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, 20162017

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

VAPORHEALTHIER CHOICES MANAGEMENT CORP.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code:888-766-5351305-600-5004

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.

☒xYes  ☐ NoYes¨ 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).

☒xYes   ☐ NoYes¨ No

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨☐ Yesx  ☒ No

As of November 11, 2016,October 22, 2017, there were 8,072,711,29429,348,867,108 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS

VAPORHEALTHIER CHOICES MANAGEMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to unaudited condensed consolidated financial statements

HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See notes to unaudited consolidated financial statements

HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2017

(UNAUDITED)

See notes to unaudited consolidated financial statements

VAPOR

HEALTHIER CHOICES MANAGEMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements

VAPORHEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements

VAPOR CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements

VAPOR CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements

VAPOR CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION

Organization

VaporHealthier Choices Management Corp. (the “Company” or “Vapor”) is a retailer of vaporizers, e-liquidsholding company focused on providing consumers with healthier daily choices with respect to nutrition and electronic cigarettes.other lifestyle alternatives. The Company operates thirteen vape retail stores in the Southeast region of the United States of America. VaporThe Company offers e-liquids vaporizers e-cigarettes and related products through its vape retail stores and online.stores. 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 vapor business qualifies as a discontinued operationsoperation and, accordingly, the Company has excluded results for the wholesale business operations from the Company’s continuing operations in the unaudited condensed consolidated Statements of Operations for all periods presented.

On June 1, 2016, the Company acquired the business assets that comprised the business of Ada’s Whole Food 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, offering fresh, natural and organic products and specializing in facilitating a healthy, well balanced lifestyle. In addition to a comprehensive selection of vitamins and health & beauty products, the grocery store provides a fresh café and an organic juice bar.

In September 2017, Hurricane Irma struck Florida and caused major power outages to several of the Company’s operating facilities. Due to the loss of electricity, which lasted approximately one week, the Company suffered lost sales and inventory spoilage. The Company intends to submit insurance claims to recover the cost of lost sales and inventory spoilage, however, such claims have not, and may not, be accepted by our insurance carrier. 

Going Concern and Liquidity

The accompanying condensedunaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the 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.

In July 2015, theThe Company closedincurred a registered public offering of 3,761,657 Units (the “Units”). Collectively, the Units consisted of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) convertible into shares of common stock and Series A Warrants exercisable into 54 shares of common stock (the “Series A Warrants”). The Units separated into the Series A Preferred Stock and Series A Warrants as of January 25, 2016. (See Note 11- Stockholders’ Deficit – Series A Unit Public Offering.)

Holders of Series A Warrants may exercise such warrants by paying the exercise price in cash or, in lieu of payment of the exercise price in cash, by electing to receive a cash paymentloss from us (subject to certain conditions not being met by the Company) equal to the Black Scholes Value (as defined in the Series A Warrant) of the number of shares of the Company’s common stock (the “Common Stock”) the holder elects to exercise, which we refer to as the Black Scholes Payment; provided that we have discretion as to whether to deliver the Black Scholes Payment or, subject to meeting certain conditions, to deliver shares of Common Stock. The number of shares of Common Stock that the Company is obligated to issue in connection with the exercise of the Series A Warrants is based on the closing bid price of the Common Stock two trading days prior to the date of exercise.

On May 2, 2016, the OTCQB staff notified the Company that, based upon its non-compliance with the minimum $0.01 bid price requirement for the prior 30 consecutive business days, the Company – in accordance with the OTCQB Standards – had been provided a grace period through October 31, 2016, to regain compliance with the minimum bid price requirement. If the Company’s common stock bid price did not close at or above $0.01 for a period of ten consecutive trading days prior to October 31, 2016, the Company would move to the OTC Pink marketplace.

On October 31, 2016, the Company received notice from OTC Markets Group that the Company's common stock would be moved from the OTCQB to the OTC Pink marketplace on November 1, 2016, as a result of the Company's failure to cure its bid price deficiency. On November 1, 2016, the date of thedelisting from OTCQB, the Company no longer meets the “Equity Conditions” required to allow the Company to elect to issue common stock to fulfill a cashless exercise pursuant to Section 1(d) of its Series A Warrants. Holders of the Series A Warrants may still undertake a cashless exercise of their warrants and agree to permit the Company to issue common stock to fulfill such exercise.

