operations
| |
| (9,603,284 | ) | |
| (2,864,340 | ) |
| | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | |
| Interest income | |
| 17,241 | | |
| 5,210 | |
| Interest expense | |
| (75,195 | ) | |
| (12 | ) |
| Total other (expenses) income | |
| (57,954 | ) | |
| 5,198 | |
| | |
| | | |
| | |
| Net loss | |
$ | (9,661,238 | ) | |
$ | (2,884,978 | ) |
| BASIC AND DILUTED – LOSS PER SHARE | |
$ | (2.22 | ) | |
$ | (0.67 | ) |
| | |
| | | |
| | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | |
| Basic and Diluted | |
| 4,360,886 | | |
| 4,335,204 | |
See
the accompany notes to these financial statements
BREAKTHROUGH
PRODUCTS, INC.
STATEMENT
OF STOCKHOLDERS’ EQUITY
TWO
YEARS ENDED DECEMBER 31, 2014
| | |
Series
A Convertible | | |
Series
B Convertible | | |
Series
C Convertible | | |
| | |
Additional | | |
| | |
| |
| | |
Preferred
Stock | | |
Preferred
Stock | | |
Preferred
Stock | | |
Common
Stock | | |
Paid-In | | |
Accumulated | | |
| |
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| Balance
as of December 31, 2012 | |
| 6,882,241 | | |
$ | 688 | | |
| 5,312,776 | | |
$ | 531 | | |
| - | | |
$ | - | | |
| 4,328,568 | | |
$ | 433 | | |
$ | 4,689,697 | | |
$ | (3,001,867 | ) | |
$ | 1,689,482 | |
| Sales of Series B Convertible
Preferred stock for cash | |
| - | | |
| - | | |
| 4,467,297 | | |
| 447 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,718,484 | | |
| - | | |
| 2,718,931 | |
| Common stock issued
upon exercise of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10,861 | | |
| 1 | | |
| 203 | | |
| - | | |
| 204 | |
| Net loss for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,884,978 | ) | |
| (2,884,978 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December
31, 2013 | |
| 6,882,241 | | |
| 688 | | |
| 9,780,073 | | |
| 978 | | |
| - | | |
| - | | |
| 4,339,429 | | |
| 434 | | |
| 7,408,384 | | |
| (5,886,845 | ) | |
| 1,523,639 | |
| Sales of Series C Convertible
Preferred stock for cash | |
| - | | |
| - | | |
| - | | |
| - | | |
| 13,379,396 | | |
| 1,338 | | |
| - | | |
| - | | |
| 17,243,483 | | |
| - | | |
| 17,244,821 | |
| Conversion of Series
C Convertible notes payable and accrued interest to Series C convertible Preferred stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,847,175 | | |
| 185 | | |
| - | | |
| - | | |
| 2,286,629 | | |
| - | | |
| 2,286,814 | |
| Common stock issued
upon exercise of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 32,364 | | |
| 3 | | |
| 2,599 | | |
| - | | |
| 2,602 | |
| Net loss for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (9,661,238 | ) | |
| (9,661,238 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December
31, 2014 | |
| 6,882,241 | | |
$ | 688 | | |
| 9,780,073 | | |
$ | 978 | | |
| 15,226,571 | | |
$ | 1,523 | | |
| 4,371,793 | | |
$ | 437 | | |
$ | 26,941,095 | | |
$ | (15,548,083 | ) | |
$ | 11,396,638 | |
See
the accompany notes to these financial statements
BREAKTHROUGH
PRODUCTS, INC.
STATEMENTS
OF CASH FLOWS
| | |
Year ended December 31, | |
| | |
2014 | | |
2013 | |
| CASH FLOWS USED IN OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (9,661,239 | ) | |
$ | (2,884,978 | ) |
| Adjustments to reconcile net profit loss to cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 72,777 | | |
| 9,824 | |
| Bad debt | |
| 13,736 | | |
| 6,143 | |
| | |
| | | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (127,143 | ) | |
| (674,209 | ) |
| Inventories | |
| (308,141 | ) | |
| (725,422 | ) |
| Prepaid expenses and other assets | |
| (791,763 | ) | |
| (81,211 | ) |
| Accounts payable and accrued expenses | |
| 466,438 | | |
| 243,610 | |
| | |
| | | |
| | |
| Net cash used in operating activities | |
| (10,335,335 | ) | |
| (4,106,243 | ) |
| | |
| | | |
| | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | |
| | | |
| | |
| | |
| | | |
| | |
| Purchases of property and equipment | |
| (172,888 | ) | |
| (9,889 | ) |
| Net cash used in investing activities | |
| (172,888 | ) | |
| (9,889 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| | |
| | | |
| | |
| Options exercised | |
| 2,602 | | |
| 204 | |
| Proceeds from issuance of Series B convertible Preferred Stock | |
| - | | |
| 2,718,931 | |
| Proceeds from issuance of Series C convertible notes payable | |
| - | | |
| 2,211,619 | |
| Proceeds from issuance of Series C convertible Preferred Stock | |
| 17,244,821 | | |
| - | |
| | |
| | | |
| | |
| Net cash provided by financing activities | |
| 17,247,423 | | |
| 4,930,755 | |
| | |
| | | |
| | |
| Net increase in cash and cash equivalents | |
| 6,739,200 | | |
| 814,623 | |
| | |
| | | |
| | |
| Cash and cash equivalents, beginning of period | |
| 2,391,695 | | |
| 1,577,072 | |
| | |
| | | |
| | |
| Cash and cash equivalents, end of period | |
$ | 9,130,895 | | |
$ | 2,391,695 | |
| | |
| | | |
| | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash paid for interest | |
$ | - | | |
$ | - | |
| Cash paid for taxes | |
$ | - | | |
$ | - | |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
| Series C Preferred stock issued for conversion of
Series C Convertible notes and accrued interest | |
$ | 2,286,814 | | |
$ | - | |
See
the accompany notes to these financial statements
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the significant accounting policies applied in the presentation of the accompanying financial statements follows:
Organization
and nature of operations
Breakthrough
Products, Inc. (the “Company”) was incorporated on July 28, 2009 in Delaware. The Company is in the business of producing,
marketing and selling Urgent Rx, a line of fast-acting, portable OTC medications in an innovative, fast-acting flavored powder
format available in convenient, single-dose, credit card-sized packets for easier portability and accessibility.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
recognition
Revenue
is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements,
as revised by SAB No. 104. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,
the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of Company products pass
to customers upon delivery of the products to the customers. Freight billed to customers is presented as revenues, and the related
freight costs are presented as cost of goods sold.
Revenue
is presented net of estimated returns and allowances, discounts, sales incentives and promotions including, price reductions,
coupons, rebate offers and placement/slotting fees.
Cash
and cash equivalents
For
financial statement purposes, the Company considers all highly-liquid investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
Accounts
receivable - trade
Accounts
receivable are stated net of allowances for possible bad debt and future chargebacks. Management estimates these possible losses
based on payment history of specific customers having specific balances, and establishes an allowance for the remaining accounts
receivable based on historical experience. Accounts are written off after all reasonable collection efforts have been exhausted
and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for
doubtful accounts. The Company’s policy is to extend credit to customers that management has determined to be credit worthy.
Trade
accounts receivable and the allowance as of December 31, 2014 and 2013 were as follows:
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Trade accounts receivable | |
$ | 806,076 | | |
$ | 692,669 | |
| Allowance | |
| - | | |
| - | |
| Trade accounts receivable, net | |
$ | 806,076 | | |
$ | 692,669 | |
During
the years ended December 31, 2014 and 2013, the Company charged to operations bad debts expense of $13,736 and $6,143, respectively
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
Fixed
assets
Fixed
assets are carried at cost less accumulated depreciation. The Company capitalizes expenditures related to property and equipment,
subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are
replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions,
replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs,
including any planned major maintenance activities, are expensed as incurred. The costs of assets sold, retired, or otherwise
disposed of, and the related accumulated depreciation, are eliminated from the accounts, and any resulting gain or loss is reflected
in income.
Depreciation
is recorded on a straight-line basis over the estimated useful lives of the respective assets as follows:
| |
Computer
equipment and software |
3-5
years |
| |
Office
equipment |
7
years |
Advertising
The
Company expenses advertising costs as they are incurred. Advertising expenses amounted to $5,052,126 and $872,155 for the years
ended December 31, 2014 and 2013, respectively. Advertising consists of the following items: Media, Social Media, Creative graphic
design and production, Market research, In show Integration (Ellen and The Doctor’s), Strategic Partnerships, Public Relations,
Trade shows, Packaging design, Marketing coupons and Website.
Income
taxes
The
Company utilizes Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected
to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax
asset will not be realized.
The
Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.
Inventory
Inventory
consists of raw materials, components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost
basis) or market.
Research
and Development
Costs
incurred in connection with the research and development of new products and processing methods are charged to general and administrative
expenses as incurred.
Shipping
costs
Shipping
costs are the costs associated with all inbound inventory received and outbound freight on product sold and are included in cost
of goods sold.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
Stock-Based
Compensation
The
Company has adopted the provisions of ASC 718. The Company estimates the fair value of stock options using a binomial model, consistent
with the provisions of ASC 718 and SEC SAB No. 107, Share-Based Payment. Option-pricing models require the input of highly subjective
assumptions, including the price volatility of the underlying stock. The Company determined that the use of implied volatility
is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of
the Company’s common stock’s expected volatility than historical volatility. The expected term assumption used in
calculating the estimated fair value of our stock-based compensation awards using the binomial model is based on detailed historical
data about employees’ exercise behavior, vesting schedules, and death and disability probabilities. In addition, the Company
is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company
estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised and cancelled.
The Company believes the resulting binomial calculation provides a more refined estimate of the fair value of its employee stock
options.
