UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31 2020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: _____________ to _____________
HEALTHIER CHOICES MANAGEMENT CORP.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36469 | 84-1070932 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
Address of Principal Executive Office: 3800 North 28th28th WayHollywood FL , Florida33020
Registrant’s telephone number, including area code: (305)600-5004
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.0001 per share | HCMC | OTC Pink Marketplace |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒Yes☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management assessment of the effectiveness of its internal controls over financial reporting under Section 4049b)404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes No☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $8.846.3 million based on the June 30, 20202023 closing price of $0.00$0.0001 per share.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 309,496,867,856 shares outstanding as of March 5, 2021.
INDEX
Healthier Choices Management Corp. (the “Company”) is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives.
Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company currently operates nine retail vape stores inmanages its intellectual property portfolio.
Through its wholly owned subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC, Healthy Choice Markets 3, LLC, Healthy Choice Markets 3 Real Estate, LLC, Healthy Choice Markets IV, LLC, and Healthy Choice Markets V, LLC respectively, the Southeast region of the United States, through which it offers e-liquids, vaporizers and related products. The Company also operates Ada’s Natural Market, a natural and organic grocery store, throughoperates:
| ● | Ada’s Natural Market, a natural and organic grocery store offering fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products, and natural household items (www.Adasmarket.com) | |
| ● | Paradise Health & Nutrition’s three stores that likewise offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items, (www.ParadiseHealthDirect.com) | |
| ● | Mother Earth’s Storehouse, a two-store organic and health food and vitamin chain in New York’s Hudson Valley, which has been in existence for over 40 years (www.MotherEarthStorehouse.com). | |
| ● | Greens Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products (www.Greensnaturalfoods.com). | |
| ● | Ellwood Thompson’s, an organic and natural health food and vitamin store located in Richmond, Virginia. (www.ellwoodthompsons.com). |
Through its wholly owned subsidiary, Healthy Choice Markets, Inc.Wellness, LLC, the Company operates a Healthy Choice Wellness Center in Kingston, NY and Paradise Healthhas a licensing agreement for a Healthy Choice Wellness Center located at the Casbah Spa and Nutrition, stores that offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items throughSalon in Fort Lauderdale, FL.
Through its wholly owned subsidiary, Healthy Choice Markets 2, LLC.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 Company also sells vitaminsoperation will encompass, generally: medical evaluations of patients; treatment of patients with semaglutide; coordination with providers and supplements on the Amazon.com marketplace throughpatients.
Through its wholly owned subsidiary, Healthy U Wholesale, Inc. Thethe Company also operates HCMC Intellectual Property Holdings, LLC, a newsells vitamins and supplements, as well as health, beauty and personal care products on its website www.TheVitaminStore.com.
Additionally, through its wholly owned subsidiary, formed to hold, market and expand on its current intellectual property assets. The Vape Store, Inc., the Company markets its patented Q-Unit™ and Q-Cup® technology. Information on these products and the Q-Cup™ technology under the vape segment; this patented technology is basedavailable 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.
NATURAL AND ORGANIC GROCERIES andAND DIETARY SUPPLEMENTS BUSINESS
Local. Organic. Fresh. Three words that define Healthy Choice Markets! With Ada’s Natural Market, a full-service grocery store and Healthy Choice Markets 2 are specialty retailer of naturalGreenleaf Grill, Ada’s flagship fast casual in-store restaurant, serving Fort Myers, FL, along with the eight Greens Natural Foods Stores in New Jersey and New York, three Paradise Health & Nutrition locations in the greater Melbourne, FL area, two Mother Earth’s Storehouse locations in Hudson Valley, NY, and the Ellwood Thompson store located in Richmond Virginia all serving their respective local communities, our stores provide all-natural and organic groceriesproducts in a friendly and dietary supplements. Wehelpful atmosphere, with aisles of traditional grocery complete with frozen, healthy home, vitamins & supplements, health & beauty, fresh produce, hormone and antibiotic free meats and bulk foods. Ada’s Natural Market, Greens Natural Foods, Paradise Health & Nutrition, Mother Earth’s Storehouse, and Ellwood Thompson’s all offer chef-prepared ready-to-go foods and fresh-baked-daily baked goods. All store locations, with the exception of Saugerties, NY and Malabar, FL, offer a 100% organic juice & smoothie bar.
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Collectively, we focus on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We strive to generate long-term relationships with our customers based on quality and service by:
| ● | selling only |
| ● | offering affordable prices and a shopper-friendly retail environment; and |
| ● | providing dine-in options at our |
Our History and Founding Principles
We are committed to maintaining the following founding principles, which have helped foster our growth:
| ● | Quality. Every product on our shelves must go through a rigorous screening and approval process. Our mission includes providing the highest quality groceries and supplements, Natural Grocers branded products, European and United States Department of Agriculture (USDA) certified organic and fresh produce at the best prices in the industry. |
| ● | Community. The Ada’s, Paradise, Mother Earth’s Storehouse, Green’s Natural Foods and |
| ● | Employees. Our employees make our companies great. We work hard to ensure that our employees are able to live a healthy, balanced lifestyle. We support them with free nutrition education programs, |
Our Market
We operate within the natural products retail industry, which is a subset of the United States grocery industry and the dietary supplement business. This industry includes conventional supermarkets, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. Industry-wide sales of natural and organic foods and dietary supplements have experienced meaningful growth over the past several years, and we believe that growth will continue for the foreseeable future.
We believe the growth in sales of natural and organic foods and dietary supplements continues to be driven by numerous factors, including:
| ● | greater consumer focus on high-quality nutritional products; |
| ● | an increased awareness of the importance of good nutrition to long-term wellness; |
| ● | aging communities that are seeking healthy lifestyle alternatives; |
| ● | heightened consumer awareness about the importance of food quality and a desire to avoid pesticide residues, growth hormones, artificial ingredients and genetically engineered ingredients in foods; |
| ● | growing consumer concerns over the use of harmful chemical additives in body care and household cleaning supplies; |
| ● | well-established natural and organic brands, which generate additional industry awareness and credibility with consumers; and |
| ● | the growth in the number of consumers with special dietary requirements as a result of allergies, chemical sensitivities, auto-immune disorders and other conditions. |
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Our Competitive Strengths
We are well-positioned to capitalize on favorable natural and organic grocery and dietary supplement industry dynamics as a result of the following competitive strengths:
Strict focus on high-quality natural and organic grocery products.
We offer high-quality products and brands, including an extensive selection of widely-recognized natural and organic food, dietary supplements, body care products, pet care products and books. We offer our customers approximately 10,000 Stock Keeping Units (SKUs) of natural and organic products. We believe our broad product offering enables our customers to shop our stores for substantially all of their grocery and dietary supplement purchases. In our grocery departments, we primarily sell USDA certified organic produce and do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils. In addition, we only sell pasture-raised, humanely-raised dairy products. Consistent with this strategy, our product selection does not include items that do not meet our strict quality guidelines. Our store managers enhance our robust product offering by customizing their stores’ selections to address the preferences of local customers.Engaging customer service experience based on education and empowerment.
We strive to offer consistently exceptional customer service in a shopper-friendly environment, which we believe creates a differentiated shopping experience, enhances customer loyalty and generates repeat visits from our clientele. A key aspect of our customer service model is to provide free nutrition education to our customers. We believe this focus provides an engaging retail experience while also empowering our customers to make informed decisions about their health. We offer our science-based nutrition education through our trained employees, our newsletter and sales flyer, community out-reach programs, one-on-one nutrition health coaching, nutrition classes and cooking demonstrations.Our Growth Strategies
We expect to pursue several strategies to continue ourhelp return the overall business to profitable growth, including:
Expand our store base.
We intend to expand our store base through the acquisition of new stores.Increase sales from existing customers.
In order to increase our average ticket and the number of customer transactions, we plan to continue offering an engaging customer experience by providing science-based nutrition education and a differentiated merchandising strategy that delivers affordable, high-quality natural and organic grocery products and dietary supplements. We also plan to continue to utilize targeted marketing efforts to reach our existing customers, which we anticipate will drive customer transactions and convert occasional, single-category customers into core, multi-category customers.Grow our customer base.
We plan to implement several measures aimed at building our brand awareness and growing our customer base, including: (i)Improve operating margins.
We expect to continue to improve our operating margins as we benefit from investments we have made or are making in fixed overhead and information technology. As we add additional stores, we expect to achieve greater economies of scale through sourcing and distribution. To achieve additional operating margin expansion, we intend to further optimize performance, maintain appropriate store labor levels and effectively manage product selection and pricing.| 3 |
Our Products
Product Selection Guidelines.
We have a set of strict quality guidelines covering all products we sell. For example:| ● | we do not approve for sale food known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils or phthalates or parabens, regardless of the proportion of its natural or organic ingredients; |
| ● | we sell USDA certified organic produce; and |
| ● | we sell meats naturally raised without hormones, antibiotics or treatments and that were not fed animal by-products. |
Our product review team analyzes all new products and approves them for sale based on ingredients, price and uniqueness within the current product set. We actively research new products in the marketplace through our product vendors, private label manufacturers, scientific findings, customer requests and general trends in popular media. Our stores are able to fully merchandise all departments by providing an extensive assortment of natural and organic products. We do not believe we need to sell conventional products to fill our selection, increase our margins or attract more customers.
What We Sell.
We operate both a full-service natural and organic grocery stores and dietary supplement stores within our retail locations. The following is a breakdown of our product mix:| ● | Grocery. We offer a broad selection of natural and organic grocery products with an emphasis on minimally processed and single ingredient products that are not known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils. Additionally, we carry a wide variety of products associated with special diets such as gluten free, vegetarian and non-dairy. |
| ● | Produce. We sell USDA-certified organic produce and source from local, organic producers whenever feasible. Our selection varies based on seasonal availability, and we offer a variety of organic produce offerings that are not typically found at conventional food retailers. |
| ● | Bulk Food and Private Label Products. We sell a wide selection of private label repackaged bulk and other products, including nuts, water, pasta, canned seafood, dried fruits, grains, granolas, honey, eggs, herbs, spices and teas. |
| ● | Dry, Frozen and Canned Groceries. We offer a wide variety of natural and organic dry, frozen and canned groceries, including cereals, soups, baby foods, frozen entrees and snack items. We offer a broad selection of natural chocolate bars, and energy, protein and food bars. |
| ● | Meats and Seafood. We offer naturally-raised or organic meat products. The meat products we offer come from animals that have never been treated with antibiotics or hormones or fed animal by-products. Additionally, we only buy from companies we believe employ humane animal-raising practices. Our seafood items are generally frozen at the time of processing and sold from our freezer section, thereby ensuring freshness and reducing food spoilage and safety issues. |
| ● | Dairy Products and Dairy Substitutes. We offer a broad selection of natural and organic dairy products such as milk, eggs, cheeses, yogurts and beverages, as well as non-dairy substitutes made from almonds, coconuts, rice and soy. |
| ● | Prepared Foods. Our stores have a convenient selection of refrigerated prepared fresh food items, including salads, sandwiches, salsa, humus and wraps. The size of this offering varies by location. |
| ● | Bread and Baked Goods. We receive regular deliveries of a wide selection of bakery products for our bakery section, which includes an extensive selection of gluten-free items. |
| ● | Beverages. We offer a wide variety of non-alcoholic and alcoholic beverages containing natural and organic ingredients. |
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| ● | Dietary Supplements. We offer a wide selection of vitamins, supplements and natural remedies. Our staff is well educated and trained on multiple aspects of natural medicine. |
| ● |
| ● | Household and General Merchandise. Our offerings include sustainable, hypo-allergenic and fragrance-free household products, including cleaning supplies, paper products, dish and laundry soap and other common household products, including diapers. |
Quality Assurance.
We endeavor to ensure the quality of the products we sell. We work with reputable suppliers we believe are compliant with established regulatory and industry guidelines. Our purchasing department requires a complete supplier and product profile as part of the approval process. Our dietary supplement suppliers must follow Food and Drug Administration (FDA) current good manufacturing practices supported by quality assurance testing for both the base ingredients and the finished product. We expect our suppliers to comply with industry best practices for food safety.Many of our suppliers are inspected and certified under the USDA National Organic Program, voluntary industry associations, and other third-party auditing programs with regards to additional ingredients, manufacturing and handling standards. We operate all our stores in compliance with the National Organic Program standards, which restricts the use of certain substances for cleaning and pest control and requires rigorous recordkeeping, among other requirements.
Our Pricing Strategy
We believe our pricing strategy allows our customers to shop our stores on a regular basis for their groceries and dietary supplements.
The key elements of our pricing strategy include:
| ● | heavily advertised |
| ● | in-store specials generally lasting for 30 days and not advertised outside the store; |
| ● | managers’ specials, such as clearance, overstock, short-dated or promotional incentives; and |
| ● | specials on seasonally harvested produce. |
As we expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as administrative expenses, as well as increased economies of scale in sourcing products. We strive to keep our product, operating and general and administrative costs low, which allows us to continue to offer attractive pricing for our customers.
Store Management and Staffing.
Our store staffing includes a manager and assistant manager, with department managers in each of the dietary supplement, grocery, dairy and frozen, produce, body care and receiving departments, as well as several non-management employees. Our regional manager is responsible for monthly store profit and loss, including labor, merchandising and inventory costs.To ensure a high level of service, all employees receive training and guidance on customer service skills, product attributes and nutrition education. Employees are carefully trained and evaluated based on a requirement that they present nutrition information in an appropriate and legally compliant educational context while interacting with customers. Additionally, store employees are cross-trained in various functions, including cashier duties, stocking and receiving product.
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Inventory.
We use a robust merchandise management and perpetual inventory system that values goods at the lower of cost and net realizable value using the averageSourcing and Vendors.
We source from approximatelyWe have longstanding relationships with our suppliers, and we require disclosure from them regarding quality, freshness, potency and safety data information. Our bulk food private label products are packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores. Unlike most of our competitors, most of our private label nuts, trail mix and floursflour are refrigerated in our warehouse and stores to maintain freshness.
Our Employees
Commitment to our employees is one of our five founding principles. Employees are eligible for health, long-term disability, vision and dental insurance coverage, as well as Company paid short-term disability and life insurance benefits, after they meet eligibility requirements. Additionally, our employees are offered a 401(k) retirement savings plan with discretionary contribution matching opportunities. This further offers our employees the opportunity to become more familiar with our products, which we believe improves the customer service our employees are able to provide. We believe these and other factors result in higher retention rates and encourage our employees to appreciate our culture, which helps them better promote our brand.
Our Customers
The growth in the natural and organic grocery and dietary supplement industries and growing consumer interest in health and nutrition have led to an increase in our core customer base. We believe the demands for affordable, nutritious food and dietary supplements are shared attributes of our core customers, regardless of their socio-economic status. Additionally, we believe our core customers prefer a retail store environment that offers carefully selected natural and organic products and dietary supplements. Our customers tend to be interested in health and nutrition, and expect our store employees to be highly knowledgeable about these topics and related products.
Competition
The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry. Our competition varies by market and includes conventional supermarkets such as Publix and Winn-Dixie, mass or discount retailers such as Sprout’s Farmers Market, Wal-Mart and Target, natural and gourmet markets such as Whole Foods and The Fresh Market, specialty food retailers such as Trader Joe’s, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. These businesses compete with us for customers on the basis of price, selection, quality, customer service, shopping experience or any combination of these or other factors. They also compete with us for products and locations. In addition, some of our competitors are expanding to offer a greater range of natural and organic foods. We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutritional education, differentiate us in the industry and provide a competitive advantage.
HEALTHY CHOICE WELLNESS CENTERS and COVID-19
Healthier choices extend past just healthy eating. HCMC, through its Healthy Choice Wellness Centers, offers premium and optimized whole person-centered care and services, tailored to promote and maximize one’s general health and well-being. Healthy Choice Wellness Centers’ services are designed to address one or more common concerns, including but not limited to immunity, anxiety, mental fortitude, sports recovery, and more. Through these services, which include IV Nutrient Drip Infusions and Intramuscular (IM) Injection Treatments, Healthy Choice Wellness Centers seek to provide healthy alternatives that treat the COVID-19 pandemic had little impact onmind and body to its core, thus offering optimized healthier living.
Through its wholly owned subsidiary, Healthy Choice Wellness II, LLC, the grocery segment of the business, other than the Green Leaf Grill. Demand for groceries, vitamins and supplements, and household products remained strong. However, due to many local businesses temporarily closing and local dinning restrictions, the Green Leaf Grill located at Adas Natural Market was forced to temporarily close for most of 2020.
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Defining Healthy Choice Wellness
| ● | HEALTHY – an adjective |
| ○ | indicative of, conducive to, or promoting good health |
| ● | CHOICE – a noun |
| ○ | an act of selecting or making a decision when faced with two or more possibilities |
| ● | WELLNESS – a noun |
| ○ | the state of being in good health, especially as an actively pursued goal |
Our Mission
| ● | To assist in one’s achievement of personal well-being, which is an optimal and dynamic state that allows people to achieve their full potential through both the individual pursuit of wellness and the commitment and support of the communities to which they belong. |
| ● | To assist in maximizing overall individual wellness, which is an active process that helps individuals reach their optimal well-being by integrating all the dimensions of wellness into their lives; physical, social, emotional, spiritual, environmental, intellectual, occupational, and financial. |
| ● | To provide the highest standards of professionalism, emphasizing on quality of care, ethical behavior, ensuring client confidentiality, and the treatment of all individuals with respect and dignity. |
| ● | To provide clients an immaculate wellness facility designed for the optimal benefit of the clients to receive their desired treatments in a clean and sterile environment that fosters a tranquil space to maximize one’s overall wellness and well-being. |
| ● | To continue the powerful pursuit of knowledge and education by all of our professionals and practitioners, to better provide consult to our clients for them to best maximize their overall wellness and well-being. |
Our Vision
Life comes with a lot of choices - some easier to commercialize additional brandsmake than others. Healthier Living should be the easiest of those choices, and so Healthy Choice Wellness Centers offers Health & Wellness services that assist in making those choices a lot easier. Healthy Choice Wellness Centers seek to continue the commitment of its parent company, Healthier Choices Management Corp., in providing consumers with healthier alternatives to everyday lifestyle choices.
Healthy Choice Wellness Centers offer premium and optimized whole person-centered care and services, tailored to promote and maximize one’s general health and well-being. All of our services are designed to address one or more common concerns, including but not limited to immunity, anxiety, mental fortitude, sports recovery, and more. Through these services, Healthy Choice Wellness Centers seek to provide healthy alternatives that treat the mind and body to its core, thus offering optimized healthier living.
Our Values
Healthy Choice Wellness Centers are committed to building a culture of well-being. Our goal is to optimize wellness, both for today and all of our tomorrows.
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Healthy Choice Wellness Centers view the communities we serve as being comprised of whole and dynamic individuals. We are sensitive to the communal stresses of life that impact our health, wellness, and overall well-being. We promote and encourage personal responsibility and accountability in one’s pursuit of achieving and maintaining their health and wellness. Our Healthy Choice Wellness team not only participates in the facilitation of services in the process of achieving one’s wellness, but also are present to provide information, care, and knowledge to maintain course and maximize one’s well-being according to their individual health goals, wants, and needs.
Healthy Choice Wellness Center also realizes that the whole is only as strong as its parts when it comes to those communities we serve. Thus, we put forth effort to strengthen the environments in which we intendlive and work as they directly impact our well-being. This effort to support wellness for the individuals (the parts) must include working to create a healthy community at large (the whole) that supports the well-being of its members at large.
Our Growth Strategy
We seek to operate and expand our Healthy Choice Wellness centers by approaching growth via three (3) different pathways:
| 1) | Corporately owned and operated wellness centers |
| 2) | Wellness Centers implementing the services of Healthy Choice Wellness Centers by way of licensing agreements |
| 3) | Expansion by way of franchised locations |
Our Products & Services
Healthy Choice Wellness Centers specialize primarily in IV Nutrient Drip Infusion and Intramuscular (IM) Injection treatments, however we seek to expand these offerings (both in the number of IV and IM options offered, but also by adding additional whole-person centered services for optimizing overall general health).
IV Nutrient Drip Infusion Treatments: Healthy Choice Wellness Center’s IV Nutrient Drip Infusions are used to deliver vitamins and minerals directly into the bloodstream, offering superior absorption over oral supplements. We offer server pre-formulated customized solutions to address a variety of issues including:
| ● | Immune System Strengthening | |
| ● | Anti-Aging | |
| ● | Optimal Athletic Performance & Recovery | |
| ● | Metabolism | |
| ● | Hangover & Headache Relief | |
| ● | Cold & Flu Symptoms | |
| ● | Chronic Fatigue | |
| ● | Brain Fog |
Currently, we offer eleven IV Nutrient Treatment Options: Quench, Get-Up-And-Go, Recovery & Performance, Immunity, Alleviate, Inner Beauty, Myers’ Cocktail, Nad+ (Premium Drip), Reboot, Glutathion, and Brainstorm.
Intramuscular (IM) Injection Treatments: Healthy Choice Wellness Center’s Intramuscular (IM) Injection treatments deliver vitamins and minerals directly into the bloodstream, offering superior absorption over oral supplements. We offer server pre-formulated customized solutions to address a variety of issues including:
| ● | Immune Functioning | |
| ● | General Health | |
| ● | Fight Illness | |
| ● | Boost Metabolism | |
| ● | Improve Mood | |
| ● | Increase Energy | |
| ● | Appetite Suppression | |
| ● | Burning Fat |
Currently we offer four Injection Treatment Options: Vitamin B-12, Vitamin D-3, Glutathione, and our Skinny Shot.
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Our Employees
Each Healthy Choice Wellness Center is led by licensed and accredited medical professionals and practitioners who share a like-minded philosophy with that of the Wellness Centers, as does all our support staff – we do not just practice healthy choices, we live it! We encourage and support all of our professionals and practitioners to continue the powerful pursuit of knowledge and education, to better provide consult to our clients for them to best maximize their overall wellness and well-being.
Our Customers
The client base for our wellness centers is not bound by age groups or genders. Our clients consist of a broad range of individuals all seeking a common universal goal of seeking to improve their overall wellness. These individuals tend to be those who consciously live a healthy lifestyle, and are seeking treatments to maximize and optimize their overall well-being. This includes athletes seeking treatments to help recover quicker from injury and/or rehydrate, middle aged men and women seeking treatments to maximize their cognitive fortitude, those wanting to help alleviate indigestion or stomach pains, and a slew of other individual reasons all ending with the drive for healthier living.
ONLINE SALES
HCMC is your online source for the leading products in the all-natural vitamin and supplement, and health, beauty, and personal care categories of Healthier Living.