On June 24, 2016, the Company determined that it had insufficient shares of Common Stock authorized to allow for the exercise of the Series A Warrants or stock options, or allow the conversion of the Series A Preferred Stock. On August 4, 2016 an amendment to the Company’s Amended and Restated Certificate of Incorporation was filed to increase the number of shares of the authorized common stock from 5,000,000,000 to 750,000,000,000. If all of the warrants were exercised simultaneously at stock prices lower than $0.0001, the Company would not have sufficient authorized common stock to satisfy all the warrant exercises and it may be required to use cash

to pay Series A warrant holders. Since it is not possible to predict the future stock price or when the warrant holders will exercise warrants and sell the underlying common shares, management cannot predict if the Company will have sufficient cash resources to satisfy its obligation to the current warrant holders. The amounts payable to the holders of the Series A Warrants if all such warrants were fully exercised as of November 11, 2016 on a cashless basis would be approximately $64 million, using a Black Scholes Valueoperations of approximately $1,516,896 per Series A Warrant.

The Company reported a net loss of approximately $19.7$7.5 million for the nine months ended September 30, 2016. The Company also had negative working capital of approximately $33.4 million and a total stockholders’ deficit of approximately $28 million as2017. As of September 30, 2016. The Company expects2017, cash and cash equivalents totaled approximately $8.2 million. While we anticipate that our current cash, cash equivalents, and cash to continue incurringbe generated from operations will be sufficient to meet our projected operating lossesplans for the foreseeable future through a year and a day from the issuance of these unaudited consolidated financial statements, should we require additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may neednot be able to satisfy exercisesobtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, the Company will further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations. The inability to raise additional financing may have a material adverse effect on the future performance of Series A Warrants on a cashless basis. Accordingly, the material uncertainty related to the exercise of Series A Warrants and the sufficiency of cash reserves to satisfy obligations related to such exercises raises substantial doubt about the Company’s ability to continue as a going concern.Company. 

Notice of Late FilingSourcing and Vendors

In connection with the sale of the Company’s wholesale vapor business and acquisition of Ada’s Whole Food Market LLC (“Ada’s”). duringWe source from multiple suppliers. These suppliers range from small independent businesses to multinational conglomerates. For the nine months ended September 30, 2016, the Company was required to file a Form 8-K with Ada’s audited financial statements, unaudited interim financial statements, and pro forma financial statements within 4 days and 75 days2017, we purchased approximately 75% of the closinggoods we sell from our top 20 suppliers and approximately 40% of the respective disposition and acquisition transactions. The Securities and Exchange Commission (“SEC”) notified the Company that it could not review its future registration statements effective until such time as the Company furnished two years of audited financial statements of Ada’s Whole Food Market LLC as the acquisition was deemed significant.our total purchases were from one vendor.

Basis of Presentation and Principles of Consolidation

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

TheThe unaudited condensed consolidated financial statements include the accounts of Vaporthe 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”), Vaporin, Inc. (“Vaporin”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising LLC.,LLC, Vaporin LLC.,LLC, and Vaporin Florida, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

On February 1, 2016, the Company filed an amendment to its Certificate of Incorporation to increase its authorized Common Stock to 5,000,000,000, and change its par value to $0.0001 per share. On March 4, 2016, the Company filed an amendment to its Certificate of Incorporation to effectuate a one-for-seventy reverse stock split to its Common Stock. On June 1, 2016, the Company filed an amendment to its Certificate of Incorporation to effectuate a one-for-twenty thousand reverse stock split to its Common Stock. On August 4, 2016, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to increase the number of shares of the authorized common stock from 5,000,000,000 to 750,000,000,000. All warrant, convertible preferred stock, option, common stock shares and per share information included in these unaudited condensed consolidated financial statements gives retroactive effect to the aforementioned reverse splits of the Company’s common stock. (See Note 11- Stockholders’ Deficit for additional details regarding the Company’s authorized capital.)