Warehousing
costs
Warehouse
costs include all third party warehouse rent fees for The Hibbert Group (THG) and any additional costs relating to assembly or
special pack-outs of the Company products are charged to general and administrative expenses as incurred.
Product
display costs
All
displays manufactured and purchased by the Company for placement of product in retail stores. This also includes all costs for
display execution and setup and retail services are charged to general and administrative expenses as incurred.
Convertible
notes payable
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional
standards for “Accounting for Derivative Instruments and Hedging Activities.” Professional standards generally provides
three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them
as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be
conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument.”
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with
Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.”
Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary
deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note.
ASC
815-40 provides that, among other things, generally, if an event is not within the entity’s control or could require net
cash settlement, then the contract shall be classified as an asset or a liability.
Organizational
costs
Organization
costs recorded in 2010 related to company creation. These costs were fully amortized during fiscal year 2014.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
Diluted
shares
There
were 60,538,609 and 50,093,638 outstanding common share equivalents at December 31, 2014 and 2013, respectively.
| | |
December
31, 2014 | | |
December
31, 2013 | |
| Series A Convertible Preferred Stock | |
| 31,325,630 | | |
| 31,325,630 | |
| Series B Convertible Preferred Stock | |
| 16,068,996 | | |
| 16,068,996 | |
| Series C Convertible Preferred Stock | |
| 11,681,305 | | |
| - | |
| Options | |
| 1,462,678 | | |
| 1,281,923 | |
| Convertible notes payable | |
| - | | |
| 1,417,089 | |
| Total | |
| 60,538,609 | | |
| 50,093,638 | |
Recent
accounting pronouncements
ASU
2015-03
In
April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments
in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet
of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. The Company
is evaluating the possible effect of this guidance on its financial statements.
ASU
2015-02
In
February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is
intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability
corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed
security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate
whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to
two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis
on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party
guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation
conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted,
including adoption in an interim period. The Company does not expect the adoption of ASU 2015-02 to have a material effect on
its financial position, results of operations or cash flows.
ASU
2015-01
In
January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the
concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. A reporting entity may apply the amendments prospectively. The Company does not expect the adoption of
ASU 2015-01 to have a material effect on its financial position, results of operations or cash flows.
ASU
2014-17
In
November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU
provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of
an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown
accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual
change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17
did not have any effect on the Company’s financial position, results of operations or cash flows.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
ASU
2014-16
In
November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the
host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently
have issued, nor are we investors in, hybrid financial instruments. Accordingly, the Company does not expect the adoption of ASU
2014-16 to have any effect on its financial position, results of operations or cash flows.
ASU
2014-15
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”.
ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective
for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted.
The Company does not expect the adoption of ASU 2014-15 to have a material effect on its financial position, results of operations
or cash flows.
ASU
2014-12
In
June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.”
This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. The Company does not expect the adoption of ASU 2014-12 to have a material effect on its financial
position, results of operations or cash flows.
ASU
2014-09
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects
any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts
or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. The Company is still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted
to propose to defer the effective date of the new revenue recognition standard by one year.
ASU
2014-08
In
April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU
2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending
the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any
effect on the Company’s financial position, results of operations or cash flows.
There
were various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations
or cash flows.
NOTE
2 - CONCENTRATION OF CREDIT RISK
Cash
and cash equivalents
The
Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts
that at times may be in excess of the federally insured limit of $250,000. The Company minimizes this risk by placing its cash
deposits with major financial institutions. At December 31, 2014 and 2013, the uninsured balances amounted to approximately $9,479,986
and $2,680,181, respectively.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
Accounts
receivable
As
of December 31, 2014, four customers accounted for 72% of the Company’s accounts receivable. As of December 31, 2013, three
customers accounted for 84% of the Company’s accounts receivable.
Major
customers
For
the year ended December 31, 2014, six customers accounted for approximately 76% of the Company’s gross revenues. For the
year ended December 31, 2013, three customers accounted for approximately 86% of the Company’s gross revenues. Substantially
all of the Company’s business is with companies in the United States.
Major
supplier
For
the year ended December 31, 2014, the Company’s products were manufactured by two suppliers located in New Paltz, New York
and Ogden, Utah. For the year ended December 31, 2013, the Company’s products were manufactured by one supplier located
in New Paltz, New York. It is the opinion of management that the product can be produced by other manufacturers and the choice
to utilize these suppliers is not a significant concentration.
NOTE
3 - INVENTORY
Inventory
consists of raw materials, components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost
basis) or market.
The
carrying value of inventory consisted of the following:
| | |
2014 | | |
2013 | |
| Raw Materials | |
$ | 42,598 | | |
$ | 102,702 | |
| Finished goods | |
| 1,245,086 | | |
| 876,841 | |
| | |
$ | 1,287,684 | | |
$ | 979,543 | |
NOTE
4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
At
December 31, 2014 and 2013, prepaid expenses consisted of the following:
| | |
2014 | | |
2013 | |
| Prepaid insurance | |
$ | 42,025 | | |
$ | 19,036 | |
| NetSuite Virtual Office | |
| - | | |
| 41,614 | |
| Displays | |
| 45,105 | | |
| - | |
| Media | |
| 747,783 | | |
| - | |
| Rent and parking | |
| 13,386 | | |
| - | |
| Services | |
| 5,456 | | |
| - | |
| Legal | |
| 5,565 | | |
| - | |
| Deposits | |
| 5,492 | | |
| - | |
| Conventions | |
| 9,427 | | |
| 32,824 | |
| Total | |
$ | 874.239 | | |
$ | 93,474 | |
NOTE
5 - FIXED ASSETS
At
December 31, 2014 and 2013, fixed assets consisted of the following:
| | |
2014 | | |
2013 | |
| Office furniture equipment | |
$ | 188,569 | | |
$ | 15,681 | |
| | |
| 188,569 | | |
| 15,681 | |
| Less: accumulated depreciation | |
| (55,2901 | ) | |
| (3,492 | ) |
| Fixed assets, net | |
$ | 133,278 | | |
$ | 12,189 | |
Depreciation
expense for the years ended December 31, 2014 and 2013, amounted to $51,799 and $4,557, respectively.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
NOTE
6 - ORGANIZATIONAL EXPENSES
At
December 31, 2014 and 2013, organizational expenses consisted of the following:
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Organizational Expenses | |
$ | 28,606 | | |
$ | 28,606 | |
| | |
| 28,606 | | |
| 28,606 | |
| Less: accumulated amortization | |
| (28,606 | ) | |
| (7,628 | ) |
| Organizational Expenses, net | |
$ | - | | |
$ | 20,978 | |
Amortization
expense for the years ended December 31, 2014 and 2013, amounted to $20,978 and $5,267, respectively. In 2014, Organizational
Expenses from 2010 were written off that had no support.
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of December 31, 2014 and 2013, accounts payable and accrued liabilities consisted of the following:
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Accounts payable | |
$ | - | | |
$ | 448,790 | |
| Accrued expenses | |
| 863,064 | | |
| 36,526 | |
| Accrued vacation | |
| 13,494 | | |
| - | |
| Total | |
$ | 876,558 | | |
$ | 485,316 | |
NOTE
8 - RELATED PARTY TRANSACTIONS
During
2014 and 2013, a material shareholder, Jordan Eisenberg, was the Chief Executive Officer of the Company. During the years ended
December 31, 2014 and 2013, the Company paid him compensation of $298,771 and $152,825, respectively.
NOTE
9 - COMMITMENTS AND CONTINGENCIES
Operating
leases
In
April 2014, the Company entered into an extension of a non-cancellable operating lease for office space that expires on March
31, 2017. From October 18, 2012 through December 31, 2014, the Company had the same operating lease, with an addition of additional
office space that was added with the renewal in April 2014. Rent expense under these leases for the years ended December 31, 2014
and 2013 was $88,878 and $64,642, respectively.
The
following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 2014:
| Year ending December 31: | |
| | |
| 2015 | |
$ | 104,376 | |
| 2016 | |
| 108,476 | |
| 2017 | |
| 27,294 | |
| Total | |
$ | 240,146 | |
On
December 8, 2014, the Company entered into a non-cancellable 36 month phone lease with an estimated cost of $894 a month.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
The
following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 2014:
| Year ending December 31: | |
| |
| 2015 | |
$ | 10,728 | |
| 2016 | |
| 10,728 | |
| 2017 | |
| 9,834 | |
| Total | |
$ | 31,290 | |
Litigation
and claims
Certain
conditions may exist as of the date of the financial statements are issued that may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel
assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but is reasonably probable, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material,
would be disclosed.
Management
believes that there are no current legal matters that would have a material effect on the Company’s financial position or
results of operations.
NOTE
10 - CONVERTIBLE NOTES
The
Company issued convertible notes on October 16, 2013, in an aggregate principal amount of $2,211,619 in arrears with a quarterly
interest rate of 1.8%.
On
July 2, 2014, these notes along with accrued interest of $75,195 were converted into 1,847,175 shares of Series C Preferred stock
at a conversion price of $1.2380 per share.
NOTE
11 - GOING CONCERN
The
Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at December
31, 2014 and 2013 of $15,548,083 and $5,886,845, respectively. The Company had cash used in operating activities at December 31,
2014 and 2013 of $10,335,335 and $4,106,243, respectively.
The
ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating
losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could
be forced to cease operations.
In
order to continue as a going concern and to develop a reliable source of revenues, and achieve a profitable level of operations
the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern
include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
12 – STOCKHOLDERS’ EQUITY AND OPTIONS
1.
