10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 Form 10-Q 

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

Or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

Commission file number: 001-36469

HEALTHIER CHOICES MANAGEMENT CORP.

(Exact name of Registrant as specified in its charter) 

Delaware	84-1070932
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
3800 North 28Th Way
Hollywood, FL	33020
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 305-600-5004

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐ (Do not check if a smaller reporting company)	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

As of October 30, 2018, there were 65,506,264,170 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

TABLE OF CONTENTS

	PAGE
PART I FINANCIAL INFORMATION	1
ITEM 1. Financial Statements	1
Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017	1
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	2
Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months ended September 30, 2018 (Unaudited)	3
Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2018 and 2017 (Unaudited)	4
Notes to Consolidated Financial Statements (Unaudited)	5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4. Controls and Procedures	22
PART II OTHER INFORMATION	23
ITEM 1. Legal Proceedings	24
ITEM 1A. Risk Factors	24
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
ITEM 3. Defaults Upon Senior Securities	24
ITEM 4. Mine Safety Disclosures	24
1ITEM 5. Other Information	24
ITEM 6. Exhibits	24
Signatures	25
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

i 

PART I

FINANCIAL INFORMATION 

Item 1. Financial Statements

HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2018			December 31, 2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	8,271,376		$	7,883,191
Accounts receivable, net of allowance of approximately $26,000 and $19,000, respectively		47,671			75,568
Inventories		1,006,543			861,650
Prepaid expenses and vendor deposits		422,027			133,401
Investment		161,999			-
Contract assets		180,000			-
TOTAL CURRENT ASSETS		10,089,616			8,953,810
Property and equipment, net of accumulated depreciation of $541,334 and $393,771, respectively		484,463			589,506
Intangible assets, net of accumulated amortization of $412,136 and $289,969, respectively		1,474,864			1,559,531
Goodwill		481,314			481,314
Note receivable		572,176			-
Other assets		116,978			117,244
TOTAL ASSETS	$	13,219,411		$	11,701,405
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	475,743		$	512,395
Accrued expenses		326,790			439,133
Contract liabilities		2,029,994			61,312
Current portion of loan payable		502,195			2,111
Derivative liabilities – warrants		1,833,158			10,231,697
TOTAL CURRENT LIABILITIES		5,167,880			11,246,648
Loan payable, net of current portion		8,801			10,459
TOTAL LIABILITIES		5,176,681			11,257,107
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)
STOCKHOLDERS’ EQUITY
Series B convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; 20,150 shares issued and outstanding as of September 30, 2018; aggregate liquidation preference of $20,150,116		20,150,116			-
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; 63,945,666,332 and 29,348,867,108 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		6,394,567			2,934,887
Additional paid-in capital		7,092,395			10,080,238
Accumulated deficit		(25,594,348	)		(12,570,827	)
TOTAL STOCKHOLDERS’ EQUITY		8,042,730			444,298
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,219,411		$	11,701,405

See accompanying notes to unaudited consolidated financial statements

1

HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
SALES
Vapor sales, net	$	1,106,596		$	1,453,725		$	3,556,130		$	4,440,657
Grocery sales, net		1,923,878			1,428,482			6,359,671			5,320,364
TOTAL SALES, NET		3,030,474			2,882,207			9,915,801			9,761,021
Cost of sales vapor		460,648			709,445			1,602,363			1,877,686
Cost of sales grocery		1,183,033			893,838			3,850,998			3,118,563
GROSS PROFIT		1,386,793			1,278,924			4,462,440			4,764,772
OPERATING EXPENSES
Advertising		56,021			16,243			137,485			74,902
Selling, general and administrative		2,123,471			4,256,080			7,196,680			12,208,030
Total operating expenses		2,179,492			4,272,323			7,334,165			12,282,932
LOSS FROM OPERATIONS		(792,699	)		(2,993,399	)		(2,871,725	)		(7,518,160	)
OTHER INCOME (EXPENSE)
Change in fair value of Series A Warrants		(10,696,774	)		(20,160	)		(10,696,774	)		(94,955	)
Other income		164,259			9,665			481,759			20,126
Interest income		30,458			4,044			63,219			22,889
Total other income (expense), net		(10,502,057	)		(6,451	)		(10,151,796	)		(51,940	)
Net loss from continuing operations		(11,294,756	)		(2,999,850	)		(13,023,521	)		(7,570,100	)
Net income from discontinued operations		-			204,507			-			281,483
NET LOSS	$	(11,294,756	)	$	(2,795,343	)	$	(13,023,521	)	$	(7,288,617	)
NET LOSS PER SHARE-BASIC AND DILUTED
Continuing operations	$	0.00		$	0.00		$	0.00		$	0.00
Discontinued operations	$	0.00		$	0.00		$	0.00		$	0.00
NET LOSS PER SHARE -BASIC AND DILUTED	$	0.00		$	0.00		$	0.00		$	0.00
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED		45,821,526,888			29,327,284,303			34,900,093,115			25,138,693,169

See accompanying notes to unaudited consolidated financial statements

2

HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2018

(UNAUDITED)

	Preferred Stock						Common Stock				Additional Paid-In			Accumulated
	Shares			Amount			Shares		Amount		Capital			Deficit			Total
Balance – January 1, 2018		-		$	-			29,348,867,108	$	2,934,887	$	10,080,238		$	(12,570,827	)	$	444,298
Issuance of common stock in connection with cashless exercise of Series A warrants		-			-			1,602,741,446		160,274		(93,958	)		-			66,317
Stock options exercised		-			-			777,777,778		77,778		-			-			77,778
Issuance of Series B Convertible Preferred Stock		20,722			20,721,744			-		-		(1,692,747	)		-			19,028,997
Modification of share-based payment awards to officers		-			-			19,000,000,000		1,900,000		(1,900,000	)		-			-
Issuance of awarded restricted stock to officer		-			-			3,000,000,000		300,000		(300,000	)		-			-
Issuance of awarded common stock for professional services		-			-			3,000,000,000		300,000		(300,000	)		-			-
Preferred stock converted		(572	)		(571,628	)		5,716,280,000		571,628					-			-
Investment in MJ Holdings, Inc. - Share exchange		-			-			1,500,000,000		150,000		-						150,000
Stock-based compensation expense		-			-			-		-		1,298,862			-			1,298,862
Net loss		-			-			-		-		-			(13,023,521	)		(13,023,521	)
Balance – September 30, 2018		20,150		$	20,150,116			63,945,666,332	$	6,394,567	$	7,092,395		$	(25,594,348	)	$	8,042,730

See accompanying notes to unaudited consolidated financial statements

Note: Amounts may not be additive due to rounding

3

HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2018			2017
OPERATING ACTIVITIES
Net loss	$	(13,023,521	)	$	(7,288,617	)
Adjustments to reconcile net loss to net cash used in operating activities:
Income from discontinued operations		-			(281,483	)
Change in allowances for bad debt		(75,399	)		(22,633	)
Depreciation and amortization		269,729			261,456
Change in fair value of Series A Warrants		10,696,774			94,955
Write-down of obsolete and slow-moving inventory		227,960			290,574
Stock-based compensation expense		1,298,862			5,338,508
Stock-based expense in connection with professional services		-			9,002
Net cash used in discontinued operations		-			(221,424	)
Changes in operating assets and liabilities:
Due from merchant credit card processors		15,615			1,862
Accounts receivable		21,036			(26,506	)
Inventories		(372,853	)		(479,406	)
Prepaid expenses and vendor deposits		(303,974	)		10,641
Contract assets		(180,000	)		-
Accounts payable		(36,652	)		21,124
Accrued expenses		(112,343	)		(212,998	)
Contract liabilities		1,968,682			396
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		393,916			(2,504,549	)
INVESTING ACTIVITIES
Issuance of note receivable		(500,000	)
Collection of note receivable		10,083			-
Gain on investment		(11,999	)		-
Purchases of patent		(37,500	)		(50,000	)
Purchases of property and equipment		(42,520	)		(114,168	)
NET CASH USED IN INVESTING ACTIVITIES		(581,936	)		(164,168	)
FINANCING ACTIVITIES
Proceeds from line of credit		500,000			13,977
Principal payments on loan payable		(1,573	)		(897	)
Payments for repurchase of Series A warrants		-			(2,427,267	)
Principal payments of capital lease obligations		-			(53,054	)
Proceeds from exercise of stock options		77,778			1,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		576,205			(2,466,241	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		388,185			(5,134,958	)
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		7,883,191			13,366,272
CASH AND CASH EQUIVALENTS — END OF PERIOD	$	8,271,376		$	8,231,314
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	1,750		$	3,552
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in connection with cashless exercise of Series A warrants	$	66,317		$	304,072

See accompanying notes to unaudited consolidated financial statements

4

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION

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 Company currently operates twelve retail vape stores in 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, through its wholly owned subsidiary Healthy Choice Markets, Inc. Ada’s Natural Market offers 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. The Company also sells vitamins and supplements on the Amazon.com marketplace through its wholly owned subsidiary Healthy U Wholesale, Inc. The Company markets the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which is partially filled with either cannabis or CBD concentrate (approximately 50mg). 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.

Going Concern and Liquidity

The accompanying unaudited 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, 2018, cash and cash equivalents totaled approximately $8.3 million. While we anticipate that our current cash, cash equivalents, and cash to be generated from operations will be sufficient to meet our projected operating plans for the foreseeable future through a year and a day from the issuance of these unaudited consolidated financial statements, should we require additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. During the second quarter of 2018, the Company entered into a $2.0 million line of credit agreement with a financial institution that is subject to annual renewal with a variable interest rate that it is based on a rate of 1% over what is earned on the collateral amount. The collateral amount established in the arrangement with the financial institution is $2.0 million. In the third quarter of 2018, the Company used $0.5 million from the $2.0 million the line of credit at a variable interest rate, to issue a note receivable to VPR Brands LLC. The ability to raise additional financing may have a positive effect on the future performance of the Company.

Basis of Presentation and Principles of Consolidation

The Company’s unaudited consolidated financial statements are prepared in accordance with GAAP. The unaudited 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 unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, Vaporin, Inc., The Vape Store, Inc. (“Vape Store”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising LLC, Vaporin LLC, Vaporin Florida, Inc., Healthy U Wholesale, Inc. and Healthy Choice Markets, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

5

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

Unaudited Interim Financial Information

The unaudited consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2018. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been omitted under the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 15, 2018.  

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in the Preparation of the Financial Statements

The preparation of unaudited 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 unaudited 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, reserves and write-downs of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes and related valuation allowances, and the valuation of assets and liabilities acquired in business combinations. Certain of management’s estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from those estimates. The Company re-evaluates all accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

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.

The following table provides a summary of the shipping and handling costs:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Shipping and handling	$	18,109		14,582	$	45,437		80,388

 Concentration of Risk

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. 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.

A summary of the financial institutions that had a cash and cash equivalents in excess of FDIC limits of $250,000 at September 30, 2018 and December 31, 2017 is presented below:

	September 30, 2018		December 31, 2017
Total Cash in excess of FDC limits of $250,000	$	7,793,076	$	7,119,573

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.

6

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Inventories

Inventories are stated at average cost. If the cost of the inventories exceeds their net realizable value, provisions are recorded to write down excess inventories to their net realizable value. The Company’s inventories consist primarily of merchandise available for resale, such as fresh produce, perishable grocery items and non-perishable consumable goods.

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.

Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (“ASU 2014-9”), is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance. The Company adopted the standard on January 1, 2018 using the retrospective transition method, which requires reporting entities to apply the standard as of the earliest period presented in their financial statements. The adoption of the new standard resulted in an immaterial impact to the consolidated statements of operations for reclassifying $12,951 to net loss and an immaterial impact to the consolidated balance sheets for reclassifying $61,312 of contract liabilities from accrued expenses as of December 31, 2017. Contract liabilities consist of gift card and loyalty point program liabilities. See “Accounts Receivable, Contract Assets, and Deferred Revenue” significant accounting policy.

Adoption of ASU 2014-09 impacted the previously reported results for the three and nine months ended September 30, 2017 as follows:

	Three months ended September 30, 2017									Nine months ended September 30, 2017
	As reported			ASU Impact			After adoption			As reported			ASU Impact			After adoption
Vapor sales, net	$	1,410,003		$	43,722		$	1,453,725		$	4,398,941		$	41,716		$	4,440,657
Grocery sales, net	$	1,447,040		$	(18,558	)	$	1,428,482		$	5,349,801		$	(29,437	)	$	5,320,364
Gross profit	$	1,253,760		$	25,164		$	1,278,924		$	4,752,493		$	12,279		$	4,764,772
Net loss	$	(2,820,507	)	$	25,164		$	(2,795,343	)	$	(7,300,896	)	$	12,279		$	(7,288,617	)

Adoption of ASU 2014-09 impacted the previously reported balance sheet as of December 31, 2017 as follows:

	As reported  December 31, 2017			ASU 2014-09 Impact			After adoption December 31, 2017
Accrued expenses	$	538,204		$	(99,071	)	$	439,133
Contract liabilities	$	-		$	61,312		$	61,312
Total current liabilities	$	11,284,407		$	(37,759	)	$	11,246,648
Accumulated deficit	$	(12,608,586	)	$	37,759		$	(12,570,827	)
Total stockholders’ equity	$	406,539		$	37,759		$	444,298

7

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Accounts Receivable, Contract Assets, and Contract Liabilities

Accounts receivable 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. 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.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition on the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In July 2017, the FASB issued a two-part ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception”. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

8

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

Note 3. 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.

	Three Months Ended				Nine Months Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Vapor sales, net	$	1,106,596	$	1,453,725	$	3,556,130	$	4,440,657
Grocery sales, net		1,923,878		1,428,482		6,359,671		5,320,364
Total revenue	$	3,030,474	$	2,882,207	$	9,915,801	$	9,761,021
Retail Vapor	$	1,106,228	$	1,386,851	$	3,548,704	$	4,170,393
Retail Grocery		1,407,776		1,102,665		4,581,001		5,055,226
Food service/restaurant		370,609		314,642		1,167,006		253,963
Online/eCommerce		135,483		11,175		593,347		11,175
Wholesale Grocery		10,010		-		18,317		-
Wholesale Vapor		368		66,874		7,426		270,264
Total revenue	$	3,030,474	$	2,882,207	$	9,915,801	$	9,761,021

Note 4. PREPAID EXPENSES AND VENDOR DEPOSITS

	September 30, 2018		December 31, 2017
Vendor deposits (1)	$	293,098	$	5,533
Technology		43,300		-
Insurance policy		37,497		47,105
Patent		25,000		-
Other		13,436		28,410
Rent		9,696		9,695
Insurance claim		-		41,183
Software licenses		-		1,475
Total	$	422,027	$	133,401

(1) Vendor deposits related to the sales contract with MJNE for the Q-Cups.

Note 5. INVESTMENT

During the third quarter of 2018, the Company invested $150,000 in 85,714 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 stock will be held indefinitely with the intention of producing a capital gain upon the sale at a future date.   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. As of the September 30, 2018, the Company remeasured the fair value of the MJNE stock and recognized a gain on investment of $11,999. 

9

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. NOTES RECEIVABLE AND OTHER INCOME

The Company entered into a secured, 36-month promissory note with VPR Brands L.P. for $582,260 on September 6, 2018. The note is composed of a principal amount of $500,000 (the “Promissory Note”) and an outstanding balance from prior secured notes of $82,260 (the “Note”). The Note bears an interest rate of 7%, which payments thereunder are $4,141 weekly, with such payments commencing as of September 14, 2018. The Company records all proceeds related to the interest of the Note as interest income as proceeds are received.

A summary of the Note as of September 30, 2018 is presented below:

Description	Due Date	Interest Rate			Loan Amount		Proceeds		Remaining Balance
Promissory Note	9/6/2021		7.0	%	$	582,260	$	12,422	$	572,176

For the three months ended September 30, 2018, the Company had a benefit of $82,260 related to the reversal of the outstanding valuation allowance reserve from prior notes receivable, recorded to other income in the Consolidated Statement of Operations.

For the nine months ended September 30, 2018, the company had a reversal of the valuation allowance reverse and notes receivable collections of $469,760 recorded to other income in the Consolidated Statement of Operations.