Backed by 30+ years of combined experience in the health and nutrition industry, we provide our customers with only the best products on the market — Try our exclusive offering of Ada’s Naturals brand products or any of the top products from the most recognized national natural health brands in the industry.
| ● | VITAMINS & SUPPLEMENTS: |
| ○ | Product categories include, but are not limited to: Vitamins, Minerals & Herbals, Immunity, Multivitamins, Sports Nutrition, Protein Powders, Collagen, Stress & Anxiety, Sleep & Relax, Brain Health, Pain & Inflammation, Probiotics, Energy & Stamina, Joint & Bone Support, Digestion, Fish Oils, Just for Men, Kids/Children/Teens, and more. |
| ○ | Product varieties include, but are not limited to: Apple Cider Vinegar, BCAA, Biotin, Calcium, Chlorophyll, CLA, Collagen Peptides, Creatine, Elderberry, Omega-3’s, Garlin, Glucosamine, Iron, Magnesium, Melatonin, Potassium, Prenatals, Probiotics, Protein Powders (Plant and Whey), Ashwaghanda Turmeric, Ginseng, Vitamin B,C,D,E,K+, Zinc, and more. |
| ○ | Product brands include, but are not limited to: Ada’s Naturals, Enzymedica, Garden of Life, Natural Vitality, New Chapter, Renew Life, Solgar, and more. |
| ● | HEALTH, BEAUTY, AND PERSONAL CARE: |
| ○ | Product categories include, but are not limited to: Oral Care, Hair Care, Body Wash, Skin & Face, Deodorant, Suncare, Soaps, Shaving, Feminine Hygiene, Lip Balms, Ear Candles, Lotions, Hand Sanitizers, Essential Oils, and more. |
| ○ | Product varieties include, but are not limited to: Body Wash, Deodorant, Ear Candles, Shampoos, Conditioners, Toothpaste, Mouthwashes, Shaving, Bar Soaps, Liquid Soaps, Suncare, and more. |
| ● | Product brands include, but are not limited to: Ada’s Naturals, Alba Botanica, Aura Cacia, Derma-E, Desert Essence, Dr. Bronners, Every Man Jack, Heritage Store, Himalaya Botanique, Life-Flo, Lily of the Desert, Natracare, Naturally Fresh, Oral Essentials, South of France, Tea Tree Therapy, Thai Deodorant Stone, Thayers, and more. |
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VAPORIZER BUSINESS
Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, HCMC manages, and intends to new customersexpand, its intellectual property portfolio. Additionally, HCMC markets its patented Q-Unit™ and demographicsQ-Cup® technology through its wholly owned subsidiary The Vape Store, Inc.. Information on these products and the technology is available on the Company’s website at www.theQcup.com.
Our Improvements and Product Development on Intellectual Property
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. This Q-Cup™ technology provides microdosing potentially more efficiency depending on the vaping method and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally. 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 of any of these pending patent applications.
Business Strategy
We believe and are seeing in our current stores that there is a large consumer demand centered on vaporizer products and the “atmosphere” created by the vape stores. We believe that our reputation and our experience in the vaporizer industry, from a development, customer service and production perspective, give us an advantage in attracting customers.
We believe that our experience in the vaporizer industry. Our strategy consists of the following key elements:
Competition
Competition in the vaporizer and e-liquid industry is intense. We compete with other sellers, of vaporizes, most notably Altria Group, Inc., JT International, Imperial Tobacco, and Reynolds American, Inc., which are big tobacco companies that have vaporizer and electronic cigarette business segments.businesses that compete in the segment. The nature of our competitors is varied as the market is highly fragmented and the barriers to entry into the business are low. Our direct competitors sell products that are substantially similar to ours excluding any products which we hold patents. As a general matter, we have access to market and sell the similar vaporizers as our competitors and we sell our products at substantially similar prices as our competitors; accordingly, the key competitive factors for our success is the quality of service we offer our customers, the scope and effectiveness of our marketing efforts, including media advertising campaigns and, increasingly, the ability to identify and develop new sources of customers.
As discussed above, we compete against “big tobacco”, U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like Altria Group, Inc., JT International, Imperial Tobacco, and Reynolds American, Inc. We compete against “big tobacco” who offers not only conventional tobacco cigarettes and electronic cigarettes and vaporizers, but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. “Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands. Furthermore, we believe that “big tobacco” is devoting more attention and resources to developing, acquiring technology patents, and offering electronic cigarettes, vaporizers and e-liquids as these markets grow. Because of their well-established sales and distribution channels, marketing expertise and significant resources, “big tobacco” is better positioned than small competitors like us to capture a larger share of the electronic cigarette market. We also compete against numerous other smaller manufacturers or importers of cigarettes.importers. There can be no assurance that we will be able to compete successfully against any of our competitors, some of whom have far greater resources, capital, experience, market penetration, sales and distribution channels than us. If our major competitors were, for example, to significantly increase the level of price discounts offered to consumers, we could respond by offering price discounts, which could have a materially adverse effect on our business, results of operations and financial condition.
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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.
Patent Litigation
Third party patent lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights have and could force us to do one or more of the following:
| ● | stop selling products or using technology that contains the allegedly infringing intellectual property; |
| ● | incur significant legal expenses; |
| ● | pay substantial damages to the party whose intellectual property rights we may be found to be infringing; |
| ● | redesign those products that contain the allegedly infringing intellectual property; or |
| ● | attempt to obtain a license to the relevant intellectual property from third parties, which may not be available to us on reasonable terms or at all. |
Future third party lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.
We are required to obtain licenses to patents or proprietary rights of others and may be required to obtain more in the future and as the product continues to evolve. We cannot assure you that any future licenses required under any such patents or proprietary rights would be made available on terms acceptable to us or at all. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to design around such patents, or could find that the development, manufacture, or sale of products requiring such licenses could be foreclosed. Litigation may be necessary to defend against claims of infringement asserted against us by others, or assert claims of infringement to enforce patents issued to us or exclusively licensed to us, to protect trade secrets or know-how possessed by us, or to determine the scope and validity of the proprietary rights of others. In addition, we may become involved in oppositions in foreign jurisdictions, reexamination declared by the United States Patent and Trademark Office, or interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation, opposition, reexamination or interference proceedings could result in substantial costs to and diversion of effort by us, and may have a material adverse impact on us. In addition, we cannot assure you that our efforts to maintain or defend our patents will be successful.
Patent Enforcement
On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc. and Philip Morris Products S.A. in the U.S. District Court (“District Court”) for the Northern District of Georgia (the “Complaint”). The lawsuit allegesalleged infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS™.” Philip Morris claims that it is currently approaching 14 million users of its IQOS® product and has reportedly invested over $3 billion in their smokeless tobacco products. On December 3, 2021, the District Court effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. On December 14, 2021, the Company filed an appeal of the District Court’s dismissal of the Company’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A.
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On April 12, 2023, the U.S. Court of Appeals for the Federal Circuit ruled in favor of HCMC on two separate appeals it had filed in its patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. pending in the district court for the Northern District of Georgia.
On September 26, 2023, HCMC filed a patent infringement lawsuit against R.J. Reynolds Vapor Company (“RJR”) in the U.S. District Court for the Middle District of North Carolina in connection with HCMC’s assertions that RJR’s Vuse electronic cigarette infringes one of HCMC’s patents.
Regulations
Since a 2010 U.S. Court of Appeals decision, the Food and Drug Administration (“FDA”) is permitted to regulate electronic cigarettes as “tobacco products” under the Family Smoking Prevention and the Tobacco Control Act. Under this decision, the FDA is not permitted to regulate electronic cigarettes as “drugs” or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed for therapeutic purposes. This is contrary to anti-smoking devices like nicotine patches, which undergo more extensive FDA regulation. Because the Company does not market its electronic cigarettes for therapeutic purposes, the Company’s electronic cigarettes are subject to being classified as “tobacco products” under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and packaging of tobacco products, although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero.
On September 9, 2020 the FDA began enforcing rules that extended its regulatory authority to electronic cigarettes and certain other tobacco products under the Tobacco Control Act. The rules required that electronic cigarette and e-liquid manufacturers (i) register with the FDA and report electronic cigarette products and ingredient listings; (ii) market new electronic cigarette products only after FDA review; (iii) only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the electronic cigarette product will benefit public health as a whole; (iv) not distribute free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 21; (vi) include a health warning; and (vii) not sell electronic cigarettes in vending machines, unless in a facility that never admits youth. It is not known how long finalizing and implementing this regulatory process to may take. Accordingly, the Company has responded by beginning to take the necessary steps to ensure compliance.
In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by the FDA under the Tobacco Control Act. Costs, however, could be substantial and could have a material adverse effect on the Company’s business, results of operations and financial condition. In addition, failure to comply with the Tobacco Control Act and with FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on the Company’s business, financial condition and results of operations and ability to market and sell the Company’s products. At present, it is difficult to predict whether the Tobacco Control Act will impact the Company to a greater degree than competitors in the industry, thus affecting the Company’s competitive position.
State and local governments currently legislate and regulate tobacco products, including what is considered a tobacco product, how tobacco taxes are calculated and collected, to whom and by whom tobacco products can be sold and where tobacco products may or may not be smoked. State and local regulation of the e-cigarette market and the usage of e-cigarettes is beginning to accelerate.
At present, neither the Prevent All Cigarette Trafficking Act (which prohibits the use of the U.S. Postal Service to mail most tobacco products, which would require individuals and businesses that make interstate sales of cigarettes or smokeless tobacco to comply with state tax laws) nor the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed) apply to electronic cigarettes. The application of either or both of these federal laws to vaporizers and electronic cigarettes would have a material adverse effect on the Company’s business, results of operations and financial condition.
On July 1, 2015, the FDA published a document entitled “Advanced notice of proposed rulemaking” or the Advance. Through the Advance, the FDA solicited public comments on whether it should issue rules with respect to nicotine exposure warning and child-resistant packaging for e-liquids containing nicotine. Following public comment, the FDA may issue proposed rules in furtherance of the purposes outlined in the Advance and ultimately pass the rules as proposed or in modified form. We cannot predict whether rules will be passed or if they will have a material adverse effect on our future results of operations and financial conditions.
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The Company expects that the tobacco industry will experience significant regulatory developments over the next few years, driven principally by the World Health Organization’s FCTC. The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:
| ● | the levying of substantial and increasing tax and duty charges; |
| ● | restrictions or bans on advertising, marketing and sponsorship; |
| ● | the display of larger health warnings, graphic health warnings and other labelling requirements; |
| ● | restrictions on packaging design, including the use of colors and generic packaging; |
| ● | restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines; |
| ● | requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents’ levels; |
| ● | requirements regarding testing, disclosure and use of tobacco product ingredients; |
| ● | increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors; |
| ● | elimination of duty free allowances for travelers; and |
| ● | encouraging litigation against tobacco companies. |
If Vaporizers,vaporizers, and electronic cigarettes, or e-liquids, are subject to one or more significant regulatory initiates enacted under the FCTC, the Company’s business, results of operations and financial condition could be materially and adversely affected.
Seasonality
Our business is active throughout the calendar year and does not experience significant fluctuation caused by seasonal changes in consumer purchasing.
Insurance and Risk Management
We use a combination of insurance and self-insurance to cover workers’ compensation, general liability, product liability, director and officers’ liability, employment practices liability, associate healthcare benefits and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements and providers on an ongoing basis.
Information Technology Systems
We have made significant investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting automation, reporting and financial systems.
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Segment Information
We have two reporting segments, natural and organic retail stores (“Grocery”) and vapor products (“Vapor”), through which we conduct all of our business.
The Company has included the results of the Healthy Choice Wellness Centers and Healthy Choice Wellness II, LLC under the grocery segment due to its operations being de minimis.
Going Concern and Liquidity
The accompanying 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 for the next twelve months from the issuance of this Form 10-K 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 consolidated financial statements do not necessarily purport to represent realizable or settlement values.
The Company currently and historically has reported net losses and cash outflows from operations. As of December 31, 2020,2023, cash and cash equivalents totaled approximately $0.9$5.1 million. Subsequent to the year ended December 31, 2020, the Company entered into a $5.0 million Securities Purchase Agreement
Item 1B. Unresolved Staff Comments.
None
Item 1C. Cybersecurity
We believe cybersecurity is critical importance to our success. We are susceptible to a number of significant and persistent cybersecurity threats, including those common to most industries as well as those we face as a retailer, operating in an industry characterized by a high volume of customer transactions and collection of sensitive data. These threats, which are constantly evolving, include data breaches, ransomware, and phishing attacks. We, and our vendors and suppliers, regularly face attempts by malicious actors to breach our security and compromise our information technology systems. A cybersecurity incident impacting us or any vendor or supplier could significantly disrupt our operations and result in damage to our reputation, costly litigation and/or government enforcement action. Accordingly, we are committed to maintaining robust cybersecurity and data protection and continuously evaluate the impact of cybersecurity threats, considering both immediate and potential long-term effects of these threats on our business strategy, operations, and financial condition.
Under the oversight of our Board of Directors, our management has established comprehensive processes for identifying, assessing and managing material risks from cybersecurity threats, and these processes are integrated into our overall enterprise risk management program. Our approach is proactive and adaptive, featuring regular security assessments, third-party audits, team member training, and continuous improvement of our cybersecurity infrastructure. We work to align our practices with industry best practices and regulatory standards. Our processes include detailed response procedures to be followed in the event of a cybersecurity incident, which outline steps to be followed from detection to assessment to notification and recovery, including internal notifications to management, the risk committee and the Board, as appropriate.
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Members of management, including our Chief Operating Officer, provide the Board updates on cybersecurity risk matters on a quarterly basis and more frequently if circumstances dictate. In these updates, members of the Board apprised of cybersecurity incidents that are deemed to have had a moderate or higher impact even if immaterial to us. In addition, management regularly discusses with among themselves the risks related to cybersecurity and critical systems in order to provide input on the appropriate level of risk for our company and reviews management’s strategies for adequately mitigating and managing the identified risks. Management regularly update our full Board with respect to cybersecurity matters.
Our Chief Operating Officer is primarily responsible for managing material risks from cybersecurity threats, and is supported by third party cybersecurity specialists. Management participates in periodic training and education on cybersecurity related topics. We engage specialized cybersecurity consultants and leverage third-party expertise to bolster our cybersecurity defenses. Our enterprise risk management program is designed to identify, prioritize and assess a broad range of risks, including risks from cybersecurity threats, that may affect our ability to execute our corporate strategy and fulfill our business objectives.
The following is a list of measures that were implemented as part of our increased focus on cybersecurity:
| ● | Complete endpoint protection - All endpoints have been covered by an enhanced endpoint protection agent. | |
| ● | Cloud infrastructure - Critical infrastructure started moving to the cloud and protected by enhanced anti-virus and recurring backup policies. | |
| ● | Email services have been put through a rigorous intelligent phishing and spam filter to prevent attacks |
In addition, our third-party vendors and service providers play a role in our cybersecurity. These third parties are integral to our operations but pose cybersecurity challenges due to their access to our data and our reliance for various aspects of our operations, including our supply chain. We conduct due diligence before onboarding new vendors and maintain ongoing evaluations to ensure compliance with our security standards.
As of the date of this report, no cybersecurity incidents have had, either individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.
The Company operates its business from numerous facilities in Florida, GeorgiaVirginia, New York and Tennessee.New Jersey. These leased facilities include our headquarters location, warehouse and retail stores.
Grocery Segment. As of December 31, 2020,2023, our Grocery segment had 415 retail stores in Florida, New York, New Jersey, and Virginia which aggregate approximately 28,000122,000 square feet, all of which14 stores are leased by our grocery segment.
Our headquarters and warehouse isare located in Hollywood, Florida which aggregates approximately 10,000 square feet.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is currently listed on the OTC Pink marketplace under the symbol “HCMC”.
As of March 5, 2021,27, 2024, there were approximately 1,600 1,400 stockholders of record for our common stock. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.
As of March 5, 2021,27, 2024, the last reported sale price of our common stock on the OTC Pink Marketplace was $0.0015$0.0001 per share.
We have nev
On July 27, 2020, the remaining Company Series A Warrants expired and the balance of outstanding warrants not exercised was 335,661 warrants.
You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included elsewhere in this report. “Management’s Discussion and Analysis of Financial Condition” and “Results of Operations” contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Cautionary Note Regarding Forward Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy, plans and objectives of management for future operations, are forward-looking statements.
Forward-looking statements contained in this report include:
| ● | Our liquidity; |
| ● | Opportunities for our business; and |
| ● | Growth of our business. |
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The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the Risk Factors contained herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the Risk Factors below.
Factors Affecting Our Performance
We believe the following factors affect our performance:
Retail
: We believe the operating performance of our retail stores will affect our revenue and financial performance. The Company hasIncreased 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. TheResults of Operations
The following table sets forth our Consolidated Statements of Operations for the years ended December 31, 20202023 and 2019 that2022 which is used in the following discussions of our results of operations:
| For the Year Ended December 31, | 2023 to 2022 | |||||||||||
| 2023 | 2022 | Change $ | ||||||||||
| SALES: | ||||||||||||
| Vapor sales, net | $ | 617 | $ | 257,363 | $ | (256,746 | ) | |||||
| Grocery sales, net | 55,689,793 | 29,009,640 | 26,680,153 | |||||||||
| Total Sales | 55,690,410 | 29,267,003 | 26,423,407 | |||||||||
| Cost of sales vapor | 787 | 112,880 | (112,093 | ) | ||||||||
| Cost of sales grocery | 35,341,569 | 18,929,905 | 16,411,664 | |||||||||
| GROSS PROFIT | 20,348,054 | 10,224,218 | 10,123,836 | |||||||||
| OPERATING EXPENSES | ||||||||||||
| Selling, general and administrative | 32,219,733 | 18,877,302 | 13,342,431 | |||||||||
| Impairment of goodwill | 6,104,000 | - | 6,104,000 | |||||||||
| TOTAL OPERATING EXPENSES | 38,323,733 | 18,877,302 | 19,446,431 | |||||||||
| LOSS FROM OPERATIONS | (17,975,679 | ) | (8,653,084 | ) | (9,322,595 | ) | ||||||
| OTHER INCOME (EXPENSES): | ||||||||||||
| Change in contingent consideration | 774,900 | 333,100 | 441,800 | |||||||||
| Other (expenses) income, net | (1,485,612 | ) | 913,092 | (2,398,704 | ) | |||||||
| Interest income (expense), net | 211,996 | 202,653 | 9,343 | |||||||||
| Loss on investment | (8,485 | ) | (13,372 | ) | 4,887 | |||||||
| Total other income (expense), net | (507,201 | ) | 1,435,473 | (1,942,674 | ) | |||||||
| NET LOSS | $ | (18,482,880 | ) | $ | (7,217,611 | ) | $ | (11,265,269 | ) | |||
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| For the Year Ended December 31, | 2020 to 2019 | |||||||
| 2020 | 2019 | Change $ | ||||||
| SALES: | ||||||||
| Vapor sales, net | $ | 2,458,945 | $ | 4,134,701 | $ | (1,675,756) | ||
| Grocery sales, net | 11,461,800 | 10,979,305 | 482,495 | |||||
| Total Sales | 13,920,745 | 15,114,006 | (1,193,261) | |||||
| Cost of sales vapor | 1,033,805 | 1,690,734 | (656,929) | |||||
| Cost of sales grocery | 7,109,719 | 6,939,028 | 170,691 | |||||
| GROSS PROFIT | 5,777,221 | 6,484,244 | (707,023) | |||||
| EXPENSES: | ||||||||
| Impairment of goodwill and intangible assets | 380,646 | 481,314 | (100,668) | |||||
| Selling, general and administrative | 8,844,947 | 10,417,214 | (1,572,267) | |||||
| Total operating expenses | 9,225,593 | 10,898,528 | (1,672,935) | |||||
| Operating loss | (3,448,372) | (4,414,284) | 965,912 | |||||
| OTHER INCOME (EXPENSES): | ||||||||
| Gain on revaluation of warrants | - | 1,719,816 | (1,719,816) | |||||
| Other income, net | (100) | (2,524) | 2,424 | |||||
| Interest expense, net | (272,651) | (35,527) | (237,124) | |||||
| Gain (loss) on investment | (1,269) | (66,857) | 65,588 | |||||
| Total other income (expense), net | (274,020) | 1,614,908 | (1,888,928) | |||||
| NET INCOME (LOSS) | $ | (3,722,392) | $ | (2,799,376) | $ | (923,016) | ||
Net vapor sales decreased $1.7$0.3 million to $2.5 million$0.6 thousand for the twelve monthsyear ended December 31, 20202023 as compared to $4.1$0.3 million for the same period in 2019.2022. The decrease in sales was primarily due to a major decreased in foot traffic or temporary closureclosing all our retail vape stores throughout 2022, as management shifted its retail sales focus to the wholesale and online channel. The sales for 2023 were significantly impacted by technical issues associated with the processing of some stores a result ofcredit card payments on the Coronavirus (COVID-19) pandemicQ-Cup.com website and a decrease in the number of stores open comparedinability to prior year.bring new products to market via distribution. Net grocery sales increased $0.5$26.6 million to $11.5$55.7 million for the twelve monthsyear ended December 31, 20202023 as compared to $11.0$29.0 million for the same period in 2019.2022. The $27.6 million increase in grocery sales was primarily due to COVID-19 pandemica result of a full year operations for the year ended December 31, 2023 of Mother Earth’s Storehouse acquired in February 2022, Green’s Natural Foods acquired in October 2022 and the Company new strategy to offer its customer the option to delivery or curb side pickup their orders.
Vapor cost of goods sold for the twelve monthsyear ended December 31, 20202023 and 20192022 were $1.0$0.01 million and $1.7$0.1 million, respectively, , a decrease of $0.7$0.1 million. The decrease in cost of goods sold was primarily due to a decreased inclosing all of our retail vape stores throughout 2022, as management shifted its retail sales focus to build the wholesale and product cost.online channel. Grocery store cost of goods sold for the twelve monthsyear ended December 31, 20202023 and 20192022 were $7.1$35.3 million and $6.9$18.9 million, respectively, an increase of $0.2$17.5 million was primarily a result of full year operations in 2023 of Mother Earth’s Storehouse acquired in February 2022, Green’s Natural Foods acquired in October 2022 and the acquisition of Ellwood Thompson’s in October 2023, offset by a decrease in same-store cost of goods sold of $1.1 million.
Total selling, general and administrative expenses increased $13.3 million from $18.9 million for the year ended December 31, 2022 to $32.2 million for the year ended December 31, 2023. The increase of $11.3 million was a result of full year operations for the year ended December 31, 2023 of Mother Earth’s Storehouse acquired in February 2022, Green’s Natural Foods acquired in October 2022 as well as the acquisition of Ellwood Thompson’s in October 2023. The remaining increase was primarily due to increasesan increase in salesstock compensation of $3.4 million, offset by $0.8 million decrease in professional fees, coupled with a decrease in headquarter payroll and costpayroll benefits of goods sold from the COVID-19 pandemic.
