GRAPHIC
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, 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)

Delaware
 
84-1070932
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
3800 North 28Th Way
   
Hollywood, FL
 
33020
(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 November 15, 2021, there were 339,741,632,384 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.



TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

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

 
September 30,
2021
 
December 31,
2020
ASSETS
         
CURRENT ASSETS
         
Cash and cash equivalents
$
28,172,447
 
$
925,475
Accounts receivable, net
 
58,140
   
23,675
Inventories
 
1,943,843
   
1,749,246
Prepaid expenses and vendor deposits
 
297,844
   
286,065
Investment
 
33,686
   
22,731
TOTAL CURRENT ASSETS
 
30,505,960
   
3,007,192
           
Restricted cash
 
-
   
2,000,000
Property and equipment, net of accumulated depreciation
 
195,001
   
230,719
Intangible assets, net of accumulated amortization
 
970,470
   
1,248,352
Goodwill
 
916,000
   
916,000
Note receivable
 
263,680
   
304,511
Right of use asset – operating lease, net
 
3,678,287
   
4,078,621
Other assets
 
85,436
   
89,598
           
TOTAL ASSETS
$
36,614,834
 
$
11,874,993
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
CURRENT LIABILITIES
         
Accounts payable and accrued expenses
$
1,097,069
 
$
1,085,663
Contract liabilities
 
21,117
   
21,262
Current portion of line of credit
 
-
   
2,000,000
Current portion of loan payment
 
282,570
   
2,072,484
Operating lease liability, current
 
468,699
   
474,686
TOTAL CURRENT LIABILITIES
 
1,869,455
   
5,654,095
           
Loan payable, net of current portion
 
268,653
   
849,009
Operating lease liability, net of current
 
2,772,084
   
3,114,521
TOTAL LIABILITIES
 
4,910,192
   
9,617,625
           
COMMITMENTS AND CONTINGENCIES (SEE NOTE 11)
 
   
           
STOCKHOLDERS’ EQUITY
         
Series C convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; 0 and 16,277 shares issued and outstanding as of September 30, 2021 and December 31, 2020; aggregate liquidation preference of $- million
 
-
   
16,277,116
Series D convertible preferred stock, $1,000 par value per share, 5,000 shares authorized; 800 and 800 shares issued and outstanding as of September 30, 2021; aggregate liquidation preference of $0.8 million
 
800,000
   
-
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; approximately 339.7 and 143.8 billion shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
 
33,974,163
   
14,384,084
Additional paid-in capital
 
30,855,824
   
3,955,039
Accumulated deficit
 
(33,925,345)
   
(32,358,871)
TOTAL STOCKHOLDERS’ EQUITY
 
31,704,642
   
2,257,368
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
36,614,834
 
$
11,874,993

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,
 
September 30,
 
2021
 
2020
 
2021
 
2020
SALES
                     
Vapor sales, net
$
466,181
 
$
594,145
 
$
1,671,098
 
$
1,888,480
Grocery sales, net
 
2,803,327
   
2,753,648
   
8,450,055
   
8,804,397
TOTAL SALES, NET
 
3,269,508
   
3,347,793
   
10,121,153
   
10,692,877
                       
Cost of sales vapor
 
186,522
   
256,461
   
657,171
   
787,998
Cost of sales grocery
 
1,706,597
   
1,729,213
   
5,133,228
   
5,461,574
GROSS PROFIT
 
1,376,389
   
1,362,119
   
4,330,754
   
4,443,305
                       
Selling, general and administrative
 
2,427,256
   
2,195,275
   
6,599,224
   
6,735,815
Impairment of intangible assets
 
-
   
380,646
   
-
   
380,646
OPERATING EXPENSES
 
2,427,256
   
2,575,921
   
6,599,224
   
7,116,461
                       
LOSS FROM OPERATIONS
 
(1,050,867)
   
(1,213,802)
   
(2,268,470)
   
(2,673,156)
                       
OTHER (EXPENSE) INCOME
                     
Gain (loss) on investment
 
(557)
   
(2,571)
   
10,954
   
(13,714)
Other expense, net
 
-
   
-
   
-
   
(100)
Interest income (expense), net
 
1,543
   
(84,592)
   
(76,888)
   
(123,969)
Gain on debt extinguishment, net
 
-
   
-
   
767,930
   
-
Total other income (expense), net
 
986
   
(87,163)
   
701,996
   
(137,783)
                       
NET LOSS
$
(1,049,881)
 
$
(1,300,965)
 
$
(1,566,474)
 
$
(2,810,939)
                       