STOCKHOLDERS’ EQUITY:
Certificate
of Incorporation and its Amendments:
As
per the Third Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 17, 2014, the
total number of shares of all classes of stock which the Company has authority to issue is 74,675,794 shares, of which (i) 42,786,899
shares have been designated common stock, par value $0.0001 per share (“Common Stock”), and (ii) 31,888,895 shares
have been designated preferred stock, par value $0.0001 per share (“Preferred Stock’).
Of
the total 31,888,885 authorized Preferred Stock, 6,882,241 shares of the authorized Preferred Stock are designated Series A Preferred
Stock, 9,780,073 shares of the authorized Preferred Stock are designated Series B Preferred Stock and 15,226,581 shares of the
authorized Preferred Stock are designated “Series C Preferred Stock”, each with the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations:
Voting:
On any matter presented to the stockholders of the Company for their action or consideration at any meeting of the Corporation,
each holder of outstanding shares of preferred stock shall be entitled to cast the number of votes equal to the number of whole
shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate
of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.
Dividend:
The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the
Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining
of any consents required elsewhere in the Certificate of Incorporation) each of the holders of the Preferred Stock then outstanding
shall first receive a dividend, on each outstanding share of Preferred Stock, in an amount equal to eight percent (8%) of the
Series A Original Issue Price, the Series B Original Issue Price, or the Series C Original Issue Price, as the case may be, per
share per annum. Thereafter, any additional dividend shall be payable on a pro rata basis to the holders of Common Stock and Preferred
Stock (assuming the conversion of Preferred Stock into Common Stock at the then current Series A Conversion Price, Series B Conversion
Price, or Series C Conversion Price (each as defined below)). The foregoing dividend shall not be cumulative and shall be payable
only if, when and as declared by the Board of Directors. The “Series A Original Issue Price” is $0.2197 per share;
the “Series B Original Issue Price” is $0.60863 per share; and the “Series C Original Issue Price” is
$1.3035 per share, in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination
or other similar recapitalization with respect to the Preferred Stock.
Liquidation:
In the event of a Deemed Liquidation Event and in preference to the holders of Series A Preferred Stock, Series B Preferred
Stock and Common Stock or any security ranking junior to the Series C Preferred Stock, the holders of shares of Series C Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders,
before any payment shall be made to the holders of Junior Stock. If upon any such Deemed Liquidation Event, the assets of the
Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they shall be entitled, the holders of the Series C Preferred stock shall share ratably in the
assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares
held by them upon such Deemed Liquidation Event if all amounts payable on or with respect to such shares were paid in full.
Conversion:
Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time,
and without the payment of additional consideration by the holder thereof, into such number of fully paid and no assessable shares
of Common Stock as is determined by dividing (i) in the case of the Series A Preferred Stock, the Series A Original Issue Price
by the Series A Conversion Price (as defined below), (ii) in the case of the Series B Preferred Stock, the Series B Original Issue
Price by the Series B Conversion Price (as defined below), and (iii) in the case of the Series C Preferred Stock, the Series C
Original Issue Price by the Series C Conversion Price (as defined below), each as in effect at the time of conversion. The “Series
A Conversion Price” shall initially be equal to $0.2197 per share, the “Series B Conversion Price” shall initially
be equal to $0.60863 per share, and the “Series C Conversion Price” shall initially be equal to $1.3035 per share.
Such initial Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, and the rate at which shares of
Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment.
Common
Stock:
During
2013, the Company issued 10,861 shares of Common Stock valued at $204 upon exercise of stock options.
During
2014, the Company issued 32,364 shares of Common Stock valued at $2,602 upon exercise of stock options.
As
of December 31, 2014 and 2013, the Company had 4,371,793 and 4,339,429 shares of Common Stock issued and outstanding.
As
of December 31, 2014 and 2013, the Company was authorized to issue 42,786,899 and 23,755,245 shares of Common stock, respectively.
Series
A Convertible Preferred Stock:
As
of December 31, 2014 and 2013, the Company had 6,822,241 shares of Series A Convertible Preferred Stock issued and outstanding.
As
of December 31, 2014 and 2013, the Company was authorized to issue 6,882,241 shares of Series A Convertible Preferred Stock.
Series
B Convertible Preferred Stock:
On
March 22, 2013, 4,107,606 shares of Series B Preferred Stock Financing (Tranche 2) were issued at $0.60863 per share with a total
amount raised of $2,500,012.
On
July 13, 2013, 359,691 shares of Series B Preferred Stock Financing (Tranche 3) were issued at $0.60863 per share with a total
amount raised of $218,919.
As
of December 31, 2014 and 2013, the Company had 9,780,073 shares of Series B Convertible Preferred stock issued and outstanding.
As
of December 31, 2014 and 2013, the Company was authorized to issue 9,780,073 shares of Series B Convertible Preferred Stock.
Series
C Convertible Preferred Stock:
On
April 4, 2014, 13,379,396 shares of Series C Preferred Stock Financing were issued at $1.3035 per share with a total amount raised
of $17,244,821 (net of financing cost of $195,237).
On
July 2, 2014, 1,847,175 shares of Series C Preferred Stock were issued at approximately $1.2380 per share per share for the conversion
of Series C convertible notes payable and accrued interest of $2,286,814.
As
of December 31, 2014 and 2013, the Company had 15,226,571 and 0 shares of Series C Convertible Preferred Stock issued and outstanding,
respectively.
As
of December 31, 2014 and 2013, the Company was authorized to issue 15,226,581 and 0 shares of Series C Convertible Preferred Stock.
2.
OPTIONS:
In
2009, the Company’s board of directors approved the Company’s 2009 Equity Incentive Plan and the reservation of shares
of common stock for issuance under such plan. The plan was approved by the Company’s shareholders on October 1, 2009.
In
2013, the Company granted 990,577 options with an exercise price of $0.19 and $0.21 per share to ten individuals.
In
2014, the Company granted 339,552 options with an exercise price of $0.21 per share to seven individuals.
The
stock option activity for the years ended December 31, 2014 and 2013 is as follows:
| | |
Options
Outstanding | | |
Weighted
Average
Exercise Price | |
| Outstanding at December 31, 2012 | |
| 614,486 | | |
$ | 0.14 | |
| Granted | |
| 990,577 | | |
| 0.20 | |
| Exercised | |
| (10,861 | ) | |
| (0.02 | ) |
| Expired or canceled | |
| (10,639 | ) | |
| (0.10 | ) |
| Outstanding at December 31, 2013 | |
| 1,583,563 | | |
| 0.18 | |
| Granted | |
| 339,552 | | |
| 0.21 | |
| Exercised | |
| (32,364 | ) | |
| (0.08 | ) |
| Expired or canceled | |
| (428,073 | ) | |
| (0.17 | ) |
| Outstanding at December 31, 2014 | |
| 1,462,678 | | |
$ | 0.30 | |
At
December 31, 2013 and 2014, 1,462,678 and 1,583,563 options to purchase the Company’s Common Stock were outstanding and
had been issued to employees and consultants of the Company under its 2009 Equity Incentive plan.
All
options were cancelled at closing on November 12, 2015 when Synergy CHC Corp acquired the Company.
3.
WARRANTS:
No
warrants were outstanding as of December 31, 2014 and 2013.
NOTE
13 - INCOME TAXES
The
Company utilizes FASBASC740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities
and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized.
The
Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.
Deferred
income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets
and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability
are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. The
Company does not have any uncertain tax positions.
The
Company’s provision for income taxes was $-0- for the years ended December 31, 2014 and December 31, 2013 since the Company
has accumulated taxable losses from operations. The total deferred tax asset is calculated by multiplying a 34% marginal tax rate
by the cumulative net operating loss (“NOL”). The Company currently has NOL carryforwards aggregating approximately
$15,805,567, which expire through 20 years through approximately 2033. The deferred tax asset related to the carryforwards has
been fully reserved.
The
Company has deferred income tax assets, which have been fully reserved, as follows as of December 31, 2014 and 2013:
| | |
December
31, 2014 | | |
December
31, 2013 | |
| Deferred tax assets | |
$ | 5,129,093 | | |
$ | 1,855,247 | |
| Valuation allowance for deferred tax assets | |
| (5,129,093 | ) | |
| (1,855,247 | ) |
| Net
deferred tax assets | |
$ | - | | |
$ | - | |
NOTE
14 - SUBSEQUENT EVENTS
In
accordance with FASB ASC 855, “Subsequent Events, the Company has evaluated subsequent events through February 11, 2016,
the date on which these financial statements were available to be issued.
Stock
Purchase Agreement with Synergy CHC Corp.
On November 12, 2015, the Company entered
into a Stock Purchase Agreement with Synergy CHC Corp. for the sale of all the issued and outstanding capital stock of the Company
for 6,000,000 shares of Synergy CHC Corp. common stock that was issued to a trust for the benefit of the sellers. In addition
to the above consideration, Synergy CHC Corp. agreed to pay a royalty to the trust equal to 5% of gross sales of UrgentRx following
the first $5,000,000 in gross sales of UrgentRx, on a quarterly basis for a period of seven years from the Closing Date. On December
17, 2015, the Company, Synergy CHC Corp. and the trust entered into a settlement and release agreement, pursuant to which 3,000,000
shares of Synergy CHC Corp. were returned by the trust to Synergy CHC Corp., the royalty term was reduced from seven years to
five years, and Synergy CHC Corp. issued to the trust a three-year warrant to purchase up to 1,000,000 shares of Synergy CHC Corp.
common stock at an exercise price of $5.00 per share.
Options
and Warrants
Subsequent
to December 31, 2014, the Company granted 1,922,356 options to employees and consultants at an exercise price of $0.43 per share.
All options were cancelled at closing on November 12, 2015 when Synergy CHC Corp acquired the Company.
Subsequent
to December 31, 2014, the Company issued 843,881 warrants to consultants at an exercise price of $0.43 per share with a performance
and service milestones.
Exhibit 99.2
Breakthrough
Products, Inc.