The Company had an impairment of $6.1 million for the twelve monthsyear ended December 31, 2020. The decrease was primarily attributable to a decrease in payroll and employee related cost of $0.7 million, stock-based compensation of $0.3 million, insurance of $0.1 million, professional fees of $0.1 million, taxes, licenses & permits of $0.1 million, meals, travel & entertainment of $0.1 million and goodwill and intangible assets impairment of $0.1 million.
Total other (expenses) income, net of The Vitamin Store, LLC
Liquidity and Capital Resources
| For the year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (4,739,136 | ) | $ | (3,866,082 | ) | ||
| Investing activities | (768,555 | ) | (10,726,409 | ) | ||||
| Financing activities | (13,548,115 | ) | 12,786,211 | |||||
| $ | (19,055,806 | ) | $ | (1,806,280 | ) | |||
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| For the year ended December 31, | |||||
| 2020 | 2019 | ||||
| Net cash provided by (used in): | |||||
| Operating activities | $ | (2,288,914) | $ | (3,535,241) | |
| Investing activities | (75,202) | 126,754 | |||
| Financing activities | 1,764,176 | (127,351) | |||
| $ | (599,940) | $ | (3,535,838) | ||
Our net cash used in operating activities of $2.3$4.7 million for the twelve monthsyear ended December 31, 20202023 resulted from our net loss of $3.7$18.5 million and a net cash usage of $1.9 million from changes in operating assets and liabilities, offset by a non-cash adjustments of $15.6 million. Our net cash used in continuing operating activities of $3.8 million for the year ended December 31, 2022 resulted from our net loss of $7.2 million and a net cash usage of $0.2 million from changes in operating assets and liabilities, andoffset by a non-cash adjustments of $1.6$3.5 million. Our net cash used in continuing operating activities of $3.5 million for the twelve months ended December 31, 2019 resulted from our net loss from continuing operations of $2.8 million, offset by a net cash usage of $0.9 million from changes in operating assets and liabilities and a non-cash adjustments of $0.1 million. We did not utilize any cash on discontinued operations for the twelve months ended December 31, 2020 and 2019.
The net cash used in investing activities of $0.1$0.8 million for the twelve monthsyear ended December 31, 20202023 resulted from the issuance andacquisition of Ellwood Thompson’s, the collection of a note receivable, and purchases of a patent and property and equipment. The net cash provided byused in investing activities of $0.1$10.7 million for the twelve monthsyear ended December 31, 20192022 resulted from payments receivedthe collection of a note receivable, the acquisition of new businesses and purchases of a patent and property and equipment.
The net cash used in financing activities of $13.5 million for the year ended December 31, 2023 is due to Series E Preferred Stock redemptions and exercises, payment for deferred offering cost related with the spin off, and principle payment on the VPR Brands L.P. Note.
At December 31, 20202023 and December 31, 2019,2022, we did not have any material financial guarantees or other contractual commitments with trade vendors that are reasonably likely to have an adverse effect on liquidity.
Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. The majority of our cash and cash equivalents are concentrated in threeone large financial institutionsinstitution and are generally in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. The Company has not experienced any losses on its cash and cash equivalents. The following table presents the Company’s cash position as of December 31, 20202023 and December 31, 2019.
| December 31, 2020 | December 31, 2019 | ||||
| Cash | $ | 925,475 | $ | 1,525,415 | |
| Total assets | $ | 11,874,993 | $ | 14,006,669 | |
| Percentage of total assets | 7.8% | 10.9% | |||
December 31, 2023 | December 31, 2022 | |||||||
| Cash | $ | 5,081,086 | $ | 22,911,892 | ||||
| Total assets | $ | 30,969,579 | $ | 55,255,030 | ||||
| Percentage of total assets | 16.41 | % | 41.5 | % | ||||
As of approximately $3.7 million for the year ended December 31, 2020. The2023, the Company also had cash of $5.1 million and negative working capital of $2.6$0.5 million. The Company has incurred recurring net losses and operations have not provided cash flows. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to satisfy business obligations, and to continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements other than operating leases for retail locations, equipment, and vehicles.
Seasonality
We do not consider our business to be seasonal.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. These estimates and assumptions include useful lives and impairment of long-lived assets, goodwill, deferred taxes and related valuation allowances, and the valuation of the assets and liabilities acquired in business combinations. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized:
| ● | Identification of the contract, or contracts, with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when, or as, the Company satisfies a performance obligation. |
Impairment of Long-Lived Assets
We review long-lived assets for impairment including intangible assets with determinable useful lives whenever events or changes in circumstances indicate that the carrying value of the corresponding asset group may not be realizable. The Company estimated future undiscounted cash flows associated with the asset group are compared to the asset group’s carrying amount to determine if an impairment of such asset is necessary. This requires us to make long-term forecasts of the future revenues and costs related to the assets groups subject to review. Forecasts require assumptions about demand for our products and future market conditions. Estimating future cash flows requires significant judgment, and our projections may vary from cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be reflected in operating income in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our long-lived assets and other intangibles and periodically review these estimates to determine whether these lives are appropriate.
| 20 |
Goodwill
Goodwill is the excess of consideration paid for an acquired entity over the fair value of the amounts assigned to assets acquired, including other identifiable intangible assets, and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the company hires third party valuation firm to perform valuation and assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.
Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is met, then the company may apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The company determines fair value through multiple valuation techniques and weights the results accordingly. The company is required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of its reporting units. The company has elected to perform its annual goodwill impairment review on September 30 of each year or more often if deemed necessary.
Business Combinations
The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations.
Deferred Taxes and Valuation Allowance
We account for income taxes pursuant to the asset and liability method of accounting for income taxes pursuant to FASB ASC740, “Income Taxes.” Deferred tax assets and liabilities are recognized for taxable temporary differences and operating loss carry forwards. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Non-GAAP Financial Measures
The following discussion and analysis contains a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (GAAP). Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternative to, net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future financial results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.
Management believes stockholders benefit from referring to the Adjusted EBITDA in planning, forecasting, and analyzing future periods. Management uses this non-GAAP financial measure in evaluating its financial and operational decision making and as a means of evaluating period to period comparison.
EBITDA, as net loss from operations adjusted for non-cash charges foror earnings before interest, taxes, depreciation, and amortization, and stock compensation.is an alternate measure of profitability to net income. Management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of significant non-cash and non-recurring charges that effect comparability between reporting periods. We define Adjusted EBITDA as net loss adjusted for non-cash charges for depreciation and amortization, impairment of goodwill, stock compensation, change in contingent consideration, also adjusted for non-recurring other expense (income), net, loss on investment, and interest income. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items.
We have included a reconciliation of our non-GAAP financial measure to net loss from operations as calculated in accordance with GAAP. We believe that providing the non-GAAP financial measure, together with the reconciliation to GAAP, helps investors make comparisons between the Company and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to specific definitions being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable rules of the Securities and Exchange Commission.
| 2020 | 2019 | ||||
| Reconciliation of Adjusted EBITDA to net loss allocable to common stockholders: | |||||
| Operating loss | $ | (3,448,372) | $ | (4,414,284) | |
Impairment of goodwill and intangible assets | 380,646 | 481,314 | |||
| Depreciation and amortization | 550,098 | 594,940 | |||
| Stock-based compensation expense | 78,029 | 374,241 | |||
| Adjusted EBITDA | $ | (2,439,599) | $ | (2,963,789) | |
| 2023 | 2022 | |||||||
| Reconciliation from net loss to adjusted EBITDA: | ||||||||
| Operating loss | $ | (18,482,880 | ) | $ | (7,217,611 | ) | ||
| Interest expense | 205,449 | 35,730 | ||||||
| Depreciation and amortization | 1,492,261 | 1,061,615 | ||||||
| EBITDA | (16,785,170 | ) | (6,120,266 | ) | ||||
| Stock-based compensation expense | 3,430,250 | 72,222 | ||||||
| Impairment of goodwill | 6,104,000 | - | ||||||
| Change in contingent consideration | (774,900 | ) | (333,100 | ) | ||||
| Loss on investment | 8,485 | 13,372 | ||||||
| Other expense (income), net | 1,485,612 | (913,092 | ) | |||||
| Interest income | (417,445 | ) | (238,383 | ) | ||||
| Adjusted EBITDA | $ | (6,949,168 | ) | $ | (7,519,247 | ) | ||
Not applicable to smaller reporting companies.
None.
We are required to report under Section 404(a) of Sarbanes-Oxley regarding the effectiveness of our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
. Our management, including our Principal Executive Officer and Principal Financial Officer, did not carry out an evaluation on internal controls during the year ended December 31,| 21 |
Inherent Limitations of Internal Controls over Financial Reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ending December 31, 2023 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
.| ● | Failure to have properly documented and designed disclosure controls and procedures and testing of the operating effectiveness of our internal control over financial |
| ● | Failure to perform periodic and year-end inventory observations in a timely manner and adequate controls to sufficiently perform required rollback procedures of inventory counts to the year-end. |
| ● | Weakness around our purchase orders and inventory |
| ● | Segregation of duties due to lack of | ||
| ● | Failure to follow accounts payable policies and procedures for vendor information updates. |
| ● | The Company had ineffective design, implementation and, operation of controls over logical access, program change management, and vendor management controls. The Company controls on IT should have included the following: |
| ○ | appropriate restrictions that would adequately prevent users from gaining inappropriate access to the financially relevant systems. | |
| ○ | IT program and data changes affecting the Company’s financial IT applications and underlying accounting records, should be identified, tested, authorized and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate. | |
| ○ | Obtaining and reviewing key third party service provider SOC reports. |
Our management concluded that considering internal control deficiencies, that, in the aggregate, rise to the level of material weaknesses, we did not maintain effective internal control over financial reporting as of December 31, 20202023 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Remediation Efforts
Following this assessment and during the twelve months ended December 31, 2020,2023, we have undertaken an action plan to strengthen internal controls and procedures:
| ● |
| ● |
| ● | Establishing policies and procedures in the IT area to mitigate data breach, unauthorized access and address segregation of duties, as well as review key third party service provider SOC reports. |
| ● | Using business intelligence to combine business analytics, data tools and infrastructure to help the Company quickly identify the issues in POS system and facilitate internal control over financial reporting. Developing dashboards for operation to monitor the margin at store level, department level and sku level. | |
| ● |
We are currently working to review waysimprove and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in which we can make improvements inour internal control over financial reporting.
Directors and Executive Officers
The following table sets forth information regarding our executive officers and directors as of December 31, 2020:
| Name | Age | Position | ||
| Executive Officers: | ||||
| Jeffrey Holman | Chief Executive Officer, Chairman and Director | |||
| John A. Ollet | Chief Financial Officer | |||
| Christopher Santi | President and Chief Operating Officer | |||
| Non-Employee Directors: | ||||
| Clifford J. Friedman | Director | |||
| Dr. Anthony Panariello | Director |
Executive Officers
Jeffrey Holman
has been our Chairman of the Board and Chief Executive Officer since April 2014. From February 2013 until March 4, 2015, Mr. Holman serviced as our President. Mr. Holman has been a member of our Board since May 2013 and has served as a member of the Board of Directors of our subsidiary Smoke Anywhere, USA since its inception on March 24, 2008. Since 1998, Mr. Holman has been the President of Jeffrey E. Holman & Associates, P.A., a South Florida based law firm. He has also been a Partner in the law firm of Holman, Cohen & Valencia since 2000. Mr. Holman was selected as a director for his business and legal experience. In addition, as one of the founders of Smoke Anywhere, Mr. Holman possesses an in-depth understanding of the challenges, risks and characteristics unique to our industry.Christopher Santi
has been our Chief Operating Officer since December 12, 2012 and has also served as the President since April 11, 2016. Previously, Mr. Santi served as Director of Operations of the Company beginning in October 2011. Mr. Santi served as the National Sales Manager of Collages.net from November 2007 to October 2011.John A. Ollet
has been our Chief Financial Officer since December 12, 2016. Mr. Ollet previously served as Executive Vice President-Finance for Systemax, Inc. (NYSE:SYX) from 2006 to 2016. His prior chief financial officer experience also includes serving as Vice President and Chief Financial Officer of Arrow Cargo Holdings, Inc., an airline logistics company, and VP Finance /CFO - The Americas - Cargo Division, KLM Royal Dutch Airlines, an airline company. He also previously served as Vice President Finance/Administration at Sterling-Starr Maritime Group, Inc. and served on the audit staff of Arthur Andersen & Co. Mr. Ollet received a bachelor’s degree in Finance/Economics and a master’s degree in business administration from Florida International University. Mr. Ollet is a Certified Public Accountant.Non-Employee Directors
Anthony Panariello, M.D
. has been a director since April 15, 2016. Dr. Panariello is a Board Certified in Pulmonology and Internal Medicine in Florida and has been in private practice since 1996, serving as an attending physician at a number of hospitals. Dr. Panariello is a member of the College of Physicians and the American College of Chest Physicians. Additionally, Dr. Panariello currently serves as a Lieutenant Commander in the Medical Corps of the United States Navy Reserve. Dr. Panariello received his Bachelor of Science from the State University of New York at Stony Brook and his medical degree from the Autonomous University of Guadalajara.Clifford J. Friedman
has been a director since April 15, 2016. Mr. Friedman is a certified public accountant in Coral Springs, Florida and manages his own public accounting, tax and consulting practice since 2001. From 1992 to 2000, Mr. Friedman was Vice President - Finance and Administration of the Box Worldwide, Inc., a Viacom company. He received an M.B.A. from Nova Southeastern University and his B.B.A. from Pace University.| 23 |
Corporate Governance
Board Responsibilities
The Board oversees, counsels, and directs management in the long-term interest of the Company and its stockholders. The Board’s responsibilities include establishing broad corporate policies and reviewing the overall performance of the Company. The Board is not, however, involved in the operating details on a day-to-day basis.
Board Committees and Charters
The Board and its Committees meet throughout the year and act by written consent from time-to-time as appropriate. The Board delegates various responsibilities and authority to different Board Committees. Committees regularly report on their activities and actions to the Board.
The Board currently has and appoints the members of: The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each of these committees have a written charter which can be found on our corporate website at www.healthiercmc.com/committee-charters/.
The following table identifies the independent and non-independent current Board and committee members:
| Name | Independent | Audit | Compensation | Nominating And Corporate Governance | ||||
| Jeffrey Holman | ||||||||
| Dr. Anthony Panariello | X | X | X | X | ||||
| Clifford J. Friedman | X | X | X | X |
Director Independence
Our Board has determined that Clifford J. Friedman and Dr. Anthony Panariello are independent in accordance with standards under the OTC Pink Marketplace. Our Board determined that as a result of being an executive officer, Messrs. Jeffrey Holman is not independent under the OTC Pink Marketplace Bulletin Boards. Our Board has also determined that Clifford J. Friedman and Dr. Anthony Panariello are independent under the OTC Pink Marketplace independence standards for Audit and Compensation Committee members.
Committees of the Board
Audit Committee
The Audit Committee, which currently consists of Clifford J. Friedman (chair) and Dr. Anthony Panariello, reviews the Company’s financial reporting process on behalf of the Board and administers our engagement of the independent registered public accounting firm. The Audit Committee approves all audit and non-audit services, and reviews the independence of our independent registered public accounting firm.
Audit Committee Financial Expert
Our Board has determined that Clifford J. Friedman is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.
Compensation Committee
The function of the Compensation Committee is to determine the compensation of our executive officers. The Compensation Committee has the power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations with respect to stockholder proposals related to compensation matters. Additionally, the Compensation Committee is responsible for administering the Company’s equity compensation plans including the Plan.
The members of the Compensation Committee are all independent directors within the meaning of applicable Nasdaq Listing Rules and all of the members are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act.
| 24 |
Nominating and Corporate Governance Committee
The responsibilities of the Nominating and Corporate Governance Committee include the identification of individuals qualified to become Board members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of the Board, establish procedures for the nomination process including procedures and the oversight of the evaluations of the Board and management. The Nominating and Corporate Governance Committee has not established a policy with regard to the consideration of any candidates recommended by stockholders since no stockholders have made any recommendations. If we receive any stockholder recommended nominations, the Nominating Committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has ever been an officer or employee of the Company. None of our executive officers serve, or have served during the last fiscal year, as a member of our compensation committee or other Board committee performing equivalent functions of any entity that has one or more executive officers serving on our Board or on our compensation committee.
Board Assessment of Risk
The Board is actively involved in the oversight of risks that could affect the Company. This oversight is conducted primarily through the Audit Committee, but the full Board has retained responsibility for general oversight of risks. The Audit Committee considers and reviews with our independent public accounting firm and management the adequacy of our internal controls, including the processes for identifying significant risks and exposures, and elicits recommendations for the improvements of such procedures where desirable. In addition to the Audit Committee’s role, the full Board is involved in oversight and administration of risk and risk management practices. Members of our senior management have day-to-day responsibility for risk management and establishing risk management practices, and members of management are expected to report matters relating specifically to the Audit Committee directly thereto, and to report all other matters directly to the Board as a whole. Members of our senior management have an open line of communication to the Board and have the discretion to raise issues from time-to-time in any manner they deem appropriate, and management’s reporting on issues relating to risk management typically occurs through direct communication with directors or committee members as matters requiring attention arise. Members of our senior management regularly attend portions of the Board’s meetings, and often discuss the risks related to our business.
Code of Ethics
The Company has a code of ethics, “Business Conduct: “Code of Conduct and Policy,” that applies to all of the Company’s employees, including its principal executive officer, principal financial officer and principal accounting officer, and the Board. A copy of this code is available on the Company’s website at http://www.healthiercmc.com/code-of-conduct. The Company intends to disclose any changes in or waivers from its code of ethics by posting such information on its website or by filing a Current Report on Form 8-K.
Stockholder Communications
Although we do not have a formal policy regarding communications with our Board, stockholders may communicate with the Board by writing to us at Healthier Choices Management Corp., 3800 N 28th Way, Hollywood, FL 33020, Attention: Corporate Secretary, or by facsimile (954) 272-7773.(305) 600-5004. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.
| 25 |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and the other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC rules to furnish us with copies of all Section 16(a) reports they file.
Based solely on a review of the reports furnished to us, or written representations from reporting persons that all reportable transactions were reported and that no Form 5s were required, we believe that during 20202023 our officers, directors and greater than 10% owners timely filed all reports they were required to file under Section 16(a).
The following information is related to the compensation paid, distributed or accrued by us for fiscal 20202023 to all Chief Executive Officers (principal executive officers) serving during the last fiscal year and the other most highly compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000. We refer to these individuals as our “named executive officers.”
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards/ (Forfeited) (1)$ | Restricted Stock Awards(1) $ | All Other Compensation ($) | Total | |||||||||||||
| Jeffrey Holman | 2020 | 494,430 | - | - | - | - | 494,430 | |||||||||||||
| Chief Executive Officer | 2019 | 467,341 | 157,500 | - | - | - | 624,841 | |||||||||||||
| Christopher Santi | 2020 | 331,058 | - | - | - | - | 331,058 | |||||||||||||
| President and Chief Operating Officer | 2019 | 272,384 | 75,000 | - | - | 713 | 348,097 | |||||||||||||
| John Ollet | 2020 | 74,561 | - | - | - | - | 74,561 | |||||||||||||
| Chief Financial Officer | 2019 | 201,707 | 60,000 | - | - | 716 | 262,423 | |||||||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Restricted Stock/ (Forfeited) (1)$ | Restricted Stock Awards(1) $ | All Other Compensation ($) | Total | ||||||||||||||||||||
| Jeffrey Holman | 2023 | 688,149 | - | - | 5,000,000 | - | 5,688,149 | ||||||||||||||||||||
| Chief Executive Officer | 2022 | 598,379 | 350,000 | - | - | - | 948,379 | ||||||||||||||||||||
| Christopher Santi | 2023 | 405,321 | - | - | 2,500,000 | - | 2,905,321 | ||||||||||||||||||||
| President and Chief Operating Officer | 2022 | 394,832 | 200,000 | - | - | - | 594,832 | ||||||||||||||||||||
| John Ollet | 2023 | 304,616 | - | - | 1,800,000 | - | 2,104,616 | ||||||||||||||||||||
| Chief Financial Officer | 2022 | 260,616 | 125,000 | - | - | - | 385,616 | ||||||||||||||||||||
(1)
Amounts reflect the aggregate grant date fair value, without regard to forfeitures, computed in accordance with ASC 718. These amounts represent options and restricted stock of the Company’s common stock and do not reflect the actual amounts that may be realized by the Named Executive Officers. Our assumptions with respect to the calculation of the stock options and restricted stock value are set forth in Note 2 to the consolidated financial statements contained herein.Named Executive Officer Employment Agreements
On August 13, 2018, the Company amended and restated its existing employment agreement with Jeffrey Holman, the Company’s Chief Executive Officer (the “Holman Employment Agreement”). The Holman Employment Agreement is for an additional three year term and provides for an annual base salary of $450,000 and a target bonus for 2020 only in an amount ranging from 20% to 200% of his base salaries subject to the Company meeting certain earnings before interest, taxes depreciation and amortization performance milestones. The Holman Employment Agreement automatically renews each year unless terminated by either party on 30 days’ prior notice. Mr. Holman is entitled to receive severance payments, including two years of his then base salary and other benefits in the event of a change of control, termination by the Company without cause, termination for good reason by the executive or non-renewal by the Company. Mr. Holman was also granted 11 billion shares of restricted common stock pursuant to the Holman Employment Agreement Amendment on the condition that 11 billion of his options to purchase Company common stock are forfeited. This restricted stock will vest one year following the date of issuance provided that the grantee remains an employee of the Company through each applicable vesting date. On August 12, 2019, the Company agreed to extend the expiration date of the vesting period for the restricted stock by six months to February 13, 2020. On August 12, 2020, the Company agreed to extend for a second time the expiration date of the vesting period for the restricted stock by six months to February 13, 2021. The Term shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term. The above description of the terms of the Holman Employment Agreement is not complete and is qualified by reference to the complete document.
| 26 |
On February 26, 2021, the Company
On February 2, 2022, the Company entered into an amendment to the existinga second amended and restated employment agreement (the “Ollet Amended Employment Agreement”) with the Company’s Chief Financial Officer, John Ollet. Pursuant to the Ollet Amended Employment Agreement Amendment, Mr. Ollet will continue to be employed as the Company’s Chief Financial Officer for an additional one year extension period through December 12, 2020.February 14, 2025. Mr. Ollet will receivereceived a base salary of $250,000$300,000 for this additional2022 and his salary will increase 10% in each subsequent calendar year. Mr. Ollet was also granted 3 billion sharesThe term shall be automatically renewed for successive one-year terms unless notice of restricted common stock pursuant tonon-renewal is given by either party at least 30 days before the Ollet Amended Employment Agreement. This restricted stock will vest one year following the date of issuance provided that the grantee remains an employeeend of the Company through each applicable vesting date. On August 12, 2019, the Company agreed to extend the expiration date of the vesting period for the restricted stock by six months to February 13, 2020. On August 12, 2020, the Company agreed to extend for a second time the expiration date of the vesting period for the restricted stock by six months to February 13, 2021.Term. The above description of the terms of the Ollet Amended Employment Agreement is not complete and is qualified by reference to the complete document.
