美国
证券交易委员会
华盛顿，特区。20549
表格
截至季度结束
或者
在_____到_____的过渡期间
佣金
文件编号:
(按其章程规定的注册人名称)
| （注册地或组织所在管辖区） | （美国国税局雇主号码） | |
| 文件号码） | (主要 执行人员之地址) | |
| (主要 执行人员之地址) | (邮政 编 码) |
注册人的电话号码，包括区号：(585)768-2513
请勾选是否注册者(1)已在1934年证券交易法第13或15(d)条的要求下按时提交最近12个月(或该注册者需提交该报告的更短期限), (2)在过去90天内已提交此类报告要求。
☒
请勾选以下内容：公司是否已根据Regulation S-t的第405条规定，提交并发布了其企业网站（如有）上所要求提交和发布的所有交互式数据文件，覆盖过去的12个月（或这样一个较短时间表之前的日期，公司被要求提交和发布这样的文件）。
☒
请在选项前打勾，以指明注册人是大型加速申报人，加速清单申报人，非加速申报人，小型报告公司还是新兴成长公司。请参阅《交易所法》第120亿.2条中“大型加速申报人”，“加速清单申报人”，“小型报告公司”和“新兴成长公司”的定义。
| 大型加速文件提交人 | ☐ | 加速文件提交人 | ☐ |
| ☒ | 小型报告公司 | ||
| 新兴成长公司 | |||
如果是新兴成长型企业，请打勾，以表明注册人已选择不使用遵守《证券交易法》第13(a)条所规定的任何新的或修订后的财务会计准则的延长过渡期。 ☐
请在适用的盒子内打勾，表明注册者是壳公司（根据交易所法案第12b-2条规定定义）。
☐
是
根据法案第12(b)节注册的证券:
| 每一类别的名称 | 交易符号 | 在每个交易所注册的名称 | ||
| 场外交易 粉色市场 |
截至2024年11月13日，该公司已发行并流通的股份为 ，每股面值为$ 每股，流通。
目录
| 2 |
第I部分 - 财务信息
项目 1. 基本报表
HEALTHIER CHOICES管理公司。
汇编简明资产负债表
(未经审计)
| 2024年9月30日 | 2023年12月31日 | |||||||
| 资产 | ||||||||
| 流动资产 | ||||||||
| 现金及现金等价物 | $ | $ | ||||||
| 存货 | ||||||||
| 预付费用和供应商存款 | ||||||||
| 其他流动资产 | ||||||||
| 受限现金 | ||||||||
| 已停止运营部门的流动资产 | ||||||||
| 总流动资产 | ||||||||
| 固定资产、厂房及设备账面价值，扣除累计折旧 | ||||||||
| 无形资产，扣除累计摊销 | ||||||||
| 使用权资产-经营租赁，净额 | ||||||||
| 其他资产 | ||||||||
| 已停止经营的其他资产 | ||||||||
| 资产总计 | $ | $ | ||||||
| 负债、可转换优先股和股东权益 | ||||||||
| 流动负债 | ||||||||
| 应付账款和应计费用 | $ | $ | ||||||
| 授信额度 | ||||||||
| 经营租赁负债，流动负债 | ||||||||
| 应付关联方 | ||||||||
| 已停止运营的流动负债 | ||||||||
| 流动负债合计 | ||||||||
| 应付关联方 | ||||||||
| 运营租赁负债净值 | ||||||||
| 其他已停止的业务的长期负债 | ||||||||
| 负债合计 | ||||||||
| 承诺和可能负债（见注11） | ||||||||
| 可转换优先股 | ||||||||
| E系列可赎回可转换优先股，$ 每股面值， 授权股数， 截至2024年9月30日和2023年12月31日，已发行和流通的股份数分别为；总清算优先权为$ | ||||||||
| 股东权益 | ||||||||
| 普通股，每股面值$ 每股面值， 授权股份数; 和 截至2024年9月30日及2023年12月31日，已发行及流通的股份为。 | ||||||||
| 追加实收资本 | ||||||||
| 累积赤字 | ( | ) | ( | ) | ||||
| 总股东权益 | ( | ) | ||||||
| 基本报表包括：负债总额、可换股优先股和股东权益总额。 | $ | $ | ||||||
查阅未经审计的简明综合财务报表附注
| 3 |
HEALTHIER CHOICES管理公司。
精简 合并损益表
(未经审计)
| 截至三个月 | 截至九个月 | |||||||||||||||
| 9月30日, | 9月30日, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 销售，净额 | $ | $ | $ | $ | ||||||||||||
| 销售成本 | ||||||||||||||||
| 毛利润 | ( | ) | ||||||||||||||
| 经营费用 | ||||||||||||||||
| 营业亏损 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 其他收入（支出） | ||||||||||||||||
| 投资亏损 | ( | ) | ( | ) | ( | ) | ||||||||||
| 其他收入，净额 | ( | ) | ( | ) | ||||||||||||
| 利息收入（费用），净额 | ||||||||||||||||
| 其他收入(费用)总计，净额 | ||||||||||||||||
| 持续经营业务净亏损 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 净利润来自停止经营的净亏损 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 净损失 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 优先股票诱发的转换 | ( | ) | ||||||||||||||
| 归属于普通股东的持续经营净亏损 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 归属于普通股东的终止经营净亏损 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 每股净亏损 - 基本和稀释 | ||||||||||||||||
| 持续经营 | ||||||||||||||||
| 终止经营 | ||||||||||||||||
| 每股总净亏损 - 基本和稀释 | $ | $ | $ | $ | ||||||||||||
| 加权平均普通股每股基本和稀释后数量 | ||||||||||||||||
查阅未经审计的简明综合财务报表附注
| 4 |
HEALTHIER CHOICES管理公司。
压缩 可转换优先股和股东权益变动综合报表
截至2024年和2023年9月30日的三个月
(未经审计)
| E系列可转换优先股 | 普通股 | 额外的 实收资本 | 累计 | |||||||||||||||||||||||||
| 股份 | 金额 | 股份 | 金额 |
资本 | 亏损 | 总计 | ||||||||||||||||||||||
| 余额 - 2024年7月1日 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| 颁发股份奖励 | - | - | ( | ) | ||||||||||||||||||||||||
| HCWC分拆 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| 基于股票的薪酬费用 | - | - | - | |||||||||||||||||||||||||
| 净亏损 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| 余额 - 2024年9月30日 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
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 – July 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Series D Convertible Preferred Stock exercised | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of award stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| 5 |
HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(UNAUDITED)
| Series E Convertible Preferred Stock | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount |
Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of awarded stock | - | - | ( | ) | ||||||||||||||||||||||||
