UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

☒

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 20172020


Or

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 28ThWay
  
Hollywood, FL 33020
(Address of principal executive offices) (Zip Code)


Registrant’s telephone number, including area code:305-600-5004


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


☒Yes ☐ No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


☒Yes ☐ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐  (Do not check if a smaller reporting company)☒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 classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.0001 per shareHCMCOTC Pink Marketplace

As of October 22, 2017,November 18, 2020, there were 29,348,867,108105,110,848,017 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 (Unaudited)
1
  
Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited)2020 and December 31, 20162019
1
  
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 20172020 and 2016 (Unaudited)2019
2
  
Condensed Consolidated Statement of Changes in Stockholders’Shareholders’ Equity Statements for the Three and Nine Months endedEnded September 30, 2017 (Unaudited)2020 and 2019
3
  
Condensed Consolidated Statements of Cash Flows for the Nine Months endedEnded September 30, 20172020 and 2016 (Unaudited)
4
Notes to Consolidated Financial Statements (Unaudited)20195
  
Notes to Condensed Consolidated Financial Statements
6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
1413
  
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
18
ITEM 4. Controls and Procedures
18
PART II OTHER INFORMATION
19
  
ITEM 4. Controls and Procedures1. Legal Proceedings
19
  
PART II OTHER INFORMATION
ITEM 1A. Risk Factors
2019
  
ITEM 1. Legal Proceedings20
ITEM 1A. Risk Factors20
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
19
ITEM 3. Defaults Upon Senior Securities
19
ITEM 4. Mine Safety Disclosures
19
ITEM 5. Other Information
19
ITEM 6. Exhibits
20
  
ITEM 3. Defaults Upon Senior Securities20
ITEM 4. Mine Safety Disclosures20
ITEM 5. Other Information20
ITEM 6. Exhibits20
Signatures
21
  
Exhibit 31.1
 
  
Exhibit 31.2
 
  
Exhibit 32.1
 
  
Exhibit 32.2
 



PART I

- FINANCIAL INFORMATION

ITEM


Item 1. FINANCIAL STATEMENTS

Financial Statements (Unaudited)


HEALTHIER CHOICES MANAGEMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30, 2017  December 31, 2016 
  (Unaudited)    
ASSETS      
CURRENT ASSETS      
Cash and cash equivalents$ 8,231,314  $13,366,272 
Due from merchant credit card processors, net of reserves  28,410   30,272 
Accounts receivable, net of allowance of $10,734 and $33,367, respectively  74,937   25,798 
Inventories  937,383   748,551 
Prepaid expenses and vendor deposits  91,460   93,229 
Current assets from discontinued operations  -   52,903 
TOTAL CURRENT ASSETS  9,363,504   14,317,025 
         
Property and equipment, net of accumulated depreciation of $345,211 and $293,398, respectively  611,096   638,926 
Intangible assets, net  1,599,871   1,669,329 
Goodwill  481,314   481,314 
Other assets  119,285   128,157 
         
TOTAL ASSETS $12,175,070  $17,234,751 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable $541,710  $520,586 
Accrued expenses  579,353   779,676 
Current portion of capital lease  -   53,054 
Current portion of loan payable  2,083   - 
Derivative liabilities – non-consenting warrants  398,952   955,173 
Derivative liabilities – consenting warrants  9,832,745   11,912,906 
Current liabilities from discontinued operations  -   555,810 
TOTAL CURRENT LIABILITIES  11,354,843   14,777,205 
         
Loan payable, net of current portion  10,997   - 
         
TOTAL LIABILITIES  11,365,840   14,777,205 
         
COMMITMENTS AND CONTINGENCIES (SEE NOTE 10)        
         
STOCKHOLDERS’ EQUITY        
Common Stock, $.0001 par value per share, 750,000,000,000 shares authorized; 29,348,867,108 and 14,213,861,174 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively  2,934,887   1,421,386 
Additional paid-in capital  7,921,897   3,782,818 
Accumulated deficit  (10,047,554)  (2,746,658)
TOTAL STOCKHOLDERS’ EQUITY  809,230   2,457,546 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $12,175,070  $17,234,751 

(UNAUDITED)

 
September 30,
2020
 
December 31,
2019
ASSETS     
CURRENT ASSETS     
Cash and cash equivalents$602,318 $1,525,415
Accounts receivable, net 85,527  65,401
Inventories 1,785,959  1,757,012
Prepaid expenses and vendor deposits 328,008  269,833
Investment 10,286  24,000
TOTAL CURRENT ASSETS 2,812,098  3,641,661
      
Restricted cash 4,386,081  2,000,000
Property and equipment, net of accumulated depreciation 258,774  332,290
Intangible assets, net of accumulated amortization 1,346,374  1,923,447
Goodwill 916,000  956,000
Note receivable 319,620  343,387
Right of use asset – operating lease, net 4,234,280  4,663,019
Other assets 89,595  146,865
      
TOTAL ASSETS$14,362,822 $14,006,669
      
LIABILITIES AND STOCKHOLDERS’ EQUITY     
CURRENT LIABILITIES     
Accounts payable and accrued expenses$1,090,831 $825,860
Contract liabilities 19,400  26,823
Current portion of line of credit 2,000,000  2,000,000
Current portion of loan payment 3,392,466  282,344
Operating lease liability, current 502,289  555,959
TOTAL CURRENT LIABILITIES 7,004,986  3,690,986
      
Loan payable, net of current portion 965,675  869,223
Operating lease liability, net of current 3,225,215  3,544,729
TOTAL LIABILITIES 11,195,876  8,104,938
      
COMMITMENTS AND CONTINGENCIES (SEE NOTE 8)     
      
STOCKHOLDERS’ EQUITY     
Series B convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; 20,150 shares issued and outstanding as of September 30, 2020 and December 31, 2019; aggregate liquidation preference of $20.2 million
 20,150,116  20,150,116
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; approximately 105.1 and 67.7 billion shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
 10,511,085  6,769,849
Additional paid-in capital 3,953,163  7,618,245
Accumulated deficit (31,447,418)  (28,636,479)
TOTAL STOCKHOLDERS’ EQUITY 3,166,946  5,901,731
      
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$14,362,822 $14,006,669

See notes to unaudited condensed consolidated financial statements

1


1


HEALTHIER CHOICES MANAGEMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
SALES            
Vapor sales, net $1,410,003  $1,474,581  $4,398,942  $5,313,849 
Grocery sales, net  1,447,040   1,575,037   5,349,800   2,085,293 
TOTAL SALES, NET  2,857,043   3,049,618   9,748,742   7,399,142 
                 
Cost of sales vapor  709,445   655,856   1,877,686   2,441,715 
Cost of sales grocery  893,838   939,606   3,118,563   1,251,872 
GROSS PROFIT  1,253,760   1,454,156   4,752,493   3,705,555 
                 
OPERATING EXPENSES                
Advertising  16,243   36,008   74,902   58,110 
Selling, general and administrative  4,256,080   2,456,313   12,208,030   7,064,511 
Impairment of goodwill and intangible assets  -   -   -   1,977,829 
Retail store and kiosk closing costs  -   9,243   -   342,503 
Total operating expenses  4,272,323   2,501,564   12,282,932   9,442,953 
LOSS FROM OPERATIONS  (3,018,563)  (1,047,408)  (7,530,439)  (5,737,398)
                 
OTHER INCOME (EXPENSE)                
Gain (loss) on repurchase of Series A warrants  (20,160)  3,437,221   (94,955)  5,189,484 
Change in fair value of derivative liabilities  -   (4,812,510)  -   (18,489,507)
Other income  9,665   -   20,126   - 
Interest income  4,463   21,845   26,441   38,418 
Interest expense  (419)  (3,162)  (3,552)  (12,854)
Total other expense, net  (6,451)  (1,356,606)  (51,940)  (13,274,459)
                 
Net loss from continuing operations  (3,025,014)  (2,404,014)  (7,582,379)  (19,011,857)
Net income (loss) from discontinued operations  204,507   (8,915)  281,483   (777,119)
NET LOSS $(2,820,507) $(2,412,929) $(7,300,896) $(19,788,976)
                 
NET LOSS PER SHARE-BASIC AND DILUTED                
Continuing operations $(0.00) $(0.00) $(0.00) $(0.01)
Discontinued operations $(0.00) $(0.00) $(0.00) $(0.00)
NET LOSS PER SHARE -BASIC AND DILUTED $(0.00) $(0.00) $(0.00) $(0.01)
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED  29,327,284,303   5,428,877,583   25,138,693,169   1,966,720,262 


 Three Months Ended Nine Months Ended
 
September 30,
 
September 30,
 2020 2019 2020 2019
SALES           
Vapor sales, net$594,145 $898,229 $1,888,480 $3,207,530
Grocery sales, net 2,753,648  2,520,101  8,804,397  8,407,919
TOTAL SALES, NET 3,347,793  3,418,330  10,692,877  11,615,449
            
Cost of sales vapor 256,461  385,208  787,998  1,337,555
Cost of sales grocery 1,729,213  1,629,980  5,461,574  5,309,567
GROSS PROFIT 1,362,119  1,403,142  4,443,305  4,968,327
            
Selling, general and administrative 2,195,275  2,532,505  6,735,815  8,057,452
Impairment of intangible assets 380,646  -  380,646  -
OPERATING EXPENSES 2,575,921  2,532,505  7,116,461  8,057,452
            