Termination Provisions
The table below describes the severance payments that our Named Executive Officers are entitled to in connection with a termination of their employment upon death, disability, dismissal without cause, Change of Control or for Good Reason. All of the termination provisions are intended to comply with Section 409A of the Internal Revenue Code of 1986 and the Regulations thereunder.
| Holman | Santi/Ollet | |||
| Death or Total Disability | Any amounts due at time of termination plus full vesting of equity awards | Any amounts due at time of termination | ||
| Dismissal Without Cause or Termination by Executive for Good Reason or upon a Change of Control (1) | Two years of Base Salary, full vesting of equity awards, benefit continuation for eighteen months plus pro-rated bonus if, any, that would have been earned for the fiscal year in which the termination occurs | Fifteen months of Base Salary plus one additional month for every additional four months of service, up to eighteen months’ maximum | ||
| Termination upon a Change of Control (2) | Two years of Base Salary, full vesting of equity awards, benefit continuation for eighteen months plus pro-rated bonus if, any, that would have been earned for the fiscal year in which the termination occurs | Eighteen months of Base Salary |
(1) Good reason is generally (with certain exceptions) defined, in the case of Holman, as (i) a material diminution in their authority, duties or responsibilities, (y) the Company failing to maintain an office in the stated area or (ii) any other action or inaction that constitutes a material breach by the Company of the Employment Agreement. Messrs. Ollet and Santi’s employment agreement do not include the concept of good reason.
(2) Change of Control is generally defined (i) in the case of Holman, as any Change of Control Event as defined in Treasury Regulation Section 1.409A-3(i)(5); and (ii) in the case of Santi, as (w) a sale of substantially all of the Company, (x) any “person” (as such term is defined under the Exchange Act) becomes the beneficial owners of over 50% of the Company’s voting power, (y) a change in the majority of the composition of the Board or (z) a transaction that results in over 50% of the Company’s voting power ceasing to hold a majority of the voting power post-transaction.
| 27 |
Risk Assessment Regarding Compensation Policies and Practices as they Relate to Risk Management
Our compensation program for employees does not create incentives for excessive risk taking by our employees or involve risks that are reasonably likely to have a material adverse effect on us. Our compensation has the following risk-limiting characteristics:
| ● | Our base pay programs consist of competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; and |
| ● | Cash bonus awards are not tied to formulas that could focus executives on specific short-term outcomes. |
Outstanding Awards at Fiscal Year End
Listed below is information with respect to unexercised options that have not vested, and equity incentive plan awards for each named executive officer outstanding as of December 31, 2020:
Outstanding Equity Awards at 20202023 Fiscal Year-End
Number of Shares Issued Under Stock Options | Number of Shares Issued Under Restricted Stock | Stock Options and Restricted Stock Exercise Price ($) Per Share of Stock | Expiration Date | Number of Shares That Have Not Vested (#) | Market Value of Shares That Name Have Not Vested ($) | |||||||||||
| Jeffrey Holman | - | 11,000,000,000 | 0.0001 | 8/13/2028 | 11,000,000,000 | 1,100,000 | ||||||||||
| Jeffrey Holman | 39,000,000,000 | - | 0.0001 | 2/1/2027 | - | - | ||||||||||
| Christopher Santi | - | 8,000,000,000 | 0.0001 | 8/13/2028 | 8,000,000,000 | 800,000 | ||||||||||
| Christopher Santi | 17,000,000,000 | - | 0.0001 | 2/1/2027 | - | - | ||||||||||
| John Ollet | - | 3,000,000,000 | 0.0001 | 8/13/2028 | 3,000,000,000 | 300,000 | ||||||||||
| John Ollet | 1,000,000,000 | - | 0.0001 | 12/9/2026 | - | - | ||||||||||
| John Ollet | 4,000,000,000 | - | 0.0001 | 8/30/2027 | - | - | ||||||||||
| Number of Shares Issued Under Stock Options | Number of Shares Issued Under Restricted Stock | Stock Options and Restricted Stock Exercise Price ($) Per Share of Stock | Expiration Date | Number of Shares That Have Not Vested (#) | Market Value of Shares That Name Have Not Vested ($) | |||||||||||||||||
| Jeffrey Holman | - | 59,075,000,000 | 0.0001 | 8/13/2028 | 50,000,000,000 | 5,000,000 | ||||||||||||||||
| Jeffrey Holman | 39,000,000,000 | - | 0.0001 | 2/1/2027 | - | - | ||||||||||||||||
| Christopher Santi | - | 31,600,000,000 | 0.0001 | 8/13/2028 | 25,000,000,000 | 2,500,000 | ||||||||||||||||
| Christopher Santi | 17,000,000,000 | - | 0.0001 | 2/1/2027 | - | - | ||||||||||||||||
| John Ollet | - | 20,475,000,000 | 0.0001 | 8/13/2028 | 18,000,000,000 | 1,800,000 | ||||||||||||||||
| John Ollet | 1,000,000,000 | - | 0.0001 | 12/9/2026 | - | - | ||||||||||||||||
| John Ollet | 4,000,000,000 | - | 0.0001 | 8/30/2027 | - | - | ||||||||||||||||
Director Compensation
Non-employee directors are paid an annual fee of $10,000 or $15,000, plus a monthly fee of $1,000 per month and $1,000$1,500 for each meeting attended. On December 14, 2022, the Company granted 2,000,000,000 shares of Restricted Stock (the “Award”) to each non-employee director. Commencing on the first anniversary of the date of Grant, the Award will vest in 12.5% increments on the last day of each quarter thereafter. Because we do not pay any compensation to employee directors, Mr. Holman is omitted from the following table. Non-employee members of our Board of Directors were compensated for as follows:
Fiscal 20202023 Director Compensation
| Name | Fees Earned or Paid in Cash ($) | |||
| Dr. Anthony Panariello | $ | 40,000 | ||
| Clifford J. Friedman | $ | 45,000 | ||
| 28 |
| Name | Fees Earned or Paid in Cash ($) | ||
| Dr. Anthony Panariello | $ | 20,000 | |
| Clifford J. Friedman | $ | 20,000 | |
Equity Compensation Plan Information
The 2015 Equity Incentive Plan (the “Plan”) was approved by the Company’s stockholders at the June 26, 2015 stockholders meeting. On November 21, 2016, the Company’s Board of Directors increased the number of shares of common stock available for issuance pursuant to the Plan to 100,000,000,000. On April 23, 2023, the Board of Directors (the “Board”) of HCMC approved the Second Amendment to the 2015 Equity Incentive Plan (the “Amended Plan”). The Amended Plan increased the number of shares of HCMC common stock authorized for issuance under the Amended Plan to 225,000,000,000 shares. The Plan is a broad-based plan in which all employees, consultants, officers, and directors of the Company are eligible to participate. The purpose of the Plan is to further the growth and development of the Company by providing, through ownership of stock of the Company and other equity-based awards, an incentive to its officers and other key employees and consultants who are in a position to contribute materially to the prosperity of the Company, to increase such persons’ interests in the Company’s welfare, by encouraging them to continue their services to the Company, and by enabling the Company to attract individuals of outstanding ability to become employees, consultants, officers and directors of the Company.
The following chart reflects the number of awards granted under equity compensation plans approved and not approved by stockholders and the weighted average exercise price for such plans as of December 31, 2020.
| Name of Plan | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||
| Equity compensation plans approved by security holders | ||||||||
| 2015 Equity Incentive Plan | 90,194,750,004 | 0.0001 | 90,194,750,004 | |||||
| Total | 90,194,750,004 | - | 90,194,750,004 | |||||
| Name of Plan | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column | |||||||||
| Equity compensation plans approved by security holders | ||||||||||||
| 2015 Equity Incentive Plan | 199,824,722,200 | 0.0001 | 25,175,277,800 | |||||||||
| Total | 199,824,722,200 | - | 25,175,277,800 | |||||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
The following table sets forth the number of shares of our common stock beneficially owned as of December 31, 2020,March 27, 2024, by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director, (iii) our Named Executive Officers and (iv) all of our executive officers and directors of as a group. Unless otherwise specified in the notes to this table, the address for each person is: c/o Healthier Choices Management Corp., 3800 North 28th Way, Hollywood, Florida 33020.
| Title of Class | Beneficial Owner | Amount and Nature of Beneficial Owner (1) | Percent of Class (1) | |||||||
| Directors and Executive Officers: | ||||||||||
| Common Stock | Jeffrey E. Holman (2) | 56,300,000,000 | 11.77 | % | ||||||
| Common Stock | Christopher Santi (3) | 30,225,000,000 | 6.32 | % | ||||||
| Common Stock | John Ollet (4) | 19,725,000,000 | 4.12 | % | ||||||
| Common Stock | Dr. Anthony Panariello (5) | 5,242,500,000 | 1.10 | % | ||||||
| Common Stock | Clifford J. Friedman (6) | 5,490,000,000 | 1.15 | % | ||||||
| All directors and officers as a group (5 persons) (7) | 116,982,500,000 | 24.46 | % | |||||||
| 5% Stockholders: | ||||||||||
| None | - | 0 | % | |||||||
| Total: | 116,982,500,000 | 24.46 | % | |||||||
| 29 |
| Title of Class | Beneficial Owner | Amount and Nature of Beneficial Owner (1) | Percent of Class (1) | |||||
| Directors and Executive Officers: | ||||||||
| Common Stock | Jeffrey E. Holman (2) | 40,512,500,000 | 13.09% | |||||
| Common Stock | Christopher Santi (3) | 18,100,000,000 | 5.85% | |||||
| Common Stock | John Ollet (4) | 5,412,500,000 | 1.75% | |||||
| Common Stock | Dr. Anthony Panariello (5) | 1,068,750,000 | 0.35% | |||||
| Common Stock | Clifford J. Friedman (6) | 1,500,000,000 | 0.48% | |||||
| All directors and officers as a group (5 persons) (7) | 66,593,750,000 | 21.52% | ||||||
| 5% Stockholders: | ||||||||
| None | - | 0% | ||||||
| Total: | 66,593,750,000 | 21.52% | ||||||
(1)
Beneficial Ownership. Applicable percentages are based on(2)
Holman. Chairman and Chief Executive Officer. Includes 39,000,000,000 vested options, 9,075,000,000 shares of vested restricted Common Stock and(3)
Santi. President and Chief Operation Officer. Includes 17,000,000,000 vested options, 6,600,000,000 shares of vested restricted Common Stock and(4)
Ollet. Chief Financial Officer. Includes 5,000,000,000 vested options. He also holds(5)
Panariello. A director. Includes 1,000,000,000 vested options. He also holds(6)
Friedman. A director. Includes 990,000,000 vested options,(7)
Directors and Executive Officers. Includes executive officers who are not Named Executive Officers under the SEC’s rules and regulations.For the yearyears ended December 31, 2020,2023, the Company did not have any related party transactions.
Policies and Procedures for Related Party Transactions
We have adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the prior consent of our audit committee. Our audit committee will review and oversee all transactions with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of any of the foregoing persons and such person would have a direct or indirect interest. In approving or rejecting any such transactions, our audit committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
| 30 |
Our Audit Committee pre-approves audit and permissible non-audit services performed by its independent registered public accounting firm, as well as the fees charged for such services. All of the services related to audit fees and audit-related fees charged were pre-approved by the Audit Committee. The following table shows the fees for the years ended December 31, 20202023 and 2019.
| 2020 ($) | 2019 ($) | |||||
| Audit Fees (1) | $ | 188,000 | $ | 208,000 | ||
| Total | $ | 188,000 | $ | 208,000 | ||
| 2023 | 2022 | |||||||
| Audit (1) | $ | 1,122,000 | $ | 594,000 | ||||
| Audit - Related | - | - | ||||||
| Tax | - | - | ||||||
| Other | - | - | ||||||
| Total | $ | 1,122,000 | $ | 594,000 | ||||
Audit fees — these fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements and our registration statements.
Audit-related fees - the aggregate fees billed for assurance and related services by the principal accountant that are related to the performance of the audit or review of the registrant’s financial statements and are not reported under paragraph (1) above.
Tax fees - the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
Other fees - the aggregate fees billed other than the services reported in audit, audit-related and tax fees.
PART IV
| (a) | Documents filed as part of the report. |
| (1) | Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item. |
| (2) | Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report. |
| (3) | Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report. |
| 31 |
| F-1 |
To the Shareholders and Board of Directors of
Healthier Choices Management Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Healthier Choices Management Corp. (the “Company”) as of December 31, 20202023 and 2019,2022, the related consolidated statements of operations, changes in convertible preferred stock and stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020,2023, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are noThe communication of critical audit matters.matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
| F-2 |
Valuation of Intangible Assets for Business Combination
Description of the Matter
As disclosed in Note 8 to the financial statements, during the year ended December 31, 2023, the Company completed the acquisition of Ellwood Thompson’s Natural Market, L.C. for total consideration of approximately $1.5 million. The transaction was accounted for as a business combination in accordance with Accounting Standards ASC 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed, based on their respective fair values identified, including intangible assets with an aggregate fair value (excluding goodwill) of approximately $0.3 million. The Company, with the assistance of a third-party valuation specialist, estimated the fair value of the identified intangible assets using valuation models which require significant assumptions. The significant assumptions used to estimate the fair value of the identified intangible assets included discount rates, royalty rates, economic lives, and financial projections.
Auditing management’s assessment of the acquisition date fair value of the identified intangible assets is highly subjective and judgmental. Based on the level of management judgment, we have determined the evaluation of the acquisition date fair value of the acquired intangible assets to be a critical audit matter.
How We Addressed the Matter in our Audit
Our audit procedures related to the accounting for valuation of intangible assets for business combinations to address this critical audit matter included the following:
| ● | We gained an understanding of the Company’s process with regards to the methodology used, and the factors considered around the inputs, sources of data used, assumptions and estimates used to determine the acquisition date fair value of the intangible assets acquired. | |
| ● | We tested the mathematical accuracy of the underlying schedules used in the valuation report. We tested the completeness, accuracy and relevance of source information underlying the data used in the models. | |
| ● | We evaluated the Company’s future revenue growth rates by comparing them to historical results and performed a sensitivity calculation to ensure the reasonableness of these forecasts. | |
| ● | We assessed the appropriateness of the overall approach and models used in determining the fair value of the intangible assets acquired. | |
| ● | We evaluated the reasonableness of the assumptions used by management. | |
| ● | We involved valuation professionals with specialized skills and knowledge in performing audit procedures to evaluate the reasonableness of the Company’s estimates and assumptions used by the specialist to determine the selection of revenue growth rates, discount rates, royalty rates and economic useful life. |
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2017.
Saddle Brook, NJ
March 27, 2024
| F-3 |
| December 31, 2020 | December 31, 2019 | ||||
| ASSETS | |||||
| CURRENT ASSETS | |||||
| Cash and cash equivalents | $ | 925,475 | $ | 1,525,415 | |
| Accounts receivable | 23,675 | 65,401 | |||
| Inventories | 1,749,246 | 1,757,012 | |||
| Prepaid expenses and vendor deposits | 286,065 | 269,833 | |||
| Investment | 22,731 | 24,000 | |||
| TOTAL CURRENT ASSETS | 3,007,192 | 3,641,661 | |||
| Restricted Cash | 2,000,000 | 2,000,000 | |||
| Property and equipment, net of accumulated depreciation | 230,719 | 332,290 | |||
| Intangible assets, net of accumulated amortization | 1,248,352 | 1,923,447 | |||
| Goodwill | 916,000 | 956,000 | |||
| Note receivable | 304,511 | 343,387 | |||
| Right of use asset – operating lease, net | 4,078,621 | 4,663,019 | |||
| Other assets | 89,598 | 146,865 | |||
| TOTAL ASSETS | $ | 11,874,993 | $ | 14,006,669 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| CURRENT LIABILITIES | |||||
| Accounts payable and accrued expenses | $ | 1,085,663 | $ | 825,860 | |
| Contract liabilities | 21,262 | 26,823 | |||
| Operating lease liability, current | 474,686 | 555,959 | |||
| Current portion of line of credit | 2,000,000 | 2,000,000 | |||
| Current portion of loan payment | 2,072,484 | 282,344 | |||
| TOTAL CURRENT LIABILITIES | 5,654,095 | 3,690,986 | |||
| Loan payable, net of current portion | 849,009 | 869,223 | |||
| Operating lease liability, net of current | 3,114,521 | 3,544,729 | |||
| TOTAL LIABILITIES | 9,617,625 | 8,104,938 | |||
| COMMITMENTS AND CONTINGENCIES (SEE NOTE 12) | |||||
| STOCKHOLDERS’ EQUITY | |||||
| Series B convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; - and 20,150 shares issued and outstanding as of December 31, 2020 and 2019 | - | 20,150,116 | |||
| Series C convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; 20,150 shares issued and 16,277 shares outstanding as of December 31, 2020; aggregate liquidation preference of $16.3 million | 16,277,116 | - | |||
| Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; 143,840,848,017 and 67,698,494,244 shares issued and outstanding as of December 31, 2020 and 2019, respectively | 14,384,084 | 6,769,849 | |||
| Additional paid-in capital | 3,955,039 | 7,618,245 | |||
| Accumulated deficit | (32,358,871) | (28,636,479) | |||
| TOTAL STOCKHOLDERS’ EQUITY | 2,257,368 | 5,901,731 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 11,874,993 | $ | 14,006,669 | |
December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 5,081,086 | $ | 22,911,892 | ||||
| Accounts receivable | 128,171 | 55,815 | ||||||
| Notes receivable | - | 189,225 | ||||||
| Inventories | 4,228,889 | 3,817,192 | ||||||
| Prepaid expenses and vendor deposits | 1,668,324 | 322,182 | ||||||
| Other current assets | 65,556 | 1,233,942 | ||||||
| Restricted cash | 553,232 | 1,778,232 | ||||||
| TOTAL CURRENT ASSETS | 11,725,258 | 30,308,480 | ||||||
| Property, plant, and equipment, net of accumulated depreciation | 2,735,252 | 3,112,908 | ||||||
| Intangible assets, net of accumulated amortization | 4,376,682 | 5,005,511 | ||||||
| Goodwill | - | 5,747,000 | ||||||
| Right of use asset – operating lease, net | 11,511,002 | 10,604,935 | ||||||
| Other assets | 621,385 | 476,196 | ||||||
| TOTAL ASSETS | $ | 30,969,579 | $ | 55,255,030 | ||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 8,024,664 | $ | 5,715,234 | ||||
| Contingent consideration | - | 774,900 | ||||||
| Contract liabilities | 207,513 | 198,606 | ||||||
| Operating lease liability, current | 2,842,829 | 2,228,852 | ||||||
| Line of credit | 453,232 | 453,232 | ||||||
| Current portion of loan payment | 702,701 | 536,542 | ||||||
| TOTAL CURRENT LIABILITIES | 12,230,939 | 9,907,366 | ||||||
| Loan payable, net of current portion | 2,403,807 | 2,378,061 | ||||||
| Operating lease liability, net of current | 8,465,617 | 8,041,504 | ||||||
| TOTAL LIABILITIES | 23,100,363 | 20,326,931 | ||||||
| COMMITMENTS AND CONTINGENCIES (SEE NOTE 13) | - | - | ||||||
| CONVERTIBLE PREFERRED STOCK | ||||||||
| Series E convertible preferred stock, $ par value per share, shares authorized, shares and shares issued and outstanding as of December 31, 2023 and 2022; aggregate liquidation preference of $1.1 million and $14.7 million as of December 31, 2023 and 2022, respectively. | 1,111,100 | 14,722,075 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Series D convertible preferred stock, $ par value per share, shares authorized; and shares issued and outstanding as of December 31, 2023 and 2022, respectively. | - | 800,000 | ||||||
| Common Stock, $ par value per share, shares authorized; and shares issued and outstanding as of December 31, 2023 and 2022, respectively. | 47,826,663 | 33,974,163 | ||||||
| Additional paid-in capital | 21,028,274 | 29,045,802 | ||||||
| Accumulated deficit | (62,096,821 | ) | (43,613,941 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 6,758,116 | 20,206,024 | ||||||
| TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | $ | 30,969,579 | $ | 55,255,030 | ||||
See notes to consolidated financial statementsstatements.
| F-4 |
| For the Year Ended December 31, | |||||
| 2020 | 2019 | ||||
| SALES: | |||||
| Vapor sales, net | $ | 2,458,945 | $ | 4,134,701 | |
| Grocery sales, net | 11,461,800 | 10,979,305 | |||
| TOTAL SALES, NET | 13,920,745 | 15,114,006 | |||
| Cost of sales vapor | 1,033,805 | 1,690,734 | |||
| Cost of sales grocery | 7,109,719 | 6,939,028 | |||
| GROSS PROFIT | 5,777,221 | 6,484,244 | |||
| OPERATING EXPENSES: | |||||
| Impairment of goodwill and intangible assets | 380,646 | 481,314 | |||
| Selling, general and administrative | 8,844,947 | 10,417,214 | |||
| Total operating expenses | 9,225,593 | 10,898,528 | |||
| LOSS FROM OPERATIONS | (3,448,372) | (4,414,284) | |||
| OTHER INCOME (EXPENSE): | |||||
| Gain on revaluation of warrants | - | 1,719,816 | |||
| Other expense, net | (100) | (2,524) | |||
| Interest expense, net | (272,651) | (35,527) | |||
| Loss on investment | (1,269) | (66,857) | |||
| Total other (expense) income, net | (274,020) | 1,614,908 | |||
| NET LOSS | $ | (3,722,392) | $ | (2,799,376) | |
| NET LOSS PER SHARE BASIC AND DILUTED | $ | 0.00 | $ | 0.00 | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||
| BASIC AND DILUTED | 90,351,540,618 | 66,977,667,455 | |||
| 2023 | 2022 | |||||||
| For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| SALES: | ||||||||
| Vapor sales, net | $ | 617 | $ | 257,363 | ||||
| Grocery sales, net | 55,689,793 | 29,009,640 | ||||||
| TOTAL SALES, NET | 55,690,410 | 29,267,003 | ||||||
| Cost of sales vapor | 787 | 112,880 | ||||||
| Cost of sales grocery | 35,341,569 | 18,929,905 | ||||||
| GROSS PROFIT | 20,348,054 | 10,224,218 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling, general and administrative | 32,219,733 | 18,877,302 | ||||||
| Impairment of goodwill | 6,104,000 | - | ||||||
| TOTAL OPERATING EXPENSES | 38,323,733 | 18,877,302 | ||||||
| LOSS FROM OPERATIONS | (17,975,679 | ) | (8,653,084 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Change in contingent consideration | 774,900 | 333,100 | ||||||
| Other (expense) income, net | (1,485,612 | ) | 913,092 | |||||
| Interest income (expense), net | 211,996 | 202,653 | ||||||
| Loss on investment | (8,485 | ) | (13,372 | ) | ||||
| Total other income (expense), net | (507,201 | ) | 1,435,473 | |||||
| NET LOSS | (18,482,880 | ) | (7,217,611 | ) | ||||
| Induced conversions of preferred stock | (152,500 | ) | - | |||||
| Net loss attributable to common stockholders | $ | (18,635,380 | ) | $ | (7,217,611 | ) | ||
| NET LOSS PER SHARE BASIC AND DILUTED | $ | $ | ||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||
| BASIC AND DILUTED | ||||||||
See notes to consolidated financial statementsstatements.
| F-5 |
HEALTHIER CHOICES MANAGEMENT CORP.
