| BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | NOTE
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation The
accompanying condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The
Company has historically operated as part of HCMC and not as a standalone company. Financial statements representing the historical
operations of HCMC’s grocery segment have been derived from HCMC’s historical accounting records and are presented on a
carve-out basis through the Spin-Off date. The Company’s financial statements for the period September 14, 2024 through
September 30, 2024 are consolidated financial statements based on the reported results of HCWC as a stand-alone company. HCMC
completed steps to spin off its grocery segment and wellness business into HCWC. The entities under the grocery segment and wellness
business were contributed (100%) to HCWC, as such the accompanying condensed consolidated financial statements through the Spin-Off
date have been contributed to HCWC using their carryover basis in accordance with Accounting Standard Codification
(“ASC”) Topic 805, Business Combinations (“ASC 805”) for entities under common control. All revenues and
costs as well as assets and liabilities directly associated with the business activity of the Company are included in the condensed
consolidated financial statements. The condensed consolidated financial statements also include allocations of certain general,
administrative, sales and marketing expenses from HCMC though the Spin-Off date. However, amounts recognized by the Company are not
necessarily representative of the amounts that would have been reflected in the condensed consolidated financial statements had the
Company operated independently of HCMC. Related-party allocations are discussed further in Note 16. The condensed consolidated
financial statements do not include all the notes in the same detail as the annual 10-K filing. Unaudited
Interim Condensed Consolidated Financial Statements The
interim condensed consolidated balance sheet as of September 30, 2024, the interim condensed consolidated statements of operations
and the interim condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended
September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The financial data
and the other financial information disclosed in the notes to these condensed consolidated financial statements relating to the
three-month and nine-month periods are also unaudited, i n our opinion, include all
adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash
flows, operating results, and balance sheets for the periods presented. Principles
of Consolidation The
condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Healthy Choice Markets,
Inc. (“Ada’s Natural Market”), Healthy Choice Markets 2, LLC (“Paradise Health and Nutrition”), Healthy
Choice Markets 3, LLC (“Mother Earth’s Storehouse”), Healthy Choices Markets 3 Real Estate LLC, Healthy Choice Markets
IV, LLC (Green’s Natural Foods), Healthy Choice Markets V, LLC (Ellwood Thompson’s), Healthy Choice Markets VI, LLC (GreenAcres
Market), Healthy Choice Wellness, LLC, and Healthy U Wholesale, Inc (“The Vitamin Store, LLC”).
All intercompany accounts and transactions have been eliminated in consolidation. Net
Parent Investment The
accompanying condensed consolidated financial statements were derived from the consolidated financial statements of HCMC on a
carve-out basis though the Spin-Off date, and the condensed consolidated financial statements also include allocations of certain
general, administrative, legal, and marketing expenses from HCMC. The primary components of the Net Parent Investment are
intercompany balances other than related party payables, the allocation of shared costs, and funding received to cover any shortfall
in operating cash requirements. Balances between HCMC and the Company that were not historically cash settled are included in Net
Parent Investment. Net Parent Investment represents the cumulative investment by HCMC in the Company through the Spin-Off
date. Upon Spin-Off, the Company reclassed the balance in net parent investment to additional paid-in capital. Use
of Estimates in the Preparation of the Financial Statements The
preparation of condensed 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 condensed 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 promotional discounts, manufacturer coupons and rebates, return allowances
that are netted against revenue, useful lives and impairment of
long-lived assets, allowance for credit losses, inventory provisions, deferred taxes and related valuation allowances, allocation of
corporate general expenses, and the valuation of the assets and liabilities acquired in business combinations. Certain of
management’s estimates could be affected by external conditions, including those unique to our industry, and general economic
conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to
differ from our estimates. The Company re-evaluates all its accounting estimates at least quarterly based on these conditions and
records adjustments when necessary. 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 promotes its products with trade incentives and promotions.