LOSS FROM OPERATIONS (1,213,802)  (1,129,363)  (2,673,156)  (3,089,125)
            
OTHER (EXPENSE) INCOME           
Gain (loss) on investment (2,571)  (12,514)  (13,714)  (57,514)
Other expense, net -  (146)  (100)  (838)
Interest income (expense), net (84,592)  (8,280)  (123,969)  (19,669)
Total other (expense) income, net (87,163)  (20,940)  (137,783)  (78,021)
            
NET LOSS$(1,300,965) $(1,150,303) $(2,810,939) $(3,167,146)
            
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 102,108,302,961  66,929,136,282  84,476,736,667  66,734,751,470

See notes to unaudited condensed consolidated financial statements

2


2


HEALTHIER CHOICES MANAGEMENT CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 20172020

(UNAUDITED)

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


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
(UNAUDITED)

  Common Stock  Additional
Paid-In		  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
Balance – January 1, 2017  14,213,861,174  $1,421,386  $3,782,818  $(2,746,658) $2,457,546 
                     
Issuance of common stock in connection with cashless exercise of Series A warrants  15,125,005,934   1,512,501   (1,208,429)  -   304,072 
Issuance of stock options in connection with professional services  -   -   9,000   -   9,000 
Stock options exercised  10,000,000   1,000   -   -   1,000 
Stock-based compensation expense  -   -   5,338,508   -   5,338,508 
Net loss  -   -   -   (7,300,896)  (7,300,896)
Balance – September 30, 2017  29,348,867,108  $2,934,887  $7,921,897  $(10,047,554) $809,230 


 
Convertible
Preferred Stock
 Common Stock 
Additional
Paid-In
 Accumulated  
 Shares Amount Shares Amount Capital Deficit Total
Balance – July 1, 2019
 20,150 $20,150,116  66,645,257,694 $6,664,526 $7,543,370 $(27,853,946) $6,504,066
Issuance of common stock in connection with cashless exercise of Series A warrants -  -  53,236,547  5,323  (3,112)  -  2,211
Issuance of awarded stock for board members
 -  -  1,000,000,000  100,000  (100,000)  -  -
Stock-based compensation expense -  -  -  -  147,570  -  147,570
Net loss                (1,150,303)  (1,150,303)
Balance – September 30, 2019
 20,150 $20,150,116  67,698,494,241 $6,769,849 $7,587,828 $(29,004,249) $5,503,544



See notes to unaudited condensed consolidated financial statements

3


3

HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE NINE

MONTHS ENDED SEPTEMBER 30, 2020

(UNAUDITED)

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


HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(UNAUDITED)

 
Convertible
Preferred Stock
 Common Stock 
Additional
Paid-In
 Accumulated  
 Shares Amount Shares Amount Capital Deficit Total
Balance – January 1, 2019
 20,150 $20,150,116  66,623,514,522 $6,662,351 $7,348,390 $(25,734,088) $8,426,769
Issuance of common stock in connection with cashless exercise of Series A warrants -  -  74,979,719  7,498  (4,386)  -  3,112
Cumulative Effect on adoption of ASC 842 -  -  1,000,000,000  100,000  (100,000)  -  -
Cumulative Effect on adoption of ASC 842 -  -  -  -  -  (103,015)  (103,015)
Stock-based compensation expense -  -  -  -  343,824  -  343,824
Net loss                (3,167,146)  (3,167,146)
Balance – September 30, 2019
 20,150 $20,150,116  67,698,494,241 $6,769,849 $7,587,828 $(29,004,249) $5,503,544

See notes to unaudited condensed consolidated financial statements

4

HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  Nine Months Ended
September 30,		 
  2017  2016 
OPERATING ACTIVITIES      
Net loss $(7,300,896) $(19,788,976)
Adjustments to reconcile net loss to net cash used in operating activities:        
(Income) loss from discontinued operations  (281,483)  777,119 
Change in allowances for bad debt  (22,633)  52,684 
Depreciation and amortization  261,456   223,772 
Loss on disposal of property and equipment  -   103,312 
Accretion of discounts on notes receivable from related party  -   (7,242)
Accrued interest on notes receivable from related party  -   (8,773)
(Gain) loss on repurchase of Series A warrants�� 94,955   (5,189,484)
Write-down of obsolete and slow moving inventory  290,574   295,940 
Stock-based compensation expense  5,338,508   61,794 
Stock-based expense in connection with professional services  9,002   - 
Impairment of goodwill and intangible assets  -   1,977,829 
Change in fair value of derivative liabilities  -   18,489,507 
Net cash used in discontinued operations  (221,424)  (2,996,504)
Changes in operating assets and liabilities:        
Due from merchant credit card processors  1,862   (20,708)
Accounts receivable  (26,506)  (319,407)
Inventories  (479,406)  (438,509)
Prepaid expenses and vendor deposits  1,769   410 
Other assets  8,872   (2,573)
Accounts payable  21,124   165,777 
Accrued expenses  (200,323)  (344,579)
Customer deposits  -   17,997 
NET CASH USED IN OPERATING ACTIVITIES  (2,504,549)  (6,950,614)
         
INVESTING ACTIVITIES        
Acquisition of grocery store business  -   (2,910,612)
Proceeds received from sale of tradename  -   100,000 
Issuance of note receivable to related party in conjunction with sale of wholesale business  -   (500,000)
Collection of loans receivable  -   139,765 
Purchases of patent  (50,000)  - 
Purchases of property and equipment  (114,168)  (29,763)
NET CASH USED IN INVESTING ACTIVITIES  (164,168)  (3,200,610)
         
FINANCING ACTIVITIES        
Proceeds from loan payable  13,977   - 
Principal payments on loan payable  (897)  - 
Payments for repurchase of Series A warrants  (2,427,267)  (3,278,827)
Principal payments of capital lease obligations  (53,054)  (50,050)
Proceeds from exercise of stock options  1,000   - 
NET CASH USED IN FINANCING ACTIVITIES  (2,466,241)  (3,328,877)
         
DECREASE IN CASH  (5,134,958)  (13,480,101)
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD  13,366,272   27,214,991 
CASH AND CASH EQUIVALENTS — END OF PERIOD $8,231,314  $13,734,890 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid for interest $3,552  $12,854 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES        
Recognition of discounts in connection with notes receivables to related party $-  $(46,850)
Issuance of common stock in connection with cashless exercise of Series A warrants $304,072  $4,498,048 
Cancellation of treasury stock $-  $140,591 
         
Preliminary Purchase Price Allocation in connection with the grocery store acquisition:        
Amount allocated to goodwill
 $-  $481,314 
Property and equipment  -   500,225 
Intangible assets - favorable lease  -   890,000 
Intangible assets - customer relationships  -   60,000 
Intangible assets - tradenames and technology  -   824,500 
Inventory  -   253,524 
Accrued expenses  -   (98,951)
Cash used in the grocery store acquisition $-  $2,910,612 
         
Sale of Vape Wholesale Inventory and Business        
Consideration received:        
Note receivable from related party, net of discount $-  $356,895 
Note receivable from related party, net of discount  -   470,485 
Treasury stock  -   140,591 
Total consideration  -   967,971 
Assets and liabilities transferred:        
Inventory  -   (258,743)
Accounts receivable, net  -   (244,735)
Vendor deposits  -   (40,949)
Accrued expenses  -   (35,273)
Customer deposits  -   17,850 
Loss on repurchase of treasury stock  -   61,850 
Cash used in the sale of wholesale business $-  $(500,000)


 Nine Months Ended September 30,
 2020 2019
OPERATING ACTIVITIES     
Net loss$(2,810,939) $(3,167,146)
Adjustments to reconcile net loss to net cash used in operating activities:     
Bad debt expense -  (3,002)
Depreciation and amortization 424,020  449,071
Loss on disposal of assets -  25,427
Loss on investment 13,714  57,514
Amortization of right-of-use asset 428,740  459,760
Stock-based compensation expense 76,154  343,824
   Impairment of intangible assets 380,646  -
      
Changes in operating assets and liabilities:     
Accounts receivable (20,126)  12,582
Inventories (28,947)  (16,606)
Prepaid expenses and vendor deposits (58,175)  94,110
Contract assets -  14,400
Other assets 57,270  (3,423)
Accounts payable 267,220  (155,910)
Accrued expenses (2,249)  (294,211)
Contract liabilities (7,423)  (268,302)
Lease liability (373,184)  (402,857)
NET CASH USED IN OPERATING ACTIVITIES (1,653,279)  (2,854,769)
      
INVESTING ACTIVITIES     
Collection of note receivable 23,767  137,250
Purchases of property and equipment (24,663)  (12,967)
Purchases of patent (89,415)  (25,000)
NET CASH USED IN INVESTING ACTIVITIES (90,311)  99,283
      
FINANCING ACTIVITIES     
Proceeds from line of credit -  131,540
Principal payments on loan payable (209,941)  (188,323)
Proceeds from paycheck protection program 876,515  -
Proceeds from loan and security agreement 2,540,000  -
NET CASH USED IN FINANCING ACTIVITIES 3,206,574  (56,783)
      
NET DECREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH 1,462,984  (2,812,269)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH— BEGINNING OF PERIOD 3,525,415  7,061,253
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD$4,988,399 $4,248,984
      
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION     
Cash paid for interest$161,876 $107,646

See notes to unaudited condensed consolidated financial statements

4


5

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


Note 1. ORGANIZATION GOING CONCERN, AND BASIS OF PRESENTATION


Organization

Organization

Healthier Choices Management Corp. (the(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 thirteennine retail vape retail stores in the Southeast region of the United States, of America. The Companythrough which it offers e-liquids, vaporizers and related products through its vape retail stores.products. The Company sold its wholesale business on July 31, 2016. The sale of the wholesale business was not contemplated prior to July 1, 2016. The sale of the wholesale business qualifies as a discontinued operation and, accordingly, the Company has excluded results for the wholesale business operations from the Company’s continuing operations in the unaudited consolidated Statements of Operations for all periods presented.