| HCWC Spin-Off | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Balance – September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
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, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Series E convertible preferred stock redeemed | ( | ) | ( | ) | - | - | ||||||||||||||||||||||||||||||
| Conversion of series E convertible preferred stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| Series D Convertible Preferred Stock exercised | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of awarded stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Induced conversions of preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 6 |
HEALTHIER CHOICES MANAGEMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 (a) | 2023 (a) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on warrant liability extinguishment | ||||||||
Gain on sale of building | ( | ) | ||||||
| Non-cash interest expense | ||||||||
| Loss on notes receivable settlement | ||||||||
| Loss on investment | ||||||||
| Amortization of right-of-use asset | ||||||||
Write-down of obsolete and slow-moving inventory | ||||||||
| Stock-based compensation expense | ||||||||
| Change in contingent consideration | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and vendor deposits | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
Due from related party | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
Contract liabilities | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Payment for acquisition | ( | ) | ||||||
| Proceeds from sale of Saugerties building | ||||||||
| Collection of note receivable | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments for deferred offering costs | ( | ) | ||||||
Proceeds from acquisition loan | ||||||||
Proceeds from security purchase agreement | ||||||||
| Payment of induced conversions of preferred stock | ( | ) | ||||||
| Payment for Series E preferred stock redemption | ( | ) | ||||||
| Principal payments on loan payable | ( | ) | ( | ) | ||||
| Due to related party | ||||||||
| Transfers to HCWC related to Spin-Off | ( | ) | ||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | ( | ) | ||||||
| NET DECREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENT AND RESTRICTED CASH— BEGINNING OF PERIOD | ||||||||
| CASH, CASH EQUIVALENT AND RESTRICTED CASH — END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Non-cash deferred offering cost | $ | $ | ||||||
| Issuance of common stock in connection with series E preferred stock conversion | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| 1% stated value reduction on preferred stock redemption | $ | $ | ||||||
| (a) |
See notes to unaudited condensed consolidated financial statements
| 7 |
HEALTHIER CHOICES MANAGEMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Organization
Healthier Choices Management Corp. (the “Company” or “HCMC”) is a holding company focused on monetizing its intellectual property through royalty and licensing agreements, facilitated by its wholly owned subsidiary, HCMC Intellectual Property Holdings, LLC. HCMC’s IP portfolio includes patents related to innovative products, such as the Q-Cup and Imitine, which the company actively markets. HCMC is engaged in litigation against prominent tobacco industry players, Philip Morris and R.J. Reynolds, asserting claims of patent infringement.
The Company administers and intends to augment its intellectual property portfolio via its wholly owned subsidiary, HCMC Intellectual Property Holdings, LLC.
The Company continues to promote its patented Q-Cup™ technology directly to consumers in the vaping market. This cutting-edge design includes a small quartz cup that users can fill with cannabis or CBD concentrate. Once placed in a Q-Cup™ Tank or Globe, the cup is heated externally without direct contact with the concentrate. This innovative approach provides greater efficiency and a convenient solution for consumers who vape concentrates for both medicinal and recreational use .