Note 7. INTANGIBLE ASSETS

Intangible assets, net are as follows: 

September 30, 2018	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Favorable lease	15 years	$	890,000	$	(135,990	)	$	754,010
Trade names	10 years		820,000		(231,000	)		589,000
Customer relationships	5 years		60,000		(28,000	)		32,000
Patents	10 years		112,500		(13,646	)		98,854
Website	3 years		4,500		(3,500	)		1,000
Intangible assets, net		$	1,887,000	$	(412,136	)	$	1,474,864

December 31, 2017	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Favorable lease	15 years	$	890,000	$	(92,219	)	$	797,781
Trade names	10 years		820,000		(169,500	)		650,500
Customer relationships	5 years		60,000		(19,000	)		41,000
Patents	10 years		75,000		(6,875	)		68,125
Website	3 years		4,500		(2,375	)		2,125
Intangible assets, net		$	1,849,500	$	(289,969	)	$	1,559,531

10

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense amounted to $122,166 and $119,458 for the nine months ended September 30, 2018 and 2017, respectively. Future annual estimated amortization expense is as follows:

Years ending December 31,
2018 (remaining three months)	$	41,278
2019		164,236
2020		163,611
2021		156,611
2022		151,611
Thereafter		797,517
Total	$	1,474,864

Note 8. CONTRACT ASSETS AND LIABILITIES

The company’s contract assets consist of sales commissions to third parties that support and facilitate the completion of complex transactions, for which the Company has a performance obligation to pay due to the fact that the sales agreement was fully executed. During the three months ended September 30, 2018, the Company paid sales commissions of $180,000 related to the initial sale of the Q-Cup. As such, all contract assets are expected to be recognized as the order is being deliver to the customers.

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. Our 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 nine months ended September 30, 2018 and 2017 is presented below:

	Nine month ended September 30,
	2018			2017
Beginning balance as January1,	$	61,312		$	34,564
Issued		81,720			96,029
Redeemed		(113,954	)		(99,067	)
Breakage recognized		916			3,434
Customer deposits (1)		2,000,000			-
Ending balance as of September 30,	$	2,029,994		$	34,960

(1) See Note 13. “Commitments and Contingencies” for additional information.

Note 9. ACCRUED EXPENSES

	September 30, 2018		December 31, 2017
Sales return from Wholesale business	$	168,693	$	168,693
Salaries and wages		58,641		72,522
Franchise taxes		36,750		36,000
Professional fees		22,247		125,783
Credit card fees		15,383		-
Royalty fees		14,126		18,150
Property taxes		9,750		-
Other		1,200		17,985
Total	$	326,790	$	439,133

11

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 10. LINE OF CREDIT

The Company entered into a $2.0 million line of credit agreement with a financial institution that is subject to annual renewal with a variable interest rate that it is based on a rate of 1% over what is earned on the collateral amount. The collateral amount established in the arrangement with the financial institution is $2.0 million. On September 10, 2018, the Company withdrew $0.5 million from line of credit and the interest for the period was $126. As of September 30, 2018, the Company has not made any payments towards the principal amount borrowed from the credit line.   The maturity date for the line of credit is April 13, 2019.

Note 11. STOCKHOLDERS’ EQUITY

Modification of share-based payment awards to officers

On August 13, 2018, the Compensation Committee of the Board of Directors of the Company approved a modification of share-based payment awards to the Chief Executive Officer and Chief Operating Officer of the Company. As part of the share modification, the Chief Executive Officer and Chief Operating Officer were granted 11 billion and 8 billion shares of restricted common stock on the condition that same numbers of shares from their 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. The share modification will not have an impact on the Consolidated Statements of Operations because both of the officers’ options plans have been fully amortized as of the first quarter of 2018.

Restricted Stock

On August 13, 2018, the Compensation Committee of the Board of Directors of the Company approved an issuance of awarded restricted stock to the Chief Financial Officer of the Company. The Chief Financial Officer was granted 3 billion shares of restricted common stock. 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. The issuance of the restricted stock will have an impact on the Consolidated Statements of Operations because the awarded restricted common stock will be amortized on a straight-line basis over a period of twelve months. During the three months ended September 30, 2018, the Company recognized stock-based compensation expense of $50,000 from the awarded shares to the Chief Financial Officer.

Series B Convertible Preferred Stock

On August 16, 2018, the Company entered into agreements with certain holders of its Series A Warrants to exchange the Company’s Series B Convertible Preferred Stock for Series A Warrants. A total of 20,722 shares of Series B Stock were exchanged for 46,048,318 Series A Warrants (including those warrants issuable pursuant to a unit purchase option). Each share of Series B Stock “Series B Stock” has a stated value equal to $1,000 and is convertible into Common Stock on a fixed basis at a conversion price of $0.0001 per share.

Series A Warrants

A summary of warrant activity for the nine months ended September 30, 2018 is presented below:

	Exercise Price			Warrant Common Stock Equivalent			Remaining Contractual Term
Outstanding at January 1, 2018	$	0.0001			505,246,312,541			2.60
Warrants settlement	$	(0.00004	)		(501,137,085,559	)
Cashless exercises for common stock	$	(0.0001	)		(1,602,741,446	)
Black Scholes Value adjustment	$	0.0001			41,862,390,886
Outstanding at September 30, 2018	$	0.0001			44,368,876,422			1.85

12

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Pursuant to the Series A Warrant agreements, the Black Scholes value is calculated by a third-party and utilized in calculating the warrant common stock equivalents at the point of cashless exercise. As such, the number of warrant common stock equivalents outstanding are computed at the end of each reporting period using the formula below:

(Series A Warrants exercised * Black Scholes Value) / closing common stock bid price as of two trading days prior.

A summary of the outstanding warrant common stock equivalents at January 1, 2018 and September 30, 2018, is presented below:

	September 30, 2018		January 1, 2018
Warrants outstanding		3		33
Black Scholes value		1,524,822		1,520,919
Closing bid stock price	$	0.0001	$	0.0001
Warrant common stock equivalent		44,368,876,422		505,246,312,541

Stock Options

During the three months ended September 30, 2018 and 2017, the Company recognized stock-based compensation of $0.1 million and $2.0 million, respectively, in connection with the amortization of stock options, net of recovery of stock-based charges for forfeited unvested stock options. During the nine months ended September 30, 2018 and 2017, the Company recognized stock-based compensation of $1.3 million and $5.3 million, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.

At September 30, 2018, the amount of unamortized stock-based compensation expense associated with the unvested stock options granted to employees, directors and consultants was approximately $0.1 million, which will be amortized over a weighted average period of 0.21 years. At December 31, 2017, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees, directors and consultants was approximately $1.3 million, which will be amortized over a weighted average period of 0.43 years.

Loss Per Share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed using the weighted average number of shares of common stock outstanding and, if dilutive, potential shares of common stock outstanding during the period. Potential common shares consist of incremental shares of common stock issuable upon (a) the exercise of stock options (using the treasury stock method), and (b) the exercise of warrants (using the if-converted method). For the three and nine months ended September 30, 2018 and 2017, diluted loss per share excludes the potential shares of common stock, as their effect is antidilutive.

The following table summarizes the Company’s securities, in common share equivalents, that have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

	September 30, 2018		September 30, 2017
Preferred stock		201,501,142,000		-
Stock options and restricted stock		90,012,230,680		86,911,261,360
Warrants		44,368,876,422		504,635,045,073
Total		335,882,249,102		591,546,306,433

13

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 12. 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.

The following table summarizes the liabilities measured at fair value on a recurring basis as of September 30, 2018:

	Level 1		Level 2		Level 3		Total
LIABILITIES
Derivative liabilities – warrants	$	-	$	1,833,158	$	-	$	1,833,158
Total derivative liabilities – warrants	$	-	$	1,833,158	$	-	$	1,833,158

The following table summarizes the liabilities measured at fair value on a recurring basis as of December 31, 2017:

	Level 1		Level 2		Level 3		Total
LIABILITIES
Derivative liabilities – warrants	$	-	$	10,231,697	$	-	$	10,231,697
Total derivative liabilities – warrants	$	-	$	10,231,697	$	-	$	10,231,697

Note 13. COMMITMENTS AND CONTINGENCIES

Fontem License Agreement

The Company has a non-exclusive license to certain products with Fontem Ventures B.V. “Fontem”. The Company will make quarterly license and royalty payments in perpetuity to Fontem based on the sale of qualifying products as defined in the license agreement at a royalty rate of 5.25%.

A summary of the royalty expenses as of September 30, 2018 and 2017 is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Royalty expenses	$	11,818	$	19,464	$	45,825	$	4,814

14

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. With respect to legal costs, we record such costs as incurred.

Employment Agreements

Jeffrey Holman

On August 13, 2018, the Company amended and restated its existing employment agreement with Jeffrey Holman, the Company’s Chief Executive Officer. The employment agreement is for an additional three year term and provides for an annual base salary of $450,000 and a target bonus for 2018 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 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 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.   

John Ollet  

Effective as of August 13, 2018, the Company entered into an amendment to the existing employment agreement with the Company’s Chief Financial Officer, John Ollet. 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. Mr. Ollet will receive a base salary of $250,000 for this additional year. Mr. Ollet was also granted 3 billion shares of restricted common stock. 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.

Christopher Santi

Effective as of August 13, 2018, the Company entered into an amendment to the existing employment agreement with the Company’s President and Chief Operating Officer, Christopher Santi. Mr. Santi will continue to be employed as the Company’s President and Chief Operating Officer for an additional one year extension period through January 29, 2021. Mr. Santi will receive a base salary of $330,000 for this additional year. The severance pay period for termination without cause was increased to up to 18 months based on time of service. Mr. Santi was also granted 8 billion shares of restricted common stock on the condition that 8 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.

Exclusive Distribution Agreement

On August 17, 2018, the Company entered into an Exclusive Distribution Agreement with MJ Holdings, Inc. (“MJNE”). The Agreement grants MJNE the right to exclusively sell and distribute the Company’s cannabis and CBD patented and patent pending quartz ‘Q-Cup’ technology (the “Q-cups”) in the Nevada territory. Pursuant to the terms of the Agreement, MJNE agreed to purchased $2,000,000   in Q-Cups from the Company and MJNE has delivered the full purchase price in advance. The initial term of the Agreement is for one year with additional successive one-year renewals, subject to certain standard termination provisions. The Company has the option to terminate the Agreement on 30 days’ written notice if MJNE fails to purchase a sufficient minimum quantity of Q-cups from the Company. For each renewal term, MJNE’s minimum purchase obligation for the Q-cups is currently $6 million in required increments of at least $500,000 per month, subject to mutually agreed upon adjustments based upon the first year sales.

15

HEALTHIER CHOICES MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 14. 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 loss for each reporting segment:

	Three months ended September 30,						Change
	2018			2017			2018/2017
Net Sales
Vapor sales, net	$	1,106,596		$	1,453,725			(24	)%
Grocery sales, net		1,923,878			1,428,482			35	%
Total Net Sales	$	3,030,474		$	2,882,207			5	%
Segment Gross Profit
Vapor	$	645,947		$	744,280			(13	)%
Grocery		740,846			534,644			39	%
Total Gross Profit		1,386,793			1,278,924			8	%
Operating expenses		2,179,492			4,272,323			(49	)%
Operating loss		(792,699	)		(2,993,399	)		(74	)%
Other income (expense), net		(10,502,057	)		(6,451	)		NM
Net loss from continuing operations		(11,294,756	)		(2,999,850	)		277	%
Net income from discontinued operations		-			204,507			(100	)%
Net loss	$	(11,294,756	)	$	(2,795,343	)		304	%

For the three months ended September 30, 2018, depreciation and amortization was $19,317 and $69,685 for Vapor and Grocery, respectively. For the three months ended September 30, 2017, depreciation and amortization was $17,011 and $68,125 for Vapor and Grocery, respectively.

	Nine months ended September 30,						Change
	2018			2017			2018/2017
Net Sales
Vapor sales, net	$	3,556,130		$	4,440,657			(19	)%
Grocery sales, net		6,359,671			5,320,364			19	%
Total	$	9,915,801		$	9,761,021			2	%
Segment Gross Profit
Vapor	$	1,953,767		$	2,562,971			(24	)%
Grocery		2,508,673			2,201,801			14	%
Total Gross Profit		4,462,440			4,764,772			(6	)%
Operating expenses		7,334,165			12,282,932			(40	)%
Operating loss		(2,871,725	)		(7,518,160	)		(62	)%
Other income (expense), net		(10,151,796	)		(51,940	)		NM
Net loss from continuing operations		(13,023,521	)		(7,570,100	)		72	%
Net income from discontinued operations		-			281,483			(100	)%
Net loss	$	(13,023,521	)	$	(7,288,617	)		79	%

For the nine months ended September 30, 2018, depreciation and amortization was $52,872 and $208,471 for Vapor and Grocery, respectively. For the nine months ended September 30, 2017, depreciation and amortization was $50,270 and $197,985 for Vapor and Grocery, respectively.

16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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 incurred a loss from operations of approximately $0.8 million and $2.9 million, respectively for the three months and nine months ended September 30, 2018. As of September 30, 2018, cash and cash equivalents totaled approximately $8.3 million. While we anticipate that our current cash, cash equivalents, and cash to be generated from operations will be sufficient to meet our projected operating plans for the foreseeable future through a year and a day from the issuance of these audited consolidated financial statements, should we require additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, the Company will further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations. The inability to raise additional financing may have a material adverse effect on the future performance of the Company.

Factors Affecting Our Performance  

We believe the following factors affect our performance:

Retail Vapor: We believe the operating performance of our retail stores will affect our revenue and financial performance. The Company has a total of twelve retail vapor stores, which are located in Florida, Georgia, Tennessee 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: Our revenue trends are affected by an evolving product acceptance and consumer demand. We are creating and offering new products to our retail customers. Evolving product development and technology impacts our licensing and intellectual properties spending. We expect the transition to vaporizer and advanced technology and enhanced performance products to continue and will impact our 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. We expect increased vaporizer product supply and downward pressure on prices to continue and impact our operating results in the future. We market and sell the similar vaporizers and e-liquids as our competitors and we sell our products at substantially similar prices as our competitors; accordingly, the key competitive factors for our success is to maintain the quality of service we offer our customers and effective marketing efforts.

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Operating Results by Segment

The following table sets forth our unaudited consolidated Statements of Operations for the three months ended September 30, 2018 and 2017, that is used in the following discussions of our results of operations:

	Three Months Ended September 30,				Change $
	2018		2018/2017		2018/2017
SALES
Vapor sales, net	$	1,106,596	$	1,453,725	$	(347,129)
Grocery sales, net		1,923,878		1,428,482		495,396
TOTAL SALES, NET		3,030,474		2,882,207		148,267
Cost of sales vapor		460,648		709,445		(248,797)
Cost of sales grocery		1,183,033		893,838		289,195
GROSS PROFIT		1,386,793		1,278,924		107,869
OPERATING EXPENSES
Advertising		56,021		16,243		39,778
Selling, general and administrative		2,123,471		4,256,080		(2,132,609)
Total operating expenses		2,179,492		4,272,323		(2,092,831)
LOSS FROM OPERATIONS		(792,699)		(2,993,399)		2,200,700
OTHER INCOME (EXPENSE)
Change in fair value of Series A Warrants		(10,696,774)		(20,160)		(10,676,614)
Other income		164,259		9,665		154,594
Interest income		31,847		4,463		27,384
Interest expense		(1,389)		(419)		(970)
Total other income (expense), net		(10,502,057)		(6,451)		(10,495,606)
Net loss from continuing operations		(11,294,756)		(2,999,850)		(8,294,906)
Income from discontinued operations		-		204,507		(204,507)
NET LOSS	$	(11,294,756)	$	(2,795,343)	$	(8,499,413)

Net Vapor sales decreased $347,129 to $1,106,596 for the three months ended September 30, 2018 as compared to $1,453,725 for the same period in 2017. The decrease in sales is primarily due to the decreased number of stores – twelve; and one wholesale location open during the three months ended September 30, 2018 as compared to thirteen retail stores and two wholesale locations for the same period in 2017.

Net Grocery sales increased $495,396 to $1,923,878 for the three months ended September 30, 2018 as compared to $1,428,482 for the same period in 2017. The increase in sales versus prior year is primarily due to the online Amazon sales of $135,483 from Healthy U Wholesale and a decrease in sales for the same period in 2017 due to fact that Ada’s Natural Market suffered an extended power outage caused by hurricane Irma.

