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 March 31, 20222023

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, 2022,4, 2023, there were 339,741,632,384463,266,632,384 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.



TABLE OF CONTENTS

PAGE
  
PART I FINANCIAL INFORMATION
1
  
ITEM 1. Financial Statements
1
  
Condensed Consolidated Balance Sheets as of March 31, 20222023 (Unaudited) and December 31, 20212022
1
  
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 20222023 and 20212022 (Unaudited)
2
  
Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity Statements for the Three Months Ended March 31, 20222023 and 20212022 (Unaudited)
3
  
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 20222023 and 20212022 (Unaudited)
54
  
Notes to Condensed Consolidated Financial Statements (Unaudited)
65
  
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
1215
  
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
1721
  
ITEM 4. Controls and Procedures
1721
  
PART II OTHER INFORMATION
1823
  
ITEM 1. Legal Proceedings
1823
  
ITEM 1A. Risk Factors
1824
  
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
1824
  
ITEM 3. Defaults Upon Senior Securities
1824
  
ITEM 4. Mine Safety Disclosures
1824
  
ITEM 5. Other Information
1824
  
ITEM 6. Exhibits
1824
  
Signatures
1926
  
Exhibit 31.1
 
  
Exhibit 31.2
 
  
Exhibit 32.1
 
  
Exhibit 32.2
 




PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS


 
March 31,
2022 (Unaudited)
  
December 31,
2021
 March 31, 2023 (Unaudited) 
December 31,
2022
ASSETS           
CURRENT ASSETS           
Cash and cash equivalents $20,587,830  $26,496,404 
Cash$19,765,487 $22,911,892
Accounts receivable, net  37,512   28,481  100,633  55,815
Notes Receivable  234,143   247,915 
Notes receivable 172,905  189,225
Inventories  2,370,248   1,521,199  3,967,497  3,817,192
Prepaid expenses and vendor deposits  298,756   456,397  577,569  322,182
Investment  26,657   23,143  5,314  9,771
Other current assets 944,470  1,224,171
Restricted cash 1,728,232  1,778,232
TOTAL CURRENT ASSETS  23,555,146   28,773,539  27,262,107  30,308,480
             
Property and equipment, net of accumulated depreciation  1,532,375   176,988 
Property, plant, and equipment, net of accumulated depreciation 3,096,599  3,112,908
Intangible assets, net of accumulated amortization  2,413,207   947,593  4,774,609  5,005,511
Goodwill  2,657,000   916,000  5,747,000  5,747,000
Right of use asset – operating lease, net  5,163,954   3,543,930  11,003,033  10,604,935
Other assets  112,883   85,437  475,425  476,196
             
TOTAL ASSETS $35,434,565  $34,443,487 $52,358,773 $55,255,030
             
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY     
CURRENT LIABILITIES             
Accounts payable and accrued expenses $2,058,805  $1,642,848 $4,977,089 $5,715,234
Contingent consideration 797,000  774,900
Contract liabilities  243,840   23,178  200,372  198,606
Current portion of line of credit  453,232   418,036 
Line of credit 453,232  453,232
Current portion of loan payment  2,638   2,604  543,945  536,542
Operating lease liability, current  607,121   437,328  2,036,415  2,228,852
TOTAL CURRENT LIABILITIES  3,365,636   2,523,994  9,008,053  9,907,366
             
Loan payable, net of current portion  143   815  2,239,044  2,378,061
Operating lease liability, net of current  4,153,044   2,685,021  8,657,428  8,041,504
TOTAL LIABILITIES  7,518,823   5,209,830  19,904,525  20,326,931
             
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)  0   0    
             
CONVERTIBLE PREFERRED STOCK     
Series E redeemable convertible preferred stock, $1,000 par value per share, 14,722 shares authorized, 13,497 shares and 14,722 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; aggregate liquidation preference of $13.5 million and $14.7 million as of March 31, 2023 and December 31, 2022, respectively
 13,496,525  14,722,075
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 
Series D convertible preferred stock, $1,000 par value per share, 5,000 shares authorized; 800 shares issued and outstanding as of March 31, 2023 and December 31, 2022, 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; 346,441,632,384 and 339,741,632,384 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively
 34,644,163  33,974,163
Additional paid-in capital  30,855,824   30,855,824  29,034,802  29,045,802
Accumulated deficit  (37,714,245)  (36,396,330) (45,521,242)  (43,613,941)
TOTAL STOCKHOLDERS’ EQUITY  27,915,742   29,233,657  18,957,723  20,206,024
             
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $35,434,565  $34,443,487 
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY$52,358,773 $55,255,030

See notes to unaudited condensed consolidated financial statements


1


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

 Three Months Ended March 31, Three Months Ended March 31,
 2022  2021 2023 2022
SALES           
Vapor sales, net $249,563  $613,936 $38 $249,563
Grocery sales, net  4,798,990   2,851,817  13,559,706  4,798,990
TOTAL SALES, NET  5,048,553   3,465,753  13,559,744  5,048,553
             
Cost of sales vapor  111,684   233,315  653  111,684
Cost of sales grocery  2,964,355   1,741,728  8,644,700  2,964,355
GROSS PROFIT  1,972,514   1,490,710  4,914,391  1,972,514
             
OPERATING EXPENSES  3,327,420   2,022,883  6,897,438  3,327,420
             
LOSS FROM OPERATIONS  (1,354,906)  (532,173) (1,983,047)  (1,354,906)
             