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2016.2017. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rulesinstructions to Form 10-Q and regulationsArticle 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements for the three months and nine months ended September 30, 2016 and 2015 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, 20152016 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on April 8, 2016.March 27, 2017. 

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications

Certain prior period amounts in the unaudited condensed consolidated financial statements related to stock splits and the sale of discontinued operations have been reclassified to conform to the current period’s presentation. No changes to the Company’s 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.

Use of Estimates in the Preparation of the Financial Statements

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

Revenue RecognitionShipping and Handling

Shipping charges billed to customers are included in net sales and the related shipping and handling costs are included 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 recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable,not experienced any losses on its cash and collectability is reasonably assured.cash equivalents. 

Vapor retailAt 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 revenuesin excess of 10% of total sales.

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 the pointcost, or when acquired as part of sale when both titlea business acquisition, at estimated fair value. Certain identifiable intangible assets are amortized over 3 and risk of loss is transferred15 years. Similar to tangible personal property and equipment, the customer. The Company periodically provides incentive offers to its customers to encourage vapor product purchases. Such offers include discounts and rebates. Discounts offered to customers are reflected as a reduction to the sales price. Vapor wholesale product sales revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are shipped, title passes to customers and collection is reasonably assured. The Company sold its wholesale business in July 2016, and the vapor wholesale product sales are classified as discontinued operations for all financial reporting periods presented. Return allowances, which reduce product revenue, are estimated using historical experience. Vapor revenue from product sales is recorded net of sales and consumption taxes.

Grocery merchandise sales are recognized at the point of sale to the customer. Sales tax is excluded from revenue. Discounts provided to customers through in-store and manufacturers coupons and loyalty programs are recognized as a reduction of sales as the products are sold.

Impairment of Long-Lived Assets

The Company reviews long-livedevaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assetamount may not be recoverable. In connection with this review, the Company also reevaluates the depreciable lives for these assets.Indefinite-lived intangible assets, such as goodwill are not amortized. The Company assesses recoverability by determining whether the net book value of the related asset will be recovered through the projected undiscounted future cash flows of the asset. If the Company determines that the carrying valueamounts of the asset may not be recoverable, it measures anygoodwill for recoverability on at least an annual basis or when events or changes in circumstances indicate evidence of potential impairment based on the projected future discounted cash flows as compared to the asset’s carrying value.

Fair Value Measurements

The Company applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include derivative liabilities. The carrying value of these instruments approximates fair value, as they bear terms and conditions comparable to market value, for obligations with similar terms and maturities.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that are unobservable.

Stock-Based Compensation

The Company accounts for stock-based compensation for employees and directors under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC 718”). These standards defineexists, using a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the valuetest. Application of the award andgoodwill impairment test requires significant judgments including estimation of future cash flows, which is recognized over the vesting period. The valuedependent on internal forecasts, estimation of the stock-based award is determined using an appropriate valuation model, whereby compensation cost islong-term rate of growth for the fair value of the award as determined by the valuation model at the grant date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Stock-based compensation for non-employees is measured at the grant date, is re-measured at subsequent vesting dates and reporting dates, and is amortized over the service period.

Derivative Instruments

The Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative features in accordance with ASC Topic No. 815, “Derivative Instruments and Hedging Activities” (“ASC 815”), as well as related interpretations of this topic. In accordance with this topic, derivative instruments and hybrid instruments are recognized as either assets or liabilities on the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument.

The Company estimates fair values of derivative instruments and hybrid instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective of measuring fair values. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument, the market risks that it embodiesbusinesses, and the expected means of settlement. For complex instruments, the Company utilizes custom Monte Carlo simulation models. For less complex instruments, such as free-standing warrants, the Company generally uses the Binomial Lattice model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, changeuseful life over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as the Binomial Lattice model or the Black-Scholes-Merton valuation model) are highly volatile and sensitive to changes in the trading market price of the Common Stock. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s net income (loss) going forwardwhich cash flows will reflect the volatilityoccur. Changes in these estimates and assumption changes. Under ASC 815, increases inassumptions could materially affect the trading pricedetermination of the Common Stock and increases in fair value during a given financialand/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 our financial statements when applied retrospectively. Our 2017 annual impairment test resulted in no impairment being recorded for the application of non-cash derivative losses. Conversely, decreases in the trading price of the Common Stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative gains.nine months ended September 30, 2017.