Vapor cost of goods sold for the three months ended September 30, 2018 and 2017 were $460,648 and $709,445, respectively, a decrease of $248,797. The decrease is primarily due to decreases in product costs and better buying during the three months ended September 30, 2018 as compared to the same period in 2017. Gross profit was $645,947 and $744,280 for the three months ended September 30, 2018 and 2017, respectively. 

Grocery cost of goods sold for the three months ended September 30, 2018 and 2017 were $1,183,033 and $893,838, respectively, an increase of $289,195. The increase is primarily due to increases in sales and cost of goods sold from Healthy U Wholesale. Gross profit as $740,846 and $534,644 for the three months ended September 30, 2018 and 2017, respectively.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Selling, general and administrative expenses decreased $2,132,609 to $2,123,471 for the three months ended September 30, 2018 compared to $4,256,080 for the same period in 2017. The decrease is primarily attributable to decreases in stock-based compensation of $1,897,620, payroll and employee related cost of $151,501, office expenses of $37,695, taxes, licenses and permits of $18,493, and insurance of $15,986.

Net other expense of $10,502,057 for the three months ended September 30, 2018 includes a change in fair value of Series A Warrants of $10,696,774, offset by other income of $164,259, and interest income of $31,847. Net other expense of $6,541 for the three months ended September 30, 2017 includes a change in fair value of Series A Warrants of $20,160, offset by other income of $9,665, and interest income of $4,463.

The company did not incur activity from discontinued operations for the three months ended September 30, 2018 as compared to net income of $204,507 for the same period in 2017.

The following table sets forth our unaudited consolidated Statements of Operations for the nine months ended September 30, 2018 and 2017 that is used in the following discussions of our results of operations:

	Nine Months Ended September 30,						Change $
	2018			2017			2018/2017
SALES
Vapor sales, net	$	3,556,130		$	4,440,657		$	(884,527	)
Grocery sales, net		6,359,671			5,320,364			1,039,307
TOTAL SALES, NET		9,915,801			9,761,021			154,780
Cost of sales vapor		1,602,363			1,877,686			(275,323	)
Cost of sales grocery		3,850,998			3,118,563			732,435
GROSS PROFIT		4,462,440			4,764,772			(302,332	)
OPERATING EXPENSES
Advertising		137,485			74,902			62,583
Selling, general and administrative		7,196,680			12,208,030			(5,011,350	)
Total operating expenses		7,334,165			12,282,932			(4,948,767	)
LOSS FROM OPERATIONS		(2,871,725	)		(7,518,160	)		4,646,435
OTHER INCOME (EXPENSE)
Loss on repurchases of Series A Warrants		(10,696,774	)		(94,955	)		(10,601,819	)
Other income		481,759			20,126			461,633
Interest income		64,968			26,441			38,527
Interest expense		(1,749	)		(3,552	)		1,803
Total other income (expense), net		(10,151,796	)		(51,940	)		(10,099,856	)
Net loss from continuing operations		(13,023,521	)		(7,570,100	)		(5,453,421	)
Income from discontinued operations		-			281,483			(281,483	)
NET LOSS	$	(13,023,521	)	$	(7,288,617	)	$	(5,734,904	)

Net Vapor sales decreased $884,527 to $3,556,130 for the nine months ended September 30, 2018 as compared to $4,440,657 for the same period in 2017. The decrease in sales is primarily due to twelve stores and one wholesale location open during the nine months ended September 30, 2018 as compared to thirteen retail stores and two wholesale locations for the same period in 2017.

Net Grocery sales increased $1,039,307 to $6,359,671 for the nine months ended September 30, 2018 as compared to $5,320,364 for the same period in 2017. The increase in sales is primarily attributable to increase in the online Amazon sales of $593,347 from Healthy U Wholesale, and an increase of $495,440 from Ada’s Natural Market.

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Vapor cost of goods sold for the nine months ended September 30, 2018 and 2017 were $1,602,363 and $1,877,686, respectively, a decrease of $275,323. The decrease in sales is primarily due to the decreased number of twelve stores and one wholesale location open during the nine months ended September 30, 2018 as compared to thirteen retail stores and two wholesale locations for the same period in 2017. Gross profit was $1,953,767 and $2,562,971 for the nine months ended September 30, 2018 and 2017, respectively.

Grocery cost of goods sold for the nine months ended September 30, 2018 and 2017 were $3,850,998 and $3,118,563, respectively, an increase of $732,435. The increase is primarily due to increases in sales and cost of goods sold from Healthy U Wholesale. Gross profit was $2,508,673 and $2,201,801 for the nine months ended September 30, 2018 and 2017, respectively.

Selling, general and administrative expenses decreased $5,011,350 to $7,196,680 for the nine months ended September 30, 2018 compared to $12,208,030 for the same period in 2017. The decrease is primarily attributable to decreases in stock-based compensation of $4,039,646, payroll and benefits of $355,755, professional fees of $339,803, and taxes, licenses and permits of $137,352.

Net other expenses of $10,151,796 for the nine months ended September 30, 2018 includes a change in fair value of Series A Warrants of $10,696,774, offset by other income of $481,759, and interest income of $64,968. Net other expense of $51,940 for the nine months ended September 30, 2017 includes a change in fair value of Series A Warrants of $94,955, and interest expense of $3,552, offset by interest income of $26,441, and other income of $20,126.

The company did not incur activity from discontinued operations for the nine months ended September 30, 2018 as compared to net income of $281,483 for the same period in 2017.

Liquidity and Capital Resources

	Nine Months Ended September 30,
	2018			2017
Net cash provided by (used in):
Operating activities	$	393,916		$	(2,504,549	)
Investing activities		(581,936	)		(164,168	)
Financing activities		576,205			(2,466,241	)
Net change in cash and cash equivalents	$	388,185		$	(5,134,958	)

Our net cash provided by operating activities of $393,916 for the nine months ended September 30, 2018 resulted from a non-cash adjustment of $12,417,927, and a net cash usage of $999,511 from changes in operating assets and liabilities, offset by a net loss of $13,023,521. Our net cash used in operating activities of $2,504,549 for the nine months ended September 30, 2017 resulted from our net loss of $7,288,617, a net cash usage of $684,887 from changes in operating assets and liabilities offset by non-cash adjustments of $5,468,955. Our net cash used in discontinued operations of $221,424 for the nine months ended September 30, 2017 resulted from our net income from discontinued operations of $281,483 and a net cash usage of $502,907 from changes in assets and liabilities from discontinued operations.

The net cash used in investing activities of $581,936 for the nine months ended September 30, 2018 resulted from the issuance and collection of a note receivable, and purchases of a patent and property and equipment. The net cash used in investing activities of $164,168 for the nine months ended September 30, 2017 resulted from the purchases of a patent and property and equipment.

The net cash provided by financing activities of $576,205 for the nine months ended September 30, 2018 is due to proceeds from loan payable of $500,000 and proceeds from exercise of stock options of $77,778, offset by payment of $1,573 of loan payments. The net cash used in financing activities of $2,466,241 for the nine months ended September 30, 2017 is due to repurchases of Series A warrants totaling $2,427,267, payment of $53,054 of capital lease obligation and payment of $897 in loan payments, offset by proceeds from a loan payable of $13,977 and exercise of stock options of $1,000.

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

At September 30, 2018 and December 31, 2017, 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. The majority of our cash and cash equivalents are concentrated in three financial institutions and are generally in excess of the 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 September 30, 2018 and December 31, 2017.

	September 30, 2018			December 31, 2017
Cash	$	8,271,376		$	7,883,191
Total assets	$	13,219,411		$	11,701,405
Percentage of total assets		62.6	%		67.4	%

The Company reported a net loss of $13.0 million for the nine months ended September 30, 2018. The Company also had positive working capital of $4.9 million. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to satisfy warrant obligations, and to continue as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our 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 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 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. 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.

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 except to the Company’s critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the Company’s 2017 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 consolidated financial statements.

Seasonality

We do not consider our business to be seasonal.

21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

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, the timing of future warrant exercises and stock sales, having the authorized capital to issue stock to exercising Series A warrant holders, 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

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, 2018 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.

In planning and performing its audit of our financial statements for the year ended December 31, 2017 in accordance with standards of the Public Company Accounting Oversight Board, our independent registered public accounting firm noted material weaknesses in internal control over financial reporting. A list of our material weaknesses are 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

● Weakness around our inventory count procedures

● Segregation of duties due to lack of personnel

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, 2018 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). 

22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Changes in Internal Control over Financial Reporting

Following this assessment and during the nine months ended September 30, 2018, we have undertaken an action plan to strengthen internal controls and procedures:

● We continue to improve the process around inventory counts and throughout the current year, we performed a blind-count in 70% of our stores with the purpose of validating our inventory records and increasing the staff knowledge around the importance of the new inventory procedures implemented.

● Our management has increased its focus on the Company’s purchase order process in order to better manage inventory thereby improving cash management and ultimately leading to more reliable and precise financial reporting.

Our management continues to review ways in which we can make improvements in internal control over financial reporting.

23

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. We do not have any legal proceedings which have a material impact to the financial statements as of September 30, 2018.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

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.”

24

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: October 30, 2018	By:	/s/ Jeffrey Holman
		Jeffrey Holman
		Chief Executive Officer
Date: October 30, 2018	By:	/s/ John Ollet
		John Ollet
		Chief Financial Officer

25

INDEX TO EXHIBITS 

Exhibit		Incorporated by Reference			Filed or Furnished
No.	Exhibit Description	Form	Date	Number	Herewith
10.5	Exclusive Distribution Agreement with MJ Holdings Inc. dated July 30, 2018				Filed
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	XBRL Instance Document				Filed
101.SCH	XBRL Taxonomy Extension Schema Document				Filed
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				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.

26

EX-10.5

Exhibit 10.5

Exclusive Distribution Agreement

This Exclusive Distribution Agreement (this “Agreement”), dated as of August ___, 2018 (the “Effective Date”), is entered into between Healthier Choices Management Corp., a Delaware corporation, or its assigned wholly owned subsidiary (“Seller”), and MJ Holdings Inc., a Nevada corporation, or its designee or any wholly owned subsidiary subject to approval by Seller in Seller’s sole discretion (“Distributor”, and together with Seller, the “Parties”, and each, a “Party”).

WHEREAS, Seller is in the business of designing, and selling the Goods described in Schedule l attached hereto.

WHEREAS, Distributor is in the business of marketing and reselling products that contain Distributor’s marijuana concentrate; and

WHEREAS, Seller desires to appoint Distributor as its exclusive distributor to resell the Goods to customers located in the Territory (as defined below), and Distributor desires to accept such appointment, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set out herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

1. Appointment.

Exclusive Appointment. Contingent upon payment for an initial Purchase Order (as defined in Section 4.1) for Goods in an amount of at least $2,000,000.00 pursuant to the distributor pricing contained in Schedule l attached hereto (the “Initial Order”). Seller appoints Distributor as its exclusive distributor of the Goods within the State of Nevada (“Territory”) during the Term, and Distributor accepts such appointment. Distributor shall not directly or indirectly market, advertise, promote, sell or distribute the Goods to any person located outside the Territory, including selling or distributing the Goods to any person for ultimate resale to persons outside the Territory. Notwithstanding the above, Seller may, directly or through distributors, market, advertise, promote, sell or distribute the Goods in the Territory to the excluded accounts set out in Schedule 1 (“Excluded Accounts”); provided, that during the Term hereof, Seller shall payDistributor a fee of five (5%) percent of the gross sales of any Goods sold to the Excluded Accounts for resale in the Territory.

No Right to Appoint Sub-distributors. Distributor shall not appoint any sub-distributor or other person or entity to sell or distribute the Goods, without the prior written approval of Seller, said approval to not be unreasonably withheld. It is understood that for the purposes of this Agreement, Focus Distribution, LLC 1s an approved sub-distributor.

Seller hereby avers that The Vape Store, Inc. is a wholly owned subsidiary of the Seller and that Seller has the right to license the Goods to Distributor.

2. Promotion, Marketing and Accounting. Distributor shall:

market, advertise, promote and sell the Goods in the Territory in a manner that reflects favorably on the Goods and the good name, goodwill and reputation of Seller that is consistent with good business practices. Distributor shall utilize its best efforts to maximize the sales volume of the Goods. Notwithstanding the foregoing Distributor shall not violate any local or state laws regarding the marketing or advertising of the Goods;

purchase and maintain at all times a representative quantity of each of the Goods sufficient for the anticipated demand in the Territory;

1

have sufficient knowledge of the cannabis industry and of any products competitive to the Goods (including specifications, features, and benefits) so as to be able to reasonably explain the Goods to the end user as follows:

the material differences between the Goods and competing products; and

provide information on the use of and features of the Goods; and

develop a comprehensive marketing plan to assist in the fulfillment of its obligations under this Agreement;

not make any materially misleading or untrue statements concerning Seller or the Goods, including any product disparagement or “bait-and-switch” practices;

promptly notify Seller of any complaint or adverse claim about any of the Goods or its use of which Distributor becomes expressly aware;

provide quarterly sales and inventory reports on or before the fifteenth day after the close of any quarter in a format reasonably acceptable to Seller; and

not resell Goods to any federal, state, local or foreign government or political subdivision or agency thereof, without express written approval from Seller.

3. Agreement to Purchase and Sell Goods.

Terms of Sale; Orders. Seller shall make available and sell Goods to Distributor at the prices under Section 3.2 and on the terms and conditions set out in this Agreement.

Price. The prices for Goods sold under this Agreement shall be as per Schedule 1.

All prices are exclusive of all sales, use and excise taxes, and any other similar taxes, duties, and charges of any kind imposed by any governmental authority on any amounts payable by Distributor under this Agreement.

Distributor is responsible for all charges, costs, and taxes; provided, that, Distributor is not responsible for any taxes imposed on, or regarding, Seller’s income, revenues, gross receipts, personnel or real or personal property or other assets.

Payment Terms. Distributor shall pay all properly invoiced amounts due to Seller as follows: 50% shall be payable upon acceptance by Seller of any Purchase Order and the remaining 50% shall be paid prior to shipping Goods pursuant to such Purchase Order.

Payment of invoices will not be deemed acceptance of the Goods or waive any rights under Section 6.3. Notwithstanding the foregoing, 100% of the Initial Order must be paid on the first business day following Distributor’s Capital Raise (as defined in Section 9.2(a) below), provided Distributor’s bank does not place any temporary or other holds on the funds. Distributor shall inspect Goods received under this Agreement. On the third day after delivery of the Goods, Distributor shall be deemed to have accepted the Goods unless it earlier notifies Seller in writing and furnishes written evidence or other documentation as reasonably required by Seller that the Goods are damaged or defective. Distributor shall make all payments in US dollars by check, wire transfer, or automated clearing house (“ACH”).

Initial Order. Upon execution of this Agreement, with respect to the Initial Order, Distributor shall deliver to Wells Fargo Bank, N.A. the irrevocable instruction letter attached as Exhibit A hereto. Distributor represents and warrants that Wells Fargo Bank, N.A. is the only financial institution that provides to Distributor banking services and agrees to not seek banking services from any other financial institution until it has made the payment for the Initial Order.

2

4. Orders Procedure.

Purchase Orders. Distributor shall issue all purchase orders (“Purchase Order(s)”) to Seller in written form in such a manner as prescribed by Seller. By placing an order, Distributor makes an offer to purchase Goods under the terms and conditions of this Agreement and the following commercial terms listed in the purchase order (“Purchase Order Transaction Terms”), and on no other terms: (a) a clear description of the Goods to be purchased; (b) the quantity of each of the Goods ordered; and (c) the desired delivery date, subject to production line schedules of Seller or the manufacturer of the Goods. Except as regards to the Purchase Order Transaction Terms, any variations made to any terms and/or conditions of this Agreement by Distributor in any Purchase Order shall be void and shall have no effect on the provisions or enforcement of this Agreement. Seller may charge Distributor its then standard small order handling charge for any Purchase Order requiring Seller to ship Goods in less than its standard box-lot quantities. Except as otherwise set forth herein, Distributor shall submit to Seller a non-refundable payment equal to 50% of any Purchase Order that is accepted by Seller within three (3) business days of receiving acceptance of such Purchase Order by Seller. In the event a Purchase Order is cancelled by the Distributor after acceptance by the Seller, then any payments made hereunder shall be retained by the Seller and only a the pro-rata portion of the Purchase Order equal to the payment amount shall be delivered; provided that no Purchase Order for White Label Goods shall be cancellable. “White Label Goods” shall mean any products that have been rebranded or repackaged to appear as if it had been made by a third-party other than Seller. In the event such payment is not received by Seller within three (3) business days of the acceptance of Distributor’s Purchase Order, then said Purchase Order will be deemed canceled.

