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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 March 31, 2022

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, Florida
 
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 May 16, 2022, 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

HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS


   
March 31,
2022 (Unaudited)
   
December 31,
2021
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
20,587,830
   
$
26,496,404
 
Accounts receivable, net
   
37,512
     
28,481
 
Notes Receivable
   
234,143
     
247,915
 
Inventories
   
2,370,248
     
1,521,199
 
Prepaid expenses and vendor deposits
   
298,756
     
456,397
 
Investment
   
26,657
     
23,143
 
TOTAL CURRENT ASSETS
   
23,555,146
     
28,773,539
 
                 
Property and equipment, net of accumulated depreciation
   
1,532,375
     
176,988
 
Intangible assets, net of accumulated amortization
   
2,413,207
     
947,593
 
Goodwill
   
2,657,000
     
916,000
 
Right of use asset – operating lease, net
   
5,163,954
     
3,543,930
 
Other assets
   
112,883
     
85,437
 
                 
TOTAL ASSETS
 
$
35,434,565
   
$
34,443,487
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
 
$
2,058,805
   
$
1,642,848
 
Contract liabilities
   
243,840
     
23,178
 
Current portion of line of credit
   
453,232
     
418,036
 
Current portion of loan payment
   
2,638
     
2,604
 
Operating lease liability, current
   
607,121
     
437,328
 
TOTAL CURRENT LIABILITIES
   
3,365,636
     
2,523,994
 
                 
Loan payable, net of current portion
   
143
     
815
 
Operating lease liability, net of current
   
4,153,044
     
2,685,021
 
TOTAL LIABILITIES
   
7,518,823
     
5,209,830
 
                 
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)
   
     
 
                 
STOCKHOLDERS’ EQUITY
               
Series D convertible preferred stock, $1,000 par value per share, 5,000 shares authorized; 800 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; aggregate liquidation preference of $0.8 million
   
800,000
     
800,000
 
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; approximately 339,741,632,384 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
   
33,974,163
     
33,974,163
 
Additional paid-in capital
   
30,855,824
     
30,855,824
 
Accumulated deficit
   
(37,714,245
)
   
(36,396,330
)
TOTAL STOCKHOLDERS’ EQUITY
   
27,915,742
     
29,233,657
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
35,434,565
   
$
34,443,487
 

See notes to unaudited condensed consolidated financial statements
1



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

   
Three Months Ended March 31,
 
   
2022
   
2021
 
SALES
           
Vapor sales, net
 
$
249,563
   
$
613,936
 
Grocery sales, net
   
4,798,990
     
2,851,817
 
TOTAL SALES, NET
   
5,048,553
     
3,465,753
 
                 
Cost of sales vapor
   
111,684
     
233,315
 
Cost of sales grocery
   
2,964,355
     
1,741,728
 
GROSS PROFIT
   
1,972,514
     
1,490,710
 
                 
OPERATING EXPENSES
   
3,327,420
     
2,022,883
 
                 
LOSS FROM OPERATIONS
   
(1,354,906
)
   
(532,173
)
                 
OTHER (EXPENSE) INCOME
               
Gain on investment
   
3,514
     
26,126
 
Other income, net
   
16,874
     
-
 
Interest income (expense), net
   
16,603
     
(72,915
)
Loss on debt settlements
   
-
     
(117,296
)
Total other income (expense), net
   
36,991
     
(164,085
)
                 
NET LOSS
 
$
(1,317,915
)
 
$
(696,258
)
                 
NET LOSS PER SHARE-BASIC AND DILUTED
 
$
0.00
   
$
0.00
 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED
   
339,741,632,384
     
244,246,983,178
 

See notes to unaudited condensed consolidated financial statements

2


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 and 2021
(Unaudited)

 
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
     
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
 
Balance – January 1, 2022
   
800
   
$
800,000
     
339,741,632,384
   
$
33,974,163
   
$
30,855,824
   
$
(36,396,330
)
 
$
29,233,657
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(1,317,915
)
   
(1,317,915
)
Balance – March 31, 2022
   
800
   
$
800,000
     
339,741,632,384
   
$
33,974,163
   
$
30,855,824
   
$
(37,714,245
)
 
