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Healthier Choices Management Corp. – ‘10-Q’ for 9/30/19

On:  Tuesday, 10/29/19, at 8:24pm ET   ·   As of:  10/30/19   ·   For:  9/30/19   ·   Accession #:  844856-19-6   ·   File #:  1-36469

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  As Of               Filer                 Filing    For·On·As Docs:Size

10/30/19  Healthier Choices Mgmt Corp.      10-Q        9/30/19   57:3.4M

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    309K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     25K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     25K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     18K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     18K 
40: R1          Document and Entity Information                     HTML     65K 
19: R2          Condensed Consolidated Balance Sheets (Unaudited)   HTML    111K 
24: R3          Condensed Consolidated Balance Sheets (Unaudited)   HTML     38K 
                (Parenthetical)                                                  
56: R4          Condensed Consolidated Statements of Operations     HTML     59K 
                (Unaudited)                                                      
41: R5          Condensed Consolidated Stockholders' Equity         HTML     97K 
                Statements (Unaudited)                                           
20: R6          Condensed Consolidated Statements of Cash Flows     HTML    105K 
                (Unaudited)                                                      
25: R7          Organization, Going Concern, and Basis of           HTML     28K 
                Presentation                                                     
57: R8          Summary of Significant Accounting Policies          HTML     23K 
39: R9          Concentrations                                      HTML     26K 
31: R10         Disaggregation of Revenues                          HTML     40K 
13: R11         Intangible Assets                                   HTML     49K 
46: R12         Contract Assets and Contract Liabilities            HTML     28K 
51: R13         Stockholders' Equity                                HTML     48K 
30: R14         Fair Value Measurements                             HTML     35K 
12: R15         Commitments and Contingencies                       HTML     21K 
45: R16         Lease                                               HTML     40K 
50: R17         Organization, Going Concern, and Basis of           HTML     28K 
                Presentation (Policies)                                          
29: R18         Summary of Significant Accounting Policies          HTML     28K 
                (Policies)                                                       
14: R19         Concentrations (Tables)                             HTML     28K 
37: R20         Disaggregation of Revenues (Tables)                 HTML     40K 
55: R21         Intangible Assets (Tables)                          HTML     53K 
28: R22         Contract Assets and Contract Liabilities (Tables)   HTML     26K 
22: R23         Stockholders' Equity (Tables)                       HTML     54K 
36: R24         Fair Value Measurements (Tables)                    HTML     33K 
54: R25         Lease (Tables)                                      HTML     43K 
26: R26         Organization, Going Concern, and Basis of           HTML     25K 
                Presentation (Details)                                           
21: R27         Summary of Significant Accounting Policies          HTML     34K 
                (Details)                                                        
38: R28         CONCENTRATIONS, Cash (Details)                      HTML     21K 
53: R29         CONCENTRATIONS, Vendor (Details)                    HTML     28K 
47: R30         Disaggregation of Revenues (Details)                HTML     39K 
43: R31         INTANGIBLE ASSETS, Net (Details)                    HTML     50K 
15: R32         INTANGIBLE ASSETS, Future Annual Estimated          HTML     43K 
                Amortization Expense (Details)                                   
32: R33         Contract Assets and Contract Liabilities (Details)  HTML     39K 
48: R34         STOCKHOLDERS' EQUITY, Series A Warrants (Details)   HTML     50K 
44: R35         STOCKHOLDERS' EQUITY, Stock Options (Details)       HTML     25K 
16: R36         STOCKHOLDERS' EQUITY, Loss Per Share (Details)      HTML     27K 
33: R37         Fair Value Measurements (Details)                   HTML     32K 
49: R38         Commitments and Contingencies (Details)             HTML     19K 
42: R39         Lease, Asc 842 (Details)                            HTML     27K 
52: R40         LEASE, Maturity of Lease Liabilities (Details)      HTML     36K 
35: R41         LEASE, Balance Sheet Classification and Other       HTML     30K 
                Information (Details)                                            
17: R42         LEASE, Components of Lease Cost (Details)           HTML     26K 
23: R43         LEASE, Cash Flows and Supplemental Balance Sheet    HTML     43K 
                Information Related to Operating Leases (Details)                
18: XML         IDEA XML File -- Filing Summary                      XML     96K 
27: EXCEL       IDEA Workbook of Financial Reports                  XLSX     50K 
 6: EX-101.INS  XBRL Instance -- hcmc-20190930                       XML    937K 
 8: EX-101.CAL  XBRL Calculations -- hcmc-20190930_cal               XML    148K 
 9: EX-101.DEF  XBRL Definitions -- hcmc-20190930_def                XML    311K 
10: EX-101.LAB  XBRL Labels -- hcmc-20190930_lab                     XML   1.09M 
11: EX-101.PRE  XBRL Presentations -- hcmc-20190930_pre              XML    658K 
 7: EX-101.SCH  XBRL Schema -- hcmc-20190930                         XSD    122K 
34: ZIP         XBRL Zipped Folder -- 0000844856-19-000006-xbrl      Zip    117K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Item 1. Financial Statements (Unaudited)
"Part I Financial Information
"Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
"Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
"Condensed Consolidated Shareholders' Equity Statements for the Three and Nine Months Ended September 30, 2019 and 2018
"Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
"Notes to Condensed Consolidated Financial Statements
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3. Quantitative and Qualitative Disclosures about Market Risk
"Item 4. Controls and Procedures
"Part Ii Other Information
"Item 1. Legal Proceedings
"Item 1A. Risk Factors
"Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"Item 3. Defaults Upon Senior Securities
"Item 4. Mine Safety Disclosures
"Item 5. Other Information
"Item 6. Exhibits
"Signatures

This is an HTML Document rendered as filed.  [ Alternative Formats ]



 C: 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

Or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 001-36469

HEALTHIER CHOICES MANAGEMENT CORP.
(Exact name of Registrant as specified in its charter)

Delaware
 
84-1070932
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
3800 North 28Th Way
   
 
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: 305-600-5004

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
 
HCMC
 
OTC Pink Marketplace

As of October 29, 2019, there were 67,698,494,241 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.