Acceptance and Rejection of Purchase Orders. Seller may, in its sole discretion, accept or reject any Purchase Order. Seller may accept any Purchase Order by confirming the order (whether by written confirmation, invoice, or other manner acceptable to the parties) or by delivering the Goods, whichever occurs first. If Seller does not accept the Purchase Order under the terms of this Section 4.2, within five days of Seller’s receipt of the Purchase Order, the Purchase Order will be deemed rejected. No Purchase Order is binding on Seller unless accepted by Seller as provided in this Agreement. Seller may without liability or penalty, cancel any Purchase Order placed by Distributor and accepted by Seller, in whole or in part: if Seller determines that Distributor is in violation of its payment obligations hereunder or is in material breach of this Agreement. Distributor may rescind any Purchase Order submitted hereunder prior to acceptance by Seller.

Except as otherwise set forth herein, any disputes or disagreements in regards to this Section 4 of this Agreement shall be governed by Article 2 of the Uniform Commercial Code.

5. Minimum Purchase Obligation. During any Renewal Term, the Minimum Order shall be reduced to $500,000 per month provided, however that at the end of the Initial Term the Parties shall, collectively, review the previous twelve month period sales and in good faith determine the appropriate Minimum Order for that Renewal Term. Thereafter, Distributor shall purchase sufficient quantities of Goods to meet the minimum purchase obligation for each year of this Agreement as specified in Schedule 1 (“Minimum Purchase Obligation”). If Distributor fails to achieve the Minimum Purchase Obligation, Seller may:

terminate this Agreement pursuant to Section 9.2(c)(vi) and/or or elect not renew this Agreement under Section 9.1.

3

6. Shipment and Delivery.

Shipment and Delivery Requirements. Unless otherwise expressly agreed to by the Parties, Seller shall deliver the Goods to an address to be provided by Distributor within the State of Nevada (the “Delivery Point”), using Seller’s or manufacturer’s standard methods for packaging and shipping the Goods. Seller may, in its sole discretion, without liability or penalty, make partial shipments of Goods, each of which constitutes a separate sale, and Distributor shall pay for the units shipped in accordance with the payment terms specified in Section 3.3 whether such shipment is in whole or partial fulfillment of a Purchase Order. Any time quoted for delivery is an estimate only.

Title and Risk of Loss; Purchase Money Security Interest. Title and risk of loss passes to Distributor upon delivery of the Goods at the Delivery Point.

Acceptance of Goods. Distributor shall inspect Goods received under this Agreement. On the third day after delivery of the Goods, Distributor shall be deemed to have accepted the Goods unless it earlier notifies Seller in writing and furnishes written evidence or other documentation as reasonably required by Seller that the Goods:

are damaged or defective; or

were delivered to Distributor as a result of Seller’s error.

Then Seller shall determine, in its sole discretion, whether to repair or replace the Goods or refund the price for the Goods, together with all shipping expenses incurred by Distributor in connection therewith.

Upon Seller’s request, Distributor shall ship at Seller’s expense, all goods to be returned, repaired or replaced under this Section 6.3 to Seller’s facility located at Hollywood, Florida, or any other location, within the United States, as specified by Seller. If Seller exercises its option to replace the Goods, Seller shall, after receiving Distributor’s shipment of the Goods under this provision, have 15 days to inspect such Goods. Within 30 days after completion of inspection, Seller shall ship to Distributor, at Seller’s expense, the replaced Goods to the Delivery Point. Distributor acknowledges and agrees that the remedies set out in this Section 6.3. are its exclusive remedies, subject to Distributor’s rights under Section 12 regarding any Goods for which Distributor has accepted delivery under this Section 6.3. In addition, insofar as some defects in packaged electronics may be undetectable from the initial inspection, Seller agrees to replace defective Goods returned to Distributor by its customers within 90 days from the time of purchase by such customer; provided, however, that this provision shall not include coils, which are a disposable and replaceable part unless such coil is alleged to have failed upon initial use and shows no sign of use.

Except as provided under this Sections 6.3 and 12, all sales of Goods to Distributor under this Agreement are made on a one-way basis and Distributor has no other right to return Goods purchased under this Agreement.

7. Seller’s Trademark License Grant. Subject to the terms and conditions of this Agreement, Seller hereby grants to Distributor a non-exclusive, non-transferable, and non-sub-licensable license in the Territory during the Term solely on or in connection with the promotion, advertising, and resale of the Goods in accordance with the terms and conditions of this Agreement to use all Seller’s trademarks set forth on Schedule 1, whether registered or unregistered, including the listed registrations and applications and any registrations, which may be granted pursuant to such applications. On expiration or earlier termination of this Agreement or upon Seller request, Distributor shall promptly discontinue the display or use of any trademark or change the manner in which it is displayed or used with regard to the Goods. Other than the express licenses granted by this Section 7, Seller grants no right or license to Distributor, by implication, estoppel or otherwise, to the Goods or any intellectual property rights of Seller or its affiliates.

4

8. Resale Prices. The list of goods in Schedule 1 sets out Seller’s suggested resale prices for the Goods. These are suggested prices only that Seller believes accurately reflect the relative market for the Goods based on features, technology, and the pricing of comparative competitive products. Notwithstanding the foregoing, Distributor shall solely establish resale or advertised prices and Seller shall have no control over Distributor’s advertised prices.

9. Term; Termination.

Term. The term of this Agreement commences on the Effective Date and terminates on the first anniversary of the date hereof, and shall thereafter renew for additional successive one year terms subject to the termination right below in Section 9.2.

Termination Rights. Either Party may terminate this Agreement upon notice to the other Party:

It being understood by the Parties hereto that the closing of the transaction contemplated herein is predicated upon receipt by the Distributor of $2,500,000 in additional capital (the “Capital Raise”). Should Distributor be unable to consummate the Capital Raise prior to August 31, 2018, then either Seller or Distributor may terminate this Agreement pursuant to the Notice provisions in Section 18 herein.

except as otherwise specifically provided under this Section 9.2 if the other Party is in material breach of this Agreement and either the breach cannot be cured or, if the breach can be cured, it is not cured within 30 days following the breaching Party’s receipt of notice of such breach;

if the other Party:

becomes insolvent or is generally unable to pay, or fails to pay, its debts as they become due;

files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law;

seeks reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts;

makes or seeks to make a general assignment for the benefit of its creditors; or

applies for or has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

Seller may terminate this Agreement upon thirty (30) days’ notice to Distributor in the event that Distributor fails to meet any purchase minimums in Section 2 herein above.

5

Any termination under this Section 9.2 is effective on receipt of notice of termination.

Effect of Expiration or Termination. Upon the expiration or earlier termination of this Agreement:

All related Purchase Orders are automatically terminated; and Each Party shall promptly return or destroy all documents and

tangible materials (and any copies) containing, reflecting, incorporating or based on the other Party’s Confidential Information.

Post-Term Resale. On the expiration or earlier termination of this Agreement, except for termination by Seller under Section 9.2(b). Distributor may, in accordance with the applicable terms and conditions of this Agreement, sell off its existing inventories of Goods for a period of six months following the last day of the Term.

10. Confidential Information. From time to time during the Term, either Party may disclose or make available to the other Party information about its business affairs, products, product pricing, confidential intellectual property, trade secrets, third-party confidential information, and other sensitive or proprietary information (collectively, “Confidential Information”). Confidential Information shall not include information that, at the time of disclosure is: (a) in the public domain; (b) known to the receiving party at the time of disclosure; or (c) rightfully obtained by receiving party on a non-confidential basis from a third party.

The receiving party shall not disclose any such Confidential Information to any person or entity, except to the receiving party’s employees who have a need to know the Confidential Information for the receiving party to perform its obligations hereunder. On the expiration or termination of the Agreement, the receiving party shall promptly return to the disclosing party all copies, whether in written, electronic or other form or media, of the disclosing party’s Confidential Information, or destroy all such copies and certify in writing to the disclosing party that such Confidential Information has been destroyed.

11. Compliance with Laws. Distributor is in compliance with and shall comply with all applicable laws, regulations and ordinances. Distributor has and shall maintain in effect all the licenses, permissions, authorizations, consents and permits that it needs to carry out its obligations under this Agreement.

12. Limited Product Warranty and Disclaimer

Limited Product Warranty. Seller warrants that the Goods (with the exception of the disposable and replaceable coils as provided in Section 6.3) are free from defects in material and workmanship under normal use for 3 months. The term for such warranties shall begin upon receipt of the Good by Distributor’s customer. Distributor or its customer shall promptly notify Seller of any known warranty claims and shall cooperate in the investigation of such claims. If any Good is proven to not conform with this warranty during the applicable warranty period, Seller shall, at its exclusive option, either repair or replace the Good or refund the purchase price paid by Distributor for each non-conforming Good.

Seller shall have no obligation under the warranty set forth above if Distributor or its customer:

fails to notify Seller in writing during the warranty period of a non-conformity; or

uses, misuses, or neglects the Good in a manner inconsistent with the Good’s specifications or use or maintenance directions, modifies the Good, or improperly installs, handles or maintains the Good.

Except as explicitly authorized in this Agreement or in a separate written agreement with Seller, Distributor shall not service, repair, modify, alter, replace, reverse engineer or otherwise change the Goods it sells to its customers. Notwithstanding the foregoing, Seller may, in its sole discretion, provide Distributor with a supply of replacement coils that Distributor may give to customers to resolve return issues at the point of sale. Distributor shall not provide its own warranty regarding any Good.

6

DISCLAIMER. EXCEPT FOR THE WARRANTIES SET OUT UNDER THIS SECTION 12, NEITHER SELLER NOR ANY PERSON ON SELLER’S BEHALF HAS MADE OR MAKES FOR DISTRIBUTOR’S OR ITS CUSTOMERS’ BENEFIT ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, INCLUDING ANY WARRANTIES OF: (i) MERCHANT ABILITY; (ii) FITNESS FOR A PARTICULAR PURPOSE; (iii) TITLE; OR (iv) NON-INFRINGEMENT; WHETHER ARISING BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. DISTRIBUTOR ACKNOWLEDGES THAT IT HAS NOT RELIED ON ANY REPRESENTATION OR WARRANTY MADE BY SELLER, OR ANY OTHER PERSON ON SELLER’S BEHALF.

13. Indemnification.

Subject to the terms and conditions of this Agreement, Distributor shall indemnify, hold harmless, and defend Seller and its parent, officers, directors, partners, members, shareholders, employees, agents, affiliates, successors, and permitted assigns (collectively, “Seller Indemnified Parties”) against any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Agreement and the costs of pursuing any insurance providers relating to any claim of a third party or Seller arising out of or occurring in connection with: (a) Distributor’s acts or omissions as Distributor of the Goods, including negligence, willful misconduct or breach of this Agreement; (b) Distributor’s advertising or representations that warrant performance of the Goods beyond that provided by Seller’s written warranty or based upon Distributor’s business or trade practices; (c) any failure by Distributor or its personnel to comply with any applicable laws; or (d) allegations that Distributor breached its agreement with a third party as a result of or in connection with entering into, performing under or terminating this Agreement.

Subject to the terms and conditions of this Agreement, Seller shall indemnify, hold harmless, and defend Distributor and its parent, officers, directors, partners, members, shareholders, employees, agents, affiliates, successors, and permitted assigns (collectively, “Distributor lndemnified Parties”) against any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Agreement and costs of pursuing any insurance providers relating to any claim of a third party or Distributor arising out of or occurring in connection with: (a) Seller’s acts or omissions as seller of the Goods, including negligence, willful misconduct or breach of this Agreement that result in damages or claims against distributor; or (b) any failure by Seller or its personnel to comply with any applicable laws.

14. Limitation of Liability. IN NO EVENT SHALL SELLER OR ANY OF ITS REPRESENTATIVES BE LIABLE UNDER THIS AGREEMENT TO DISTRIBUTOR OR ANY THIRD PARTY FOR CONSEQUENTIAL, INDIRECT, INCIDENT AL, SPECIAL, EXEMPLARY, PUNITIVE OR ENHANCED DAMAGES, ARISING OUT OF, OR RELATING TO, AND/OR IN CONNECTION WITH ANY BREACH OF THIS AGREEMENT, REGARDLESS OF (A) WHETHER SUCH DAMAGES WERE FORESEEABLE, (B) WHETHER OR NOT SELLER WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND (C) THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT OR OTHERWISE) UPON WHICH THE CLAIM IS BASED. ABSENT FRAUD OR WILLFUL MISCONDUCT, IN NO EVENT SHALL SELLER’S AGGREGATE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, EXCEED THE TOTAL OF THE AMOUNTS PAID AND AMOUNTS ACCRUED BUT NOT YET PAID TO SELLER UNDER THIS AGREEMENT IN THE TWELVE-MONTH PERIOD PRECEDING THE EVENT GIVING RISE TO THE CLAIM. THE FOREGOING LIMITATIONS APPLY EVEN IF THE DISTRIBUTOR’S REMEDIES UNDER THIS AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE.

7

15. Insurance. For a period of five years after the Effective Date, Distributor shall, at its own expense, maintain and carry insurance in full force and effect that includes, but is not limited to, commercial general liability (including product liability) with limits no less than $1,000,000 for each occurrence and $2,000,000 in the aggregate with financially sound and reputable insurers. Upon Seller’s request, Distributor shall provide Seller with a certificate of insurance and policy endorsements for all insurance coverage required by this Section 15 and shall not do anything to invalidate such insurance. The certificate of insurance shall name Seller as an additional insured. Distributor shall provide Seller with fifteen days’ advance written notice in the event of a cancellation or material change in Seller’s insurance policy. Except where prohibited by law, Distributor shall require its insurer to waive all rights of subrogation against Seller’s insurers and Seller or the Indemnified Parties, and shall not do anything to invalidate such insurance.

16. Entire Agreement. This Agreement, including and together with any related exhibits, schedules, attachments and appendices, constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, regarding such subject matter. In the event of conflict between the terms of this Agreement and the terms of any purchase order or other document submitted by one Party to the other, this Agreement shall control unless the Parties specifically otherwise agree in writing pursuant to Section 18.

17. Survival. Subject to the limitations and other provisions of this Agreement: (a) the representations and warranties of the Parties contained herein will survive the expiration or earlier termination of this Agreement for a period of 12 months after such expiration or termination; and (b) Section 10 of this Agreement, as well as any other provision that, in order to give proper effect to its intent, should survive such expiration or termination, will survive the expiration or earlier termination of this Agreement for period of 24 months after such expiration or termination.

18. Notices. All notices, requests, consents, claims, demands, waivers and other communications under this Agreement must be in writing and addressed to the other Party at its address set forth below (or to such other address that the receiving Party may designate from time to time in accordance with this Section 18). Unless otherwise agreed herein, all notices must be delivered by personal delivery, nationally recognized overnight courier, or certified or registered mail (in each case, return receipt requested, postage prepaid). Except as otherwise provided in this Agreement, a notice is effective only (a) on receipt by the receiving Party, and (b) if the Party giving the notice has complied with the requirements of this Section 20.  

Notice to Distributor:	3275 South Jones Blvd., Suite 104 Las Vegas, NV 89146
	Attention: Paris Balaouras
Notice to Seller:	3800 N 28th Way, #1
	Hollywood, FL 33020
	Attention: Jeffrey Holman, CEO

8

19. Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect the enforceability of any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the Parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

20. Amendments. No amendment to this Agreement is effective unless it is in writing and signed by an authorized representative of each Party.

21. Waiver. No waiver by any Party of any of the provisions of this Agreement shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.