$
27,915,742
 


   
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
   
-
     
-
     
775,000,000
     
77,500
     
-
     
-
     
77,500
 
Issuance of Series D Convertible Preferred stock in connection with the Securities Purchase Agreement
   
5,000
     
5,000,000
     
-
     
-
     
-
     
-
     
5,000,000
 
Issuance of common stock
   
-
     
-
     
1,182,831,056
     
118,283
     
1,289,273
     
-
     
1,407,556
 
Issuance of awarded stock for officers
   
-
     
-
     
2,200,000,000
     
220,000
     
(220,000
)
   
-
     
-
 
Issuance of awarded stock for board member
   
-
     
-
     
50,000,000
     
5,000
     
(5,000
)
   
-
     
-
 
Cancellation of awarded stock for officers
   
-
     
-
     
(3,025,000,000
)
   
(302,500
)
   
302,500
     
-
     
-
 
Cancellation of awarded stock for board member
   
-
     
-
     
(68,750,000
)
   
(6,875
)
   
6,875
     
-
     
-
 
Stock-based compensation expense
   
-
     
-
     
-
     
-
     
1,875
     
-
     
1,875
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(696,258
)
   
(696,258
)
Balance – March 31, 2021
   
5,000
   
$
5,000,000
     
307,726,082,074
   
$
30,772,608
   
$
5,330,562
   
$
(33,055,129
)
 
$
8,048,041
 



See notes to unaudited condensed consolidated financial statements

3


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

   
Three Months Ended March 31,
 
   
2022
   
2021
 
OPERATING ACTIVITIES
           
Net loss
 
$
(1,317,915
)
 
$
(696,258
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
193,322
     
136,597
 
Gain on extinguishment of debt
   
-
     
117,296
 
Gain on investment
   
(3,514
)
   
(26,126
)
Amortization of right-of-use asset
   
177,643
     
122,735
 
Write-down of obsolete and slow-moving inventory
   
40,586
     
37,061
 
Stock-based compensation expense
   
-
     
1,875
 
                 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(9,031
)
   
(33,079
)
Inventories
   
(85,056
)
   
11,401
 
Prepaid expenses and vendor deposits
   
157,641
     
48,234
 
Other assets
   
(27,446
)
   
1,003
 
Accounts payable and accrued expenses
   
415,957
     
(269,627
)
Contract liabilities
   
(61,965
)
   
(3,092
)
Lease liability
   
(159,851
)
   
(104,390
)
NET CASH USED IN OPERATING ACTIVITIES
   
(679,629
)
   
(656,370
)
                 
INVESTING ACTIVITIES
               
Acquisition of Mother Earth's Storehouse
   
(5,150,000
)
   
-
 
Collection of note receivable
   
13,772
     
13,178
 
Purchases of property and equipment
   
(127,275
)
   
(30,855
)
NET CASH USED IN INVESTING ACTIVITIES
   
(5,263,503
)
   
(17,677
)
                 
FINANCING ACTIVITIES
               
Proceeds from line of credit
   
35,196
     
-
 
Principal payments on loan payable
   
(638
)
   
(12,759
)
Principal payment on the line of credit
   
-
     
(2,000,000
)
Proceeds from loan and security agreement
   
-
     
5,000,000
 
Proceeds from exercise of stock options
   
-
     
77,500
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
34,558
     
3,064,741
 
                 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH
   
(5,908,574
)
   
2,390,694
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH— BEGINNING OF PERIOD
   
26,496,404
     
2,925,475
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD
 
$
20,587,830
   
$
5,316,169
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid for interest
 
$
1,428
   
$
81,313
 
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Issuance of common stock
 
$
-
   
$
1,407,556
 
Lease acquired
 
$
1,797,667
   
$
-
 

See notes to unaudited condensed consolidated financial statements

4


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 four 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 concentrate (approximately 50mg) purchased from a third party. The Q-Cup™ is then inserted into the Q-Cup™ Tank or Globe, which 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. The Company acquired Mother Earth’s Storehouse on February 9, 2022, which operates a two store organic and health food and vitamin chain in New York’s Hudson Valley, a business that has been operating for over 40 years. The Company expanded its operation into the Health & Wellness segment in November 2021. HCMC has acquired EIR Hydration, an IV therapy center located in Roslyn Heights, NY. The Company also has a licensing agreement for a Healthy Choice Wellness Center at the Casbah Spa and Salon in Fort Lauderdale, FL.

