Executive Summary

Q4 2016 was dominated by non‑cash gains (derivative revaluation and warrant actions), driving a sharp swing to positive net income despite an operating loss; continuing operations FY net income was $12.3M and total FY net income was $10.7M .
Operationally, HCMC exited its vapor wholesale business (July 2016), closed underperforming stores, and integrated Ada’s Natural Market; management emphasized these moves improved the consolidated profile and alleviated going‑concern doubts .
Gross margin percent remained strong at 50% for FY16, with Q4 revenue of ~$3.17M and Q4 gross profit of ~$1.53M on our filing‑based calculations (FY minus 9M) .
Catalysts: removal of going‑concern flag, strategic refocus on retail/grocery and medical marijuana initiative engagements (legal/advisory “dream team” assembled) could influence sentiment near‑term .

What Went Well and What Went Wrong

What Went Well
- Strategic refocus: “Our results reflect our strategic decision to exit the vapor wholesale distribution business and close underperforming vapor stores… [and] streamline our business going forward.” – CEO Jeffrey Holman .
- Margin resilience: FY16 gross margin percent held at 50% on $10.6M sales, with gross profit up ~$2.15M YoY .
- Balance sheet/going‑concern: Through agreements with warrant holders and tender/exchanges, company “was able to shed its going concern classification,” reducing derivative liabilities and turning stockholders’ equity positive by year‑end .
What Went Wrong
- Core operations loss: Operating loss was $8.9M for FY16; Q4 operating loss was ~$3.1M (calculated), indicating underlying operations still negative without non‑cash other income .
- Store closures and revenue transition: Seven vape store closures in 2016 and wholesale exit pressured scale; vapor retail/grocery had to backfill lost wholesale volume .
- Regulatory headwinds: FDA deeming rule (Aug 2016 effective) limits new product introductions and raises approval costs, a structural headwind to vapor revenue .

Financial Results

Quarterly comparison (continuing operations; Q4 calculated from FY minus 9M)

Metric	Q2 2016	Q3 2016	Q4 2016
Revenue ($USD)	$3,457,634	$3,049,618	$3,166,021 (FY $10,565,163 − 9M $7,399,142)
Gross Profit ($USD)	$980,388	$1,454,156	$1,527,798 (FY $5,233,353 − 9M $3,705,555)
Gross Margin (%)	28.4% (calc)	47.7% (calc)	48.3% (calc)
Operating Loss ($USD)	$(4,048,831)	$(1,047,408)	$(3,124,870) (FY $(8,862,268) − 9M $(5,737,398))
Other Income (Expense) ($USD)	$2,859,685	$(1,356,606)	$34,411,022 (FY $21,136,563 − 9M $(13,274,459))
Net Income (Loss), Total ($USD)	$(1,189,146)	$(2,412,929)	$30,473,468 (FY $10,684,492 − 9M $(19,788,976))

FY comparison

Metric	FY 2015	FY 2016
Revenue ($USD)	$5,252,611	$10,565,163
Gross Profit ($USD)	$3,080,164	$5,233,353
Operating Loss ($USD)	$(22,548,317)	$(8,862,268)
Net Income from Continuing Ops ($USD)	$8,001,351	$12,274,295
Net Income (Loss), Total ($USD)	$(30,066,670) (incl. deemed dividend)	$10,684,492

Segment breakdown (reported)

Segment	Q2 2016 Net Sales	Q3 2016 Net Sales	Q4 2016 Net Sales
Vapor (Retail + Online/Wholesale in Q2)	Retail $1,577,963; Wholesale/Online $1,369,415	Vapor Retail $1,474,581	Not disclosed (wholesale exited; retail only)
Grocery (Ada’s)	$510,256	$1,575,037	Not disclosed

KPIs

KPI	Q2 2016	Q3 2016	Q4 2016
Cash and Cash Equivalents ($USD)	$17,064,395	$13,734,890	$13,366,272
Derivative Liabilities ($USD)	$47,314,427	$46,612,728	$12,868,079 (Consenting $11,912,906 + Non‑consenting $955,173)
Vape Stores Open	14	13	13
Gross Margin % (FY)	58.7% (FY15)	50.0% (FY16)	50.0% (FY16)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue, Margins, OpEx, Tax Rate	FY/Q4 2016	None provided	None provided	Maintained (no formal guidance)

Earnings Call Themes & Trends

(No Q4 call transcript found; themes drawn from 10‑Q/10‑K and press releases.)