22. . All rights and remedies provided in this Agreement are cumulative and not exclusive, and the exercise by either Party of any right or remedy does not preclude the exercise of any other rights or remedies that may now or subsequently be available at law, in equity, by statute, in any other agreement between the Parties or otherwise. Despite the previous sentence, the parties intend that Distributor’s remedies under Section 12 are the Distributor’s exclusive remedy for the events specified therein.

Assignment. Neither Party may assign any of its rights or delegate any of its responsibilities under this Agreement without the prior written consent of the other Party. The other Party shall not unreasonably withhold or delay its consent. Any purported assignment or delegation in violation of this Section 23 shall be null and void.

Successors and Assigns. This Agreement is binding on and inures to the benefit of the Parties to this Agreement and their respective permitted successors and permitted assigns.

No Third-Party Beneficiaries. Subject to the next paragraph, this Agreement benefits solely the Parties to this Agreement and their respective permitted successors and permitted assigns and nothing in this Agreement, express or implied, confers on any other Person any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.

The Parties hereby designate Indemnified Parties as third-party beneficiaries of Section 13 with the right to enforce such Section 13.

Choice of Law. This Agreement, including all exhibits, schedules, attachments, and appendices attached to this Agreement and thereto are governed by, and construed in accordance with, the laws of the State of Nevada, United States of America, without regard to the conflict of laws provisions thereof to the extent such principles or rules would require or pennit the application of the laws of any jurisdiction other than those of the State of Nevada.

9

Choice of Forum. Each Party irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind whatsoever against the other Party in any way arising from or relating to this Agreement, including all exhibits, schedules, attachments, and appendices attached to this Agreement, and all contemplated transactions, in any forum other than United States District Court for the Southern District of Nevada or, if such court does not have subject matter jurisdiction, the courts of the State of Nevada sitting in Clark County, and any appellate court from any thereof. Each Party irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees to bring any such action, litigation, or proceeding only in United States District Court for the Southern District of Nevada or, if such court does not have subject matter jurisdiction, the courts of the State of Nevada sitting in Clark County. Each Party agrees that a final judgment in any such action, litigation, or proceeding is conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

Waiver of Jury Trial. Each Party acknowledges and agrees that any controversy that may arise under this Agreement, including exhibits, schedules, attachments, and appendices attached to this Agreement, is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement, including any exhibits, schedules, attachments, or appendices attached to this Agreement, or the transactions contemplated hereby.

Counterparts. This Agreement may be executed in counterparts, each of which is deemed an original, but all of which together are deemed to be one and the same agreement. Notwithstanding anything to the contrary in Section 18. A signed copy of this Agreement delivered by facsimile, email or other means of electronic transmission is deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

Force Maieure. Any delay or failure of either Party to perform its obligations under this Agreement will be excused to the extent that the delay or failure was caused directly by an event beyond such Party’s reasonable control, without such Party’s fault or negligence and that by its nature could not have been foreseen by such Party or, if it could have been foreseen, was unavoidable (which events may include natural disasters, embargoes, explosions, riots, wars or acts of terrorism) (each, a “Force Majeure Event”). A Party shall give the other Party prompt written notice of any event or circumstance that is reasonably likely to result in a Force Majeure Event, and the anticipated duration of such Force Majeure Event. An affected Party shall use all diligent efforts to end the Force Majeure Event, ensure that the effects of any Force Majeure Event are minimized and resume full performance under this Agreement. Notwithstanding the above, no failure by Distributor to make payment of any amounts owed under this Agreement is excused by reason of any Force Majeure Event.

Relationship of the Parties. The relationship between the parties is that of independent contractors. Nothing contained in this Agreement shall be construed as creating any agency, partnership, franchise, business opportunity, joint venture or other form of joint enterprise, employment or fiduciary relationship between the parties, and neither party shall have authority to contract for or bind the other party in any manner whatsoever.

[SIGNATURE PAGE FOLLOWS]

10

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

Healthier Choices Management Corp.
By:	/s/ Jeffrey Holman
	Name: Jeffrey E. Holman
	Title: Chief Executive Officer
MJ HOLDINGS INC.
By:	/s/ Paris Balaouras
	Name: Paris Balaouras
	Title: Chief Executive Officer

11

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Jeffrey Holman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Healthier Choices Management Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2018

/s/ Jeffrey Holman

Jeffrey Holman

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, John Ollet, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Healthier Choices Management Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2018

/s/ John Ollet

John Ollet

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Healthier Choices Management Corp. (the “Company”) on Form 10-Q for the quarter ending September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof, I, Jeffrey Holman, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.	The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.	The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 30, 2018

/s/ Jeffrey Holman

Jeffrey Holman

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Healthier Choices Management Corp. (the “Company”) on Form 10-Q for the quarter ending September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof, I, John Ollet, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.	The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.	The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 30, 2018

/s/ John Ollet

John Ollet

Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Oct. 30, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	Healthier Choices Management Corp.
Entity Central Index Key	0000844856
Trading Symbol	HCMC
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		65,506,264,170

XML

Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
CURRENT ASSETS
Cash and cash equivalents	$ 8,271,376	$ 7,883,191
Accounts receivable, net of allowance of approximately $26,000 and $19,000, respectively	47,671	75,568
Inventories	1,006,543	861,650
Prepaid expenses and vendor deposits	422,027	133,401
Investment	161,999
Contract assets	180,000
TOTAL CURRENT ASSETS	10,089,616	8,953,810
Property and equipment, net of accumulated depreciation of $541,334 and $393,771, respectively	484,463	589,506
Intangible assets, net of accumulated amortization of $412,136 and $289,969, respectively	1,474,864	1,559,531
Goodwill	481,314	481,314
Note receivable	572,176
Other assets	116,978	117,244
TOTAL ASSETS	13,219,411	11,701,405
CURRENT LIABILITIES
Accounts payable	475,743	512,395
Accrued expenses	326,790	439,133
Contract liabilities	2,029,994	61,312
Current portion of loan payable	502,195	2,111
Derivative liabilities - warrants	1,833,158	10,231,697
TOTAL CURRENT LIABILITIES	5,167,880	11,246,648
Loan payable, net of current portion	8,801	10,459
TOTAL LIABILITIES	5,176,681	11,257,107
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $1,000 par value per share, 30,000 shares authorized; 20,150 shares issued and outstanding as of September 30, 2018; aggregate liquidation preference of $20,150,116	20,150,116
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; 63,945,666,332 and 29,348,867,108 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	6,394,567	2,934,887
Additional paid-in capital	7,092,395	10,080,238
Accumulated deficit	(25,594,348)	(12,570,827)
TOTAL STOCKHOLDERS' EQUITY	8,042,730	444,298
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 13,219,411	$ 11,701,405

XML

Consolidated Balance Sheets (Parenthetical) (Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Accounts receivable, net allowance	$ 26,000	$ 19,000
Property and equipment, net of accumulated depreciation	541,334	393,771
Intangible assets, net of accumulated amortization	$ 412,136	$ 289,969
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	750,000,000,000	750,000,000,000
Common stock, shares issued	63,945,666,332	29,348,867,108
Common stock, shares outstanding	63,945,666,332	29,348,867,108
Preferred stock, par value	$ 1,000	$ 1,000
Preferred stock, shares authorized	30,000	30,000
Preferred stock, shares issued	20,150	20,150
Preferred stock, shares outstanding	20,150	20,150
Preferred stock aggregate liquidation preference	$ 20,150,116	$ 20,150,116

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
SALES
Vapor sales, net	$ 1,106,596	$ 1,453,725	$ 3,556,130	$ 4,440,657
Grocery sales, net	1,923,878	1,428,482	6,359,671	5,320,364
TOTAL SALES, NET	3,030,474	2,882,207	9,915,801	9,761,021
Cost of sales vapor	460,648	709,445	1,602,363	1,877,686
Cost of sales grocery	1,183,033	893,838	3,850,998	3,118,563
GROSS PROFIT	1,386,793	1,278,924	4,462,440	4,764,772
OPERATING EXPENSES
Advertising	56,021	16,243	137,485	74,902
Selling, general and administrative	2,123,471	4,256,080	7,196,680	12,208,030
Total operating expenses	2,179,492	4,272,323	7,334,165	12,282,932
LOSS FROM OPERATIONS	(792,699)	(2,993,399)	(2,871,725)	(7,518,160)
OTHER INCOME (EXPENSE)
Change in fair value of Series A Warrants	(10,696,774)	(20,160)	(10,696,774)	(94,955)
Other income	164,259	9,665	481,759	20,126
Interest income	30,458	4,044	63,219	22,889
Total other income (expense), net	(10,502,057)	(6,451)	(10,151,796)	(51,940)
Net loss from continuing operations	(11,294,756)	(2,999,850)	(13,023,521)	(7,570,100)
Net income from discontinued operations		204,507		281,483
NET LOSS	$ (11,294,756)	$ (2,795,343)	$ (13,023,521)	$ (7,288,617)
NET LOSS PER SHARE-BASIC AND DILUTED
Continuing operations	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Discontinued operations	0.00	0.00	0.00	0.00
NET LOSS PER SHARE -BASIC AND DILUTED	$ 0.00	$ 0.00	$ 0.00	$ 0.00
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED	45,821,526,888	29,327,284,303	34,900,093,115	25,138,693,169

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($)	Total	Preferred Stock	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Beginning balance at Dec. 31, 2017	$ 444,298		$ 2,934,887	$ 10,080,238	$ (12,570,827)
Beginning balance, Shares at Dec. 31, 2017			29,348,867,108
Issuance of common stock in connection with cashless exercise of Series A warrants	66,317		$ 160,274	(93,958)
Issuance of common stock in connection with cashless exercise of Series A warrants, Shares			1,602,741,446
Stock options exercised	77,778		$ 77,778
Stock options exercised, Shares			777,777,778
Issuance of Series B Convertible Preferred Stock	19,028,997	$ 20,721,744		(1,692,747)
Issuance of Series B Convertible Preferred Stock, Shares		20,722
Modification of share-based payment awards to officers			$ 1,900,000	(1,900,000)
Modification of share-based payment awards to officers, Shares			19,000,000,000
Issuance of awarded restricted stock to officer			$ 300,000	(300,000)
Issuance of awarded restricted stock to officer, Shares			3,000,000,000
Issuance of awarded common stock for professional services			$ 300,000	(300,000)
Issuance of awarded common stock for professional services, Shares			3,000,000,000
Preferred stock converted		$ (571,628)	$ 571,628
Preferred stock converted, Shares		(572)	5,716,280,000
Investment in MJ Holdings, Inc. - Share exchange	150,000		$ 150,000
Investment in MJ Holdings, Inc. - Share exchange, Shares			1,500,000,000
Stock-based compensation expense	1,298,862			1,298,862
Net loss	(13,023,521)				(13,023,521)
Ending balance at Sep. 30, 2018	$ 8,042,730	$ 20,150,116	$ 6,394,567	$ 7,092,395	$ (25,594,348)
Ending balance, Shares at Sep. 30, 2018		20,150	63,945,666,332

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
OPERATING ACTIVITIES
Net loss	$ (13,023,521)	$ (7,288,617)
Adjustments to reconcile net loss to net cash used in operating activities:
Income from discontinued operations		(281,483)
Change in allowances for bad debt	(75,399)	(22,633)
Depreciation and amortization	269,729	261,456
Change in fair value of Series A Warrants	10,696,774	94,955
Write-down of obsolete and slow-moving inventory	227,960	290,574
Stock-based compensation expense	1,298,862	5,338,508
Stock-based expense in connection with professional services		9,002
Net cash used in discontinued operations		(221,424)
Changes in operating assets and liabilities:
Due from merchant credit card processors	15,615	1,862
Accounts receivable	21,036	(26,506)
Inventories	(372,853)	(479,406)
Prepaid expenses and vendor deposits	(303,974)	10,641
Contract assets	(180,000)
Accounts payable	(36,652)	21,124
Accrued expenses	(112,343)	(212,998)
Contract liabilities	1,968,682	396
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	393,916	(2,504,549)
INVESTING ACTIVITIES
Issuance of note receivable	(500,000)
Collection of note receivable	10,083
Gain on investment	(11,999)
Purchases of patent	(37,500)	(50,000)
Purchases of property and equipment	(42,520)	(114,168)
NET CASH USED IN INVESTING ACTIVITIES	(581,936)	(164,168)
FINANCING ACTIVITIES
Proceeds from line of credit	500,000	13,977
Principal payments on loan payable	(1,573)	(897)
Payments for repurchase of Series A warrants		(2,427,267)
Principal payments of capital lease obligations		(53,054)
Proceeds from exercise of stock options	77,778	1,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	576,205	(2,466,241)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	388,185	(5,134,958)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	7,883,191	13,366,272
CASH AND CASH EQUIVALENTS - END OF PERIOD	8,271,376	8,231,314
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	1,750	3,552
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in connection with cashless exercise of Series A warrants	$ 66,317	$ 304,072

XML

Organization, Going Concern, and Basis of Presentation

9 Months Ended

Sep. 30, 2018

Organization, Going Concern, and Basis of Presentation [Abstract]

ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION

Note 1. ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION

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 Company currently operates twelve retail vape stores in 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, through its wholly owned subsidiary Healthy Choice Markets, Inc. Ada’s Natural Market offers 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. The Company also sells vitamins and supplements on the Amazon.com marketplace through its wholly owned subsidiary Healthy U Wholesale, Inc. The Company markets the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which is partially filled with either cannabis or CBD concentrate (approximately 50mg). 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.

Going Concern and Liquidity

The accompanying unaudited 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, 2018, cash and cash equivalents totaled approximately $8.3 million. While we anticipate that our current cash, cash equivalents, and cash to be generated from operations will be sufficient to meet our projected operating plans for the foreseeable future through a year and a day from the issuance of these unaudited consolidated financial statements, should we require additional funds (either through equity or debt financings, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. During the second quarter of 2018, the Company entered into a $2.0 million line of credit agreement with a financial institution that is subject to annual renewal with a variable interest rate that it is based on a rate of 1% over what is earned on the collateral amount. The collateral amount established in the arrangement with the financial institution is $2.0 million. In the third quarter of 2018, the Company used $0.5 million from the $2.0 million the line of credit at a variable interest rate, to issue a note receivable to VPR Brands LLC. The ability to raise additional financing may have a positive effect on the future performance of the Company.

Basis of Presentation and Principles of Consolidation

The Company’s unaudited consolidated financial statements are prepared in accordance with GAAP. The unaudited 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 unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The terms “we,” “us,” “our,” and the “Company” refer to Healthier Choices Management Corp. and its wholly-owned subsidiaries, Vaporin, Inc., The Vape Store, Inc. (“Vape Store”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising LLC, Vaporin LLC, Vaporin Florida, Inc., Healthy U Wholesale, Inc. and Healthy Choice Markets, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The unaudited consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2018. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been omitted under the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 15, 2018.

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in the Preparation of the Financial Statements

The preparation of unaudited 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 unaudited 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, reserves and write-downs of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes and related valuation allowances, and the valuation of assets and liabilities acquired in business combinations. Certain of management’s estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from those estimates. The Company re-evaluates all accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

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.

The following table provides a summary of the shipping and handling costs:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Shipping and handling	$	18,109		14,582	$	45,437		80,388

 Concentration of Risk

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. 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.

A summary of the financial institutions that had a cash and cash equivalents in excess of FDIC limits of $250,000 at September 30, 2018 and December 31, 2017 is presented below:

	September 30, 2018		December 31, 2017
Total Cash in excess of FDC limits of $250,000	$	7,793,076	$	7,119,573

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.

Inventories

Inventories are stated at average cost. If the cost of the inventories exceeds their net realizable value, provisions are recorded to write down excess inventories to their net realizable value. The Company’s inventories consist primarily of merchandise available for resale, such as fresh produce, perishable grocery items and non-perishable consumable goods.

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.

Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (“ASU 2014-9”), is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance. The Company adopted the standard on January 1, 2018 using the retrospective transition method, which requires reporting entities to apply the standard as of the earliest period presented in their financial statements. The adoption of the new standard resulted in an immaterial impact to the consolidated statements of operations for reclassifying $12,951 to net loss and an immaterial impact to the consolidated balance sheets for reclassifying $61,312 of contract liabilities from accrued expenses as of December 31, 2017. Contract liabilities consist of gift card and loyalty point program liabilities. See “Accounts Receivable, Contract Assets, and Deferred Revenue” significant accounting policy.

