Item 2.01. Completion
of Acquisition or Disposition of Assets.
Merger
On April 7, 2014, we entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with Synergy Strips Corp., a Delaware corporation (“Synergy”),
and Synergy Merger Sub, Inc. a Delaware corporation and our wholly owned subsidiary formed for the purpose of this transaction
(“Merger Sub”). The Merger Agreement provided for the merger of Merger Sub with and into Synergy (the “Merger”),
with Synergy surviving the Merger as our wholly owned subsidiary, upon the terms and subject to the conditions set forth in the
Merger Agreement.
On April 21, 2014, following the satisfaction
or waiver of the conditions set forth in and otherwise in accordance with the terms of the Merger Agreement, the Merger was consummated
and Merger Sub merged with and into Synergy. As a result of the closing of the Merger, we have abandoned our prior business plan
and we are now pursuing the operations of Synergy, which consist of marketing and distributing orally dissolving film strip products.
The Merger Agreement includes customary representations,
warranties and covenants made by us, Merger Sub and Synergy as of specific dates. The assertions embodied in those representations
and warranties were made solely for purposes of the Merger Agreement and are not intended to provide factual, business, or financial
information about us, Merger Sub and Synergy. Moreover, some of those representations and warranties (i) may not be accurate or
complete as of any specified date, (ii) may be subject to a contractual standard of materiality different from those generally
applicable to shareholders or different from what a shareholder might view as material, (iii) may have been used for purposes of
allocating risk among us, Merger Sub and Synergy, rather than establishing matters as facts, and/or (iv) may have been qualified
by certain disclosures not reflected in the Merger Agreement that were made to the other party in connection with the negotiation
of the Merger Agreement and generally were solely for the benefit of the parties to the Merger Agreement. The Merger Agreement
should not be read alone, but should instead be read in conjunction with the other information regarding us and our business that
has been, is or will be contained in, or incorporated by reference into, the Forms 10-K, Forms 10-Q, Forms 8-K, and other documents
that we file with the Securities and Exchange Commission (the “SEC”). The description of the Merger Agreement set forth
herein is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 hereto
and is incorporated by reference into this Item 2.01.
Prior to the Merger, we were a public reporting
“shell company,” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended and the rules and regulations
promulgated thereunder (“Exchange Act”). Accordingly, pursuant to the requirements of Item 2.01(f) of Form
8-K, set forth below is the information that would be required if the Registrant were filing a general form for registration of
securities on Form 10 under the Exchange Act, for the Registrant’s common stock, which is the only class of its securities
subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act upon consummation of the Merger.
Post-Merger Company Ownership
As set forth in the Merger Agreement, upon
the closing of the Merger, all of the issued and outstanding capital stock of Synergy was cancelled automatically and the holders
thereof became entitled to receive an aggregate of 16,000,000 shares of the Company’s common stock. That number of shares
was negotiated and agreed to by the Company and Synergy prior to entering into the Merger Agreement.
Immediately prior to the Merger, the Company
had 44,100,000 shares of common stock issued and outstanding. After the Merger and the consummation of the private placement offering
described below, the Company will have 67,100,000 shares of common stock issued and outstanding.
After giving effect to the closing of the Merger
and the private placement offering, the shares of common stock of the Company are owned as follows:
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Former shareholders of Synergy hold 16,000,000 shares of the Company’s common stock, or approximately 23.84% of the Company;
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Holders of common stock of the Company prior to the Merger will continue to hold 44,100,000 shares of the Company’s common stock, or approximately 65.72% of the Company; and
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Investors under the private placement offering conducted in connection with the Merger will hold 2,000,000 shares of the Company’s common stock, or approximately 2.98% of the Company.
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Accounting Treatment of the Merger
For financial reporting purposes, the Merger
represents a “reverse merger” rather than a business combination and Synergy is deemed to be the accounting acquirer
in the transaction. Consequently, the assets and liabilities and the historical operations that will be reflected in the Company’s
future financial statements will be those of Synergy. The Company’s assets, liabilities and results of operations will be
consolidated with the assets, liabilities and results of operations of Synergy after consummation of the Merger, and the historical
financial statements of the Company before the Merger will be replaced with the historical financial statements of Synergy before
the Merger in all future filings with the SEC.
Change in Management
In connection with the Merger and as contemplated
by the Merger Agreement, at the effective time of the Merger, Mark Suponitsky and Jordin Mendelsohn were appointed to the Registrant’s
Board of Directors.
In connection with the Merger and as contemplated
by the Merger Agreement, at the effective time of the Merger, Danny Aaron, our sole director and executive officer, submitted his
resignation letter pursuant to which he resigned immediately from all offices of the Registrant that he holds and from his position
as our director. This departure was as contemplated by the Merger Agreement and not as a result of any disagreements
with the Registrant on any matter relating to the Registrant’s operations, policies, or practices.
On April 21, 2014, immediately after the effective
time of the Merger, the Board appointed Mark Suponitsky as President, Chief Executive Officer, Chief Financial Officer, Secretary
and Treasurer of the Company.
Additional information regarding the officers
and directors listed above is contained below in “
Directors and Officers
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Private Placement Offering
On April 21, 2014, the Company commenced a
private placement offering of up to 5,000,000 shares of its common stock (the “Offering”). The Company and certain
foreign accredited investors (the “Investors”) entered into Securities Purchase Agreements (the “Purchase Agreements”)
and consummated an initial closing of the Offering for the issuance and sale of an aggregate of 2,000,000 shares of common stock
of the Company (the “Offering Shares”) at a purchase price of $0.25 per share, for an aggregate consideration of $500,000.
The Company may conduct one or more closings
for additional subscriptions for shares of its common stock following the initial closing until the date on which the maximum offering
of $1,250,000 is sold.
The Company intends to use the proceeds of
the Offering for costs and expenses relating to the Merger and general corporate purposes, including working capital needs.
DESCRIPTION OF BUSINESS
Except as otherwise indicated by context, references
to “we,” “us” or “our” hereinafter in this Form 8-K are to the business of Synergy, except
that references to “our common stock,” “our shares of common stock” or “our capital stock”
or similar terms shall refer to the common stock of the Registrant.
Overview
Synergy was incorporated on January 24, 2012
as a Delaware corporation under the name of “PB Management Corp. On February 28, 2013, we changed our name to
“Synergy Strips Corp.”
Synergy aims to be a global leader in marketing
and distributing orally dissolving film strip products through various distribution channels and become the most recognized brand
in the health and wellness industry. Synergy’s focus is to take popular consumer products and take the active ingredient
consumers desire and formulate an orally dissolving film strip for an alternative for consumers.
Background
The Registrant was organized under the laws
of the State of Nevada on December 29, 2010 under the name “Oro Capital Corporation”. On April 17, 2014,
the Registrant effected a 30 for 1 forward stock split the form of a share dividend. On April 28, 2014, the Company
changed its name to “Synergy Strips Corp.” upon approval from FINRA and changed its stock symbol to “SNYL”.
The Registrant was an exploration stage corporation and was engaged in the search for mineral deposits or reserves.
The Registrant has not generated any revenue
from its business operations or explorations to date, and to date, the Registrant has been unable to raise additional funds to
implement its operations. As a result, the Registrant consummated the Merger with Synergy.
