Healthier Choices Management Corp
For the period ended Jun 30, 2024. Filed Aug 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 6, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0001493152-24-018493
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001493152-24-030401
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 46 previous paragraphs and 55 current paragraphs.
33 unchanged; 12 reworded; 8 added; 1 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 4 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (8)
Current report
Management has made plans to reduce certain costs and raise needed capital, however there can be no assurance the Company can successfully implement these plans. The Company contracted a third-party consultant, whose expertise is streamlining operations, to identify areas of improvement and cost savings. The Company will enact the consultant’s recommendation in anticipation of realizing savings and achieving profitability. The Company plans on evaluating non-performing stores and continuing to expand via acquisition which will help achieve profitability. Also, the Company is formulating plans to raise capital from outside investors, as it has done in the past, to fund operating losses and also provide capital for further business acquisitions. On May 16, 2024, the Company secured a financing commitment with a private lender. This commitment allows the Company to draw up to $5 million from its revolving credit facility to be used for expansion and working capital purposes. The loan will be repayable in full on August 31, 2025 and the interest rate on the loan is 12%. On July 18, 2024, the Company entered into a $7.5 million loan and security agreement with a private lender to support its expansion plans and funding of any working capital needs, of which $4.2 million was used for the July 18, 2024 purchase of GreenAcres Market. The face amount of the loan is $7,500,000 with 12% annual interest and has a maturity date of July 17, 2027. On July 24, 2024, the Company finalized the closing of Saugerties building sale with all parties involved and received net proceeds of $695,000.
Current report
Total operating expenses for the three months ended June 30, 2024 remained consistent with the same period in 2023. The increase of $0.8 million from the acquisition of Ellwood Thompson’s offset by $0.8 million savings in professional fees and payroll and benefits expense.
Current report
Net vapor sales was de minimis for the six months ended June 30, 2024 and 2023. The Company closed all its brick-and-mortar retail vape stores, as management had shifted its retail sales focus to the wholesale and online channel. The sales for the six months ended June 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Current report
Net grocery sales increased $4.4 million to $31.5 million for the six months ended June 30, 2024 as compared to $27.1 million for the same period in 2023. The increase in grocery sales of $5.9 million was primarily due to the acquisition of Ellwood Thompson’s, offset by a decrease in same-store sales of $1.5 million. The decrease in same-store sales was primarily attributable to the closing of the non-performing Saugerties store and the outsourced prepared food service in Ada’s Natural Food store which was an underperforming department.
Current report
Vapor cost of goods sold for the six months ended June 30, 2024 and 2023 was de minimis. The Company closed all its brick-and-mortar retail vape stores, as management has shifted its retail sales focus to the wholesale and online channel. The cost of goods sold for the six months ended June 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Current report
Total other (expenses) income, net of $115,000 for the six months ended June 30, 2024 consists of net interest expense of $121,000, offset by $6,000 other income. Total other (expenses) income, net of $603,000 for the six months ended June 30, 2023 consists of interest income of $199,000, other income of $9,000, change in contingent consideration of $403,000, and offset by loss on investment of $8,000.
Current report
On May 16, 2024, the Company secured a financing commitment with a private lender. This commitment allowed the Company to draw up to $5 million from its revolving credit facility to be used for expansion and working capital purposes. The loan will be repayable in full on August 31, 2025 and the interest rate on the loan is 12%. On July 18, 2024, HCWC entered into a $7.5 million loan and security agreement with a private lender to support its expansion plans and funding of any working capital needs, of which $4.2 million was used for the July 18, 2024 purchase of GreenAcres Market. The face amount of the loan is $7,500,000 with 12% annual interest and has a maturity date of July 17, 2027. On July 24, 2024, the Company finalized the closing of Saugerties building sale with all parties involved and received net proceeds of $695,000. The Company anticipates its current cash and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.
Current report
Critical Accounting Estimates
Removed paragraphs (1)
Previous report
Critical Accounting Policies and Estimates
Reworded paragraphs (12)
Previous wording
The Company currently and historically has reported net losses and cash outflows from operations. As of March 31, 2024, the Company had cash and cash equivalent of approximately $3.9 million and negative working capital of $1.5 million. Management has made plans to reduce certain costs and raise needed capital, however there can be no assurance the Company can successfully implement these plans. The Company anticipates its current cash and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.
Current wording
The Company currently and historically has reported net losses and cash outflows from operations. As of June 30, 2024, the Company had cash and cash equivalent of approximately $3.4 million and negative working capital of $2.6 million. These conditions give rise to substantial doubt about the Company’s ability to continue as a going concern. The Company anticipates its current cash and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.