Adoption of ASU 2014-09 impacted the previously reported results for the three and nine months ended September 30, 2017 as follows:

	Three months ended September 30, 2017									Nine months ended September 30, 2017
	As reported			ASU Impact			After adoption			As reported			ASU Impact			After adoption
Vapor sales, net	$	1,410,003		$	43,722		$	1,453,725		$	4,398,941		$	41,716		$	4,440,657
Grocery sales, net	$	1,447,040		$	(18,558	)	$	1,428,482		$	5,349,801		$	(29,437	)	$	5,320,364
Gross profit	$	1,253,760		$	25,164		$	1,278,924		$	4,752,493		$	12,279		$	4,764,772
Net loss	$	(2,820,507	)	$	25,164		$	(2,795,343	)	$	(7,300,896	)	$	12,279		$	(7,288,617	)

Adoption of ASU 2014-09 impacted the previously reported balance sheet as of December 31, 2017 as follows:

	As reported  December 31, 2017			ASU 2014-09 Impact			After adoption December 31, 2017
Accrued expenses	$	538,204		$	(99,071	)	$	439,133
Contract liabilities	$	-		$	61,312		$	61,312
Total current liabilities	$	11,284,407		$	(37,759	)	$	11,246,648
Accumulated deficit	$	(12,608,586	)	$	37,759		$	(12,570,827	)
Total stockholders’ equity	$	406,539		$	37,759		$	444,298

Accounts Receivable, Contract Assets, and Contract Liabilities

Accounts receivable 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. 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.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition on the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In July 2017, the FASB issued a two-part ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception”. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

XML

Disaggregation of Revenues

9 Months Ended

Sep. 30, 2018

Disaggregation of Revenues [Abstract]

DISAGGREGATION OF REVENUES

Note 3. 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.

	Three Months Ended				Nine Months Ended
	September 30,  2018		September 30, 2017		September 30, 2018		September 30, 2017
Vapor sales, net	$	1,106,596	$	1,453,725	$	3,556,130	$	4,440,657
Grocery sales, net		1,923,878		1,428,482		6,359,671		5,320,364
Total revenue	$	3,030,474	$	2,882,207	$	9,915,801	$	9,761,021
Retail Vapor	$	1,106,228	$	1,386,851	$	3,548,704	$	4,170,393
Retail Grocery		1,407,776		1,102,665		4,581,001		5,055,226
Food service/restaurant		370,609		314,642		1,167,006		253,963
Online/eCommerce		135,483		11,175		593,347		11,175
Wholesale Grocery		10,010		-		18,317		-
Wholesale Vapor		368		66,874		7,426		270,264
Total revenue	$	3,030,474	$	2,882,207	$	9,915,801	$	9,761,021

XML

Prepaid Expenses and Vendor Deposits

9 Months Ended

Sep. 30, 2018

Prepaid Expenses and Vendor Deposits [Abstract]

PREPAID EXPENSES AND VENDOR DEPOSITS

Note 4. PREPAID EXPENSES AND VENDOR DEPOSITS

	September 30, 2018		December 31, 2017
Vendor deposits (1)	$	293,098	$	5,533
Technology		43,300		-
Insurance policy		37,497		47,105
Patent		25,000		-
Other		13,436		28,410
Rent		9,696		9,695
Insurance claim		-		41,183
Software licenses		-		1,475
Total	$	422,027	$	133,401

(1) Vendor deposits related to the sales contract with MJNE for the Q-Cups.

XML

Investment

9 Months Ended

Sep. 30, 2018

Investment [Abstract]

INVESTMENT

Note 5. INVESTMENT

During the third quarter of 2018, the Company invested $150,000 in 85,714 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 stock will be held indefinitely with the intention of producing a capital gain upon the sale at a future date.   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. As of the September 30, 2018, the Company remeasured the fair value of the MJNE stock and recognized a gain on investment of $11,999.

XML

Notes Receivable and Other Income

9 Months Ended

Sep. 30, 2018

Notes Receivable and Other Income [Abstract]

NOTES RECEIVABLE AND OTHER INCOME

Note 6. NOTES RECEIVABLE AND OTHER INCOME

The Company entered into a secured, 36-month promissory note with VPR Brands L.P. for $582,260 on September 6, 2018. The note is composed of a principal amount of $500,000 (the “Promissory Note”) and an outstanding balance from prior secured notes of $82,260 (the “Note”). The Note bears an interest rate of 7%, which payments thereunder are $4,141 weekly, with such payments commencing as of September 14, 2018. The Company records all proceeds related to the interest of the Note as interest income as proceeds are received.

A summary of the Note as of September 30, 2018 is presented below:

Description	Due Date	Interest Rate			Loan Amount		Proceeds		Remaining Balance
Promissory Note	9/6/2021		7.0	%	$	582,260	$	12,422	$	572,176

For the three months ended September 30, 2018, the Company had a benefit of $82,260 related to the reversal of the outstanding valuation allowance reserve from prior notes receivable, recorded to other income in the Consolidated Statement of Operations.

For the nine months ended September 30, 2018, the company had a reversal of the valuation allowance reverse and notes receivable collections of $469,760 recorded to other income in the Consolidated Statement of Operations.

XML

Intangible Assets

9 Months Ended

Sep. 30, 2018

Intangible Assets [Abstract]

INTANGIBLE ASSETS

Note 7. INTANGIBLE ASSETS

Intangible assets, net are as follows: 

September 30, 2018	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Favorable lease	15 years	$	890,000	$	(135,990	)	$	754,010
Trade names	10 years		820,000		(231,000	)		589,000
Customer relationships	5 years		60,000		(28,000	)		32,000
Patents	10 years		112,500		(13,646	)		98,854
Website	3 years		4,500		(3,500	)		1,000
Intangible assets, net		$	1,887,000	$	(412,136	)	$	1,474,864

December 31, 2017	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Favorable lease	15 years	$	890,000	$	(92,219	)	$	797,781
Trade names	10 years		820,000		(169,500	)		650,500
Customer relationships	5 years		60,000		(19,000	)		41,000
Patents	10 years		75,000		(6,875	)		68,125
Website	3 years		4,500		(2,375	)		2,125
Intangible assets, net		$	1,849,500	$	(289,969	)	$	1,559,531

Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense amounted to $122,166 and $119,458 for the nine months ended September 30, 2018 and 2017, respectively. Future annual estimated amortization expense is as follows:

Years ending December 31,
2018 (remaining three months)	$	41,278
2019		164,236
2020		163,611
2021		156,611
2022		151,611
Thereafter		797,517
Total	$	1,474,864

XML

Contract Assets and Liabilities

9 Months Ended

Sep. 30, 2018

Contract Assets and Liabilities [Abstract]

CONTRACT ASSETS AND LIABILITIES

Note 8. CONTRACT ASSETS AND LIABILITIES

The company’s contract assets consist of sales commissions to third parties that support and facilitate the completion of complex transactions, for which the Company has a performance obligation to pay due to the fact that the sales agreement was fully executed. During the three months ended September 30, 2018, the Company paid sales commissions of $180,000 related to the initial sale of the Q-Cup. As such, all contract assets are expected to be recognized as the order is being deliver to the customers.

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. Our 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 nine months ended September 30, 2018 and 2017 is presented below:

	Nine month ended September 30,
	2018			2017
Beginning balance as January1,	$	61,312		$	34,564
Issued		81,720			96,029
Redeemed		(113,954	)		(99,067	)
Breakage recognized		916			3,434
Customer deposits (1)		2,000,000			-
Ending balance as of September 30,	$	2,029,994		$	34,960

(1) See Note 13. “Commitments and Contingencies” for additional information.

XML

Accrued Expenses

9 Months Ended

Sep. 30, 2018

Accrued Expenses [Abstract]

ACCRUED EXPENSES

Note 9. ACCRUED EXPENSES

	September 30, 2018		December 31, 2017
Sales return from Wholesale business	$	168,693	$	168,693
Salaries and wages		58,641		72,522
Franchise taxes		36,750		36,000
Professional fees		22,247		125,783
Credit card fees		15,383		-
Royalty fees		14,126		18,150
Property taxes		9,750		-
Other		1,200		17,985
Total	$	326,790	$	439,133

XML

Line of Credit

9 Months Ended

Sep. 30, 2018

Line of Credit [Abstract]

LINE OF CREDIT

Note 10. LINE OF CREDIT

The Company entered into a $2.0 million line of credit agreement with a financial institution that is subject to annual renewal with a variable interest rate that it is based on a rate of 1% over what is earned on the collateral amount. The collateral amount established in the arrangement with the financial institution is $2.0 million. On September 10, 2018, the Company withdrew $0.5 million from line of credit and the interest for the period was $126. As of September 30, 2018, the Company has not made any payments towards the principal amount borrowed from the credit line.   The maturity date for the line of credit is April 13, 2019.

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2018

Stockholders' Equity [Abstract]

STOCKHOLDERS' EQUITY

Note 11. STOCKHOLDERS’ EQUITY

Modification of share-based payment awards to officers

On August 13, 2018, the Compensation Committee of the Board of Directors of the Company approved a modification of share-based payment awards to the Chief Executive Officer and Chief Operating Officer of the Company. As part of the share modification, the Chief Executive Officer and Chief Operating Officer were granted 11 billion and 8 billion shares of restricted common stock on the condition that same numbers of shares from their 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. The share modification will not have an impact on the Consolidated Statements of Operations because both of the officers’ options plans have been fully amortized as of the first quarter of 2018.

Restricted Stock

On August 13, 2018, the Compensation Committee of the Board of Directors of the Company approved an issuance of awarded restricted stock to the Chief Financial Officer of the Company. The Chief Financial Officer was granted 3 billion shares of restricted common stock. 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. The issuance of the restricted stock will have an impact on the Consolidated Statements of Operations because the awarded restricted common stock will be amortized on a straight-line basis over a period of twelve months. During the three months ended September 30, 2018, the Company recognized stock-based compensation expense of $50,000 from the awarded shares to the Chief Financial Officer.

Series B Convertible Preferred Stock

On August 16, 2018, the Company entered into agreements with certain holders of its Series A Warrants to exchange the Company’s Series B Convertible Preferred Stock for Series A Warrants. A total of 20,722 shares of Series B Stock were exchanged for 46,048,318 Series A Warrants (including those warrants issuable pursuant to a unit purchase option). Each share of Series B Stock “Series B Stock” has a stated value equal to $1,000 and is convertible into Common Stock on a fixed basis at a conversion price of $0.0001 per share.

Series A Warrants

A summary of warrant activity for the nine months ended September 30, 2018 is presented below:

	Exercise Price			Warrant Common Stock Equivalent			Remaining Contractual Term
Outstanding at January 1, 2018	$	0.0001			505,246,312,541			2.60
Warrants settlement	$	(0.00004	)		(501,137,085,559	)
Cashless exercises for common stock	$	(0.0001	)		(1,602,741,446	)
Black Scholes Value adjustment	$	0.0001			41,862,390,886
Outstanding at September 30, 2018	$	0.0001			44,368,876,422			1.85

Pursuant to the Series A Warrant agreements, the Black Scholes value is calculated by a third-party and utilized in calculating the warrant common stock equivalents at the point of cashless exercise. As such, the number of warrant common stock equivalents outstanding are computed at the end of each reporting period using the formula below:

(Series A Warrants exercised * Black Scholes Value) / closing common stock bid price as of two trading days prior.

A summary of the outstanding warrant common stock equivalents at January 1, 2018 and September 30, 2018, is presented below:

	September 30, 2018		January 1, 2018
Warrants outstanding		3		33
Black Scholes value		1,524,822		1,520,919
Closing bid stock price	$	0.0001	$	0.0001
Warrant common stock equivalent		44,368,876,422		505,246,312,541

Stock Options

During the three months ended September 30, 2018 and 2017, the Company recognized stock-based compensation of $0.1 million and $2.0 million, respectively, in connection with the amortization of stock options, net of recovery of stock-based charges for forfeited unvested stock options. During the nine months ended September 30, 2018 and 2017, the Company recognized stock-based compensation of $1.3 million and $5.3 million, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.

At September 30, 2018, the amount of unamortized stock-based compensation expense associated with the unvested stock options granted to employees, directors and consultants was approximately $0.1 million, which will be amortized over a weighted average period of 0.21 years. At December 31, 2017, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees, directors and consultants was approximately $1.3 million, which will be amortized over a weighted average period of 0.43 years.

Loss Per Share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed using the weighted average number of shares of common stock outstanding and, if dilutive, potential shares of common stock outstanding during the period. Potential common shares consist of incremental shares of common stock issuable upon (a) the exercise of stock options (using the treasury stock method), and (b) the exercise of warrants (using the if-converted method). For the three and nine months ended September 30, 2018 and 2017, diluted loss per share excludes the potential shares of common stock, as their effect is antidilutive.

The following table summarizes the Company’s securities, in common share equivalents, that have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

	September 30, 2018		September 30, 2017
Preferred stock		201,501,142,000		-
Stock options and restricted stock		90,012,230,680		86,911,261,360
Warrants		44,368,876,422		504,635,045,073
Total		335,882,249,102		591,546,306,433

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

Note 12. 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.

The following table summarizes the liabilities measured at fair value on a recurring basis as of September 30, 2018:

	Level 1		Level 2		Level 3		Total
LIABILITIES
Derivative liabilities – warrants	$	-	$	1,833,158	$	-	$	1,833,158
Total derivative liabilities – warrants	$	-	$	1,833,158	$	-	$	1,833,158

The following table summarizes the liabilities measured at fair value on a recurring basis as of December 31, 2017:

	Level 1		Level 2		Level 3		Total
LIABILITIES
Derivative liabilities – warrants	$	-	$	10,231,697	$	-	$	10,231,697
Total derivative liabilities – warrants	$	-	$	10,231,697	$	-	$	10,231,697

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

Note 13. COMMITMENTS AND CONTINGENCIES

Fontem License Agreement

The Company has a non-exclusive license to certain products with Fontem Ventures B.V. “Fontem”. The Company will make quarterly license and royalty payments in perpetuity to Fontem based on the sale of qualifying products as defined in the license agreement at a royalty rate of 5.25%.

A summary of the royalty expenses as of September 30, 2018 and 2017 is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Royalty expenses	$	11,818	$	19,464	$	45,825	$	4,814

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. With respect to legal costs, we record such costs as incurred.

Employment Agreements

Jeffrey Holman

On August 13, 2018, the Company amended and restated its existing employment agreement with Jeffrey Holman, the Company’s Chief Executive Officer. The employment agreement is for an additional three year term and provides for an annual base salary of $450,000 and a target bonus for 2018 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 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 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.   

John Ollet  

Effective as of August 13, 2018, the Company entered into an amendment to the existing employment agreement with the Company’s Chief Financial Officer, John Ollet. 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. Mr. Ollet will receive a base salary of $250,000 for this additional year. Mr. Ollet was also granted 3 billion shares of restricted common stock. 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.

Christopher Santi

Effective as of August 13, 2018, the Company entered into an amendment to the existing employment agreement with the Company’s President and Chief Operating Officer, Christopher Santi. Mr. Santi will continue to be employed as the Company’s President and Chief Operating Officer for an additional one year extension period through January 29, 2021. Mr. Santi will receive a base salary of $330,000 for this additional year. The severance pay period for termination without cause was increased to up to 18 months based on time of service. Mr. Santi was also granted 8 billion shares of restricted common stock on the condition that 8 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.

Exclusive Distribution Agreement

On August 17, 2018, the Company entered into an Exclusive Distribution Agreement with MJ Holdings, Inc. (“MJNE”). The Agreement grants MJNE the right to exclusively sell and distribute the Company’s cannabis and CBD patented and patent pending quartz ‘Q-Cup’ technology (the “Q-cups”) in the Nevada territory. Pursuant to the terms of the Agreement, MJNE agreed to purchased $2,000,000   in Q-Cups from the Company and MJNE has delivered the full purchase price in advance. The initial term of the Agreement is for one year with additional successive one-year renewals, subject to certain standard termination provisions. The Company has the option to terminate the Agreement on 30 days’ written notice if MJNE fails to purchase a sufficient minimum quantity of Q-cups from the Company. For each renewal term, MJNE’s minimum purchase obligation for the Q-cups is currently $6 million in required increments of at least $500,000 per month, subject to mutually agreed upon adjustments based upon the first year sales.

