NOTES
TO 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 operates thirteen vape retail stores in the Southeast
region of the United States of America. The Company offers e-liquids vaporizers and related products through its vape retail stores.
The Company sold its wholesale business on July 31, 2016. The sale of the wholesale business was not contemplated prior to July
1, 2016. The sale of the wholesale business qualifies as a discontinued operation and, accordingly, the Company has excluded results
for the wholesale business operations from the Company’s continuing operations in the unaudited consolidated Statements
of Operations for all periods presented.
On
June 1, 2016, the Company acquired the business assets of Ada’s Whole Food Market LLC, a natural and organic grocery store,
through its wholly owned subsidiary Healthy Choice Markets, Inc. The grocery store has been a leader in the natural grocery market
in Fort Myers, Florida for the past 40 years, offering fresh, natural and organic products and specializing in facilitating a
healthy, well balanced lifestyle. In addition to a comprehensive selection of vitamins and health & beauty products, the grocery
store provides a fresh café and an organic juice bar.
Going
Concern and Liquidity
The
accompanying unaudited 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 $4,511,877 for the six months ended June 30, 2017. As of June 30, 2017,
cash and cash equivalents totaled approximately $9.1 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 through at least June 30, 2018,
should we require additional funds, either through equity or debt financings or 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.
Sourcing
and Vendors
We source from multiple suppliers. These
suppliers range from small independent businesses to multinational conglomerates. For the six months ended June 30, 2017, we purchased
approximately 75% of the goods we sell from our top 20 suppliers and approximately 40% of our total purchases were from one vendor.
Basis
of Presentation and Principles of Consolidation
The
Company’s unaudited consolidated financial statements are prepared in accordance with GAAP. The unaudited 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
unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The terms “we,”
“us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned
subsidiaries, Healthy Choice Markets, Inc., Vaporin, Inc., The Vape Store, Inc. (“Vape Store”), Smoke Anywhere U.S.A.,
Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising
LLC., Vaporin LLC., Vaporin Florida, Inc., and Healthy Choice Markets, Inc. All intercompany accounts and transactions have been
eliminated in consolidation.
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Unaudited
Interim Financial Information
The
unaudited 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, 2017. 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 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, 2016 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 27, 2017.
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain
prior period amounts in the unaudited consolidated financial statements related to stock splits and the sale of discontinued operations
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.
Segment
Reporting
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance.
The Company’s decision-making group is the senior executive management team. The Company and the decision-making group views
the Company’s operations and manage its business as two operating segments. All long-lived assets of the Company reside
in the U.S.
Use
of Estimates in the Preparation of the Financial Statements
The
preparation of unaudited 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 unaudited 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 assets and liabilities acquired in business combinations. Certain of management’s
estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic
conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause
actual results to differ from those estimates. The Company re-evaluates all accounting estimates at least quarterly based on these
conditions and records adjustments when necessary.
Shipping
and Handling
Shipping
charges billed to customers are included in net sales and the related shipping and handling costs are included in cost of sales.
For the six months ended June 30, 2017 and 2016 shipping and handling costs of $65,806 and $129,156, respectively, were included
in cost of sales.
Concentration
of Risk
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.
At
June 30, 2017, accounts receivable balances included a concentration from four customers with receivable balances ranging from
approximately $11,000 to $27,000, all of which are greater than 10% of the total net accounts receivable balance. At December
31, 2016, accounts receivable balances included a concentration from four customers with receivable balances ranging from approximately
$11,000 to $26,000, all of which are greater than 10% of the total net accounts receivable balance.
For the six months ended June 30, 2017
and 2016, the Company did not have any customers with sales in excess of 10% of total sales.
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Inventories
Inventories
are stated at average cost. If the cost of the inventories exceeds their net realizable value, provisions are recorded to write
down excess inventory to its net realizable value. The Company’s inventories consist primarily of merchandise available
for resale, such as fresh produce, perishable grocery items and non-perishable consumable goods.
Adopted
Accounting Pronouncements
In
July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2015-11, “Simplifying
the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires an entity to measure inventory at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured
using last-in, first-out (“LIFO”) or the retail inventory method. It is effective for annual reporting periods beginning
after December 15, 2016. The amendments should be applied prospectively with earlier application permitted as of the beginning
of an interim or annual reporting period. The adoption of ASU 2015-11 did not have a significant impact on the Company’s
consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”).
ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The adoption
of ASU 2016-09 did not have a significant impact on the Company’s consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”
(“ASU 2017-01”). The amendments in ASU 2017-01 are to clarify the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets
or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within
those periods, with early adoption permitted. The adoption of ASU 2017-01 did not have a significant impact on the Company’s
consolidated financial statements.
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which was subsequently
modified in August 2015 by ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”. As
a result, the ASU No. 2014-09 is effective retrospectively for fiscal years and interim periods within those years beginning after
December 15, 2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised
goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures
to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB
issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying
performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as
well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company will adopt the standard
on January 1, 2018, but is still considering whether to use the retrospective or modified retrospective transition method. The
Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
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. A modified retrospective transition
approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. The Company is currently
evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15 (Topic 230), “Statement of Cash Flows Classification of Certain Cash Receipts and
Cash Payments”. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and
classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The
Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be
required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the effect
that adopting this new accounting guidance will have on its consolidated cash flows and related disclosures.
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 along with amending other parts of the goodwill impairment
test. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of
the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting
unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption
permitted for interim or annual goodwill impairment tests performed after January 1, 2017. At adoption, this update will require
a prospective approach. The Company is currently evaluating the impact of adopting this guidance.
In July, 2017, the FASB issued a two-part
ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and II “Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests With a Scope Exception”. The ASU is effective for public business entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company
is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
Note
3. DISCONTINUED OPERATIONS
Effective
July 31, 2016, the Company sold its wholesale inventory and the related business operations (collectively, “Wholesale Business
Assets”). The sale of the wholesale business qualifies as discontinued operations and accordingly the Company has excluded
results for the wholesale business operations from the Company’s continuing operations in the unaudited consolidated Statements
of Operations for all periods presented. The following table shows the results of the Company’s wholesale operations included
in the income (loss) from discontinued operations.
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale vapor sales, net
|
|
$
|
-
|
|
|
$
|
1,230,769
|
|
|
$
|
-
|
|
|
$
|
2,844,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales – vapor wholesale
|
|
|
-
|
|
|
|
1,317,164
|
|
|
|
-
|
|
|
|
2,629,083
|
|
Expenses – advertising selling, general and administrative
|
|
|
(84,459
|
)
|
|
|
729,165
|
|
|
|
(76,977
|
)
|
|
|
1,414,327
|
|
Total
|
|
|
(84,459
|
)
|
|
|
2,046,329
|
|
|
|
(76,977
|
)
|
|
|
4,043,410
|
|
Income (loss) from discontinued operations attributable to the wholesale business
|
|
$
|
84,459
|
|
|
$
|
(815,560
|
)
|
|
$
|
76,977
|
|
|
$
|
(1,199,072
|
)
|
The
major classes of assets and liabilities of discontinued operations on the balance sheet are as follow:
|
|
June 30,
2017
|
|
|
December 31, 2016
|
|
Assets
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
-
|
|
|
$
|
39,493
|
|
Due from merchant credit card processor, net
|
|
|
-
|
|
|
|
13,410
|
|
Total current assets from discontinued operations
|
|
$
|
-
|
|
|
$
|
52,903
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
373,199
|
|
|
|
555,810
|
|
Total current liabilities from discontinued operations
|
|
$
|
373,199
|
|
|
$
|
555,810
|
|
Note
4. ACQUISITION OF ADA’S WHOLE FOOD MARKET
On April 1, 2016, the Company’s
wholly owned subsidiary Healthy Choice Markets Inc., entered into a Business Sale Agreement with Ada’s Whole Food Market
LLC (the “Seller”) to purchase certain operating assets and assumed certain payables and a store lease obligation
that constituted the business of Ada’s Natural Market grocery store (the “Grocery Acquisition”). The Grocery
Acquisition was consummated on June 1, 2016 and the Company operates the grocery store under the same name, location, and management.
At the closing of these transactions, the Company also entered into an employment agreement with the store manager.