FOR THE YEARS ENDED DECEMBER 31, 20192023 AND 20192022
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
Series E Redeemable Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance – January 1, 2022 | - | $ | - | 800 | $ | 800,000 | 339,741,632,384 | $ | 33,974,163 | $ | 30,855,824 | $ | (36,396,330 | ) | $ | 29,233,657 | ||||||||||||||||||||
| Issuance of Series E Convertible Preferred stock in connection with the Securities Purchase Agreement, net of offering costs | 14,722 | 14,722,075 | - | - | - | - | (1,882,244 | ) | - | (1,882,244 | ) | |||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | 72,222 | - | 72,222 | |||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (7,217,611 | ) | (7,217,611 | ) | |||||||||||||||||||||||||
| Balance – December 31, 2022 | 14,722 | $ | 14,722,075 | 800 | $ | 800,000 | 339,741,632,384 | $ | 33,974,163 | $ | 29,045,802 | $ | (43,613,941 | ) | $ | 20,206,024 | ||||||||||||||||||||
| Balance | 14,722 | $ | 14,722,075 | 800 | $ | 800,000 | 339,741,632,384 | $ | 33,974,163 | $ | 29,045,802 | $ | (43,613,941 | ) | $ | 20,206,024 | ||||||||||||||||||||
| Series E convertible preferred stock redeemed | (12,026 | ) | (12,025,975 | ) | - | - | - | - | 22,222 | - | 22,222 | |||||||||||||||||||||||||
| Conversion of series E convertible preferred stock | (1,585 | ) | (1,585,000 | ) | - | - | 15,850,000,000 | 1,585,000 | - | 1,585,000 | ||||||||||||||||||||||||||
| Series D Convertible Preferred Stock exercised | - | - | (800 | ) | (800,000 | ) | 8,000,000,000 | 800,000 | - | - | - | |||||||||||||||||||||||||
| Issuance of awarded stock | - | - | - | 111,675,000,000 | 11,167,500 | (11,167,500 | ) | - | - | |||||||||||||||||||||||||||
| Induced conversions of preferred stock | - | - | - | - | - | (152,500 | ) | - | (152,500 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | 3,430,250 | - | 3,430,250 | ||||||||||||||||||||||||||||
| Issuance of common stock for legal service | 3,000,000,000 | 300,000 | (150,000 | ) | 150,000 | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (18,482,880 | ) | (18,482,880 | ) | |||||||||||||||||||||||||
| Balance – December 31, 2023 | 1,111 | $ | 1,111,100 | - | $ | - | 478,266,632,384 | $ | 47,826,663 | $ | 21,028,274 | $ | (62,096,821 | ) | $ | 6,758,116 | ||||||||||||||||||||
| Balance | 1,111 | $ | 1,111,100 | - | $ | - | 478,266,632,384 | $ | 47,826,663 | $ | 21,028,274 | $ | (62,096,821 | ) | $ | 6,758,116 | ||||||||||||||||||||
See notes to consolidated financial statements.
| F-6 |
| Convertible Preferred Stock | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||
| Balance – December 31, 2018 | 20,150 | $ | 20,150,116 | 66,623,514,522 | $ | 6,662,351 | $ | 7,348,390 | $ | (25,734,088) | $ | 8,426,769 | ||||||||
| Issuance of common stock in connection with cashless exercise of Series A warrants | - | - | 74,979,722 | 7,498 | (4,386) | - | 3,112 | |||||||||||||
| Issuance of awarded common stock for professional services | - | - | 1,000,000,000 | 100,000 | (100,000) | - | - | |||||||||||||
| Cumulative effect on adoption of ASC842 | - | - | - | - | - | (103,015) | (103,015) | |||||||||||||
| Stock-based compensation expense | - | - | - | - | 374,241 | - | 374,241 | |||||||||||||
| Net loss | - | - | - | - | - | (2,799,376) | (2,799,376) | |||||||||||||
| Balance – December 31, 2019 | 20,150 | 20,150,116 | 67,698,494,244 | $ | 6,769,849 | $ | 7,618,245 | $ | (28,636,479) | $ | 5,901,731 | |||||||||
| Issuance of common stock in connection with cashless exercise of Series A warrants | - | - | 37,412,353,772 | 3,741,235 | (3,741,235) | - | - | |||||||||||||
| Cancellation of Series B Convertible Preferred Stock | (20,150) | (20,150,116) | - | - | - | - | (20,150,116) | |||||||||||||
| Issuance of Series C Convertible Preferred Stock | 20,150 | 20,150,116 | - | - | - | - | 20,150,116 | |||||||||||||
| Conversion of Preferred Stock | (3,873) | (3,873,000) | - | 3,873,000 | - | - | - | |||||||||||||
| Stock-based compensation expense | - | - | - | - | 78,029 | - | 78,029 | |||||||||||||
| Net loss | - | - | - | - | - | (3,722,392) | (3,722,392) | |||||||||||||
| Balance – December 31, 2020 | 16,277 | $ | 16,277,116 | 105,110,848,016 | $ | 14,384,084 | $ | 3,955,039 | $ | (32,358,871) | $ | 2,257,368 | ||||||||
HEALTHIER CHOICES MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2023 | 2022 | |||||||
| For the year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (18,482,880 | ) | $ | (7,217,611 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,492,261 | 1,061,615 | ||||||
| Change in allowance for credit losses | 15,425 | - | ||||||
| Loss on disposal of assets | 2,073 | - | ||||||
| Loss on notes receivable settlement | 10,931 | - | ||||||
| Loss on vendor settlement | 91,291 | |||||||
| Issuance common stocks for services | 150,000 | - | ||||||
| Amortization of right-of-use asset | 2,590,325 | 1,164,027 | ||||||
| Loss on investment | 8,485 | 13,372 | ||||||
| Write-down of obsolete and slow-moving inventory | 2,471,653 | 1,507,213 | ||||||
| Stock-based compensation expense | 3,430,250 | 72,222 | ||||||
| Change in contingent consideration | (774,900 | ) | (333,100 | ) | ||||
| Non-cash interest expense | 32,000 | - | ||||||
| Write off intangible assets | - | 53,958 | ||||||
| Impairment of Goodwill | 6,104,000 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (87,781 | ) | (27,334 | ) | ||||
| Inventories | (2,032,838 | ) | (1,357,169 | ) | ||||
| Prepaid expenses and vendor deposits | (177,374 | ) | 134,215 | |||||
| Other current assets | 1,068,610 | (1,224,171 | ) | |||||
| Other assets | (145,189 | ) | (390,759 | ) | ||||
| Accounts payable and accrued liabilities | 1,974,429 | 4,072,386 | ||||||
| Contract liabilities | (21,604 | ) | (317,921 | ) | ||||
| Lease liability | (2,458,303 | ) | (1,077,025 | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | (4,739,136 | ) | (3,866,082 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Payment for acquisition | (750,000 | ) | (10,291,674 | ) | ||||
| Collection of note receivable | 178,294 | 58,690 | ||||||
| Purchases of patent | (12,500 | ) | (12,500 | ) | ||||
| Purchases of property and equipment | (184,349 | ) | (480,925 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (768,555 | ) | (10,726,409 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from line of credit | - | 35,196 | ||||||
| Payments for deferred offering costs | (833,767 | ) | - | |||||
| Principal payments on loan payable | (558,095 | ) | (88,816 | ) | ||||
| Proceeds from issuance of preferred stock | - | 12,839,831 | ||||||
| Payment for series E preferred stock redemption | (12,003,753 | ) | - | |||||
| Payment of induced conversions of preferred stock | (152,500 | ) | - | |||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (13,548,115 | ) | 12,786,211 | |||||
| NET DECREASE IN CASH AND RESTRICTED CASH | (19,055,806 | ) | (1,806,280 | ) | ||||
| CASH AND RESTRICTED CASH — BEGINNING OF YEAR | 24,690,124 | 26,496,404 | ||||||
| CASH AND RESTRICTED CASH — END OF YEAR | $ | 5,634,318 | $ | 24,690,124 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 205,449 | $ | 35,730 | ||||
| Cash paid for income tax | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock in connection with series E preferred stock conversion | $ | 1,585,000 | $ | - | ||||
| 1% stated value reduction on preferred stock redemption | 22,222 | - | ||||||
| Non-cash deferred offering cost | 335,001 | - | ||||||
| Issuance of promissory note in connection with acquisition | $ | 718,000 | $ | 3,000,000 | ||||
| Lease acquired | $ | 1,325,409 | $ | 8,225,033 | ||||
| Contingent consideration relating to acquisition | $ | - | $ | 1,108,000 | ||||
See notes to consolidated financial statements
| F-7 |
| For the year ended December 31, | |||||
| 2020 | 2019 | ||||
| OPERATING ACTIVITIES: | |||||
| Net loss | $ | (3,722,392) | $ | (2,799,376) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||
| Change in provision for doubtful accounts | - | (3,002) | |||
| Depreciation and amortization | 550,098 | 594,940 | |||
| Loss on disposal of assets | - | 27,013 | |||
| Amortization of right-of-use asset | 584,398 | 325,208 | |||
| Loss on investment | 1,269 | 66,857 | |||
| Stock-based compensation expense | 78,029 | 374,241 | |||
| Impairment of goodwill and intangible assets | 380,646 | 481,314 | |||
| Change in fair value of derivative liabilities | - | (1,719,816) | |||
| Changes in operating assets and liabilities: | |||||
| Accounts receivable | 41,726 | 27,202 | |||
| Inventories | 7,766 | 107,607 | |||
| Prepaid expenses and vendor deposits | (16,233) | 92,900 | |||
| Contract assets | - | 32,400 | |||
| Other assets | 57,269 | (2,424) | |||
| Accounts payable and accrued liabilities | 265,552 | (475,558) | |||
| Contract liabilities | (5,561) | (415,807) | |||
| Lease liability | (511,481) | (248,940) | |||
| NET CASH USED IN OPERATING ACTIVITIES | (2,288,914) | (3,535,241) | |||
| INVESTING ACTIVITIES: | |||||
| Collection of note receivable | 38,876 | 184,620 | |||
| Purchases of patent | (89,415) | (25,000) | |||
| Purchases of property and equipment | (24,663) | (32,866) | |||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | (75,202) | 126,754 | |||
| FINANCING ACTIVITIES: | |||||
| Proceeds from line of credit | - | 131,540 | |||
| Principal payments on loan payable | (1,652,339) | (258,891) | |||
| Proceeds from paycheck protection program | 876,515 | - | |||
| Proceeds from loan and security agreement | 2,540,000 | - | |||
| NET CASH USED IN FINANCING ACTIVITIES | 1,764,176 | (127,351) | |||
| DECREASE IN CASH | (599,940) | (3,535,838) | |||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH — BEGINNING OF YEAR | 3,525,415 | 7,061,253 | |||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF YEAR | $ | 2,925,475 | $ | 3,525,415 | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||
| Cash paid for interest | $ | 314,925 | $ | 143,901 | |
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||
| Issuance of common stock in connection with cashless exercise of Series A warrants | $ | - | $ | 3,000 | |
Note 1. ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS
Organization
Healthier Choices Management Corp. (the “Company”) is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives. The
Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company currently operates nine retail vape stores inmanages and intends to expand on its intellectual property portfolio.
Through its wholly owned subsidiaries, the Southeast region of the United States, through which it offers e-liquids, vaporizers and related products. The Company also operates Ada’s Natural Market, a natural and organic grocery store, throughoperates:
| ● | Ada’s Natural Market, a natural and organic grocery store offering fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items. |
| ● | Paradise Health & Nutrition’s three stores that likewise offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items. |
| ● | Mother Earth’s Storehouse, a two-store organic and health food and vitamin chain in New York’s Hudson Valley, which has been in existence for over 40 years. |
| ● | Greens Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products |
| ● | Ellwood Thompson’s, an organic and natural health food and vitamin store located in Richmond, Virginia. (www.ellwoodthompsons.com). |
Through its wholly owned subsidiary, Healthy Choice Markets, Inc. Ada’s Natural MarketWellness, LLC, the Company operates a Healthy Choice Wellness Center in Kingston, NY and Paradise Healthhas a licensing agreement for a Healthy Choice Wellness Center located at the Casbah Spa and Nutrition offers fresh produce, bulk foods, vitaminsSalon in Fort Lauderdale, FL.
These centers offer multiple vitamin drip mixes and supplements, packaged groceries, meatintramuscular shots for clients to choose from that are designed to help boost immunity, fight fatigue and seafood, deli, baked goods, dairy products, frozen foods,stress, reduce inflammation, enhance weight loss, and efficiently deliver antioxidants and anti-aging mixes. Additionally, there are IV vitamin mixes and shots for health, & beauty, products and natural household items.re-hydration.
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 Company also sells vitaminsoperation will encompass, generally: medical evaluations of patients; treatment of patients with semaglutide; coordination with providers and supplements on the Amazon.com marketplace throughpatients.
Through its wholly owned subsidiary, Healthy U Wholesale, Inc.
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.
| F-8 |
Sourcing and Vendors.
We source from multiple suppliers. These suppliers range from small independent businesses to multinational conglomerates. For the fiscal years ended December 31, 20202023 and 2019,2022, approximately 27%40% and 24%36% of our total purchases were from one vendor.
Spin-Off
The Company is planning to spin off its grocery segment and wellness business into a new publicly traded company (hereinafter referred to as “NewCo”). NewCo will continue the path of Presentationgrowth in the health verticals started by HCMC and Principlesexplore other growth opportunities that comport with HCMC’s healthier lifestyle mission. HCMC will retain its entire patent suite, the Q-Cup® brand, and continue to develop its patent suite through R&D as well as continuing its path of Consolidation
At the accountstime of the Spin-Off, HCMC will distribute all subsidiaries in which the Company holdsoutstanding shares of Common Stock held by it on a controlling financial interestpro rata basis to holders of HCMC’s common stock. Each share of HCMC’s common stock outstanding as of the financial statement date.
Note 2. GOING CONCERN AND LIQUIDITY
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values.
As of December 31, 2020, cash and cash equivalents totaled approximately $0.9 million equivalents. Subsequent to the year ended December 31, 2020,2023, the Company entered into a $5.0had cash of approximately $5.1 million Securities Purchase Agreement
The Company has incurred recurring net losses and operations have not provided cash flows. In view of these matters, there is substantial doubt about our ability to continue as a going concern. In order to improve the Company’s liquidity position, management’s plans include significantly reducing the use of outside consultants, which would result in a reduction of over $1,000,000 in general and administrative expenses savings based on the actual spend for the year ended December 31, 2023. 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 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.
| F-9 |
Note 3.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.
The consolidated financial statements include the accounts of the Company Healthier Choices Management Corp., and related notesits wholly-owned subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC (“Paradise Health and Nutrition”), Healthy Choice Markets 3, LLC (“Mother Earth’s Storehouse”), Healthy Choices Markets 3 Real Estate LLC, Healthy Choice Markets IV, LLC (Green’s Natural Foods), 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 reclassified to conform to the current year presentation. Such reclassifications do not impact the Company's previously reported financial position or net income (loss).
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 are the senior executive management team. The Company and the decision-making group view 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 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 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, reservesinventory provisions, useful lives and
Revenue Recognition
Revenues from product sales and services rendered, net of promotional discounts, manufacturer coupons and rebates, return allowances, and sales and consumption taxes, are recorded when products are delivered, title passes to customers and collection is likely to occur. Title passes to customers at the point of sale for retail and upon delivery of products for wholesale. Return allowances, which reduce revenue, are estimated using historical experience.
The Company recognizes revenue in accordance with the following five-step model:
| ● | identify arrangements with customers; |
| ● | identify performance obligations; |
| ● | determine transaction price; |
| ● | allocate transaction price to the separate performance obligations in the arrangement, if more than one exists; and |
| ● | recognize revenue as performance obligations are satisfied. |
| F-10 |
Shipping 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 years ended December 31, 20202023 and 2019,2022, shipping and handling costs of approximately $48,000$117,000 and $82,000,$98,000, were included in cost of sales, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of three months or less, when purchased, to be cash and cash equivalents. The majority of the Company’s cash and cash equivalents are concentrated in one large financial institution, which is in excess of Federal Deposit Insurance Corporation (FDIC) coverage. AtThe Company did not have any cash equivalents as of December 31, 2020,2023 and 2022.
A summary of the financial institutions that had a cash in excess of FDIC limits of $250,000 per financial institution were approximately $0.6 million. $250,000 as of December 31, 2023 and 2022 is presented below:
SCHEDULE OF CASH AND CASH EQUIVALENTS IN EXCESS OF FDIC LIMIT
December 31, 2023 | December 31, 2022 | |||||||
| Total cash and restricted cash in excess of FDIC limits | $ | 3,814,426 | $ | 21,682,144 | ||||
The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests, as deposits are held in excess of federally insured limits. The Company’s cash equivalent at December 31, 2020 was a money market account. The Company has not experienced any losses in such accounts.
The following table provides a reconciliation of cash and restricted cash to amounts shown in consolidated statements of cash flow:
SCHEDULE OF CASH AND RESTRICTED CASH
December 31, 2023 | December 31, 2022 | |||||||
| Cash | $ | 5,081,086 | $ | 22,911,892 | ||||
| Restricted cash | 553,232 | 1,778,232 | ||||||
| Total cash and restricted cash | $ | 5,634,318 | $ | 24,690,124 | ||||
Restricted Cash
The Company’s restricted cash consisted of cash balances which were restricted as to withdrawal or usage under the August 18, 2022 security purchase agreement for the purpose of funding any amounts due under the Series E Certificate of Designation upon the redemption of the Series E Preferred Stocks. The balance also included cash held in the collateral account to cover the cash draw from the line of credit.
Accounts Receivable, Contract Assets and Contract Liabilities
Accounts receivablereceivables are claims to consideration which are unconditional; meaning no performance obligations remain for the Company and only the passage of time is necessary before collection. Contract assets are distinguished from accounts receivable as performance obligations remain before claims to consideration become unconditional. By nature of the Company’s operations, contract assets are typically not recognized. Contract liabilities are recorded when customers transfer consideration in advance of delivery of products or services, which the Company records for gift cards and loyalty reward programs. When one party to an arrangement performs before the other(s), the Company records an account receivable, contract asset or contract liability.
The majority of arrangements with customers contain one performance obligation: to provide a distinct set of products or services. Most performance obligations are satisfied simultaneously as the Company exchanges products or services for customer payment. Exceptions include gift cards and loyalty rewards, for which the Company has a performance obligation to deliver products or services at a future date. As gift cards are purchased and loyalty points earned, contract liabilities are recorded until the performance obligations are satisfied through delivery of products or services or breakage based on gift card and loyalty reward program term limits.
| F-11 |
The Company’s breakage policy is twenty-four months for gift cards, twelve months for Grocery loyalty rewards, and six months for Vapor loyalty rewards. Loyalty rewards are earned at five percent on qualifying purchases and the reward functions as an allocation of transaction price from the period earned by the customer to the period the performance obligation is satisfied by the Company. As such, all contract liabilities are expected to be recognized within a twenty-four month period.
Accounts receivable balance represents credit sales, sales on account and billing to vendors for advertising vendors’ products in our stores. Concentration of accounts receivable consist of the following:
| December 31, 2020 | December 31, 2019 | ||||
| Customer A | - | 14% | |||
| Customer B | - | 46% | |||
| Customer C | 34% | 12% | |||
SCHEDULE OF ACCOUNTS RECEIVABLE REPRESENTS CREDIT SALES
December 31, 2023 | December 31, 2022 | |||||||
| Customer A | 2 | % | 17 | % | ||||
| Customer B | 4 | % | - | % | ||||
| Customer C | - | % | 6 | % | ||||
| Customer | - | % | 6 | % | ||||
Other Current Assets
Other current assets are the non-trade related assets that the Company owns, benefits from, Merchant Credit Card Processor
Inventories
Inventories are statedmeasured at the lower of cost and net realizable value using the average cost.cost method. If the cost of the inventories exceeds their net realizable value, adjustments are recorded to write down excess inventory to their net realizable value. The Company’s inventories consist primarily of merchandise available for resale, such as vaporizers, electronic cigarettes, e-liquids,vitamins, fresh produce, perishable grocery items and non-perishable consumable goods.
Property, Plant, and Equipment
Property, plant, and equipment isare stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the expected useful life of the respective asset, after the asset is placed in service. Revenue earning property, plant, and equipment includes signage, furniture and fixtures, building, computer hardware, appliance, cooler, displays with useful lives range from two to seven years.ten years. Leasehold improvements are amortized over the shorter of the life of the asset or the term of the lease.
Identifiable Intangible Assets and Goodwill
Identifiable intangible assets are recorded at cost, or when acquired as part of a business acquisition, at estimated fair value. Certain identifiable intangible assets are amortized over 3 and 15various periods of time, ranging from 4 years to 10 years. Similar to tangible personal property and equipment, the Company periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite-lived intangible assets, such as goodwill are not amortized.