NET LOSS PER SHARE-BASIC AND DILUTED
$
-
 
$
-
 
$
-
 
$
-
                       
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED
 
336,603,045,428
   
102,108,302,961
   
297,439,560,396
   
84,476,736,667

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, 2021
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – July 1, 2021
 
5,000
 
$
5,000,000
   
333,179,132,384
 
$
33,317,913
 
$
26,546,415
 
$
(32,875,464)
 
$
31,988,864
Stock options exercised
 
-
   
-
   
-
   
-
   
-
   
-
   
-
Series D Convertible Preferred Stock exercised
 
(4,200)
   
(4,200,000)
   
6,562,500,000
   
656,250
   
3,543,750
   
-
   
-
Issuance of common stock in connection with the Rights Offering, net of offering costs
 
-
   
-
   
-
   
-
   
765,659
   
-
   
765,659
Net Income
 
-
   
-
   
-
   
-
   
-
   
(1,049,881)
   
(1,049,881)
Balance – September 30, 2021
 
800
 
$
800,000
   
339,741,632,384
 
$
33,974,163
 
$
30,855,824
 
$
(33,925,345)
 
$
31,704,642


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – July 1, 2020
 
20,150
 
$
20,150,116
   
87,558,296,598
 
$
8,755,829
 
$
5,706,544
 
$
(30,146,453)
 
$
4,466,036
Issuance of common stock in connection with cashless exercise of Series A warrants
 
-
   
-
   
17,552,551,418
   
1,755,255
   
(1,755,255)
   
-
   
-
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
1,875
   
-
   
1,875
Net loss
 
-
   
-
   
-
   
-
   
-
   
(1,300,965)
   
(1,300,965)
Balance – September 30, 2020
 
20,150
 
$
20,150,116
   
105,110,848,016
 
$
10,511,084
 
$
3,953,164
 
$
(31,447,418)
 
$
3,166,946



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, 2021
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – January 1, 2021
 
16,277
 
$
16,277,116
   
143,840,848,017
 
$
14,384,084
 
$
3,955,039
 
$
(32,358,871)
 
$
2,257,368
Series C Convertible Preferred Stock exercised
 
(16,277)
   
(16,277,116)
   
162,771,153,001
   
16,277,116
   
-
   
-
   
-
Stock options exercised
 
-
   
-
   
2,275,000,000
   
227,500
   
-
   
-
   
227,500
Issuance of Series D Convertible Preferred stock in connection with the Securities Purchase Agreement
 
5,000
   
5,000,000
   
-
   
-
   
-
   
-
   
5,000,000
Series D Convertible Preferred Stock exercised
 
(4,200)
   
(4,200,000)
   
6,562,500,000
   
656,250
   
3,543,750
   
-
   
-
Issuance of common stock
 
-
   
-
   
1,182,831,056
   
118,283
   
1,289,273
   
-
   
1,407,556
Issuance of common stock in connection with the Rights Offering, net of offering costs
 
-
   
-
   
27,046,800,310
   
2,704,680
   
21,639,637
   
-
   
24,344,317
Issuance of awarded stock for officers and board member
 
-
   
-
   
2,250,000,000
   
225,000
   
(225,000)
   
-
   
-
Cancellation of awarded stock for officers and board member
 
-
   
-
   
(6,187,500,000)
   
(618,750)
   
618,750
   
-
   
-
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
34,375
   
-
   
34,375
Net loss
 
-
   
-
   
-
   
-
   
-
   
(1,566,474)
   
(1,566,474)
Balance – September 30, 2021
 
800
 
$
800,000
   
339,741,632,384
 
$
33,974,163
 
$
30,855,824
 
$
(33,925,345)
 
$
31,704,642


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(UNAUDITED)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
   
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
Balance – January 1, 2020
 
20,150
 
$
20,150,116
   
67,698,494,244
 
$
6,769,849
 
$
7,618,245
 
$
(28,636,479)
 
$
5,901,731
Issuance of common stock in connection with cashless exercise of Series A warrants
 
-
   
-
   
37,412,353,772
   
3,741,235
   
(3,741,235)
   
-
   
-
Stock-based compensation expense
 
-
   
-
   
-
   
-
   
76,154
   
-
   
76,154
Net loss
       
-
         
-
   
-
   
(2,810,939)
   
(2,810,939)
Balance – September 30, 2020
 
20,150
 
$
20,150,116
   
105,110,848,016
 
$
10,511,084
 
$
3,953,164
 
$
(31,447,418)
 
$
3,166,946

See notes to unaudited condensed consolidated financial statements

4


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

 
Nine Months Ended September 30,
 
2021
 
2020
OPERATING ACTIVITIES
         
Net loss
$
(1,566,474)
 
$
(2,810,939)
Adjustments to reconcile net loss to net cash used in operating activities:
         