OTHER (EXPENSE) INCOME        
Gain on investment  3,514   26,126 
Other income, net  16,874   0 
Interest income (expense), net  16,603   (72,915)
Loss on debt settlements  0   (117,296)
OTHER INCOME (EXPENSE)     
(Loss) gain on investment (4,457)  3,514
Other (expense) income, net (17,450)  16,874
Interest income, net 97,653  16,603
Total other income (expense), net  36,991   (164,085) 75,746  36,991
             
NET LOSS $(1,317,915) $(696,258)
Net loss$(1,907,301) $(1,317,915)
     
Induced conversions of Preferred Stock (61,000)  -
     
Net loss attributable to common stockholders$(1,968,301) $-
             
NET LOSS PER SHARE-BASIC AND DILUTED $0.00  $0.00 $0.00 $0.00
             
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED  339,741,632,384   244,246,983,178  341,671,076,830  339,741,632,384

See notes to unaudited condensed consolidated financial statements

2

HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 20222023 and 20212022
(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  -   0   -   0   0   (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 
 Series E Convertible Preferred Stock  
Convertible
Preferred Stock
  Common Stock  
Additional
Paid-In
  Accumulated    
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance – January 1, 2023
  14,722  $14,722,075   800  $800,000   339,741,632,384  $33,974,163  $29,045,802  $(43,613,941) $20,206,024 
Series E convertible preferred stock redeemed  (556)  (555,550)  -   -   -   -   -   -   - 
Conversion of series E convertible preferred stock  (670)  (670,000)  -   -   6,700,000,000   670,000   -   -   670,000 
Induced conversions of preferred stock  -   -   -   -   -   -   (61,000)  -   (61,000)
Stock-based compensation expense  -   -   -   -   -   -   50,000   -   50,000 
Net loss  -   -   -   -   -   -   -   (1,907,301)  (1,907,301)
Balance – March 31, 2023
  13,497  $13,496,525   800  $800,000   346,441,632,384  $34,644,163  $29,034,802  $(45,521,242) $18,957,723 


  
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   0   0   0 
Stock options exercised  0   0   775,000,000   77,500   0   0   77,500 
Issuance of Series D Convertible Preferred stock in connection with the Securities Purchase Agreement  5,000   5,000,000   0   0   0   0   5,000,000 
Issuance of common stock  0   0   1,182,831,056   118,283   1,289,273   0   1,407,556 
Issuance of awarded stock for officers  0   0   2,200,000,000   220,000   (220,000)  0   0 
Issuance of awarded stock for board member  0   0   50,000,000   5,000   (5,000)  0   0 
Cancellation of awarded stock for officers  0   0   (3,025,000,000)  (302,500)  302,500   0   0 
Cancellation of awarded stock for board member  0   0   (68,750,000)  (6,875)  6,875   0   0 
Stock-based compensation expense  -   0   -   0   1,875   0   1,875 
Net loss  -   0   -   0   0   (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 


Series E Convertible Preferred Stock 
Convertible
Preferred Stock
 Common Stock 
Additional
Paid-In
 Accumulated   
 Shares  Amount 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 

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, Three Months Ended March 31,
 2022  2021 2023 2022
OPERATING ACTIVITIES           
Net loss $(1,317,915) $(696,258)$(1,907,301) $(1,317,915)
Adjustments to reconcile net loss to net cash used in operating activities:             
Depreciation and amortization  193,322   136,597  373,462  193,322
Gain on extinguishment of debt  0   117,296 
Gain on investment  (3,514)  (26,126)
Loss (gain) on investment 4,457  (3,514)
Amortization of right-of-use asset  177,643   122,735  695,192  177,643
Write-down of obsolete and slow-moving inventory  40,586   37,061  523,087  115,842
Stock-based compensation expense  0   1,875  50,000  -
        
Change in contingent consideration 22,100  -
Changes in operating assets and liabilities:             
Accounts receivable  (9,031)  (33,079) (44,818)  (9,031)
Inventories  (85,056)  11,401  (673,392)  (160,312)
Prepaid expenses and vendor deposits  157,641   48,234  (255,387)  157,641
Other current assets 279,701  -
Other assets  (27,446)  1,003  771  (27,446)
Accounts payable and accrued expenses  415,957   (269,627) (744,145)  415,957
Contract liabilities  (61,965)  (3,092) 1,766  (61,965)
Lease liability  (159,851)  (104,390) (669,803)  (159,851)
NET CASH USED IN OPERATING ACTIVITIES  (679,629)  (656,370) (2,344,310)  (679,629)
             
INVESTING ACTIVITIES             
Acquisition of Mother Earth's Storehouse  (5,150,000)  0  -  (5,150,000)
Collection of note receivable  13,772   13,178  16,320  13,772
Purchases of property and equipment  (127,275)  (30,855) (126,251)  (127,275)
NET CASH USED IN INVESTING ACTIVITIES  (5,263,503)  (17,677) (109,931)  (5,263,503)
             
FINANCING ACTIVITIES             
Proceeds from line of credit  35,196   0  -  35,196
Principal payments on loan payable  (638)  (12,759) (131,614)  (638)
Principal payment on the line of credit  0   (2,000,000)
Proceeds from loan and security agreement  0   5,000,000 
Proceeds from exercise of stock options  0   77,500 
NET CASH PROVIDED BY FINANCING ACTIVITIES  34,558   3,064,741 
Payment of induced conversions of preferred stock (55,000)  -
Payment for series E preferred stock redemption (555,550)  -
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (742,164)  34,558
             