Strategy
Synergy’s strategy is to create a new
delivery system for consumers. Most products are ingested by consumers in pill and liquid form. Our
plan is to take active ingredients in products currently found on retail shelves and to formulate such ingredients on orally dissolving
film strips which dissolve in a consumer’s mouth. We believe this approach is advantageous to the consumer because the active
ingredients are more fully dissolved into a consumer’s blood stream and more highly absorbed as compared to liquids or pills.
This results in consumers having more immediate effects as opposed to the alternatives. Further advantages are the portability
of such products since they are small and not affected by higher heat, and such products are easy to carry around versus liquids.
The disadvantages of this product are that it is a new delivery system for consumers and most are unfamiliar with the benefits
and efficacy of such products.
Technology
Synergy’s technology is the proprietary
blends of orally dissolving film strips it develops which are not available on the market today. Our proprietary blends
currently encompass the nutraceutical to pharmaceutical space, although many other products can be applied to orally dissolving
film strip technology.
Products
Current Products
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Energy strip available in spearmint and cinnamon which releases 40mg of caffeine per strip via dissolving on a consumer’s tongue.
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Products in Development
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Sleep strips which aid in the deprivation of sleep
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Cough Strips which aid an individual from coughing and has similar effects to a cough drop
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Nicotine strips which release nicotine and aids in the prevention of smoking
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Multi vitamin strips which release a blend of multivitamins necessary for optimal health
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Weight loss strips which prevent over eating by individuals thereby curbing appetite and weight
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Dog vitamin strips which help dogs have optimal health
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Immunity strips with release antioxidants to support optimal health
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Development and Commercialization Strategy
Research and Development
Synergy currently outsources it research and
development to a third party experienced in the development of such technologies, which is led by a group of experienced scientists.
Manufacturing
Synergy currently outsources the manufacturing
of products to third parties who have the necessary equipment and technology to provide mass quantities if required.
Commercialization
Synergy generates revenue by selling its consumer
ready products to retailers across North America and other countries, who then sells to end consumers through their retail distribution
channels. Synergy also sells direct to wholesalers and distributors at a reduced cost to grow its revenue base quickly and to penetrate
the market more effectively.
Intellectual Property
Synergy’s success depends in part upon
our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we will
rely on a combination of patents, patent applications, trademarks, copyrights, trade secrets, including know-how, license agreements,
confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements,
and other contractual rights.
Distribution and Marketing
Synergy plans to focus on selling to retailers
and distributors who currently are active in the consumer product space to expedite the penetration of market acceptance of the
product. Synergy is currently undergoing focus groups to find out what the best approach for marketing efforts is and how to do
so on the most cost effective manner.
Markets
Synergy will attempt to sell in all North America
retail locations along with other developed countries with similar retail landscapes to North America.
Industry
Currently the industry for orally dissolving
film strip technology is small and relatively unexplored by companies. The technology is new to the retail market along with the
range of products which can be offered. Synergy will be operating in a retail space which is currently dominated by nutraceutical
companies who offer the same active ingredients through predominately liquids and pills. Our ability to offer an alternative
product in this market will create opportunities for Synergy to capture consumers who prefer an alternative.
Energy strips are new to the marketplace and
making significant headway in changing how consumers obtain their energy. Currently the largest competitor to “Synergy”
is a company called Purebrands LLC delivering a product called Sheets which uses similar technology as Synergy strips. Purebrands
LLC is currently owned and endorsed by high profile celebrities such as Lebron James of the Miami Heat, Amare Stoudemire of the
New York Knicks, Ray Rice of the Baltimore Ravens and entertainers Drake and Pitbull to mention a few, providing Purebrands LLC
with immediate brand recognition. Not only are high profile athlete’s endorsing their product, they are spending millions
of dollars sponsoring events, marketing their brand and more importantly the market for energy strips.
As marketing efforts continue by Purebrands LLC, the energy strip
market will continue to grow in popularity and will become the newest acceptable means of doing energy in the industry.
As a result of this technology being so new
and unique, there are very few competitors in the industry besides Purebrands LLC and large name nutriceutical companies. Most
other competitors are small in size in terms of brand awareness and sales.
Energy strips in North America have been
classified as a natural health product and because of this classification each countries content and labeling requirements
are unique to one another. Each country has its own governing body that regulates which products are deemed safe for public,
which ultimately gives the first entrant of any territory time to gain valuable market share before competitors obtain
approval. This is one of the Company’s inherent strengths as it expands into the US and European market since it is
currently manufactured in Canada, it carries with it one of the highest standards imposed, health Canada standards. Because
of the known scrutiny health Canada imposes on products, taking a product with its high standard of approval to a new market
is typically performed with relative ease.
Overall, the energy product industry is expected
to continuously expand as more products become available while demand for energy related products increases by consumers. As consumers
seek new ways to stay alert to remain more productive, this industry will continue expanding creating the ideal market to operate
and compete in.
Competition
Current direct competitors are minimal in the
orally dissolving space as there are a mere handful of competitors who have entered the space so far. The barriers to entry are
the “know how’s” of developing and formulating consumer desired products which taste great. Also, the high cost
of entry by companies who have no expertise in the market makes entry by competitors a minimal risk since the technology to develop
product is expensive and proprietary.
Our current competitors include Purebrands
LLC which sells a product called Sheets, along with a company which sells a similar product under the name E6.
Government Regulation
The products sold by Synergy are subject to
U.S Food and Drug Administration (“FDA”) approval for packaging compliance and Synergy has obtained such approvals
from the FDA. Since the current products sold are a nutraceutical, minimal FDA regulations are placed on the product with the exception
of the appropriate labeling and warnings. Our current product is in good standing with the FDA as its only requirement relates
to product packaging guidelines.
The Company will rely on legal and operational
compliance programs, as well as local counsel, to guide its businesses in complying with applicable laws and regulations of the
jurisdictions in which they do business.
The Company does not anticipate, at this time,
that the cost of compliance with U.S. and foreign laws will have a material financial impact on its operations, business or financial
condition. There are however no guarantees that new regulatory and tariff legislation may not have a material negative effect on
its business in the future.
Employees
Synergy has no full or part time employees.
The Company intends to grow its employee base based on the demands and requirements of the business.
RISK FACTORS
You should carefully consider the risks
described below together with all of the other information included in this Form 8-K before making an investment decision with
regard to our securities. The statements contained in or incorporated into this Form 8-K that are not historic facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth
in or implied by forward-looking statements. If any of the following events described in these risk factors actually
occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Our future is dependent upon our ability
to obtain financing. If we do not obtain such financing, we may have to cease our activities and investors could lose
their entire investment.
There is no assurance that we will operate
profitably or generate positive cash flow in the future. We will require additional financing in order to proceed with
the development, manufacture and distribution of our products, including our Synergy Strips. We will also need
more funds if the costs of the development and marketing of our existing products are greater than we have anticipated. We
will also require additional financing to sustain our business operations if we are not successful in earning revenues. We
may not be able to obtain financing on commercially reasonable terms or terms that are acceptable to us when it is required. Our
future is dependent upon our ability to obtain financing. If we do not obtain such financing, our business could fail
and investors could lose their entire investment.
Because we may never earn revenues from
our operations, our business may fail and investors may lose all of their investment in our Company.
We are a company with a limited operating history
and our future profitability is uncertain. We have yet to generate positive earnings and there can be no assurance that
we will ever operate profitably. If our business plan is not successful and we are not able to operate profitably, then our
stock may become worthless and investors may lose all of their investment in our Company.