Spin-Off
HCMC announced on August 22, 2022 that its Board of Directors approved the separation of the Grocery business, including wellness business, into an independent, publicly traded company (the “Spin-Off” or “Separation”). Prior to the Spin-Off, the Grocery segment was operated under the holding company Healthy Choice Wellness Corp. (“HCWC”). HCWC was a subsidiary of HCMC, and operated the Ada’s Natural Market, Paradise Health & Nutrition, Mother Earth’s Storehouse, Greens Natural Foods, Ellwood Thompson’s, and GreenAcres Market retail brands, as well as licensed wellness centers and Healthy U Wholesale.
On September 13, 2024 (the “Spin-Off Date”), after the New York Stock Exchange American (“NYSEAM”) market closing, the Spin-Off of the HCWC business was completed. On September 14, 2024, HCWC became an independent, publicly traded company, and on September 16, 2024, the stock commenced trading on the NYSEAM under the stock symbol “HCWC.”
HCWC distributed all the outstanding shares of Common Stock held by it on a pro rata basis to holders of HCMC’s common stock (the “Distribution”). For each shares of HCMC common stock held as of 5:00 p.m., New York City time, on September 9, 2024, the record date for the Spin-Off (the “Record Date”), a HCMC stockholder was entitled to receive one share of Class A common stock and three shares of Class B common stock. The Distribution was made in book-entry form by a distribution agent as soon as practicable after the date of the Distribution.
As a result of the Spin-Off, the operating results for the HCWC business through the date of the Spin-Off are reported in Loss from Discontinued Operations in the Condensed Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities are reported as Assets and Liabilities of Discontinued Operations on the Condensed Consolidated Balance Sheets for year ended December 31, 2023. Unless otherwise noted, all amounts and disclosures included in the Notes to Condensed Consolidated Financial Statements reflect only the Company’s continuing operations. For additional information, see Note 2, “Discontinued Operations.”
Segment Reporting
The Company operates as a segment that includes all of its continuing operations, which is designed to enable customers to purchase its products through stores or digital channels. The Company previously had two reportable segments: Grocery and Vape. The Grocery segment was spun-off on September 13, 2024 and is now reported as discontinued operations for all periods through that date.
NOTE 2. DISCONTINUED OPERATIONS
On
September 13, 2024, the Company completed the previously announced separation and distribution of its Grocery segment into an
independent publicly traded company, HCWC. The separation was structured as a tax-free spin-off, which occurred by way of a pro rata
distribution to HCMC stockholders.
Cash
of $
During
the third quarter of 2024, the Company recognized a net reduction to retained earnings of $
| 8 |
In connection with the Separation, the Company entered into several agreements with HCWC that govern the relationship of the parties following the Spin-Off. These agreements include:
| ● | a Separation Agreement that will set forth HCMC’s and the Company’s agreements regarding the principal actions that both parties will take in connection with the Spin-Off and aspects of our relationship following the Spin-Off; | |
| ● | a Transition Services Agreement pursuant to which HCMC and the Company will provide each other specified services on a transitional basis to help ensure an orderly transition following the Spin-Off. | |
| ● | a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of HCMC and the Company after the Spin-Off with respect to all tax matters and will include restrictions to preserve the tax-free status of the Spin-Off; and | |
| ● | an Employee Matters Agreement that will address employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities arising out of employee compensation and benefits programs in which our employees participated prior to the Spin-Off. |
Under
the terms of the transition services agreement, HCMC will provide to HCWC, on a transitional basis, certain services or functions,
including information technology, accounting, human resources, and payroll functions. Generally, these services will be provided for
a period of up to one year following the Spin-Off. Consideration and costs for the transition services will be determined using several
billing methodologies as described in the agreements, including customary billing and pass-through billing. Costs for transition services
provided to HCWC are recorded within the Consolidated Statements of Operations based on the nature of the services. Following the Spin-Off,
the Company recognized a reduction of costs of $
Financial Information of Discontinued Operations
Loss from Discontinued Operations in the Consolidated Statements of Operations reflects the financial results of the HCWC and includes allocation of general corporate overhead expense of the Company.
The following table summarizes the significant line items included in Loss from Discontinued Operations, in the Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| SALES, NET | $ | $ | $ | $ | ||||||||||||
| COST OF SALES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES, NET | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Gain on sale of asset | ( | ) | ( | ) | ||||||||||||
| TOTAL OPERATING EXPENSES, NET | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ||||||||||||
| NET LOSS FROM DISCONTINUED OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The information presented as discontinued operations on the Condensed Consolidated Balance Sheets includes certain assets and liabilities that were transferred to HCWC pursuant to the Separation agreements.