Previous wording
The Company contracted a third-party consultant, whose expertise is streamlining operations, to identify areas of improvement and cost savings. The Company will enact the consultant’s recommendation in anticipation of realizing savings and achieving profitability. The Company plans on evaluating non-performing stores and continuing to expand via acquisition which will help achieve profitability. Also, the Company is formulating plans to raise capital from outside investors, as it has done in the past, to fund operating losses and also provide capital for further business acquisitions. The result of the capital raise is to improve the Company’s operating and financial performance. The success of these plans is dependent upon various factors, foremost being the ability to reduce outside consulting expenses and the ability to secure additional capital from outside investors. There can be no assurance that such plans will be successful.
Current wording
The result of the capital raise is to improve the Company’s operating and financial performance. The success of these plans is dependent upon various factors, foremost being the ability to reduce outside consulting expenses and the ability to secure additional capital from outside investors. There can be no assurance that such plans will be successful.
Previous wording
Net vapor sales remained approximately unchanged for the three months ended March 31, 2024 as compared to the same period in 2023. The Company closed all its brick-and-mortar retail vape stores, as management had shifted its retail sales focus to the wholesale and online channel. The sales for the three months ended March 31, 2024 and 2023 continued to be significantly impacted by technical issues associated with the processing of credit card payments on the Q-Cup.com website and the inability to bring new products to market via distribution.
Current wording
Net vapor sales was de minimis for the three months ended June 30, 2024 and 2023. The Company closed all its brick-and-mortar retail vape stores, as management had shifted its retail sales focus to the wholesale and online channel. The sales for the three months ended June 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Previous wording
Net grocery sales increased $2.3 million to $15.9 million for the three months ended March 31, 2024 as compared to $13.6 million for the same period in 2023. The increase in grocery sales was primarily due to the acquisition of Ellwood Thompson’s, offset by a slight decrease in same-store sales of $0.6 million; this was in large part attributable to the closing of the non-performing Saugerties store and the outsourced prepared food service in Ada’s Natural Food store which was an underperforming department.
Current wording
Net grocery sales increased $2.0 million to $15.6 million for the three months ended June 30, 2024 as compared to $13.6 million for the same period in 2023. The increase in grocery sales of $2.9 million was primarily due to the acquisition of Ellwood Thompson’s, offset by a decrease in same-store sales of $0.9 million. The decrease in same-store sales was mainly attributable to the closing of the non-performing Saugerties store and the outsourced prepared food service in Ada’s Natural Food store which was an underperforming department.
Previous wording
Vapor cost of goods sold for the three months ended March 31, 2024 and 2023 remained unchanged. The Company closed all its brick-and-mortar retail vape stores, as management has shifted its retail sales focus to the wholesale and online channel. The cost of goods sold for the three months ended March 31, 2024 and 2023 continued to be significantly impacted by technical issues associated with the processing of credit card payments on the Q-Cup.com website and the inability to bring new products to market via distribution.
Current wording
Vapor cost of goods sold for the three months ended June 30, 2024 and 2023 was de minimis. The Company closed all its brick-and-mortar retail vape stores, as management has shifted its retail sales focus to the wholesale and online channel. The cost of goods sold for the three months ended June 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Previous wording
Grocery cost of goods sold for the three months ended March 31, 2024 and 2023 were $9.8 million and $8.6 million, respectively. The increase of $1.8 million is primarily due to the acquisition of Ellwood Thompson’s, offset by a decrease in same-store cost of goods sold of $0.6 million. Gross profit was $6.1 million and $4.9 million for the three months ended March 31, 2024 and 2023, respectively. Gross margin as a percentage of sales increased approximately 2.0% as compared to the same period in prior year because of the closing of the non-performing Saugerties store and the outsourced prepared food service in Ada’s Natural Food store which was an underperforming department.
Current wording
Grocery cost of goods sold for the three months ended June 30, 2024 and 2023 were $9.7 million and $8.5 million, respectively. The increase of $1.9 million is primarily due to the acquisition of Ellwood Thompson’s, offset by a decrease in same-store cost of goods sold of $0.7 million. Gross profit was $5.9 million and $5.1 million for the three months ended June 30, 2024 and 2023, respectively. Gross margin as a percentage of sales increased approximately 0.4% as compared to the same period in prior year because of the closing of the non-performing Saugerties store and the outsourced prepared food service in Ada’s Natural Food store which was an underperforming department.
Previous wording
Total other (expenses) income, net of $56,000 for the three months ended March 31, 2024 consists of net interest expense of $59,000, offset by $3,000 other income. Total other (expenses) income, net of $76,000 for the three months ended March 31, 2023 consists of interest income of $98,000 and other expense of $22,000.
Current wording
Total other (expenses) income, net of $59,000 for the three months ended June 30, 2024 consists of net interest expense of $62,000, offset by $3,000 other income. Total other income (expense), net of $527,000 for the three months ended June 30, 2023 primarily consists of interest income of $101,000, and change in contingent consideration of $425,000.