Sequencing PolicyAdopted Accounting Pronouncements

Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company's inability to demonstrate it has sufficient authorized shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. 

Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Shares that are subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which include preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, preferred shares are classified as stockholders' equity.

Treasury Stock

When the Company acquires its own common stock (“treasury stock”), the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity. No gain is recognized on the purchase, sale, or cancellation of the treasury stock. When a loss results from the purchase of treasury stock at a premium, the related costs are expensed in the period incurred. The difference between the carrying amount and the consideration on sale is recognized as capital surplus.

Discontinued Operations

On July 31, 2016, the Company sold its wholesale inventory and related operations. 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 condensed consolidating Statements of Operations for all periods presented.

Recently Issued Accounting Pronouncements

In August 2016,July 2015, the Financial Accounting Standards Board (“FASB”)(FASB) issued Accounting StandardsStandard Update (“ASU”) 2016-15 (Topic 230), “Statement(ASU) No. 2015-11, “Simplifying the Measurement of Cash Flows ClassificationInventory” (“ASU 2015-11”). ASU 2015-11 requires an entity to measure inventory at the lower of Certain Cash Receiptscost and Cash Payments”. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classifiednet realizable value. Net realizable value is the estimated selling prices in the statementordinary course of cash flows. The new standardbusiness, 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 fiscal yearsannual reporting periods beginning after December 15, 2017.2016. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company wouldamendments should be required to apply the amendmentsapplied prospectively with earlier application permitted as of the earliest date practicable.beginning of an interim or annual reporting period. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated cash flows and related disclosures.

In April 2016, the FASB issued ASU 2016-10 (Topic 606) “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (“ASU2-16-10”). ASU 2016-10 clarifies the principle for determining whether a good or service is “separately identifiable” from other promises in the contract and, therefore, should be accounted for as a separate performance obligation. In that regard, ASU 2016-10 requires that an entity determine whether its promise is to transfer individual goods or services to the customer, or a combined item (or items) to which the individual goods and services are inputs. In addition, ASU 2016-10 categorizes intellectual property, or IP, into two categories: “functional” and “symbolic.” Functional IP has significant standalone functionality. All other IP is considered symbolic IP. Revenue from licenses of functional IP is generally recognized at a point in time, while revenue from licenses of symbolic IP is recognized over time. ASU 2016-10 has the same effective date and transition requirements as ASU 2014-09, as amended by ASU 2015-14. The Company is currently evaluating the effect that adoption of ASU 2016-10 will2015-11 did not have a significant impact on itsthe Company’s consolidated financial statements or disclosures.statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluatingadoption of ASU 2016-09 and itsdid not have a significant impact on itsthe Company’s consolidated financial statements or disclosures.statements.

In March 2016,January 2017, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers2017-01, “Business Combinations (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)805) Clarifying the Definition of a Business” (“ASU 2017-01”). This ASU amends the principal versus agent guidanceThe amendments in ASU No. 2014-09, Revenue from Contracts2017-01 are to clarify the definition of a business with Customers (Topic 606), which was issued in May 2014 (“ASU 2014-09”).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 effective datedefinition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and transition requirements for the amendment to ASU 2014-09 are the same as those of ASU 2014-09, which was deferred for one year by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. That is, theconsolidation. The guidance under these standards is to be applied using a full retrospective method or a modified retrospective method, as outlined in the guidance, and is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2017. Early adoption is permitted only for annual periods, and2017, 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 to that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2016.2019, 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.

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 describe 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 provisionsimpact that the adoption of each of these standards and assessing their impactthis new standard will have on the Company’s condensedits consolidated financial statements and disclosures.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.