These programs include sales discounts, rebates, coupons, volume-based incentives, refunds, and return. The trade incentives and promotions
are recorded as a reduction to the transaction price based on amounts estimated as being due to customers at the end of the period. The
Company derives these estimates based on historical experience. The Company does not receive a distinct service in relation to the trade
incentives and promotions. 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. 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
Company incurred shipping and handling costs of approximately $ 37,000 25,000 99,000 90,000 Cash
and Cash Equivalents The
Company considers all highly liquid instruments with an original maturity of three months or less, when purchased, to be cash and cash
equivalents. The majority of the Company’s cash is concentrated in one financial institution, which is in excess of Federal Deposit
Insurance Corporation (FDIC) coverage. The Company has not experienced any losses in such accounts. The Company did not have any cash
equivalents as of September 30, 2024 and December 31, 2023. A
summary of the financial institution that had cash in excess of FDIC limits of $ 250,000 SCHEDULE
OF CASH IN EXCESS OF FDIC LIMITS
September 30, 2024 December 31, 2023
Total cash in excess of FDIC limits of $ 250,000 $ 515,353 $ 161,644 Accounts
Receivable, Contract Assets and Contract Liabilities Accounts
receivables 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 and twelve months for 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. Other
Current Assets Other
current assets are the non-trade related assets that the Company owns, benefits from, or uses to generate income that can be converted
into cash within one business cycle. Inventories Inventories
are measured at the lower of cost and net realizable value using the average cost method. If the cost of the inventories exceeds their
net realizable value, adjustments are recorded to write down excess carrying value 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. Slow-moving inventory is rotated out and obsolete inventory is removed (expensed) on a monthly basis. Property,
Plant, and Equipment Property,
plant, and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over
the expected useful life of the respective asset, after the asset is placed in service. Revenue earning property, plant, and equipment
includes signage, furniture and fixtures, building, computer hardware, appliance, cooler, and displays have useful lives ranging from
two seven years Identifiable
Intangible Assets Identifiable
intangible assets are recorded at cost, or when acquired as part of a business acquisition, at estimated fair value. Certain identifiable
intangible assets are amortized over 4 13 Impairment
of Long-Lived Assets The
Company reviews all long-lived assets such as property and equipment and amortized intangible assets for impairment whenever events
or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to the estimated future cash flows expected to be
generated by the asset or asset group. Impairment is measured by the amount by which the carrying value of the asset(s) exceeds
their fair value. There were no triggering events that would indicate impairment of long-lived assets in the three and nine months
period ended on September 30, 2024. Goodwill The
Company assesses the carrying amounts of goodwill for recoverability on at least an annual basis or when events or changes in circumstances
indicate evidence of potential impairment exists, using a fair value-based test. Application of the goodwill impairment test requires
significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term
rate of growth for the businesses, and the useful life over which cash flows will occur. Changes in these estimates and assumptions could
materially affect the determination of fair value and/or conclusions on goodwill impairment for the Company. Our annual impairment test
is conducted on September 30 of each year or more often if deemed necessary. The
Company incurred a non-cash impairment charge of $ 6,104,000 for the year ended December 31, 2023. In
July 2024, the Company acquired GreenAcres Market and recorded goodwill of $ 2,212,000 During
the three and nine months ended September 30, 2024 and 2023, there were no goodwill impairment charges recognized by the Company in the
unaudited interim condensed consolidated statements of operations. Advertising Advertising
expense is classified as selling, general and administrative expense on the condensed consolidated statements of operations. The Company
expenses advertising costs as incurred. The Company incurred advertising expenses of approximately $ 154,000 215,000 356,000 366,000 401(k)
retirement savings plan The
Company’s employees are offered a 401(k)-retirement savings plan that is currently administered under HCMC with discretionary
contribution matching opportunities. HCMC will continue provide this service to HCWC’s employees pursuant to the Transition
Service Agreement (“TSA”) executed upon the separation. The Company is in the process of establishing this service with
its payroll provider, and expects to provide 401(k) to it’s own employees at the beginning of next year. 401K employer expense
amounted to $ 23,000 21,000 59,000 Earnings
per share Basic
earnings per share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted earnings