COVID-19 Management Update

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020 and has negatively impacted the U.S. and global economies, disrupted global supply chains and, mandated closures and stay-at-home orders and created significant disruptions of the global financial markets. The Company 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 operations.

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 at least the next twelve months from the issuance of these unaudited condensed consolidated financial statements.


5


Note 3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022. The condensed consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited 2021 financial statements contained in the above referenced Form 10-K. Results of the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2021 Annual Report.

Note 4. CONCENTRATIONS

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid instruments with an original maturity of three months or less, when purchased, to be cash and cash equivalents. The majority of the Company’s cash and cash equivalents are concentrated in one large financial institution, which is in excess of Federal Deposit Insurance Corporation (FDIC) coverage.

A summary of the financial institutions that had a cash and cash equivalents in excess of FDIC limits of $250,000 on March 31, 2022 and December 31, 2021 is presented below:

March 31, 2022
 
December 31, 2021
 
Total cash, cash equivalents and restricted cash in excess of FDC limits of $250,000
 
$
19,931,811
   
$
26,023,593
 

The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests, as deposits are held in excess of federally insured limits. The Company’s cash equivalent at March 31, 2022 and December 31, 2021, respectively, was a money market account. The Company has not experienced any losses in such accounts.


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 March 31,
 
   
2022
   
2021
 
Vapor
 
$
249,563
   
$
613,936
 
Grocery
   
4,798,990
     
2,851,817
 
Total revenue
 
$
5,048,553
   
$
3,465,753
 
                 
Retail Vapor
 
$
249,563
   
$
613,894
 
Retail Grocery
   
4,278,013
     
2,542,360
 
Food service/restaurant
   
515,085
     
287,722
 
Online/eCommerce
   
5,892
     
13,717
 
Wholesale Grocery
   
-
     
8,018
 
Wholesale Vapor
   
-
     
42
 
Total revenue
 
$
5,048,553
   
$
3,465,753
 

6


Note 6. NOTES RECEIVABLE AND OTHER INCOME

On September 6, 2018, the Company entered into a secured, 36-month promissory note (the “Note”) with VPR Brands L.P. for $582,260. The Note bears an interest rate of 7.00%, which payments thereunder are $4,141 weekly. 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 "Amended Note") with VPRB Brands L.P. for the outstanding balance in the note of $268,126. The Amended Note bears an interest rate of 7.00%, which payments thereunder are $1,500 weekly, with such payments commencing as of September 3, 2021. The Amended 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 March 31, 2022 and December 31, 2021 is presented below:

Description
March 31, 2022
 
December 31, 2021
 
Promissory Note
 
$
234,143
   
$
247,915
 
 
Note 7. ACQUISITION OF MOTHER EARTH’S STOREHOUSE, INC.

On February 9, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets 3, LLC, entered into an Asset Purchase Agreement with Mother Earth’s Storehouse Inc. (“HCM3”) and its shareholders. Pursuant to the Purchase Agreement, HCM3 acquired certain assets and assumed certain liabilities related to Mother Earth’s grocery stores in Kingston and Saugerties, New York. The Company intends to continue to operate the grocery stores under their existing name. The cash purchase price under the Asset Purchase Agreement is $4,472,500 million, with an additional $677,500 paid for inventory at closing. In addition, the Company assumed a lease obligation for the Kingston, NY store and entered into an employment agreement with the store manager.

The purchase method of accounting in accordance with ASC 805, Business Combinations, was applied for the Mother Earth's Storehouse acquisition.  This requires the total cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill. Goodwill arising from the acquisition is attributable to expected operational synergies from combining the operations of the acquired business with those of the Company. Goodwill is not expected to be deductible for income tax purposes in the tax jurisdiction of the acquired business.