Topic	Previous Mentions (Q2 2016)	Previous Mentions (Q3 2016)	Current Period (Q4 2016)	Trend
FDA Regulation/Legal	FDA deeming rule adopted May 9; constraint on new products	New product offerings prevented without FDA approval; revenue impact	Ongoing regulatory backdrop acknowledged; strategy pivot to grocery and med‑marijuana	Headwind stabilizing; strategic diversification
Portfolio/Store Actions	Closed 5 vape stores; added Ada’s (acquired June 1)	Closed additional stores; wholesale sold July 31	Exit process “largely complete”; focus on growth	Restructuring largely completed
Financial Structure/Derivatives	High derivative liabilities; non‑cash volatility	Derivatives still large; other income volatile	Derivative liabilities restructured; equity positive; going‑concern alleviated	Material improvement
Medical Marijuana Initiatives	Exploring opportunities (strategy in 10‑K)	—	Engaged Hoban Law Group, Medical Marijuana Business Lawyers, and Slee 3 Consulting to pursue Florida licensure	Acceleration

Management Commentary

“Our results reflect our strategic decision to exit the vapor wholesale distribution business and close underperforming vapor stores… The exit process is now largely complete and has positioned us to focus on growing the overall performance of our business.” — Jeffrey Holman, CEO .
“Through a series of agreements with HCMC’s warrant holders the company was able to shed its going concern classification.” — Press release .
“HCMC is well positioned in Florida to use its 9 long standing Vape Stores as a springboard to rapid success in the medical marijuana dispensary and accessory business.” — CEO on med‑marijuana strategy .

Q&A Highlights

No Q4 2016 earnings call transcript or Q&A was available in company filings or transcripts repositories; the company furnished press releases and an investor deck instead .

Estimates Context

S&P Global/Capital IQ consensus estimates for HCMC were not available for Q2–Q4 2016 (no Wall Street coverage identified). We attempted retrieval, but estimates were unavailable. As a result, no “vs. consensus” comparisons can be made for revenue or EPS [GetEstimates error: Daily request limit exceeded; no estimates returned].

Key Takeaways for Investors

Reported FY profitability was driven by non‑cash gains (derivative revaluation, warrant repurchases/exchanges); core operating loss remains sizable, so emphasize operating trend over “headline net income” .
The restructuring (wholesale exit, store closures) and Ada’s acquisition pivot the mix toward grocery and retail vapor; watch for stabilized quarterly gross margins near ~48–50% as an indicator of operational health .
Balance sheet risk from derivative liabilities fell (to ~$12.9M current at year‑end), and equity turned positive—reducing solvency concerns and improving potential access to capital .
Regulatory constraints on new vapor products persist; the medical marijuana initiative could provide an alternative growth vector, but licensure timing/execution risk remains high .
Near‑term trading: Sentiment may key off additional disclosures on med‑marijuana progress and evidence of sustained positive operating leverage (OpEx discipline vs. gross profit) .
Medium‑term thesis: Transition to a healthier‑choices retail portfolio (Ada’s, Green Leaf Grill, CBD products) may lessen vapor regulatory exposure; monitor store‑level profitability and cash trends (Q4 cash ~$13.37M) .
Data quality caution: EPS metrics are not meaningful due to extreme share count changes/reverse splits; focus on cash, margins, and operating income trajectory .

Notes: 
- Q4 figures are calculated from FY 2016 (press release/10‑K) minus 9M 2016 (Q3 10‑Q). 
- No formal guidance was provided in the period. 
- No Q4 earnings call transcript was found.

Healthier Choices Management Corp. (HCMC)·Q4 2016 Earnings Summary