HEALTHIER CHOICES MANAGEMENT CORP. 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.
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 has (1) a total of [six] retail vape stores and (2) [four] natural and organic groceries and dietary supplement stores located inFlorida , as well as two located inNew York . The Company has reduced the number of retail vape stores due to adverse industry trends and increasing federal and state regulations that, if implemented, may negatively impact future retail revenues.Increased Competition : Food retail is a large and competitive industry. Our competition varies and includes national, regional, and local conventional supermarkets, national superstores, alternative food retailers, natural foods stores, smaller specialty stores, and farmers' markets. In addition, we compete with restaurants and other dining options in the food-at-home and food-away-from-home markets. The opening and closing of competitive stores, as well as restaurants and other dining options, in regions where we operate will affect our results. In addition, changing consumer preferences with respect to food choices and to dining out or at home can impact us. We also expect increased product supply and downward pressure on prices to continue and impact our operating results in the future. Our Response to the COVID-19 Pandemic: We are proud to provide our guests with high quality, fresh foods and restaurant quality meals, delivered with impeccable service in an exceptionally clean and well-stocked store. With the ongoing COVID-19 pandemic, we continue to carefully monitor and adjust our safety protocols while following public health guideline and local ordinances. We have maintained many of the protocols established at the beginning of the pandemic to keep our team members and guests safe. The COVID-19 pandemic has presented many risks and challenges that we must manage. While we have experienced many challenges, including but not limited to, product shortages, staffing difficulties, and evolving customer shopping behaviors, our focus remains on both offering our customers a high quality service experience and supporting our essential front-line team members. Though we have successfully managed these challenges to date, our operations and financial condition could still be negatively affected by the COVID-19 pandemic and future developments, which are highly uncertain and cannot be predicted. 15
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Results of Operations
The following table sets forth our Consolidated Statements of Operations for the
years ended
For the Year Ended December 31, 2021 to 2020
2021 2020 Change $
SALES:
Vapor sales, net $ 2,084,813 $ 2,458,945 $ (374,132 )
Grocery sales, net 11,235,041 11,461,800 (226,759 )
Total Sales 13,319,854 13,920,745 (600,891 )
Cost of sales vapor 839,599 1,033,805 (194,206 )
Cost of sales grocery 7,187,701 7,109,719 77,982
GROSS PROFIT 5,292,554 5,777,221 (484,667 )
EXPENSES:
Impairment of goodwill and intangible assets - 380,646 (380,646 )
Selling, general and administrative 10,033,048 8,844,947 1,188,101
Total operating expenses 10,033,048 9,225,593 807,455
Operating loss (4,740,494 ) (3,448,372 ) (1,292,122 )
OTHER INCOME (EXPENSES): Gain on debt settlements 767,930 - 767,930 Other expenses, net (26 ) (100 ) 74 Interest expense, net (65,281 ) (272,651 ) 207,370 Gain (loss) on investment 412 (1,269 ) 1,681 Total other income (expense), net 703,035 (274,020 ) 977,055 NET LOSS$ (4,037,459 ) $ (3,722,392 ) $ (315,067 ) Net vapor sales decreased$0.4 million to$2.1 million for the year endedDecember 31, 2021 as compared to$2.5 million for the same period in 2020. The decrease in sales was primarily due to a major decrease in foot traffic and a decrease in the number of stores open compared to prior year. Net grocery sales decreased$0.2 million to$11.2 million for the year endedDecember 31, 2021 as compared to$11.5 million for the same period in 2020. The decrease in sales was primarily due to a decrease in the customer count compared to prior year. Vapor cost of goods sold for the year endedDecember 31, 2021 and 2020 were$0.8 million and$1.0 million , respectively, a decrease of$0.2 million . The decrease in cost of goods sold was primarily due to a decreased in sales and product cost. Grocery store cost of goods sold for the year endedDecember 31, 2021 and 2020 were$7.2 million and$7.1 million , respectively, an increase of$0.1 million primarily due to a write-off of inventory. Total operating expenses increased$0.8 million to$10.0 million for the year endedDecember 31, 2021 . The increase was primarily due to an increase in professional fees of$1.1 million and payroll benefits of$0.4 million , partially offset by the impairment of goodwill and intangible assets of$0.4 million in prior year. Net other income of$0.7 million for the year endedDecember 31, 2021 includes a gain on debt settlements of$0.8 million , partially offset by an interest expense of$0.1 million . Net other expense of$0.3 million for the year endedDecember 31, 2020 includes primarily interest expense. 16
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Liquidity and Capital Resources
For the year ended December 31,
2021 2020
Net cash provided by (used in):
Operating activities $ (3,528,205 ) $ (2,281,797 )
Investing activities (87,322 ) (75,202 )
Financing activities 27,186,456 1,771,293
$ 23,570,929 $ (585,706 )
Our net cash used in operating activities of $3.5 million for the year ended
December 31, 2021 resulted from our net loss of $4.0 million and a net cash
usage of $0.6 million from changes in operating assets and liabilities, offset
by a non-cash adjustments of $1.0 million . Our net cash used in continuing
operating activities of $2.3 million for the year ended December 31, 2020
resulted from our net loss from continuing operations of $3.7 million , offset by
a net cash usage of $0.5 million from changes in operating assets and
liabilities and a non-cash adjustments of $1.9 million .
The net cash used in investing activities of $0.1 million for the year ended
December 31, 2021 resulted from the collection of a note receivable, the
acquisition of new business and purchases of a patent and property and
equipment. The net cash provided by investing activities of $0.1 million for the
year ended December 31, 2020 resulted from the issuance and collection of a note
receivable, and purchases of a patent and property and equipment.
The net cash provided by financing activities of $27.2 million for the year
ended December 31, 2021 is due to proceeds received from the Rights Offering of
$24.3 million and a Securities Purchase Agreement of $5.0 million , partially
offset by a principal payment of $2.0 million on the line of credit. The net
cash used in financing activities of $1.8 million for the year ended December
31, 2020 is due to proceeds received from the Paycheck Protection Program of
$0.9 million and Term Loan of $2.5 million , partially offset by payments
of $1.7 million on the loan payable.
At
Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. The majority of our cash and cash equivalents are concentrated in three large financial institutions and are generally in excess of theFederal Deposit Insurance Corporation (FDIC) insurance limit. The Company has not experienced any losses on its cash and cash equivalents. The following table presents the Company's cash position as ofDecember 31, 2021 andDecember 31, 2020 . December 31, 2021 December 31, 2020 Cash$ 26,496,404 $ 925,475 Total assets$ 34,443,487 $ 11,874,993 Percentage of total assets 76.9 % 7.8 % The Company reported net loss of approximately$4.0 million for the year endedDecember 31, 2021 . The Company also had positive working capital of$26.2 million . 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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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. We define Adjusted EBITDA as net loss from operations adjusted for non-cash charges for depreciation and amortization and stock compensation. 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 charges that effect comparability between reporting periods. 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 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 theSecurities and Exchange Commission . 2021 2020
Reconciliation of Adjusted EBITDA to net loss allocable to common stockholders: Operating loss
$ (4,740,494 ) $ (3,448,372 ) Impairment of goodwill and intangible assets -
380,646
Depreciation and amortization 497,408
550,098
Stock-based compensation expense 34,375 78,029 Adjusted EBITDA$ (4,208,711 ) $ (2,439,599 ) 18
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