VPCO : Healthier Choices Management Corp (NASDAQ: VPCOU) Stock Analysis and Research Report
2017-11-20 - by Asif, Contributing Analyst
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Healthier Choices Management Corp. is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives. The Company operates thirteen vape retail stores in the Southeast region of the United States of America. The Company offers e-liquids vaporizers and related products through its vape retail stores. The Company sold its wholesale business on July 31, 2016. The sale of the wholesale business was not contemplated prior to July 1, 2016. The sale of the wholesale business qualifies as a discontinued operation and accordingly the Company has excluded results for the wholesale business operations from the Company’s continuing operations in the unaudited consolidating Statements of Operations for all periods presented.
On June 1, 2016, the Company acquired the business assets of Ada’s Whole Food Market LLC, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc. The grocery store has been a leader in the natural grocery market in Fort Myers, Florida for the past 40 years, offering fresh, natural and organic products and specializing in facilitating a healthy, well balanced lifestyle. In addition to a comprehensive selection of vitamins and health & beauty products, the grocery store provides a fresh café and an organic juice bar.
Going Concern and Liquidity
The unaudited 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 its 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 had a large number of warrants outstanding with features that made the warrants more debt-like than equity and could possibly result in cash outflows. Additionally, for the nine months ended September 30, 2017, the company reported a net loss of $7,300,896 and had a working capital deficit of $1,991,339. These factors raised substantial doubt about its ability to continue as a going concern.
During 2016 and early 2017, the company took steps to mitigate these factors by:
- increasing the number of authorized shares to 750,000,000,000 so that there would be sufficient shares available for issuance should all the warrant holders exercise; and
- entering into a Fifth Amended and Restated Series A Warrant Standstill Agreement (the “Fifth Amendment”) with warrant holders to effectively eliminate the possibility that warrant holders will exercise for anything other than shares.
The above steps substantially lowered its potential cash exposure. As a result, as of the date of the issuance of these financial statements, the company believe its plans have alleviated substantial doubt about its ability to sustain operations for the foreseeable future through a year and a day from the issuance of these unaudited consolidated financial statements.
Factors Affecting The company's Performance
Retail: The company believe the operating performance of its retail stores will affect its revenue and financial performance. The Company has a total of thirteen retail stores, which are located in Florida, Georgia and Alabama. The Company has ceased plans to increase 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.
Inventory Management: The company's revenue trends are affected by an evolving product acceptance and consumer demand. Healthier Choices Management is creating and offering new products to its retail customers. Evolving product development and technology impacts its licensing and intellectual properties spending. The company expect the transition to vaporizer and advanced technology and enhanced performance products to continue and will impact its operating results in the future.
Increased Competition: The launch by national competitors of branded vaporizer and e-cigarette products have made it more difficult to compete on prices and to secure business. The company expect increased vaporizer product supply and downward pressure on prices to continue and impact its operating results in the future. The company market and sell the similar vaporizers and e-liquids as its competitors and the company sell its products at substantially similar prices as its competitors; accordingly, the key competitive factors for its success is to maintain the quality of service the company offer its customers and effective marketing efforts.
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