TABLE OF CONTENTS

PAGE
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
 
   
 
   
 
   
 



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
ASSETS
         
CURRENT ASSETS
         
Cash and cash equivalents
$
4,248,984
 
$
7,061,253
Accounts receivable, net
 
42,371
   
51,951
Inventories
 
1,881,225
   
1,864,619
Prepaid expenses and vendor deposits
 
306,274
   
402,578
Investment
 
33,343
   
90,857
Contract assets
 
18,000
   
32,400
TOTAL CURRENT ASSETS
 
6,530,197
   
9,503,658
           
Property and equipment, net of accumulated depreciation
 
353,681
   
497,039
Intangible assets, net of accumulated amortization
 
2,029,610
   
3,062,204
Goodwill
 
1,437,314
   
1,437,314
Note receivable
 
390,757
   
528,007
Right of use asset – operating lease, net
 
4,528,468
   
-
Other assets
 
147,864
   
144,441
           
TOTAL ASSETS
$
15,417,891
 
$
15,172,663
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
CURRENT LIABILITIES
         
Accounts payable and accrued expenses
$
851,297
 
$
1,301,418
Contract liabilities
 
174,328
   
442,630
Operating lease liability, current
 
472,106
   
-
Loan payable, current
 
282,314
   
282,224
Credit line
 
2,000,000
   
1,868,460
Derivative liabilities – warrants
 
1,719,816
   
1,722,928
TOTAL CURRENT LIABILITIES
 
5,499,861
   
5,617,660
           
Loan payable, net of current portion
 
939,821
   
1,128,234
Operating lease liability, net of current
 
3,474,665
   
-
TOTAL LIABILITIES
 
9,914,347
   
6,745,894
           
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)
         
           
STOCKHOLDERS’ EQUITY
         
Series B convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; 20,150 shares issued and outstanding as of September 30, 2019 and December 31, 2018; aggregate liquidation preference of $20.2 million
 
20,150,116
   
20,150,116
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; 67,698,494,241 and 66,623,514,522 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
 
6,769,849
   
6,662,351
Additional paid-in capital
 
7,587,828
   
7,348,390
Accumulated deficit
 
(29,004,249)
   
(25,734,088)
TOTAL STOCKHOLDERS’ EQUITY
 
5,503,544
   
8,426,769
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
15,417,891
 
$
15,172,663

See notes to unaudited condensed consolidated financial statements

1


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
   
2018
 
2019
 
2018
SALES
                     
Vapor sales, net
$
898,229
 
$
1,106,596
 
$
3,207,530
 
$
3,556,130
Grocery sales, net
 
2,520,101
   
1,923,878
   
8,407,919
   
6,359,671
TOTAL SALES, NET
 
3,418,330
   
3,030,474
   
11,615,449
   
9,915,801
                       
Cost of sales vapor
 
385,208
   
460,648
   
1,337,555
   
1,602,363
Cost of sales grocery
 
1,629,980
   
1,183,033
   
5,309,567
   
3,850,998
GROSS PROFIT
 
1,403,142
   
1,386,793
   
4,968,327
   
4,462,440
                       
OPERATING EXPENSES
 
2,532,505
   
2,179,492
   
8,057,452
   
7,334,165
                       
LOSS FROM OPERATIONS
 
(1,129,363)
   
(792,699)
   
(3,089,125)
   
(2,871,725)
                       
OTHER (EXPENSE) INCOME
                     
Gain (loss) on investment
 
(12,514)
   
11,999
   
(57,514)
   
11,999
Other income (expense), net
 
(146)
   
152,260
   
(838)
   
469,760
Interest income (expense), net
 
(8,280)
   
30,458
   
(19,669)
   
63,219
Gain (loss) on repurchase of Series A warrants
 
-
   
(10,696,774)
   
-
   
(10,696,774)
Total other (expense) income, net
 
(20,940)
   
(10,502,057)
   
(78,021)
   
(10,151,796)
                       
NET LOSS
$
(1,150,303)
 
$
(11,294,756)
 
$
(3,167,146)
 
$
(13,023,521)
                       
NET LOSS PER SHARE-BASIC AND DILUTED
$
0.00
 
$
0.00
 
$
0.00
 
$
0.00
                       
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED
 
66,929,136,282
   
45,821,526,888
   
66,734,751,470
   
34,900,093,115

See notes to unaudited condensed consolidated financial statements

2



HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – July 1, 2019
 
20,150
 
$
20,150,116
   
66,645,257,694
 
$
6,664,526
 
$
7,543,370
 
$
(27,853,946)
 
$
6,504,066
Issuance of common stock in connection with cashless exercise of Series A warrants
 
-
   
-
   
53,236,547
   
5,323
   
(3,112)
   
-
   
2,211
Issuance of awarded stock for board members
 
-
   
-
   
1,000,000,000
   
100,000
   
(100,000)
   
-
   
-
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
147,570
   
-
   
147,570
Net loss
 
-
   
-
   
-
   
-
   
-
   
(1,150,303)
   
(1,150,303)
Balance – September 30, 2019
 
20,150
 
$
20,150,116
   
67,698,494,241
 
$
6,769,849
 
$
7,587,828
 
$
(29,004,249)
 
$
5,503,544


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – July 1, 2018
 
-
 
$
-
   
29,348,867,108
 
$
2,934,887
 
$
11,238,744
 
$
(14,299,592)
 
$
(125,961)
Issuance of common stock in connection with cashless exercise of Series A warrants
 
-
   
-
   
1,602,741,446
   
160,274
   
(93,958)
   
-
   
66,317
Stock options exercised
 
-
   
-
   
777,777,778
   
77,778
   
-
   
-
   
77,778
Issuance of preferred stock in connection with cashless exercise of Series A warrants
 
20,722
   
20,721,744
   
-
   
-
   
(1,692,747)
   
-
   
19,028,997
Modification of share-based payment awards to officers
 
-
   
-
   
19,000,000,000
   
1,900,000
   
(1,900,000)
   
-
   
-
Issuance of awarded stock for officers
 
-
   
-
   
3,000,000,000
   
300,000
   
(300,000)
   
-
   
-
Issuance of awarded stock for professional services
 
-
   
-
   
3,000,000,000
   
300,000
   
(300,000)
   
-
   
-
Preferred stock exercised
 
(572)
   