Depreciation and amortization
 
379,536
   
424,020
Gain on extinguishment of debt
 
(767,930)
   
-
Loss (Gain) on investment
 
(10,954)
   
13,714
Amortization of right-of-use asset
 
400,334
   
428,740
Accrued interest on loan
 
60,809
   
-
Stock-based compensation expense
 
34,375
   
76,154
   Impairment of intangible assets
 
-
   
380,646
           
Changes in operating assets and liabilities:
         
Accounts receivable
 
(34,465)
   
(20,126)
Inventories
 
(194,597)
   
(28,947)
Prepaid expenses and vendor deposits
 
(11,779)
   
(58,175)
Other assets
 
4,162
   
57,270
Accounts payable and accrued expenses
 
11,405
   
264,971
Contract liabilities
 
(145)
   
(7,423)
Lease liability
 
(348,424)
   
(373,184)
NET CASH USED IN OPERATING ACTIVITIES
 
(2,044,147)
   
(1,653,279)
           
INVESTING ACTIVITIES
         
Collection of note receivable
 
40,831
   
23,767
Purchases of property and equipment
 
(53,437)
   
(24,663)
Purchases of patent
 
(12,500)
   
(89,415)
NET CASH USED IN INVESTING ACTIVITIES
 
(25,106)
   
(90,311)
           
FINANCING ACTIVITIES
         
Principal payments on loan payable
 
(255,592)
   
(209,941)
Principal payment on the line of credit
 
(2,000,000)
   
-
Proceeds from rights offering, net of offering costs
 
24,344,317
   
-
Proceeds from loan and security agreement
 
-
   
2,540,000
Proceeds from preferred stock
 
5,000,000
   
-
Proceeds from paycheck protection plan
 
-
   
876,515
Proceeds from exercise of stock options
 
227,500
   
-
NET CASH PROVIDED BY FINANCING ACTIVITIES
 
27,316,225
   
3,206,574
           
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENT AND RESTRICTED CASH
 
25,246,972
   
1,462,984
CASH, CASH EQUIVALENTS AND RESTRICTED CASH— BEGINNING OF PERIOD
 
2,925,475
   
3,525,415
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD
$
28,172,447
 
$
4,988,399
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
         
Cash paid for interest
$
36,792
 
$
161,876
           
NON-CASH INVESTING AND FINANCING ACTIVITIES
         
Issuance of common stock
$
1,290,260
 
$
-

See notes to unaudited condensed consolidated financial statements

5


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

Note 1. ORGANIZATION

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 six 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. Ada’s Natural Market and Paradise Health and Nutrition offers 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. The Company also sells vitamins and supplements on the Amazon.com marketplace through its wholly owned subsidiary Healthy U Wholesale, Inc. The Company also operates HCMC Intellectual Property Holdings, LLC, a wholly owned subsidiary formed to hold, market and expand on its current intellectual property assets. 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 50mg) 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.

COVID-19 Management Update

In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus has recently been recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in the markets in which the Company operates.  The COVID-19 outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19, and there are many unknowns. The Company has adjusted certain aspects of the operations to protect their employees and customers while still meeting customers’ needs. While to date the Company has not been required to close any of its stores, the Company is currently operating under regular hours and we are expecting COVID-19 to have a long-term beneficial impact to the future financial results of the grocery segment. The Company continues to monitor the impact of the COVID-19 outbreak closely.  The extent to which the COVID-19 outbreak will impact our operations is manageable, and there is no imminent risk on business continuity and future operation.

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 unaudited 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”), HCMC Intellectual Property Holdings, LLC, The Vitamin Store, LLC, Healthy U Wholesale, Inc., The Vape Store, Inc. (“Vape Store”), Vaporin, Inc., Smoke Anywhere U.S.A., Inc., Emagine the Vape Store, LLC, IVGI Acquisition, Inc., Vapormax Franchising LLC, Vaporin LLC, and Vaporin Florida, Inc. All intercompany accounts and transactions have been eliminated in consolidation.


Note 2. LIQUIDITY

The accompanying unaudited 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 currently and historically has reported net losses and cash outflows from operations. The Company anticipates that its current cash, cash equivalent and cash generated from operations will be sufficient to meet the projected operating expenses for the foreseeable future through a year and a day from the issuance of these unaudited condensed consolidated financial statements.
6


Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassification

Certain amounts in the condensed consolidated financial statements and related notes have been reclassified to conform to the current year presentation. Such reclassifications do not impact the Company's previously reported financial position or net income (loss).

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 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.

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, 2021. 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, 2020 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 8, 2021.


