UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended
September 30, 2020
Or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number: 001-36469
HEALTHIER CHOICES MANAGEMENT CORP.
(Exact name of Registrant as specified in its charter)
Registrant’s telephone number, including area code:
305-600-5004
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
☒ Yes
☐
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
☒ Yes
☐
No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
☐ Yes
☒
No
Securities registered pursuant to Section 12(b) of the Act:
As of
November 18, 2020, there were
105,110,848,017 shares of the registrant’s common stock, par
value $0.0001 per share, outstanding.
TABLE OF CONTENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF CONDENSED CONSOLDIATED
OPERATIONS
The following discussion and analysis should be read in conjunction
with our unaudited interim condensed consolidated financial
statements and related notes appearing elsewhere in this report on
Form 10-Q. In addition to historical information, this discussion
and analysis contains forward-looking statements that involve
risks, uncertainties, and assumptions. Our actual results may
differ materially from those anticipated in these forward-looking
statements. The terms “we,” “us,” “our,” and the “Company” refer to
Healthier Choices Management Corp. and its wholly-owned
subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets
2, LLC (“Paradise Health and Nutrition”), The Vitamin Store, LLC,
Healthy U Wholesale, Inc., The Vape Store, Inc. (“Vape Store”),
Vaporin, Inc. (“Vaporin”), Smoke Anywhere U.S.A., Inc. (“Smoke”),
Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc.,
Vapormax Franchising LLC, Vaporin LLC, and Vaporin Florida, Inc. .
All intercompany accounts and transactions have been eliminated in
consolidation.
Company Overview
Healthier
Choices Management Corp. (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.
Going Concern and 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
$2.8 million
for the
nine months ended September
30, 2020.
As of
September 30, 2020,
cash and cash equivalents totaled approximately
$0.6 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 not be sufficient to cover our
projected operating expenses for the foreseeable future. Management
believes these conditions raises substantial doubt about the
Company's ability to continue as a going concern within a year and
a day from the issuance of these consolidated financial statements.
Should
we require additional funds (either through equity or debt
financing, collaborative agreements or from other sources)
we
have no commitments to obtain such additional financing, and we may
not be able to obtain any such additional financing on terms
favorable to us, or at all. The inability to raise additional
financing may have a material adverse effect on the future
performance of the Company.
Factors Affecting Our Performance
We believe the following factors affect our performance:
Vapor Retail: We believe the operating performance of our
vapor retail stores will affect our revenue and financial
performance. The Company has a total of nine retail vape stores,
which are located in Florida, Georgia and Tennessee.
Inventory Management: Our vapor segment revenue trends are
affected by an evolving product acceptance and consumer demand. We
are creating and offering new products to our retail vapor
customers. Evolving product development and technology impacts our
licensing and intellectual properties spending. We expect the
transition to vaporizer and advanced technology and enhanced
performance products to continue and will impact our overall
operating results in the future.
Increased Competition: The launch by national competitors in
both of our business reporting segments have made it more difficult
to compete on prices and to secure business. We expect increased
product supply and downward pressure on prices to continue and
impact our operating results in the future. We also expect the
continued expansion of national grocery chains, which leads to
greater competition, to impact our operating results in the
future.
Results of Operations
The following table sets forth our unaudited condensed consolidated
Statements of Operations for the
three months ended September
30, 2020 and
2019 that is used in the following discussions of our
results of operations:
Net Vapor sales
decreased $0.3
million to
$0.6 million for the
three months ended September
30, 2020 as compared to
$0.9 million for the same period in
2019. The
decrease in sales is primarily due to a major decreased in
foot traffic or temporary closure of some stores a result of the
Coronavirus (COVID-19) pandemic during the
three months ended September
30, 2020 as compared to the same period in
2019.
Net
Grocery sales
increased $0.2
million
to
$2.8 million
for the
three months ended September
30, 2020 as
compared to
$2.5 million
for the same period in
2019.
The increase in sales is primarily due to COVID-19 pandemic
and the company new strategy to offer its customer the
option to delivery or curb side pickup their orders.
Vapor cost of goods sold for the
three months ended September
30, 2020 and
2019 were
$0.3 million and
$0.4 million, respectively, a
decreased of
$0.1 million. The
decrease is primarily due to decreases in product costs
during
three months ended September
30, 2020 as compared to the same period in
2019. Gross profit was
$0.3 million and
$0.5 million for
three months ended September
30, 2020 and
2019, respectively.
Grocery cost of goods sold for the
three months ended September
30, 2020 and
2019 were
$1.7 million and
$1.6 million respectively, an
increased of
$99,000. The
increase is primarily due to increases in sales and cost of
goods sold from the COVID-19 pandemic. Gross profit was
$1.0 million and
$0.9 million for the
three months ended September
30, 2020 and
2019, respectively.
Total operating expenses
increased $43,000
to
$2.6 million for the
three months ended September
30, 2020 compared to
$2.5 million for the same period in
2019. The
increase is primarily attributable to an impairment of
intangible assets of
$0.4 million, offset by ,decreases in payroll and employee
related cost of
$0.1 million, stock compensation of
$0.1 million, insurance of
$43,000, meals, meals, travel and entertainment of
$30,000, and occupancy of
$9,000.