Previous wording
Total operating expenses increased $2.0 million to $8.9 million for the three months ended March 31, 2024 compared to $6.9 million for the same period in 2023. The increase is primarily due to the acquisition of Ellwood Thompson’s on October 1, 2023 which accounted for $0.9 million of operating expenses as well as the increase in stock-based compensation expense of $1.1 million.
Current wording
Total operating expenses increased $2.0 million to $17.2 million for the six months ended June 30, 2024 compared to $15.2 million for the same period in 2023. The increase is primarily due to the acquisition of Ellwood Thompson’s on October 1, 2023 which accounted for $1.7 million, $1.1 million increase in stock compensation expense, $0.3 million increase in occupancy, tax and other selling and general administration expense, offset by $1.1 million savings in payroll and benefits expense and professional fees.
Previous wording
Our net cash used in operating activities of approximately $2.4 million for the three months ended March 31, 2024 resulted from a net loss of $2.9 million, offset by a non-cash adjustment of $3.0 million and a net cash usage of $2.5 million from changes in operating assets and liabilities. Our net cash used in operating activities of approximately $2.3 million for the three months ended March 31, 2023 resulted from a net loss of $1.9 million, offset by a non-cash adjustment of $1.7 million and a net cash usage of $2.1 million from changes in operating assets and liabilities.
Current wording
Our net cash used in operating activities of approximately $2.5 million for the six months ended June 30, 2024 resulted from a net loss of $5.4 million, offset by a non-cash adjustment of $6.1 million and a net cash usage of $3.2 million from changes in operating assets and liabilities. Our net cash used in operating activities of approximately $3.7 million for the six months ended June 30, 2023 resulted from a net loss of $4.6 million, offset by a non-cash adjustment of $3.5 million and a net cash usage of $2.6 million from changes in operating assets and liabilities
Previous wording
The net cash used in investing activities of $0.1 million for the three months ended March 31, 2024 resulted from purchases of property and equipment. The net cash used in investing activities of $0.1 million for the three months ended March 31, 2023 resulted from collection on a note receivable and purchases of property and equipment.
Current wording
The net cash used in investing activities of $0.2 million for the six months ended June 30, 2024 resulted from purchases of property and equipment. The net cash used in investing activities of $0.1 million for the six months ended June 30, 2023 resulted from collection on a note receivable and purchases of property and equipment.
Previous wording
The net cash provided by financing activities of $1.3 million for the three months ended March 31, 2024 consists of cash proceeds of $1.7 million from Security Purchase Agreement (“SPA”) signed on January 18, 2024, principal payment on loan payable of $0.2 million, and payment for deferred offering cost of $0.2 million. The net cash used in financing activities of $0.7 million for the three months ended March 31, 2023 is due to Series E Preferred Stock redemption and exercise and principal payment on loan payable.
Current wording
The net cash provided by financing activities of $0.9 million for the six months ended June 30, 2024 consists of cash proceeds of $1.7 million from Security Purchase Agreement (“SPA”) signed on January 18, 2024, principal payment on loan payable of $0.3 million, and payment for deferred offering cost of $0.4 million. The net cash used in financing activities of $11.8 million for the six months ended June 30, 2023 is due to Series E Preferred Stock redemption and exercise, payment for deferred offering cost related with spin off, and principal payment on loan payable.
Previous wording
The Company reported a net loss of $2.9 million for the three months ended March 31, 2024. The Company also had negative working capital of $1.5 million. The Company expects to continue incurring losses for the foreseeable future. Management has made plans to reduce certain costs and raise needed capital, however there can be no assurance the Company can successfully implement these plans. The Company anticipates its current cash and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.
Current wording
The Company reported a net loss of $5.4 million for the six months ended June 30, 2024. The Company also had negative working capital of $2.6 million. The Company expects to continue incurring losses for the foreseeable future.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
The following table sets forth our unaudited consolidated Statements of Operations for the six months ended June 30, 2024 and 2023 that is used in the following discussions of our results of operations:
Current report — wording carried from elsewhere
Grocery cost of goods sold for the six months ended June 30, 2024 and 2023 were $19.5 million and $17.1 million, respectively. The increase of $3.7 million is primarily due to the acquisition of Ellwood Thompson’s, offset by a decrease in same-store cost of goods sold of $1.3 million. Gross profit was $12.0 million and $10.0 million for the six months ended June 30, 2024 and 2023, respectively. Gross margin as a percentage of sales increased approximately 1.2% as compared to the same period in prior year because of the closing of the non-performing Saugerties store and the outsourced prepared food service in Ada’s Natural Food store which was an underperforming department.