(571,628)
   
5,716,280,000
   
571,628
   
-
   
-
   
-
Stock swap
 
-
   
-
   
1,500,000,000
   
150,000
   
-
   
-
   
150,000
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
140,356
   
-
   
140,356
Net loss
                               
(11,294,756)
   
(11,294,756)
Balance – September 30, 2018
 
20,150
 
$
20,150,116
   
63,945,666,332
 
$
6,394,567
 
$
7,092,395
 
$
(25,594,348)
 
$
8,042,730

See notes to unaudited condensed consolidated financial statements

3


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – January 1, 2019
 
20,150
 
$
20,150,116
   
66,623,514,522
 
$
6,662,351
 
$
7,348,390
 
$
(25,734,088)
 
$
8,426,769
Issuance of common stock in connection with cashless exercise of Series A warrants
 
-
   
-
   
74,979,719
   
7,498
   
(4,386)
   
-
   
3,112
Issuance of awarded stock for board members
 
-
   
-
   
1,000,000,000
   
100,000
   
(100,000)
   
-
   
-
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
343,824
   
-
   
343,824
Cumulative Effect on adoption of ASC 842
 
-
   
-
   
-
   
-
   
-
   
(103,015)
   
(103,015)
Net loss
 
-
   
-
   
-
   
-
   
-
   
(3,167,146)
   
(3,167,146)
Balance – September 30, 2019
 
20,150
 
$
20,150,116
   
67,698,494,241
 
$
6,769,849
 
$
7,587,828
 
$
(29,004,249)
 
$
5,503,544


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – January 1, 2018
 
-
 
$
-
   
29,348,867,108
 
$
2,934,887
 
$
10,080,238
 
$
(12,570,827)
 
$
444,298
Issuance of common stock in connection with cashless exercise of Series A warrants
 
-
   
-
   
1,602,741,446
   
160,274
   
(93,958)
   
-
   
66,317
Stock options exercised
 
-
   
-
   
777,777,778
   
77,778
   
-
   
-
   
77,778
Issuance of preferred stock in connection with cashless exercise of Series A warrants
 
20,722
   
20,721,744
   
-
   
-
   
(1,692,747)
   
-
   
19,028,997
Modification of share-based payment awards to officers
 
-
   
-
   
19,000,000,000
   
1,900,000
   
(1,900,000)
   
-
   
-
Issuance of awarded stock for officers
 
-
   
-
   
3,000,000,000
   
300,000
   
(300,000)
   
-
   
-
Issuance of awarded stock for professional services
 
-
   
-
   
3,000,000,000
   
300,000
   
(300,000)
   
-
   
-
Preferred stock exercised
 
(572)
   
(571,628)
   
5,716,280,000
   
571,628
   
-
   
-
   
-
Stock swap
 
-
   
-
   
1,500,000,000
   
150,000
   
-
   
-
   
150,000
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
1,298,862
   
-
   
1,298,862
Net loss
 
-
   
-
   
-
   
-
   
-
   
(13,023,521)
   
(13,023,521)
Balance – September 30, 2018
 
20,150
 
$
20,150,116
   
63,945,666,332
 
$
6,394,567
 
$
7,092,395
 
$
(25,594,348)
 
$
8,042,730

See notes to unaudited condensed consolidated financial statements

4


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
Nine Months Ended
   
2018
OPERATING ACTIVITIES
         
Net loss
$
(3,167,146)
 
$
(13,023,521)
Adjustments to reconcile net loss to net cash used in operating activities:
         
Bad debt expense
 
(3,002)
   
(75,399)
Depreciation and amortization
 
449,071
   
269,729
Loss on disposal of assets
 
25,427
   
-
Loss on investment
 
57,514
   
-
Amortization of right-of-use asset
 
459,760
   
-
Loss on repurchase of Series A warrants
 
-
   
10,696,774
Stock-based compensation expense
 
343,824
   
1,298,862
           
Changes in operating assets and liabilities:
         
Accounts receivable
 
12,582
   
21,036
Inventories
 
(16,606)
   
(144,893)
Prepaid expenses and vendor deposits
 
94,110
   
(288,359)
Contract assets
 
14,400
   
(180,000)
Other assets
 
(3,423)
   
-
Accounts payable
 
(155,910)
   
(36,652)
Accrued expenses
 
(294,211)
   
(112,343)
Contract liabilities
 
(268,302)
   
1,968,682
Lease liability
 
(402,857)
   
-
NET CASH USED IN OPERATING ACTIVITIES
 
(2,854,769)
   
393,916
           
INVESTING ACTIVITIES
         
Collection of note receivable
 
137,250
   
10,083
Purchases of property and equipment
 
(12,967)
   
(42,520)
Purchases of patent
 
(25,000)
   
(37,500)
Gain on investment
 
-
   
(11,999)
Issuance of note receivable
 
-
   
(500,000)
NET CASH PROVIDED BY INVESTING ACTIVITIES
 
99,283
   
(581,936)
           
FINANCING ACTIVITIES
         
Proceeds from line of credit
 
131,540
   
500,000
Principal payments on loan payable
 
(188,323)
   
(1,573)
Proceeds from exercise of stock options
 
-
   
77,778
NET CASH PROVIDED BY FINANCING ACTIVITIES
 
(56,783)
   
576,205
           
DECREASE IN CASH
 
(2,812,269)
   
388,185
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD
 
7,061,253
   
7,883,191
CASH AND CASH EQUIVALENTS — END OF PERIOD
$
4,248,984
 
$
8,271,376
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
         
Cash paid for interest
$
107,646
 
$
1,750

See notes to unaudited condensed consolidated financial statements

5


HEALTHIER CHOICES MANAGEMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION

Organization

Healthier Choices Management Corp. (the “Company”) is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives. The Company currently operates nine retail vape stores in the Southeast region of the United States, through which it offers e-liquids, vaporizers and related products. The Company also operates Ada’s Natural Market, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc and Paradise Health and Nutrition, stores that offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items through its wholly owned subsidiary Healthy Choice Markets 2, LLC. The Company also sells vitamins and supplements on the Amazon.com marketplace through its wholly owned subsidiary Healthy U Wholesale, Inc. The Company markets the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which a customer partially fills with either cannabis or CBD concentrate (approximately 50 mg) purchased from a third party. The Q-Cup™ is then inserted into the Q-Cup™ Tank or Globe, that heats the cup from the outside without coming in direct contact with the solid concentrate. This Q-Cup™ technology provides significantly more efficiency and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally.