| 9 |
There were no assets or liabilities classified as discontinued operations as of September 30, 2024. The following table summarizes the carrying value of the significant classes of assets and liabilities classified as discontinued operations as of December 31, 2023:
| December 31, 2023 | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable, net | ||||
| Inventories | ||||
| Prepaid expenses and vendor deposits | ||||
| Other current assets | ||||
| Current Assets of Discontinued Operations | ||||
| Property and equipment, net of accumulated depreciation | ||||
| Intangible assets, net of accumulated amortization | ||||
| Right of use asset - operating lease | ||||
| Other assets | ||||
| Other Assets of Discontinued Operations | $ | |||
| Accounts payable and accrued expenses | $ | |||
| Contract Liabilities | ||||
| Current portion of loan payable | ||||
| Lease liability, current | ||||
| Current Liabilities of Discontinued Operations | ||||
| Due from related party | ( | ) | ||
| Loan Payable, net of current portion | ||||
| Lease liability, net of current | ||||
| Other Long-term Liabilities of Discontinued Operations | $ | |||
| 10 |
The following table summarizes the significant operating cash and noncash items, capital expenditures and financing activities of discontinued operations for the nine months ended September 13, 2024 and September 30, 2023:
Nine Months Ended September 13, 2024 | Nine Months Ended September 30, 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Depreciation and amortization | ||||||||
| Loss on warrant liability extinguishment | ||||||||
| Gain on sale of building | ( | ) | ||||||
| Non-cash interest expense | ||||||||
| Amortization of right-of-use asset | ||||||||
| Write-down of obsolete and slow-moving inventory | ||||||||
| Change in contingent consideration | ( | ) | ||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and vendor deposits | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Due to related party | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||
| Payment for acquisition | ( | ) | ||||||
| Proceeds from sale of Saugerties building | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||
| Proceeds from security purchase agreement | ||||||||
| Proceeds from acquisition loan | ||||||||
| Principal payments on loan payable | ( | ) | ( | ) | ||||
| Due to related party | ( | ) | ||||||
| Investment from parent company | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS | ||||||||
| NET INCREASE (DECREASE) IN CASH | $ | $ | ( | ) | ||||
| 11 |
NOTE 3. GOING CONCERN AND MANAGEMENT’S PLANS
The accompanying unaudited 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.
The
Company currently and historically has reported net losses and cash outflows from operations. As of September 30, 2024, the Company had
cash and cash equivalent of approximately $
Management has made plans to reduce certain costs and raise needed capital, however there can be no assurance the Company can successfully implement these plans. The success of these plans is dependent upon various factors, foremost being the ability to reduce outside consulting expenses and the ability to secure additional capital from outside investors. There can be no assurance that such plans will be successful.
The
Company believes its cash on hand and its ability to draw on its $
NOTE 4. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by GAAP. The Company has made estimates and judgments affecting the amounts reported in the Company’s unaudited condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented.
On September 13, 2024, the Company completed the previously announced separation and distribution of its grocery segment and wellness centers into an independent publicly traded company, and the historical results of the grocery segment and wellness centers have been reflected as discontinued operations in the Company’s condensed consolidated financial statements for all periods prior to the separation and distribution. Assets and liabilities associated with the grocery segment are classified as assets and liabilities of discontinued operations in the Company’s Condensed Consolidated Balance Sheets. Additional disclosures regarding the separation and distribution are provided in Note 2.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2024. The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited 2023 financial statements contained in the above referenced Form 10-K, adjusted for the discontinued operations. Results of the nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the full year ending December 31, 2024.
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Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2023 Annual Report.
NOTE 5. CONCENTRATIONS
Cash, Cash Equivalent and Restricted Cash
The
Company considers all highly liquid instruments with an original maturity of three months or less, when purchased, to be cash and cash
equivalent. The majority of the Company’s cash and cash equivalent are concentrated in one large financial institution, which is
in excess of Federal Deposit Insurance Corporation (FDIC) coverage. The balance of cash equivalent was approximately $
A
summary of the financial institution that had cash, cash equivalent and restricted cash in excess of FDIC limits of $
| September 30, 2024 | December 31, 2023 | |||||||
| Total cash and cash equivalent in excess of FDIC limits of $ | $ | $ | ||||||
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 has not experienced any losses in such accounts.
The following table provides a reconciliation of cash, cash equivalent and restricted cash to amounts shown in unaudited condensed consolidated statements of cash flow:
| September 30, 2024 | September 30, 2023 | |||||||
| Cash and cash equivalent | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
Restricted Cash
The Company’s restricted cash consisted of cash balances which were restricted as to withdrawal or usage under the August 18, 2022 securities 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 Stock. The balance also included cash held in the collateral account to cover the cash draw from the line of credit.