(A
Corporation)
Unaudited
Condensed Financial Statements
For
the nine months ended September 30, 2015 and 2014
INDEX
TO FINANCIAL STATEMENTS
BREAKTHROUGH
PRODUCTS, INC.
CONDENSED
BALANCE SHEETS
| | |
September 30, 2015 | | |
December 31, 2014 | |
| | |
(unaudited) | | |
| |
ASSETS
| |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 2,969,028 | | |
$ | 9,130,895 | |
| Accounts receivable, net | |
| 345,411 | | |
| 806,076 | |
| Inventories, net | |
| 230,201 | | |
| 1,287,684 | |
| Prepaid and other current assets | |
| 96,941 | | |
| 874,239 | |
| | |
| | | |
| | |
| Total current assets | |
| 3,641,581 | | |
| 12,098,894 | |
| | |
| | | |
| | |
| Fixed assets, net of accumulated depreciation | |
| - | | |
| 133,278 | |
| | |
| | | |
| | |
| Other assets | |
| | | |
| | |
| Deposits | |
| | | |
| 41,026 | |
| Total other assets | |
| - | | |
| 41,026 | |
| TOTAL ASSETS | |
$ | 3,641,581 | | |
$ | 12,273,198 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 2,305,390 | | |
$ | 876,558 | |
| | |
| | | |
| | |
| Total current liabilities | |
| 2,305,390 | | |
| 876,558 | |
| | |
| | | |
| | |
| Total liabilities | |
| 2,305,390 | | |
| 876,558 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| - | | |
| - | |
| | |
| | | |
| | |
| Stockholders’ Equity | |
| | | |
| | |
| Preferred Stock, $0.0001 par value, all series: 31,888,895 shares authorized; | |
| | | |
| | |
| Series A Convertible Preferred Stock, $0.0001 par value, 6,882,241 shares
designated 6,882,241 shares issued and outstanding | |
| 688 | | |
| 688 | |
| Series B Convertible Preferred Stock, $0.0001 par value, 9,780,073 shares
designated 9,780,069 shares issued and outstanding | |
| 978 | | |
| 978 | |
| Series C Convertible Preferred Stock, $0.0001 par value, 15,226,581 shares
designated 15,226,571 shares issued and outstanding | |
| 1,523 | | |
| 1,523 | |
| Common Stock, $0.0001 par value, all series: 43,000,000 and 42,786,899 shares authorized, respectively;
4,371,793 issued and outstanding | |
| 437 | | |
| 437 | |
| Additional paid-in capital | |
| 26,932,664 | | |
| 26,941,097 | |
| Accumulated deficit | |
| (25,600,099 | ) | |
| (15,548,083 | ) |
| Total stockholders’ equity | |
| 1,336,191 | | |
| 11,396,640 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 3,641,581 | | |
$ | 12,273,198 | |
See
the accompanying notes to these unaudited condensed financial statements
BREAKTHROUGH
PRODUCTS, INC.
UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS
| | |
Nine months ended September, | |
| | |
2015 | | |
2014 | |
| Revenues: | |
| | | |
| | |
| Net revenues | |
$ | 597,014 | | |
$ | 2,033,278 | |
| Cost of goods sold | |
| 1,145,571 | | |
| 641,343 | |
| Gross (loss) profit | |
| (548,557 | ) | |
| 1,391,935 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Selling and marketing | |
| 5,428,337 | | |
| 3,569,105 | |
| General and administrative | |
| 3,934,017 | | |
| 3,187,471 | |
| Depreciation and amortization | |
| 20,069 | | |
| 13,270 | |
| Total operating expenses | |
| 9,382,423 | | |
| 6,769,846 | |
| | |
| | | |
| | |
| Loss from operations | |
| (9,930,980 | ) | |
| (5,377,911 | ) |
| | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | |
| Interest income | |
| 6,805 | | |
| 13,026 | |
| Interest expense | |
| - | | |
| (75,195 | ) |
| Loss on disposal of fixed assets | |
| (127,841 | ) | |
| - | |
| Total other expenses | |
| (121,036 | ) | |
| (62,169 | ) |
| | |
| | | |
| | |
| Net loss | |
$ | (10,052,016 | ) | |
$ | (5,440,080 | ) |
| BASIC AND DILUTED – INCOME (LOSS) PER SHARE | |
$ | (2.30 | ) | |
$ | (1.25 | ) |
| | |
| | | |
| | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | |
| Basic and Diluted | |
| 4,371,793 | | |
| 4,357,211 | |
See
the accompanying notes to these unaudited condensed financial statements
BREAKTHROUGH
PRODUCTS, INC.
UNAUDITED
CONDENSED STATEMENTS OF CASH FLOWS
| | |
Nine months ended September 30, | |
| | |
2015 | | |
2014 | |
| CASH FLOWS USED IN OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (10,052,019 | ) | |
$ | (5,440,080 | ) |
| Adjustments to reconcile net profit loss to cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 20,069 | | |
| 13,270 | |
| Bad debt | |
| 71,291 | | |
| - | |
| Write off of inventory | |
| 882,000 | | |
| 2,292 | |
| Loss on disposal of fixed assets | |
| 127,840 | | |
| - | |
| | |
| | | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 389,374 | | |
| (737,035 | ) |
| Inventories | |
| 175,483 | | |
| (698,017 | ) |
| Prepaid expenses and other assets | |
| 818,323 | | |
| 22,498 | |
| Accounts payable and accrued expenses | |
| 1,428,835 | | |
| 695,015 | |
| | |
| | | |
| | |
| Net cash used in operating activities | |
| (6,138,803 | ) | |
| (6,142,057 | ) |
| | |
| | | |
| | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | |
| | | |
| | |
| | |
| | | |
| | |
| Purchases of property and equipment | |
| (14,631 | ) | |
| (142,301 | ) |
| Net cash used in investing activities | |
| (14,631 | ) | |
| (142,301 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| | |
| | | |
| | |
| Common stock exercised | |
| - | | |
| 2,602 | |
| Proceeds from Convertible Series C Preferred Stock | |
| - | | |
| 17,244,821 | |
| Legal fees Series C Preferred Stock | |
| (8,433 | ) | |
| - | |
| Net cash (used in) provided by financing activities | |
| (8,433 | ) | |
| 17,247,423 | |
| | |
| | | |
| | |
| Net (decrease) increase in cash and cash equivalents | |
| (6,161,867 | ) | |
| 10,963,065 | |
| | |
| | | |
| | |
| Cash and cash equivalents, beginning of period | |
| 9,130,895 | | |
| 2,391,695 | |
| | |
| | | |
| | |
| Cash and cash equivalents, end of period | |
$ | 2,969,028 | | |
$ | 13,354,760 | |
| | |
| | | |
| | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash paid for interest | |
$ | - | | |
$ | - | |
| Cash paid for taxes | |
$ | - | | |
$ | - | |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
| Series C Preferred stock issued for conversion of
Series C Convertible notes and accrued interest | |
$ | - | | |
$ | 2,286,814 | |
See
the accompanying notes to these unaudited condensed financial statements
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the significant accounting policies applied in the presentation of the accompanying financial statements follows:
Organization
and nature of operations
Breakthrough
Products, Inc. (the “Company”) was incorporated on July 28, 2009 in Delaware. The Company is in the business of producing,
marketing and selling Urgent Rx, a line of fast-acting, portable OTC medications in an innovative,
fast-acting flavored powder format available in convenient, single-dose, credit card-sized packets for easier portability and
accessibility.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
recognition
Revenue
is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements,
as revised by SAB No. 104. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,
the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of Company products pass
to customers upon delivery of the products to the customers. Freight billed to customers is presented as revenues, and the related
freight costs are presented as cost of goods sold.
Revenue
is presented net of estimated returns and allowances, discounts, sales incentives and promotions including, price reductions,
coupons, rebate offers and placement/slotting fees.
Cash
and cash equivalents
For
financial statement purposes, the Company considers all highly-liquid investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
Accounts
receivable - trade
Accounts
receivable are stated net of allowances for possible bad debt and future chargebacks. Management estimates these possible losses
based on payment history of specific customers having specific balances, and establishes an allowance for the remaining accounts
receivable based on historical experience. Accounts are written off after all reasonable collection efforts have been exhausted
and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for
doubtful accounts. The Company’s policy is to extend credit to customers that management has determined to be credit worthy.
Trade
accounts receivable and the allowance as of September 30, 2015 and December 31, 2014 were as follows:
| | |
9/30/2015 | | |
12/31/2014 | |
| Trade accounts receivable | |
$ | 416,702 | | |
$ | 806,076 | |
| Allowance | |
| (71,291 | ) | |
| - | |
| Trade accounts receivable, net | |
$ | 345,411 | | |
$ | 806,076 | |
During
the nine months ended September 30, 2015 and 2014, the Company charged to operations bad debts expense of $71,291 and $0 respectively.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
Fixed
assets
Fixed
assets are carried at cost less accumulated depreciation. The Company capitalizes expenditures related to property and equipment,
subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are
replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions,
replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs,
including any planned major maintenance activities, are expensed as incurred. The costs of assets sold, retired, or otherwise
disposed of, and the related accumulated depreciation, are eliminated from the accounts, and any resulting gain or loss is reflected
in income.
Depreciation
is recorded on a straight-line basis over the estimated useful lives of the respective assets as follows:
| Computer
equipment and software |
3-5
years |
| Office
equipment |
7
years |
Advertising
The
Company expenses advertising costs as they are incurred. Advertising expenses amounted to $3,811,498 and $3,548,425 for the nine
months ended September 30, 2015 and 2014, respectively. Advertising consists of the following items: Media, Social Media, Creative
graphic design and production, Market research, In show Integration (Ellen and The Doctor’s), Strategic Partnerships, Public
Relations, Trade shows, Packaging design, Marketing coupons and Website.