Impairment of Long-Lived Assets
The Company reviews all long-lived assets such as property, plant, and equipment and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In connection with this review, the Company also reevaluates the depreciable lives for these assets. The Company assesses recoverabilityRecoverability of assets to be held and used is measured by determining whether the net book valuea comparison of the relatedcarrying amount of an asset will be recovered throughto the projected undiscountedestimated future cash flows ofexpected to be generated by the asset. Ifasset or asset group. Impairment is measured by the Company determines thatamount by which the carrying value of the asset may not be recoverable, it measures anyasset(s) exceeds their fair value. The Company conducted the long-lived assets impairment test, and based on Step 1 qualitative assessment, the projected future discountedCompany concluded that the recurring losses coupled with the reduction in same store revenue and negative working capital were triggering events at December 31, 2023. The Company hired a third-party valuation firm to perform Step 2 quantitative assessment on long-lived assets. The Company used undiscounted cash flowsflow method at weighted average cost of capital of 16.5% as compareddiscount rate to calculate the asset’s carrying value.fair value of the total assets. Based on the Step 2 quantitative assessment, the Company’s long-lived assets were not impaired as of December 31, 2023.
| F-12 |
Goodwill
The Company assesses the carrying amounts of goodwill for recoverability on at least an annual basis or when events or changes in circumstances indicate evidence of potential impairment exists, using a fair value based test. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, and the useful life over which cash flows will occur. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for the Company. Our annual impairment test is conducted on September 30 of each year or more often if deemed necessary. As part
The Company experienced recurring losses coupled with the reduction in same store revenue, a highly competitive industry and certain operational costs that have impacted our expectations such that future growth and profitability is lower than previous estimates. Furthermore, during the fourth quarter of management's qualitative analysis at2023, the Company operated with negative working capital which, although not a determinant on its own, when combined with the other factors indicated that the Company’s goodwill of $6.1 million was determined to be impaired for the year ended December 31, 2020 to determine whether any triggering events have occurred since2023. See Note 10 - Goodwill and Intangibles. There was no impairment of goodwill during the annual test date of September 30, 2020, which would indicate an impairment. Management determined no triggering events had occurred throughyear ended December 31, 2020.
Advertising
The Company expenses advertising costs as incurred. For the years ended December 31, 20202023 and 2019,2022, the company incurred advertising expenses of $0.1 million$564,000 and $0.2 million,$146,000, respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2023 or 2022. The Company had no uncertain tax positions as of December 31, 2023 and 2022.
Leases
Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company’s incremental borrowing rates. Related operating ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by contributions from landlords, plus any prepaid rent and direct costs from executing the leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.
The Company did not have finance leases in year 2023 and 2022. If the Company enters into a finance lease in the future, it will be accounted for in accordance with ASC Topic 842.
| F-13 |
The Company accounts for stock-based compensation for employees and directors under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC 718”). These standards define 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 value of the award and is recognized over the vesting period. The value of the stock-based award is determined using an appropriate valuation model, whereby compensation cost is 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 recognize forfeitures as they are incur. 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.
Fair Value Measurements
The fair value framework under FASB’s guidance requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:
| ● | Level 1: Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2: Fair value measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and |
| ● | Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability. |
Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value when impairment is recognized or for a business combination.
Business Combination
The Company applies the provisions of ASC 815-40-35,Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company has adopted a sequencing policy, whereby,to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts. Acquisition-related expenses were expensed as incurred and recorded in selling, general and administrative expenses in the event that reclassificationconsolidated statements of contracts from equityoperations.
Recent Accounting Pronouncements
Public companies in the United States are subject to assets or liabilities is necessary pursuant to ASC 815 duethe accounting and reporting requirements of various authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the Company’s inabilitycurrent or reasonably foreseeable operating structure.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (ASC 326)” This standard replaced the incurred loss methodology with an expected loss methodology that is referred to demonstrate it has sufficient authorized shares, shares will be allocatedas the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to certain financial assets. The Company adopted ASC 326 on January 1, 2023, and estimated expected credit losses based on aging schedule, and provisioned approximately $15,000 credit loss for the year ended December 31, 2023.
| F-14 |
On November 27, 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which requires public entities to consider relevant qualitative and quantitative factors when determining whether segment expense categories and amounts are significant, and identify segment expenses on the basis of amounts that are regularly provided to the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.
On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” related to improvements to income tax disclosures. The amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The adoption of this pronouncement is not expected to have a material impact foron the foreseeable future.
Reclassification
Certain amounts in the consolidated financial statements and related notes have been reclassified to conform to the current year presentation. Such reclassifications do not impact the Company’s previously reported financial position or net loss. Below summarized reclassifications we made:
| ● | Change in contingent consideration of $333,100 was previously presented in the consolidated statement of operations in other (expense) income, net for the year ended December 31, 2022, and was reclassified out of other (expense) income, net, and presented under change in contingent consideration. | |
| ● | Investment for the amount of $9,771 was previously presented as Investment within total current assets in the December 31, 2022 consolidated balance sheet was reclassified to other current assets. |
Note 4. DISAGGREGATION OF REVENUES
The Company reports the following segments in accordance with management guidance: Vapor and Grocery. When the Company prepares its internal management reporting to evaluate business performance, we disaggregate revenue into the following categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
| December 31, 2020 | December 31, 2019 | ||||
| Vapor sales, net | $ | 2,458,945 | $ | 4,134,701 | |
| Grocery sales, net | 11,461,800 | 10,979,305 | |||
| Total revenue | $ | 13,920,745 | $ | 15,114,006 | |
| Retail Vapor | $ | 2,458,945 | $ | 4,134,243 | |
| Retail Grocery | 10,047,437 | 9,326,165 | |||
| Food service/restaurant | 1,088,162 | 1,252,167 | |||
| Online/e-Commerce | 307,487 | 362,731 | |||
| Wholesale Grocery | 18,714 | 38,242 | |||
| Wholesale Vapor | — | 458 | |||
| Total revenue | $ | 13,920,745 | $ | 15,114,006 | |
SCHEDULE OF DISAGGREGATION OF REVENUES
December 31, 2023 | December 31, 2022 | |||||||
| Vapor sales, net | $ | 617 | $ | 257,363 | ||||
| Grocery sales, net | 55,689,793 | 29,009,640 | ||||||
| Total revenue | $ | 55,690,410 | $ | 29,267,003 | ||||
| Retail Vapor | $ | - | $ | 257,363 | ||||
| Retail Grocery | 47,243,163 | 25,867,061 | ||||||
| Food service/restaurant | 8,440,245 | 3,126,709 | ||||||
| Online/e-Commerce | 6,385 | 15,870 | ||||||
| Wholesale Vapor | 617 | - | ||||||
| Total revenue | $ | 55,690,410 | $ | 29,267,003 | ||||
Note 5. INVESTMENT
In 2018, the Company invested $150,000$150,000 in common stock shares at MJ Holdings, Inc. (“MJNE”), a publicly traded company. The investment was made based on the assumption of an increase in MJNE stock due to the sales agreement with the Company. The Company recorded the investment in MJNE at fair value with changes in the fair value reported through the income statement as the stock is traded on the OTC market. Investment is classed with Level 1 of the valuation hierarchy. Fair value for the investment is based on quoted prices in active markets. Investment is presented in other current assets in consolidated balance sheets.
| F-15 |
| Description | Fair Value Measurements Using Quoted Prices in Active Market (Level 1) | Mark to Market | Final | ||||||
| Investment | $ | 24,000 | $ | (1,269) | $ | 22,731 | |||
The following table summarizes the investment measured at fair value on a recurring basis as of December 31, 2023 and 2022:
SCHEDULE OF FAIR VALUE OF INVESTMENT
| Description | Fair Value Measurements Using Quoted Prices in Active Market (Level 1) | Mark to Market | December 31, 2023 | |||||||||
| Investment | $ | 9,771 | $ | (8,485 | ) | $ | 1,286 | |||||
| Description | Fair Value Measurements Using Quoted Prices in Active Market (Level 1) | Mark to Market | December 31, 2022 | |||||||||
| Investment | $ | 23,143 | $ | (13,372 | ) | $ | 9,771 | |||||
Note 6. INVENTORIES
Inventories are statedmeasured at the lower of cost and net realizable value using the average cost.cost method. If the cost of the inventories exceeds their market value, adjustments are recorded to write down excess inventory to its net realizable value. Throughout the year, theThe Company, did not have independent third party countsas a result of its physical inventory due to the Coronavirus (COVID-19) pandemic andobservations recorded the write down of inventories amounting to $0.3approximately $2.5 million and $0.5$1.5 million approximately, in 20202023 and 2019 respectively, as a result of the findings.2022, respectively. The Company’s inventories consist primarily of merchandise available for resale.
| December 31, 2020 | December 31, 2019 | ||||
| Vapor Business | $ | 304,614 | $ | 352,230 | |
| Grocery Business | 1,444,632 | 1,404,782 | |||
| Total | $ | 1,749,246 | $ | 1,757,012 | |
SCHEDULE OF INVENTORIES
December 31, 2023 | December 31, 2022 | |||||||
| Vapor Business | $ | 66,671 | $ | 66,828 | ||||
| Grocery Business | 4,162,218 | 3,750,364 | ||||||
| Total | $ | 4,228,889 | $ | 3,817,192 | ||||
Note 7. NOTES RECEIVABLE AND OTHER INCOME
On September 6, 2018, the Company entered into a secured, 36-month36-month promissory note (the “Note”) with VPR Brands L.P. for $582,260.$582,260. The Note bears an interest rate of 7%7%, which payments thereunder are $4,141$4,141 weekly. The Company records all proceeds related to the interest of the Note as interest income as proceeds are received.
On August 31, 2022, the Company amended and restated the Secured Promissory Note (the “Amended Note”) to extend the maturity date for one year. The outstanding balance for the amended note is $211,355. The Amended Note bears an interest rate of 7%, which payments thereunder are $1,500 weekly, with such payments commencing as of September 3, 2022. The Amended Note has a balloon payment of $145,931 for all remaining accrued interest and principal balance due in the final week of the 1-year extension of the Amended Note.
In August 2023, VPR Brands L.P. settled with the Company for the remaining notes receivable balance of $145,931 by making a balloon payment of $135,000 cash. The Company recognized a loss of $10,931 from this settlement which is included in other (expense) income net in the accompanying unaudited condensed consolidated statements of operations.
A summary of the Amended Note as of December 31, 20202023 and 2022 is presented below:
| Description | Due Date | Interest Rate | Loan Amount | Payments Received | Remaining Balance | |||||||||
| Promissory Note | 9/6/2021 | 7% | $ | 582,260 | $ | 277,749 | $ | 304,511 | ||||||
SUMMARY OF AMENDED NOTES
| December 31, | ||||||||
| Description | 2023 | 2022 | ||||||
| Promissory Note | $ | - | $ | 189,225 | ||||
For the years ended December 31, 20202023 and 2019,2022, the Company had notes receivable collections of approximately $49,000$178,000 and $108,374,$59,000, respectively. These collections
| F-16 |
Note 8. ACQUISITIONS
The purchase method of accounting in accordance with ASC 805, Business Combinations, was applied for the Mother Earth’s Storehouse, Green’s Natural Foods and Ellwood Thompson’s acquisitions. This requires the total cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill. Goodwill arising from the acquisition is attributable to expected operational synergies from combining the operations of the acquired business with those of the Company. Acquisition costs are expensed as incurred and recorded to other incomein selling, general and administrative expenses in the Consolidated Statementconsolidated statements of Operations.operations.
Mother Earth’s Storehouse
On February 9, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets 3, LLC (“HCM3”), entered into an Asset Purchase Agreement with Mother Earth’s Storehouse Inc. and its shareholders. Pursuant to the Purchase Agreement, HCM3 acquired certain assets and assumed certain liabilities related to Mother Earth’s grocery stores in Kingston and Saugerties, New York. The Company intends to continue to operate the grocery stores under their existing name. The cash purchase price under the Asset Purchase Agreement was $4,472,500, with an additional $677,500 paid for inventory at closing. In addition, the Company assumed a lease obligation for the Kingston, NY store and entered into an employment agreement with the store manager.
The following table summarizes the purchase price allocation based on fair values of the net assets acquired at the acquisition date:
SUMMARY OF PURCHASE PRICE ALLOCATION BASED ON FAIR VALUES OF THE NET ASSETS ACQUIRED
| Purchase Consideration | ||||
| Cash consideration paid | $ | 5,150,000 | ||
| Purchase price allocation | ||||
| Inventory | $ | 805,000 | ||
| Property, plant, and equipment | 1,278,000 | |||
| Intangible assets | 1,609,000 | |||
| Right of use asset - operating lease | 1,797,000 | |||
| Other liabilities | (283,000 | ) | ||
| Operating lease liability | (1,797,000 | ) | ||
| Goodwill | 1,741,000 | |||
| Net assets acquired | $ | 5,150,000 | ||
| Finite-lived intangible assets | ||||
| Trade Names (8 years) | $ | 513,000 | ||
| Customer Relationships (6 years) | 683,000 | |||
| Non-Compete Agreement (5 years) | 413,000 | |||
| Total intangible assets | $ | 1,609,000 | ||
The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purpose.
The results of operations of Mother’s Earth have been included in the consolidated statements of operations as of the effective date of operations.
| F-17 |
Revenue and net income for year ended December 31, 2022 from date of acquisition were $11.9 million and $0.30 million, respectively. Acquisition-related expenses of $157,000 were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022. The expenses primarily related to legal and other professional fees.
Green’s Natural Foods
On October 14, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets IV, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Dean’s Natural Food Market of Shrewsbury, Inc., a New Jersey corporation, Green’s Natural Foods, Inc., a Delaware corporation, Dean’s Natural Food Market of Chester, LLC, a New Jersey limited liability company, Dean’s Natural Food Market of Basking Ridge, LLC, a New Jersey limited liability company, and Dean’s Natural Food Market, Inc., a New Jersey corporation (collectively, the “Sellers”), and shareholders of the Sellers. Pursuant to the Purchase Agreement, the Company acquired certain assets and assumed certain liabilities of an organic and natural health food and vitamin chain with eight store locations in New York and northern and central New Jersey (the “Stores”).
The cash purchase price under the Asset Purchase Agreement was $5,142,000, with an additional $3,000,000 provided by the seller financing in the form of a promissory note. In addition, the seller is entitled to a contingent earn-out based on a certain revenue threshold within the one-year period of the closing.
The Company recorded $1,108,000 of contingent consideration based on the estimated financial performance for the one year following closing. The contingent consideration was discounted at an interest rate of 3.8%, which represents the Company’s weighted average discount rate. Contingent consideration related to the acquisition is recorded at fair value (level 3) with changes in fair value recorded in other expense (income), net.
The following table summarizes the change in fair value of contingent consideration from acquisition date to December 31, 2023:
SCHEDULE OF CHANGE IN FAIR VALUE OF CONTINGENT CONSIDERATION
Fair Market Value - Level 3 | ||||
| Balance as of October 14, 2022 | $ | 1,108,000 | ||
| Remeasurement | (333,100 | ) | ||
| Balance as of December 31, 2022 | $ | 774,900 | ||
| Remeasurement | (774,900 | ) | ||
| Balance as of December 31, 2023 | $ | - | ||
The following table summarizes the purchase price allocation based on fair values of the net assets acquired at the acquisition date:
SUMMARY OF PURCHASE PRICE ALLOCATION BASED ON FAIR VALUES OF THE NET ASSETS ACQUIRED
| October 14, 2022 | ||||
| Purchase Consideration | ||||
| Cash consideration paid | $ | 5,142,000 | ||
| Promissory note | 3,000,000 | |||
| Contingent consideration issued to Green’s Natural seller | 1,108,000 | |||
| Total Purchase Consideration | $ | 9,250,000 | ||
| Purchase price allocation | ||||
| Inventory | $ | 1,642,000 | ||
| Property and equipment | 1,478,000 | |||
| Intangible assets | 3,251,000 | |||
| Right of use asset - Operating lease | 6,427,000 | |||
| Other liabilities | (211,000 | ) | ||
| Operating lease liability | (6,427,000 | ) | ||
| Goodwill | 3,090,000 | |||
| Net assets acquired | $ | 9,250,000 | ||
| Finite-lived intangible assets | ||||
| Trade Names (8 years) | $ | 1,133,000 | ||
| Customer Relationships (6 years) | 1,103,000 | |||
| Non-Compete Agreement (5 years) | 1,015,000 | |||
| Total intangible assets | $ | 3,251,000 | ||
| F-18 |
The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purpose.
Revenue and net income for year ended December 31, 2022 were $6.3 million and $0.05 million, respectively, from the date of acquisition through December 31, 2022. Acquisition-related expenses of $906,000 were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022. The expenses primarily related to legal and other professional fees.
Ellwood Thompson’s
On October 1, 2023, the Company through its wholly owned subsidiary, Healthy Choice Markets V, LLC, entered into an Asset Purchase Agreement with (i) ET Holding, Inc., d/b/a Ellwood Thompson’s Local Market, a Virginia corporation, (ii) Ellwood Thompson’s Natural Market, L.C., a Virginia limited liability company, and (iii) Richard T. Hood, an individual resident of the Commonwealth of Virginia. Pursuant to the Purchase Agreement, the Company acquired certain assets and assumed certain liabilities related to Ellwood Thompson’s grocery stores in Richmond, Virginia. The Company intends to continue to operate the grocery stores under their existing name.
The cash purchase price under the Asset Purchase Agreement was $750,000, and a promissory note with a fair value of $718,000 provided by the seller. The principle amount of the promissory note was $750,000 with a fair value was $718,000, and the Company expensed the discount associated with the promissory note and recognized interest expense of approximately $32,000 for the year ended December 31, 2023. In addition, the Company entered into a new lease agreement with the landlord and entered into an employment agreement with the store manager.
The following table summarizes the purchase price allocation based on fair values of the net assets acquired at the acquisition date:
SUMMARY OF PURCHASE PRICE ALLOCATION BASED ON FAIR VALUES OF THE NET ASSETS ACQUIRED
| October 1, 2023 | ||||
| Purchase Consideration | ||||
| Cash consideration paid | $ | 750,000 | ||
| Promissory note | 718,000 | |||
| Total Purchase Consideration | $ | 1,468,000 | ||
| Purchase price allocation | ||||
| Inventory | $ | 851,000 | ||
| Intangible assets | 291,000 | |||
| Right of use asset - Operating lease | 1,325,000 | |||
| Other liabilities | (31,000 | ) | ||
| Operating lease liability | (1,325,000 | ) | ||
| Goodwill | 357,000 | |||
| Net assets acquired | $ | 1,468,000 | ||
| Finite-lived intangible assets | ||||
| Trade Names (8 years) | $ | 291,000 | ||
| Total intangible assets | $ | 291,000 | ||
| F-19 |
The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purposes.
Revenue and net income were $3.1 million and $0.3 million, respectively, from the date of acquisition through December 31, 2023. Acquisition-related expenses of $131,000 were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2023. The expenses primarily related to legal and other professional fees.
Revenue and Earnings
The following unaudited pro forma summary presents consolidated information of the Company, including Mother Earth’s Storehouse, Green’s Natural Foods and Ellwood Thompson’s, as if the business combinations had occurred on January 1, 2022, the earliest period presented herein:
SCHEDULE OF SUPPLEMENTAL PRO FORMA INFORMATION
| 2023 | 2022 | |||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Sales | $ | 65,262,783 | $ | 68,786,398 | ||||
| Net loss | (18,670,111 | ) | (4,171,713 | ) | ||||
The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible and remove non-recurring transaction costs directly associated with the acquisitions, such as legal and other professional service fees. The proforma data gives effects to actual operating results prior to the acquisition. These proforma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions occurred as of the beginning of each period presented or that may be obtained in future periods. For the year ended December 31, 2022, the pro forma financial information excludes $1,063,000 of non-recurring acquisition-related expenses. For the year ended December 31, 2023, the pro forma financial information excludes $131,000 of non-recurring acquisition-related expenses.
Note 8. 9. PROPERTY, &PLANT, AND EQUIPMENT
Property, plant, and equipment consistsconsist of the following
| Year Ended December 31, | |||||
| 2020 | 2019 | ||||
| Displays | $ | 305,558 | $ | 305,558 | |
| Furniture and fixtures | 246,496 | 246,496 | |||
| Leasehold improvements | 128,004 | 128,004 | |||
| Computer hardware & equipment | 143,082 | 143,863 | |||
| Other | 276,711 | 251,268 | |||
| 1,099,851 | 1,075,189 | ||||
| Less: accumulated depreciation and amortization | (869,132) | (742,899) | |||
| Total property and equipment | $ | 230,719 | $ | 332,290 | |
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT
| 2023 | 2022 | |||||||
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Displays | $ | 312,146 | $ | 312,146 | ||||
| Building | 575,000 | 575,000 | ||||||
| Furniture and fixtures | 596,355 | 560,256 | ||||||
| Leasehold improvements | 1,925,385 | 1,910,719 | ||||||
| Computer hardware & equipment | 190,019 | 160,210 | ||||||
| Other | 688,774 | 587,602 | ||||||
| Property and equipment, gross | 4,287,679 | 4,105,933 | ||||||
| Less: accumulated depreciation and amortization | (1,552,427 | ) | (993,025 | ) | ||||
| Total property, plant, and equipment | $ | 2,735,252 | $ | 3,112,908 | ||||
The Company incurred approximately $0.1$0.6 million and $0.2$0.3 million of depreciation expense for the years ended December 31, 20202023 and 2019,2022, respectively.
| F-20 |
Note 9. 10. GOODWILL AND INTANGIBLE ASSETS
The Company tests goodwill for impairment annually on September 30 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its estimated fair value.
The Company experienced recurring losses coupled with the reduction in same store revenue, a highly competitive industry and certain operational costs that have impacted our expectations such that future growth and profitability is lower than previous estimates. Furthermore, during the fourth quarter of 2023, the Company operated with negative working capital which, although not a determinant on its own, when combined with the other factors indicated that the Company’s goodwill may be impaired.
Because the qualitative test indicated that the Company’s goodwill was determined to be impaired, a second phase of the goodwill impairment test (“Step 2”) was performed. Under Step 2, the fair value of the Company was estimated for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of the impairment. The Company evaluated the carrying value of its goodwill by estimating the fair value of its consolidated business operationsequity through the use of Guideline Public Company Method and Discounted Cash Flow Method. These two methods first calculated market value of invested capital, then the Company applied 50% of weighting to each method to derive the weight equity value. The Guideline Public Company Method calculated the Company’s equity using public markets’ relevant comparable set with market multiples that are applicable to the company. The Discounted Cash Flow Method discounted projected free cashflows of the Company at a computed weighted average cost of capital of 16.5% as the discount rate. The Discounted Cash Flow Method requires the use of significant estimates and assumptions to calculate projected future cash flow, models, which requiredweighted average cost of capital, and future economic and market conditions. The Company based the forecasts on its knowledge of the industry, recent performance and expected future performance, and other assumptions management believes to make significant judgments as tobe reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
As a result, the estimated future cash flows. The ceased retail grocery store expansion coupled with the reduction in revenue resulting from increased competition adversely impacted the Company’s projected cash flows and profits. Accordingly,entire $6.1 million carrying amount of the Company’s goodwill was evaluated for impairment. Our 2020 annualrecognized as a non-cash impairment test resulted in an impairment being recorded. As part of management's qualitative analysis atcharge during the year ended December 31, 2020 to determine whether any triggering events have occurred since2023. There was no impairment of goodwill during the annual test date of September 30, 2020, which would indicate an impairment. Management determined not triggering events had occurred throughyear ended December 31, 2020.