Note 4. CONCENTRATIONS

Cash and Cash Equivalents and Restricted Cash 

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows: 

 
 
September 30, 2021
   
December 31, 2020
 
Cash and Cash Equivalent
 
$
28,172,447
   
$
925,475
 
Restricted cash, non-current portion
   
-
     
2,000,000
 
Total cash, cash equivalents and restricted cash
 
$
28,172,447
   
$
2,925,475
 

Restricted Cash
 
The Company's restricted cash consisted of cash balances which were restricted as to withdrawal or usage under the August 2020 Loan and Security agreement and cash balances obligated to be maintained in a money market account as per the April 2018 revolving credit line agreement. See Note 8 for further discussions.
7


Note 5. 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 September 30,
   
Nine Months Ended September 30,
 
   
2021
   
2020
   
2021
   
2020
 
Vapor
 
$
466,181
   
$
594,145
   
$
1,671,098
   
$
1,888,480
 
Grocery
   
2,803,327
     
2,753,648
     
8,450,055
     
8,804,397
 
Total revenue
 
$
3,269,508
   
$
3,347,793
   
$
10,121,153
   
$
10,692,877
 
                                 
Retail Vapor
 
$
466,153
   
$
594,145
   
$
1,671,029
   
$
1,888,480
 
Retail Grocery
   
2,475,887
     
2,369,942
     
7,438,115
     
7,653,754
 
Food service/restaurant
   
305,626
     
248,757
     
908,476
     
823,724
 
Online/eCommerce
   
15,199
     
75,009
     
85,174
     
261,158
 
Wholesale Grocery
   
6,615
     
59,940
     
18,290
     
65,761
 
Wholesale Vapor
   
28
     
-
     
69
     
-
 
Total revenue
 
$
3,269,508
   
$
3,347,793
   
$
10,121,153
   
$
10,692,877
 
  

Note 6. NOTES RECEIVABLE AND OTHER INCOME
 
The Company entered into a secured, 36-month promissory note with VPR Brands L.P. for $582,260 on September 6, 2018. The note is composed of a principal amount of $500,000 (the “Promissory Note”) and an outstanding balance from prior secured notes of $82,260 (the “Note”). The Note bears an interest rate of 7%, which payments thereunder are $4,141 weekly, with such payments commencing as of September 14, 2018. The Company records all proceeds related to the interest of the Note as interest income as proceeds are received.

On August 31, 2021, the Company amended and restated the Secured Promissory Note (the "Note") with VPRB Brands L.P. for the outstanding balance in the note of $268,126. The Note bears an interest rate of 7%, which payments thereunder are $1,500 weekly, with such payments commencing as of September 03, 2021. The Note has a balloon payment of $213,028 for all remaining accrued interest and principal balance due in the final week of the 1-year extension of the Note.

A summary of the Note as of September 30, 2021, is presented below:
 
Description
 
Due Date
 
Interest Rate
 
 
Loan Amount
 
 
Proceeds
 
 
Remaining Balance
 
Promissory Note
 
8/31/2022
 
 
7.0%
 
 
$
268,126
 
 
$
4,446
 
 
$
263,680
 
 

Note 7. INTANGIBLE ASSETS

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-35-23, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-35-23 requires that a company recognize an impairment loss if, and only if, the carrying amount of a long-lived asset (asset group) is not recoverable from the sum of the undiscounted cash flows expected to result from the use and eventual disposal of the asset (the “Recoverable Amount”) and if the carrying amount exceeds the asset’s fair value.

As part of management's qualitative analysis at September 30, 2021 to determine whether any triggering events have occurred since the last impairment test in December 31, 2020, which would indicate an impairment. Management determined that no triggering events had occurred through the nine months ended September 30, 2021.

In 2020, The Company determined that the carrying value of intangible assets for the Vitamin Store are not recoverable based on the monthly average sales for the nine months ended September 30, 2020. The Company concluded that the intangible assets was impaired and recorded an impairment charge of $0.4 million for the nine months ended September 30, 2020.  The Company did not have an impairment charge for the same period in 2021.

Intangible assets, net are as follows:

September 30, 2021
 
Useful Lives (Years)
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names
   
8-10 years
 
$
923,000
 
$
(512,943)
 
$
410,057
Customer relationships
   
4-10 years
   
883,000
   
(634,385)
   
248,615
Patents
   
10 years
   
372,165
   
(112,929)
   
259,236
Non-compete
   
4 years
   
174,000
   
(121,438)
   
52,562
Intangible assets, net
       
$
2,352,165
 
$
(1,381,695)
 
$
970,470

December 31, 2020
 
Useful Lives (Years)
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names
   
8-10 years
 
 $
923,000
   
(441,786)
 
 $
481,214
Customer relationships
   
4-10 years
   
883,000
   
(475,073)
   