On June 1, 2016, the Company acquired the business assets ofalso operates Ada’s Whole FoodNatural Market, LLC, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc. The grocery store has been a leader in the natural grocery market in Fort Myers, Florida for the past 40 years, offeringInc and Paradise Health and Nutrition, stores that offer fresh naturalproduce, bulk foods, vitamins and organicsupplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, and specializing in facilitating a healthy, well balanced lifestyle. In addition to a comprehensive selection of vitamins andfrozen foods, health & beauty products and natural household items through its wholly owned subsidiary Healthy Choice Markets 2, LLC. The Company also sells vitamins and supplements on the Amazon.com marketplace through its wholly owned subsidiary Healthy U Wholesale, Inc. The Company markets the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which a customer partially fills with either cannabis or CBD concentrate (approximately 50 mg) purchased from a third party. The Q-Cup™ is then inserted into the Q-Cup™ Tank or Globe, that heats the cup from the outside without coming in direct contact with the solid concentrate. This Q-Cup™ technology provides significantly more efficiency and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally.


COVID-19 Management Update

In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus has recently been recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in the markets in which the Company operates.  The COVID-19 outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19, and there are many unknowns. The Company has adjusted certain aspects of the operations to protect their employees and customers while still meeting customers’ needs. While to date the Company has not been required to close any of its stores, the Company is currently operating under regular hours and we are expecting COVID-19 to have a long-term beneficial impact to the future financial results of the grocery store provides a fresh café and an organic juice bar.

In September 2017, Hurricane Irma struck Florida and caused major power outagessegment. The Company continues to severalmonitor the impact of the Company’s operating facilities. DueCOVID-19 outbreak closely.  The extent to which the loss of electricity, which lasted approximately one week, the Company suffered lost salesCOVID-19 outbreak will impact our operations is manageable, and inventory spoilage. The Company intends to submit insurance claims to recover the cost of lost salesthere is no imminent risk on business continuity and inventory spoilage, however, such claims have not, and may not, be accepted by our insurance carrier. 

Going Concern and Liquidity

future operation.


Note 2. GOING CONCERN AND LIQUIDITY

The accompanying unauditedcondensed 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 incurred a loss from operations of approximately $7.5$2.7 million for the nine months endedSeptember 30, 2017.2020. As of September 30, 2017,2020, cash and cash equivalents totaled approximately $8.2$0.6 million. While we anticipate that our current cash, cash equivalents and cash to be generated from operations will not be sufficient to meetcover our projected operating plansexpenses for the foreseeable future throughfuture. 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 unaudited consolidated financial statements, should we requirestatements. The ability of the Company to continue as a going concern is dependent on the Company's ability to generate significant revenue and raise additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have. There are 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. If adequate financing is not available,assurances that the Company will further delay, postponebe successful in its efforts to generate significant revenues, maintain a sufficient cash balance or terminate product and service expansion and curtail certain selling, general and administrative operations. The inabilityreport profitable operations to raise additional financing may havecontinue as a material adverse effect on the future performance of the Company. 

Sourcing and Vendorsgoing concern.

We source from multiple suppliers. These suppliers range from small independent businesses to multinational conglomerates. For the nine months ended September 30, 2017, we purchased approximately 75% of the goods we sell from our top 20 suppliers and approximately 40% of our total purchases were from one vendor.

Basis of Presentation and Principles of Consolidation

The Company’s unaudited consolidated financial statements are prepared in accordance with GAAP. The unaudited consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date. 

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, Healthy Choice Markets, Inc., Vaporin, Inc., The Vape Store, Inc. (“Vape Store”), 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.

5



HEALTHIER CHOICES MANAGEMENT CORP.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Unaudited Interim Financial Information

The unaudited consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2017. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been omitted under the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 27, 2017. 


Note 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications


Reclassification

Certain prior period amounts in the unaudited consolidated financial statements and related to stock splits and the sale of discontinued operationsnotes have been reclassified to conform to the current period’syear presentation. No changes toSuch reclassifications do not impact the Company’sCompany's previously reported financial position or net loss were made as a result of such reclassifications.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s decision-making group is the senior executive management team. The Company and the decision-making group views the Company’s operations and manage its business as two operating segments. All long-lived assets of the Company reside in the U.S.

income (loss).


Use of Estimates in the Preparation of the Financial Statements


The preparation of unauditedcondensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unauditedcondensed consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes and related valuation allowances, and the valuation of the assets and liabilities acquired in business combinations. Certain of management’s estimates could be affected by external conditions, including those unique to the Company’sour industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’sour estimates that could cause actual results to differ from thoseour estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Shipping


Basis of Presentation and Handling

Shipping charges billed to customersPrinciples of Consolidation


The Company’s unaudited condensed consolidated financial statements are includedprepared in net sales andaccordance with GAAP. The unaudited condensed consolidated financial statements include the related shipping and handling costs are includedaccounts of all subsidiaries in cost of sales. For the nine months ended September 30, 2017 and 2016 shipping and handling costs of approximately $80,000 and $173,000, respectively, were included in cost of sales.

Concentration of Risk

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 Federal Deposit Insurance Corporation (“FDIC”) insurance limit. The Company has not experienced any losses on its cash and cash equivalents. 

At September 30, 2017, accounts receivable balances included a concentration from three customers with receivable balances ranging from approximately $15,000 to $17,000, all of which are greater than 10% of the total net accounts receivable balance. At December 31, 2016, accounts receivable balances included a concentration from three customers with receivable balances ranging from approximately $9,000 to $24,000, all of which are greater than 10% of the total net accounts receivable balance.

For the nine months ended September 30, 2017 and 2016, the Company did not have any customers with sales in excess of 10% of total sales.

6

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Inventories

Inventories are stated at average cost. If the cost of the inventories exceeds their net realizable value, provisions are recorded to write down excess inventory to its net realizable value. The Company’s inventories consist primarily of merchandise available for resale, such as fresh produce, perishable grocery items and non-perishable consumable goods.

Identifiable Intangible Assets and Goodwill

Identifiable intangible assets are recorded at cost, or when acquired as part ofholds a business acquisition, at estimated fair value. Certain identifiable intangible assets are amortized over 3 and 15 years. Similar to tangible personal property and equipment, the Company periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite-lived intangible assets, such as goodwill are not amortized. The Company assesses the carrying amounts of goodwill for recoverability on at least an annual basis or when events or changes in circumstances indicate evidence of potential impairment exists, using a fair value based test. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, and the useful life over which cash flows will occur. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for the Company.

During the third quarter of 2017, we changed the date of our annual impairment test from December 31st to September 30th. We believe the change in accounting principle related to changing our annual impairment testing date did not delay, accelerate, or avoid an impairment charge. We have determined that this change in accounting principle is preferable under the circumstances and does not result in adjustments to ourcontrolling financial statements when applied retrospectively. Our 2017 annual impairment test resulted in no impairment being recorded for the nine months ended September 30, 2017.

Adopted Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. It is effective for annual reporting periods beginning after December 15, 2016. The amendments should be applied prospectively with earlier application permittedinterest as of the beginningfinancial statement date.


The consolidated financial statements include the accounts of an interimthe Company 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.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). The amendment requires that the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or annual reporting period.restricted cash equivalents. The Company adopted ASU 2016-18 in the second quarter of 2020 using the retrospective transition method to each period presented. The adoption primarily resulted in the inclusion of the restricted cash balances within the overall cash balances and a reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheet. The adoption of ASU 2015-11this standard did not have a significantmaterial impact on the Company’scondensed consolidated financial statements.

In March 2016,statements and is not expected to have a material impact for the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspectsforeseeable future. See “Cash and Cash Equivalents and Restricted Cash” above for further discussion of the effects of the adoption of ASU 2016-18 on the Company’s significant accounting policies.


Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for share-based payment transactions, includinga fair presentation of the income tax consequences, classificationinterim financial information. The results of awardsoperations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2020. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been omitted under the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and related notes thereto as either equity or liabilities,of and classificationfor the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on May 13, 2020.
7

Note 4. CONCENTRATIONS

Cash and Cash Equivalents and Restricted Cash 

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows. ASU 2016-09 is effectiveflows: 
  September 30, 2020  December 31, 2019
Cash and Cash Equivalent
 
$
602,318
  
$
1,525,415
Restricted cash, non-current portion
 
 
4,386,081
 
 
 
2,000,000
Total cash, cash equivalents and restricted cash
 
$
4,988,399
 
 
$
3,525,415

Restricted Cash
The Company's restricted cash consists of cash balances which are restricted as to withdrawal or usage under the August 2020 Loan and Security agreement and cash balances obligated to maintain in a money market account as per the April 2018 revolving credit line agreement. See Note 8 for fiscal years beginning after December 15, 2016,further discussions.