Prior to obtaining a large market share for
our products, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore
expect to incur significant losses into the foreseeable future. We recognize that, if we are unable to generate significant
revenues from the sale of our products in the future, we will not be able to earn profits or continue operations. There
is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance
that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks,
our business will fail and investors may lose all of their investment in our Company.
Our limited operating history makes evaluating
our business and future prospects difficult, and may increase the risk of your investment.
Our limited operating history in the field
of edible thin film technology and oral dissolving strip products may not provide a meaningful basis on which to evaluate our business.
We will continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development, including
our potential failure to:
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maintain and improve our products and technology;
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expand our product offerings and maintain the high quality of products offered;
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manage our expanding operations, including the integration of any future acquisitions;
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obtain sufficient working capital to support our expansion and to fill customers’ orders on time;
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maintain adequate control of our expenses;
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implement our product development, marketing, sales, and acquisition strategies and adapt and modify them as needed; and
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anticipate and adapt to changing conditions
in the markets in which we operate as well as the impact of any changes in government regulation, mergers and acquisitions involving
our competitors, technological developments, and other significant competitive and market dynamics.
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If we are not successful in addressing any
or all of these risks, then our business may be materially and adversely affected.
We may have to compete against new oral
dissolving strip products developed by competitors. New oral dissolving strip products we develop may not gain market acceptance
by customers, or may not perform to expectations and result in liability to us.
Our industry is subject to change as competitors
seek to identify more effective, more appealing or cheaper oral dissolving strip products. Our future success will depend on our
ability to appropriately respond to changing consumer demands. If we produce products that are not attractive to consumers, we
may not be successful in capturing or retaining a significant share of our market.
Our competitors may have substantially greater
resources than us. They may be able to take advantage of new technologies or products or undertake more aggressive and costly marketing
campaigns than ours, which may adversely affect our marketing strategies and could have a material adverse effect on our business,
results of operations, and financial condition.
We may face product liability claims
that could result in costly litigation and significant liabilities.
The manufacture and sale of oral dissolving
strip products entails significant risk of product liability claims. Any product liability claims, with or without merit, could
result in costly litigation, reduced sales, cause us to incur significant liabilities and divert our management’s time, attention
and resources. Because of our limited operating history and lack of experience with these claims, we cannot be sure that our product
liability insurance coverage is adequate or that it will continue to be available to us on acceptable terms, if at all.
Our products and our manufacturing activities
are subject to extensive governmental regulation that could prevent us from selling our products in the United States or introducing
new and improved products.
Our products and our manufacturing activities
are subject to extensive regulation by a number of governmental agencies, including the FDA and comparable international agencies.
We are required to:
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obtain the clearance of the
FDA and international agencies before we can market and sell our products;
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satisfy these agencies’
content requirements for all of our labeling, sales and promotional materials; and
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undergo rigorous inspections
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Compliance with the regulations of these agencies
may delay or prevent us from introducing any new model of our existing products or other new products. Furthermore, we may be subject
to sanctions, including temporary or permanent suspension of operations, product recalls and marketing restrictions if we fail
to comply with the laws and regulations pertaining to our business. We are also required to demonstrate compliance with the FDA’s
quality system regulations. The FDA enforces its quality system regulations through pre-approval and periodic post-approval inspections.
These regulations relate to product testing, vendor qualification, design control and quality assurance, as well as the maintenance
of records and documentation. If we are unable to conform to these regulations, the FDA may take actions which could seriously
harm our business. In addition, government regulation may be established that could prevent, delay, modify or rescind regulatory
clearance or approval of our products.
Establishing a new brand requires effective
marketing and product placement, which may take a long period of time.
Our principal business strategy is to develop
our products as a respected brand within the industry in which they are sold. The marketing of consumer goods is highly
dependent on creating favorable consumer perception. Competitors have significantly greater advertising resources and
experience and enjoy well-established brand names. There can be no assurance that our initial advertising and promotional
activities will be successful in creating the desired consumer perception.
We currently have a limited product portfolio
and our business may be negatively affected if demand for these products never develops or decreases.
100% of our revenue is derived from the sale of our limited product
offerings. If demand for these products decreases, never fully develops, or if we are unable to replace this product
revenue with revenue from a product that has similar acceptance with potential customers, our business may be materially adversely
affected.
If we are unable to adequately control
the costs associated with operating our business, including our costs of sales and materials, our business, financial condition,
operating results and prospects will suffer.
If we are unable to maintain a sufficiently
low level of costs for designing, marketing, selling and distributing our products relative to their selling prices, our operating
results, gross margins, business and prospects could be materially and adversely impacted. We have made, and will be
required to continue to make, significant investments for the sale of our products. There can be no assurances that
our costs of delivering our products will be less than the revenue we generate from sales, or that we will achieve our expected
gross margins.
We may be required to incur substantial marketing costs and expenses
to promote our products, even though our marketing expenses to date have been relatively limited. If we are unable to
keep our operating costs aligned with the level of revenues we generate, our operating results, business and prospects will be
harmed. Many of the factors that impact our operating costs are beyond our control.
We are substantially dependent on strategic
partnerships and third party distributors for the sale of our products.
We currently have strategic partnerships and
distribution relationships with several distributors for our products in various international markets.
We expect to continue to rely on our strategic
partners and the sales efforts of third party distributors for our products. Our distributors are not exclusive to us and distribute
other products from other manufacturers. We do not have the ability to exercise control over the actions of our distributors in
the same manner that we would an internal sales team. If those distributors decide to terminate their arrangements with us, or
fail to exert substantial efforts on our behalf, our revenues and results of operations will be significantly impacted.
Changes in our suppliers’ raw material
costs or disruptions in the supply of raw materials could negatively impact our manufacturers’ output, which could erode
our profit margins and significantly affect our operating results.
Pricing and availability of raw materials used by our manufacturers
can be volatile due to numerous factors beyond our control, including general, domestic and international economic conditions,
labor costs, production levels, competition, consumer demand, import duties and tariffs and currency exchange rates. This
volatility can significantly affect the availability and cost of raw materials, and may, therefore, have a material adverse effect
on our business, results of operations and financial condition. In addition, the supply of certain raw materials can
be significantly disrupted by labor activity, political conflict, and disruptions to sourcing or transportation activities, which
could impact our ability to source our products.
We may not be able to prevent others
from unauthorized use of our patents and other intellectual property, which could harm our business and competitive position.
We rely on trade secret laws and will rely
on a combination of copyright, service mark, trademark laws, as well as confidentiality procedures and contractual restrictions,
to establish and protect our proprietary rights on a global basis, all of which provide only limited protection.
We may file U.S. and foreign patent applications
in the future. But the process of seeking patent protection can be lengthy and expensive and we cannot assure that our patent applications
will result in patents being issued, or future issued patents will be sufficient to provide us with meaningful protection or commercial
advantages. Since the filing of some of these patent applications may be, made after the date of first sale or disclosure of the
subject inventions, patent protection may not be available for these inventions outside the United States.
We also cannot assure that our current or potential
competitors do not have, and will not obtain, patents that will prevent, limit or interfere with our ability to make, use or sell
our technology.
Assertions by third parties that we infringe
their intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses.