per share is computed using the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect
of stock awards. There is no dilution for the three and nine months ended September 30, 2024 and 2023. On
September 16, 2024, the Company separated from HCMC. As referenced in Note 1. Organization, the Separation resulted in the initial issuance
of approximately 9.2 The following table sets forth the computation of basic and diluted earnings
per share attributable to the Company’s stockholders. SCHEDULE
OF EARNINGS PER SHARES
2024 2023 2024 2023
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
NET LOSS $ (2,658,507 ) $ (919,673 ) $ (3,955,678 ) $ (2,440,952 )
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES 9,308,866 9,226,860 9,254,394 9,226,860
BASIC AND DILUTED NET LOSS PER SHARE $ (0.29 ) $ (0.10 ) $ (0.43 ) $ (0.26 ) Income
Taxes The
Company’s income taxes are included in HCMC’s consolidated return through the Spin-Off date. For the purposes of the condensed
consolidated financial statements, the income taxes for the Company have been presented on a separate return basis, under which a new
stand-alone set of deferred tax assets and liabilities is created based on the financial statements. The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes” (“ASC
740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year
and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation
allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than
not that some portion or all of the deferred tax assets will not be realized. ASC
740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be
sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits
as income tax expense. There were no Leases Operating
lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the
Company’s incremental borrowing rates. Related operating right-of-use assets are recognized based on the initial
present value of the fixed lease payments, reduced by contributions from landlords, plus any prepaid rent and direct costs from
executing the leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes
lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense
as they are incurred. The
Company did not have finance leases as of September 30, 2024 and 2023. If the Company enters into a finance lease in the future, it will
be accounted for in accordance with ASC Topic 842, Leases. Fair
Value Measurements The
fair value of the Company’s financial assets and liabilities reflects management’s estimated amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company uses the fair value framework under the Financial Accounting Standards Board’s (“FASB”) guidance, and it 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. Recurring
Fair Value Measurements The
Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, operating,
derivatives and borrowings. Management believes that the carrying value of cash and cash equivalents, accounts receivable, accounts payable,
and borrowings are representative of their respective fair values. All derivatives are recognized as either assets or liabilities on
the balance sheet at fair value at the end of each quarter. Nonrecurring
Fair Value Measurements The
Company’s assets measured at fair value on a nonrecurring basis include long-lived assets, indefinite-lived intangible assets and
goodwill. The Company reviews the carrying amounts of such assets at least annually or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair
value. The resulting fair value measurement of the assets are considered to be Level 3 measurements. Business
Combination The
Company applies the provisions of ASC 805 in the accounting for acquisitions of businesses. ASC 805 requires the Company to use
the acquisition method of accounting by recognizing identifiable assets and liabilities, including intangible assets of acquired businesses
at their fair value at the date of acquisition. When the Company acquires control of a business, any previously held equity interest
also is remeasured to fair value. The excess of the purchase consideration and any previously held equity interest over the fair value
of identifiable net assets acquired is goodwill. If the fair value of identifiable net assets acquired exceeds the purchase consideration
and any previously held equity interest, the difference is recognized in the condensed consolidated statements of operations immediately
as a gain or loss on acquisition. Acquisition-related
expenses are expensed as incurred and the expenses are recorded in operating expenses in the condensed consolidated statements of operations. Recent
Accounting Pronouncements Public
companies in the United States are subject to the accounting and reporting requirements of various authorities, including FASB and the SEC. On
December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” related
to improvements to income tax disclosures. The amendments in this update require enhanced jurisdictional and other disaggregated disclosures
for the effective tax rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning
after December 15, 2024. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated
financial statements. In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”),
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires annual and interim disclosures that
are expected to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The
provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07. |