Note 6. SEGMENT INFORMATION AND DISAGGREGATION OF REVENUES
In accordance with FASB ASC 280, “Disclosures about Segment of an enterprise and related information”, the Company determined it operates as a reportable segment.
| 13 |
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Furniture and fixtures | ||||||||
| Computer hardware & equipment | ||||||||
| Other | ||||||||
| Property and equipment, gross | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property, plant, and equipment | $ | $ | ||||||
The
Company incurred approximately $
NOTE 8. INTANGIBLE ASSETS
Intangible assets, net are as follows:
| September 30, 2024 | Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Patent | $ | $ | ( | ) | $ | |||||||||
| Intangible assets, net | ( | ) | ||||||||||||
| December 31, 2023 | Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Patents | ( | ) | ||||||||||||
| Intangible assets, net | $ | $ | ( | ) | $ | |||||||||
Intangible
assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense was approximately $
| Years ending December 31, | ||||
| 2024 (remaining three months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
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NOTE 9. DEBT
Revolving Line of Credit
On
November 3, 2021, the Company entered into an agreement for a new revolving line of credit of $
NOTE 10. STOCKHOLDERS’ EQUITY
Series E Convertible Preferred Stock
On
August 18, 2022, the Company entered into a Securities Purchase Agreement (“Series E Preferred Stock”) pursuant to which
the Company sold and issued shares of its Series E Redeemable Convertible Preferred Stock to institutional 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
The
HCMC Series E Preferred Stock shall have voting rights on as converted basis at the Company’s next stockholders’ meeting.
However, as long as any shares of HCMC Series E 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 Series E Preferred Stock, (a) alter or change adversely the powers,
preferences or rights given to the HCMC Series E Preferred Stock or alter or amend the Certificate of Designation, (b) increase the number
of authorized shares of HCMC Series E Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing. Each share
of Series E Preferred Stock shall 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 initial conversion price for the HCMC Series E Preferred
Stock shall equal $
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 Series E 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 Series E 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 of the HCMC Series E 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 HCMC Series E Preferred Stock with 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 payment whereby upon conversion of the Series E Preferred Stock prior to the record date for
the Spin-Off, the Company will pay the Purchaser ten percent (
On
May 15, 2023, the Company and the Purchaser entered into the Second Amendment to the Securities Purchase Agreement, pursuant to which
the Company agreed to extend the time period for the Conversion Payment eligibility to December 1, 2023. The Company filed an amendment
to the Certificate of Designation to make the redemption price of the Preferred Stock (the “Redemption Price”) equal the
Stated Value regardless of the date on which it is redeemed.
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:
| 15 |
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.
On April 8, 2024, the Company entered into a Fifth 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 Completion Date to August 1, 2024.
On July 26, 2024, the Company entered into a Sixth 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 Completion Date to November 1, 2024.
Through
September 30, 2024, shares of Series E preferred stock have been cumulatively converted into shares of common stock
as a result of the Series E preferred stock conversion, and shares of Series E preferred stock have been cumulatively redeemed,
and approximately $
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 of HCWC resulting from the Spin-Off of HCMC’s grocery and wellness businesses in the same subscription amounts that the Purchasers paid for the HCMC Series E Preferred Stock.
Stock Options and Restricted Stock
During the three and nine months ended September 30, 2024 and 2023, stock options of the Company were exercised into common stock.
On August 23, 2023, the Company granted shares of restricted stocks to the Company’s third-party inventors with no vesting requirement.
On November 13, 2023, the Company granted shares of restricted stocks to an employee.
The Company recognized stock-based compensation of approximately $ and $ during the three months ended September 30, 2024 and 2023, and approximately $ and $ during the nine months ended September 30, 2024 and 2023, respectively in connection with amortization of restricted stock and stock options. Stock based compensation is included as part of total operating expenses in the accompanying unaudited condensed consolidated statements of operations.
| 16 |
Income (Loss) Per Share
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Preferred stock | ||||||||
| Stock options | ||||||||
| Restricted stock | ||||||||
| Total | ||||||||
NOTE 11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
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 had reached an arrangement with the plaintiff to resolve the matter, limiting potential
exposure to $
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
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 $
On
April 12, 2023, the U.S. Court of Appeals for the Federal Circuit ruled in favor of HCMC on
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 $
On July 7, 2023, the Company entered into a patent licensing agreement for one of its patents in the vape segment. The Company as the licensor, grants to licensee during the term a non-exclusive right and license under the Licensed Patents to make, 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 60-days written notice. The Company is still in the process of building this operation, and no product sales or no royalties earned as of the date of this filing.
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.
On November 17, 2023, RJR filed a motion to dismiss the action. HCMC opposed on December 22, 2023. To date the court has not ruled on the motion.
On September 18, 2024, RJR filed an inter partes review of the patent-in-suit at the United States Patent and Trademark Office (“USPTO”). A decision on institution will be made by the USPTO sometime after January 2025.
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 operations as of September 30, 2024. With respect to legal costs, we record such costs as incurred.
NOTE 12. SUBSEQUENT EVENTS
On November 7, 2024, the Company entered into a
commitment letter with an investor that will allow the Company to draw up to $
| 17 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONDENSED CONSOLIDATED OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, HCMC Intellectual Property Holdings, LLC and The Vape Store, Inc. (“Vape Store”). All intercompany accounts and transactions have been eliminated in consolidation.