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
5. SEGMENT INFORMATION
Prior
to the second quarter of 2016, the Company had a single reportable business segment, as it was a distributor and retailer of vapor
products including vaporizers, e-liquids and electronic cigarettes. On June 1, 2016, the Company completed the Grocery Acquisition
(See Note 4) and added a reportable segment. On July 31, 2016, the Company sold its wholesale inventory and related operations.
The Company has excluded the results for the wholesale business, as discontinued operations, from the Company’s continuing
operations for all periods presented. Management determines the reportable segments based on the internal reporting used by our
Chief Operating Decision Makers to evaluate performance and to assess where to allocate resources. The Company evaluates segment
performance based on the segment gross profit before corporate expenses.
Summarized
below are the total net sales and segment operating loss for each reporting segment:
|
|
Three Months Ended
|
|
|
|
Net Sales
|
|
|
Segment Gross Profit
|
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
Vapor sales, net
|
|
$
|
1,507,574
|
|
|
$
|
1,716,608
|
|
|
$
|
882,824
|
|
|
$
|
868,792
|
|
Grocery sales, net
|
|
|
1,798,135
|
|
|
|
510,256
|
|
|
|
790,283
|
|
|
|
197,990
|
|
Total Sales
|
|
$
|
3,305,709
|
|
|
$
|
2,226,864
|
|
|
|
1,673,107
|
|
|
|
1,066,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
4,444,390
|
|
|
|
4,300,054
|
|
Operating loss
|
|
|
|
|
|
|
|
|
|
|
(2,771,283
|
)
|
|
|
(3,233,272
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(27,699
|
)
|
|
|
2,859,686
|
|
Net loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
(2,798,982
|
)
|
|
|
(373,586
|
)
|
Net income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
84,459
|
|
|
|
(815,560
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
|
(2,714,523
|
)
|
|
$
|
(1,189,146
|
)
|
For
the three months ended June 30, 2017, depreciation and amortization was $16,524 and $66,678 for Vapor and Grocery, respectively.
|
|
Six Months Ended
|
|
|
|
Net Sales
|
|
|
Segment Gross Profit
|
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
Vapor sales, net
|
|
$
|
2,988,938
|
|
|
$
|
3,839,268
|
|
|
$
|
1,820,697
|
|
|
$
|
2,053,409
|
|
Grocery sales, net
|
|
|
3,902,761
|
|
|
|
510,256
|
|
|
|
1,678,036
|
|
|
|
197,990
|
|
Total Sales
|
|
$
|
6,891,699
|
|
|
$
|
4,349,524
|
|
|
|
3,498,733
|
|
|
|
2,251,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
8,010,610
|
|
|
|
6,510,521
|
|
Operating loss
|
|
|
|
|
|
|
|
|
|
|
(4,511,877
|
)
|
|
|
(4,259,122
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(45,489
|
)
|
|
|
(11,917,852
|
)
|
Net loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
(4,557,366
|
)
|
|
|
(16,176,974
|
)
|
Net income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
76,977
|
|
|
|
(1,199,072
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
|
(4,480,389
|
)
|
|
$
|
(17,376,046
|
)
|
For
the six months ended June 30, 2017, depreciation and amortization was $33,259 and $129,860 for Vapor and Grocery, respectively.
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
6. NOTES RECEIVABLE FROM RELATED PARTY
In connection with the sale of its wholesale
business, the Company entered into two notes receivable with a related party. As consideration for the sale of wholesale inventory
and business the Company received a secured, one-year promissory note in the principal amount of $370,000 (the “Acquisition
Note”) bearing an interest rate of 4.5%, which payments thereunder are $10,000 monthly, with such payments commencing on
October 28, 2016, with a balloon payment of the remainder of principal and interest due on July 29, 2017.
The buyer and the Company entered into
a secured, 36-month promissory note in the principal amount of $500,000 (the “Promissory Note”) bearing an interest
rate of prime plus 2%, resetting annually on July 29
th
, which payments thereunder are $14,000 per month, and commencing
on January 26, 2017, with subsequent installments payable on the same day of each month thereafter, and in the 37
th
month a balloon payment for all remaining accrued interest and principal due on July 29, 2019. The Company records all proceeds
related to both notes as other income as proceeds are received. The notes were issued by an affiliate of the Company’s former
Chief Executive Officer.