Income
taxes
The
Company utilizes Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected
to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax
asset will not be realized.
The
Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.
Inventory
Inventory
consists of raw materials, components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost
basis) or market.
Research
and Development
Costs
incurred in connection with the research and development of new products and processing methods are charged to general and administrative
expenses as incurred.
Shipping
costs
Shipping
costs are the costs associated with all inbound inventory received and outbound freight on product sold and are included in cost
of goods sold.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
Stock-Based
Compensation
The
Company has adopted the provisions of ASC 718. The Company estimates the fair value of stock options using a binomial model, consistent
with the provisions of ASC 718 and SEC SAB No. 107, Share-Based Payment. Option-pricing models require the input of highly subjective
assumptions, including the price volatility of the underlying stock. The Company determined that the use of implied volatility
is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of
the Company’s stock’s expected volatility than historical volatility. The expected term assumption used in calculating
the estimated fair value of the Company’s stock-based compensation awards using the binomial model is based on detailed
historical data about employees’ exercise behavior, vesting schedules, and death and disability probabilities. In addition,
the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest.
The Company estimates the forfeiture rate based on historical experience of its stock-based awards that are granted, exercised
and cancelled. The Company believes the resulting binomial calculation provides a more refined estimate of the fair value of our
employee stock options.
Warehousing
costs
Warehouse
costs include all third party warehouse rent fees for The Hibbert Group (THG) and any additional costs relating to assembly or
special pack-outs of Company products are charged to general and administrative expenses as incurred.
Product
display costs
All
displays manufactured and purchased by the Company for placement of product in retail stores. This also includes all costs for
display execution and setup and retail services are charged to general and administrative expenses as incurred.
Convertible
notes payable
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional
standards for “Accounting for Derivative Instruments and Hedging Activities.” Professional standards generally provide
three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them
as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be
conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument.”
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with
Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.”
Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary
deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note.
ASC
815-40 provides that, among other things, generally, if an event is not within the entity’s control or could require net
cash settlement, then the contract shall be classified as an asset or a liability.
Organizational
costs
Organizational
costs recorded in 2010 related to the Company’s formation. These costs were fully amortized during fiscal period 2014.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
Diluted
shares
There
were 63,754,846 and 60,699,160 outstanding common share equivalents at September 30, 2015 and 2014, respectively.
| | |
September
30, 2015 | | |
September
30, 2014 | |
| Series A Convertible Preferred Stock | |
| 31,325,630 | | |
| 31,325,630 | |
| Series B Convertible Preferred Stock | |
| 16,068,996 | | |
| 16,068,996 | |
| Series C Convertible Preferred Stock | |
| 11,681,305 | | |
| 11,681,305 | |
| Options | |
| 3,835,034 | | |
| 1,623,229 | |
| Warrants | |
| 843,881 | | |
| - | |
| Total | |
| 63,754,846 | | |
| 60,699,160 | |
Recent
accounting pronouncements
ASU
2015-03
In
April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest - Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. The amendments in this ASU require that debt issuance
costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount
of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not
affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis,
wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the
new guidance. The Company is evaluating the possible effect of this guidance on its financial statements.
ASU
2015-02
In
February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”,
which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited
liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed
security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate
whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to
two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis
on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party
guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation
conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted,
including adoption in an interim period. The Company does not expect the adoption of ASU 2015-02 to have a material effect on
its financial position, results of operations or cash flows.
ASU
2015-01
In
January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the
concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. A reporting entity may apply the amendments prospectively. The Company does not expect the adoption of
ASU 2015-01 to have a material effect on its financial position, results of operations or cash flows.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
ASU
2014-17
In
November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU
provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of
an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown
accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual
change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17
did not have any effect on the Company’s financial position, results of operations or cash flows.
ASU
2014-16
In
November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the
host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does
not currently have issued, nor is it an investor in, hybrid financial instruments. Accordingly, The Company does not expect the
adoption of ASU 2014-16 to have any effect on its financial position, results of operations or cash flows.
ASU
2014-15
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”.
ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective
for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted.
The Company does not expect the adoption of ASU 2014-15 to have a material effect on its financial position, results of operations
or cash flows.
ASU
2014-12
In
June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.”
This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. The Company does not expect the adoption of ASU 2014-12 to have a material effect on its financial
position, results of operations or cash flows.
ASU
2014-09
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects
any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts
or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. The Company is still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted
to propose to defer the effective date of the new revenue recognition standard by one year.
ASU
2014-08
In
April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU
2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending
the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any
effect on the Company’s financial position, results of operations or cash flows.
There
were various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations
or cash flows.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
NOTE
2 - CONCENTRATION OF CREDIT RISK
Cash
and cash equivalents
The
Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts
that at times may be in excess of the federally insured limit of $250,000. The Company minimizes this risk by placing its cash
deposits with major financial institutions. At September 30, 2015 and 2014, the uninsured balances amounted to approximately $2,719,028
and $12,854,760 respectively.
Accounts
receivable
As
of September 30, 2015, four customers accounted for 77% of the Company’s accounts receivable. As of December 31, 2014, four
customers accounted for 72% of the Company’s accounts receivable.
Major
customers
For
the nine months ended September 30, 2015, six customers accounted for approximately 70% of the Company’s gross revenues.
For the nine months ended September 30, 2014, four customers accounted for approximately 80% of the Company’s gross revenues.
Substantially all of the Company’s business is with companies in the United States.
Major
supplier
For
the nine months ended September 30, 2015 and 2014, the Company’s products were manufactured by two suppliers located in
New Paltz, New York and Ogden, Utah. It is the opinion of management that the product can be produced by other manufacturers and
the choice to utilize these suppliers is not a significant concentration.
NOTE
3 - INVENTORY
Inventory
consists of raw materials, components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost
basis) or market.
The
carrying value of inventory consisted of the following:
| | |
9/30/2015 | | |
12/31/2014 | |
| Raw Materials | |
$ | 239,751 | | |
$ | 42,598 | |
| Finished goods | |
| 872,450 | | |
| 1,245,086 | |
| Allowance for obsolete inventory | |
| (882,000 | ) | |
| - | |
| | |
$ | 230,201 | | |
$ | 1,287,684 | |
During
the nine months ended September 30, 2015 and 2014, the Company wrote-off inventory worth of $882,000 and $2,292, respectively.
In 2014, the Company recognized a gain of $7,919 on the disposal of inventory.
NOTE
4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
At
September 30, 2015 and December 31, 2014, prepaid expenses consisted of the following:
| | |
9/30/2015 | | |
12/31/2014 | |
| Prepaid insurance | |
$ | 59,634 | | |
$ | 42,025 | |
| Displays | |
| - | | |
| 45,105 | |
| Media | |
| - | | |
| 747,783 | |
| Legal | |
| - | | |
| 5,565 | |
| Rent and parking | |
| 650 | | |
| 13,386 | |
| Services | |
| - | | |
| 5,456 | |
| Entertainment | |
| 19,284 | | |
| - | |
| Deposits | |
| 8,248 | | |
| 5,492 | |
| Conventions | |
| 9,125 | | |
| 9,427 | |
| Total | |
$ | 96,941 | | |
$ | 874,239 | |
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
NOTE
5 - FIXED ASSETS
At
September 30, 2015 and December 31, 2014, fixed assets consisted of the following:
| | |
9/30/2015 | | |
12/31/2014 | |
| Office furniture equipment | |
$ | - | | |
$ | 188,569 | |
| | |
| - | | |
| 188,569 | |
| Less: accumulated depreciation | |
| - | | |
| (55,291 | ) |
| Fixed assets, net | |
$ | - | | |
$ | 133,278 | |
Depreciation
expense for the nine months ended September 30, 2015 and 2014, amounted to $20,069 and $11,839, respectively. In 2015, the Company
recognized a loss of $127,840 on the disposal of all assets.
NOTE
6 - ORGANIZATIONAL EXPENSES
At
September 30, 2015 and December 31, 2014, organizational expenses consisted of the following:
| | |
9/30/2015 | | |
12/31/2014 | |
| Organizational Expenses | |
$ | - | | |
$ | 28,606 | |
| | |
| - | | |
| 28,606 | |
| Less: accumulated amortization | |
| - | | |
| (28,606 | ) |
| Organizational Expenses, net | |
$ | - | | |
$ | - | |
Amortization
expense for the nine months ended September 30, 2015 and 2014, amounted to $0 and $1,430, respectively.
NOTE
7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of September 30, 2015 and December 31, 2014, accounts payable and accrued liabilities consisted of the following:
| | |
9/30/2015 | | |
12/31/2014 | |
| Accounts payable | |
$ | 632,561 | | |
$ | - | |
| Accrued expenses | |
| 1,652,762 | | |
| 863,064 | |
| Accrued vacation | |
| 20,067 | | |
| 13,494 | |
| Total | |
$ | 2,305,390 | | |
$ | 876,558 | |
NOTE
8 - CONVERTIBLE NOTES
On
July 2, 2014, these notes along with accrued interest of $75,195 were converted into 1,847,175 shares of Series C Preferred stock
at a conversion price of $1.2380 per share.
NOTE
9 - STOCKHOLDERS’ EQUITY AND OPTIONS
1.
STOCKHOLDERS’ EQUITY:
Certificate
of Incorporation and its Amendments:
As
per the Third Amended and Restated Certificate of Incorporation filed with the Secretary of State on June 17, 2014, the total
number of shares of all classes of stock which the Company shall have authority to issue is 74,675,794 shares, of which (i) 42,786,899
shares have been designated common stock, par value $0.0001 per share (“Common Stock”), and (ii) 31,888,895 shares
have been designated preferred stock, par value $0.0001 per share (“Preferred Stock”).