The oral dissolving strip industry is characterized
by the existence of a large number of patents, copyrights, trademarks, and trade secrets and by frequent litigation based on allegations
of infringement or other violations of intellectual property rights. We cannot assure you that our products do not infringe upon
the intellectual property rights of others. If we succeed in our business plan, the economic reward, and therefore the possibility
that someone would bring an intellectual property rights claims against will grow. The costs of defending intellectual property
infringement claims can be very large. Any intellectual property rights claim against us, with or without merit, could be time-consuming,
expensive to litigate or settle, and could divert management attention and financial resources.
For any intellectual property rights claim
against us we may have substantial direct and indirect costs. Direct costs can include a requirement to pay damages or stop our
sale of products found to be in violation of a third party’s rights. We may have to purchase a license from a third party,
which may not be available on reasonable terms, if at all, may significantly increase our operating expenses, or may require us
to restrict our business activities in one or more respects. Substantial indirect costs also may be expected in the form of diversion
of development and management resources in strategic planning for legal and business defenses to such claims.
We are substantially dependent on third
parties for the manufacture of our products.
We rely upon independent third parties for
the manufacture of our products. A manufacturer’s failure to ship products in a timely manner or to meet the required
quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure
to make timely deliveries may drive customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which
could have a material adverse effect on us. This could damage our reputation. We do not have a long-term
written agreement with our third-party manufacturers. As a result, our manufacturers may unilaterally terminate their
relationship with us at any time. Any failure by our manufacturers to comply with our standards or any other divergence
in its labor or other practices from those generally considered ethical in the United States and the potential negative publicity
relating to any of these events, could materially harm us and our reputation.
Our business depends substantially on
the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.
Our future success depends substantially on
the continued services of our executive officers. If one or more of our executive officers are unable or unwilling to
continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business
may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if
any of our executives joins a competitor or forms a competing company, we may lose some of our customers.
The lack of public company experience with our management
team could adversely impact our ability to comply with the reporting requirements of U.S. Securities Laws
Our
management team lacks public
company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley
Act of 2002. Our senior management has never had responsibility for managing a publicly traded company. Such
responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our
senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond
to such increased legal, regulatory compliance and reporting requirements, including the establishing and maintaining internal
controls over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse
effect on our ability to comply with the reporting requirements of the Exchange Act, which is necessary to maintain our public
company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would
be in jeopardy in which event you could lose your entire investment in our company.
If we fail to maintain proper and effective
internal controls over financial reporting or are unable to remediate the material weakness in our internal controls, then our
ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.
Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles. Implementing and maintaining a system of internal controls
over accounting and financial reporting is a costly and time-consuming effort that needs to be re-evaluated frequently.
Implementing any appropriate changes to our
internal controls may entail substantial management time, costs to modify our existing processes, and take significant time to
complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to
maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our
operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that
we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for
us to effectively market and distribute our products and services to new and existing customers.
We may face risks from doing business
internationally.
We may sell or distribute products outside
the U.S. and derive revenues from these sources. Consequently, our revenues and results of operations will be vulnerable
to currency fluctuations. We will report our revenues and results of operations in U.S. dollars, but a significant portion
of our revenues could be earned outside of the U.S. We cannot accurately predict the impact of future exchange rate
fluctuations on revenues and operating margins. Such fluctuations could have a material adverse effect on our business,
results of operations and financial condition. Our business will also be subject to other risks inherent in the international
marketplace, many of which are beyond our control. These risks include:
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laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;
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changes in local regulatory requirements, including restrictions on conversions;
|
·
|
differing cultural tastes and attitudes;
|
·
|
differing degrees of protection for intellectual property;
|
·
|
financial instability;
|
·
|
instability of foreign economies and governments; and
|
·
|
war and acts of terrorism.
|
Any of the foregoing could have a material
adverse effect on our business, financial condition and results of operations.
Risks Relating to our Common Stock and
our Status as a Public Company
The relative lack
of public company experience of our management team may put us at a competitive disadvantage.
Our management team lacks public company experience
and is generally unfamiliar with the requirements of the United States securities laws and U.S. Generally Accepted Accounting Principles,
which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of
2002. The majority of the individuals who now constitute our senior management team have never had responsibility for managing
a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures
on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that
adequately responds to such increased legal, regulatory compliance and reporting requirements. Our failure to comply with all applicable
requirements could lead to the imposition of fines and penalties and distract our management from attending to the growth of our
business.
Shares of our common stock that have not
been registered under the Securities Act of 1933, as amended, regardless of whether such shares are restricted or unrestricted,
are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a “shell
company.” In addition, any shares of our common stock that are held by affiliates, including any received in a registered
offering, will be subject to the resale restrictions of Rule 144(i).
Pursuant to Rule 144 of the Securities Act
of 1933, as amended (“Rule 144”), a “shell company” is defined as a company that has no or nominal operations;
and, either no or nominal assets; assets consisting solely of cash and cash equivalents; or assets consisting of any amount of
cash and cash equivalents and nominal other assets. As such, we may be deemed a “shell company” pursuant to Rule 144
prior to the Merger, and as such, sales of our securities pursuant to Rule 144 are not able to be made until a period of at least
twelve months has elapsed from the date on which our Current Report on Form 8-K is filed with the Commission reflecting our status
as a non- “shell company.” Therefore, any restricted securities we sell in the future or issue to consultants or employees,
in consideration for services rendered or for any other purpose will have no liquidity until and unless such securities are registered
with the Commission and/or until a year after the date of the filing of our Current Report on Form 8-K and we have otherwise complied
with the other requirements of Rule 144. As a result, it may be harder for us to fund our operations and pay our employees and
consultants with our securities instead of cash. Furthermore, it will be harder for us to raise funding through the sale of debt
or equity securities unless we agree to register such securities with the Commission, which could cause us to expend additional
resources in the future. Our previous status as a “shell company” could prevent us from raising additional funds, engaging
employees and consultants, and using our securities to pay for any acquisitions (although none are currently planned), which could
cause the value of our securities, if any, to decline in value or become worthless. Lastly, any shares held by affiliates, including
shares received in any registered offering, will be subject to the resale restrictions of Rule 144(i).
We will be required to incur significant
costs and require significant management resources to evaluate our internal control over financial reporting as required under
Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse
effect on our stock price.
As a smaller reporting company as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to evaluate our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires us to include an
internal control report with the Annual Report on Form 10-K. This report must include management’s assessment of the effectiveness
of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of
any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse
results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect
on the trading price of our equity securities. Management believes that its internal controls and procedures are currently not
effective to detect the inappropriate application of U.S. GAAP rules. Management realize there are deficiencies in the design or
operation of our internal control that adversely affect our internal controls which management considers to be material weaknesses
including those described below:
1.
|
We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
|
2.
|
We have not achieved the optimal level of segregation of duties relative to key financial reporting functions.
|
3.
|
We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process
|
Achieving continued compliance with Section
404 may require us to incur significant costs and expend significant time and management resources. We cannot assure you that we
will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to
conclude that our internal control over financial reporting is effective at fiscal year end. As a result, investors could lose
confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as
well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting
firm may not agree with our management’s assessment or conclude that our internal control over financial reporting is operating
effectively.
If we lose our key management personnel,
we may not be able to successfully manage our business or achieve our objectives, and such loss could adversely affect our business,
future operations and financial condition.