Liquidity

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values.

The Company incurred a loss from operations of approximately $3.1 million for the nine months ended September 30, 2019. As of September 30, 2019, cash and cash equivalents totaled approximately $4.2 million. While we anticipate that our current cash, cash equivalents, and cash to be generated from operations will be sufficient to meet our projected operating plans for the foreseeable future through at least a year and a day from the issuance of these unaudited condensed consolidated financial statements, should we require additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all.

Basis of Presentation and Principles of Consolidation

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The unaudited condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC (“Paradise Health and Nutrition”), The Vitamin Store, LLC, Healthy U Wholesale, Inc., The Vape Store, Inc. (“Vape Store”), Vaporin, Inc. (“Vaporin”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising LLC, Vaporin LLC, and Vaporin Florida, Inc. All intercompany accounts and transactions have been eliminated in consolidation.


6

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2019. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been omitted under the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 27, 2019.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications
 
Certain prior period amounts in the consolidated financial statements related to write-down of obsolete and slow moving inventory, due from merchant credit card processors, gain (loss) on investment and other income (expense), net have been reclassified to conform to the current period’s presentation. No changes to the Company’s net loss were made as a result of such reclassifications.

Use of Estimates in the Preparation of the Financial Statements

The preparation of condensed consolidated 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 condensed consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes and related valuation allowances, and the valuation of the assets and liabilities acquired in business combinations. Certain of management’s estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. The Company adopted ASU No. 2016-02 on January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented.

Adoption of this standard resulted in the recognition of operating lease right-of-use assets of $4,988,000 and corresponding lease liabilities of $4,350,000 on the consolidated balance sheet as of January 1, 2019. An adjustment to Ada’s favorable lease of $739,000 and prepaid rent of $2,000, resulted in a cumulative effect adjustment of $103,000. The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included in Note 10, Leases.

Note 3. CONCENTRATIONS

Cash

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. The majority of the Company’s cash and cash equivalents are concentrated in one large financial institution, which is in excess of Federal Deposit Insurance Corporation (FDIC) coverage.

A summary of the financial institutions that had a cash and cash equivalents in excess of FDIC limits of $250,000 at September 30, 2019 and December 31, 2018 is presented below:

 
Total Cash in excess of FDIC limits of $250,000
 $
3,309,854
   
6,039,000
7


The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests, as deposits are held in excess of federally insured limits. The Company has not experienced any losses in such accounts.

Vendor

We source from multiple suppliers. These suppliers range from small independent businesses to multinational conglomerates. For the nine months ended September 30, 2019, we purchased approximately 68% of the goods we sell from our top 20 suppliers.

Purchase from one vendor in excess of 20% of total purchase is summarized in below table:

 
Purchase in excess of 20% of total purchase
         
Vendor A
 
22%
   
30%

Note 4. DISAGGREGATION OF REVENUES

The Company reports the following segments in accordance with management guidance: Vapor and Grocery. When the Company prepares its internal management reporting to evaluate business performance, we disaggregate revenue into the following categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 
Three Months Ended
 
Nine Months Ended
       
Vapor
$
898,229
 
$
1,106,596
 
$
3,207,530
 
$
3,556,130
Grocery
 
2,520,101
   
1,923,878
   
8,407,919
   
6,359,671
Total revenue
$
3,418,330
 
$
3,030,474
 
$
11,615,449
 
$
9,915,801
                       
Retail Vapor
$
898,216
 
$
1,106,228
 
$
3,207,120
 
$
3,548,704
Retail Grocery
 
2,133,537
   
1,407,776
   
7,143,616
   
4,581,001
Food service/restaurant
 
291,435
   
370,609
   
949,211
   
1,167,006
Online/eCommerce
 
81,035
   
135,483
   
285,891
   
593,347
Wholesale Grocery
 
14,094
   
10,010
   
29,201
   
18,317
Wholesale Vapor
 
13
   
368
   
410
   
7,426
Total revenue
$
3,418,330
 
$
3,030,474
 
$
11,615,449
 
$
9,915,801

Note 5. INTANGIBLE ASSETS

Intangible assets, net are as follows:

 
Useful Lives (Years)
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names
   
8-10 years
 
$
993,000
 
$
(328,733)
 
$
664,267
Customer relationships
   
4-10 years
   
1,228,000
   
(230,198)
   
997,802
Patents
   
10 years
   
270,250
   
(42,271)
   
227,979
Non-compete
   
4 years
   
174,000
   
(34,438)
   
139,562
   
3 years
   
4,500
   
(4,500)
   
-
Intangible assets, net
       
$
2,669,750
 
$
(640,140)
 
$
2,029,610

 
Useful Lives (Years)
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Favorable lease
   
15 years
 
$
890,000
 
$
(150,580)
 
$
739,420
Trade names
   
8-10 years
   
993,000
   
(252,329)
   
740,671
Customer relationships
   
4-10 years
   
1,228,000
   
(41,010)
   
1,186,990
Patents
   
10 years
   
245,250
   
(22,940)
   
222,310
Non-compete
   
4 years
   
174,000
   
(1,812)
   
172,188
   
3 years
   
4,500
   
(3,875)
   
625
Intangible assets, net
       
$
3,534,750
 
$
(472,546)
 
$
3,062,204

8

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense amounted to approximately $318,000 and $122,000 for the nine months ended September 30, 2019 and 2018, respectively. Due to adoption of ASU No. 2016-02 on January 1, 2019, the Company’s favorable lease intangible asset associated with its Ada’s Natural Market location, with a net balance of $739,000 as of December 31, 2018, was reclassified to right-of-use asset in the Ada’s lease amortization schedule to correct the January 1, 2019 opening balance sheet. Future annual estimated amortization expense is as follows:

Years ending December 31,
   
2019 (remaining three months)
$
106,160
2020
 
424,650
2021
 
417,650
2022
 
402,270
2023
 
163,400
Thereafter
 
515,480
Total
$
2,029,610

Note 6. CONTRACT ASSETS AND CONTRACT LIABILITIES

The Company’s contract assets consist of sales commissions to third parties that support and facilitate the completion of complex transactions, for which the Company has a performance obligation to pay due to the fact that the sales agreement was fully executed.