Note 5. DISAGGREGATION OF REVENUES

The Company reports the following segments in accordance with early adoption permitted. The adoption of ASU 2016-09 did not have a significant impact onmanagement guidance: Vapor and Grocery. When the Company’s consolidated financial statements.

In January 2017,Company prepares its internal management reporting to evaluate business performance, we disaggregate revenue into the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 are to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The adoption of ASU 2017-01 did not have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 along with amending other parts of the goodwill impairment test. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated tofollowing categories that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. At adoption, this update will require a prospective approach. The adoption of ASU 2017-04 did not have a significant impact on the Company’s consolidated financial statements.

7

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which was subsequently modified in August 2015 by ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”. As a result, the ASU No. 2014-09 is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describedepict how the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company will adopt the standard on January 1, 2018, but is still considering whether to use the retrospective or modified retrospective transition method. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15 (Topic 230), “Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments”. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated cash flows and related disclosures.

In July 2017, the FASB issued a two-part ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception”. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

Note 3. DISCONTINUED OPERATIONS

Effective July 31, 2016, the Company sold its wholesale inventory and the related business operations (collectively, “Wholesale Business Assets”). The sale of the wholesale business qualifies as discontinued operations, and accordingly, the Company has excluded results for the wholesale business operations from the Company’s continuing operations in the unaudited consolidated Statements of Operations for all periods presented. The following table shows the results of the Company’s wholesale operations included in the loss from discontinued operations.  Sales shown in the following table are the elimination of sales returns reserves for which customers did not return products.

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
             
Wholesale vapor sales, net $204,507  $281,398  $288,965  $3,125,736 
                 
Cost of sales – vapor wholesale  -   203,482   -   2,832,564 
Expenses – advertising selling, general and administrative  -   86,831   7,482   1,070,291 
Total  -   290,313   7,482   3,902,855 
Net income (1oss) from discontinued operations attributable to the wholesale business $204,507  $(8,915) $281,483  $(777,119)

The major classes of assets and liabilities of discontinued operations on the balance sheet are as follow:

  September 30,
2017		  December 31, 2016 
Assets      
Accounts receivable $-  $39,493 
Due from merchant credit card processor, net  -   13,410 
Total current assets from discontinued operations $-  $52,903 
         
Liabilities        
Accrued expenses  -   555,810 
Total current liabilities from discontinued operations $             -  $555,810 

8
affected by economic factors.


HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 4. ACQUISITION OF ADA’S WHOLE FOOD MARKET

On April 1, 2016, the Company’s wholly owned subsidiary Healthy Choice Markets Inc., entered into a Business Sale Agreement with Ada’s Whole Food Market LLC (the “Seller”) to purchase certain operating assets and assumed certain payables and a store lease obligation that constituted the business of Ada’s Natural Market grocery store (the “Grocery Acquisition”). The Grocery Acquisition was consummated on June 1, 2016 and the Company operates the grocery store under the same name, location, and management. At the closing of these transactions, the Company also entered into an employment agreement with the store manager.

Note 5. SEGMENT INFORMATION

Prior to the second quarter of 2016, the Company had a single reportable business segment, as it was a distributor and retailer of vapor products including vaporizers, e-liquids and electronic cigarettes. On June 1, 2016, the Company completed the Grocery Acquisition (see Note 4) and added a reportable segment. On July 31, 2016, the Company sold its wholesale inventory and related operations. The Company has excluded the results for the wholesale business, as discontinued operations, from the Company’s continuing operations for all periods presented. Management determines the reportable segments based on the internal reporting used by our Chief Operating Decision Makers to evaluate performance and to assess where to allocate resources. The Company evaluates segment performance based on the segment gross profit before corporate expenses.

Summarized below are the total net sales and segment operating loss for each reporting segment:

  Three Months Ended 
  Net Sales  Segment Gross Profit 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
Vapor sales, net $1,410,003  $1,474,581  $700,558  $818,725 
Grocery sales, net  1,447,040   1,575,037   553,202   635,431 
Total sales $2,857,043  $3,049,618   1,253,760   1,454,156 
                 
Operating expenses          4,272,323   2,501,564 
Operating loss          (3,018,563)  (1,047,408)
Other expense, net          (6,451)  (1,356,606)
Net loss from continuing operations          (3,025,014)  (2,404,014)
Net income (loss) from discontinued operations          204,507   (8,915)
Net loss         $(2,820,507) $(2,412,929)

For the three months ended September 30, 2017, depreciation and amortization was $17,011 and $68,125 for Vapor and Grocery, respectively. For the three months ended September 30, 2016, depreciation and amortization was $16,991 and $53,305 for Vapor and Grocery, respectively. 

  Nine Months Ended 
  Net Sales  Segment Gross Profit 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
Vapor sales, net $4,398,942  $5,313,849  $2,521,256  $2,872,134 
Grocery sales, net  5,349,800   2,085,293   2,231,237   833,421 
Total sales $9,748,742  $7,399,142   4,752,493   3,705,555 
                 
Operating expenses          12,282,932   9,442,953 
Operating loss          (7,530,439)  (5,737,398)
Other expense, net          (51,940)  (13,274,459)
Net loss from continuing operations          (7,582,379)  (19,011,857)
Net income (loss) from discontinued operations          281,483   (777,119)
Net loss         $(7,300,896) $(19,788,976)

For the nine months ended September 30, 2017, depreciation and amortization was $50,270 and $197,985 for Vapor and Grocery, respectively. For the nine months ended September 30, 2016, depreciation and amortization was $58,239 and $70,757 for Vapor and Grocery, respectively. 

 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Vapor$594,145 $898,229 $1,888,480 $3,207,530
Grocery 2,753,648  2,520,101  8,804,397  8,407,919
Total revenue$3,347,793 $3,418,330 $10,692,877 $11,615,449
            
Retail Vapor$594,145 $898,216 $1,888,480 $3,207,120
Retail Grocery 2,369,942  2,168,645  7,707,101  7,302,378
Food service/restaurant 248,757  291,435  823,724  949,211
Online/eCommerce 75,009  45,927  261,158  127,129
Wholesale Grocery 59,940  14,094  12,414  29,201
Wholesale Vapor -  13  -  410
Total revenue$3,347,793 $3,418,330 $10,692,877 $11,615,449
9

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. NOTES RECEIVABLE FROM RELATED PARTY

In connection with the sale of its wholesale business, the Company entered into two notes receivable with a related party. As consideration for the sale of wholesale inventory and business the Company received a secured, one-year promissory note in the principal amount of $370,000 (the “Acquisition Note”) bearing an interest rate of 4.5%, which payments thereunder are $10,000 monthly, with such payments commencing on October 28, 2016, with a balloon payment of the remainder of principal and interest due on July 29, 2017. As of September 30, 2017, the balloon payment had not been received.

The buyer and the Company entered into a secured, 36-month promissory note in the principal amount of $500,000 (the “Promissory Note”) bearing an interest rate of prime plus 2%, resetting annually on July 29th, which payments thereunder are $14,000 per month, and commencing on January 26, 2017, with subsequent installments payable on the same day of each month thereafter, and in the 37th month a balloon payment for all remaining accrued interest and principal due on July 29, 2019. The Company records all proceeds related to both notes as other income as proceeds are received. The notes were issued by an affiliate of the Company’s former Chief Executive Officer.

Note 7.6. INTANGIBLE ASSETS

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-35-23, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-35-23

requires that a company recognize an impairment loss if, and only if, the carrying amount of a long-lived asset (asset group) is not recoverable from the sum of the undiscounted cash flows expected to result from the use and eventual disposal of the asset (the “Recoverable Amount”) and if the carrying amount exceeds the asset’s fair value.


As part of management's qualitative analysis at September 30, 2020 to determine whether any triggering events have occurred since the last impairment test in December 30, 2019, which would indicate an impairment. Management determined that triggering events had occurred through the nine month ended September 30, 2020 and recorded an impairment to intangible assets.

The Company determined that the carrying value of intangible assets for the Vitamin Store are not recoverable based on the monthly average sales for the nine months ended September 30, 2020. The Company concluded that the intangible assets was impaired and recorded an impairment charges of $0.4 million for the nine months ended September 30, 2020.  The Company did not have an impairment charge for the same period in 2019.