Note
7. INTANGIBLE ASSETS
Intangible
assets, net is as follows:
June 30, 2017
|
|
Useful Lives
(Years)
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Favorable lease
|
|
15 years
|
|
$
|
890,000
|
|
|
$
|
(63,039
|
)
|
|
$
|
826,961
|
|
Trade names
|
|
10 years
|
|
|
820,000
|
|
|
|
(128,500
|
)
|
|
|
691,500
|
|
Customer relationships
|
|
5 years
|
|
|
60,000
|
|
|
|
(13,000
|
)
|
|
|
47,000
|
|
Technology
|
|
20 years
|
|
|
50,000
|
|
|
|
(2,083
|
)
|
|
|
47,917
|
|
Website
|
|
3 years
|
|
|
4,500
|
|
|
|
(1,625
|
)
|
|
|
2,875
|
|
Intangible assets, net
|
|
|
|
$
|
1,824,500
|
|
|
$
|
(208,247
|
)
|
|
$
|
1,616,253
|
|
December 31, 2016
|
|
Useful Lives
(Years)
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Favorable lease
|
|
15 years
|
|
$
|
890,000
|
|
|
$
|
(33,859
|
)
|
|
$
|
856,141
|
|
Trade names
|
|
10 years
|
|
|
820,000
|
|
|
|
(87,500
|
)
|
|
|
732,500
|
|
Customer relationships
|
|
5 years
|
|
|
60,000
|
|
|
|
(7,000
|
)
|
|
|
53,000
|
|
Technology
|
|
20 years
|
|
|
25,000
|
|
|
|
(937
|
)
|
|
|
24,063
|
|
Website
|
|
3 years
|
|
|
4,500
|
|
|
|
(875
|
)
|
|
|
3,625
|
|
Intangible assets, net
|
|
|
|
$
|
1,799,500
|
|
|
$
|
(130,171
|
)
|
|
$
|
1,669,329
|
|
Intangible
assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense amounted to $78,076 and
$50,655 for the six months ended June 30, 2017 and 2016, respectively. Future annual estimated amortization expense is as follows:
Years ending December 31,
|
|
|
|
2017 (remaining six months)
|
|
$
|
78,180
|
|
2018
|
|
|
156,361
|
|
2019
|
|
|
155,486
|
|
2020
|
|
|
154,861
|
|
2021
|
|
|
147,861
|
|
Thereafter
|
|
|
923,504
|
|
Total
|
|
$
|
1,616,253
|
|
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
8. STOCKHOLDERS’ EQUITY
Reverse
Splits
On
June 1, 2016, the Company’s Board of Directors effected a reverse stock split of the Common Stock at a ratio of 1-for-20,000.
All share and per share amounts have been retroactively adjusted to reflect the reverse stock splits.
Compensatory
Common Stock Summary
During
the six months ended June 30, 2017 and 2016, the Company recognized stock-based compensation expense related to compensatory Common
Stock in the amount of $0 and $52,000, respectively. Stock-based compensation expense is included as part of selling, general
and administrative expense in the accompanying consolidated statements of operations. As of June 30, 2017, there was no unamortized
expense remaining related to stock awards because the remaining non-vested shares vested on April 1, 2016.
Series
A Warrants
Through
June 30, 2017, 1 Series A warrant has been exercised through the cashless exercise provision, resulting in the issuance of 15,005,651,251
shares of the Company’s common stock.
A
summary of warrant activity for the six months ended June 30, 2017 is presented below:
|
|
Exercise
Price
|
|
|
Warrant
Common
Stock
Equivalent
|
|
|
Remaining
Contractual Term
|
|
Outstanding at January 1, 2017
|
|
$
|
0.0001
|
|
|
|
634,754,364,551
|
|
|
|
3.60
|
|
Warrants repurchased
|
|
$
|
(0.000021
|
)
|
|
|
(113,580,956,776
|
)
|
|
|
|
|
Cashless exercises for common stock
|
|
$
|
(0.0001
|
)
|
|
|
(15,005,651,251
|
)
|
|
|
|
|
Black Scholes Value adjustment
|
|
$
|
(0.0001
|
)
|
|
|
(217,961,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
$
|
0.0001
|
|
|
|
505,949,795,210
|
|
|
|
3.10
|
|
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.