The changes in the carrying amount of goodwill for the years ended December 31, 20202023 and 20192022 are as follows:
| December 31, 2020 | December 31, 2019 | ||||
| Beginning balance | $ | 956,000 | $ | 1,437,314 | |
| Impairment of goodwill-retail business | (40,000) | (481,314) | |||
| Ending balance | $ | 916,000 | $ | 956,000 | |
SCHEDULE OF CHANGES IN CARRYING AMOUNT OF GOODWILL
| December 31, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | 5,747,000 | $ | 916,000 | ||||
| Acquisitions | 357,000 | 4,831,000 | ||||||
| Impairment | (6,104,000 | ) | - | |||||
| Ending balance | $ | - | $ | 5,747,000 | ||||
Intangible assets, net are as follows:
SCHEDULE OF INTANGIBLE ASSETS, NET
| December 31, 2023 | Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Customer relationships | 4-6 years | $ | 2,669,000 | $ | (1,330,972 | ) | $ | 1,338,028 | ||||||
| Trade names | 8-10 years | 2,860,000 | (1,035,443 | ) | 1,824,557 | |||||||||
| Patents | 10 years | 397,165 | (199,001 | ) | 198,164 | |||||||||
| Non-compete | 4-5 years | 1,602,000 | (586,067 | ) | 1,015,933 | |||||||||
| Intangible assets, net | $ | 7,528,165 | $ | (3,151,483 | ) | $ | 4,376,682 | |||||||
| F-21 |
| December 31, 2020 | Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||
| Customer relationships | 4-5 years | $ | 883,000 | $ | (475,073) | $ | 407,927 | ||||
| Trade names | 8-10 years | 923,000 | (441,786) | 481,214 | |||||||
| Patents | 10 years | 359,665 | (85,641) | 274,024 | |||||||
| Non-compete | 4 years | 174,000 | (88,813) | 85,187 | |||||||
| Intangible assets, net | $ | 2,339,665 | $ | (1,091,313) | $ | 1,248,352 | |||||
| December 31, 2019 | Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||
| Customer relationships | 4-10 years | $ | 1,228,000 | $ | (293,260) | $ | 934,740 | ||||
| Trade names | 8-10 years | 993,000 | (354,203) | 638,797 | |||||||
| Patents | 10 years | 270,250 | (49,027) | 221,223 | |||||||
| Non-compete | 4 years | 174,000 | (45,313) | 128,687 | |||||||
| Intangible assets, net | $ | 2,665,250 | $ | (741,803) | $ | 1,923,447 | |||||
| December 31, 2022 | Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Customer relationships | 4-6 years | $ | 2,669,000 | $ | (1,033,306 | ) | $ | 1,635,694 | ||||||
| Trade names | 8-10 years | 2,569,000 | (725,723 | ) | 1,843,277 | |||||||||
| Patents | 10 years | 384,665 | (159,658 | ) | 225,007 | |||||||||
| Non-compete | 4-5 years | 1,602,000 | (300,467 | ) | 1,301,533 | |||||||||
| Intangible assets, net | $ | 7,224,665 | $ | (2,219,154 | ) | $ | 5,005,511 | |||||||
Amortization expense was approximately $0.4$0.9 million and $0.8 million for the periodyears ended December 31, 20202023 and 2019.
The weighted-average remaining amortization period of the Company’s amortizable intangible assets is approximately 75 years as of December 31, 2020.2023. The estimated future amortization of the intangible assets is as follows:
| For the years ending December 31, | |||
| 2021 | $ | 385,091 | |
| 2022 | 369,706 | ||
| 2023 | 130,841 | ||
| 2024 | 130,841 | ||
| 2025 | 125,341 | ||
| Thereafter | 106,532 | ||
| Total | $ | 1,248,352 | |
SCHEDULE OF FUTURE ANNUAL ESTIMATED AMORTIZATION EXPENSE
| - | ||||
| For the years ending December 31, | ||||
| 2024 | $ | 959,391 | ||
| 2025 | 953,891 | |||
| 2026 | 875,910 | |||
| 2027 | 731,489 | |||
| 2028 | 412,819 | |||
| Thereafter | 443,182 | |||
| Total | $ | 4,376,682 | ||
Note 10. 11. CONTRACT LIABILITIES
The Company’s contract liabilities consist of customer deposits, gift cards and loyalty rewards, for which the Company has a performance obligation to deliver products when customers redeem balances or terms expire through breakage. The Company’s breakage policy is twenty-four months for gift cards, twelve months for Grocery loyalty rewards, and six months for Vapor loyalty rewards. As such, all contract liabilities are expected to be recognized within a twenty-four month period.
A summary of the contract liabilities activity for the years ended December 31, 20202023 and 20192022 is presented below:
| Year ended December 31, | |||||
| 2020 | 2019 | ||||
| Beginning balance as of January1, | $ | 26,823 | $ | 442,630 | |
| Issued | 53,929 | 48,876 | |||
| Redeemed | (58,263) | (54,724) | |||
| Breakage recognized | (1,227) | (1,696) | |||
Fulfillment of contracts (1) | — | (408,263) | |||
| Ending balance as of December 31, | $ | 21,262 | $ | 26,823 | |
SUMMARY OF CONTRACT LIABILITIES ACTIVITY
| 2023 | 2022 | |||||||
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Beginning balance as of January1, | $ | 198,606 | $ | 23,178 | ||||
| Issued | 891,060 | 859,383 | ||||||
| Redeemed | (812,694 | ) | (628,012 | ) | ||||
| Breakage recognized | (69,459 | ) | (55,943 | ) | ||||
| Ending balance as of December 31, | $ | 207,513 | $ | 198,606 | ||||
Note 12. “Commitments and Contingencies” for additional information.
The following table provides a breakdown of the Company'sCompany’s debt as of December 31, 20202023 and 2022 is presented below:
SCHEDULE OF BREAKDOWN OF DEBT
| 2023 | 2022 | |||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Promissory note | $ | 3,106,508 | $ | 2,460,556 | ||||
| Line of credit | 453,232 | 453,232 | ||||||
| Other debt | - | 815 | ||||||
| Total debt | 3,559,740 | 2,914,603 | ||||||
| Current portion of long-term debt | (1,155,933 | ) | (536,542 | ) | ||||
| Long-term debt | $ | 2,403,807 | $ | 2,378,061 | ||||
| F-22 |
| Amount | |||
| Line of Credit | $ | 2,000,000 | |
| Term Loan Credit Agreement | 800,924 | ||
| Paycheck Protection Program | 882,264 | ||
| Loan and Security Agreement ("PPE Loan") | 1,232,414 | ||
| Other debt | 5,891 | ||
| Total Line of Credit and Debt | $ | 4,921,493 | |
Revolving Line of Credit
On April 13, 2018,November 3, 2021, the Company agreed toentered into an agreement for a new revolving credit line of $2.0credit of $2.0 million and a money marketblocked/restricted deposit account of $2.0 million (“blocked account”) with Professional Bank in Coral Gables, Florida. On September 30, 2020, the Company reached agreement with Professional Bank to renew the credit line for one more year, and the next annual review will occur on or before July 15, 2021. The new agreement included a variable interest rate that it is based on a rate of 1.5%1.0% over what is earned on the collateral amount. The collateral amount established inaccount. Based on the arrangementagreement with the bank, is $2.0 million. Aseach draw request from the credit line will be 100% cash secured with moneys held from the blocked account. The outstanding balance was $453,232 as of December 31, 2020,2023 and 2022, respectively. The line of credit will expire in November 2024.
Promissory Note
In connection with the Company had $2.0 million in the blocked account, which is recorded as restricted cash included in non-current assets.
| Year | Principal Payment | ||
| 2021 | $ | 280,000 | |
| 2022 | 280,000 | ||
| 2023 | 240,924 | ||
| Expected payments for the upcoming years | $ | 800,924 | |
| Plus: Payments made through 2020 | 599,076 | ||
| Total Payments | $ | 1,400,000 | |
In connection with the Ellwood Thompson’s acquisition, on October 1, 2023, the Company issued a secured promissory note (the “Ellwood Note”) in the principal amount of $750,000, and discounted present value of $718,000 as a portion of the purchase price. The Ellwood Note has a five-year term, an interest rate of personal protective equipment (“PPE”)6.0% per annum. The outstanding balance of the Ellwood Note was approximately $728,000 in principle amount as of December 31, 2023. The Company expensed the discount on promissory note and recognized interest expense of approximately $39,000 for the year ended December 31, 2023.
The Company may, at its option, at any related expensestime or from time to time prepay the transactions. The Lender is entitled to 20%outstanding principal amount or any accrued but unpaid interest, in each case in whole or in part, without penalty or premium, provided that any such prepayment of any outstanding amount of principal shall be accompanied by the payment of all Net profits received from the sales of the PPE goods through the maturity date.
The following table summarizes the first month following the acceptance date of the extension.
SCHEDULE OF MATURITIES OF LONG TERM DEBT
| - | ||||
| For the years ending December 31, | ||||
| 2024 | $ | 702,701 | ||
| 2025 | 746,042 | |||
| 2026 | 792,056 | |||
| 2027 | 724,333 | |||
| 2028 | 141,376 | |||
| Total | $ | 3,106,508 | ||
Note 12. 13. COMMITMENTS AND CONTINGENCIES
Employment Agreements
On August 13, 2018, the Company amended and restated its subsidiaries in connectionexisting employment agreement with alleged claimed battery defectsJeffrey Holman, the Company’s Chief Executive Officer (the “Holman Employment Agreement”). The Holman Employment Agreement is for an electronic cigarette device. Plaintiffs claim these batteries were soldadditional three year term and provides for an annual base salary of $450,000 and a target bonus for 2020 only in an amount ranging from 20% to 200% of his base salaries subject to the Company meeting certain earnings before interest, taxes depreciation and amortization performance milestones. Mr. Holman is entitled to receive severance payments, including two years of his then base salary and other benefits in the event of a change of control, termination by a storethe Company without cause, termination for good reason by the executive or non-renewal by the Company. Mr. Holman was also granted billion shares of restricted common stock pursuant to the Holman Employment Agreement Amendment on the condition that billion of his options to purchase Company common stock are forfeited. This restricted stock will vest following the date of issuance provided that the grantee remains an employee of the Company through each applicable vesting date. On August 12, 2019, the Company agreed to extend the expiration date of the vesting period for the restricted stock by six months to February 13, 2020. On August 12, 2020, the Company agreed to extend for a second time the expiration date of the vesting period for the restricted stock by six months to February 13, 2021.The term of the employment agreement shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term.
| F-23 |
On February 26, 2021, the Company entered into an amended and restated employment agreement (the “Employment Agreement Amendment”) with the Company’s subsidiaryPresident and have sued for an undetermined amount of damages (other than a total of $0.4 million of medical costs). The initial complaints were filed between January 2019 and April 2019. We respondedChief Operating Officer, Christopher Santi. Pursuant to the complaints on April 2019Employment Agreement Amendment, Mr. Santi will continue to be employed as the Company’s President and May 2019, respectively. GivenChief Operating Officer through January 30, 2024. Mr. Santi will receive a base salary of $0.4 million for 2021 and his salary will increase 10% in each subsequent year. The term of the lackamended employment agreement shall be automatically renewed for successive one-year terms unless notice of information presentednon-renewal is given by either party at least 30 days before the plaintiffs to date,end of the Term.
On February 02, 2022, the Company entered into a second amended and restated employment agreement (the “Employment Agreement Amendment”) with the Company’s Chief Financial Officer, John Ollet. Pursuant to the Employment Agreement Amendment, Mr. Ollet will continue to be employed as the Company’s Chief Financial Officer through February 14, 2025. Mr. Ollet will receive a base salary of $0.3 million for 2022 and his salary will increase 10% in each subsequent calendar year. The term of the amended and restated employment agreement shall be automatically renewed for successive one-year terms unless notice of non-renewal is unable to predictgiven by either party at least 30 days before the outcomeend of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to these legal proceedings.
Legal Proceedings
On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc., and Philip Morris Products S.A. in the U.S. District Court for the Northern District of Georgia. The lawsuit alleges infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS®”. Philip Morris claims that it is currently approaching 14 million users of its IQOS® product and has reportedly invested over $3 $3 billion in their smokeless tobacco products. On December 3, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc., and Philip Morris Products S.A. On December 14, 2021, the Company filed an appeal of the District Court for the Northern District of Georgia’s dismissal of the Company’s patent infringement action against Philip Morris USA, Inc., and Philip Morris Products S.A.
On December 31, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. In connection with such dismissal, the defendants sought to recover attorney’s fees from the Plaintiff. On February 22, 2022, the District Court for the Northern District of Georgia granted the defendant’s an award of approximately $575,000 in attorneys’ fees to be paid by the Company. The Company fully provisioned this amount as of December 31, 2021. HCMC appealed this ruling on June 22, 2022.
On April 12, 2023, the U.S. Court of Appeals for the Federal Circuit ruled in favor of HCMC on two separate appeals it had filed in its patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. pending in the district court for the Northern District of Georgia.
In the first appeal, HCMC appealed the ruling of the District Court dismissing HCMC’s patent infringement action and denying HCMC’s motion to amend its pleading. In the second appeal, HCMC appealed the District Court’s award of attorneys’ fees to Philip Morris. In its decisions, the Federal Circuit ruled for HCMC by reversing both of those decisions and remanded the case back to the District Court for further proceedings. As a result of the ruling, the Company reversed the $575,000, which was previously fully provisioned, during the three months ended March 31, 2023.
| F-24 |
There were two lawsuits in connection with alleged claimed battery defects for an electronic cigarette device. One has been dismissed by the court wherein the plaintiff settled with the Company’s insurance carrier with no economic impact to the Company. In the second lawsuit, as of December 31, 2023, the Company has reached an arrangement with the plaintiff to resolve the matter, limiting potential exposure to $1.5 million. While this arrangement is presently not formalized by a signed agreement, the Company has accrued a liability of $1.5 million, reflected in accounts payable and accrued expenses, to represent management’s estimate of the probable settlement amount based on the current status of discussions. The settlement remains subject to finalization, and until a definitive agreement is executed, no assurance can be given that the outcome will differ from this accrual. The case has been removed from the courts trial calendar.
On September 26, 2023, HCMC filed a patent infringement lawsuit against R.J. Reynolds Vapor Company (“RJR”) in the U.S. District Court for the Middle District of North Carolina in connection with HCMC’s assertions that RJR’s Vuse electronic cigarette infringes one of HCMC’s patents.
From time to time the Company is involved in legal proceedings arising in the ordinary course of our business. We believe that there is no other litigation pending that is likely to have, individually or in the aggregate, a material adverse effect on our financial condition or results of operationsoperations. As of December 31, 2020. With2023, with respect to legal costs, we record such costs as incurred.
On July 7, 2023, the Company entered into a patent licensing agreement for one of its patents in the vape segment. The Company hasas the licensor, grants to licensee during the term a non-exclusive right and license under the Licensed Patents to certainmake, use, offer to sell, sell, and import licensed products in the territory of the United States of America. The licensee will pay to the licensor a royalty based on net sales of all licensed products in the territory during the term of the agreement. Either party can cancel the agreement with Fontem Ventures B.V. (“Fontem”).60-days written notice. The Company will make quarterly license and royalty payments in perpetuity to Fontem, based on the sale of qualifying products as definedis still in the license agreement at a royalty rateprocess of 5.25%. Forbuilding this operation, and no product sales or no royalties earned as of the years ended December 31, 2020 and 2019, the Company recorded expensesdate of $15,000 and $40,000 as part of its cost of goods.
Note 14. STOCKHOLDERS’ EQUITY
Equity Compensation Plans
The Company’s 2015 Equity Incentive Plan, as amended (the(the “2015 Plan”), awards grants to employees. On April 23, 2023, the Board of Directors (the “Board”) of HCMC approved the Second Amendment to the 2015 Equity Incentive Plan (the “Amended Plan”). The plan can award up to 100 billionAmended Plan increased the number of shares of HCMC common stock authorized for issuance under the Amended Plan to shares, and currently 11.1 billion shares are available for grant as of December 31, 2020.
The Company’s 2009 Equity Incentive Plan (the(the “2009 Plan”) awards grants to employees, non-employee directors and consultants in connection with their retention and/or continued employment by the Company. The 2009 Plan had shares of common stock available for grant as of December 31, 2020.
Series D Convertible Preferred Stock
On February 7, 2021, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold and restated articlesissued shares of incorporation authorizesits Series D Convertible Preferred Stock (the “Preferred Stock”) to accredited investors for $ per share or an aggregate subscription of $5.0 million. In 2021, shares of Series D Convertible Preferred Stock were exercised and converted into common stocks. As of December 31, 2023, the Company issued billion shares of the Company’s Board of Directors to issue up to 1,000,000 shares of “blank check” preferredcommon stock having a $0.001 par value, in one or more series without stockholder approval. Each such series of preferred stock may have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as determined by the Company’s Board of Directors. See below for details associatedconnection with the designationexercise of the 1,000,000remaining shares of the Series A preferred stock.
Series E Redeemable Convertible Preferred Stock
On November 17, 2020,August 18, 2022, the Company finalizedentered into a Securities Purchase Agreement (“HCMC Preferred Stock”) pursuant to which the closing of the stock exchange with certain holdersCompany sold and issued shares of its Series BE Convertible Preferred Stock to exchange allinstitutional investors for $ per share or an aggregate subscription of $ million. The number of shares issued to each participant is based on subscription amount multiplied by conversion rate of 1.1111. The Company also incurred offering costs of approximately $410,000, which covers legal and consulting fees.
| F-25 |
For the Series B Stock for 20,150year ended December 31, 2023, shares of Series C ConvertibleE preferred stock were converted into shares of common stock as a result of the Series E preferred stock conversion. shares of Series E preferred stock were redeemed and approximately $12,004,000 was paid for redemption.
The HCMC Preferred Stock (the “Series C Stock”).have voting rights on as converted basis at the Company’s next stockholders’ meeting. However, as long as any shares of HCMC Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the HCMC Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the HCMC Preferred Stock or alter or amend the Certificate of Designation, (b) increase the number of authorized shares of HCMC Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing. Each share of Series CPreferred Stock hasshall be convertible, at any time and from time to time at the option of the Holder thereof, into that number of shares of Common Stock (subject to the beneficial ownership limitations). The conversion price for the HCMC Preferred Stock shall equal $0.0001.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designation), the holders of HCMC Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $ per share of HCMC Preferred Stock.
Unless earlier converted or extended as set forth below, a holder may require the redemption of all or a portion of the stated value equalof the HCMC Preferred Stock either (1) six months after closing or (2) the time at which the balance is due and payable upon an event of default.
On March 1, 2023, the Company entered into a First Amendment to $1,000 and is convertible into CommonHCMC Series E Preferred Stock on a fixed basis at awith each purchaser (“Purchaser”) identified as those who participated in the HCMC Series E Preferred Stock, dated as of August 18, 2022. The parties amended the HCMC Preferred Stock related to the conversion price of $0.0001 per share.
On May 15, 2023, the Company will deliver only common stock upon exercise of the Series A Warrants.
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Term (Yrs.) | ||||||
| Outstanding at January 1, 2019 | 3,828,729 | $ | 1,522,692 | 1.6 | ||||
| Warrants exercised | (6,915) | 1,518,029 | ||||||
| Outstanding at December 31, 2019 | 3,821,814 | $ | 1,517,936 | 0.6 | ||||
| Warrants exercised | (3,466,153) | 1,511,100 | ||||||
| Warrants expired | (355,661) | - | ||||||
| Outstanding at December 31, 2020 | - | $ | - | - | ||||
On October 30, 2023, the Company entered into a Third Amendment to the Securities Purchase Agreement with its Series E Redeemable Convertible Preferred Stock purchasers. The parties agreed to: (1) set the initial conversion price for the Series A Preferred Stock to be the 5-day volume weighted average price measured using the 5 trading days preceding the purchase of the Series A Preferred Stock, (2) on the 40th calendar day (the “Reset Date”) after the sale of the Series A Preferred Stock, reset the conversion price in the event the closing price of the Class A common stock on such date is less than the initial conversion, (3) have the reset conversion price equal a 10% discount to the 5-day volume weighted average price measured using the 5 trading days preceding the Reset Date; provided, however, in no instance will the conversion price be reset below 30% of the initial conversion price, and (4) amend the date on which the obligation to acquire the Series A Preferred Stock ceases to March 1, 2024.
On February 20, 2024, the Company entered into a Fourth Amendment to the Securities Purchase Agreement with its Series E Redeemable Convertible Preferred Stock purchasers, pursuant to which the Company and such parties agreed to amend the date on which the obligation to acquire the Series A Preferred Stock ceases to June 1, 2024.
Spin-Off
The Company is planning to spin off its grocery segment and wellness business into a new publicly traded company (hereinafter referred to as “NewCo”). NewCo will continue the path of growth in the health verticals started by HCMC and explore other growth opportunities that comport with HCMC’s healthier lifestyle mission. HCMC will retain its entire patent suite, the Q-Cup® brand, and continue to develop its patent suite through R&D as well as continuing its path of enforcing its patent rights against infringers and attempting to monetize said patents through licensing deals.
| F-26 |
At the time of the Spin-Off, HCMC will distribute all the outstanding shares of Common Stock held by it on a pro rata basis to holders of HCMC’s common stock. Each share of HCMC’s common stock outstanding as the record date for the Spin-Off (the “Record Date”), will entitle the holder thereof to receive shares of Common Stock in NewCo. The distribution will be made in book-entry form by a distribution agent. Fractional shares of Common Stock will not be distributed in the Spin-Off and any fractional amounts will be rounded down.
Pursuant to the Securities Purchase Agreement, purchasers of the Series E Convertible Preferred Stock will also be required to purchase Series A Convertible Preferred Stock (“NewCo Series A Stock”) of a newly created NewCo resulting from spin off of HCMC’s grocery and wellness businesses in the same subscription amounts that the Purchasers paid for the HCMC Preferred Stock.
On October 27, 2023, the Company filed a new registration statement on Form S-1 (the “Spin-off S-1”) in connection with the spin-off of all of the existing HCWC common stock by six months to February 13, 2020.