407,927
Patents
   
10 years
   
359,665
   
(85,641)
   
274,024
Non-compete
   
4 years
   
174,000
   
(88,813)
   
85,187
Intangible assets, net
       
$
2,339,665
 
$
(1,091,313)
 
$
1,248,352

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense was approximately $0.3 million and $0.3 million for the nine months ended September 30, 2021 and 2020, respectively. Future annual estimated amortization expense is as follows:

Years ending December 31,
     
2021 (remaining three months)
 
$
95,335
 
2022
   
370,956
 
2023
   
132,091
 
2024
   
132,091
 
2025
   
126,591
 
Thereafter
   
113,406
 
Total
 
$
970,470
 
8



Note 8. CONTRACT LIABILITIES

The Company’s contract liabilities 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 months 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, 2021 and 2020 is presented below:


 
As of September 30,
 
   
2021
   
2020
 
Beginning balance as January 1,
 
$
21,262
   
$
26,823
 
Issued
   
35,936
     
33,221
 
Redeemed
   
(35,966
)
   
(39,405
)
Breakage recognized
   
(115
)
   
(1,239
)
Ending balance as of September 30,
 
$
21,117
   
$
19,400
 
 

Note 9. DEBT

The following table provides a breakdown of the Company's debt as of September 30, 2021 and December 31, 2020 is presented below:

_
 
Due Date
 
Interest Rate
   
September 30, 2021
   
December 31, 2020
Term Loan Credit Agreement
 
December 2023
 
7.00%
 
$
547,174
 
$
800,924
Paycheck Protection Program
 
May 2022
 
1%
   
-
   
882,264
Line of Credit
 
July 2021
 
2.20%
   
-
   
2,000,000
Loan and Security Agreement ("PPE Loan")
 
March 2021
 
5%
   
-
   
1,232,414
Other debt
 
April 2023
 
5.3%
   
4,049
   
5,891
Total debt
         
$
551,223
   
4,921,493
 

Note 10. STOCKHOLDERS’ EQUITY

Rights Offering

On June 18, 2021, the Company issued 27,046,800,310 shares of common stock in connection with the Rights Offering at a subscription price of $0.0010 per share, generating gross proceeds of $27.0 million. The Company incurred direct financing costs of $2.7 million in connection with the offering resulting in net proceeds to the Company of $24.3 million.

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 was terminated and the Holder’s on the assets of the Company and its subsidiaries was 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 a total of 3.09 billion of restricted shares of common stock that were due to vest on March 31, 2021.

On June 29, 2021, the Company and the Officers and a Director of the Company agreed to forfeit a total of 3.09 billion of restricted shares of common stock that were due to vest on June 30, 2021.

Series C Convertible Preferred Stock

On November 17, 2020, the Company entered into agreements with certain holders of its Series B Convertible Preferred Stock (the "Series B Stock") to exchange all the Series B Stock for 20,150 shares of Series C Stock (the "Series C Stock"). Each share of Series C Stock has a stated value equal to $1,000 and is convertible into Common Stock on a fixed basis at a conversion price of $0.0001 per share. As of the end of the nine months ended September 30, 2021, the Series C Stock have been 100% been converted into 201.5 billion shares of Company common stock.

Series D Convertible Preferred Stock

On February 7, 2021, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold and issued 5,000 shares of its Series D Convertible Preferred Stock (the “Preferred Stock”) to accredited investors for $1,000 per share or an aggregate subscription of $5.0 million. As of the end of the nine months ended September 30, 2021, the Company has issued 6.6 billion shares of Company common stock in connection with the exercise of 4,200 shares of the Series D Convertible Preferred Stock at a conversion price of $0.00068 per share. The conversion price for the exercise of the preferred stock was reset to the 80% of the lowest daily volume-weighted average price ("VWAP") during the 5 Trading Days immediately preceding the Effective Date of August 11, 2021.

Stock Options

In the nine months ended September 30, 2021, 2,275,000,000 stock options of the Company have been exercised into common stock.

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2021
 
2020
 
2021
 
2020
Stock-based compensation
$
-
 
$
1,875
 
$
34,375
 
$
76,154

Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.



9


Income (Loss) Per Share

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:

 
As of September 30,
 
   
2021
   
2020
 
Preferred stock
   
1,250,000,000
     
201,501,000,000
 
Stock options
   
68,587,000,000
     
68,062,000,000
 
Warrants
   
-
     
36,460,000,000
 
Total
   
69,837,000,000
     
306,023,000,000
 
 

Note 11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Loss Contingencies

Two lawsuits were filed against the Company and its subsidiaries in connection with alleged claimed battery defects for an electronic cigarette device. Plaintiffs claim these batteries were sold by a store of the Company’s subsidiary and have sued for an undetermined amount of damages (other than a total of $0.4 million of medical costs). The initial complaints were filed between January 2019 and April 2019. We responded to the complaints on 2019 and we exchanged additional support information with the plaintiff for one of the lawsuits in 2021. Given the lack of information presented by the plaintiffs to date, the Company is unable to predict the outcome of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to these legal proceedings.

