Healthier Choices Management Corp
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
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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.
Sep 30, 2024 · Filed Nov 14, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious 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 OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001493152-24-045775
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 55 previous paragraphs and 49 current paragraphs.
22 unchanged; 17 reworded; 9 added; 16 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 5 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 (9)
Current report
HCWC Spin-Off
Current report
On September 13, 2024, HCMC completed the Spin-off of our Grocery business into an independent publicly traded company HCWC. As a result, the operating results for the HCWC through the date of the Spin-off are reported in Loss from Discontinued Operations in the Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities are reported as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheets.
Current report
Unless otherwise noted, all amounts, percentages and discussion reflect only the results of operations and financial condition from our continuing operations.
Current report
Healthier Choices Management Corp. is a holding company focused on monetizing its intellectual property through royalty and licensing agreements, facilitated by its wholly owned subsidiary, HCMC Intellectual Property Holdings, LLC. HCMC’s IP portfolio includes patents related to innovative products, such as the Q-Cup and Imitine, which the company actively markets. In addition, HCMC is engaged in legal actions against major companies like Philip Morris and R.J. Reynolds for patent infringement.
Current report
Additionally, the Company markets its patented the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which a customer partially fills with either cannabis or CBD concentrate (approximately 50mg) purchased from a third party. The Q-Cup™ is then inserted into the Q-Cup™ Tank or Globe, 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.
Current report
The Company believes its cash on hand and its ability to draw on its $5 million line of credit will enable the Company to meet its obligations and capital requirements for at least the twelve months from the date these financial statements are issued. Accordingly, no adjustment has been made to the financial statements to account for this uncertainty.
Current report
Pending Patent: We have developed, trademarked and are preparing to commercialize additional products. We include product development expenses as part of our operating expenses. In October 2018, we announced the granting of three US patents related to our Q-Cup™ technology. In addition, we have a suite of patent applications pending in the United States. There is no assurance that we will be awarded patents for any of these pending patent applications. There is no assurance that we can monetize the patents.
Current report
Manufacturing: We have no manufacturing capabilities and do not intend to develop any manufacturing capabilities. Third party manufacturers make our products to meet our design specifications. We depend on third party manufacturers for our vaporizer e-liquid and accessories. Our customers associate certain characteristics of our products including the weight, feel, draw, unique flavor, packaging and other attributes of our products to the brands we market, distribute and sell. Any interruption in supply and or consistency of our products may harm our relationships and reputation with customers, and have a material adverse effect on our business, results of operations and financial condition. In order to minimize the risk of supply interruption, we currently utilize several third-party manufacturers to manufacture our products to our specifications.
Current report
The following table sets forth our unaudited consolidated statements of cash flows on continuing basis for the nine months ended September 30, 2024 and 2023.
Removed paragraphs (16)
Previous report
Healthier Choices Management Corp. is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives.
Previous report
Through its wholly owned subsidiaries, Healthy Choice Wellness Corp., Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC, and Healthy Choice Markets 3, LLC, Healthy Choice Markets IV, LLC and Healthy Choice Markets V, LLC respectively, the Company operates:
Previous report
Through its wholly owned subsidiary, Healthy Choice Wellness, LLC, the Company operates a Healthy Choice Wellness Center in Kingston, NY and has a licensing agreement for a Healthy Choice Wellness Center located at the Casbah Spa and Salon in Fort Lauderdale, FL.
Previous report
Through its wholly owned subsidiary, Healthy Choice Wellness II, LLC, the Company entered into a joint venture with an established healthcare provider, and the joint venture is in the process of creating a structure whereby it will engage in telemedicine evaluations of patients for semaglutide therapy. The operation will encompass, generally: medical evaluations of patients; treatment of patients with semaglutide; coordination with providers and patients.
Previous report
Through its wholly owned subsidiary, Healthy U Wholesale Inc., the Company sells vitamins and supplements, as well as health, beauty and personal care products on its websitewww.TheVitaminStore.com.
Previous report
Additionally, the Company markets its patented Q-Unit™ and Q-Cup® technology. Information on these products and the technology is available on the Company’s website atwww.theQcup.com.
Previous 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.
Previous report
Retail: We believe the operating performance of our retail stores will affect our revenue and financial performance. The Company has four natural and organic groceries and dietary supplement stores located in Florida, as well as ten located in New York and New Jersey. The Company has closed retail vape stores, as management has shifted its retail sales focus to the wholesale and online channel. The adverse industry trends and increasing federal and state regulations that, if implemented, may negatively impact future wholesale and online operations in the vapor segment.
Previous report
Increased Competition: Food retail is a large and competitive industry. Our competition varies and includes national, regional, and local conventional supermarkets, national superstores, alternative food retailers, natural foods stores, smaller specialty stores, and farmers’ markets. In addition, we compete with restaurants and other dining options in the food-at-home and food-away-from-home markets. The opening and closing of competitive stores, as well as restaurants and other dining options, in regions where we operate will affect our results. In addition, changing consumer preferences with respect to food choices and to dining out or at home can impact us. We also expect increased product supply and downward pressure on prices to continue and impact our operating results in the future.
Previous report
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 report
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 report
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 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.
Previous 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.
Previous report
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.