8
Intangible assets, net are as follows:

September 30, 2017 

Useful Lives

(Years)

 

Gross

Carrying Amount

  

Accumulated

Amortization

  

Net Carrying

Amount

 
Favorable lease 15 years $890,000  $(77,629) $812,371 
Trade names 10 years  820,000   (149,000)  671,000 
Customer relationships 5 years  60,000   (16,000)  44,000 
Technology 10 years  75,000   (5,000)  70,000 
Website 3 years  4,500   (2,000)  2,500 
Intangible assets, net   $1,849,500  $(249,629) $1,599,871 

December 31, 2016 

Useful Lives

(Years)

 

Gross

Carrying Amount

  

Accumulated

Amortization

  

Net Carrying

Amount

 
Favorable lease 15 years $890,000  $(33,859) $856,141 
Trade names 10 years  820,000   (87,500)  732,500 
Customer relationships 5 years  60,000   (7,000)  53,000 
Technology 10 years  25,000   (937)  24,063 
Website 3 years  4,500   (875)  3,625 
Intangible assets, net   $1,799,500  $(130,171) $1,669,329 

Intangible


September 30, 2020 Useful Lives (Years) 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names  
8-10 years
 $923,000 $(418,068) $504,932
Customer relationships  
4-10 years
  883,000  (420,635)  462,365
Patents  
10 years
  359,665  (76,650)  283,015
Non-compete  
4 years
  174,000  (77,938)  96,062
Intangible assets, net    $2,339,665 $(993,291) $1,346,374

December 31, 2019 Useful Lives (Years) 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
Trade names  
8-10 years
  $993,000  (354,203)  $638,797
Customer relationships  
4-10 years
  1,228,000  (293,260)  934,740
Patents  
10 years
  270,250  (49,027)  221,223
Non-compete  
4 years
  174,000  (45,313)  128,687
Intangible assets, net    $2,665,250 $(741,803) $1,923,447

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense amounted to $119,458approximately $0.3 million and $51,155$0.3 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Future annual estimated amortization expense is as follows:

Years ending December 31,   
2017 (remaining three months) $40,340 
2018  161,361 
2019  160,486 
2020  159,861 
2021  152,861 
Thereafter  924,962 
Total $1,599,871 

10


Years ending December 31,  
2020 (remaining three months)$98,023
2021 385,091
2022 369,706
2023 130,841
2024 130,841
Thereafter 231,872
Total$1,346,374


Note 7. CONTRACT LIABILITIES

The Company’s contract liabilities consists of gift cards and loyalty rewards, for which the Company has a performance obligation to deliver products when customers redeem balances or terms expire through breakage. Our breakage policy is HEALTHIER CHOICES MANAGEMENT CORP.twenty four-month

for gift cards, NOTES TO CONSOLIDATED FINANCIAL STATEMENTStwelve months

for Grocery loyalty rewards, and (UNAUDITED)six months

for Vapor loyalty rewards. As such, all contract liabilities are expected to be recognized within a twenty four-month period. Revenue is recognized when gift card and loyalty points are redeemed.

A summary of the net changes in contract liabilities activity for the nine months ended September 30, 2020 and 2019 is presented below:

 As of September 30,
 2020 2019
Beginning balance as January 1,$26,823 $442,630
Issued 33,221  50,778
Redeemed (39,405)  (57,319)
Breakage recognized (341)  (1,563)
Fulfillment of contract (898)  (260,198)
Ending balance as of September 30,
$19,400 $174,328
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Note 8. DEBT

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

   Principal  Debt Discount  Net Amount
Line of Credit $2,000,000 $- $2,000,000
Term Loan Credit Agreement  870,925  -  870,925
Paycheck Protection Program  880,051  -  880,051
Loan and Security Agreement ("PPE Loan")  2,667,000  (66,322)  2,600,678
Other debt  6,487  -  6,487
Total debt $6,424,463 $(66,322) $6,358,141

Line of Credit

On April 13, 2018, the Company agreed to a new revolving credit line of $2 million and a money market account of $2 million (“blocked account”) with Professional Bank in Coral Gables, Florida. On September 30, 2020, the Company reached agreement with Professional Bank to renew the credit line for one more year, and the next annual review will occur on or before July 15, 2021. The new agreement included a variable interest rate that it is based on a rate of 1.5% over what is earned on the collateral amount. The collateral amount established in the arrangement with the bank is $2 million. As of September 30, 2020, the Company had $2 million in the blocked account, which is recorded as restricted cash included in non-current assets.

Term Loan Credit Agreement

On December 31, 2018, the Company entered into a Term Loan Credit Agreement (the “Credit Agreement”) with Professional Bank, a Florida banking corporation (the “Bank”), pursuant to which the Company issued a Term Note (the “Term Note”) in the principal amount of $1,400,000 in favor of the Bank. The Term Note bears interest at a rate equal to 1.5 percentage points in excess of that rate shown in the Wall Street Journal as the prime rate, adjusted annually (which was 5.50% as of December 31, 2019). The proceeds of the Term Note were used for acquisitions and for general working capital requirements.

The Credit Agreement contains a customary financial covenant for a minimum debt service coverage ratio of 1.25 to 1.0. The Credit Agreement matures on December 31, 2023. In addition, the Credit Agreement provides for monthly principle payments of $22,333 commencing in January 2019 plus applicable interest, and mandatory prepayments with a portion of excess cash flow.

The obligations under the Credit Agreement and the Term Note are guaranteed by the Company and its wholly owned subsidiary, Healthy U Wholesale, Inc.

Paycheck Protection Program

On May 15, 2020, the Company was granted a loan (the “Loan”) from Customers Bank, in the aggregate amount of $876,515, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The Loan, which was in the form of a Note dated May 6, 2020 issued by the Company, matures on May 6, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 6, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred after May 6, 2020. The Company intends to use the entire Loan amount for these qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

Loan and Security Agreement

On August 18, 2020, the Company agreed to a loan and security agreement (the “Loan”) in the aggregate of $2.7 million with Sabby Healthcare Master Fund, LTD and Sabby Volatility Warrant Master Fund, LTD (“collectively, the Lender”). The loan has a non-refundable discount of 5% to the face amount of the loan and it matures on November 16, 2020. The debt obligations from the loan are secured by the assets of the Company.  The proceeds received from the Loan were record as restricted cash included in non-current assets. The proceeds will be used solely for the purchase of personal protective equipment (“PPE”) and any related expenses from the transactions. The Lender is entitled to 20% of all Net profits received from the sales of the PPE goods through the maturity date.
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Note 8.9. STOCKHOLDERS’ EQUITY

Reverse Splits

On June 1, 2016,


Series A Warrants

In the Company’s Board of Directors effected a reverse stock split of the common stock at a ratio of 1-for-20,000. All share and per share amounts have been retroactively adjusted to reflect the reverse stock splits.

Compensatory Common Stock Summary

During the nine months ended September 30, 2017 and 2016,2020, the Company recognized stock-based compensation expense related to compensatory Common Stock in the amount of $0 and $52,000, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations. As of September 30, 2017, there was no unamortized expense remaining related to stock awards because the remaining non-vestedissued 37.4 billion shares vested on April 1, 2016.

Series A Warrants

Through September 30, 2017, 1 Series A warrant has been exercised through the cashless exercise provision, resulting in the issuance of 15,125,005,934 shares of the Company’s common stock.

A summary of warrant activity for the nine months ended September 30, 2017 is presented below:

  Exercise Price  

Warrant

Common Stock

Equivalent

  Remaining Contractual Term 
Outstanding at January 1, 2017 $0.0001   634,754,364,551   3.60 
Warrants repurchased $(0.000021)  (114,796,220,280)    
Cashless exercises for common stock $(0.0001)  (15,125,005,934)    
Black Scholes Value adjustment $(0.0001)  (198,093,264)    
             
Outstanding at September 30, 2017 $0.0001   504,635,045,073   2.85 

Pursuant to the Series A warrant agreement, the Black Scholes value is calculated by a third-party and utilized in calculating the warrant common stock equivalents at the point of cashless exercise. As such, the value is computed at the end of each reporting period to determine the amount of warrant common stock equivalents outstanding using the formula below:

(Series A warrants exercised * Black Scholes Value) / closing common stock bid price as of two trading days prior.

A summary of the outstanding warrant common stock equivalents at January 1, 2017 and September 30, 2017 is presented below:

  September 30,
2017		  January 1,
2017		 
Warrants outstanding  33   42 
Black Scholes value  1,519,079   1,519,297 
Closing bid stock price $0.0001  $0.0001 
Warrant common stock equivalent  504,635,045,073   634,754,364,551 

Stock Options

During the three months ended September 30, 2017 and 2016, the Company recognized stock-based compensation of approximately $2,038,000 and $2,000, respectively, in connection with the amortizationcashless exercise of stock options, netthe Series A warrants.


On July 27, 2020, the remaining Company Series A Warrants expired and the balance of recovery of stock-based charges for forfeited unvested stock options. During the nine months ended outstanding warrants not exercised was 355,661 warrants.

Series C Stock

On September 30, 2017 and 2016,25, 2020, the Company recognized stock-based compensationentered into agreements with certain holders of approximately $5,339,000its Series B Convertible Preferred Stock to exchange all the Series B Stock for 20,150.1153 shares of Series C Stock. Each share of Series C Stock has a stated value equal to $1,000 and $10,000, respectively.is convertible into Common Stock on a fixed basis at a conversion price of $0.0001 per share. As of the end of the third quarter of 2020, the closing of the stock exchange had not occurred.

Stock Options

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

At September 30, 2017, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees, directors and consultants was approximately $3.3 million, which will be amortized over a weighted average period of 0.6 years. At December 31, 2016, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees, directors and consultants was approximately $0.5 million, which will be amortized over a weighted average period of 1.7 years. 

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presented below:


HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Loss per
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Stock-based compensation$1,875 $147,570 $76,154 $343,824


Income (Loss) Per Share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed using the weighted average number of shares of common stock outstanding and, if dilutive, potential shares of common stock outstanding during the period. Potential common shares consist of incremental shares of common stock issuable upon (a) the exercise of stock options (using the treasury stock method); (b) the exercise of warrants (using the if-converted method). For the nine months ended September 30, 2017 and 2016, diluted loss per share excludes the potential shares of common stock, as their effect is antidilutive.