Net
other expense of
$87,000 for
the
three months ended September
30, 2020 includes
interest expense of
$85,000,
and loss on investment of
$3,000.
Net other expense of
$21,000 for
the
three months ended September
30, 2019 includes
a loss on investment of
$13,000,
partially offset by interest income of
$8,000.
The following table sets forth our unaudited consolidated
Statements of Operations for the
nine months ended September
30, 2020 and
2019 that is used in the following discussions of our
results of operations:
Net Vapor sales
decreased $1.3
million to
$1.9 million for the
nine months ended September
30, 2020 as compared to
$3.2 million for the same period in
2019. The
decrease in sales is primarily due to a major decreased in
foot traffic or temporary closure of 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, 2020 as compared to the same period in
2019.
Net
Grocery sales
increased $0.4
million
to
$8.8 million
for the
nine months ended September
30, 2020 as
compared to
$8.4 million
for the same period in
2019.
The
increase in
sales is primarily due to COVID-19 pandemic and the company
new strategy to offer its customer the option to delivery or curb
side pickup their orders.
Vapor cost of goods sold for the
nine months ended September
30, 2020 and
2019 were
$0.8 million and
$1.3 million, respectively, a
decrease of
$0.6 million. The
decrease is primarily due to a decreased in sales and
product cost. Gross profit was
$1.1 million and
$1.9 million for the
nine months ended September
30, 2020 and
2019, respectively.
Grocery cost of goods sold for the
nine months ended September
30, 2020 and
2019 were
$5.5 million and
$5.3 million, respectively, an increase of
$0.2 million. The
increase is primarily due to increases in sales and cost of
goods sold from the COVID-19 pandemic. Gross profit was
$3.3 million and
$3.1 million for the
nine months ended September
30, 2019 and
2019, respectively.
Total operating expenses
decreased $0.9
million to
$7.1 million for the
nine months ended September
30, 2020 compared to
$8.1 million for the same period in
2019. The
decrease is primarily attributable to decreases in payroll
and employee related cost of
$0.6 million, stock-based compensation of
$0.3 million, professional fees of
$0.1 million, taxes, licenses & permits of
$0.1 million, insurance of
$0.1 million, and occupancy of
$42,000, offset by an impairment of intangible assets of
$0.4 million.
Net
other expense of
$0.1 million
for the
nine months ended September
30, 2020 was
primarily due to an interest expense of
$0.1 million,
and a loss on investment of
$14,000.
Net other expense of
$0.1 million
for the
nine months ended September
30, 2019includes
a loss on investment of
58,000, and interest expense of
$20,000.
Liquidity and Capital Resources
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
$0.9 million.
Our net cash used in operating activities of
$2.9 million
for the
nine months ended September
30, 2019 resulted
from a net loss of
$3.2 million and a net cash usage of
$1.0 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
$0.1 million
for the
nine months ended September
30, 2020 resulted
from the issuance and collection of a note receivable, and
purchases of a patent and property and equipment.
The net cash provided by investing activities of
$99,000 for
the
nine months ended September
30, 2019 resulted
from payments received on the VPR Brands L.P. Note.
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 Term Loan of
$2.5 million
and loan of payments of
$(0.2) million
on the loan payable. The net cash provided by financing activities
of
$0.1 million
for the
nine months ended September
30, 2019 is
due to payments
on the loan payable.
At
September 30, 2020 and
December 31, 2019, we did not have any material financial
guarantees or other contractual commitments with vendors that are
reasonably likely to have an adverse effect on liquidity.
Our cash balances are kept liquid to support our growing
acquisition and infrastructure needs for operational expansion. The
majority of our cash and cash equivalents are concentrated in three
financial institutions and are generally in excess of the FDIC
insurance limit. The Company has not experienced any losses on its
cash and cash equivalents. The following table presents the
Company’s cash position as of
September 30, 2020 and
December 31, 2019.
The Company reported a net loss of
$2.8 million for the
nine months ended September
30, 2020. The Company also had negative working capital of
$4.2 million. The Company expects to continue incurring
losses for the foreseeable future and may need to raise additional
capital to satisfy warrant obligations, and to continue as a going
concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and
results of operations is based on our 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
2019 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 warrant exercises and stock sales, having the authorized
capital to issue stock to exercising Series A Warrant holders,
customer acceptance of our products, and proposed federal and state
regulation. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as the result of new
information, future events or otherwise.
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, 2020 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, 2019 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:
During
the second quarter of 2020, the Company's independent auditors
identified a material weakness in our internal controls and
procedures over the adoption of Accounting Standard
Codification ("ASC") 230, Restricted cash. The material weakness in
internal control over financial reporting resulted in a
reclassification to the presentation of the Company's prior period
financial statements. These reclassifications were done to conform
to the presentation of the current financial statement and they had
no effect on the previously reported net loss.
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, 2020 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, 2020, we have undertaken an action plan to
strengthen internal controls and procedures:
Our management continues to review ways in which we can make
improvements in internal control over financial reporting.
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