XML

Segment Information

9 Months Ended

Sep. 30, 2018

Segment Information [Abstract]

SEGMENT INFORMATION

Note 14. 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 loss for each reporting segment:

	Three months ended September 30,						Change
	2018			2017			2018/2017
Net Sales
Vapor sales, net	$	1,106,596		$	1,453,725			(24	)%
Grocery sales, net		1,923,878			1,428,482			35	%
Total Net Sales	$	3,030,474		$	2,882,207			5	%
Segment Gross Profit
Vapor	$	645,947		$	744,280			(13	)%
Grocery		740,846			534,644			39	%
Total Gross Profit		1,386,793			1,278,924			8	%
Operating expenses		2,179,492			4,272,323			(49	)%
Operating loss		(792,699	)		(2,993,399	)		(74	)%
Other income (expense), net		(10,502,057	)		(6,451	)		NM
Net loss from continuing operations		(11,294,756	)		(2,999,850	)		277	%
Net income from discontinued operations		-			204,507			(100	)%
Net loss	$	(11,294,756	)	$	(2,795,343	)		304	%

For the three months ended September 30, 2018, depreciation and amortization was $19,317 and $69,685 for Vapor and Grocery, respectively. For the three months ended September 30, 2017, depreciation and amortization was $17,011 and $68,125 for Vapor and Grocery, respectively.

	Nine months ended September 30,						Change
	2018			2017			2018/2017
Net Sales
Vapor sales, net	$	3,556,130		$	4,440,657			(19	)%
Grocery sales, net		6,359,671			5,320,364			19	%
Total	$	9,915,801		$	9,761,021			2	%
Segment Gross Profit
Vapor	$	1,953,767		$	2,562,971			(24	)%
Grocery		2,508,673			2,201,801			14	%
Total Gross Profit		4,462,440			4,764,772			(6	)%
Operating expenses		7,334,165			12,282,932			(40	)%
Operating loss		(2,871,725	)		(7,518,160	)		(62	)%
Other income (expense), net		(10,151,796	)		(51,940	)		NM
Net loss from continuing operations		(13,023,521	)		(7,570,100	)		72	%
Net income from discontinued operations		-			281,483			(100	)%
Net loss	$	(13,023,521	)	$	(7,288,617	)		79	%

For the nine months ended September 30, 2018, depreciation and amortization was $52,872 and $208,471 for Vapor and Grocery, respectively. For the nine months ended September 30, 2017, depreciation and amortization was $50,270 and $197,985 for Vapor and Grocery, respectively.

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Summary of Significant Accounting Policies [Abstract]

Use of Estimates in the Preparation of the Financial Statements

Use of Estimates in the Preparation of the Financial Statements

The preparation of unaudited 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 unaudited 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, reserves and write-downs of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes and related valuation allowances, and the valuation of assets and liabilities acquired in business combinations. Certain of management’s estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from those estimates. The Company re-evaluates all accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Shipping and Handling

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.

The following table provides a summary of the shipping and handling costs:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Shipping and handling	$	18,109		14,582	$	45,437		80,388

Concentration of Risk

 Concentration of Risk

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. 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.

A summary of the financial institutions that had a cash and cash equivalents in excess of FDIC limits of $250,000 at September 30, 2018 and December 31, 2017 is presented below:

	September 30, 2018		December 31, 2017
Total Cash in excess of FDC limits of $250,000	$	7,793,076	$	7,119,573

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.

Inventories

Inventories

Inventories are stated at average cost. If the cost of the inventories exceeds their net realizable value, provisions are recorded to write down excess inventories to their net realizable value. The Company’s inventories consist primarily of merchandise available for resale, such as fresh produce, perishable grocery items and non-perishable consumable goods.

Revenue Recognition

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.

Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (“ASU 2014-9”), is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance. The Company adopted the standard on January 1, 2018 using the retrospective transition method, which requires reporting entities to apply the standard as of the earliest period presented in their financial statements. The adoption of the new standard resulted in an immaterial impact to the consolidated statements of operations for reclassifying $12,951 to net loss and an immaterial impact to the consolidated balance sheets for reclassifying $61,312 of contract liabilities from accrued expenses as of December 31, 2017. Contract liabilities consist of gift card and loyalty point program liabilities. See “Accounts Receivable, Contract Assets, and Deferred Revenue” significant accounting policy.

Adoption of ASU 2014-09 impacted the previously reported results for the three and nine months ended September 30, 2017 as follows:

	Three months ended September 30, 2017									Nine months ended September 30, 2017
	As reported			ASU Impact			After adoption			As reported			ASU Impact			After adoption
Vapor sales, net	$	1,410,003		$	43,722		$	1,453,725		$	4,398,941		$	41,716		$	4,440,657
Grocery sales, net	$	1,447,040		$	(18,558	)	$	1,428,482		$	5,349,801		$	(29,437	)	$	5,320,364
Gross profit	$	1,253,760		$	25,164		$	1,278,924		$	4,752,493		$	12,279		$	4,764,772
Net loss	$	(2,820,507	)	$	25,164		$	(2,795,343	)	$	(7,300,896	)	$	12,279		$	(7,288,617	)

Adoption of ASU 2014-09 impacted the previously reported balance sheet as of December 31, 2017 as follows:

	As reported  December 31, 2017			ASU 2014-09 Impact			After adoption December 31, 2017
Accrued expenses	$	538,204		$	(99,071	)	$	439,133
Contract liabilities	$	-		$	61,312		$	61,312
Total current liabilities	$	11,284,407		$	(37,759	)	$	11,246,648
Accumulated deficit	$	(12,608,586	)	$	37,759		$	(12,570,827	)
Total stockholders’ equity	$	406,539		$	37,759		$	444,298

Accounts Receivable, Contract Assets, and Contract Liabilities

Accounts Receivable, Contract Assets, and Contract Liabilities

Accounts receivable 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. 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.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition on the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In July 2017, the FASB issued a two-part ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception”. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

XML

Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Summary of Significant Accounting Policies [Abstract]

Schedule of shipping and handling costs

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Shipping and handling	$	18,109		14,582	$	45,437		80,388

Schedule of the financial institutions that had a cash and cash equivalents in excess of FDIC limits

	September 30,  2018		December 31, 2017
Total Cash in excess of FDC limits of $250,000	$	7,793,076	$	7,119,573

Schedule of previously reported results

	Three months ended September 30, 2017									Nine months ended September 30, 2017
	As reported			ASU Impact			After adoption			As reported			ASU Impact			After adoption
Vapor sales, net	$	1,410,003		$	43,722		$	1,453,725		$	4,398,941		$	41,716		$	4,440,657
Grocery sales, net	$	1,447,040		$	(18,558	)	$	1,428,482		$	5,349,801		$	(29,437	)	$	5,320,364
Gross profit	$	1,253,760		$	25,164		$	1,278,924		$	4,752,493		$	12,279		$	4,764,772
Net loss	$	(2,820,507	)	$	25,164		$	(2,795,343	)	$	(7,300,896	)	$	12,279		$	(7,288,617	)

	As reported December 31, 2017			ASU 2014-09 Impact			After adoption December 31, 2017
Accrued expenses	$	538,204		$	(99,071	)	$	439,133
Contract liabilities	$	-		$	61,312		$	61,312
Total current liabilities	$	11,284,407		$	(37,759	)	$	11,246,648
Accumulated deficit	$	(12,608,586	)	$	37,759		$	(12,570,827	)
Total stockholders’ equity	$	406,539		$	37,759		$	444,298

XML

Disaggregation of Revenues (Tables)

9 Months Ended

Sep. 30, 2018

Disaggregation of Revenues [Abstract]

Schedule of disaggregate revenue

	Three Months Ended				Nine Months Ended
	September 30,  2018		September 30, 2017		September 30, 2018		September 30, 2017
Vapor sales, net	$	1,106,596	$	1,453,725	$	3,556,130	$	4,440,657
Grocery sales, net		1,923,878		1,428,482		6,359,671		5,320,364
Total revenue	$	3,030,474	$	2,882,207	$	9,915,801	$	9,761,021
Retail Vapor	$	1,106,228	$	1,386,851	$	3,548,704	$	4,170,393
Retail Grocery		1,407,776		1,102,665		4,581,001		5,055,226
Food service/restaurant		370,609		314,642		1,167,006		253,963
Online/eCommerce		135,483		11,175		593,347		11,175
Wholesale Grocery		10,010		-		18,317		-
Wholesale Vapor		368		66,874		7,426		270,264
Total revenue	$	3,030,474	$	2,882,207	$	9,915,801	$	9,761,021

XML

Prepaid Expenses and Vendor Deposits (Tables)

9 Months Ended

Sep. 30, 2018

Prepaid Expenses and Vendor Deposits [Abstract]

Schedule of prepaid expenses and vendor deposits

	September 30, 2018		December 31, 2017
Vendor deposits (1)	$	293,098	$	5,533
Technology		43,300		-
Insurance policy		37,497		47,105
Patent		25,000		-
Other		13,436		28,410
Rent		9,696		9,695
Insurance claim		-		41,183
Software licenses		-		1,475
Total	$	422,027	$	133,401

(1) Vendor deposits related to the sales contract with MJNE for the Q-Cups.

XML

Notes Receivable and Other Income (Tables)

9 Months Ended

Sep. 30, 2018

Notes Receivable and Other Income [Abstract]

Schedule of notes receivable

Description	Due Date	Interest Rate			Loan Amount		Proceeds		Remaining Balance
Promissory Note	9/6/2021		7.0	%	$	582,260	$	12,422	$	572,176

XML

Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Intangible Assets [Abstract]

Schedule of intangible assets, net

September 30, 2018	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Favorable lease	15 years	$	890,000	$	(135,990	)	$	754,010
Trade names	10 years		820,000		(231,000	)		589,000
Customer relationships	5 years		60,000		(28,000	)		32,000
Patents	10 years		112,500		(13,646	)		98,854
Website	3 years		4,500		(3,500	)		1,000
Intangible assets, net		$	1,887,000	$	(412,136	)	$	1,474,864

December 31, 2017	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Favorable lease	15 years	$	890,000	$	(92,219	)	$	797,781
Trade names	10 years		820,000		(169,500	)		650,500
Customer relationships	5 years		60,000		(19,000	)		41,000
Patents	10 years		75,000		(6,875	)		68,125
Website	3 years		4,500		(2,375	)		2,125
Intangible assets, net		$	1,849,500	$	(289,969	)	$	1,559,531

Schedule of future annual estimated amortization expense

Years ending December 31,
2018 (remaining three months)	$	41,278
2019		164,236
2020		163,611
2021		156,611
2022		151,611
Thereafter		797,517
Total	$	1,474,864

XML

Contract Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2018

Contract Assets and Liabilities [Abstract]

Schedule of contract liabilities

	Nine month ended September 30,
	2018			2017
Beginning balance as January1,	$	61,312		$	34,564
Issued		81,720			96,029
Redeemed		(113,954	)		(99,067	)
Breakage recognized		916			3,434
Customer deposits (1)		2,000,000			-
Ending balance as of September 30,	$	2,029,994		$	34,960

(1) See Note 13. “Commitments and Contingencies” for additional information.

XML

Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2018

Accrued Expenses [Abstract]

Schedule of accrued expenses

	September 30, 2018		December 31, 2017
Sales return from Wholesale business	$	168,693	$	168,693
Salaries and wages		58,641		72,522
Franchise taxes		36,750		36,000
Professional fees		22,247		125,783
Credit card fees		15,383		-
Royalty fees		14,126		18,150
Property taxes		9,750		-
Other		1,200		17,985
Total	$	326,790	$	439,133

XML

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2018

Stockholders' Equity [Abstract]

Summary of warrant activity

	Exercise Price			Warrant Common Stock Equivalent			Remaining Contractual Term
Outstanding at January 1, 2018	$	0.0001			505,246,312,541			2.60
Warrants settlement	$	(0.00004	)		(501,137,085,559	)
Cashless exercises for common stock	$	(0.0001	)		(1,602,741,446	)
Black Scholes Value adjustment	$	0.0001			41,862,390,886
Outstanding at September 30, 2018	$	0.0001			44,368,876,422			1.85

Summary of the outstanding warrant common stock equivalents

	September 30, 2018		January 1, 2018
Warrants outstanding		3		33
Black Scholes value		1,524,822		1,520,919
Closing bid stock price	$	0.0001	$	0.0001
Warrant common stock equivalent		44,368,876,422		505,246,312,541

Summary of anti-dilutive activities excluded from basic and dilutive loss per share

	September 30, 2018		September 30, 2017
Preferred stock		201,501,142,000		-
Stock options and restricted stock		90,012,230,680		86,911,261,360
Warrants		44,368,876,422		504,635,045,073
Total		335,882,249,102		591,546,306,433

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Measurements [Abstract]

Schedule of liabilities measured at fair value on a recurring basis

	Level 1		Level 2		Level 3		Total
LIABILITIES
Derivative liabilities – warrants	$	-	$	1,833,158	$	-	$	1,833,158
Total derivative liabilities – warrants	$	-	$	1,833,158	$	-	$	1,833,158

	Level 1		Level 2		Level 3		Total
LIABILITIES
Derivative liabilities – warrants	$	-	$	10,231,697	$	-	$	10,231,697
Total derivative liabilities – warrants	$	-	$	10,231,697	$	-	$	10,231,697

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies [Abstract]

Summary of royalty expenses

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Royalty expenses	$	11,818	$	19,464	$	45,825	$	4,814

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2018

Segment Information [Abstract]

Schedule of net sales and segment operating loss

	Nine months ended September 30,						Change
	2018			2017			2018/2017
Net Sales
Vapor sales, net	$	3,556,130		$	4,440,657			(19	)%
Grocery sales, net		6,359,671			5,320,364			19	%
Total	$	9,915,801		$	9,761,021			2	%
Segment Gross Profit
Vapor	$	1,953,767		$	2,562,971			(24	)%
Grocery		2,508,673			2,201,801			14	%
Total Gross Profit		4,462,440			4,764,772			(6	)%
Operating expenses		7,334,165			12,282,932			(40	)%
Operating loss		(2,871,725	)		(7,518,160	)		(62	)%
Other income (expense), net		(10,151,796	)		(51,940	)		NM
Net loss from continuing operations		(13,023,521	)		(7,570,100	)		72	%
Net income from discontinued operations		-			281,483			(100	)%
Net loss	$	(13,023,521	)	$	(7,288,617	)		79	%

XML

Organization, Going Concern, and Basis of Presentation (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Organization, Going Concern, and Basis of Presentation (Textual)
Cash and cash equivalents	$ 8,271,376		$ 7,883,191	$ 8,231,314	$ 13,366,272
Line of credit agreement	$ 2,000,000	$ 2,000,000
Variable interest rate	1.00%
Line of credit collateral amount	$ 2,000,000
Description of line of credit and variable interest rate	Variable interest rate that it is based on a rate of 1% over what is earned on the collateral amount. The collateral amount established in the arrangement with the financial institution is $2.0 million. In the third quarter of 2018, the Company used $0.5 million from the $2.0 million the line of credit at a variable interest rate, to issue a note receivable to VPR Brands LLC.