HCWC Spin-Off
On September 13, 2024, HCMC completed the Spin-off of our Grocery business into an independent publicly traded company HCWC. As a result, the operating results for the HCWC through the date of the Spin-off are reported in Loss from Discontinued Operations in the Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities are reported as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheets.
Unless otherwise noted, all amounts, percentages and discussion reflect only the results of operations and financial condition from our continuing operations.
Company Overview
Healthier Choices Management Corp. is a holding company focused on monetizing its intellectual property through royalty and licensing agreements, facilitated by its wholly owned subsidiary, HCMC Intellectual Property Holdings, LLC. HCMC’s IP portfolio includes patents related to innovative products, such as the Q-Cup and Imitine, which the company actively markets. In addition, HCMC is engaged in legal actions against major companies like Philip Morris and R.J. Reynolds for patent infringement.
Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company manages and intends to expand on its intellectual property portfolio.
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.
| 18 |
Liquidity
The unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
The Company currently and historically has reported net losses and cash outflows from operations. As of September 30, 2024, the Company had cash and cash equivalent of approximately $2.5 million and positive working capital of $0.2 million. The Company’s liquidity needs through September 30, 2024 have been satisfied through financing agreement with private lenders.
Management has made plans to reduce certain costs and raise needed capital, however there can be no assurance the Company can successfully implement these plans. The success of these plans is dependent upon various factors, foremost being the ability to reduce outside consulting expenses and the ability to secure additional capital from outside investors. There can be no assurance that such plans will be successful.
The Company believes its cash on hand and its ability to draw on its $5 million line of credit will enable the Company to meet its obligations and capital requirements for at least the twelve months from the date these financial statements are issued. Accordingly, no adjustment has been made to the financial statements to account for this uncertainty.
Factors Affecting Our Performance
We believe the following factors affect our performance:
Pending Patent: We have developed, trademarked and are preparing to commercialize additional products. We include product development expenses as part of our operating expenses. In October 2018, we announced the granting of three US patents related to our Q-Cup™ technology. In addition, we have a suite of patent applications pending in the United States. There is no assurance that we will be awarded patents for any of these pending patent applications. There is no assurance that we can monetize the patents.
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.
Results of Operations
The following table sets forth our unaudited condensed consolidated Statements of Operations for the three months ended September 30, 2024 and 2023 that is used in the following discussions of our results of operations:
| Three Months Ended September 30, | 2024 to 2023 | |||||||||||
| 2024 | 2023 | Change $ | ||||||||||
| SALES | $ | 52 | $ | - | $ | 52 | ||||||
| COST OF SALES | 15 | - | 15 | |||||||||
| GROSS PROFIT | 37 | - | 37 | |||||||||
| OPERATING EXPENSES | 2,143,442 | 2,136,026 | 7,416 | |||||||||
| LOSS FROM OPERATIONS | (2,143,405 | ) | (2,136,026 | ) | (7,379 | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Loss on investment | (343 | ) | 343 | (686 | ) | |||||||
| Other income (expense), net | 260,000 | (10,932 | ) | 270,932 | ||||||||
| Interest income, net | 15,105 | 75,299 | (60,194 | ) | ||||||||
| Total other income (expense), net | 274,762 | 64,710 | 210,052 | |||||||||
| NET LOSS | $ | (1,868,643 | ) | $ | (2,071,316 | ) | $ | 202,673 | ||||
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Net sales and cost of sales were de minimis for the three months ended September 30, 2024 and 2023. The Company closed all its brick-and-mortar retail vape stores, as management had shifted its retail sales focus to the wholesale and online channel. The sales and cost of sales for the three months ended September 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Total operating expenses of $2.1 million for the three months ended September 30, 2024 remained consistent with the same period in 2023.
Total other income (expense), net of $275,000 for the three months ended September 30, 2024 consists of net interest income of $15,000, and $260,000 reversal of accrued professional fee. Total other income (expense), net of $65,000 for the three months ended September 30, 2023 primarily consists of interest income of $75,000, and other expense of $11,000.