Our future success depends in large part upon
the leadership and performance of our executive management team and key consultants. If we lose the services of one or more of
our executive officers or key consultants, or if one or more of them decides to join a competitor or otherwise compete directly
or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. We do not have
“Key-Man” life insurance policies on our key executives. If we lose the services of any of our key consultants, we
may not be able to replace them with similarly qualified personnel, which could harm our business. The loss of our key executives
or our inability to attract and retain additional highly skilled employees may adversely affect our business, future operations,
and financial condition.
The elimination of monetary liability against
our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and
employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and
employees.
We have entered into indemnification agreements
with our directors and officers pursuant to which we will indemnify such directors and officers in connection with their service
to the Company. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover
the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and
resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary
duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers
even though such actions, if successful, might otherwise benefit our company and shareholders.
Our stock is categorized as a penny stock.
Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability
to buy and sell our stock.
Our stock is categorized as a penny stock.
The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price
(as defined) less than US$ 5.00 per share or an exercise price of less than US$ 5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a
form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject
to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.
We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also
limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock”
rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about
the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least
some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends
and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash dividends
on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if
the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain
all earnings for our operations.
A limited public trading market exists for
our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.
Our common stock is currently traded under
the symbol “SNYL,” but currently with no volume, meaning that the number of persons interested in purchasing our common
stock at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable
to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock
brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even
if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such
as ours or purchase or recommend the purchase of our stock until such time as we became more viable. Additionally, many
brokerage firms may not be willing to effect transactions in the securities. As a consequence, there may be periods
of several days or more when trading activity in our stock is minimal or non-existent, as compared to a seasoned issuer which has
a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We
cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained,
or that trading levels will be sustained.
In the past, securities class action litigation
has often been brought against a company following periods of volatility in the market price of its securities. Due to the
volatility of our common stock price, we may be the target of securities litigation in the future. Securities litigation
could result in substantial costs and divert management’s attention and resources.
Shareholders should also be aware that, according
to SEC Release No. 34-29093, the market for “penny stock,” such as our common stock, has suffered in recent years from
patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers;
and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position
to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines
of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the future volatility of our share price.
If we issue additional shares in the future,
it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the
issuance of up to 75,000,000 shares of common stock with a par value of $0.00001 per share. Our Board of Directors may choose to
issue some or all of such shares to acquire one or more companies or properties and to fund our overhead and general operating
requirements. The issuance of any such shares may reduce the book value per share and may contribute to a reduction in the market
price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate
ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
We may not qualify to meet listing standards
to list our stock on an exchange.
The SEC approved listing standards for companies
using reverse acquisitions to list on an exchange may limit our ability to become listed on an exchange. We would be considered
a reverse acquisition company (i.e., an operating company that becomes an Exchange Act reporting company by combining with a shell
Exchange Act reporting company) that cannot apply to list on NYSE, NYSE Amex or Nasdaq until our stock has traded for at least
one year on the U.S. OTC market, a regulated foreign exchange or another U.S. national securities market following the filing with
the SEC or other regulatory authority of all required information about the merger, including audited financial statements. We
would be required to maintain a minimum $4 share price ($2 or $3 for Amex) for at least thirty (30) of the sixty (60) trading days
before our application and the exchange’s decision to list. We would be required to have timely filed all required reports
with the SEC (or other regulatory authority), including at least one annual report with audited financials for a full fiscal year
commencing after filing of the above information. Although there is an exception for a firm underwritten IPO with proceeds of at
least $40 million, we do not anticipate being in a position to conduct an IPO in the foreseeable future. To the extent that we
cannot qualify for a listing on an exchange, our ability to raise capital will be diminished.
DESCRIPTION OF PROPERTY
The principal executive offices for the Registrant
are located at 3435 Ocean Park #107-447, Santa Monica, CA 90405. The Registrant’s main telephone number is (855) 659-4643. The
Registrant’s website is located at www.synergystrips.com.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of
the results of operations and financial condition of Synergy for the three months ended March 31, 2014 and 2013, and for the fiscal
years ended 2013 and 2012, should be read in conjunction with the financial statements of Synergy, and the notes to those financial
statements that are included elsewhere in this Form 8-K. Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and
the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number
of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business
sections in this Form 8-K. We use words such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
Synergy was incorporated on January 24, 2012
as a Delaware corporation under the name of “PB Management Corp.” On February 28, 2013, we changed our name to
“Synergy Strips Corp.”
Synergy aims to be a global leader in marketing
and distributing orally dissolving film strip products through various distribution channels and become the most recognized brand
in the Health and Wellness space. Synergy’s focus is to take popular consumer products and take the active ingredient consumers
desire and formulate an orally dissolving film strip for an alternative for consumers.
Our management’s discussion and analysis
of our financial condition and results of operations are only based on Synergy’s current business. Our previous
shell company’s results of operations are immaterial and will not be included in the discussion below. Key factors
affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation.
Results of Operations for the Three Months Ended March 31, 2014
and 2013
Revenue
For the three months ended March 31, 2014,
we had revenues of $4,579 from sales of our products, as compared to revenue of $0 for the same period of 2013.
Cost of revenue
For the three months ended March 31, 2014,
our cost of revenue was $2,808. This was primarily due to securing the U.S. military via a distributor in the United States. Our
cost of revenue for the three months ended March 31, 2013, was $0.
Operating Expenses
For the three months ended March 31, 2014,
our operating expenses were $46,888. This was primarily due to promoting the Synergy brand throughout North America. For the three
months ended March 31, 2013, our operating expenses were $0.
Net income (loss)
For the three months ended March 31, 2014,
our net loss was $(45,117). This was primarily due to increased spending on developing the Synergy brand and securing penetration
in the U.S. market. For the three months ended March 31, 2013, our net loss was $0.
Results of Operations for the Fiscal Year Ended December 31,
2013
Revenue
For the fiscal year ended December 31, 2013,
we had revenues of $10,783 from sales of our products.
Cost of revenue
For the fiscal year ended December 31, 2013,
our cost of revenue was $6,323. This was primarily due to securing the U.S. military via a distributor in the U.S.
Operating Expenses
For the fiscal year ended December 31, 2013,
our operating expenses were $54,753. This was primarily due to promoting the Synergy brand throughout North America.
Net income (loss)
For the fiscal year ended December 31, 2013,
our net loss was $(50,293). This was primarily due to increased spending on developing the Synergy brand and securing penetration
in the U.S. market.
Liquidity and Capital Resources
Overview
As of March 31, 2014, we had no cash on hand and no working capital.
We believe that our cash on hand will not be
sufficient to meet our anticipated cash requirements through the next 12 months. Our current cash requirements are significant
and will be used for research and development, and marketing, and we anticipate generating losses for the foreseeable future. In
order to execute on our business strategy, we will require additional working capital, commensurate with the operational needs
of our planned marketing, development and production efforts. Our management anticipates that we should be able to raise
sufficient amounts of working capital through debt or equity offerings, as may be required to meet our long-term obligations. However,
changes in our operating plans, increased expenses, acquisitions, or other events, may cause us to seek additional equity or debt
financing in the future. We anticipate continued and additional development and production expenses. Accordingly, while
we do not have any short-term plans to conduct any additional debt or equity financings, we may in the future use debt and equity
financing to fund operations, as we look to expand our asset base and fund development and production of our products. Any such
equity financings could result in dilution to current shareholders, and the incurrence of indebtedness would result in increased
debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations.