The Company’s deferred revenue consists of gift cards and loyalty rewards, for which the Company has a performance obligation to deliver products when customers redeem balances or terms expire through breakage. Our breakage policy is twenty four-month for gift cards, twelve months for Grocery loyalty rewards, and six months for Vapor loyalty rewards. As such, all contract liabilities are expected to be recognized within a twenty four-month period. Revenue is recognized when gift card and loyalty points are redeemed.

A summary of the net changes in contract liabilities activity for the nine months ended September 30, 2019 and 2018 is presented below:

   
Beginning balance as January 1,
$
442,630
 
$
61,312
Issued
 
50,778
   
81,720
Redeemed
 
(57,319)
   
(113,954)
Breakage recognized
 
(1,563)
   
916
Fulfillment of contract
 
(260,198)
   
2,000,000
Ending balance as of September 30,
$
174,328
 
$
2,029,994

Note 7. STOCKHOLDERS’ EQUITY

Series A Warrants

A summary of warrant activity for the nine months ended September 30, 2019 is presented below:

 
Exercise
Price
 
Warrant Common
Stock Equivalent
 
Remaining
Contractual Term
Outstanding at January 1, 2019
$
0.0001
   
41,643,000,000
   
1.50
Warrants settlement
$
-
   
-
     
Cashless exercises for common stock
$
(0.0001)
   
(75,000,000)
     
Black Scholes Value adjustment
$
(0.0001)
   
(148,000,000)
     
Outstanding at September 30, 2019
$
0.0001
   
41,420,000,000
   
0.75

Pursuant to the Series A Warrant agreement, the Black Scholes value is calculated by a third-party and utilized in calculating the warrant common stock equivalents at the point of cashless exercise. As such, the value is computed at the end of each reporting period to determine the amount of warrant common stock equivalents outstanding using the formula below:

(Series A Warrants exercised * Black Scholes Value) / Closing common stock bid price as of two trading days prior.

9

A summary of the outstanding warrant common stock equivalents at September 30, 2019 and December 31, 2018 is presented below:

 
Warrants outstanding (A)
 
2.7299
   
2.7348
Black Scholes value (B)
 
1,517,280
   
1,522,692
Subtotal (C)=(A) x (B)
 
4,142,023
   
4,164,258
Closing bid stock price (D)
$
0.0001
 
$
0.0001
Warrant common stock equivalent (C)/(D)
 
41,420,000,000
   
41,643,000,000

Stock Options

The Company recognized stock-based compensation in connection with the amortization of stock options, net of recovery of stock-based charges for forfeited unvested stock options. Stock-based compensation expense is included as part of operating expenses in the accompanying consolidated statements of operations.

A summary of Stock-based compensation expense recognized is presented below:

 
Three Months Ended
 
Nine Months Ended
       
Stock-based compensation
$
147,570
 
$
140,356
 
$
343,824
 
$
1,298,862

At September 30, 2019, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees, directors and consultants was approximately $73,000, which will be amortized over a weighted average period of 1 year.

Loss Per Share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed using the weighted average number of shares of common stock outstanding and, if dilutive, potential shares of common stock outstanding during the period. Potential common shares consist of incremental shares of common stock issuable upon (a) the exercise of stock options (using the treasury stock method); (b) the conversion of Series A convertible preferred stock; (c) the exercise of warrants (using the if-converted method); (d) the vesting of restricted stock units; and (e) the conversion of convertible notes payable. Diluted income (loss) per share excludes the potential common shares, as their effect is antidilutive.

The following table summarizes the Company’s securities, in common share equivalents, that have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

   
       
2018
 
Preferred stock
   
201,501,000,000
     
201,501,000,000
 
Stock options
   
91,062,000,000
     
90,012,000,000
 
Warrants
   
41,420,000,000
     
44,369,000,000
 
Total
   
333,983,000,000
     
335,882,000,000
 

10

Note 8. FAIR VALUE MEASUREMENTS

The fair value framework under FASB’s guidance requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:

Level 1: Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2: Fair value measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and

Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.

Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value and tested for impairment annually, or when there is an indicator of impairment between annual tests.

The following table summarizes the liabilities measured at fair value on a recurring basis as of September 30, 2019:

 
Level 1
 
Level 2
 
Level 3
 
Total
LIABILITIES
                     
Derivative liabilities – warrants
$
-
 
$
1,719,816
 
$
-
 
$
1,719,816
Total derivative liabilities – warrants
$
-
 
$
1,719,816
 
$
-
 
$
1,719,816

The following table summarizes the liabilities measured at fair value on a recurring basis as of December 31, 2018:

 
Level 1
 
Level 2
 
Level 3
 
Total
LIABILITIES
                     
Derivative liabilities – warrants
$
-
 
$
1,722,928
 
$
-
 
$
1,722,928
Total derivative liabilities – warrants
$
-
 
$
1,722,928
 
$
-
 
$
1,722,928

Note 9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. With respect to legal costs, we record such costs as incurred.

A subsidiary of the Company is a defendant in two lawsuits that stem from purported defect and negligence concerning electronic cigarette products it sold. The action was filed in state court in Broward County, Florida. Plaintiff is seeking damages for his physical injuries as well as his pain and suffering. Plaintiff claims that he was injured by a vape battery explosion that occurred in his pocket on or about September 2017 and that he purchased the battery from a store operated by the Company’s subsidiary.

The other lawsuit was filed in the 8th Judicial Circuit in and for Alachua Court, Florida. Plaintiff claimed that a battery explosion occurred in his pocket on or about May 1, 2018. Plaintiff sued the Company, alleging design and manufacturing defects in the subject battery, as well as breach of warranties and negligence, which caused or contributed to the Plaintiff’s injuries and damages.

While discovery is ongoing, the Company intends to vigorously dispute these claims that have been asserted against it.