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 
NET DECREASE IN CASH AND RESTRICTED CASH (3,196,405)  (5,908,574)
CASH AND RESTRICTED CASH— BEGINNING OF PERIOD 24,690,124  26,496,404
CASH AND RESTRICTED CASH — END OF PERIOD$21,493,719 $20,587,830
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION             
Cash paid for interest $1,428  $81,313 $44,478 $1,428
        
Cash paid for income tax$- $-
NON-CASH INVESTING AND FINANCING ACTIVITIES             
Issuance of common stock $0  $1,407,556 
Lease acquired $1,797,667  $0 
Issuance of common stock in connection with series E preferred stock conversion$670,000 $-
Right-of-use assets obtained in exchange for operating lease liabilities$1,093,290 $1,797,667
Accrued payment of induced conversions of preferred stock$6,000 $-

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

Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company currently operates 4 retail vape stores inmanages and intends to expand on its intellectual property portfolio. 

Through its wholly owned subsidiaries, the Southeast region of the United States, through which it offers e-liquids, vaporizers and related products. The Company also operates 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 offersoffering 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

Paradise Health & Nutrition’s three stores that likewise offer fresh produce, bulk foods, vitamins and supplements, onpackaged 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, a business that has been in existence for over 40 years.

Greens Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products

Through its wholly owned subsidiary, Healthy Choice Wellness, LLC, the Amazon.com marketplace throughCompany operates:

Licensing agreements for Healthy Choice Wellness Centers located at the Casbah Spa and Salon in Fort Lauderdale, FL, Boston Direct Health in Boston, MA and Green Care Medical Services in Chicago, IL.

These centers offer multiple vitamin drip mixes and intramuscular shots for clients to choose from that 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 IV vitamin mixes and shots for health, beauty, and re-hydration.

Through its wholly owned subsidiary, Healthy U Wholesale, Inc. TheInc, the Company also operates HCMC Intellectual Property Holdings, LLC, a wholly owned subsidiary formed to hold, marketsells vitamins and expandsupplements, as well as health, beauty, and personal care products on its current intellectual property assets. Thewebsite www.TheVitaminStore.com.

Additionally, the Company markets its patented 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, whichthat 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 2 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 UpdateSpin-Off

The global outbreakCompany has commenced steps to spin off ("Spin-Off") its grocery segment and wellness business into a new publicly traded company (hereinafter referred to as “NewCo”). NewCo will continue the path of COVID-19 was declared a pandemicgrowth in the wellness verticals started by HCMC and explore other growth opportunities that comport with HCMC’s healthier lifestyle mission. Following the World Health OrganizationSpin-Off, HCMC will retain its entire patent suite, the Q-Cup® brand, and a national emergency bycontinue to develop its patent suite through R&D as well as continuing its path of enforcing its patent rights against infringers and attempting to monetize said patents through licensing deals.

At 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 disruptionstime of the global financial markets. The Company adjusted certain aspectsSpin-Off, HCMC will distribute all the outstanding shares of Common Stock held by it on a pro rata basis to holders of HCMC’s common stock. Shares of HCMC’s common stock outstanding as of the operationsrecord date for the Spin-Off (the “Record Date”), will entitle the holder thereof to protect their employeesreceive a certain number of shares of Common Stock in NewCo. The distribution will be made in book-entry form by a distribution agent. Fractional shares of Common Stock will not be distributed in the Spin-Off 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 outbreakfractional amounts will impact our operations is manageable, and there is no imminent risk on business continuity and future operations.be rounded down. Please see more disclosure in Note 12 Stockholder Equity.
5


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. As of March 31, 2023, the Company had cash of approximately $19.8 million and working capital of $18.3 million. In the past, the Company financed its operations primarily through issuances of common stock and convertible preferred stock. The Company anticipates that its believes current cash cash equivalent and cash generated from operations will beon hand is sufficient to meet the projected operating expensesits obligations and capital requirements for the foreseeable future through at least the next twelve months from the issuancedate of these unaudited condensed consolidated financial statements.filing.


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 unaudited 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, 2021,2022, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022.30, 2023. The condensed consolidated balance sheet as of December 31, 20212022 was derived from the Company’s audited 20212022 financial statements contained in the above referenced Form 10-K. Results of the three months ended March 31, 2022,2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.2023.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 20212022 Annual Report.


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). $75,000 inventory shrink was originally presented in the statement of cash flow under change in operating assets inventory in cash used in operating activities for three months ended March 31, 2022, it was reclassified to write-down of obsolete and slow-moving inventoryunder cash used in operating activities in the statement of cash flow.
6


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 areis concentrated in 1one large financial institution, which is in excess of Federal Deposit Insurance Corporation (FDIC) coverage. The Company did not have any cash equivalent as of March 31, 2023, and  December 31, 2022.

A summary of the financial institutionsinstitution that had a cash and cash equivalents in excess of FDIC limits of $250,000 on March 31, 20222023 and December 31, 20212022 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
 
March 31, 2023 December 31, 2022 
Total cash in excess of FDIC limits of $250,000
 
$
18,646,360
  
$
21,682,144
 

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.

The following table provides a reconciliation of cash and restricted cash to amounts shown in unaudited condensed consolidated statements of cash flow: 

 March 31, 2023  March 31, 2022 
Cash $19,765,487  $20,587,830 
Restricted cash  1,728,232   - 
Total cash and restricted cash $21,493,719  $20,587,830 

Restricted Cash
The Company's restricted cash consisted of cash balances which were restricted as to withdrawal or usage under the August 18, 2022 securities purchase agreement for the purpose of funding any amounts due under the Series E Certificate of Designation upon the redemption of the Series E Preferred Stock. The balance also included cash held  in the collateral account to cover the cash draw from the line of credit.