The following table summarizes the approximate preliminary purchase price allocation based on estimated fair values of the net assets acquired at the acquisition date:

Purchase Consideration
     
Cash Consideration paid
 
$
5,150,000
 
         
Purchase price allocation
       
   Inventory
   
805,000
 
   Property and equipment
   
1,278,000
 
   Intangible assets
   
1,609,000
 
   Right of use asset - operating lease
   
1,797,667
 
   Other liabilities
   
(283,000
)
   Operating lease liabiltiy
   
(1,797,667
)
   Goodwill
   
1,741,000
 
Net assets acquired
 
$
5,150,000
 
         
Finite-lived intangible assets
       
   Trade Names/Trademarks
 
$
513,000
 
   Customer Relationships
   
683,000
 
   Non-Compete Agreement
   
413,000
 
Total intangible assets
 
$
1,609,000
 


7


Note 8. PROPERTY & EQUIPMENT

Property and equipment consist of the following:

   
March 31, 2022
   
December 31, 2021
 
Displays
 
$
305,558
   
$
305,558
 
Building
   
575,000
     
-
 
Furniture and fixtures
   
417,244
     
246,496
 
Leasehold improvements
   
751,470
     
136,504
 
Computer hardware & equipment
   
152,681
     
151,924
 
Other
   
359,640
     
315,788
 
     
2,561,593
     
1,156,270
 
Less: accumulated depreciation and amortization
   
(1,029,218
)
   
(979,282
)
Total property and equipment
 
$
1,532,375
   
$
176,988
 

The Company incurred approximately $49,936 and $38,574 of depreciation expense for the three months ended March 31, 2022 and 2021, respectively.


Note 9. INTANGIBLE ASSETS

Intangible assets, net are as follows:

March 31, 2022
Useful Lives (Years)
 
Gross
Carrying Amount
   
Accumulated
Amortization
   
Net
Carrying Amount
 
Trade names / Trademarks
8-10 years
 
$
1,436,000
   
$
(571,068
)
 
$
864,932
 
Customer relationships
4-5 years
   
1,566,000
     
(756,232
)
   
809,768
 
Patents
10 years
   
372,165
     
(131,537
)
   
240,628
 
Non-compete
4-5 years
   
651,000
     
(162,288
)
   
488,712
 
Website
4 years
   
10,000
     
(833
)
   
9,167
 
Intangible assets, net
   
$
4,035,165
   
$
(1,621,958
)
 
$
2,413,207
 


December 31, 2021
Useful Lives (Years)
 
Gross
Carrying Amount
   
Accumulated
Amortization
   
Net
Carrying Amount
 
Trade names / Trademarks
8-10 years
 
$
923,000
     
(536,661
)
 
$
386,339
 
Customer relationships
4-5 years
   
883,000
     
(685,823
)
   
197,177
 
Patents
10 years
   
372,165
     
(122,233
)
   
249,932
 
Non-compete
4 years
   
238,000
     
(133,646
)
   
104,354
 
Website
4 years
   
10,000
     
(209
)
   
9,791
 
Intangible assets, net
   
$
2,426,165
   
$
(1,478,572
)
 
$
947,593
 

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense was approximately $143,386 and $98,023 for the three months ended March 31, 2022 and 2021, respectively. Future annual estimated amortization expense is as follows:

Years ending December 31,
     
2022 (remaining nine months)
 
$
506,627
 
2023
   
411,149
 
2024
   
411,149
 
2025
   
404,107
 
2026
   
309,214
 
Thereafter
   
370,961
 
Total
 
$
2,413,207
 


8


Note 10. CONTRACT LIABILITIES

The Company’s contract liabilities consist 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 at March 31, 2022 and December 31, 2021 is presented below:


 
March 31, 2022
   
December 31, 2021
 
Beginning balance as January 1,
 
$
23,178
   
$
21,262
 
Issued
   
716,913
     
39,469
 
Redeemed
   
(493,956
)
   
(37,463
)
Breakage recognized
   
(2,295
)
   
(90
)
Ending balance as of March 31,
 
$
243,840
   
$
23,178
 
 

Note 11. DEBT

The following table provides a breakdown of the Company's debt as of March 31, 2022 and December 31, 2021 is presented below:

_
 
March 31, 2022
   
December 31, 2021
 
Line of Credit
 
$
453,232
   
$
418,036
 
Other debt
   
2,781
     
3,419
 
Total debt
 
$
456,013
     
421,455
 
 

Note 12. 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.
9


Stock Options

In the three months ended March 31, 2022, no stock options of the Company were exercised into common stock; in comparison to the three months ended March 31, 2021, where 775,000,000 stock options of the Company were exercised into common stock. During the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation of $0 and $1,875, respectively. Stock based compensation is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.