Note 10. LEASE

The Company has various lease agreements with terms up to 20 years, including leases of retail stores, headquarter and equipment. All the leases are classified as operating leases. The Company adopted Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”) effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. We elected not to reassess whether any expired or existing contracts are or contain leases, reassess the lease classification for any expired or existing leases, nor reassess initial direct costs for any existing leases.

11


The standard had an impact on the Company’s condensed consolidated balance sheets, but did not have a material impact on the Company’s condensed consolidated statements of operations or condensed consolidated statements of cash flows upon adoption. Upon adoption, the Company recognized right-of-use asset of $5.0 million and lease liability of $4.3 million for operating leases as of January 1, 2019.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2019.

Maturity of Lease Liabilities by Fiscal Year
 
2019 (remaining)
$
165,350
2020
 
633,636
2021
 
507,682
2022
 
464,380
2023
 
441,262
Thereafter
 
2,888,699
Total undiscounted operating lease payments
$
5,101,009
Less: Imputed interest
 
(1,154,238)
Present value of operating lease liabilities
$
3,946,771


Balance Sheet Classification
   
Operating lease liability, current
$
472,106
Operating lease liability, net of current
 
3,474,665
Total operating lease liabilities
$
3,946,771

Other Information
     
Weighted-average remaining lease term for operating leases
 
11 years
 
Weighted-average discount rate for operating leases
   
4.8
%

Components of lease cost are as follows:
 
Operating lease cost
$
380,901
Variable lease cost
 
238,996
Short-term lease cost
 
107,759
Total Rent Expense
$
727,656

Cash Flows

Cash paid for amounts included in the present value of operating lease liabilities was $403,000 for the nine months ended September 30, 2019 and was included in operating cash flows. The amortization of the right-of-use asset of $460,000 was included in operating cash flows.

Supplemental balance sheet information related to our operating leases is as follows:

 
Balance Sheet Classification
   
Right of use asset
   
Other assets
 
$
4,988,227
 
$
4,528,468
Lease liability, current
   
Current liabilities
 
$
553,316
 
$
472,106
Lease liability, net of current
   
Other liabilities
 
$
3,796,312
 
$
3,474,665

12


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONDENSED CONSOLDIATED OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC (“Paradise Health and Nutrition”), The Vitamin Store, LLC, Healthy U Wholesale, Inc., The Vape Store, Inc. (“Vape Store”), Vaporin, Inc. (“Vaporin”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising LLC, Vaporin LLC, and Vaporin Florida, Inc. . All intercompany accounts and transactions have been eliminated in consolidation.

Company Overview

Healthier Choices Management Corp. (the “Company”) is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives. The Company currently operates nine retail vape stores in the Southeast region of the United States, through which it offers e-liquids, vaporizers and related products. The Company markets its Q-Cup™ technology under the vape segment. This Q-Cup™ technology provides significantly more efficiency and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally. In October 2019, the Company announced the launch of the Q-Unit, a U.S. patented device made specifically for vaping concentrates.  The Q-Unit, which boasts a mechanism that prevents the concentrates from coming in direct contact with the heating element, allows consumers to vape uncut pure extract from a pure quartz cup. The Company also operates Ada’s Natural Market, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc. and Paradise Health and Nutrition, stores that offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items through its wholly owned subsidiary Healthy Choice Markets 2, LLC.

Liquidity

The unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The Company incurred a loss from operations of approximately $3.1 million for the nine months ended September 30, 2019. As of September 30, 2019, cash and cash equivalents totaled approximately $4.2 million. While we anticipate that our current cash, cash equivalents, and cash to be generated from operations will be sufficient to meet our projected operating plans for the foreseeable future through a year and a day from the issuance of these unaudited consolidated financial statements, should we require additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, the Company will further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations. The inability to raise additional financing may have a material adverse effect on the future performance of the Company.

Factors Affecting Our Performance

We believe the following factors affect our performance:

Vapor Retail: We believe the operating performance of our vapor retail stores will affect our revenue and financial performance. The Company has a total of nine retail vape stores, which are located in Florida, Georgia and Tennessee.

Inventory Management: Our vapor segment revenue trends are affected by an evolving product acceptance and consumer demand. We are creating and offering new products to our retail vapor customers. Evolving product development and technology impacts our licensing and intellectual properties spending. We expect the transition to vaporizer and advanced technology and enhanced performance products to continue and will impact our overall operating results in the future.

Increased Competition: The launch by national competitors in both of our business reporting segments have made it more difficult to compete on prices and to secure business. We expect increased product supply and downward pressure on prices to continue and impact our operating results in the future. We also expect the continued expansion of national grocery chains, which leads to greater competition, to impact our operating results in the future.
13


Results of Operations

The following table sets forth our unaudited condensed consolidated Statements of Operations for the three months ended September 30, 2019 and 2018 that is used in the following discussions of our results of operations:

 
Three Months Ended September 30,
 
2019 to 2018
 
2019
 
2018
 
Change $
SALES
               
Vapor sales, net
$
898,229
 
$
1,106,596
 
$
(208,367)
Grocery sales, net
 
2,520,101
   
1,923,878
   
596,223
TOTAL SALES, NET
 
3,418,330
   
3,030,474
   
387,856
                 
Cost of sales vapor
 
385,208
   
460,648
   
(75,440)
Cost of sales grocery
 
1,629,980
   
1,183,033
   
446,947
GROSS PROFIT
 
1,403,142
   
1,386,793
   
16,349
                 
OPERATING EXPENSES
               
Advertising
 
46,190
   
56,021
   
(9,831)
Selling, general and administrative
 
2,486,315
   
2,123,471
   
362,844
Total operating expenses
 
2,532,505
   
2,179,492
   
353,013
LOSS FROM OPERATIONS
 
(1,129,363)
   
(792,699)
   
(336,664)
                 
OTHER INCOME (EXPENSE)
               
Loss on repurchase of Series A warrants
 
-
   
(10,696,774)
   
(10,696,774)
Gain (loss) on investment
 
(12,514)
   
11,999
   
(24,513)
Other income (expense)
 
(146)
   
152,260
   
(152,406)
Interest income (expense)
 
(8,280)
   
30,458
   
(38,738)
Total other income (expense), net
 
(20,940)
   
(10,502,057)
   
10,481,117
                 
NET LOSS
$
(1,150,303)
 
$
(11,294,756)
 
$
10,144,453

Net Vapor sales decreased $0.2 million to $0.9 million for the three months ended September 30, 2019 as compared to $1.1 million for the same period in 2018. The decrease in sales is primarily due to the decreased number of stores – nine stores open during the three months ended September 30, 2019 as compared to twelve retail stores and one wholesale location for the same period in 2018.