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

  September 30, 2017  September 30, 2016 
       
Stock options  86,911,261,360   11,360 
Warrants  504,635,045,073   655,691,759,993 
Total  591,546,306,433   655,691,771,353 

Note 9. FAIR VALUE MEASUREMENTS

The fair value framework under FASB’s guidance requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:

●Level 1: Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities;

●Level 2: Fair value measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and

●Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.

Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value and tested for impairment annually, or when there is an indicator of impairment between annual tests. 

The following table summarizes the liabilities measured at fair value on a recurring basis as of September 30, 2017:

  Level 1  Level 2  Level 3  Total 
LIABILITIES            
Derivative liabilities – non-consenting warrants $     -  $398,952  $      -  $398,952 
Derivative liabilities – consenting warrants  -   9,832,745   -   9,832,745 
Total derivative liabilities $-  $10,231,697  $-  $10,231,697 

12


HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes the liabilities measured at fair value on a recurring basis as of December 31, 2016:

  Level 1  Level 2  Level 3  Total 
LIABILITIES            
Derivative liabilities – non-consenting warrants $     -  $955,173  $      -  $955,173 
Derivative liabilities – consenting warrants  -   11,912,906   -   11,912,906 
Total derivative liabilities $-  $12,868,079  $-  $12,868,079 

The Company determined that its offer to purchase its Series A warrants for $0.000021 per warrant was the best indicator of the fair value of the derivative liabilities as of September 30, 2017 and December 31, 2016. 

 As of September 30, 
  2020  2019 
Preferred stock  201,501,000,000   201,501,000,000 
Stock options  68,062,000,000   91,062,000,000 
Warrants  -   41,420,000,000 
Total  269,563,000,000   333,983,000,000 

Note 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Two

Employment and Consulting and Other Related Party Agreements

On April 8, 2016, Gregory Brauser informed the Board of his decision to resign from the Board and as President of the Company. Mr. Brauser’s resignation was not due to any disagreement with lawsuits were filed against the Company on any matters relating to the Company’s operations, policies or practices. Through GAB Management Group, Inc., Mr. Brauser serves as a consultant to the Company pursuant to an Executive Services Consulting Agreement dated as of April 11, 2016 (the “Consulting Agreement”), the term of which is two years. Under the Consulting Agreement, GAB Management Group, Inc., will receive the following benefitsand its subsidiaries in connection with consulting services that its principal, Mr. Brauser, providesalleged 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 Company: (1) an engagement feecomplaints on April 2019 and May 2019, respectively. Given the lack of $50,000 payable atinformation presented by the time the Consulting Agreement is executed, and (2) thereafter monthly installments of $10,000 for 24 months.

Legal Proceedings

From timeplaintiffs to timedate, the Company may be involved in various claimsis 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 actions arisingproceedings.


As of September 30, 2020, the Company has not accrued for a potential loss for these actions. Given the information received to date, the Company intends to vigorously contest these lawsuits as they are in the ordinary courseearly stages and progressed minimally in 2020. With respect to legal costs, we record such costs as incurred.
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Note 11. SUBSEQUENT EVENTS

The Company evaluated subsequent events through November 18, 2020, the date on which the September 30, 2020 unaudited condensed financial statements were originally issued. There are no significant events that require disclosure in these financial statements, except as follows:

Series C Stock

On November 17, 2020, the Company finalized the closing of our business. We do not have any legal proceedings which havethe stock exchange with certain holders of its Series B Convertible Preferred Stock to exchange all the Series B Stock for 20,150.1153 shares of Series C Stock. Each share of Series C Stock has a material impactstated value equal to $1,000 and is convertible into Common Stock on a fixed basis at a conversion price of $0.0001 per share.

Term Loan and Security Agreement Extension

On November 10, 2020, the Company received a written notice from Sabby Healthcare Master Fund, LTD and Sabby Volatility Warrant Master Fund, LTD (“collectively, the Lender”) agreeing to the financial statements asrequested extension for the term loan and security agreement (the “Loan”) that matures on November 16, 2020. The loan extension matures on January 16, 2021 and it bears interest at a rate of September 30, 2017.

Purchase Commitments5%

At September 30, 2017 and December 31, 2016, per annum, payable monthly commencing on the Company had vendor depositsfirst day of approximately $3,000 and $7,000, respectively, which are included as a componentthe first month following the acceptance date of prepaid expenses and vendor deposits in the consolidated balance sheets.

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extension.


12

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 as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on March 27, 2017.statements. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, Healthy Choice Markets, Inc., Vaporin,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. (the(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 thirteennine retail vape retail stores in the Southeast region of the United States, of America. The Companythrough which it offers e-liquids, vaporizers and related products through its vape retail stores.products. The Company soldmarkets its wholesale business on July 31, 2016. The saleQ-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 wholesale business was not contemplated priorQ-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 July 1, 2016. vape uncut pure extract from a pure quartz cup. The sale of the wholesale business qualifies as a discontinued operation and accordingly the Company has excluded results for the wholesale business operations from the Company’s continuing operations in the unaudited consolidating Statements of Operations for all periods presented. 

On June 1, 2016, the Company acquired the business assets ofalso operates Ada’s Whole FoodNatural Market, LLC, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc. The grocery store has been a leader in the natural grocery market in Fort Myers, Florida for the past 40 years, offeringand Paradise Health and Nutrition, stores that offer fresh naturalproduce, bulk foods, vitamins and organicsupplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, and specializing in facilitating a healthy, well balanced lifestyle. In addition to a comprehensive selection of vitamins andfrozen foods, health & beauty products the grocery store provides a fresh café and an organic juice bar. 

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.

We had


The Company incurred a large numberloss from operations of warrants outstanding with features that made the warrants more debt-like than equity and could possibly result in cash outflows. Additionally,approximately $2.8 million for the nine months endedSeptember 30, 2017,2020. 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 reported a net loss of $7,300,896anticipate that our current cash and had a working capital deficit of $1,991,339. These factors raisedcash 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 ourthe Company's ability to continue as a going concern.

During 2016 and early 2017, we took steps to mitigate these factors by:

●increasing the number of authorized shares to 750,000,000,000 so that there would be sufficient shares available for issuance should all the warrant holders exercise; and
●entering into a Fifth Amended and Restated Series A Warrant Standstill Agreement (the “Fifth Amendment”) with warrant holders to effectively eliminate the possibility that warrant holders will exercise for anything other than shares.

The above steps substantially lowered our potential cash exposure. As a result, as of the date of the issuance of these financial statements, we believe our plans have alleviated substantial doubt about our ability to sustain operations for the foreseeable future throughconcern within a year and a day from the issuance of these unaudited consolidated financial statements.

14
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 thirteennine retail vape stores, which are located in Florida, Georgia and Alabama. The Company has ceased plans to increase the number of retail vape stores due to adverse industry trends and increasing federal and state regulations that, if implemented, may negatively impact future retail revenues.

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 branded vaporizer and e-cigarette productsour business reporting segments have made it more difficult to compete on prices and to secure business. We expect increased vaporizer product supply and downward pressure on prices to continue and impact our operating results in the future. We market and sellalso expect the similar vaporizers and e-liquids ascontinued expansion of national grocery chains, which leads to greater competition, to impact our competitors and we sell our products at substantially similar prices as our competitors; accordingly,operating results in the key competitive factors for our success is to maintain the quality of service we offer our customers and effective marketing efforts.future.

13


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:


 Three Months Ended September 30, 
2020 to 2019
 2020 2019 Change $
SALES        
Vapor sales, net$594,145 $898,229 $(304,084)
Grocery sales, net 2,753,648  2,520,101  233,547
TOTAL SALES, NET 3,347,793  3,418,330  (70,537)
         
Cost of sales vapor 256,461  385,208  (128,747)
Cost of sales grocery 1,729,213  1,629,980  99,233
GROSS PROFIT 1,362,119  1,403,142  (41,023)
         
OPERATING EXPENSES        
Selling, general and administrative 2,195,275  2,532,505  (337,230)
Impairment of intangible assets 380,646  -  380,646
Total operating expenses 2,575,921  2,532,505  43,416
LOSS FROM OPERATIONS (1,213,802)  (1,129,363)  (84,439)
         
OTHER INCOME (EXPENSE)        
Gain (loss) on investment (2,571)  (12,514)  9,943
Other Income (expense) -  (146)  146
Interest income (expense) (84,592)  (8,280)  (76,312)
Total other income (expense), net (87,163)  (20,940)  (66,223)
         
NET LOSS$(1,300,965) $(1,150,303) $(150,662)

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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2019 includes a loss on investment of $13,000, partially offset by interest income of $8,000.