Gain Contingency

On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc. and Philip Morris Products S.A. in the U.S. District Court for the Northern District of Georgia.  The lawsuit alleges infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS®”. On July 23, 2021, the Court granted the defendant’s motion to dismiss HCMC’s patent infringement action against them. On August 6, 2021, HCMC filed a motion for leave to file a further amended complaint with the Court.  The Court has not ruled on this motion.

From time to time the Company is involved in legal proceedings arising in the ordinary course of our business. We believe that there is no other litigation pending that is likely to have, individually or in the aggregate, a material adverse effect on our financial condition or results of operations as of September 30, 2021. With respect to legal costs, we record such costs as incurred.

Employment Agreement

On February 26, 2021, the Company entered into an amended and restated employment agreement (the “Employment Agreement Amendment”) with the Company’s President and Chief Operating Officer, Christopher Santi. Pursuant to the Employment Agreement Amendment, Mr. Santi will continue to be employed as the Company’s President and Chief Operating Officer through January 30, 2024.  Mr. Santi will receive a base salary of $0.4 million for 2021 and his salary will increase 10% in each subsequent year.

10



Note 12. SUBSEQUENT EVENTS

The Company has evaluated its subsequent events from September 30, 2021 through the date these condensed consolidated financial statements were issued, and has determined that other below there are no additional subsequent events required to be disclosed.

Revolving Line of Credit

On November 3, 2021, the Company entered into an agreement for a new revolving line of credit of $2 million and a blocked/restricted deposit account (“blocked account”) with Professional Bank in Coral Gables, Florida. The agreement included a variable interest rate that it is based on a rate of 1% over what is earned on the collateral account. Based on the agreement with the bank, each draw request from the credit line will be 100% cash secured with moneys held from the blocked account.
11


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., Smoke Anywhere U.S.A., Inc., Emagine the Vape Store, LLC, 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 $2.3 million for the nine months ended September 30, 2021. As of September 30, 2021, cash and cash equivalents totaled approximately $28.2 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. The net proceeds are to 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.

On June 18, 2021, the Company issued 27,046,800,310 shares of common stock in connection with the Rights Offering at a subscription price of $0.0010 per share, generating gross proceeds of $27.0 million. The Company incurred direct financing costs of $2.7 million in connection with the offering resulting in net proceeds to the Company of $24.3 million.


12

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 six 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 September 30, 2021 and 2020 that is used in the following discussions of our results of operations:

 
Three Months Ended September 30,
 
2020 to 2021
 
2021
 
2020
 
Change $
SALES
               
Vapor sales, net
$
466,181
 
$
594,145
 
$
(127,964)
Grocery sales, net
 
2,803,327
   
2,753,648
   
49,679
TOTAL SALES, NET
 
3,269,508
   
3,347,793
   
(78,285)
                 
Cost of sales vapor
 
186,522
   
256,461
   
(69,939)
Cost of sales grocery
 
1,706,597
   
1,729,213
   
(22,616)
GROSS PROFIT
 
1,376,389
   
1,362,119
   
14,270
                 
OPERATING EXPENSES
               
Selling, general and administrative
 
2,427,256
   
2,195,275
   
231,981
Impairment of intangible assets
 
-
   
380,646
   
(380,646)
Total operating expenses
 
2,427,256
   
2,575,921
   
(148,665)
LOSS FROM OPERATIONS
 
(1,050,867)
   
(1,213,802)
   
162,935
                 
OTHER INCOME (EXPENSE)
               
Loss on investment
 
(557)
   
(2,571)
   
2,014
Interest income (expense), net
 
1,543
   
(84,592)
   
86,135
Total other income (expense), net
 
986
   
(87,163)
   
88,149
                 
NET INCOME (LOSS)
$
(1,049,881)
 
$
(1,300,965)
 
$
251,084

Net Vapor sales decreased $0.1 million to $0.5 million for the three months ended September 30, 2021 as compared to $0.6 million for the same period in 2020. The decrease in sales is primarily due to a decreased in the number of stores open during the three months ended September 30, 2021 as compared to the same period in 2020.

Net Grocery sales increased $50,000 to $2.8 million for the three months ended September 30, 2021 as compared to $2.8 million for the same period in 2020. The increase in sales is primarily due to a small increase in the customer count compared to the same period in 2020.