7

Note 5. SEGMENT INFORMATION AND DISAGGREGATION OF REVENUES

In accordance with FASB ASC 280, "Disclosures about Segment of an enterprise and related information", the Company determined it has two reportable segments: grocery and vapor. There are no inter-segment revenues.

The Company's general and administrative costs are not segment specific. As a result, all operating expenses are not managed on segment basis.

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  0   8,018 
Wholesale Vapor  0   42 
Total revenue $5,048,553  $3,465,753 
 Three Months Ended March 31, 
  2023  2022 
Vapor $38  $249,563 
Grocery  13,559,706   4,798,990 
Total revenue $13,559,744  $5,048,553 
         
Retail Vapor $38  $249,563 
Retail Grocery  11,613,730   4,283,288 
Food service/restaurant  1,943,914   509,810 
Online/eCommerce  2,062   5,892 
Total revenue $13,559,744  $5,048,553 
         
Loss from operations - Vapor  (6,672)  (18,967)
(Loss) income from operations - Grocery  (276,842)  163,936 
Corporate items  (1,699,533)  (1,499,875)
Total loss from operations $(1,983,047) $(1,354,906)

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, 2021,2022, the Company amended and restated the Secured Promissory Note (the "Amended Note") with VPRBVPR Brands L.P. to extend the maturity date for one year. The outstanding balance for the outstanding balance in the note of $268,126.Amended Note is $211,355. The Amended Note bears an interest rate of 7.00%, which payments thereunder are $1,500$1,500 weekly, with such payments commencing as of September 3, 2021.2022. The Amended Note has a balloon payment of $213,028$145,931 for all remaining accrued interest and principal balance due in the final week of the 1-year1-year extension of the Amended Note.

A summary of the Amended Note as of March 31, 20222023 and December 31, 20212022 is presented below:

DescriptionMarch 31, 2022 December 31, 2021  March 31, 2023 December 31, 2022
Promissory Note $234,143  $247,915  $172,905 $189,225


8

Note 7. ACQUISITION OF MOTHER EARTH’S STOREHOUSE, INC.

On February 9,October 14, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets 3,IV, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Mother Earth’s StorehouseDean’s Natural Food Market of Shrewsbury, Inc. (“HCM3”), a New Jersey corporation, Green’s Natural Foods, Inc., a Delaware corporation, Dean’s Natural Food Market of Chester, LLC, a New Jersey limited liability company, Dean’s Natural Food Market of Basking Ridge, LLC, a New Jersey limited liability company, and its shareholders.Dean’s Natural Food Market, Inc., a New Jersey corporation (collectively, the “Sellers”), and shareholders of the Sellers. Pursuant to the Purchase Agreement, HCM3the Company acquired certain assets and assumed certain liabilities related to Mother Earth’s grocery storesof an organic and natural health food and vitamin chain with eight store locations in KingstonNew York and Saugerties,northern and central New York. The Company intends to continue to operate the grocery stores under their existing name. Jersey (the “Stores”).

The cash purchase price under the Asset Purchase Agreement is $4,472,500 million,was $5,142,000, with an additional $677,500 paid for inventory at closing. $3,000,000 seller financing in the form of promissory note. In addition, the Company assumedseller is entitled to a lease obligation forcontingent earn-out based on a certain revenue threshold within the Kingston, NY store and entered into an employment agreement withone-year period of the store manager.closing.

The purchase methodCompany recorded $1,108,000 of accounting in accordance with ASC 805, Business Combinations, was appliedcontingent consideration based on the estimated financial performance for the Mother Earth's Storehouse acquisition.  This requiresone year following closing.  The contingent consideration was discounted at an interest rate of 3.8%, which represents the total cost of an acquisitionCompany's weighted average discount rate.  Contingent consideration related 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 businessrecorded at fair value (level 3) with those of the Company. Goodwill is not expected to be deductible for income tax purposeschanges in the tax jurisdiction of the acquired business.fair value recorded in other expense (income), net.

The following table summarizes the approximate preliminarychange in fair value of contingent consideration from acquisition date to March 31, 2023:

 Fair Market Value - Level 3 
Balance as of October 14, 2022 $1,108,000 
Remeasurement  (333,100)
Balance as of December 31, 2022 $774,900 
Remeasurement  22,100 
Balance as of March 31, 2023 $797,000 

The following table summarizes the 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 
 October 14, 2022 
Purchase Consideration   
Cash consideration paid $5,142,000 
Promissory note  3,000,000 
Contingent consideration issued to Green's Natural seller  1,108,000 
Total Purchase Consideration $9,250,000 
     
Purchase price allocation    
Inventory $1,642,000 
Property and equipment  1,478,000 
Intangible assets  3,251,000 
Right of use asset - Operating lease  6,427,000 
Other liabilities  (211,000)
Operating lease liability  (6,427,000)
Goodwill  3,090,000 
Net assets acquired $9,250,000 
     
Finite-lived intangible assets    
Trade Names (8 years)
 $1,133,000 
Customer Relationships (6 years)
  1,103,000 
Non-Compete Agreement (5 years)
  1,015,000 
Total intangible assets $3,251,000 


79

The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purpose.