14

The following table sets forth our unaudited consolidated Statements of Operations for the threenine months ended September 30, 20172020 and 20162019 that is used in the following discussions of our results of operations:

  Three Months Ended
September 30,		  2016 to 2017 
  2017  2016  Change 
SALES         
Vapor sales, net $1,410,003  $1,474,581  $(64,578)
Grocery sales, net  1,447,040   1,575,037   (127,997)
TOTAL SALES, NET  2,857,043   3,049,618   (192,575)
             
Cost of sales vapor  709,445   655,856   53,589 
Cost of sales grocery  893,838   939,606   (45,768)
GROSS PROFIT  1,253,760   1,454,156   (200,396)
             
OPERATING EXPENSES            
Advertising  16,243   36,008   (19,765)
Selling, general and administrative  4,256,080   2,456,313   1,799,767 
Retail store and kiosk closing costs  -   9,243   (9,243)
Total operating expenses  4,272,323   2,501,564   1,770,759 
LOSS FROM OPERATIONS  (3,018,563)  (1,047,408)  (1,971,155)
             
OTHER INCOME (EXPENSE)            
Gain (loss) on repurchases of Series A warrants  (20,160)  3,437,221   (3,457,381)
Change in fair value of derivative liabilities  -   (4,812,510)  4,812,510 
Other income  9,665   -   9,665 
Interest income  4,463   21,845   (17,382)
Interest expense  (419)  (3,162)  2,743 
Total other expense, net  (6,451)  (1,356,606)  1,350,155 
             
Net loss from continuing operations  (3,025,014)  (2,404,014)  (621,000)
Net income (loss) from discontinued operations  204,507   (8,915)  213,422 
NET LOSS $(2,820,507) $(2,412,929) $(407,578)


 
Nine Months Ended September 30,
 
2020 to 2019
 2020 2019 Change $
SALES        
Vapor sales, net$1,888,480 $3,207,530 $(1,319,050)
Grocery sales, net 8,804,397  8,407,919  396,478
TOTAL SALES, NET 10,692,877  11,615,449  (922,572)
         
Cost of sales vapor 787,998  1,337,555  (549,557)
Cost of sales grocery 5,461,574  5,309,567  152,007
GROSS PROFIT 4,443,305  4,968,327  (525,022)
         
OPERATING EXPENSES        
Selling, general and administrative 6,735,815  8,057,452  (1,321,637)
Impairment of intangible assets 380,646  -  380,646
Total operating expenses 7,116,461  8,057,452  (940,991)
LOSS FROM OPERATIONS (2,673,156)  (3,089,125)  415,969
         
OTHER INCOME (EXPENSE)        
Gain (loss) on investment (13,714)  (57,514)  43,800
Other income (expense) (100)  (838)  738
Interest income (expense) (123,969)  (19,669)  (104,300)
Total other income (expense), net (137,783)  (78,021)  (59,762)
         
NET LOSS$(2,810,939) $(3,167,146) $356,207

Net vaporVapor sales decreased $64,578$1.3 million to $1,410,003$1.9 million for the threenine months ended September 30, 20172020 as compared to $1,474,581$3.2 million for the same period in 2016.2019. The decrease in sales is primarily due to a major decreased in foot traffic or temporary closure of some stores a result of the decreasedCoronavirus (COVID-19) pandemic and a decrease in the number of thirteen stores open during the threenine months ended September 30, 20172020 as compared to fourteen retail storesthe same period in 2019.

Net Grocery sales increased$0.4 million to $8.8 million for the nine months endedSeptember 30, 2020 as compared to $8.4 million for the same period in 2016.

Net grocery sales decreased $127,997 to $1,447,040 for the three months ended September 30, 2017 as compared to $1,575,037 for the same period in 2016.2019. The decreaseincrease in sales is primarily due to Ada’s Natural Market suffering an extended power outage caused by hurricane Irma, resulting in lost salesCOVID-19 pandemic and inventory spoilage.

15
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 threenine months ended September 30, 20172020 and 20162019 were $709,445$0.8 million and $655,856,$1.3 million, respectively, an increasea decrease of $53,589.$0.6 million. The increasedecrease is primarily due to increasesa decreased in sales and product costs duringcost. Gross profit was $1.1 million and $1.9 million for the threenine months ended September 30, 2017 as compared to the same period in 2016. Gross profit from retail stores was $700,5582020 and $818,725 for the three months ended September 30, 2017 and 2016,2019, respectively.


Grocery cost of goods sold for the threenine months ended September 30, 20172020 and 20162019 were $893,838$5.5 million and $939,606,$5.3 million, respectively, a decreasean increase of $45,768.$0.2 million. The decreaseincrease is primarily due to Ada’s Natural Market suffering an extended power outage caused by hurricane Irma, resultingincreases in lost sales and lower cost of goods sold which was offset by spoiled inventory estimated at $80,000.from the COVID-19 pandemic. Gross profit from grocery was $553,202$3.3 million and $635,431$3.1 million for the threenine months ended September 30, 20172019 and 2016,2019, respectively.

Selling, general and administrative


Total operating expenses increased $1,799,767decreased $0.9 million to $4,256,080$7.1 million for the threenine months ended September 30, 20172020 compared to $2,456,313$8.1 million for the same period in 2016.2019. The increasedecrease is primarily attributable to increasesdecreases in payroll and employee related cost of $0.6 million, stock-based compensation of $2,035,595, payroll and benefits of $41,341 and depreciation and amortization of $17,323, offset by decreases in$0.3 million, professional fees of $216,046, occupancy costs of $43,913,$0.1 million, taxes, licenses and& permits of $15,920$0.1 million, insurance of $0.1 million, and bank service charges and merchant account feesoccupancy of $12,897.

$42,000, offset by an impairment of intangible assets of $0.4 million.


Net other expense of $6,451$0.1 million for the threenine months endedSeptember 30, 2017 includes2020 was primarily due to an interest incomeexpense of $4,463, other income of $9,665,$0.1 million, and a loss on repurchaseinvestment of Series A warrants$14,000. Net other expense of $20,160,$0.1 million for the nine months endedSeptember 30, 2019 includes a loss on investment of 58,000, and interest expense of $419. Net other income of $1,356,606 for the three months ended September 30, 2016 includes a $4,812,510 change in the fair value of the derivative liabilities, $3,437,221 gain on repurchase of Series A warrants, $21,845 of interest income, and $3,162 of interest expense.

Net income from discontinued operations increased $213,422 to $204,507 for the three months ended September 30, 2017 as compared to net loss of $8,915 for the same period in 2016. See Note 3 – Discontinued Operations for further detail.

The following table sets forth our unaudited consolidated Statements of Operations for the nine months ended September 30, 2017 and 2016 that is used in the following discussions of our results of operations:

  Nine Months Ended
September 30,		  2016 to 2017 
  2017  2016  Change 
SALES         
Vapor sales, net $4,398,942  $5,313,849  $(914,907)
Grocery sales, net  5,349,800   2,085,293   3,264,507 
TOTAL SALES, NET  9,748,742   7,399,142   2,349,600 
             
Cost of sales vapor  1,877,686   2,441,715   (564,029)
Cost of sales grocery  3,118,563   1,251,872   1,866,691 
GROSS PROFIT  4,752,493   3,705,555   1,046,938 
             
OPERATING EXPENSES            
Advertising  74,902   58,110   16,792 
Selling, general and administrative  12,208,030   7,064,511   5,143,519 
Impairment of goodwill and intangible assets  -   1,977,829   (1,977,829)
Retail store and kiosk closing costs  -   342,503   (342,503)
Total operating expenses  12,282,932   9,442,953   2,839,979 
LOSS FROM OPERATIONS  (7,530,439)  (5,737,398)  (1,793,041)
             
OTHER INCOME (EXPENSE)            
Gain (loss) on repurchases of Series A warrants  (94,955)  5,189,484   (5,284,439)
Change in fair value of derivative liabilities  -   (18,489,507)  18,489,507 
Other income  20,126   -   20,126 
Interest income  26,441   38,418   (11,977)
Interest expense  (3,552)  (12,854)  9,302 
Total other expense, net  (51,940)  (13,274,459)  13,222,519 
             
Net loss from continuing operations  (7,582,379)  (19,011,857)  11,429,478 
Net income (loss) from discontinued operations  281,483   (777,119)  1,058,602 
NET LOSS $(7,300,896) $(19,788,976) $12,488,080 

Net vapor sales decreased $914,907 to $4,398,942 for the nine months ended September 30, 2017 as compared to $5,313,849 for the same period in 2016. The decrease in sales is primarily due to the decreased number of thirteen stores open during the nine months ended September 30, 2017 as compared to fourteen to twenty retail stores for the same period in 2016.

Net grocery sales increased $3,264,507 to $5,349,800 for the nine months ended September 30, 2017 as compared to $2,085,293 for the same period in 2016. The increase in sales is due to Ada’s Natural Market being acquired in June 2016, and as such, 2016 has four months of activity compared to nine months activity in 2017.

16
$20,000.

15

Vapor cost of goods sold for the nine months ended September 30, 2017 and 2016 were $1,877,686 and $2,441,715, respectively, a decrease of $564,029. The decrease in cost of goods sold is primarily due to the decreased number of thirteen stores open during the nine months ended September 30, 2017 as compared to fourteen to twenty retail stores for the same period in 2016. Gross profit from retail stores was $2,521,256 and $2,872,134 for the nine months ended September 30, 2017 and 2016, respectively.

Grocery cost of goods sold for the nine months ended September 30, 2017 and 2016 were $3,118,563 and $1,251,872, respectively, an increase of $1,866,691. The increase is due to Ada’s Natural Market being acquired in June 2016, and as such, 2016 has four months of activity compared to nine months activity in 2017. Gross profit from grocery was $2,231,237 and $833,421 for the nine months ended September 30, 2017 and 2016, respectively.

Selling, general and administrative expenses increased $5,143,519 to $12,208,030 for the nine months ended September 30, 2017 compared to $7,064,511 for the same period in 2016. The increase is primarily attributable to increases in stock-based compensation of $5,276,714, payroll and benefits of $623,634, insurance of $43,319, depreciation and amortization of $37,684, and occupancy of $39,473, offset by decreases in professional fees of $911,779. Operating expenses also included charges for impairment of goodwill and intangible assets of $1,977,829 and retail store and kiosk closing costs of $342,503 for the nine months ended September 30, 2016 which did not occur for the same period in 2017.