There are no assurances that we will be able
to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed. Any
failure to secure additional financing may force us to modify our business plan. In addition, we cannot be assured of
profitability in the future.
Three Months ended March 31, 2014
Net cash provided by (used in) operating
activities
For the three months ended March 31, 2014,
we used net cash of $39,734 in operating activities, as compared to $214 provided by operating activities for the three months
ended March 31, 2013.
Net cash provided by financing activities
For the three months ended March 31, 2014 and
2013, financing activities provided $39,734 and $52,813 from a related party, respectively.
Year ended December 31, 2013
Net cash provided by (used in) operating
activities
For the fiscal year ended December 31, 2013,
we used net cash of $42,293 in operating activities.
Net cash provided by financing activities
For the fiscal year ended December 31, 2013,
financing activities provided $42,293 from a related party.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations Table
The following table outlines payments due under
our significant contractual obligations over the periods shown, exclusive of interest:
|
|
Payments due by Period
|
|
Contractual Obligations
|
|
Less than
|
|
|
One to
|
|
|
Three to
|
|
|
More Than
|
|
|
|
|
At March 31, 2014
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
Operating Lease Obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Long-Term Debt Obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Capital Lease Obligations
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchase Obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Other Long-Term Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The above table outlines our obligations as
of March 31, 2014 and does not reflect any changes in our obligations that have occurred after that date.
Off-Balance Sheet Arrangements
None
Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements have
been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States
of America (GAAP).
Use of Estimates. The preparation of the financial
statements in conformity with 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. Actual results could
differ from those estimates. Significant estimates include, but are not limited to, the collectability of accounts receivable and
the estimates used when evaluating long-lived assets for impairment. Estimates are used for, but are not limited to, determining
the following: allowance for doubtful accounts and inventory valuation reserves, recoverability of long-lived assets, and useful
lives used in depreciation and amortization.
Cash and cash equivalents. The Company considers
all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At March
31, 2014 and December 31, 2013, the Company had no cash equivalents.
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. We recognize 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 our products pass to customers
upon delivery of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on
our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are
also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the
relevant portion of our finished goods.
Income taxes. The Company accounts for income
taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Fair Value of
Financial Instruments. We hold certain financial assets, which are required to be measured at fair value on a recurring basis in
accordance with the Statement of Financial Accounting Standard No. 157,
“Fair Value Measurements”
(“ASC
Topic 820-10”). ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines
fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants on the measurement
date. Level 1
instruments include cash, account receivable, prepaid expenses, inventory and account payable and accrued liabilities. The carrying
values are assumed to approximate the fair value due to the short term nature of the instrument.
The three levels of the fair value hierarchy
under ASC Topic 820-10 are described below:
|
o
|
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We believe our carrying value of level 1 instruments approximate their fair value at December 31, 2013 and 2012 due to their short term nature.
|
|
o
|
Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
|
|
o
|
Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms.
|
Advertising.
The Company expenses advertising costs as incurred. The Company’s advertising expenses totaled $0 for the three months ended
March 31, 2014 and 2013, and $235 and $0 for the year ended December 31, 2013 and for the period from January 24, 2012 (inception)
to December 31, 2013, respectively.
Earnings
(Loss) Per Share. Net earnings (loss) per share is computed by dividing net income (loss) less preferred dividends for the period
by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by
dividing net income (loss) less preferred dividends for the period by the weighted average number of common stock, common stock
equivalents and potentially dilutive securities outstanding during each period.
Recent
accounting pronouncements. There are no recent accounting pronouncements that have had a material impact on our financial statements.
Year-end
The
Company has adopted December 31, as its fiscal year end
.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Security Ownership Prior To Merger
The Company has one class of its stock outstanding,
its common stock. The following table sets forth certain information as of April 21, 2014 prior to the closing of the
Merger with respect to the beneficial ownership of our common stock (i) each director and officer, (ii) all of our directors and
officers as a group, and (iii) each person known to us to own beneficially five percent (5%) or more of the outstanding shares
of our common stock. As of April 21, 2014, prior to the closing of the Merger, there were 44,100,000 shares of common
stock outstanding.
To our knowledge, except as indicated in the
footnotes to this table or pursuant to applicable community property laws, the persons named in the table have sole voting and
investment power with respect to the shares of common stock indicated.
Name and Address of
Beneficial Owner (1)
|
|
Shares Beneficially Owned
|
|
|
Percentage Beneficially
Owned (2)
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
Danny Aaron, President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer and Director
23 Dassan Island Drive
Plettenberg Bay, 6600, South Africa
|
|
|
14,100,000
|
|
|
|
31.97
|
%
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a Group
|
|
|
14,100,000
|
|
|
|
31.97
|
%
|
5% Shareholders
|
|
|
|
|
|
|
|
|
Danny Aaron
23 Dassan Island Drive
Plettenberg Bay, 6600, South Africa
|
|
|
14,100,000
|
|
|
|
31.97
|
%
|
Redfern Investors Ltd.
Suite E-2, Union Court Building
Elizabeth Ave. & Shirley St.
Nassau, Bahamas
|
|
|
2,812,500
|
|
|
|
6.38
|
%
|
(1)
|
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Pursuant to the rules of the SEC, shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be beneficially owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
|
(2)
|
Based on 44,100,000 shares of our common stock outstanding as of April 21, 2014, prior to the Closing of the Merger and the Offering.
|
Security Ownership After the Merger
|
The following table sets forth certain information
as of April 21, 2014, after giving effect to the Closing of the Merger, with respect to the beneficial ownership of our common
stock for (i) each director and officer, (ii) all of our directors and officers as a group, and (iii) each person known to us to
own beneficially five percent (5%) or more of the outstanding shares of our common stock. As of April 21, 2014, after
giving effect to the Closing of the Merger, there were 67,100,000 shares of common stock outstanding.
To our knowledge, except as indicated in the
footnotes to this table or pursuant to applicable community property laws, the persons named in the table have sole voting and
investment power with respect to the shares of common stock indicated.
Name and Address of
Beneficial Owner (1)
|
|
Shares Beneficially Owned
|
|
|
Percentage Beneficially
Owned (2)
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
Mark Suponitsky, President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
3435 Ocean Park #107-447, Santa Monica, CA 90405
|
|
|
0
|
|
|
|
0
|
%
|
Jordin Mendelsohn, Director
3435 Ocean Park #107-447, Santa Monica, CA 90405
|
|
|
0
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a Group
|
|
|
0
|
|
|
|
0
|
%
|
5% Shareholders
|
|
|
|
|
|
|
|
|
Danny Aaron
23 Dassan Island Drive
Plettenberg Bay, 6600, South Africa
|
|
|
14,100,000
|
|
|
|
21.01
|
%
|
(1)
|
|
Beneficial ownership has been
determined in accordance with Rule 13d-3 under the Exchange Act. Pursuant to the rules of the SEC, shares of common
stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed
to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be
beneficially owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
|
(2)
|
|
Based on 67,100,000 shares
of our common stock outstanding as of April 21, 2014, after giving effect to the Closing of the Merger and the issuance of the
Offering Shares.
|
DIRECTORS AND EXECUTIVE OFFICERS
Current Officers and Directors:
On April 21, 2014, the below individuals became officers and directors
of the Company:
Name
|
|
Age
|
|
Position
|
Mark Suponitsky
|
|
58
|
|
Mark Suponitsky, President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
|
Jordin Mendelsohn
|
|
64
|
|
Director
|
Biographies
Mark Suponitsky has extensive experience in
the development and marketing of diverse products and services. Since 2007, Mr. Suponitsky has been the Director of
Research and Analysis at Capital Brands LLC, where he worked to implement their customer service center. From
1994 through 2007, Mr. Suponitsky was the President of Suponitsky and Associates, Inc., a business consulting agency. Mr.