Revenue and Earnings

The following table represents the combined pro forma revenue and net loss for the three months ended March 31, 2022:

  
For Three Months Ended
 March 31, 2022
Sales $13,156,447
Net loss $(1,585,281)

The combined proforma revenue and net loss for the three month period ended March 31, 2022 were prepared as though acquisition occurred as of January 1, 2022.


Note 8. PROPERTY, &PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following:

 March 31, 2022  December 31, 2021  March 31, 2023  December 31, 2022
Displays
 
$
305,558
  
$
305,558
  
$
312,146
  
$
312,146
Building  575,000   0   575,000   575,000
Furniture and fixtures  417,244   246,496   572,224   560,256
Leasehold improvements
  
751,470
   
136,504
   
1,910,719
   
1,910,719
Computer hardware & equipment  152,681   151,924   177,652   160,210
Other
  
359,640
   
315,788
   
684,443
   
587,602
  2,561,593   1,156,270   4,232,184   4,105,933
Less: accumulated depreciation and amortization
  
(1,029,218
)
  
(979,282
)
  
(1,135,585)
   
(993,025)
Total property and equipment $1,532,375  $176,988 
Total property, plant, and equipment $3,096,599  $3,112,908

The Company incurred approximately $49,936142,560 and $38,57449,936 of depreciation expense for the three months ended March 31, 20222023 and 20212022, respectively.

10


Note 9. INTANGIBLE ASSETS

Intangible assets, net are as follows:

March 31, 2022Useful Lives (Years) 
Gross
Carrying Amount
  
Accumulated
Amortization
  
Net
Carrying Amount
 
Trade names / Trademarks8-10 years $1,436,000  $(571,068) $864,932 
March 31, 2023 Useful Lives (Years) 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names  8-10 years $2,569,000 $(800,880) $1,768,120
Customer relationships4-5 years  1,566,000   (756,232)  809,768   4-6 years  2,669,000 (1,107,722)  1,561,278
Patents10 years  372,165   (131,537)  240,628   10 years  384,665 (169,587)  215,078
Non-compete4-5 years  651,000   (162,288)  488,712   4-5 years  1,602,000 (371,867)  1,230,133
Website4 years  10,000   (833)  9,167 
Intangible assets, net  $4,035,165  $(1,621,958) $2,413,207     $7,224,665 $(2,450,056) $4,774,609


December 31, 2021Useful Lives (Years) 
Gross
Carrying Amount
  
Accumulated
Amortization
  
Net
Carrying Amount
 
Trade names / Trademarks8-10 years $923,000   (536,661) $386,339 
December 31, 2022 Useful Lives (Years) 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names  8-10 years  $2,569,000  (725,723)  $1,843,277
Customer relationships4-5 years  883,000   (685,823)  197,177   4-6 years  2,669,000  (1,033,306)  1,635,694
Patents10 years  372,165   (122,233)  249,932   10 years  384,665  (159,658)  225,007
Non-compete4 years  238,000   (133,646)  104,354   4-5 years  1,602,000  (300,467)  1,301,533
Website4 years  10,000   (209)  9,791 
Intangible assets, net  $2,426,165  $(1,478,572) $947,593     $7,224,665 $(2,219,154) $5,005,511

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense was approximately  $143,386$230,902 and $98,023$143,386 for the three months ended March 31, 20222023 and 2021,2022, 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 

Years ending December 31,   
2023 (remaining nine months) $692,706 
2024  923,608 
2025  918,108 
2026  840,127 
2027  695,498 
Thereafter  704,562 
Total $4,774,609 

811

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, 20222023 and December 31, 20212022 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 
 March 31, 2023  December 31, 2022 
Beginning balance as January 1, $198,606  $23,178 
Issued  695,438   859,383 
Redeemed  (640,160)  (628,012)
Breakage recognized  (53,512)  (55,943)
Ending balance $200,372  $198,606 

Note 11. DEBT

The following table provides a breakdown of the Company's debt as of March 31, 20222023 and December 31, 20212022 is presented below:

_ March 31, 2022  December 31, 2021  March 31, 2023  December 31, 2022 
Line of Credit $453,232  $418,036 
Promissory note $2,782,847  $2,913,788 
Other debt  2,781   3,419   142   815 
Total debt $456,013   421,455  $2,782,989  $2,914,603 
Current portion of long-term debt  (543,945)  (536,542)
Long-term debt $2,239,044  $2,378,061 
 

Note 12. STOCKHOLDERS’ EQUITY

Rights OfferingSeries E Convertible Preferred Stock

On JuneAugust 18, 2021,2022, the Company entered into a Securities Purchase Agreement ("Series E Preferred Stock") pursuant to which the Company sold and issued 27,046,800,31014,722 shares of common stock in connection with the Rights Offering at a subscription price of $0.0010its Series E Redeemable Convertible Preferred Stock to institutional investors for $1,000 per share generating gross proceedsor an aggregate subscription of $27.0$13.25 million. The number of shares issued to each participant is based on subscription amount multiplied by conversion rate of 1.1111. The Company also incurred direct financingoffering costs of $2.7 million in connection withapproximately $410,000, which covers legal and consulting fee.
The HCMC Series E Preferred Stock shall have voting rights on as converted basis at the offering resulting in net proceedsCompany’s next stockholders’ meeting. However, as long as any shares of HCMC Series E Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the HCMC Series E Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the HCMC Series E Preferred Stock or alter or amend the Certificate of Designation, (b) increase the number of authorized shares of HCMC Series E Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing. Each share of Series E Preferred Stock shall be convertible, at any time and from time to time at the option of the Holder thereof, into that number of shares of Common Stock (subject to the beneficial ownership limitations). The initial conversion price for the HCMC Series E Preferred Stock shall equal $0.0001.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of $24.3 million.Designation), the holders of HCMC Series E Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $1,000 per share of Series E Preferred Stock.