Net Grocery sales increased $0.6 million to $2.5 million for the three months ended September 30, 2019 as compared to $1.9 million for the same period in 2018. The increase in sales is primarily due to the acquisition of three Paradise Health and Nutrition stores.

Vapor cost of goods sold for the three months ended September 30, 2019 and 2018 were $0.4 million and $0.5 million, respectively, a decreased of $0.1 million. The decrease is primarily due to decreases in product costs during three months ended September 30, 2019 as compared to the same period in 2018. Gross profit was $0.5 million and $0.6 million for three months ended September 30, 2019 and 2018, respectively.

Grocery cost of goods sold for the three months ended September 30, 2019 and 2018 were $1.6 million and $1.2 million respectively, an increase increasedof $0.4 million. The increase is primarily due to increases in sales and cost of goods sold from the acquisition of three Paradise Health and Nutrition stores. Gross profit was $0.9 million and $0.7 million for the three months ended September 30, 2019 and 2018, respectively.

Selling, general and administrative expenses increased $0.4 million to $2.5 million for the three months ended September 30, 2019 compared to $2.1 million for the same period in 2018. The increase is primarily attributable to increases in payroll and employee related cost of $0.2 million, occupancy costs of $0.1 million, and depreciation and amortization of $0.1 million.

Net other expense of $21,000 for the three months ended September 30, 2019 includes loss on investment of $13,000, and interest expense of $8,000. Net other expense of $10.5 million for the three months ended September 30, 2018 includes a change in fair value of Series A Warrants of $10.7 million, offset by other income of $0.2 million, interest income of $30,000, and gain on investment of $12,000.


14


The following table sets forth our unaudited consolidated Statements of Operations for the nine months ended September 30, 2019 and 2018 that is used in the following discussions of our results of operations:

 
Nine Months Ended
 
2019 to 2018
 
2019
 
2018
 
Change $
SALES
               
Vapor sales, net
$
3,207,530
 
$
3,556,130
 
$
(348,600)
Grocery sales, net
 
8,407,919
   
6,359,671
   
2,048,248
TOTAL SALES, NET
 
11,615,449
   
9,915,801
   
1,699,648
                 
Cost of sales vapor
 
1,337,555
   
1,602,363
   
(264,808)
Cost of sales grocery
 
5,309,567
   
3,850,998
   
1,458,569
GROSS PROFIT
 
4,968,327
   
4,462,440
   
505,887
                 
OPERATING EXPENSES
               
Advertising
 
135,794
   
137,485
   
(1,691)
Selling, general and administrative
 
7,921,658
   
7,196,680
   
724,978
Total operating expenses
 
8,057,452
   
7,334,165
   
723,287
LOSS FROM OPERATIONS
 
(3,089,125)
   
(2,871,725)
   
(217,400)
                 
OTHER INCOME (EXPENSE)
               
Loss on repurchase of Series A warrants
 
-
   
(10,696,774)
   
10,696,774
Gain (loss) on investment
 
(57,514)
   
11,999
   
(69,513)
Other income (expense)
 
(838)
   
469,760
   
(470,598)
Interest income (expense)
 
(19,669)
   
63,219
   
(82,888)
Total other income (expense), net
 
(78,021)
   
(10,151,796)
   
10,073,775
                 
NET LOSS
$
(3,167,146)
 
$
(13,023,521)
 
$
9,856,375

Net Vapor sales decreased $0.3 million to $3.2 million for the nine months ended September 30, 2019 as compared to $3.6 million for the same period in 2018. The decrease in sales is primarily due to nine stores open during the nine months ended September 30, 2019 as compared to twelve retail stores and one wholesale location for the same period in 2018.

Net Grocery sales increased $2.0 million to $8.4 million for the nine months ended September 30, 2019 as compared to $6.4 million for the same period in 2018. The increase in sales is primarily due to the acquisition of three Paradise Health and Nutrition stores.

Vapor cost of goods sold for the nine months ended September 30, 2019 and 2018 were $1.3 million and $1.6 million, respectively, a decrease of $0.3 million. The decrease is primarily due to the decreased number of stores. Gross profit was $1.9 million and $2.0 million for the nine months ended September 30, 2019 and 2018, respectively.

Grocery cost of goods sold for the nine months ended September 30, 2019 and 2018 were $5.3 million and $3.9 million, respectively, an increase of $1.5 million. The increase is primarily due to increases in sales and cost of goods sold from the acquisition of three Paradise Health and Nutrition stores. Gross profit was $3.1 million and $2.5 million for the nine months ended September 30, 2018 and 2018, respectively.

Selling, general and administrative expenses increased $0.7 million to $7.9 million for the nine months ended September 30, 2019 compared to $7.2 million for the same period in 2018. The increase is primarily attributable to increases in payroll and employee related cost of $0.9 million, occupancy costs of $0.3 million, depreciation and amortization of $0.2 million, and taxes, licenses & permits of $0.1 million, and insurance costs of $0.1 million, offset by a decrease in stock-based compensation of $1.0 million.

Net other expense of $0.1 million for the nine months ended September 30, 2019 was primarily due to a loss on investment of $0.1 million. Net other expense of $10.2 million for the nine months ended September 30, 2018 includes a change in fair value of Series A Warrants of $10.7 million, offset by other income of $0.5 million, and interest income of $0.1 million.

The company did not incur activity from discontinued operations for the nine months ended September 30, 2019 or for the same period in 2018.