Vapor cost of goods sold for the three months ended September 30, 2021 and 2020 were $0.2 million and $0.3 million, respectively, a decrease of $0.1 million. The decrease is primarily due to decreases in sales and product costs during three months ended September 30, 2021 as compared to the same period in 2020. Gross profit was $0.3 million and $0.3 million for three months ended September 30, 2021 and 2020, respectively.

Grocery cost of goods sold for the three months ended September 30, 2021 and 2020 were $1.7 million and $1.7 million respectively, a decreased of $23,000. The decrease is primarily due to a decrease in cost of goods sold during the three months ended September 30, 2021 as compared to the same period in 2020. Gross profit was $1.1 million and $1.0 million for the three months ended September 30, 2021 and 2020, respectively.

Total operating expenses decreased $0.1 million to $2.4 million for the three months ended September 30, 2021 compared to $2.6 million for the same period in 2020. The decrease is primarily attributable to a decrease in the impairment of intangible assets of $0.4 million, partially offset by an increase in professional fees of $0.2 million and payroll and employee related cost of $0.1 million.

Net other income of $1,000 for the three months ended September 30, 2021 includes an interest income of $2,000, partially offset by a loss on investment of $1,000. Net other expense of 87,000 for the three months ended September 30, 2020 includes an interest expense of $85,000 and a loss on investment of $3,000.

13


The following table sets forth our unaudited consolidated Statements of Operations for the nine months ended September 30, 2021 and 2020 that is used in the following discussions of our results of operations:

 
Nine Months Ended September 30,
 
2021 to 2020
 
2021
 
2020
 
Change $
SALES
               
Vapor sales, net
$
1,671,098
 
$
1,888,480
 
$
(217,382)
Grocery sales, net
 
8,450,055
   
8,804,397
   
(354,342)
TOTAL SALES, NET
 
10,121,153
   
10,692,877
   
(571,724)
                 
Cost of sales vapor
 
657,171
   
787,998
   
(130,827)
Cost of sales grocery
 
5,133,228
   
5,461,574
   
(328,346)
GROSS PROFIT
 
4,330,754
   
4,443,305
   
(112,551)
                 
OPERATING EXPENSES
               
Selling, general and administrative
 
6,599,224
   
6,735,815
   
(136,591)
Impairment of intangible assets
 
-
   
380,646
   
(380,646)
Total operating expenses
 
6,599,224
   
7,116,461
   
(517,237)
LOSS FROM OPERATIONS
 
(2,268,470)
   
(2,673,156)
   
404,686
                 
OTHER INCOME (EXPENSE)
               
Gain (loss) on investment
 
10,954
   
(13,714)
   
24,668
Interest expense, net
 
(76,888)
   
(123,969)
   
47,081
Gain on extinguishment of debt, net
 
767,930
   
-
   
767,930
Total other income (expense), net
 
701,996
   
(137,783)
   
839,779
                 
NET LOSS
$
(1,566,474)
 
$
(2,810,939)
 
$
1,244,465

Net Vapor sales decreased $0.2 million to $1.7 million for the nine months ended September 30, 2021 as compared to $1.9 million for the same period in 2020. The decrease in sales is primarily due to a decreased in foot traffic for some stores a result of the Coronavirus (COVID-19) pandemic and a decrease in the number of stores open during the nine months ended September 30, 2021 as compared to the same period in 2020.

Net Grocery sales decreased $0.4 million to $8.5 million for the nine months ended September 30, 2021 as compared to $8.8 million for the same period in 2020. The decrease in sales is primarily due to a consistent decreased in foot traffic for some stores a result of the Coronavirus (COVID-19) pandemic.

Vapor cost of goods sold for the nine months ended September 30, 2021 and 2020 were $0.7 million and $0.8 million, respectively, a decrease of $0.1 million. The decrease is primarily due to a decreased in sales and product cost. Gross profit was $1.0 million and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Grocery cost of goods sold for the nine months ended September 30, 2021 and 2020 were $5.1 million and $5.5 million, respectively, a decrease of $0.3 million. The decrease is primarily due to decreases in sales and cost of goods sold from the COVID-19 pandemic. Gross profit was $3.3 million and $3.3 million for the nine months ended September 30, 2020 and 2020, respectively.

Total operating expenses decreased $0.5 million to $6.6 million for the nine months ended September 30, 2021 compared to $7.1 million for the same period in 2020. The decrease is primarily attributable to decreases in the impairment of intangible assets of $0.3 million, office and store expenses of $0.2 million, payroll and employee related cost of $0.1 million, stock-based compensation of $42,000, occupancy of $30,000, insurance of $27,000, and taxes, licenses & permits of $17,000, offset by an increase in professional fees of $0.3 million.