Exchange AgreementUnless earlier converted or extended as set forth below, a holder may require the redemption of all or a portion of the stated value of the HCMC Series E Preferred Stock either (1) six months after closing or (2) the time at which the balance is due and payable upon an event of default.

On March 29, 2021,1, 2023, the Company entered into exchange agreementsa First Amendment to HCMC Series E Preferred Stock with each purchaser ("Purchaser") identified as those who participated in 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 AgreementHCMC Series E Preferred Stock, dated as of August 18, 2020, among2022.  The Vape Store, Inc.,parties amended the HCMC Preferred Stock related to the conversion payment whereby upon conversion of the Series E Preferred Stock prior to the record date for the Spin-Off, the Company Healthy Choice Markets, Inc., Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund, Ltd.  In connection withwill pay the Exchange, the Credit Agreement and all related loan documents was terminated and the Holder’s on the assetsPurchaser ten percent (10%) 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 Committeestated value 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 E Preferred Stock converted. The record date is May 1, 2023.
912

As of March 31, 2023, 6,700,000,000 shares of common stock were issued as a result of the Series E preferred stock conversion. 556 shares of Series E preferred stock was redeemed and approximately $556,000 was paid for redemption.

Pursuant to the Securities Purchase Agreement, purchasers of the Series E Convertible Preferred Stock will also be required to purchase Series A Convertible Preferred Stock of NewCo resulting from spin off of HCMC’s grocery and wellness businesses in the same subscription amounts that the Purchasers paid for the HCMC Series E Preferred Stock.

Stock Options

InDuring the three months ended March 31, 2023 and 2022, 0no stock options of the Company were exercised into common stock; in comparison to thestock.

three months endedMarch 31, 2021, where 775,000,000stock options of the Company were exercised into common stock.During the three months ended March 31, 20222023 and 20212022, the Company recognized stock-based compensation of approximately $050,000 and $1,8750, respectively.respectively in connection with amortization of restricted stock and stock options. Stock based compensation is included as part of selling, general and administrative expense in the accompanyingunaudited condensed 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,  As of March 31, 
2022 2021  2023  2022 
Preferred stock  1,250,000,000   2,083,000,000   136,215,000,000   1,250,000,000 
Stock options  67,587,000,000   69,087,000,000   67,587,000,000   67,587,000,000 
Restricted stock  5,500,000,000   - 
Total  68,837,000,000   71,170,000,000   209,302,000,000   68,837,000,000 
 

Note 13. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

NaNTwo 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 ana notice of 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.The appeal brief was filed on February 28, 2022.

On December 31,3, 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. 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$575,000 in attorneys’ fees to be paid by the Company. The Company has fully provisioned this amount as of December 31, 2021.2022. HCMC appealed this ruling on June 22, 2022. Refer to Note 14 Subsequent Event.

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, 20222023. 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.

1113


Note 14. SUBSEQUENT EVENTS

On April 12, 2023, the U.S. Court of Appeals for the Federal Circuit ruled in favor of HCMC on two separate appeals it had filed in its patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. pending in the district court for the Northern District of Georgia.

In the first appeal, HCMC appealed the ruling of the District Court dismissing HCMC’s patent infringement action and denying HCMC’s motion to amend its pleading. In the second appeal, HCMC appealed the District Court’s award of attorneys’ fees to Philip Morris. In its decisions, the Federal Circuit ruled for HCMC by reversing both of those decisions and remanded the case back to the District Court for further proceedings.

As of the date of filing, 9,150,000,000 shares of common stock were subsequently issued since March 31, 2023 as a result of HCMC Series E Preferred Stock conversions.

On April 23, 2023, the Board of Directors of HCMC approved the Second Amendment to the 2015 Equity Incentive Plan which increased the number of shares of HCMC common stock authorized for issuance under the Amended Plan to 225,000,000,000 shares. The board of directors also approved the issuance of an additional 107,675,000,000 shares of restricted common stock to the employees and executive officers of HCMC. The grants of restricted common stock will commence vesting at 12.5% of the award on February 1, 2024 and will vest in 2.5% increments on the last day of each calendar quarter thereafter through September 30, 2025.

14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONDENSED CONSOLDIATEDCONSOLIDATED 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, Healthy Choice Markets IV, LLC (“Green's Natural Foods”), HCMC Intellectual Property Holdings, LLC, Healthy Choice Wellness, LLC, The Vitamin Store, LLC, Healthy U Wholesale, Inc., and 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,and Healthy Choice Markets IV, 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.
•
Green's Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products (www.Greensnaturalfoods.com).
Through its wholly owned subsidiary, Healthy Choice Wellness, LLC, the Company operates:
has licensing agreements for Healthy Choice Wellness Center (Roslyn Heights, NY) a corporately owned IV therapy center offeringCenters at the Casbah Spa and Salon in Fort Lauderdale, FL, and Boston Direct Health in Boston, MA. These centers offer multiple IV drip “cocktails” for clients to choose from. These cocktailsfrom that 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.
(www.HealthyChoiceWellness.com).
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 Inc., the Company sells vitamins and supplements, as well as health, beauty and personal care products on its website www.TheVitaminStore.com.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.www.theQcup.com.
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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 $1.42.0 million for the three months ended March 31, 20222023. As of March 31, 20222023, cash and cash equivalents totaled approximately $20.619.8 million. The Company expects to continue incurring losses for the foreseeable future andbut we anticipate that our current cash and additional cash equivalents to be generated from operations will be sufficient to cover our projected operating expenses for the foreseeable future. Management dodoes 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 twoten located in New York.York and New Jersey. The Company has reduced the number ofclosed retail vape stores, dueas management has shifted its retail sales focus to the wholesale and online channel. The adverse industry trends and increasing federal and state regulations that, if implemented, may negatively impact future retail revenues.
wholesale and online operations in vapor segment.