Net other expense of $51,940 for the nine months ended September 30, 2017 includes a $94,955 loss on repurchase of Series A warrants, other income of $20,126, interest income of $26,441 and interest expense of $3,552. Net other expense of $13,274,459 for the nine months ended September 30, 2016 includes $5,189,484 gain on repurchase of Series A warrants, change in the fair value of the derivative liabilities of $18,489,507, interest income of $38,418, and interest expense of $12,854.

Income from discontinued operations increased $1,058,602, to $281,483 for the nine months ended September 30, 2017 as compared to net loss of $777,119 for the same period in 2016. See Note 3 – Discontinued Operations for further detail.


Liquidity and Capital Resources

  

Nine Months Ended

September 30,

 
  2017  2016 
       
Net cash used in operating activities $(2,504,549) $(6,950,614)
Net cash used in investing activities  (164,168)  (3,200,610)
Net cash used in financing activities  (2,466,241)  (3,328,877)
  $(5,134,958) $(13,480,101)


 Nine Months Ended September 30,
 2020 2019
Net cash used in operating activities$(1,653,279) $(2,854,769)
Net cash provided by (used in) investing activities (90,311)  99,283
Net cash provided by financing activities 3,206,574  (56,783)
 $1,462,984 $(2,812,269)

Our net cash used in operating activities of $2,504,549$1.7 million for the nine months endedSeptember 30, 20172020 resulted from oura net loss of $7,300,896,$2.8 million, and a net cash usage of $672,608$0.2 million from changes in operating assets and liabilities, offset by a non-cash adjustmentsadjustment of $5,468,955. Our net cash used in discontinued operations of $221,424 for the nine months ended September 30, 2017 resulted from our net income from discontinued operations of $281,483 and a net cash usage of $502,907 from changes in assets and liabilities from discontinued operations.$0.9 million. Our net cash used in operating activities of $6,950,614$2.9 million for the nine months endedSeptember 30, 20162019 resulted from oura net loss of $19,788,976$3.2 million and bya net cash providedusage of $941,592$1.0 million from changes in operating assets and liabilities, and by non-cash adjustments of $13,779,954. Our net cash used in discontinued operations of $2,996,504 for the nine months ended September 30, 2016 resulted from our net loss from discontinued operations of $777,119, offset by a net cash usagenon-cash adjustment of $2,219,385 from changes in assets and liabilities from discontinued operations. 

$1.3 million.


The net cash used in investing activities of $164,168$0.1 million for the nine months endedSeptember 30, 2017 resulted2020 resulted from the issuance and collection of a note receivable, and purchases of a patent and property and equipment.equipment. The net cash used inprovided by investing activities of $3,200,610$99,000 for the nine months endedSeptember 30, 2016 is primarily due to purchases of property and equipment and2019 resulted from payments received on the Grocery Acquisition.

VPR Brands L.P. Note.


The net cash used inprovided by financing activities of $2,466,241$3.2 million for the nine months endedSeptember 30, 20172020 is due to repurchasesproceeds received from the Term Loan of Series A warrants totaling $2,427,267, payment$2.5 million and loan of $53,054payments of capital lease obligation and payment of $897 in$(0.2) million on the loan payments, offset by proceeds from a loan payable of $13,977 and exercise of stock options of $1,000.payable. The net cash used inprovided by financing activities of $3,328,877$0.1 million for the nine months endedSeptember 30, 20162019 is due to repurchases of Series A warrants totaling $3,278,827 and payment of capital lease obligation of $50,050.

payments on the loan payable.


At September 30, 20172020 and December 31, 2016,2019, 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'sCompany’s cash position as of September 30, 20172020 and December 31, 2016.

  September 30,
2017		  December 31, 2016 
       
Cash $8,231,314  $13,366,272 
Total assets $12,175,070  $17,234,751 
Percentage of total assets  67.61%  77.55%

17
2019.


 
September 30, 2020
 
December 31, 2019
Cash$602,318 $1,525,415
Total assets$14,362,822 $14,006,669
Percentage of total assets 4.19%  10.89%


The Company reported a net loss of $7,300,896$2.8 million for the nine months ended September 30, 2017.2020. The Company also had negative working capital of $1,991,339.$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. As of October 22, 2017, the Company had approximately $7.9 million of cash. The decrease in cash from September 30, 2017 is primarily attributable to operating expenses.


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.

16

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 20162019 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,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 Stockcommon stock price, the timing of future warrant exercises and stock sales, having the authorized capital to issue stock to exercising Series A warrantWarrant 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.

18


17

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 is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive, financialPrincipal Executive Officer and accounting officer, we conductedPrincipal Financial Officer, did not carry out an evaluation on internal controls as ofSeptember 30, 2020 in regard to the effectiveness of our internaldisclosure controls over financial reportingand 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 September 30, 2017. This evaluation was based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsend of the Treadway Commission (“COSO”).

period covered by this report.


In planning and performing its audit of our financial statements for the year ended December 31, 20162019 in accordance with standards of the Public Company Accounting Oversight Board, our prior independent registered public accounting firm (“Prior Auditor”noted material weaknesses in internal control over financial reporting. A list of our material weaknesses are as follows:

●Failure to have properly documented and designed disclosure controls and procedures and testing of the operating effectiveness of our internal control over financial reporting

●Weakness around our purchase orders and inventory write-off procedures

●Segregation of duties due to lack of personnel

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") noted a number of deficiencies230, Restricted cash. The material weakness in internal control over financial reporting that required audit adjustments that were maderesulted in a reclassification to suchthe presentation of the Company's prior period financial statements. Although our Prior Auditor concluded that not allThese reclassifications were done to conform to the presentation of the deficiencies rose tocurrent financial statement and they had no effect on the level of a material weakness, they advised us that the combination of such deficiencies constitutes a material weakness in the Company’s internal control over financial reporting related to the overall maintenance of the books and records in full accordance with U.S. GAAP.

Our Prior Auditor considered the overall deficiency to be related to overall maintenance of our books and records in full accordance with GAAP. This was as a result of insufficient segregation of duties, oversight of work performed and lack of compensating controls in our finance and accounting function due to limited personnel.

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, 20172020 based on the criteria set forth in COSO.

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 first and second quarters of fiscal year 2017,nine months ended September 30, 2020, we have undertaken an action plan to
strengthen internal controls and procedures:


●
We built outcontinue to improve the process around inventory controls and throughout the current year, we are planning to perform a blind-counts for 100% of our overall inventory value with the purpose of validating our inventory records and increasing the staff knowledge around the importance of the new inventory procedures implemented. In addition, we are transitioning the independent third-party counts to a new accounting team by filling our Chief Financial Officer, Controllercompany with the purposes of improving the accuracy of the quarterly and Accounting Manager positions with personnel possessing extensive experience working at large, publicly-traded companies with exposureyearly counts perform for all retail stores. Due to SEC reporting and numerous areas of technical accounting.the Coronavirus pandemic ("COVID-19") that started in early March 2020, the company was not able to conduct any independent third-party counts for the nine months endedSeptember 30, 2020.


●Our SEC reporting was brought in-house as the function was previously accomplished using outside consultants; providing for a more efficient reporting process than that experienced in 2016.

●Our management has increased its focus on the Company’s month-end account reconciliationpurchase order process in order to provide forbetter manage inventory thereby improving cash management and ultimately leading to more reliable and precise financial statements.reporting.


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

19


18

PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

Two

From time to time lawsuits were filed against the Company may be involvedand its subsidiaries in various claimsconnection with alleged claimed battery defects for an electronic cigarette device. Plaintiffs claim these batteries were sold by a store of the Company’s subsidiary and have sued for an undetermined amount of damages (other than a total of $0.4 million of medical costs). The initial complaints were filed between January 2019 and April 2019. We responded to the complaints on April 2019 and May 2019, respectively. 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 actions arisingproceedings.


As of September 30, 2020, the Company has not accrued for a potential loss for these actions. Given the information received to date, the Company intends to vigorously contest these lawsuits as they are in the ordinary course of our business. We do not have anyearly stages and progressed minimally in 2020. With respect to legal proceedings which have a material impact to the financial statementscosts, we record such costs as of September 30, 2017.

incurred.

ITEM 1A. RISK FACTORS.


Not Applicable.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4. MINE SAFETY DISCLOSURES.


Not Applicable.


ITEM 5. OTHER INFORMATION.


Not Applicable.


ITEM 6. EXHIBITS.


See the exhibits listed in the accompanying “Index to Exhibits.”

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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: October 23, 2017By:/s/ Jeffrey Holman
Jeffrey Holman
Chief Executive Officer
Date: October 23, 2017By:/s/ John Ollet
John Ollet
Chief Financial Officer

21

19


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

*


*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.

20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be deemed incorporatedsigned on its behalf by reference into any filing, in accordance with Item 601 of Regulation S-K.

22

the undersigned thereunto duly authorized.

HEALTHIER CHOICES MANAGEMENT CORP.
Date: November 17, 2020By:/s/ Jeffrey Holman
Jeffrey Holman
Chief Executive Officer
Date: November 17, 2020By:/s/ John Ollet
John Ollet
Chief Financial Officer

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