On August 12, 2020,October 30, 2023, the Company agreedfiled Amendment No. 1 to extendits registration statement on Form S-1 (the “IPO S-1”) with the Commission.
On December 20, 2023, the Company filed Amendment No. 1 to its Spin-off S-1 with the Commission.
On December 21, 2023, the Company filed Amendment No. 2 to its IPO S-1 with the Commission.
Restricted Stock
On January 1, 2022, the Company granted restricted shares of common stock to a non-employee for a second timeservice rendered with fair value of $ that would vest % each quarter starting from June 30, 2023 through March 31, 2024.
On December 14, 2022, the expiration dateCompany granted shares of restricted stocks with fair value of $ to the vesting period for the restricted stock by six months to February 13, 2021.
On April 23, 2023, HCMC’s board of directors has approved anthe issuance of restricted stock to the Chief Financial Officer (the "Officer") of the Company. The Officer was granted 3 billionapproximately shares of restricted common stock whichto the employees and executive officers of HCMC. Each grant of restricted common stock will commence vesting of % of the award on February 1, 2024 and will vest one year followingin % increments on the datelast day of each calendar quarter thereafter through September 30, 2025. All shares of restricted common stock related to the April 23, 2023 issuance provided that the grantee remains an employeeremain unvested as of the Company through the vesting date; the vesting schedule was extended and additional six months on August 12, 2019. During the year ended December 31, 2019,2023.
SCHEDULE OF UNVESTED RESTRICTED STOCK
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Unvested at January 1, 2023 | 5,500,000,000 | $ | 550,000 | |||||
| Granted | 107,675,000,000 | 10,767,500 | ||||||
| Vested | (1,625,000,000 | ) | (162,500 | ) | ||||
| Forfeited | - | - | ||||||
| Unvested at December 31, 2023 | 111,550,000,000 | $ | 11,155,000 | |||||
| F-27 |
Stock Options
A summary of option activity during the years ended December 31, 20202023 and 20192022 is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Term (Yrs.) | Aggregate Intrinsic Value | ||||||||
| Outstanding, January 1, 2019 | 68,312,230,680 | $ | 0.00 | 8 | $ | - | |||||
| Options granted | 2,300,000,000 | 0.00 | - | ||||||||
| Options forfeited or expired | (750,000,000) | 0.00 | - | ||||||||
| Outstanding, December 31, 2019 | 69,862,230,680 | $ | 0.00 | 7 | $ | - | |||||
| Options granted | - | 0.00 | - | ||||||||
| Options forfeited or expired | - | 0.00 | - | ||||||||
| Outstanding, December 31, 2020 | 69,862,230,680 | $ | 0.00 | 6 | - | ||||||
| Exercisable at December 31, 2020 | 69,862,230,680 | $ | 0.00 | 6 | $ | - | |||||
SUMMARY OF OPTION ACTIVITY
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Term (Yrs.) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2022 | 67,587,230,680 | $ | 0.0001 | $ | - | |||||||||||
| Options granted | - | 0.0001 | - | |||||||||||||
| Options forfeited or expired | 0.0001 | - | ||||||||||||||
| Outstanding, December 31, 2022 | 67,587,230,680 | $ | 0.0001 | $ | - | |||||||||||
| Options granted | - | 0.0001 | - | |||||||||||||
| Options exercised | - | 0.0001 | - | |||||||||||||
| Options forfeited or expired | (8,480 | ) | 0.0001 | - | ||||||||||||
| Outstanding, December 31, 2023 | 67,587,222,200 | $ | 0.0001 | - | ||||||||||||
| Exercisable on December 31, 2023 | 67,587,222,200 | $ | 0.0001 | 3 | $ | - | ||||||||||
During the years ended December 31, 20202023 and 2019,2022, the Company recognized stock-based compensation expense of approximately $0.1 million$ and $0.4 million,$, respectively, in connection with the amortization of stock options, net of recovery of stock-based charges for forfeitedrestricted stocks and stock options. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.
Income (Loss) per Share
Basic income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon (a) the exercise of stock options (using the treasury stock method); (b) the conversion of Series AD and Series E convertible preferred stock;stocks; (c) the exercise of warrants (using the if-converted method); (d) the vesting of restricted stock units; and (e) the conversion of convertible notes payable. Diluted income (loss) per share excludes the potential common shares, as their effect is antidilutive. The following table summarizes the Company’s securities that have been excluded from the calculation of basic and dilutive income (loss) per share as their effect would be anti-dilutive:
| 2023 | 2022 | |||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Preferred stock | 11,111,000,000 | 148,470,000,000 | ||||||
| Stock options | 67,587,222,200 | 67,587,230,680 | ||||||
| Restricted stock | 113,175,000,000 | 5,500,000,000 | ||||||
| Total | 191,873,222,200 | 221,557,230,680 | ||||||
| F-28 |
| December 31, | |||||
| 2020 | 2019 | ||||
| Preferred stock | 162,771,153,000 | 201,501,142,000 | |||
| Stock options | 69,862,230,680 | 68,362,230,680 | |||
| Warrants | - | 41,437,627,105 | |||
| Total | 232,633,383,680 | 311,300,999,785 | |||
| Year Ended December 31, | |||||
| 2020 | 2019 | ||||
| Basic | 90,351,540,618 | 66,977,667,455 | |||
| Effect of exercise stock options | - | - | |||
| Effect of exercise warrants | - | - | |||
| Diluted | 90,351,540,618 | 66,977,667,455 | |||
Note 14. LEASE
The Company has various lease agreements with terms up to 20 years, including leases of retail stores, headquarterheadquarters and equipment. All the leases are classified as operating leases.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of December 31, 2020.
| Maturity of Lease Liabilities by Fiscal Year | ||
| 2021 | $ | 631,978 |
| 2022 | 564,478 | |
| 2023 | 450,877 | |
| 2024 | 342,005 | |
| 2025 | 337,685 | |
| Thereafter | 2,209,009 | |
| Total undiscounted operating lease payments | $ | 4,536,032 |
| Less: Imputed interest | (946,825) | |
| Present value of operating lease liabilities | $ | 3,589,207 |
| Balance Sheet Classification | ||
| Operating lease liability, current | $ | 474,686 |
| Operating lease liability, net of current | 3,114,521 | |
| Total operating lease liabilities | $ | 3,589,207 |
SCHEDULE OF MATURITY OF LEASE LIABILITIES
| Maturity of Lease Liabilities by Fiscal Year | ||||
| 2024 | $ | 3,212,909 | ||
| 2025 | 2,862,488 | |||
| 2026 | 2,521,339 | |||
| 2027 | 1,535,080 | |||
| 2028 | 834,710 | |||
| Thereafter | 1,363,363 | |||
| Total undiscounted operating lease payments | $ | 12,329,889 | ||
| Less: Imputed interest | (1,021,443 | ) | ||
| Present value of operating lease liabilities | $ | 11,308,446 |
The following summarizes the Company’s operating leases:
SCHEDULE OF BALANCE SHEET CLASSIFICATION AND OTHER INFORMATION
| Balance Sheet Classification | December 31, 2023 | December 31, 2022 | ||||||
| Right of use asset | $ | 11,511,002 | $ | 10,604,935 | ||||
| Operating lease liability, current | $ | 2,842,829 | $ | 2,228,852 | ||||
| Operating lease liability, net of current | 8,465,617 | 8,041,504 | ||||||
| Total operating lease liabilities | $ | 11,308,446 | $ | 10,270,356 | ||||
The amortization of the right-of-use asset of approximately $2,590,000 and $1,164,000 for the years ended December 31, 2023 and 2022, respectively, were included in operating cash flows.
| Other Information | ||||
| Weighted-average remaining lease term for operating leases | 5 years | |||
| Weighted-average discount rate for operating leases | % | |||
Rent expense for the years ended December 31, 20202023 and 20192022 was approximately $1.0 million,$3,500,000 and $1,500,000, respectively, is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
The following table represents the components of lease cost are as follows for twelve months ended December 31, 2020:
| December 31, 2020 | ||
| Operating lease cost | $ | 480,314 |
| Variable lease cost | 353,887 | |
| Short-term lease cost | 116,709 | |
| Total Rent Expense | $ | 950,910 |
SCHEDULE OF LEASE EXPENSE
| December 31, 2023 | ||||
| Operating lease cost | $ | 2,265,820 | ||
| Variable lease cost | 944,987 | |||
| Short-term lease cost | 324,507 | |||
| Total rent expense | $ | 3,535,313 | ||
The aggregate cash payments under the present value of operating lease liabilitiesleasing arrangement was $511,000approximately $2,458,000 for the 2020year ended December 31, 2023 and was included in operating cash flows. The amortization of the right-of-use asset of $584,398 was included in operating cash flows.
| F-29 |
| Balance Sheet Classification | January 1, 2020 | December 31, 2020 | |||||||
| Right of use asset | Other assets | $ | 4,663,019 | $ | 4,078,621 | ||||
| Lease liability, current | Current liabilities | $ | 555,959 | $ | 474,686 | ||||
| Lease liability, net of current | Other liabilities | $ | 3,544,729 | $ | 3,114,521 | ||||
Note 15.16. INCOME TAXES
The Company did not have a provision for income taxes (current or deferred tax expense) for tax years ended December 31, 2020 and 2019. The following is a reconciliation of thes expected tax expense (benefit) at the U.S. statutory rate to the actual tax expense (benefit) reflected in the accompanying statement of operations:
| Year Ended December 31, | |||||
| 2020 | 2019 | ||||
| U.S. federal statutory rate | $ | (781,704) | $ | (587,869) | |
| State and local taxes, net of federal benefit | (132,291) | (100,094) | |||
| Change in valuation allowance | 1,201,450 | 249,935 | |||
| True-up & deferred adjustment | 23,614 | 258,165 | |||
| Stock based compensation | 19,159 | 17,901 | |||
| Other permanent items | 935 | 6,664 | |||
| Change in tax rate | 2,429 | 97,731 | |||
| Expired warrants | (422,655) | - | |||
| Other | 89,063 | 57,567 | |||
| $ | - | $ | - | ||
SCHEDULE OF INCOME TAX RECONCILIATION EXPECTED EXPENSE (BENEFIT)
| 2023 | 2022 | |||||||
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| U.S. federal statutory rate | $ | (3,881,403 | ) | $ | (1,515,700 | ) | ||
| State and local taxes, net of federal benefit | (1,036,963 | ) | (359,643 | ) | ||||
| Change in valuation allowance | 4,999,204 | 2,733,655 | ||||||
| True-up & deferred adjustment | (19,998 | ) | 144 | |||||
| Other permanent items | 2,928 | - | ||||||
| Change in tax rate | (63,768 | ) | (252,392 | ) | ||||
| Other | - | (606,064 | ) | |||||
| Total income tax benefit | $ | - | $ | - | ||||
As of December 31, 20202023 and 2019,2022, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following:
| Year Ended December 31, | |||||
| 2020 | 2019 | ||||
| Deferred tax assets: | |||||
| NOL & AMT credit carryforward | $ | 13,366,483 | $ | 12,654,534 | |
| Inventory reserves and allowances | 31,249 | 30,965 | |||
| Accrued Expenses and Deferred Income | 45,358 | 48,050 | |||
| Charitable contribution | 5,303 | 5,284 | |||
| Stock based compensation | 1,966,058 | 1,967,795 | |||
| Net book value of fixed assets | 6,574 | 3,978 | |||
| Net book value of intangible assets | 731,365 | 666,538 | |||
| ASC 842 - Lease Accounting | 32,681 | 29,132 | |||
| Total deferred tax assets | 16,185,071 | 15,406,276 | |||
| Deferred tax liabilities: | |||||
| Extinguishment of Warrants | - | (422,655) | |||
| Total deferred tax liabilities | - | (422,655) | |||
| Net deferred tax assets | 16,185,071 | 14,983,621 | |||
| Valuation allowance | (16,185,071) | (14,983,621) | |||
| Net deferred tax assets | $ | - | $ | - | |
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| 2023 | 2022 | |||||||
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating losses | $ | 19,684,763 | $ | 17,030,852 | ||||
| Unrealized loss on investment | 39,580 | 36,436 | ||||||
| Accrued Expenses and Deferred Income | - | 149,402 | ||||||
| Charitable contribution | 8,330 | 5,737 | ||||||
| Stock based compensation | 3,029,964 | 2,099,241 | ||||||
| Net book value of intangible assets | 1,801,150 | 314,775 | ||||||
| UNICAP 263a Adjustment | 53,284 | - | ||||||
| ASC 842 - Lease Accounting | 65,172 | 44,484 | ||||||
| Total deferred tax assets | 24,682,243 | 19,680,927 | ||||||
| Deferred tax liabilities: | ||||||||
| Net book value of fixed assets | (29,652 | ) | (27,540 | ) | ||||
| Total deferred tax liabilities | (29,652 | ) | (27,540 | ) | ||||
| Net deferred tax assets | 24,652,591 | 19,653,387 | ||||||
| Valuation allowance | (24,652,591 | ) | (19,653,387 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the positive and negative evidence available, management has determined that a valuation allowance is required at
December 31,| F-30 |
At
December 31,On March 27, 2020,August 16, 2022, the CARESInflation Reduction Act of 2022 (“IRA”) was enacted in response to COVID-19 pandemic. Under ASC 740,signed into law. Among other provisions, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing of interest (ii) enactingIRA includes a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing the recoverability of15% corporate alternative minimum tax credits. Given the Company’s full valuation allowance positionon applicable corporations and the Company did1% excise tax on stock repurchases made after December 31, 2022. The IRA is not expected to have taxable income in the five preceding years, the CARES Act did not have ana material impact on the consolidated financial statements.
The Company files a federal income tax return and income tax returns in various state tax jurisdictions and the Company is generally no longer subject examinations by federal and state tax authorities for years before
Note 16. 17. SEGMENT INFORMATION
Management determines the reportable segments based on the internal reporting used by our executives to evaluate performance and to assess where to allocate resources. The Company evaluates segment performance based on the segment gross profit before corporate expenses.
Summarized below are the total net sales and segment operating profitresults for each reporting segment:
| Year Ended | |||||||||||
| Net Sales | Segment Gross Profit | ||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | ||||||||
| Vapor | $ | 2,458,945 | $ | 4,134,701 | $ | 1,425,140 | $ | 2,443,967 | |||
| Grocery | 11,461,800 | 10,979,305 | 4,352,081 | 4,040,277 | |||||||
| Total | $ | 13,920,745 | $ | 15,114,006 | 5,777,221 | 6,484,244 | |||||
| Corporate expenses | 9,225,593 | 10,898,528 | |||||||||
| Operating loss | (3,448,372) | (4,414,284) | |||||||||
| Corporate other income (expense), net | (274,020) | 1,614,908 | |||||||||
| Net loss | (3,722,392) | (2,799,376) | |||||||||
SCHEDULE OF INFORMATION ABOUT REPORTABLE SEGMENTS
| Year Ended | ||||||||||||||||
| Net Sales | Segment Gross Profit | |||||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | |||||||||||||
| Vapor | $ | 617 | $ | 257,363 | $ | (170 | ) | $ | 144,483 | |||||||
| Grocery | 55,689,793 | 29,009,640 | 20,348,224 | 10,079,735 | ||||||||||||
| Total | $ | 55,690,410 | $ | 29,267,003 | 20,348,054 | 10,224,218 | ||||||||||
| Corporate expenses | 38,323,733 | 18,877,302 | ||||||||||||||
| Operating loss | (17,975,679 | ) | (8,653,084 | ) | ||||||||||||
| Corporate other (expense) income, net | (507,201 | ) | 1,435,473 | |||||||||||||
| Net loss | (18,482,880 | ) | (7,217,611 | ) | ||||||||||||
For the year ended December 31, 20202023 depreciation and amortization was approximately $10,000$18,000 and $0.5$1.5 million for Vapor and Grocery, respectively.
For the year ended December 31, 20192022 depreciation and amortization was approximately $41,000$19,000 and $0.5$1.0 million for Vapor and Grocery, respectively.
Note 18. EMPLOYEE RETENTION CREDITS
Congress passed programs to provide financial assistance to companies during the COVID-19 pandemic, including the employee retention credit (ERC). The ERC provides eligible employers with credits per employee based on qualified wages and health insurance benefits paid. In December 2022, the Company filed application for Employee Retention Credits with the Internal Revenue Service. The company is reasonably assured the eligibility is met. The total amount eligible is $930,000. The amount was recorded in other current assets in consolidated balance sheet and other income in statement of operation in 2022. As of December 31, 2023, the Company received the payment in full eligible amount.
Note 17. 19. SUBSEQUENT EVENTS
In connection with the spin off, on January 14, 2021, the Compensation Committee of the Board of Directors of18, 2024, the Company approved an issuance of restricted stock to the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer ofentered into Securities Purchase Agreement with institutional investors whereby the Company in consideration for agreeing to a new vesting schedule for the existing awarded restricted stock. Each Officer of the Company was granted a 10% increase from the original award agreement forissued a total of 2.2 billion approximately $1.9 million in unsecured promissory notes (the “Notes). The Notes were issued at a 10% original issue discount and accrue interest at a rate of 10% per annum. All principle and accrued interest on the Notes shall be due and payable upon the earlier of (1) the closing of the potential initial public offering (“IPO”), (2) the one-year anniversary of issuance or (3) the time at which the balance is due and payable upon an event of default. The investors agreed to acquire $1,700,000 of Class A common stock in the IPO, and the Company will issue shares of restrictedClass A common stock which will vest on December 31, 2022, provided that the grantee remains(assuming an employeeIPO offering price of $ per share) to institutional investors upon IPO.
On February 13, 2024, the Company throughfiled Amendment No. 2 to its Spin-off S-1 with the vesting date.
On January 14, 2021, the Compensation Committee of the Board of Directors ofFebruary 13, 2024, the Company approved an issuance of restricted stockfiled Amendment No. 3 to
On February 7, 2021, Healthier Choices Management Corp. (the “Company”)20, 2024, the Company entered into a Fourth Amendment to the Securities Purchase Agreement with its Series E Redeemable Convertible Preferred Stock purchasers, pursuant to which the Company sold and issued 5,000 shares of itssuch parties agreed to amend the date on which the obligation to acquire the Series D ConvertibleA Preferred Stock (the “Preferred Stock”)ceases to institutional investors for $1,000 per share or an aggregate subscription of $5,000,000.June 1, 2024.
On February 9, 2024, in order to maximize profitability and improve operation efficiency, management made decision to close the Saugerties store. The Preferred Stockbuilding that the store is located is owned by the Company, and it is currently convertible into 2,083,333,333 sharesfor sale. At the time of the Company’s Common Stock at a conversion price of $0.0024 per share, with such conversion price subject to adjustment as described in the Certificate of Designation.
| F-31 |
EXHIBIT INDEX
| 32 |
| Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | |||||
| 1.1 | S-1 | 7/10/15 | 1.1 | |||||||
| 2.1(a) | 8-K | 5/23/16 | 2.1 | |||||||
| 2.1(b) | 8-K | 8/3/16 | 1.1 | |||||||
| 2.1(c) | 8-K | 11/21/18 | 2.1 | |||||||
| 2.1(d) | 8-K | 12/26/18 | 2.2 | |||||||
| 3.1 | 10-Q | 11/16/15 | 3.1 | |||||||
| 3.1(a) | 8-K | 3/03/17 | 3.1 | |||||||
| 3.1(b) | S-1 | 7/10/15 | 3.2 | |||||||
| 3.1(c) | S-4 | 12/11/15 | 3.2 | |||||||
| 3.1(d) | 8-K | 2/2/16 | 3.1 | |||||||
| 3.1(e) | 8-K | 3/9/16 | 3.1 | |||||||
| 3.1(f) | 8-K | 6/1/16 | 3.1 | |||||||
| 3.1(g) | 8-K | 8/5/16 | 3.1 | |||||||
| 3.1(h) | S-1 | 7/10/15 | 3.4 | |||||||
| 3.1(i) | 8-A12B | 7/27/15 | 3.5 | |||||||
| 3.1(j) | 8-K | 8/21/18 | 3.1 | |||||||
| 3.1(k) | 8-K | 9/25/20 | 3.1 | |||||||
| 3.1(l) | 8-K | 2/4/21 | 3.1 | |||||||
| 3.2 | 8-K | 12/31/13 | 3.4 | |||||||
| 10.1 | 8-K | 3/05/15 | 10.1 | |||||||
| 10.2 | S-1 | 6/01/15 | 10.28 | |||||||
| 10.3 | 8-K | 6/25/15 | 10.4 | |||||||
| 10.4 | 8-K | 6/25/15 | 10.5 | |||||||
| 10.5 | 8-K | 6/25/15 | 10.6 | |||||||
| 10.6 | 8-K | 6/25/15 | 10.7 | |||||||
| 10.7 | 8-K | 1/7/19 | 10.1 | |||||||
| 10.8 | 8-K | 1/7/19 | 10.2 | |||||||
| Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | |||||
| 10.9 | S-8 | 2/8/17 | 4.2 | |||||||
| 10.10 | 8-K | 8/20/18 | 10.4 | |||||||
| 10.11 | 8-K | 3/5/21 | 10.1 | X | ||||||
| 10.12 | X | |||||||||
| 10.13 | X | |||||||||
| 10.14 | X | |||||||||
| 10.15 | X | |||||||||
| 10.16 | 8-K | 8/20/18 | 10.2 | |||||||
| 10.17 | 8-K | 8/20/18 | 10.3 | |||||||
| 16.1 | 8-K | 4/28/17 | 16.1 | |||||||
| 21.1 | Filed | |||||||||
| 23.1 | Filed | |||||||||
| 31.1 | Filed | |||||||||
| 31.2 | Filed | |||||||||
| 32.1 | Furnished** | |||||||||
| 101.INS | XBRL Instance Document | Filed | ||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Link base Document | Filed | ||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Link base Document | Filed | ||||||||
| 101.LAB | XBRL Taxonomy Extension Label Link base Document | Filed | ||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Link base Document | Filed | ||||||||
* Management contract or compensatory plan or arrangement.
** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at 3800 North 28th Way, Hollywood, Florida 33020.
| 33 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 5, 2021.
| Healthier Choices Management Corp. | ||
| By: | /s/ Jeffrey Holman | |
| Jeffrey Holman | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | |||
| /s/ Jeffrey Holman | Principal Executive Officer | ||||
| and Director | March 27, 2024 | ||||
| Jeffrey Holman | |||||
| /s/ John A. Ollet | Chief Financial Officer | March | |||
| John A. Ollet | (Principal Financial and Accounting Officer) | ||||
| /s/ Clifford J. Friedman | Director | March | |||
| Clifford J. Friedman | |||||
| /s/ Anthony Panariello | Director | March | |||
| Anthony Panariello |
| 34 |