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.
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Results of Operations

The following table sets forth our unaudited condensed consolidated Statements of Operations for the three months ended March 31, 20222023 and 20212022 that is used in the following discussions of our results of operations:

 Three Months Ended March 31,  2021 to 2022 Three Months Ended March 31, 2023 to 2022
 2022  2021  Change $ 2023 2022 Change $
SALES                 
Vapor sales, net $249,563  $613,936  $(364,373)$38 $249,563 $(249,525)
Grocery sales, net  4,798,990   2,851,817   1,947,173  13,559,706  4,798,990  8,760,716
TOTAL SALES, NET  5,048,553   3,465,753   1,582,800  13,559,744  5,048,553  8,511,191
                    
Cost of sales vapor  111,684   233,315   (121,631) 653  111,684  (111,031)
Cost of sales grocery  2,964,355   1,741,728   1,222,627  8,644,700  2,964,355  5,680,345
GROSS PROFIT  1,972,514   1,490,710   481,804  4,914,391  1,972,514  2,941,877
                    
OPERATING EXPENSES                    
Selling, general and administrative  3,327,420   2,022,883   1,304,537  6,897,438  3,327,420  3,570,018
Total operating expenses  3,327,420   2,022,883   1,304,537 
LOSS FROM OPERATIONS  (1,354,906)  (532,173)  (822,733) (1,983,047)  (1,354,906)  (628,141)
                    
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 
(Loss) gain on investment (4,457)  3,514  (7,971)
Other (expense) income, net (17,450)  16,874  (34,324)
Interest income 97,653  16,603  81,050
Total other income (expense), net  36,991   (164,085)  201,076  75,746  36,991  38,755
                    
NET LOSS $(1,317,915) $(696,258) $(621,657)$(1,907,301) $(1,317,915) $(589,386)
17

Net vapor sales decreased approximately $0.40.2 million to $0.20.0 millionthousand for the three months ended March 31, 20222023 as compared to $0.60.2 million for the same period in 20212022. The decrease in sales is primarily due to a decrease inclosing all retail vape store, as management has shifted its retail sales focus to the number of stores open duringwholesale and online channel. The sales for the three months endedMarch 31, 20222023, were significantly impacted by technical issues associated with the processing of credit card payments. Management is continuing to work with the third-party provider to address the matter.

Net grocery sales increased $8.8 million to $13.6 million for the three months ended March 31, 2023 as compared to the same period in 2021.

Net grocery sales increased $1.9 million to $4.8 million for the three months endedMarch 31, 2022 as compared to $2.9$4.8 million for the same period in 2021.2022. The $8.8 million increase in grocery sales iswas primarily due to an increase in the number of stores as a result of the acquisition of Mother Earth's Storehouse in February 2022.and Green's Natural Foods.

Vapor cost of goods sold for the three months ended March 31, 2023 and 2022 were $1.0 thousand and 2021 were $0.1 million and $0.2 million, respectively, a decrease of $0.1 million. The decrease is primarily due to decreases inclosing retail vape stores, as management has shifted its retail sales focus to the wholesale and product costs duringonline channel. Gross (loss) profit was $(0.6) thousand and $0.1 million for three months ended March 31, 2023 and 2022, respectively.

Grocery cost of goods sold for the three months endedMarch 31, 2023 and 2022 were $8.6 million and $3.0 million, respectively. The increase of $5.6 million is primarily due to the acquisition of Mother Earth's Storehouse and Green's Natural Foods stores. Gross profit was $4.9 million and $1.8 million for the three months endedMarch 31, 2023 and 2022, respectively. Gross margin as a percentage of sales decreased approximately 2.0% as compared to the same period in 2021. Gross profit was $0.1 millionprior year as a result of increased inventory shrink and $0.4 million for three months ended March 31, 2022 and 2021, respectively.inventory reserve.

Grocery cost of goods sold for the three months ended March 31, 2022 and 2021 were $3.0Total operating expenses increased $3.6 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$6.9 million for the three months ended March 31, 20222023 compared to $3.3 million for the same period in 2022. The increase is due to the acquisition of Mother Earth's Storehouse and 2021, respectively.Green's Natural Foods stores, and increases in professional fees of $0.1 million, and stock compensation expense  of $0.05 million.

Total operating expensesnet other income increased $1.3 million$39,000 to $3.3 million$76,000 for the three months ended March 31, 20222023 compared to $2.0 million$37,000 for the same period in 2021.2022. The increase in net other income is primarilymainly attributable to increase in interest income as a result of 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 endedMarch 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 endedMarch 31, 2021 includes a loss on debt settlements of $117,000, interest expense of $73,000,rates, offset by a gainincrease in remeasurement on investment of $26,000.

14
contingent liability.