The following table sets forth our unaudited consolidated Statements of Operations for the nine months ended September 30, 2024 and 2023 that is used in the following discussions of our results of operations:
| Nine Months Ended September 30, | 2024 to 2023 | |||||||||||
| 2024 | 2023 | Change $ | ||||||||||
| SALES | $ | 345 | $ | 39 | $ | 307 | ||||||
| COST OF SALES | 190 | 653 | (463 | ) | ||||||||
| GROSS PROFIT | 155 | (614 | ) | 770 | ||||||||
| OPERATING EXPENSES | 6,312,846 | 5,448,812 | 864,034 | |||||||||
| LOSS FROM OPERATIONS | (6,312,691 | ) | (5,449,426 | ) | (863,264 | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Loss on investment | (1,336 | ) | (8,057 | ) | 6,721 | |||||||
| Other income (expense), net | 260,000 | (10,932 | ) | 270,932 | ||||||||
| Interest income, net | 114,732 | 358,322 | (243,590 | ) | ||||||||
| Total other income (expense), net | 373,396 | 339,333 | 34,063 | |||||||||
| NET LOSS FROM CONTINUING OPERATIONS | $ | (5,939,295 | ) | $ | (5,110,093 | ) | $ | (829,201 | ) | |||
Net sales and cost of sales were de minimis for the nine months ended September 30, 2024 and 2023. The Company closed all its brick-and-mortar retail vape stores, as management had shifted its retail sales focus to the wholesale and online channel. The sales for the nine months ended September 30, 2024 and 2023 continued to be significantly impacted by the inability to bring new products to market via distribution.
Total operating expenses increased $0.9 million to $6.3 million for the nine months ended September 30, 2024 compared to $5.4 million for the same period in 2023. The increase is primarily due to $1.2 million increase in stock compensation expense and $0.1 million increase in payroll and benefit expense, offset by $0.5 million decrease in legal fees.
| 20 |
Total other income (expense), net of $374,000 for the nine months ended September 30, 2024 consists of net interest income of $115,000 and other income of $260,000 related with professional fee accrual reversal, offset by $1,000 loss on investment. Total other income, net of $0.3 million for the nine months ended September 30, 2023 includes a loss on investment of $8,000, other expense of $11,000, and an interest income of $358,000.
Liquidity and Capital Resources
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by | ||||||||
| Operating activities | $ | 1,042,919 | $ | (2,364,903 | ) | |||
| Investing activities | (47,185 | ) | 175,640 | |||||
| Financing activities | (2,120,260 | ) | (13,656,029 | ) | ||||
| $ | (1,124,526 | ) | $ | (15,845,292 | ) | |||
The following table sets forth our unaudited consolidated statements of cash flows on continuing basis for the nine months ended September 30, 2024 and 2023.
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES OF | ||||||||
| Net loss | $ | (5,939,295 | ) | $ | (5,110,093 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | - | |||||||
| Depreciation and amortization | 49,065 | 44,710 | ||||||
| Loss on notes receivable settlement | - | 10,931 | ||||||
| Loss on investment | 1,336 | 8,057 | ||||||
| Amortization of right-of-use asset | 83,961 | 1,676 | ||||||
| Stock-based compensation expense | 3,484,416 | 2,303,500 | ||||||
| Accounts receivable | - | 585 | ||||||
| Inventories | 86 | 23 | ||||||
| Prepaid expenses and vendor deposits | 1,296,508 | (1,585,324 | ) | |||||
| Due from related party | 2,638,730 | 542,718 | ||||||
| Other current assets | (33,152 | ) | 776,925 | |||||
| Other assets | 30,229 | (31,600 | ) | |||||
| Accounts payable and accrued expenses | (485,005 | ) | 674,664 | |||||
| Lease liability | (83,960 | ) | (1,675 | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES OF | 1,042,919 | (2,364,903 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Collection of note receivable | - | 178,294 | ||||||
| Purchases of property and equipment | (47,185 | ) | (2,654 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (47,185 | ) | 175,640 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments for deferred offering costs | - | (264,375 | ) | |||||
| Payment of induced conversions of preferred stock | - | (152,500 | ) | |||||
| Net transfers to HCWC related to Spin-Off | (4,144,213 | ) | (13,239,154 | ) | ||||
| Due from related party | 2,023,953 | - | ||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (2,120,260 | ) | (13,656,029 | ) | ||||
| NET DECREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH | (1,124,526 | ) | (15,845,292 | ) | ||||
| CASH, CASH EQUIVALENT AND RESTRICTED CASH— BEGINNING OF PERIOD | 4,211,738 | 22,669,553 | ||||||
| CASH, CASH EQUIVALENT AND RESTRICTED CASH — END OF PERIOD | $ | 3,087,212 | $ | 6,824,261 | ||||
Our net cash provided by operating activities of approximately $1.0 million for the nine months ended September 30, 2024 resulted from a net loss of $5.9 million, offset by a non-cash adjustment of $3.6 million and a net cash change of $3.4 million from changes in operating assets and liabilities. Our net cash used in operating activities of approximately $2.4 million for the nine months ended September 30, 2023 resulted from a net loss of $5.1 million, offset by a non-cash adjustment of $2.4 million and a net cash change of $0.4 million from changes in operating assets and liabilities.
The net cash used in investing activities of $47,000 for the nine months ended September 30, 2024 resulted from purchases of property and equipment. The net cash provided by investing activities of $176,000 for the nine months ended September 30, 2023 resulted from collection on a note receivable and purchases of property and equipment.