Previous 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.
Reworded paragraphs (17)
Previous wording
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, Healthy Choice Wellness Corp., Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC (“Paradise Health and Nutrition”), Healthy Choice Markets 3, LLC (“Mother Earth’s Storehouse”), Healthy Choices Markets 3 Real Estate LLC, Healthy Choice Markets IV, LLC (“Green’s Natural Foods”), Healthy Choice Markets V, LLC (“Ellwood Thompson’s), HCMC Intellectual Property Holdings, LLC, Healthy Choice Wellness, LLC, Healthy Choice Wellness II, LLC, The Vitamin Store, LLC, Healthy U Wholesale, Inc., and The Vape Store, Inc. (“Vape Store”). All intercompany accounts and transactions have been eliminated in consolidation.
Current wording
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, HCMC Intellectual Property Holdings, LLC and The Vape Store, Inc. (“Vape Store”). All intercompany accounts and transactions have been eliminated in consolidation.
Previous 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.
Current wording
The Company currently and historically has reported net losses and cash outflows from operations. As of September 30, 2024, the Company had cash and cash equivalent of approximately $2.5 million and positive working capital of $0.2 million. The Company’s liquidity needs through September 30, 2024 have been satisfied through financing agreement with private lenders.
Previous 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.
Current wording
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 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 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.
Current wording
Net sales and cost of sales were de minimis for the three months ended September 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 and cost of sales for the three months ended September 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Previous wording
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 wording
Total operating expenses of $2.1 million for the three months ended September 30, 2024 remained consistent with the same period in 2023.
Previous 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.
Current wording
Total other income (expense), net of $275,000 for the three months ended September 30, 2024 consists of net interest income of $15,000, and $260,000 reversal of accrued professional fee. Total other income (expense), net of $65,000 for the three months ended September 30, 2023 primarily consists of interest income of $75,000, and other expense of $11,000.
Previous wording
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 wording
The following table sets forth our unaudited consolidated Statements of Operations for the nine months ended September 30, 2024 and 2023 that is used in the following discussions of our results of operations:
Previous wording
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 wording
Net sales and cost of sales were de minimis for the nine months ended September 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 nine months ended September 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Previous 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.
Current wording
Total operating expenses increased $0.9 million to $6.3 million for the nine months ended September 30, 2024 compared to $5.4 million for the same period in 2023. The increase is primarily due to $1.2 million increase in stock compensation expense and $0.1 million increase in payroll and benefit expense, offset by $0.5 million decrease in legal fees.
Previous wording
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 wording
Total other income (expense), net of $374,000 for the nine months ended September 30, 2024 consists of net interest income of $115,000 and other income of $260,000 related with professional fee accrual reversal, offset by $1,000 loss on investment. Total other income, net of $0.3 million for the nine months ended September 30, 2023 includes a loss on investment of $8,000, other expense of $11,000, and an interest income of $358,000.
Previous 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
Current wording
Our net cash provided by operating activities of approximately $1.0 million for the nine months ended September 30, 2024 resulted from a net loss of $5.9 million, offset by a non-cash adjustment of $3.6 million and a net cash change of $3.4 million from changes in operating assets and liabilities. Our net cash used in operating activities of approximately $2.4 million for the nine months ended September 30, 2023 resulted from a net loss of $5.1 million, offset by a non-cash adjustment of $2.4 million and a net cash change of $0.4 million from changes in operating assets and liabilities.
Previous 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.
Current wording
The net cash used in investing activities of $47,000 for the nine months ended September 30, 2024 resulted from purchases of property and equipment. The net cash provided by investing activities of $176,000 for the nine months ended September 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 $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.
Current wording
The net cash used in financing activities of $2.1 million for the nine months ended September 30, 2024 is primarily due to $4.1 million net transfer to HCWC related to Spin-Off and $2.0 million cash proceeds from related party. Net cash used in financing activities of approximately $13.7 million for the nine months ended September 30, 2023 is due to Series E Preferred Stock redemption and exercise, payment for deferred offering cost related with Spin-Off, and net parent investment.
Previous 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.
Current wording
The Company reported a net loss from continuing operation of $5.9 million for the nine months ended September 30, 2024. The Company also had positive working capital of $0.2 million. The Company expects to continue incurring losses for the foreseeable future.
Previous wording
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.
Current wording
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. These estimates include useful lives and impairment of long-lived assets, deferred taxes and related valuation allowances, allocation of corporate general expenses, and the valuation of the assets and liabilities acquired in business combinations. 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.
Previous wording
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 2023 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.
Current wording
There have been no material changes to the Company’s critical accounting policies and estimates except allocation of corporate general expense as compared to the critical accounting policies and estimates described in the 2023 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. Allocation of corporate general expenses to HCWC was a result of recently completed spin-Off of HCWC, which led to a reevaluation of how corporate general expenses were allocated. The Company adopted a proportional cost allocation method to allocate parent expense to the carve-out entity.
Previous wording
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include our future common stock price, the timing of future Series D preferred stock exercises and stock sales, customer acceptance of our products, and proposed federal and state regulation. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Current wording
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include our future common stock price, 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.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
The Company anticipates its current cash and its ability to draw from the $5 million credit line with private lender will be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.