Liquidity and Capital Resources

 Three Months Ended March 31, Three Months Ended March 31,
 2022  2021 2023 2022
Net cash provided by (used in)      
Net cash (used in) provided by     
Operating activities $(679,629) $(656,370)$(2,344,310) $(679,629)
Investing activities  (5,263,503)  (17,677) (109,931)  (5,263,503)
Financing activities  34,558   3,064,741  (742,164)  34,558
 $(5,908,574) $2,390,694 $(3,196,405) $(5,908,574)
18

Our net cash used in operating activities of approximately $0.72.3 million for the three months ended March 31, 20222023 resulted from a net loss of $1.31.9 million, offset by a non-cash adjustment of $0.4$1.7 million and a net cash providedusage of $0.22.1 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, 20212022 resulted from a net loss of $0.7$1.3 million and a net cash usageprovided by operation of $0.3$0.2 million from changes in operating assets and liabilities, offset by a non-cash adjustment of $0.4$0.5 million.

The net cash used in investing activities of $5.30.1 million for the three months ended March 31, 20222023 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 $18,0005,264,000 for the three months ended March 31, 20212022 resulted from the acquisition of Mother Earth's Storehouse, collection of a note receivable, and purchases of patents and property and equipment.

The net cash used in financing activities of $742,000 for the three months endedMarch 31, 2023 is due to Series E Preferred Stock redemption and exercise and principle payment on loan payable. 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 endedMarch 31, 2021is 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, 20222023 and December 31, 2021,2022, 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 areis concentrated in oneseveral financial institutioninstitutions and areis generally in excess of the FDIC insurance limit. The Company has not experienced any losses on its cash and cash equivalents.cash. The following table presents the Company’s cash position as of March 31, 20222023 and December 31, 2021.2022.

 March 31, 2022  December 31, 2021 March 31, 2023 December 31, 2022
Cash $20,587,830  $26,496,404 $19,765,487 $22,911,892
Total assets $35,434,565  $34,443,487 $52,358,773 $55,255,030
Percentage of total assets  58.10%  76.93% 37.75%  41.47%

The Company reported a net loss of $1.31.9 million for the three months ended March 31, 20222023. The Company also had positive working capital of $20.218.3 million. The Company expects to continue incurring losses for the foreseeable future, andbut we do not believe there are any substantial doubts about the Company’s ability to continue as a going concern. The Company's current cash 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

1519

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 20212022 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
20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.


ITEM 4. CONTROLS AND PROCEDURES

We are required to report under Section 404(a) of Sarbanes-Oxley regarding the effectiveness of our internal control over financial reporting.

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, 20222023 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 planningThe Company’s management is responsible for establishing 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 inmaintaining adequate internal control over financial reporting. A listUnder the supervision and with the participation of ourthe Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its internal control over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was ineffective as of March 31, 2023 and noted the 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.

●Information technology general controls (ITGCs) were not designed effectively to ensure that appropriate access security controls, change management and data center and network operations ITGCs were in place.

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, 20222023 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

21
Changes in Internal Control over Financial Reporting

Following this assessmentPlanned Remediation

Management continues to work to improve its controls related to our material weaknesses listed above. In order to achieve the timely implementation of the above, management has commenced the following actions and during the three months ended March 31, 2022, we have undertakenwill continue to assess additional opportunities for remediation on an action plan to
strengthen internal controls and procedures:ongoing basis:

●Management continuesContinuing to devote significant efforts toward improvement of effectiveness ofincrease headcount across the Company, with a particular focus on hiring individuals with strong internal 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 operationsbackgrounds and executives to make sure the results are accurate.inventory expertise.

●Our management has increasedIncreasing 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
Establishing policies and procedures in the additionIT area to mitigate data breach, unauthorized access, and address segregation 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.

duties.
●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 continuesWe are currently working to review waysimprove and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in which we can make improvements inour internal control over financial reporting reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material weaknesses will further delineate milestones as theynot be considered to be remediated until the applicable remediated controls are achieved.operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Controls over Financing Reporting

Except as detailed above, during the quarter ended March 31, 2023, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.





17
22

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

NaNTwo 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 ana notice of 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.The appeal brief was filed on February 28, 2022.

On December 31,3, 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. 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 provisionedHCMC appealed this amount asruling on June 22, 2022.

On April 12, 2023, the U.S. Court of December 31, 2021.Appeals for the Federal Circuit ruled in favor of HCMC on two separate appeals it had filed in its patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. pending in the district court for the Northern District of Georgia.

In the first appeal, HCMC appealed the ruling of the District Court dismissing HCMC’s patent infringement action and denying HCMC’s motion to amend its pleading. In the second appeal, HCMC appealed the District Court’s award of attorneys’ fees to Philip Morris. In its decisions, the Federal Circuit ruled for HCMC by reversing both of those decisions and remanded the case back to the District Court for further proceedings.

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, 2022.2023. With respect to legal costs, we record such costs as incurred.
23

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.”

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INDEX TO EXHIBITS

Exhibit   Incorporated by Reference Filed or Furnished
No. Exhibit Description Form Date Number Herewith
31.1 
Certification of Principal Executive Officer (302)
       Filed
31.2 
Certification of Principal Financial Officer (302)
       Filed
32.1 
Certification of Principal Executive Officer (906)
       Furnished *
32.2 
Certification of Principal Financial Officer (906)
       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.

1925


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, 20225, 2023By:/s/ Jeffrey Holman
  Jeffrey Holman
  Chief Executive Officer
   
Date: May 16, 20225, 2023By:/s/ John Ollet
  John Ollet
  Chief Financial Officer

2026