Of
the total 31,888,885 authorized Preferred Stock, 6,882,241 shares of the authorized Preferred Stock are designated “Series
A Preferred Stock”, 9,780,073 shares of the authorized Preferred Stock are designated “Series B Preferred Stock”
and 15,226,581 shares of the authorized Preferred Stock were hereby designated “Series C Preferred Stock”, each with
the following rights, preferences, powers, privileges and restrictions, qualifications and limitations:
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
Voting:
On any matter presented to the stockholders of the corporation for their action or consideration at any meeting of the Company,
each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole
shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate
of Incorporation, holders of preferred stock shall vote together with the holders of Common Stock as a single class.
Dividend:
The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the
Company (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining
of any consents required elsewhere in the Certificate of Incorporation) each of the holders of the Preferred Stock then outstanding
shall first receive a dividend, on each outstanding share of Preferred Stock, in an amount equal to eight percent (8%) of the
Series A Original Issue Price, the Series B Original Issue Price, or the Series C Original Issue Price, as the case may be, per
share per annum. Thereafter, any additional dividend shall be payable on a pro rata basis to the holders of Common Stock and Preferred
Stock (assuming the conversion of Preferred Stock into Common Stock .at the then current Series A Conversion Price, Series B Conversion
Price, or Series C Conversion Price (each as defined below)). The foregoing dividend shall not be cumulative and shall be. payable
only if, when and as declared by the Board of Directors. The “Series A Original Issue Price” shall mean $0.2197 per
share; the “Series B Original Issue Price” shall mean $0.60863 per share; and the “Series C Original Issue Price”
shall mean $1.3035 per share, in each case subject to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization with respect to the Preferred Stock.
Liquidation:
In the event of a Deemed Liquidation Event and in preference to the holders of Series A Preferred Stock, Series B Preferred
Stock and Common Stock or any security ranking junior to the Series C Preferred Stock, the holders of shares of Series C Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the corporation available for distribution to its stockholders,
before any payment shall be made to the holders of Junior Stock. If upon any such Deemed Liquidation Event, the assets of the
Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they shall be entitled, the holders of the Series C Preferred Stock shall share ratably in the
assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares
held by them upon such Deemed Liquidation Event if all amounts payable on or with respect to such shares were paid in full.
Conversion:
Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time,
and without the payment of additional consideration by the holder thereof, into such number of fully paid and no assessable shares
of Common Stock as is determined by dividing (i) in the case of the Series A Preferred Stock, the Series A Original Issue Price
by the Series A Conversion Price (as defined below), (ii) in the case of the Series B Preferred Stock, the Series B Original Issue
Price by the Series B Conversion Price (as defined below), and (iii) in the case of the Series C Preferred Stock, the Series C
Original Issue Price by the Series C Conversion Price (as defined below), each as in effect at the time of conversion. The “Series
A Conversion Price” shall initially be equal to $0.2197 per share, the “Series B Conversion Price” shall initially
be equal to $0.60863 per share, and the “Series C Conversion Price” shall initially be equal to $1.3035 per share.
Such initial Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, and the rate at which shares of
Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment.
Common
Stock:
During
the nine months ended September 30, 2014, the Company issued 32,364 shares of common stock valued at $2,602 upon exercise of stock
options.
As
of September 30, 2015 and December 31, 2014, the Company had 4,371,793 shares of common stock issued and outstanding.
As
of September, 30, 2015 and December 31, 2014, the Company was authorized to issue 43,000,000 and 42,786,899 shares of common stock,
respectively.
Series
A Convertible Preferred Stock:
As
of September 30, 2015 and December 31, 2014, the Company had 6,822,241 shares of Series A Convertible Preferred stock issued and
outstanding.
As
of September 30, 2015 and December 31, 2014, the Company was authorized to issue 6,882,241 shares of Series A Convertible Preferred
Stock.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
Series
B Convertible Preferred Stock:
As
of September 30, 2015 and December 31, 2014, the Company had 9,780,073 shares of Series B Convertible Preferred stock issued and
outstanding.
As
of September 30, 2015 and December 31, 2014, the Company was authorized to issue 9,780,073 shares of Series B Convertible Preferred
Stock.
Series
C Convertible Preferred Stock:
On
April 4, 2014, 13,379,396 shares of Series C Preferred Stock were issued at $1.3035 per share with a total amount raised of $17,244,821
(net of financing cost of $195,237).
On
July 2, 2014, 1,847,175 shares of Series C Preferred Stock were issued at approximately $1.2380 per share per share or the conversion
of Series C convertible notes payable and accrued interest $2,286,814.
As
of September 30, 2015 and December 31, 2014, the Company had 15,226,581 shares of Series C Convertible Preferred Stock issued
and outstanding, respectively.
As
of September 30, 2015 and December 31, 2014, the Company was authorized to issue 15,226,581 shares of Series C Convertible Preferred
Stock.
2.
OPTIONS:
In
2009, the Company’s board of directors approved the Company’s 2009 Equity Incentive Plan and the reservation of shares
of common stock for issuance under the plan. The plan was approved by the Company’s shareholders on October 1, 2009.
During
the nine months ended September 30, 2015, the Company granted 1,922,356 options with an exercise price of $0.43 per share to seven
individuals.
At
September 30, 2015, 3,385,034 shares of the Company’s common stock were issuable pursuant to options granted to employees
and consultants of the Company under the 2009 Equity Incentive Plan.
The
stock option activity for the period ended September 30, 2015 is as follows:
| | |
Options
Outstanding | | |
Weighted
Average
Exercise Price | |
| Outstanding at December 31, 2014 | |
| 1,462,678 | | |
$ | 0.30 | |
| Granted | |
| 1,922,356 | | |
| 0.43 | |
| Exercised | |
| - | | |
| - | |
| Expired or canceled | |
| - | | |
| - | |
| Outstanding at September 30, 2015 | |
| 3,385,034 | | |
$ | 0.37 | |
All
options were cancelled at closing on November 12, 2015 when Synergy CHC Corp acquired the Company.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
3.
WARRANTS:
| | |
Warrants
Outstanding | | |
Weighted
Average
Exercise Price | |
| Outstanding at December 31, 2014 | |
| - | | |
$ | - | |
| Granted | |
| 843,881 | | |
| 0.43 | |
| Exercised | |
| - | | |
| - | |
| Expired or canceled | |
| - | | |
| - | |
| Outstanding at September 30, 2015 | |
| 843,881 | | |
$ | 0.43 | |
As
of September 30, 2015, there were 843,881 warrants issued and outstanding. At the end of 2014, there were no outstanding warrants.
NOTE
10 - RELATED PARTY TRANSACTIONS
During
2015 and 2014, a material shareholder, Jordan Eisenberg, was the Chief Executive Officer of the Company. During the nine months
ended September 30, 2015 and 2014, the Company paid him compensation of $187,500 and $162,500, respectively.
NOTE
11 - COMMITMENTS AND CONTINGENCIES
Operating
leases
In
April 2014, the Company entered into an extension of a non-cancellable operating lease for office space that expires on March
31, 2017. From October 18, 2012 through December 31, 2014, the Company had the same operating lease, with an addition of additional
office space that was added with the renewal in April 2014. Rent expense under these leases for the nine months ended September
30, 2015 and 2014 was $68,876 and $64,134, respectively.
The
following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of September 30, 2015:
| Year ending December 31: | | |
| |
| 2015 | | |
$ | 27,119 | |
| 2016 | | |
| 108,476 | |
| 2017 | | |
| 27,294 | |
| Total | | |
$ | 162,889 | |
On
December 8, 2014, the Company entered into a non-cancellable 36 month phone lease with an estimated cost of $894 a month.
The
following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of September 30, 2015:
| Year ending December 31: | | |
| |
| 2015 | | |
$ | 2,682 | |
| 2016 | | |
| 10,728 | |
| 2017 | | |
| 9,834 | |
| Total | | |
$ | 23,244 | |
Litigation
and claims
Certain
conditions may exist as of the date of the financial statements are issued that may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel
asses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of the amount of relief sought or expected to be sought therein.
BREAKTHROUGH
PRODUCTS, INC.
NOTES
TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015 AND 2014
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but is reasonably probable, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material,
would be disclosed.
Management
believes that there are no current legal matters that would have a material effect on the Company’s financial position or
results of operations.
NOTE
12 - GOING CONCERN
The
Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had
an accumulated deficit at September 30, 2015 and December 31, 2014 of $25,600,099 and $15,548,083, respectively.
The
ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating
losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could
be forced to cease operations.
In
order to continue as a going concern and to develop a reliable source of revenues, and achieve a profitable level of operations
the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern
include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
NOTE
13 - SUBSEQUENT EVENTS
In
accordance with FASB ASC 855, “Subsequent Events”, the Company has evaluated subsequent events through February 11,
2016, the date on which these financial statements were available to be issued.
On November 12, 2015, the Company entered
into a Stock Purchase Agreement with Synergy CHC Corp. for the sale of all the issued and outstanding capital stock of the Company
for 6,000,000 shares of Synergy CHC Corp. common stock that was issued to a trust for the benefit of the sellers. In addition
to the above consideration, Synergy CHC Corp. agreed to pay a royalty to the trust equal to 5% of gross sales of UrgentRx following
the first $5,000,000 in gross sales of UrgentRx, on a quarterly basis for a period of seven years from the Closing Date. On December
17, 2015, the Company, Synergy CHC Corp. and the trust entered into a settlement and release agreement, pursuant to which 3,000,000
shares of Synergy CHC Corp. were returned by the trust to Synergy CHC Corp., the royalty term was reduced from seven years to
five years, and Synergy CHC Corp. issued to the trust a three-year warrant to purchase up to 1,000,000 shares of Synergy CHC Corp.
common stock at an exercise price of $5.00 per share.