XML

Summary of Significant Accounting Policies (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Summary of Significant Accounting Policies [Abstract]
Shipping and handling	$ 18,109	$ 14,582	$ 45,437	$ 80,388

XML

Summary of Significant Accounting Policies (Details 1) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Summary of Significant Accounting Policies [Abstract]
Total Cash in excess of FDC limits of $250,000	$ 7,793,076	$ 7,119,573

XML

Summary of Significant Accounting Policies (Details 2) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Vapor sales, net	$ 1,106,596	$ 1,453,725	$ 3,556,130	$ 4,440,657
Grocery sales, net	1,923,878	1,428,482	6,359,671	5,320,364
Gross profit	1,386,793	1,278,924	4,462,440	4,764,772
Net loss	$ (11,294,756)	(2,795,343)	$ (13,023,521)	(7,288,617)
ASU Impact [Member]
Vapor sales, net		43,722		41,716
Grocery sales, net		(18,558)		(29,437)
Gross profit		25,164		12,279
Net loss		25,164		12,279
As reported [Member]
Vapor sales, net		1,410,003		4,398,941
Grocery sales, net		1,447,040		5,349,801
Gross profit		1,253,760		4,752,493
Net loss		$ (2,820,507)		$ (7,300,896)

XML

Summary of Significant Accounting Policies (Details 3) - USD ($)	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Accrued expenses	$ 326,790	$ 439,133
Contract liabilities	2,029,994	61,312	$ 34,960	$ 34,564
Total current liabilities	5,167,880	11,246,648
Accumulated deficit	(25,594,348)	(12,570,827)
Total stockholders' equity	$ 8,042,730	444,298
ASU Impact [Member]
Accrued expenses		(99,071)
Contract liabilities		61,312
Total current liabilities		(37,759)
Accumulated deficit		37,759
Total stockholders' equity		37,759
As reported [Member]
Accrued expenses		538,204
Contract liabilities
Total current liabilities		11,284,407
Accumulated deficit		(12,608,586)
Total stockholders' equity		$ 406,539

XML

Summary of Significant Accounting Policies (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Sep. 30, 2018
Summary of Significant Accounting Policies (Textual)
Cash in excess of financial institution	$ 250,000	$ 250,000
Contract liabilities from accrued expenses	61,312
Net loss and an immaterial impact	$ 12,951

XML

Disaggregation of Revenues (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Disaggregation of Revenue [Line Items]
Total revenue	$ 3,030,474	$ 2,882,207	$ 9,915,801	$ 9,761,021
Vapor sales, net [Member]
Disaggregation of Revenue [Line Items]
Total revenue	1,106,596	1,453,725	3,556,130	4,440,657
Grocery sales, net [Member]
Disaggregation of Revenue [Line Items]
Total revenue	1,923,878	1,428,482	6,359,671	5,320,364
Retail Vapor [Member]
Disaggregation of Revenue [Line Items]
Total revenue	1,106,228	1,386,851	3,548,704	4,170,393
Retail Grocery [Member]
Disaggregation of Revenue [Line Items]
Total revenue	1,407,776	1,102,665	4,581,001	5,055,226
Food service/restaurant [Member]
Disaggregation of Revenue [Line Items]
Total revenue	370,609	314,642	1,167,006	253,963
Online/eCommerce [Member]
Disaggregation of Revenue [Line Items]
Total revenue	135,483	11,175	593,347	11,175
Wholesale Grocery [Member]
Disaggregation of Revenue [Line Items]
Total revenue	10,010		18,317
Wholesale Vapor [Member]
Disaggregation of Revenue [Line Items]
Total revenue	$ 368	$ 66,874	$ 7,426	$ 270,264

XML

Prepaid Expenses and Vendor Deposits (Details) - USD ($)		Sep. 30, 2018	Dec. 31, 2017
Prepaid Expenses and Vendor Deposits [Abstract]
Vendor deposits	[1]	$ 293,098	$ 5,533
Technology		43,300
Insurance policy		37,497	47,105
Patent		25,000
Rent		9,696	9,695
Other		13,436	28,410
Insurance claim			41,183
Software licenses			1,475
Total		$ 422,027	$ 133,401

[1] Vendor deposits related to the sales contract with MJNE for the Q-Cups.

XML

Investment (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Investment (Textual)
Invested amount	$ 150,000
Gain on Investments	$ 11,999
Investments on common stock shares	85,714

XML

Notes Receivable and Other Income (Details) - Promissory Note [Member]	9 Months Ended
	Sep. 30, 2018 USD ($)
Short-term Debt [Line Items]
Due Date	9/6/2021
Interest Rate	7.00%
Loan Amount	$ 582,260
Proceeds	12,422
Remaining Balance	$ 572,176

XML

Notes Receivable and Other Income (Details Textual) - USD ($)		3 Months Ended	9 Months Ended
	Sep. 06, 2018	Sep. 30, 2018	Sep. 30, 2018
Notes Receivable and Other Income (Textual)
Other income		$ 82,260	$ 469,760
Promissory Note [Member]
Notes Receivable and Other Income (Textual)
Promissory note term	36 months
Secured amount	$ 582,260
Principal amount		500,000	500,000
Secured notes		$ 82,260	82,260
Debt payments			$ 4,141
Bears interest rate		7.00%	7.00%

XML

Intangible Assets (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 1,887,000	$ 1,849,500
Accumulated Amortization	(412,136)	(289,969)
Net Carrying Amount	$ 1,474,864	$ 1,559,531
Favorable lease [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Lives (Years)	15 years	15 years
Gross Carrying Amount	$ 890,000	$ 890,000
Accumulated Amortization	(135,990)	(92,219)
Net Carrying Amount	$ 754,010	$ 797,781
Trade names [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Lives (Years)	10 years	10 years
Gross Carrying Amount	$ 820,000	$ 820,000
Accumulated Amortization	(231,000)	(169,500)
Net Carrying Amount	$ 589,000	$ 650,500
Customer relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Lives (Years)	5 years	5 years
Gross Carrying Amount	$ 60,000	$ 60,000
Accumulated Amortization	(28,000)	(19,000)
Net Carrying Amount	$ 32,000	$ 41,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Lives (Years)	10 years	10 years
Gross Carrying Amount	$ 112,500	$ 75,000
Accumulated Amortization	(13,646)	(6,875)
Net Carrying Amount	$ 98,854	$ 68,125
Website [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Lives (Years)	3 years	3 years
Gross Carrying Amount	$ 4,500	$ 4,500
Accumulated Amortization	(3,500)	(2,375)
Net Carrying Amount	$ 1,000	$ 2,125

XML

Intangible Assets (Details 1) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Intangible Assets [Abstract]
2018 (remaining three months)	$ 41,278
2019	164,236
2020	163,611
2021	156,611
2022	151,611
Thereafter	797,517
Total	$ 1,474,864	$ 1,559,531

XML

Intangible Assets (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Intangible Assets (Textual)
Amortization expense	$ 122,166	$ 119,458

XML

Contract Assets and Liabilities (Details) - USD ($)		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017
Contract Assets and Liabilities [Abstract]
Beginning balance as January 1,		$ 61,312	$ 34,564
Issued		81,720	96,029
Redeemed		(113,954)	(99,067)
Breakage recognized		916	3,434
Customer deposits	[1]	2,000,000
Ending balance as of September 30,		$ 2,029,994	$ 34,960

[1] See Note 13. "Commitments and Contingencies" for additional information.

XML

Contract Assets and Liabilities (Details Textual)	3 Months Ended
	Sep. 30, 2018 USD ($)
Contract Assets and Liabilities (Textual)
Sales of paid commissions amount	$ 180,000

XML

Accrued Expenses (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Accrued Expenses [Abstract]
Sales return from Wholesale business	$ 168,693	$ 168,693
Salaries and wages	58,641	72,522
Franchise taxes	36,750	36,000
Professional fees	22,247	125,783
Credit card fees	15,383
Royalty fees	14,126	18,150
Property taxes	9,750
Other	1,200	17,985
Total	$ 326,790	$ 439,133

XML

Line of Credit (Details) - USD ($) $ in Millions		9 Months Ended
	Sep. 10, 2018	Sep. 30, 2018	Jun. 30, 2018
Line of Credit (Textual)
Line of credit agreement		$ 2.0	$ 2.0
Variable interest rate		1.00%
Line of credit collateral amount		$ 2.0
Description of line of credit and interest	The Company withdrew $0.5 million from line of credit and the interest for the period was $126. As of September 30, 2018, the Company has not made any payments towards the principal amount borrowed from the credit line.

XML

Stockholders' Equity (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Exercise Price
Outstanding at January 1, 2018	$ 0.0001
Warrants settlement	(0.00004)
Cashless exercises for common stock	(0.0001)
Black Scholes Value adjustment	0.0001
Outstanding at September 30, 2018	$ 0.0001	$ 0.0001
Warrant Common Stock Equivalent
Warrant Common Stock Equivalent, Outstanding at January 1, 2018	505,246,312,541
Warrants settlement	(501,137,085,559)
Cashless exercises for common stock	(1,602,741,446)
Black Scholes Value adjustment	41,862,390,886
Warrant Common Stock Equivalent, Outstanding at September 30, 2018	44,368,876,422	505,246,312,541
Remaining Contractual Term
Outstanding	2 years 7 months 6 days	1 year 10 months 6 days

XML

Stockholders' Equity (Detail 1) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Stockholders' Equity [Abstract]
Warrants outstanding	3	33
Black Scholes value	1,524,822	1,520,919
Closing bid stock price	$ 0.0001	$ 0.0001
Warrant common stock equivalent	44,368,876,422	505,246,312,541

XML

Stockholders' Equity (Details 2) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities excluded from calculation of dilutive loss per share	335,882,249,102	591,546,306,433
Preferred stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities excluded from calculation of dilutive loss per share	201,501,142,000
Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities excluded from calculation of dilutive loss per share	44,368,876,422	504,635,045,073
Stock options and restricted stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities excluded from calculation of dilutive loss per share	90,012,230,680	86,911,261,360

XML

Stockholders' Equity (Details Textual) - USD ($) shares in Billions		1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Aug. 13, 2018	Aug. 16, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Stockholders' Equity (Textual)
Description of convertible preferred stock		The Company entered into agreements with certain holders of its Series A Warrants to exchange the Company's Series B Convertible Preferred Stock for Series A Warrants. A total of 20,722 shares of Series B Stock were exchanged for 46,048,318 Series A Warrants (including those warrants issuable pursuant to a unit purchase option). Each share of Series B Stock "Series B Stock" has a stated value equal to $1,000 and is convertible into Common Stock on a fixed basis at a conversion price of $0.0001 per share.
Stock Options [Member]
Stockholders' Equity (Textual)
Stock-based compensation expense			$ 100,000	$ 2,000,000	$ 1,300,000	$ 5,300,000
Unamortized stock based compensation expense on unvested stock options			100,000		$ 100,000		$ 1,300,000
Amortized over a weighted average period					2 months 16 days		5 months 5 days
Chief Executive Officer [Member]
Stockholders' Equity (Textual)
Restricted common stock, shares	11
Chief Operating Officer [Member]
Stockholders' Equity (Textual)
Restricted common stock, shares	8
Chief Financial Officer [Member]
Stockholders' Equity (Textual)
Stock-based compensation expense			$ 50,000
Restricted common stock, shares					3

XML

Fair Value Measurements (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
LIABILITIES
Derivative liabilities - warrants	$ 1,833,158	$ 10,231,697
Total derivative liabilities - warrants	1,833,158	10,231,697
Recurring Basis [Member] | Level 1 [Member]
LIABILITIES
Derivative liabilities - warrants
Total derivative liabilities - warrants
Recurring Basis [Member] | Level 2 [Member]
LIABILITIES
Derivative liabilities - warrants	1,833,158	10,231,697
Total derivative liabilities - warrants	1,833,158	10,231,697
Recurring Basis [Member] | Level 3 [Member]
LIABILITIES
Derivative liabilities - warrants
Total derivative liabilities - warrants

XML

Commitments and Contingencies (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Commitments and Contingencies [Abstract]
Royalty expenses	$ 11,818	$ 19,464	$ 45,825	$ 4,814

XML

Commitments and Contingencies (Details Textual)		1 Months Ended	9 Months Ended
	Aug. 13, 2018	Aug. 17, 2018	Sep. 30, 2018
Commitments and Contingencies (Textual)
Royalty rate, percentage			5.25%
Description of exclusive distribution agreement		The Agreement, MJNE agreed to purchased $2,000,000   in Q-Cups from the Company and MJNE has delivered the full purchase price in advance. The initial term of the Agreement is for one year with additional successive one-year renewals, subject to certain standard termination provisions. The Company has the option to terminate the Agreement on 30 days’ written notice if MJNE fails to purchase a sufficient minimum quantity of Q-cups from the Company. For each renewal term, MJNE’s minimum purchase obligation for the Q-cups is currently $6 million in required increments of at least $500,000 per month, subject to mutually agreed upon adjustments based upon the first year sales.
President and Chief Operating Officer [Member]
Commitments and Contingencies (Textual)
Description of employment agreement	The Company entered into an amendment to the existing employment agreement with the Company's President and Chief Operating Officer, Christopher Santi. Mr. Santi will continue to be employed as the Company's President and Chief Operating Officer for an additional one year extension period through January 29, 2021. Mr. Santi will receive a base salary of $330,000 for this additional year. The severance pay period for termination without cause was increased to up to 18 months based on time of service. Mr. Santi was also granted 8 billion shares of restricted common stock on the condition that 8 billion of his options to purchase Company common stock are forfeited.
Chief Financial Officer [Member]
Commitments and Contingencies (Textual)
Description of employment agreement	The Company entered into an amendment to the existing employment agreement with the Company's Chief Financial Officer, John Ollet. 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. Mr. Ollet will receive a base salary of $250,000 for this additional year. Mr. Ollet was also granted 3 billion shares of restricted common stock.
Chief Executive Officer [Member]
Commitments and Contingencies (Textual)
Description of employment agreement	The Company amended and restated its existing employment agreement with Jeffrey Holman, the Company's Chief Executive Officer. The employment agreement is for an additional three year term and provides for an annual base salary of?$450,000 and a target bonus for 2018 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 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 on the condition that 11 billion of his options to purchase Company common stock are forfeited.

XML

Segment Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net Sales
Vapor sales, net	$ 1,106,596	$ 1,453,725	$ 3,556,130	$ 4,440,657
Change in vapor sales, net, percentage	(24.00%)	(24.00%)	(19.00%)	(19.00%)
Grocery sales, net	$ 1,923,878	$ 1,428,482	$ 6,359,671	$ 5,320,364
Change in grocery sales net, percentage	35.00%	35.00%	19.00%	19.00%
Total Net Sales	$ 3,030,474	$ 2,882,207	$ 9,915,801	$ 9,761,021
Change in total net sales, percentage	5.00%	5.00%	2.00%	2.00%
Segment Gross Profit
Total Gross Profit	$ 1,386,793	$ 1,278,924	$ 4,462,440	$ 4,764,772
Change in total gross profit, percentage	8.00%	8.00%	(6.00%)	(6.00%)
Operating expenses	$ 2,179,492	$ 4,272,323	$ 7,334,165	$ 12,282,932
Change in operating expenses, percentage	(49.00%)	(49.00%)	(40.00%)	(40.00%)
Operating loss	$ (792,699)	$ (2,993,399)	$ (2,871,725)	$ (7,518,160)
Change In Operating Loss Percentage	(74.00%)	(74.00%)	(62.00%)	(62.00%)
Other income (expense), net	$ (10,502,057)	$ (6,451)	$ (10,151,796)	$ (51,940)
Change in other income expense net, percentage
Net loss from continuing operations	$ (11,294,756)	$ (2,999,850)	$ (13,023,521)	$ (7,570,100)
Change in net loss from continuing operations, percentage	277.00%	277.00%	72.00%	72.00%
Net income from discontinued operations		$ 204,507		$ 281,483
Change in net income from discontinued operations, percentage	(100.00%)	(100.00%)	(100.00%)	(100.00%)
Net loss	$ (11,294,756)	$ (2,795,343)	$ (13,023,521)	$ (7,288,617)
Change in net loss, percentage	304.00%	304.00%	(79.00%)	(79.00%)
Vapor [Member]
Net Sales
Total Net Sales	$ 1,106,596	$ 1,453,725	$ 3,556,130	$ 4,440,657
Vapor [Member] | Operating segment [Member]
Segment Gross Profit
Total Gross Profit	$ 645,947	$ 744,280	$ 1,953,767	$ 2,562,971
Change in total gross profit, percentage	(13.00%)	(13.00%)	(24.00%)	(24.00%)
Grocery [Member]
Net Sales
Total Net Sales	$ 1,923,878	$ 1,428,482	$ 6,359,671	$ 5,320,364
Grocery [Member] | Operating segment [Member]
Segment Gross Profit
Total Gross Profit	$ 740,846	$ 534,644	$ 2,508,673	$ 2,201,801
Change in total gross profit, percentage	39.00%	39.00%	14.00%	14.00%

XML

Segment Information (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Vapor [Member]
Segment Information (Textual)
Depreciation and amortization	$ 19,317	$ 17,011	$ 52,872	$ 50,270
Grocery [Member]
Segment Information (Textual)
Depreciation and amortization	$ 69,685	$ 68,125	$ 208,471	$ 197,985