Note 3. SALE OF WHOLESALE BUSINESS AND DISCONTINUED OPERATIONSIn 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.

OnIn July 29, 2016,2017, the Company, entered into an Asset Purchase Agreement (the “Wholesale Business Purchase Agreement”) with VPR Brands, L.P. (the “Purchaser”)FASB issued a two-part ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and the Purchaser’s Chief Executive Officer, Kevin Frija (the former Chief Executive OfficerII “Replacement of the Company) pursuant to whichIndefinite 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 vapor inventory and the related business operations (collectively, “Wholesale Business Assets”), which previously operated at 3001 Griffin Road, Dania Beach, Florida 33312 and to purchase 1,405,910,203 shares of the Company’s Common Stock held by Mr. Frija. The sale transaction was approved by the Company’s Board of Director’s on July 26, 2016 and completed on July 31, 2016. The consideration for the Wholesale Business Assets is (i) the transfer to the Company by Mr. Frija of 1,405,910,203 shares of the Company’s common stock that he had acquired on the open market; (ii) 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 on July 29, 2017; (iii) A secured, 36-month promissory note in the principal amount of $500,000 bearing an interest rate of prime plus 2%, resetting annually on July 29^th,which payments thereunder are $14,000 per month, with such payments deferred and commencing on January 26, 2017, with subsequent installments payable on the same day of each

month thereafter and in the 37^thmonth, a balloon payment for all remaining accrued interest and principal; and (iv) the assumption by the Purchaser of certain liabilities related to the Company’s wholesale operations, including but not limited to the month-to-month lease for the premises. Pursuant to the Wholesale Business Purchase Agreement, the Company shall continue to collect the accounts receivable from its wholesale operations as of July 29, 2016. The Company agreed to use its commercially reasonable efforts, consistent with standard industry practice, to collect such accounts receivable, and any and all amounts so collected (i) up to $150,000 (net of any refunds) in the aggregate shall be credited against payment of the Acquisition Note; and (ii) in excess of $150,000 (up to $95,800) will be transferred to the Purchaser’s Chief Executive Officer. The Company incurred costs to buy back it shares of its Common Stock in conjunction with the sale of its wholesale vapor business. The costs includes approximately $43,000 of discounts on the notes receivable to related party, that were issued at below market rates, and $35,000 of professional fees. These costs were recorded as incurred as selling general and administrative expense, a component of the loss from discontinued operations.

. 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 condensed 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.

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

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Due from related party:

Subsequent to the transfer of the wholesale business, the Company sold and purchased inventory to/from the Purchaser and incurred costs on behalf of the Purchaser during a transition period. The net amount due from the Purchaser was $75,130 at September 30, 2016.

Note 4. ACQUISITION OF ADA’S NATURALWHOLE FOOD MARKET

On JuneApril 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 related to 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. TheAt the closing of these transactions, the Company also entered into an employment agreement with the store manager.

The purchase consideration paid to the Seller was allocated to the preliminary fair value of the net tangible assets acquired, with the remainder recorded as goodwill on a preliminary basis. Goodwill recognized from the transaction mainly represented the expected operational synergies upon acquisition of the combined entity and intangibles not qualifying for separate recognition. Goodwill is not expected to be deductible for income tax purposes in the tax jurisdiction of the acquired business. The preliminary purchase price allocation was based, in part, on management’s knowledge of Ada’s Natural Market business and the results of a third party appraisal commissioned by management for equipment.

The following presents the unaudited pro-forma combined results of operations of the Company with Ada’s Whole Food Market and Vaporin, which was acquired on March 4, 2015, as if both Acquisitions occurred on January 1, 2015.

The unaudited pro-forma results of operations are presented for information purposes only and are based on estimated financial operations. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2015 or to project potential operating results as of any future date or for any future periods.

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(see Note 4) and added a reportable segment. On July 31, 2016, the Company sold its wholesale vapor inventory and related business operations. The Company has excluded the results for the wholesale vapor 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 Net Salestotal net sales and Segment Gross Profitsegment operating loss for each reporting segment:

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 $20,388$16,991 and $53,305 for Vapor and Grocery, respectively.