Exhibit
99.3
PRO
FORMA FINANCIAL INFORMATION
| |
● |
Condensed
Consolidated Pro Forma Unaudited Balance Sheet as of September 30, 2015 |
| |
|
|
| |
● |
Condensed
Consolidated Pro Forma Unaudited Statement of Operations for the Year Ended December 31, 2014 |
| |
|
|
| |
● |
Condensed
Consolidated Pro Forma Unaudited Statement of Operations for the Nine Months Ended September 30, 2015 |
| |
|
|
| |
● |
Notes
to Condensed Consolidated Pro Forma Unaudited Financial Statements |
On
November 12, 2015, Synergy CHC Corp. (“Synergy” or “the Company”) acquired Breakthrough Products, Inc.
(“Breakthrough”) a distributor and producer of Urgent Rx (the “Acquisition”).
The
unaudited condensed combined pro forma statements of operations are presented as if the Acquisition had been completed on January
1, 2014 combining Breakthrough’s audited condensed statement of operations for the year ended December 31, 2014 and the
Company’s audited condensed statement of operations for the year ended December 31, 2014. The unaudited condensed combined
pro forma balance sheet gives effect to the acquisition as if the Acquisition had taken place on September 30, 2015 and combines
Breakthrough’s unaudited condensed balance sheet as of September 30, 2015 with the Company’s unaudited condensed balance
sheet as of September 30, 2015.
The
unaudited pro forma combined statement of income is presented for illustrative purposes only and, therefore, is not necessarily
indicative of the operating results that might have been achieved had the transaction occurred as of an earlier date, nor is it
necessarily indicative of the operating results that may be achieved in the future. You should not rely on the pro forma condensed
combined financial information as being indicative of the historical results that would have been achieved had the companies always
been combined or the future results that the combined companies will experience after the Acquisition.
The
unaudited pro forma combined statement of operations including the notes thereto, should be read in conjunction with the Company’s
audited historical consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form
10-K for the year ended December 31, 2014, as well as Breakthrough’s audited financial statements for the year ended December
31, 2014 and unaudited condensed financial statements for the nine months ended September 30, 2015 and 2014 included in Exhibit
99.1 to this Form 8-K/A.
Synergy
CHC Corp.
Unaudited
Pro Forma Balance Sheet
September
30, 2015
| |
Balance Sheet
Synergy CHC Corp.
September 30, 2015 | | |
Balance Sheet
Breakthrough
Products, Inc.
September 30, 2015 | | |
Pro Forma Adjustments | | |
Balance Sheet
Consolidated Pro
Forma
September 30, 2015 | |
| |
| | |
| | |
Dr | | |
Cr | | |
| |
| Assets |
| | | |
| | | |
| | | |
| | | |
| | |
| Current Assets |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents |
$ | 824,948 | | |
$ | 2,969,028 | | |
| | | |
| | | |
$ | 3,793,976 | |
| Accounts receivable |
| 1,327,154 | | |
| 345,411 | | |
| | | |
| | | |
| 1,672,565 | |
| Receivable from related party |
| 175,422 | | |
| | | |
| | | |
| | | |
| 175,422 | |
| Inventory |
| 499,448 | | |
| 230,201 | | |
| | | |
| | | |
| 729,649 | |
| Prepaid expenses |
| 122,576 | | |
| 96,941 | | |
| | | |
| | | |
| 219,517 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Total current assets |
| 2,949,548 | | |
| 3,641,581 | | |
| | | |
| | | |
| 6,591,129 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Other assets |
| | | |
| | | |
| | | |
| | | |
| | |
| Fixed assets, net |
| 3,614 | | |
| | | |
| | | |
| | | |
| 3,614 | |
| Investment in Hand MD Corp. |
| 1,500,000 | | |
| | | |
| | | |
| | | |
| 1,500,000 | |
| Goodwill |
| 2,935,383 | | |
| | | |
| 2,380,411 | (1) | |
| | | |
| 5,315,794 | |
| Intangible assets, net |
| 2,759,201 | | |
| | | |
| | | |
| | | |
| 2,759,201 | |
| Debt issuance cost, net |
| 198,429 | | |
| | | |
| | | |
| | | |
| 198,429 | |
| Total other assets |
| 7,396,627 | | |
| 0 | | |
| | | |
| | | |
| 9,796,627 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Total Assets |
$ | 10,346,175 | | |
$ | 3,641,581 | | |
| | | |
| | | |
$ | 16,368,167 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Liabilities and Stockholders’ Equity |
| | | |
| | | |
| | | |
| | | |
| | |
| Current liabilities |
| | | |
| | | |
| | | |
| | | |
| | |
| Accounts payable and accrued liabilities |
$ | 1,653,296 | | |
$ | 2,305,390 | | |
| | | |
| | | |
$ | 3,958,686 | |
| Current portion of long-term debt |
| 750,000 | | |
| | | |
| | | |
| | | |
| 750,000 | |
| Current portion of long-term debt, related party |
| 300,000 | | |
| - | | |
| | | |
| | | |
| 300,000 | |
| Total current liabilities |
| 2,703,296 | | |
| 2,305,390 | | |
| | | |
| | | |
| 5,008,686 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Long-term liabilities |
| | | |
| | | |
| | | |
| | | |
| | |
| Note payable |
| 750,000 | | |
| | | |
| | | |
| | | |
| 750,000 | |
| Note payable, net of debt discount, related party |
| 5,047,178 | | |
| | | |
| | | |
| | | |
| 5,047,178 | |
| Total long-term liabilities |
| 5,797,178 | | |
| | | |
| | | |
| | | |
| 5,797,178 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Total Liabilities |
| 8,500,474 | | |
| 2,305,390 | | |
| | | |
| | | |
| 10,805,864 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Stockholders’ Equity |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock, $0.0001 par value; 6,882,241shares authorized and outstanding |
| | | |
| 688 | | |
| 688 | (2) | |
| | | |
| 0 | |
| Preferred stock, $0.0001 par value; 9,780,073 shares authorized and outstanding |
| | | |
| 978 | | |
| 978 | (2) | |
| | | |
| 0 | |
| Preferred stock, $0.0001 par value; 15,226,581 shares authorized and outstanding |
| | | |
| 1523 | | |
| 1523 | (2) | |
| | | |
| 0 | |
| Common stock, $0.00001 par value; 300,000,000 shares authorized; 69,238,044
shares issued and outstanding |
| 692 | | |
| - | | |
| | | |
| 30 | (1) | |
| 722 | |
| Common stock, $0.00001 par value; 42,786,899 shares authorized, 4,371,793 outstanding |
| | | |
| 437 | | |
| 437 | (2) | |
| | | |
| 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock to be issued |
| 68,000 | | |
| - | | |
| | | |
| | | |
| 68,000 | |
| Additional paid in capital |
| 5,882,448 | | |
| 26,932,664 | | |
| | | |
| 1,949,970 | (1) | |
| 9,599,020 | |
| |
| | | |
| | | |
| | | |
| 430,411 | (1) | |
| | |
| |
| | | |
| | | |
| 26,932,664 | | |
| 1,336,191 | (2) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Accumulated (deficit) |
| (4,105,439 | ) | |
| (25,600,099 | ) | |
| | | |
| 25,600,099 | (2) | |
| (4,105,439 | ) |
| Total stockholders’ equity |
| 1,845,701 | | |
| 1,336,191 | | |
| | | |
| | | |
| 5,562,303 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| Total liabilities and stockholders’ equity |
$ | 10,346,175 | | |
$ | 3,641,581 | | |
| | | |
| | | |
$ | 16,368,167 | |
| (1)
|
To
record the issuance of 3,000,000 shares and warrants in connection with the acquisition of Breakthrough Products, Inc. |
| |
|
| (2)
|
To
elimiate the equity section of Breakthrough Products, Inc. as of September 30, 2015 |
Synergy
CHC Corp.
Unaudited
Pro Statement of Operations
September
30, 2015
| | |
Synergy CHC Corp.
Nine months ended
September 30, 2015 | | |
Breakthrough
Products, Inc.
Nine months ended
September 30, 2015 | | |
Pro Forma
Adjustments | | |
Consolidated
Pro Forma
Nine months ended
September 30, 2015 | |
| | |
| | |
| | |
| | |
| |
| Revenue, Less returns, allowances and discounts | |
$ | 3,181,623 | | |
$ | 597,014 | | |
| | | |
$ | 3,778,637 | |
| Cost of sales | |
| 1,469,910 | | |
| 1,145,571 | | |
| | | |
| 2,615,481 | |
| Gross profit (loss) | |
| 1,711,713 | | |
| (548,557 | ) | |
| | | |
| 1,163,156 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Selling and marketing | |
| 814,640 | | |
| 5,428,337 | | |
| | | |
| 6,242,977 | |
| General and administrative | |
| 706,806 | | |
| 3,934,017 | | |
| | | |
| 4,640,823 | |
| Depreciation and amortization | |
| 103,103 | | |
| 20,069 | | |
| | | |
| 123,172 | |
| Total operating expenses | |
| 1,624,549 | | |
| 9,382,423 | | |
| | | |
| 11,006,972 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income (loss) from operations | |
| 87,164 | | |
| (9,930,980 | ) | |
| | | |
| (9,843,816 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expenses) | |
| - | | |
| | | |
| | | |
| - | |
| Interest expense | |
| (212,904 | ) | |
| - | | |
| | | |
| (212,904 | ) |
| Interest income | |
| | | |
| 6,805 | | |
| | | |
| 6,805 | |
| Amortization of debt discount | |
| (304,117 | ) | |
| - | | |
| | | |
| (304,117 | ) |
| Amortization of debt issuance cost | |
| (37,753 | ) | |
| - | | |
| | | |
| (37,753 | ) |
| Loss on disposal of assets | |
| | | |
| (127,841 | ) | |
| | | |
| (127,841 | ) |
| Total other expenses | |
| (554,774 | ) | |
| (121,036 | ) | |
| | | |
| (675,810 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
$ | (467,610 | ) | |
$ | (10,052,016 | ) | |
| | | |
$ | (10,519,626 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss per share - basic and diluted | |
$ | (0.01 | ) | |
$ | (2.30 | ) | |
| | | |
$ | (0.15 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares - basic | |
| | | |
| | | |
| | | |
| | |
| and diluted | |
| 68,096,740 | | |
| 4,371,793 | | |
| | | |
| 68,096,740 | |
Synergy
CHC Corp.