Supnitsky received a Bachelor of Arts from McGill University. The board believes that Mr. Suponitsky’s marketing
experience in developing and launching successful brands will be crucial to the Company’s success.
Jordin Mendelsohn has worked in the advertising
agency for more than 30 years and has won numerous awards for this creative work. From 1981 to 2010, Mr. Mendelsohn
was been the Chief Executive Officer and Executive Creative Director for Mendelsohn Zien Advertising. Since 2010, Mr.
Mendelsohn has been a consultant for various clients, including financial services agencies and companies in the beverage industry. Mr.
Mendelsohn graduated from the Art Center College of Design in Pasadena. The board believes that Mr. Mendelsohn’s
extensive experience in the advertising industry will be crucial to the Company’s success.
Terms of Office
The Company’s directors are appointed
for a one-year term to hold office until the next annual general meeting of the Company’s shareholders or until removed from
office in accordance with the Company’s bylaws and the provisions of the Nevada Revised Statutes. The Company’s
directors hold office after the expiration of his or her term until his or her successor is elected and qualified, or until he
or she resigns or is removed in accordance with the Company’s bylaws and the provisions of the Nevada Revised Statutes.
The Company’s officers are appointed
by the Company’s Board of Directors and hold office until removed by the Board.
Involvement in Certain Legal Proceedings
In 2008, Mark Suponitsky filed for personal
bankruptcy under Chapter 7 of Title 11 of the United States Code.
Other than the foregoing, no director, executive
officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f)
of Regulation S-K in the past 10 years.
Committees of the Board
Our Board of Directors held no formal meetings
during the fiscal year ended July 31, 2013. All proceedings of the Board of Directors were conducted by resolutions
consented to in writing by the directors and filed with the minutes of the proceedings of the directors. Such resolutions
consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the
Nevada Revised Statutes and the bylaws of our company, as valid and effective as if they had been passed at a meeting of the directors
duly called and held. We do not presently have a policy regarding director attendance at meetings.
We do not currently have standing audit, nominating
or compensation committees, or committees performing similar functions. Due to the size of our board, our Board of Directors
believes that it is not necessary to have standing audit, nominating or compensation committees at this time because the functions
of such committees are adequately performed by our Board of Directors. We do not have an audit, nominating or compensation
committee charter as we do not currently have such committees. We do not have a policy for electing members to the board. Neither
our current nor proposed directors are independent directors as defined in the NASD listing standards.
After the change in the Board of Directors,
it is anticipated that the Board of Directors will form separate compensation, nominating and audit committees, with the audit
committee including an audit committee financial expert.
Audit Committee
Our Board of Directors has not established
a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Instead, the entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B)
of the Exchange Act and will continue to do so upon the appointment of the proposed directors until such time as a separate audit
committee has been established.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires
our directors, executive officers, and shareholders holding more than 10% of our outstanding Common Stock to file with the SEC
initial reports of ownership and reports of changes in beneficial ownership of our Common Stock. Executive officers, directors,
and persons who own more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section
16(a) reports they file.
Based solely upon a review of Forms 3, 4, and
5 delivered to us as filed with the SEC during our most recent fiscal year, none of our executive officers and directors, and persons
who own more than 10% of our Common Stock have failed to timely file the reports required pursuant to Section 16(a) of the Exchange
Act, except for the following:
|
o
|
Danny Aaron - Failure to file Form 3
|
Nominations to the Board of Directors
Our directors take a critical role in guiding
our strategic direction and oversee the management of the Company. Board candidates are considered based upon various
criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective,
concern for the long-term interests of the shareholders, diversity, and personal integrity and judgment.
In addition, directors must have time available
to devote to Board activities and to enhance their knowledge in the growing business. Accordingly, we seek to attract
and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to the
Company.
In carrying out its responsibilities, the Board
will consider candidates suggested by shareholders. If a shareholder wishes to formally place a candidate’s name
in nomination, however, he or she must do so in accordance with the provisions of the Company’s Bylaws. Suggestions
for candidates to be evaluated by the proposed directors must be sent to the Board of Directors, c/o Synergy Strips Corp.,
3435 Ocean Park #107-447, Santa Monica, CA 90405.
Board Leadership Structure and Role on Risk Oversight
Mark Suponitsky currently serves as the Company’s
principal executive officer and a director. The Company determined this leadership structure was appropriate for the
Company due to our small size and limited operations and resources. The Board of Directors will continue to evaluate
the Company’s leadership structure and modify as appropriate based on the size, resources and operations of the Company.
Subsequent to the closing of the Merger, it
is anticipated that the Board of Directors will establish procedures to determine an appropriate role for the Board of Directors
in the Company’s risk oversight function.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between
our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship
existed in the past.
Family Relationships
There are no family relationships between or
among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers, except
that Steven K. Richey and Susan Richey are husband and wife.
EXECUTIVE COMPENSATION
Board Compensation
We have no standard arrangement to compensate
directors for their services in their capacity as directors. Directors are not paid for meetings attended. However,
we intend to review and consider future proposals regarding board compensation. All travel and lodging expenses associated
with corporate matters are reimbursed by us, if and when incurred.
Executive Compensation - Former Executive Officers
No director, officer or employee of the Registrant received compensation
during the Registrant’s last fiscal year.
Executive Compensation - New Executive Officers
No director, officer or employee of Synergy
received compensation during the year ended December 31, 2013 or the period from inception to December 31, 2012.
None of our executive officers or directors
received, nor do we have any arrangements to pay out, any bonus, stock awards, option awards, non-equity incentive plan compensation,
or non-qualified deferred compensation.
Potential Payments Upon Termination or Change-in-Control
SEC regulations state that we must disclose
information regarding agreements, plans or arrangements that provide for payments or benefits to our executive officers in connection
with any termination of employment or change in control of the Company. Please see the section entitled “Employment
Agreements” below for a discussion of management compensation in the event of a termination of employment or change in control
of the Company.
Employment Agreements
None.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
Certain Relationships and Transactions
There are no family relationships between any
of our former directors or executive officers and new directors or new executive officers. None of the new directors
and executive officers were directors or executive officers of the Company prior to the Closing of the Merger, nor did any hold
any position with the Company prior to the Closing of the Merger, nor have been involved in any material proceeding adverse to
the Company or any transactions with the Company or any of its directors, executive officers, affiliates or associates that are
required to be disclosed pursuant to the rules and regulations of the SEC.
Review, Approval or Ratification of Transactions
with Related Persons
As we have not adopted a Code of Ethics, we
rely on our board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our board reviews
a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate
family. Transactions are presented to our board for approval before they are entered into or, if this is not possible, for ratification
after the transaction has occurred. If our board finds that a conflict of interest exists, then it will determine the appropriate
remedial action, if any. Our board approves or ratifies a transaction if it determines that the transaction is consistent with
the best interests of the Company.
