UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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)
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.
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:
As of May 10, 2021, there were 307,926,082,074 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
TABLE OF CONTENTS
Note 9. STOCKHOLDERS’ EQUITY
Exchange Agreement
On March 29, 2021, the Company entered into exchange agreements with the holders of the $2.7 million Loan and Security Agreement (the "Credit Agreement").
The agreement with the holders of the Company’s indebtedness (the “Notes”) in an aggregate amount of $1.3 million to exchange the Notes for 1,172,964,218 shares at a conversion price of $0.0011. The Notes were issued pursuant to the Credit Agreement
dated as of August 18, 2020, among The Vape Store, Inc., the Company, Healthy Choice Markets, Inc., Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund, Ltd. In connection with the Exchange, the Credit Agreement and all
related loan documents will be terminated and the Holder’s on the assets of the Company and its subsidiaries will be cancelled. The Company recognized a loss on debt extinguishment of $0.1 million.
Restricted Stock
On January 14, 2021, the Compensation Committee of the Board of
Directors of the Company approved an issuance of restricted stock to the Officers and a Director of the Company, in consideration for agreeing to a new vesting schedule for the existing awarded restricted stock. Each individual was granted a 10% increase from the original award agreement for a total of 2.3 billion shares of restricted
common stock, which will vest quarterly and equal amounts until December 31, 2022, provided that the grantee remains an employee of the Company through the vesting date.
On March 30, 2021, the Company and the Officers and a Director of the Company agreed to forfeit all their restricted shares that were due to vest on March
31, 2021. Each individual forfeited 12.50% from their current amended award agreement for a total of 3.09 billion shares of restricted common stock.
The Company applied ASC 718 “Stock Compensation” to evaluate the award modification and cancellation. Based on this guidance, no gain or loss was
recognize.
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”), HCMC Intellectual Property Holdings, LLC,
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. (collectively, the “Company”, “we”,
“us” and “our”) 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 $0.7 million for
the three months ended March 31, 2021. As of March 31, 2021, cash and cash equivalents totaled approximately $5.3 million. The Company expects to continue incurring losses for the foreseeable future and we anticipate that our current cash and cash equivalents to be generated from operations will be sufficient to cover our projected operating expenses for the foreseeable future. Management do
not believe there are any substantial doubts about the Company’s ability to continue as a going concern within a year and a day from the issuance of these unaudited consolidated financial statements.
Rights Offering
On April 20, 2021, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”) for a Rights Offering to
its stockholders. The purpose of this Rights Offering is to raise equity capital in a cost-effective and potentially non-dilutive manner that provides all of our existing shareholders the opportunity to participate, purchase, and own up to
approximately an additional 25% of the Company’s common stock. If fully subscribed, the Company will raise up to $100,000,000 in gross proceeds. The net proceeds will be used for general working capital purposes, including the protection of our
intellectual property rights through litigation and other methods, funding future research and development for both our intellectual property suite and product offerings, and funding growth initiatives and expansion for our health food, vitamin and
supplements, and vape segments, both online and in brick and mortar stores.
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 eight 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.
Results of Operations
The following table sets forth our unaudited condensed consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 that is
used in the following discussions of our results of operations:
Net Vapor sales decreased $0.2 million to $0.6 million for the three months ended March 31, 2021 as compared to $0.8 million for the same period in 2020.
The decrease in sales is primarily due to a consistent decreased in foot traffic and the closure of one store during the three months ended March 31, 2021 as compared to the same period in 2020.
Net Grocery sales decreased $0.4 million to $2.9 million for the three months
ended March 31, 2021 as compared to $3.3 million for the same period in 2020. The decrease in sales is primarily due to a decrease in the customer count compared to the same period in 2020.
Vapor cost of goods sold for the three months ended March 31, 2021 and 2020 were $0.2 million and $0.3 million, respectively, a decreased of $0.1 million.
The decrease is primarily due to decreases in sales and product costs during three months ended March 31, 2021 as compared to the same period in 2020. Gross profit was $0.4 million and $0.5 million for three months ended March 31, 2021 and 2020,
respectively.
Grocery cost of goods sold for the three months ended March 31, 2021 and 2020 were $1.7 million and $2.0 million respectively, an decreased of $0.3
million. The decrease is primarily due to increases in sales and cost of goods sold during the three months ended March 31, 2021 as compared to the same period in 2020. Gross profit was $1.1 million and $1.3 million for the three months ended March
31, 2021 and 2020, respectively.
Total operating expenses decreased $0.3 million to $2.0 million for the three months ended March 31, 2021 compared to $2.4 million for the same period in
2020. The decrease is primarily attributable to decreases in office and stores expenses of $0.2 million, payroll and employee related cost of $0.1 million, and stock compensation of $0.1 million, partially offset by an increase in professional fees
of $0.1 million.
Net other expense of $164,000 for the three months ended March 31, 2021
includes a loss on extinguishment of debt of $117,000 and interest expense of $73,000, partially offset by a gain on investment of $26,000. Net other expense of $27,000 for the three months ended March 31, 2020 includes an interest expense
of $17,000 and a loss on investment of $10,000.
Liquidity and Capital Resources
Our net cash used in operating activities of $0.7 million for the three months
ended March 31, 2021 resulted from a net loss of $0.7 million, and a net cash usage of $0.3 million from changes in operating assets and liabilities, offset by a non-cash adjustment of $0.4 million. Our net cash used in operating activities of $0.2 million for the three months ended March 31, 2020 resulted from a net loss of $0.7 million and a net cash usage of $0.1 million from changes in operating
assets and liabilities, offset by a non-cash adjustment of $0.4 million.
The net cash used in investing activities of $18,000 for the three months
ended March 31, 2021 resulted from the collection of a note receivable, and purchases of property and equipment. The net cash used in investing activities of $0.1
million for the three months ended March 31, 2020 resulted from the collection of a note receivable, and purchases of property and equipment.
The net cash provided by financing activities of $3.1 million for the three
months ended March 31, 2021 is due to is due to proceeds received from the Securities Purchase Agreement of $5.0 million and an exercised of stock options of $0.1 million, partially offset by a principal payment of $2 million on the line of credit.
The net cash used in financing activities of $0.1 million for the three months ended March 31, 2020 is due to payments on the loan payable.
At March 31, 2021 and December 31, 2020, 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 one financial institution 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 March 31, 2021 and December 31, 2020.
The Company reported a net loss of $0.7 million for the three months ended
March 31, 2021. The Company also had positive working capital of $5.2 million. The Company expects to continue incurring losses for the foreseeable future and may
need to raise additional capital to satisfy business 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 unaudited condensed 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 condensed 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 condensed consolidated financial statements.
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 2020 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
condensed 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 Series D preferred stock exercises and stock sales, 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.