Unaudited
Pro Forma Balance Sheet
December 31, 2014
| |
|
Balance
Sheet
Synergy CHC Corp.
December 31, 2014 |
|
|
Balance
Sheet
Breakthrough
Products, Inc.
December 31, 2014 |
|
|
Pro
Forma Adjustments |
|
|
Balance
Sheet
Consolidated
Pro Forma
December 31, 2014 |
|
| |
|
|
|
|
|
|
|
Dr |
|
|
Cr |
|
|
|
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
338 |
|
|
$ |
9,130,895 |
|
|
|
|
|
|
|
|
|
$ |
9,131,233 |
|
| Accounts
receivable |
|
|
2,897 |
|
|
|
806,076 |
|
|
|
|
|
|
|
|
|
|
808,973 |
|
| Receivable
from related party |
|
|
16,077 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
16,077 |
|
| Inventory |
|
|
26,064 |
|
|
|
1,287,684 |
|
|
|
|
|
|
|
|
|
|
1,313,748 |
|
| Prepaid
expenses |
|
|
10,000 |
|
|
|
874,239 |
|
|
|
|
|
|
|
|
|
|
884,239 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
55,376 |
|
|
|
12,098,894 |
|
|
|
|
|
|
|
|
|
|
12,154,270 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed
assets, net |
|
|
|
|
|
|
133,278 |
|
|
|
|
|
|
|
|
|
|
133,278 |
|
| Goodwill |
|
|
|
|
|
|
|
|
|
|
2,380,411 |
(1) |
|
|
|
|
|
2,380,411 |
|
| Deposits |
|
|
|
|
|
|
41,026 |
|
|
|
|
|
|
|
|
|
|
41,026 |
|
| Total
other assets |
|
|
- |
|
|
|
174,304 |
|
|
|
|
|
|
|
|
|
|
2,574,304 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
Assets |
|
$ |
55,376 |
|
|
$ |
12,273,198 |
|
|
|
|
|
|
|
|
|
$ |
14,708,985 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities
and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts
payable and accrued liabilities |
|
$ |
74,642 |
|
|
$ |
876,558 |
|
|
|
|
|
|
|
|
|
$ |
951,200 |
|
| Current
portion of long-term debt |
|
|
6,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,400 |
|
| Current
portion of long-term debt, related party |
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
| Total
current liabilities |
|
|
181,042 |
|
|
|
876,558 |
|
|
|
|
|
|
|
|
|
|
1,057,600 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
Liabilities |
|
|
181,042 |
|
|
|
876,558 |
|
|
|
|
|
|
|
|
|
|
1,057,600 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred
stock, $0.0001 par value; 6,882,241shares authorized and outstanding |
|
|
|
|
|
|
688 |
|
|
|
688 |
(2) |
|
|
|
|
|
0 |
|
| Preferred
stock, $0.0001 par value; 9,780,073 shares authorized and outstanding |
|
|
|
|
|
|
978 |
|
|
|
978 |
(2) |
|
|
|
|
|
0 |
|
| Preferred
stock, $0.0001 par value; 15,226,581 shares authorized and outstanding |
|
|
|
|
|
|
1523 |
|
|
|
1523 |
(2) |
|
|
|
|
|
0 |
|
| Common
stock, $0.00001 par value; 75,000,000 shares authorized, 62100000 shares issued and outstanding |
|
|
|
|
|
|
437 |
|
|
|
437 |
(2) |
|
|
|
|
|
0 |
|
| Common
stock, $0.00001 par value; 75,000,000 shares authorized, 62100000 shares issued and outstanding |
|
|
621 |
|
|
|
- |
|
|
|
|
|
|
|
30 |
(1) |
|
651 |
|
| Common
stock to be issued |
|
|
40,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
40,000 |
|
| Additional
paid in capital |
|
|
867,004 |
|
|
|
26,941,097 |
|
|
|
|
|
|
|
1,949,970 |
(1) |
|
14,644,025 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,411 |
(1) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
26,941,097 |
(2) |
|
|
11,396,640 |
(2) |
|
|
|
| Accumulated
(deficit) |
|
|
(1,033,291 |
) |
|
|
(15,548,083 |
) |
|
|
|
|
|
|
15,548,083 |
(2) |
|
(1,033,291) |
|
| Total
stockholders’ equity |
|
|
(125,666 |
) |
|
|
11,396,640 |
|
|
|
|
|
|
|
|
|
|
13,651,385 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
liabilities and stockholders’ equity |
|
$ |
55,376 |
|
|
$ |
12,273,198 |
|
|
|
|
|
|
|
|
|
$ |
14,708,985 |
|
(1) To record the
issuance of 3,000,000 shares and warrants in connection with the acquisition of Breakthrough Products, Inc.
(2) To elimiate the equity section of Breakthrough
Products, Inc. as of December 31, 2014
Synergy
CHC Corp.
Unaudited
Pro Statement of Operations
Twelve months ended December
31, 2014
| | |
Synergy CHC Corp.
Twelve months
ended
December 31, 2014 | | |
Breakthrough
Products, Inc.
Twelve months
ended
December 31, 2014 | | |
Pro Forma Adjustments | | |
Consolidated Pro
Forma Twelve
months ended
December 31, 2014 | |
| ` | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| |
| Revenue less: returns, allowances and discounts | |
$ | 9,158 | | |
| 2,713,130 | | |
| | | |
$ | 2,722,288 | |
| Cost of sales | |
| 5,616 | | |
| 1,573,285 | | |
| | | |
| 1,578,901 | |
| Gross profit | |
| 3,542 | | |
| 1,139,845 | | |
| | | |
| 1,143,387 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Selling and marketing | |
| | | |
| 5,111,184 | | |
| | | |
| 5,111,184 | |
| Payroll and employee benefits | |
| | | |
| 2,574,353 | | |
| | | |
| 2,574,353 | |
| General and administrative | |
| 961,636 | | |
| 1,294,674 | | |
| | | |
| 2,256,310 | |
| Research and development | |
| | | |
| 131,287 | | |
| | | |
| 131,287 | |
| Warehousing costs | |
| | | |
| 530,448 | | |
| | | |
| 530,448 | |
| Depreciation and amortization | |
| | | |
| 72,777 | | |
| | | |
| 72,777 | |
| Product display costs | |
| | | |
| 1,028,406 | | |
| | | |
| 1,028,406 | |
| Total operating expenses | |
| 961,636 | | |
| 10,743,129 | | |
| | | |
| 11,704,765 | |
| | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (958,094 | ) | |
| (9,603,284 | ) | |
| | | |
| (10,561,378 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expenses) | |
| - | | |
| | | |
| | | |
| - | |
| Interest expense | |
| (1,998 | ) | |
| (75,195 | ) | |
| | | |
| (77,193 | ) |
| Interest income | |
| | | |
| 17,241 | | |
| | | |
| 17,241 | |
| Total other expenses | |
| (1,998 | ) | |
| (57,954 | ) | |
| | | |
| (59,952 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
$ | (960,092 | ) | |
$ | (9,661,238 | ) | |
| | | |
$ | (10,621,330 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss per share - basic and diluted | |
$ | (0.01 | ) | |
| (2.22 | ) | |
| | | |
$ | (0.11 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares - basic and diluted | |
| 97,165,479 | | |
| 4,360,886 | | |
| | | |
| 97,165,479 | |
SYNERGY
CHC CORP.
NOTES
TO CONDENSED PRO FORMA UNAUDITED FINANCIAL STATEMENTS
Unaudited
Pro Forma Condensed Financial Information.
The
Pro Forma Unaudited Condensed Financial Statements have been prepared in order to present consolidated financial position and
results of operations of Synergy CHC Corp. (the “Company”) and Breakthrough Products, Inc. (“Breakthrough”)
as if the Acquisition had occurred as of September 30, 2015 for the pro forma condensed consolidated balance sheet and to give
effect to the Acquisition by the Company, as if the transaction had taken place at January 1, 2014 for the pro forma condensed
consolidated statements of operations for the year ended December 31, 2014 and the nine months ended September 30, 2015, respectively.
The
following pro forma adjustments are incorporated into the pro forma condensed consolidated balance sheet as of September 30, 2015
and the pro forma condensed consolidated statement of operations for the year ended December 31, 2014 and nine months ended September
30, 2015, respectively.
| (1) | Acquisition
of Breakthrough via issuance of shares |
The
Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the
total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary
estimated fair values. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities
assumed for Breakthrough we may engage a third party independent valuation specialist, however as of the date of this report,
the valuation has not been undertaken.
During
the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date,
or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized,
or there could be changes to the amounts of assets. The Company expects the purchase price allocations for the acquisition of
Breakthrough to be completed by the end of the fourth quarter of 2016.
This
pro forma adjustments do not reflect the amortization of intangible assets acquired, if any, in the Acquisition
| (2) | To
eliminate Breakthrough’s retained earnings and capital structure |
Grafico Azioni Synergy CHC (CE) (USOTC:SNYR)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni Synergy CHC (CE) (USOTC:SNYR)
Storico
Da Giu 2023 a Giu 2024