The net cash used in financing activities of $2.1 million for the nine months ended September 30, 2024 is primarily due to $4.1 million net transfer to HCWC related to Spin-Off and $2.0 million cash proceeds from related party. Net cash used in financing activities of approximately $13.7 million for the nine months ended September 30, 2023 is due to Series E Preferred Stock redemption and exercise, payment for deferred offering cost related with Spin-Off, and net parent investment.
At September 30, 2024 and December 31, 2023, we did not have any material financial guarantees or other contractual commitments with vendors that are reasonably likely to have an adverse effect on liquidity.
Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. Most of our cash and cash equivalent are concentrated in one financial institution and is generally in excess of the FDIC insurance limit. The Company has not experienced any losses on its cash. The following table presents the Company’s cash position as of September 30, 2024 and December 31, 2023.
| September 30, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalent | $ | 2,533,980 | $ | 3,658,506 | ||||
| Total assets | $ | 3,784,648 | $ | 6,290,022 | ||||
| Cash and cash equivalent as a percentage of total assets | 67.0 | % | 58.2 | % | ||||
The Company reported a net loss from continuing operation of $5.9 million for the nine months ended September 30, 2024. The Company also had positive working capital of $0.2 million. The Company expects to continue incurring losses for the foreseeable future.
The Company anticipates its current cash and its ability to draw from the $5 million credit line with private lender will be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements.
We base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. These estimates include useful lives and impairment of long-lived assets, deferred taxes and related valuation allowances, allocation of corporate general expenses, and the valuation of the assets and liabilities acquired in business combinations. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
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While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
There have been no material changes to the Company’s critical accounting policies and estimates except allocation of corporate general expense as compared to the critical accounting policies and estimates described in the 2023 Annual Report, which we believe are the most critical to our business and the understanding of our results of operations and affect the more significant judgments and estimates that we use in the preparation of our condensed consolidated financial statements. Allocation of corporate general expenses to HCWC was a result of recently completed spin-Off of HCWC, which led to a reevaluation of how corporate general expenses were allocated. The Company adopted a proportional cost allocation method to allocate parent expense to the carve-out entity.
Seasonality
We do not consider our business to be seasonal.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements including statements regarding retail expansion, the future demand for our products, the transition to vaporizer and other products, competition, the adequacy of our cash resources and our authorized Common Stock, and our continued ability to raise capital.
The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include our future common stock price, customer acceptance of our products, and proposed federal and state regulation. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
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 as of September 30, 2024 in regard to the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act. As an evaluation was not carried out, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its internal control over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2024 and noted the material weaknesses as follows:
| ● | Failure to have properly documented and designed disclosure controls and procedures and testing of the operating effectiveness of our internal control over financial reporting. |
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| ● | Segregation of duties due to lack of personnel. |
| ● | 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 September 30, 2024 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Planned Remediation
Management continues to work to improve its controls related to our material weaknesses listed above. In order to achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
| ● | Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong internal control backgrounds and inventory expertise. | |
| ● | 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. |
We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Controls over Financing Reporting
Except as detailed above, during the quarter ended September 30, 2024, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There were two lawsuits in connection with alleged claimed battery defects for an electronic cigarette device. One had 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 had reached an arrangement with the plaintiff to resolve the matter, limiting potential exposure of the Company to $1.5 million which was reflected in accounts payable and accrued expenses, representing management’s estimate of the probable settlement amount based on the current status of discussions. This arrangement was formalized by a signed agreement on July 1, 2024 and the Company has accrued $1.5 million at June 30, 2024. As of September 30, 2024, the Company already paid $700,000, and the remaining balance of $800,000 was reflected in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.
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 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 a notice of 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. The appeal brief was filed on February 28, 2022.
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. 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.
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.
On November 17, 2023, RJR filed a motion to dismiss the action. HCMC opposed on December 22, 2023. To date the court has not ruled on the motion.
On September 18, 2024, RJR filed an inter partes review of the patent-in-suit at the United States Patent and Trademark Office (“USPTO”). A decision on institution will be made by the USPTO sometime after January 2025.
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 operations as of September 30, 2024. With respect to legal costs, we record such costs as incurred.
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS.
See the exhibits listed in the accompanying “Index to Exhibits.”
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INDEX TO EXHIBITS
| Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | |||||
| 31.1 | Certification of Principal Executive Officer (302) | Filed | ||||||||
| 31.2 | Certification of Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive Officer (906) | Furnished * | ||||||||
| 32.2 | Certification of Principal Financial Officer (906) | Furnished * | ||||||||
| 101.INS | Inline XBRL Instance Document | Filed | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | Filed | ||||||||
* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HEALTHIER CHOICES MANAGEMENT CORP. | ||
| Date: November 14, 2024 | By: | /s/ Jeffrey Holman |
| Jeffrey Holman | ||
| Chief Executive Officer | ||
| Date: November 14, 2024 | By: | /s/ John Ollet |
| John Ollet | ||
| Chief Financial Officer | ||
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