Related Party Transactions
None of our current officers or directors have
been involved in any material proceeding adverse to the Company or any transactions with the Company or any of its directors, executive
officers, affiliates or associates that are required to be disclosed pursuant to the rules and regulations of the SEC.
Director Independence
During the year ended December 31, 2013, we
did not have any independent directors on our board. We evaluate independence by the standards for director independence
established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors
established by The New York Stock Exchange, Inc., the NASDAQ National Market, and the Securities and Exchange Commission.
Subject to some exceptions, these standards
generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee
of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of
ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct
compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director
or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity
by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of
the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where
one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate
family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month
period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated
gross revenues.
LEGAL PROCEEDINGS
None.
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Market Information
Although our common stock is currently quoted
on the OTCQB marketplace operated by the OTC Markets Group, Inc., there has been minimal trading with respect to our common stock
on the OTCQB.
Holders
Prior to the Merger, there were approximately
36 shareholders of record of our common stock based upon the shareholders’ listing provided by our transfer agent. Our
transfer agent is West Coast Stock Transfer. Their address is 721 N. Vulcan Ave. Ste. 205, Encinitas, CA
92024 and their telephone number is 619-664-4780.
Dividends
We have never paid cash dividends on our common
stock. We intend to keep future earnings, if any, to finance the expansion of our business, and we do not anticipate
that any cash dividends will be paid in the foreseeable future. Our future payment of dividends will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant factors that our board of directors may deem relevant. Our
retained earnings deficit currently limits our ability to pay dividends.
Securities Authorized for Issuance Under Equity Compensation
Plans
None.
RECENT SALES OF UNREGISTERED SECURITIES
Reference is made to Item 3.02 of this Form
8-K for a description of recent sales of unregistered securities, which is hereby incorporated by reference.
DESCRIPTION OF SECURITIES
The following information describes our capital
stock and provisions of our articles of incorporation and our bylaws, all as in effect upon the Closing of the Merger. This
description is only a summary. You should also refer to our articles of incorporation and bylaws which have been incorporated
by reference or filed with the Securities and Exchange Commission as exhibits to this Form 8-K.
General
Our authorized capital stock consists of 75,000,000
shares of common stock at a par value of $0.00001 per share, of which 44,000,000 shares were issued and outstanding immediately
prior to the Closing of the Merger.
Common Stock
The holders of Common Stock are entitled to
one vote per share. They are not entitled to cumulative voting rights or preemptive rights. The holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. However,
the current policy of the Board of Directors is to retain earnings, if any, for operations and growth. Upon liquidation,
dissolution or winding-up, the holders of Common Stock are entitled to share ratably in all assets that are legally available for
distribution after payment in full of any preferential amounts. The holders of Common Stock have no subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected
by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the Board of Directors
and issued in the future. All outstanding shares of common stock are duly authorized, validly issued, fully paid and
non-assessable.
Preferred Stock
The Company is not authorized to issue any
preferred stock.
Outstanding Options, Warrants and Convertible Securities
We do not have any outstanding options, warrants or convertible
securities.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements
and supplementary data included in Exhibits 99.1(a), 99.1(b) and 99.2 which are incorporated herein by reference.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada Law
Section 78.7502 of the Nevada Revised Statutes
(“NRS”) permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except
an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding
if he:
|
(a)
|
is not liable pursuant to Nevada Revised Statute 78.138, or
|
|
(b)
|
acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
|
In addition, Section 78.7502 permits a corporation
to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid
in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of
the action or suit if he:
|
(a)
|
is not liable pursuant to Nevada Revised Statute 78.138; or
|
|
(b)
|
acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
|
To the extent that a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred
to above, or in defense of any claim, issue or matter, the corporation is required to indemnify him against expenses, including
attorneys’ fees, actually and reasonably incurred by him in connection with the defense.
Section 78.752 of the Nevada Revised Statutes
allows a corporation to purchase and maintain insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted
against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out
of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses.
Other financial arrangements made by the corporation
pursuant to Section 78.752 may include the following:
|
(a)
|
the creation of a trust fund;
|
|
(b)
|
the establishment of a program of self-insurance;
|
|
(c)
|
the securing of its obligation of indemnification by granting a security interest or other lien on any assets of the corporation; and
|
|
(d)
|
the establishment of a letter of credit, guaranty or surety
|
No financial arrangement made pursuant to Section
78.752 may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be
liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification
ordered by a court.
Any discretionary indemnification pursuant
to Section 78.752, unless ordered by a court or advanced pursuant to an undertaking to repay the amount if it is determined by
a court that the indemnified party is not entitled to be indemnified by the corporation, may be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper
in the circumstances. The determination must be made:
|
(b)
|
by the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding;
|
|
(c)
|
if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion, or
|
|
(d)
|
if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.
|
Charter Provisions and Other Arrangements
of the Registrant
The Registrant has not adopted any provisions
in its Articles of Incorporation relating to indemnification for its directors and officers. The Registrant has adopted
the following provision in its Bylaws relating to indemnification for its directors and officers:
The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a Director, Trustee,
Officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Trustee, Officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause
to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests
of the Corporation, and with respect to any criminal action proceeding, had reasonable cause to believe that such person's conduct
was unlawful.
The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in the Corporation's favor by reason of the fact that such person is or was a Director,
Trustee, Officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Trustee,
Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including
attorney's fees) and amount paid in settlement actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with respect to amounts paid in settlement, the settlement
of the suit or action was in the best interests of the Corporation; provided, however, that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for gross negligence or willful
misconduct in the performance of such person's duty to the Corporation unless and only to the extent that, the court in which such
action or suit was brought shall determine upon application that, despite circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as such court shall deem proper. The termination of any action or
suit by judgment or settlement shall not, of itself, create a presumption that the person did not act in good faith and in a manner
which such person reasonably believed to be in or not opposed to the best interests of the Corporation.
Any indemnification under Paragraphs .01 and
.02 above (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination
that indemnification of the Director, Trustee, Officer, employee or agent is proper in the circumstances because such person has
met the applicable standard of conduct set forth in Paragraphs .01 and .02 above. Such determination shall be made (a)
by the Board of Directors of the Corporation by a majority vote of a quorum consisting of Directors who were not parties to such
action, suit or proceeding, or (b) is such a quorum is not obtainable, by a majority vote of the Directors who were not parties
to such action, suit or proceeding, or (c) by independent legal counsel (selected by one or more of the Directors, whether
or not a quorum and whether or not disinterested) in a written opinion, or (d) by the Shareholders. Anyone making such
a determination under this Paragraph .04 may determine that a person has met the standards therein set forth as to some claims,
issues or matters but not as to others, and may reasonably prorate amounts to be paid as indemnification.
Expenses incurred in defending civil or criminal
action, suit or proceeding shall be paid by the Corporation, at any time or from time to time in advance of the final disposition
of such action, suit or proceeding as authorized in the manner provided in Paragraph .04 above upon receipt of an undertaking by
or on behalf of the Director, Trustee, Officer, employee or agent to repay such amount unless it shall ultimately be by the Corporation
is authorized in this Section.
The indemnification provided in this Section
shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any law, bylaw, agreement, vote
of shareholders or disinterested Directors or otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, Trustee, Officer,
employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.