Net other income of $0.7 million for the nine months ended September 30, 2021 includes a gain on extinguishment of debt of $0.8 million and a gain on investment of $11,000, partially offset by an interest expense of $0.1 million. Net other expense of $0.1 million for the nine months ended September 30, 2020 includes a loss on investment of $14,000, and interest expense of $124,000.
14


Liquidity and Capital Resources

 
Nine Months Ended September 30,
 
2021
 
2020
Net cash provided by (used in)
         
 Operating activities
$
(2,044,147)
 
$
(1,653,279)
 Investing activities
 
(25,106)
   
(90,311)
Financing activities
 
27,316,225
   
3,206,574
 
$
25,246,972
 
$
1,462,984

Our net cash used in operating activities of $2.0 million for the nine months ended September 30, 2021 resulted from a net loss of $1.6 million, and a net cash usage of $0.6 million from changes in operating assets and liabilities, offset by a non-cash adjustment of $0.1 million. Our net cash used in operating activities of $1.7 million for the nine months ended September 30, 2020 resulted from a net loss of $2.8 million and a net cash usage of $0.2 million from changes in operating assets and liabilities, offset by a non-cash adjustment of $1.3 million.

The net cash used in investing activities of $25,000 for the nine months ended September 30, 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 nine months ended September 30, 2020 resulted from the collection of a note receivable, and purchases patents and property and equipment.

The net cash provided by financing activities of $27.3 million for the nine months ended September 30, 2021 is due to proceeds received from the Rights Offering of $24.3 million and a Securities Purchase Agreement of $5.0 million, partially offset by a principal payment of $2.0 million on the line of credit. The net cash provided by financing activities of $3.2 million for the nine months ended September 30, 2020 is due to proceeds received from the loan and security agreement and the payroll protection program.

At September 30, 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 September 30, 2021 and December 31, 2020.

 
September 30, 2021
 
December 31, 2020
Cash
$
28,172,447
 
$
925,475
Total assets
$
36,614,834
 
$
11,874,993
Percentage of total assets
 
76.94%
   
7.79%

The Company reported a net loss of $1.6 million for the nine months ended September 30, 2021. The Company also had positive working capital of $28.6 million. The Company expects to continue incurring losses for the foreseeable future and we do not believe there are any substantial doubts about the Company’s ability to continue as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

15


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.

16


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, 2021 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, 2020 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 purchase orders and inventory write-off 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, 2021 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, 2021, we have undertaken an action plan to
strengthen internal controls and procedures:

Management continues to devote significant efforts toward improvement of effectiveness of control over financial reporting. This includes analyzing non-routine transactions before booking journal entries; Implemented a monthly variance fluctuation analysis across all segments. Variance analysis are communicated to operations and executives to make sure the results are accurate.

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.

Vendor payments and cash disbursement are reviewed on weekly basis by management and accounting team to ensure timely payment. Cash balances are communicated to management on weekly basis to improve cash management.

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

17


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Two lawsuits were filed against the Company and its subsidiaries in connection with alleged claimed battery defects for an electronic cigarette device. Plaintiffs claim these batteries were sold by a store of the Company’s subsidiary and have sued for an undetermined amount of damages (other than a total of $0.4 million of medical costs). The initial complaints were filed between January 2019 and April 2019. We responded to the complaints on 2019 and we exchanged additional support information with the plaintiff for one of the lawsuits in 2021. Given the lack of information presented by the plaintiffs to date, the Company is unable to predict the outcome of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to these legal proceedings.

On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc. and Philip Morris Products S.A. in the U.S. District Court for the Northern District of Georgia (The "Court").  The lawsuit alleges infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS®”.  Philip Morris claims that it is currently approaching 14 million users of its IQOS® product and has reportedly invested over $3 billion in their smokeless tobacco products. On July 23, 2021, the Court granted the defendant’s motion to dismiss HCMC’s patent infringement action against them. On August 6, 2021, HCMC filed a motion for leave to file a further amended complaint with the Court.  The Court has not ruled on this motion.

From time to time the Company is involved in legal proceedings arising in the ordinary course of our business. We believe that there is no other litigation pending that is likely to have, individually or in the aggregate, a material adverse effect on our financial condition or results of operations as of September 30, 2021. With respect to legal costs, we record such costs as incurred.

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.”

18


INDEX TO EXHIBITS

Exhibit
     
Incorporated by Reference
 
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
104
 
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
             
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.

19


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.
     
Date: November 15, 2021
By:
/s/ Jeffrey Holman
   
Jeffrey Holman
   
Chief Executive Officer
     
Date: November 15, 2021
By:
/s/ John Ollet
   
John Ollet
   
Chief Financial Officer

20
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