A
summary of the outstanding warrant common stock equivalents at January 1, 2017 and June 30, 2017 is presented below:
|
|
June 30,
2017
|
|
|
January 1,
2017
|
|
Warrants outstanding
|
|
|
33
|
|
|
|
42
|
|
Black Scholes value
|
|
|
1,518,644
|
|
|
|
1,519,297
|
|
Closing bid stock price
|
|
$
|
0.0001
|
|
|
$
|
0.0001
|
|
Warrant common stock equivalent
|
|
|
505,949,795,210
|
|
|
|
634,754,364,551
|
|
Stock
Options
During
the three months ended June 30, 2017 and 2016, the Company recognized stock-based compensation of $2,103,338 and $5,389 respectively,
in connection with the amortization of stock options, net of recovery of stock-based charges for forfeited unvested stock options.
During the six months ended June 30, 2017 and 2016, the Company recognized stock-based compensation of $3,300,532 and $12,175
respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying
consolidated statements of operations.
At
June 30, 2017, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees,
directors and consultants was approximately $5.0 million, which will be amortized over a weighted average period of 0.80 years.
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 exercise of warrants
(using the if-converted method). For the six months ended June 30, 2017 and 2016, diluted loss per share excludes the potential
shares of common stock, 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:
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
82,911,261,360
|
|
|
|
11,360
|
|
Warrants
|
|
|
505,949,795,210
|
|
|
|
722,930,004,074
|
|
Total
|
|
|
588,861,056,570
|
|
|
|
722,930,015,434
|
|
Note
9. 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 when there is
an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination.
The
following table summarizes the liabilities measured at fair value on a recurring basis as of June 30, 2017:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities – non-consenting warrants
|
|
$
|
-
|
|
|
$
|
428,548
|
|
|
$
|
-
|
|
|
$
|
428,548
|
|
Derivative liabilities – consenting warrants
|
|
|
-
|
|
|
|
9,832,745
|
|
|
|
-
|
|
|
|
9,832,745
|
|
Total derivative liabilities
|
|
$
|
-
|
|
|
$
|
10,261,293
|
|
|
$
|
-
|
|
|
$
|
10,261,293
|
|
HEALTHIER
CHOICES MANAGEMENT CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following table summarizes the liabilities measured at fair value on a recurring basis as of December 31, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities – non-consenting warrants
|
|
$
|
-
|
|
|
$
|
955,173
|
|
|
$
|
-
|
|
|
$
|
955,173
|
|
Derivative liabilities – consenting warrants
|
|
|
-
|
|
|
|
11,912,906
|
|
|
|
-
|
|
|
|
11,912,906
|
|
Total derivative liabilities
|
|
$
|
-
|
|
|
$
|
12,868,079
|
|
|
$
|
-
|
|
|
$
|
12,868,079
|
|
The
Company determined that its offer to purchase its Series A warrants for $0.000021 per warrant was the best indicator of the fair
value of the derivative liabilities as of June 30, 2017 and December 31, 2016.
Note
10. COMMITMENTS AND CONTINGENCIES
Employment and Consulting and Other
Related Party Agreements
On April 8, 2016, Gregory
Brauser informed the Board of his decision to resign from the Board and as President of the Company. Mr. Brauser’s resignation
was not due to any disagreement with the Company on any matters relating to the Company’s operations, policies or practices.
Through GAB Management Group, Inc., Mr. Brauser serves as a consultant to the Company pursuant to an Executive Services
Consulting Agreement dated as of April 11, 2016 (the “Consulting Agreement”), the term of which is two
years. Under the Consulting Agreement, GAB Management Group, Inc., will receive the following benefits in connection with consulting
services that its principal, Mr. Brauser, provides to the Company: (1) an engagement fee of $50,000 payable at the time
the Consulting Agreement is executed, and (2) thereafter monthly installments of $10,000 for 24 months.
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.
Purchase Commitments
At June 30, 2017 and December 31, 2016,
the Company had vendor deposits of approximately $13,000 and $7,000, respectively, which are included as a component of prepaid
expenses and vendor deposits in the consolidated balance sheets.
NOTE
11. SUBSEQUENT EVENTS
The
Company evaluates events that have occurred after the balance sheet date but before the consolidated financial statements are
issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would
have required adjustment or disclosure in the accompanying unaudited consolidated financial statements.