15


Liquidity and Capital Resources

 
Nine Months Ended
September 30,
 
2019
 
2018
Net cash used in operating activities
$
(2,854,769)
 
$
393,916
Net cash provided by investing activities
 
99,283
   
(581,936)
Net cash provided by financing activities
 
(56,783)
   
576,205
 
$
(2,812,269)
 
$
388,185

Our net cash used in operating activities of $2.9 million for the nine months ended September 30, 2019 resulted from our net loss of $3.2 million, a net cash usage of $1.0 million from changes in operating assets and liabilities, offset by amortization of rigth-of-used asset of $0.5 million, depreciation and amortization expenses of $0.4 million and share-based compensation expense of $0.3 million. Our net cash used in operating activities of $0.4 million for the nine months ended September 30, 2018 resulted from a non-cash adjustment of $12.2 million, and a net cash usage of $1.2 million from changes in operating assets and liabilities, offset by a net loss of $13 million.

The net cash provided by investing activities of $0.1 million for the nine months ended September 30, 2019 resulted from payments received on the VPR Brands L.P. Note. The net cash used in investing activities of $0.6 million for the nine months ended September 30, 2018 resulted from the issuance and collection of a note receivable, and purchases of a patent and property and equipment.

The net cash used in financing activities of $0.1 million for the nine months ended September 30, 2019 resulted from $0.1 million proceeds from the credit line with Professional Bank, offset by $0.2 million of loan principle payment. The net cash provided by financing activities of $0.6 million for the nine months ended September 30, 2018 is due to proceeds from loan payable of $0.5 million and proceeds from exercise of stock options of $0.1 million.

At September 30, 2019 and December 31, 2018, we did not have any material financial guarantees or other contractual commitments with vendors that are reasonably likely to have an adverse effect on liquidity.

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. The majority of our cash and cash equivalents are concentrated in three financial institutions and are generally in excess of the FDIC insurance limit. The Company has not experienced any losses on its cash and cash equivalents. The following table presents the Company’s cash position as of September 30, 2019 and December 31, 2018.

   
Cash
$
4,248,984
 
$
7,061,253
Total assets
$
15,417,891
 
$
15,172,663
Percentage of total assets
 
27.56%
   
46.54%

The Company reported a net loss of $3.2 million for the nine months ended September 30, 2019. The Company also had positive working capital of $1.0 million. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to satisfy warrant obligations, and to continue as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these consolidated financial statements requires us to exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the consolidated financial statements.


16

We base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

There have been no material changes to the Company’s critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the 2018 Annual Report, which we believe are the most critical to our business and the understanding of our results of operations and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.

Seasonality

We do not consider our business to be seasonal.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements including statements regarding retail expansion, the future demand for our products, the transition to vaporizer and other products, competition, the adequacy of our cash resources and our authorized Common Stock, and our continued ability to raise capital.

The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include our future common stock price, the timing of future warrant exercises and stock sales, having the authorized capital to issue stock to exercising Series A Warrant holders, customer acceptance of our products, and proposed federal and state regulation. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

17


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, including our Principal Executive Officer and Principal Financial Officer, did not carry out an evaluation on internal controls as of September 30, 2019 in regard to the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act. As an evaluation was not carried out, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.

In planning and performing its audit of our financial statements for the year ended December 31, 2018 in accordance with standards of the Public Company Accounting Oversight Board, our independent registered public accounting firm noted material weaknesses in internal control over financial reporting. A list of our material weaknesses are as follows:

Failure to have properly documented and designed disclosure controls and procedures and testing of the operating effectiveness of our internal control over financial reporting

Weakness around our inventory count procedures

Segregation of duties due to lack of personnel

Our management concluded that considering internal control deficiencies that, in the aggregate, rise to the level of material weaknesses, we did not maintain effective internal control over financial reporting as of September 30, 2019 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Changes in Internal Control over Financial Reporting

Following this assessment and during the nine months ended September 30, 2019, we have undertaken an action plan to
strengthen internal controls and procedures:

We continue to improve the process around inventory counts and throughout the current year, we performed a blind-count for 75% of our overall inventory value with the purpose of validating our inventory records and increasing the staff knowledge around the importance of the new inventory procedures implemented. In addition, we had an independent third-party count over 50% of our inventory value conducted on September 30, 2019.

Our management has increased its focus on the Company’s purchase order process in order to better manage inventory thereby improving cash management and ultimately leading to more reliable and precise financial reporting.

Our management continues to review ways in which we can make improvements in internal control over financial reporting.

18


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. We do not have any legal proceedings which have a material impact to the financial statements as of September 30, 2019.

A subsidiary of the Company is a defendant in two lawsuits that stem from purported defect and negligence concerning electronic cigarette products it sold. The action was filed in state court in Broward County, Florida. Plaintiff is seeking damages for his physical injuries as well as his pain and suffering. Plaintiff claims that he was injured by a vape battery explosion that occurred in his pocket on or about September 2017 and that he purchased the battery from a store operated by the Company’s subsidiary.

The other lawsuit was filed in the 8th Judicial Circuit in and for Alachua Court, Florida. Plaintiff claimed that a battery explosion occurred in his pocket on or about May 1, 2018. Plaintiff sued the Company, alleging design and manufacturing defects in the subject battery, as well as breach of warranties and negligence, which caused or contributed to the Plaintiff’s injuries and damages.

While discovery is at its infancy, the Company intends to vigorously dispute these claims that have been asserted against it.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

Not Applicable.

ITEM 6. EXHIBITS.

See the exhibits listed in the accompanying Index to Exhibits.”

19


INDEX TO EXHIBITS

Exhibit
       
Filed or Furnished
No.
 
Exhibit Description
 
Form
 
Date
 
Number
 
Herewith
31.1
               
Filed
31.2
               
Filed
32.1
               
Furnished *
32.2
               
Furnished *
101.INS
 
XBRL Instance Document
             
Filed
101.SCH
 
XBRL Taxonomy Extension Schema Document
             
Filed
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
             
Filed
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
             
Filed
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
             
Filed
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
             
Filed

*
This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

20


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
HEALTHIER CHOICES MANAGEMENT CORP.
     
By:
   
   
Chief Executive Officer
     
By:
   
   
Chief Financial Officer

21

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
12/31/1910-K,  NT 10-K
Filed as of:10/30/19
Filed on:10/29/19
For Period end:9/30/19
7/1/19
3/27/1910-K
1/1/19
12/31/1810-K,  8-K
12/15/18
9/30/1810-Q
7/1/18
5/1/18
1/1/18
 List all Filings 
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