Income (Loss) Per Share

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

As of March 31,
 
 
2022
 
2021
 
Preferred stock
   
1,250,000,000
     
2,083,000,000
 
Stock options
   
67,587,000,000
     
69,087,000,000
 
Total
   
68,837,000,000
     
71,170,000,000
 
 

Note 13. COMMITMENTS AND CONTINGENCIES

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 in 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 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 December 3, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A.  On December 14, 2021, the Company filed an appeal of the District Court for the Northern District of Georgia’s dismissal of the Company’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. HCMC believes the Georgia Court committed legal error by dismissing its complaint for patent infringement and by denying the Company’s motion to amend its pleading.

On December 31, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. In connection with such dismissal, the defendants sought to recover attorney’s fees from the Plaintiff. On February 22, 2022, the District Court for the Northern District of Georgia granted the defendant’s an award of approximately $575,000 in attorneys’ fees to be paid by the Company. The Company has fully provisioned this amount as of December 31, 2021.

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 March 31, 2022. With respect to legal costs, we record such costs as incurred.
10


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.

On February 02, 2022, the Company entered into a Second Amended and Restated Employment Agreement (the “Employment Agreement Amendment”) with the Company’s Chief Financial Officer, John Ollet.  Pursuant to the Employment Agreement Amendment, Mr. Ollet will continue to be employed as the Company’s Chief Financial Officer through February 14, 2025.  Mr. Ollet will receive a base salary of $0.3 million for 2022 and his salary will increase 10% in each subsequent calendar year.

Note 14. SUBSEQUENT EVENTS

On April 21, 2022, the Company assigned the lease and sold the inventory for its remaining retail vape store located at 15245 S Tamiami Trail, Fort Myers, FL 33908. The Company received a total of $10,000 as part of this transaction.

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”), Healthy Choice Markets 3, LLC (“Mother Earth’s Storehouse”), Healthy Choices Markets 3 Real Estate LLC, HCMC Intellectual Property Holdings, LLC, Healthy Choice Wellness, 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. is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives.
Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company manages and intends to expand on its intellectual property portfolio.
Through its wholly owned subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC, and Healthy Choice Markets 3, LLC, respectively, the Company operates:
Ada’s Natural Market, a natural and organic grocery store offering 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.
Paradise Health & Nutrition’s three stores that likewise 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.
Mother Earth’s Storehouse, a two store organic and health food and vitamin chain in New York’s Hudson Valley, which has been in existence for over 40 years.
Through its wholly owned subsidiary, Healthy Choice Wellness, LLC, the Company operates:
Healthy Choice Wellness Center (Roslyn Heights, NY) a corporately owned IV therapy center offering multiple IV drip “cocktails” for clients to choose from. These cocktails are designed to help boost immunity, fight fatigue and stress, reduce inflammation, enhance weight loss, and efficiently deliver antioxidants and anti-aging mixes. Additionally, there are cocktails for health, beauty and re-hydration.
The Company also has a licensing agreement for a Healthy Choice Wellness Center at the Casbah Spa and Salon in Fort Lauderdale, FL, offering essentially the same services as the Roslyn Heights, NY location.
Through its wholly owned subsidiary, Healthy U Wholesale, the Company sells vitamins and supplements, as well as health, beauty and personal care products on its website www.TheVitaminStore.com.
Additionally, the Company markets its patented Q-Unit™ and Q-Cup® technology. Information on these products and the technology is available on the Company’s website at www.theQcup.com.
12


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 $1.4 million for the three months ended March 31, 2022. As of March 31, 2022, cash and cash equivalents totaled approximately $20.6 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.

Factors Affecting Our Performance

We believe the following factors affect our performance:

Retail: We believe the operating performance of our retail stores will affect our revenue and financial performance. The Company has (1) a total of four retail vape stores and (2) four natural and organic groceries and dietary supplement stores located in Florida, as well as two located in New York. The Company has reduced the number of retail vape stores due to adverse industry trends and increasing federal and state regulations that, if implemented, may negatively impact future retail revenues.

Increased Competition: Food retail is a large and competitive industry. Our competition varies and includes national, regional, and local conventional supermarkets, national superstores, alternative food retailers, natural foods stores, smaller specialty stores, and farmers’ markets. In addition, we compete with restaurants and other dining options in the food-at-home and food-away-from-home markets. The opening and closing of competitive stores, as well as restaurants and other dining options, in regions where we operate will affect our results. In addition, changing consumer preferences with respect to food choices and to dining out or at home can impact us. We also expect increased product supply and downward pressure on prices to continue and impact our operating results in the future.

Our Response to the COVID-19 Pandemic: We are proud to provide our guests with high quality, fresh foods and restaurant quality meals, delivered with impeccable service in an exceptionally clean and well-stocked store. With the ongoing COVID-19 pandemic, we continue to carefully monitor and adjust our safety protocols while following public health guideline and local ordinances. We have maintained many of the protocols established at the beginning of the pandemic to keep our team members and guests safe. The COVID-19 pandemic has presented many risks and challenges that we must manage. While we have experienced many challenges, including but not limited to, product shortages, staffing difficulties, and evolving customer shopping behaviors, our focus remains on both offering our customers a high quality service experience and supporting our essential front-line team members. Though we have successfully managed these challenges to date, our operations and financial condition could still be negatively affected by the COVID-19 pandemic and future developments, which are highly uncertain and cannot be predicted.
13


Results of Operations

The following table sets forth our unaudited condensed consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 that is used in the following discussions of our results of operations:

   
Three Months Ended March 31,
   
2021 to 2022
 
   
2022
   
2021
   
Change $
 
SALES
                 
Vapor sales, net
 
$
249,563
   
$
613,936
   
$
(364,373
)
Grocery sales, net
   
4,798,990
     
2,851,817
     
1,947,173
 
TOTAL SALES, NET
   
5,048,553
     
3,465,753
     
1,582,800
 
                         
Cost of sales vapor
   
111,684
     
233,315
     
(121,631
)
Cost of sales grocery
   
2,964,355
     
1,741,728
     
1,222,627
 
GROSS PROFIT
   
1,972,514
     
1,490,710
     
481,804
 
                         
OPERATING EXPENSES
                       
Selling, general and administrative
   
3,327,420
     
2,022,883
     
1,304,537
 
Total operating expenses
   
3,327,420
     
2,022,883
     
1,304,537
 
LOSS FROM OPERATIONS
   
(1,354,906
)
   
(532,173
)
   
(822,733
)
                         
OTHER INCOME (EXPENSE)
                       
Gain on investment
   
3,514
     
26,126
     
(22,612
)
Other income, net
   
16,874
     
-
     
16,874
 
Interest income (expense), net
   
16,603
     
(72,915
)
   
89,518
 
Loss on debt settlements
   
-
     
(117,296
)
   
117,296
 
Total other income (expense), net
   
36,991
     
(164,085
)
   
201,076
 
                         
NET LOSS
 
$
(1,317,915
)
 
$
(696,258
)
 
$
(621,657
)

Net vapor sales decreased approximately $0.4 million to $0.2 million for the three months ended March 31, 2022 as compared to $0.6 million for the same period in 2021. The decrease in sales is primarily due to a decrease in the number of stores open during the three months ended March 31, 2022 as compared to the same period in 2021.

Net grocery sales increased $1.9 million to $4.8 million for the three months ended March 31, 2022 as compared to $2.9 million for the same period in 2021. The increase in sales is primarily due to an increase in the number of stores as a result of the acquisition of Mother Earth's Storehouse in February 2022.

Vapor cost of goods sold for the three months ended March 31, 2022 and 2021 were $0.1 million and $0.2 million, respectively, a decrease of $0.1 million. The decrease is primarily due to decreases in sales and product costs during three months ended March 31, 2022 as compared to the same period in 2021. Gross profit was $0.1 million and $0.4 million for three months ended March 31, 2022 and 2021, respectively.

Grocery cost of goods sold for the three months ended March 31, 2022 and 2021 were $3.0 million and $1.7 million, respectively, an increase of $1.2 million. The increase is primarily due to an increase in the number of stores from the acquisition of Mother Earth's Storehouse during the three months ended March 31, 2022 as compared to the same period in 2021. Gross profit was $1.8 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively.

Total operating expenses increased $1.3 million to $3.3 million for the three months ended March 31, 2022 compared to $2.0 million for the same period in 2021. The increase is primarily attributable to an increase in professional fees of $0.4 million, payroll and employee related cost of $0.5 million, office and store expense of $0.2 million, occupancy costs of $0.1 million and depreciation and amortization of $0.1 million.

Net other income of $37,000 for the three months ended March 31, 2022 includes other income of $17,000, interest income of $17,000 and a gain on investment of $4,000. Net other expense of $164,000 for the three months ended March 31, 2021 includes a loss on debt settlements of $117,000, interest expense of $73,000, offset by a gain on investment of $26,000.

14


Liquidity and Capital Resources

   
Three Months Ended March 31,
 
   
2022
   
2021
 
Net cash provided by (used in)
           
 Operating activities
 
$
(679,629
)
 
$
(656,370
)
 Investing activities
   
(5,263,503
)
   
(17,677
)
Financing activities
   
34,558
     
3,064,741
 
   
$
(5,908,574
)
 
$
2,390,694
 

Our net cash used in operating activities of approximately $0.7 million for the three months ended March 31, 2022 resulted from a net loss of $1.3 million, offset by a non-cash adjustment of $0.4 million and a net cash provided of $0.2 million from changes in operating assets and liabilities. 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.

The net cash used in investing activities of $5.3 million for the three months ended March 31, 2022 resulted from the acquisition of Mother Earth's Storehouse, collection on a note receivable, and purchases of property and equipment. 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 patents and property and equipment.

The net cash provided by financing activities of $35,000 for the three months ended March 31, 2022 is due to proceeds received from the line of credit. The net cash provided by financing activities of $3.1 million for the three months ended March 31, 2021 is due to proceeds received from the Securities Purchase Agreement of $5.0 million, partially offset by a principal payment of $2.0 million on the line of credit.

At March 31, 2022 and December 31, 2021, 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. Most 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, 2022 and December 31, 2021.

   
March 31, 2022
   
December 31, 2021
 
Cash
 
$
20,587,830
   
$
26,496,404
 
Total assets
 
$
35,434,565
   
$
34,443,487
 
Percentage of total assets
   
58.10
%
   
76.93
%

The Company reported a net loss of $1.3 million for the three months ended March 31, 2022. The Company also had positive working capital of $20.2 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 2021 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 March 31, 2022 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, 2021 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.

Failure to perform periodic and year-end inventory observations in a timely manner and adequate controls to sufficiently perform required rollback procedures of inventory counts to the year-end.

Weakness around our purchase orders and inventory procedures, inclusive of year-end physical inventory observation procedures as well as physical count procedures.

Segregation of duties due to lack of personnel.

Our management concluded that considering internal control deficiencies that, in the aggregate, rise to the level of material weaknesses, we did not maintain effective internal control over financial reporting as of March 31, 2022 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 three months ended March 31, 2022, 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 analyses 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.

The Company is evaluating the addition of a new position, Inventory Analyst, to handle all matters related to the implementation of a cycle-count procedure as well as coordinating all physical inventory counts with third parties.

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 reporting and will further delineate milestones as they are achieved.

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 in 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 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 December 3, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A.  On December 14, 2021, the Company filed an appeal of the District Court for the Northern District of Georgia’s dismissal of the Company’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. HCMC believes the Georgia Court committed legal error by dismissing its complaint for patent infringement and by denying the Company’s motion to amend its pleading.

On December 31, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. In connection with such dismissal, the defendants sought to recover attorney’s fees from the Plaintiff. On February 22, 2022, the District Court for the Northern District of Georgia granted the defendant’s an award of approximately $575,000 in attorneys’ fees to be paid by the Company. The Company has fully provisioned this amount as of December 31, 2021.

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 March 31, 2022. 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: May 16, 2022
By:
/s/ Jeffrey Holman
   
Jeffrey Holman
   
Chief Executive Officer
     
Date: May 16, 2022
By:
/s/ John Ollet
   
John Ollet
   
Chief Financial Officer

20
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