UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


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

For the fiscal year ended: December 31 2022


, 2023

or


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

For the transition period from: _____________ to _____________


HEALTHIER CHOICES MANAGEMENT CORP.

(Exact name of registrant as specified in its charter)


Delaware001-3646984-1070932

(State or Other Jurisdiction of

Incorporation or Organization)

(Commission

File Number)

(I.R.S. Employer

Identification No.)


Address of Principal Executive Office: 3800 North 28th WayHollywood, Florida33020

 Hollywood, Florida 33020


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


Securities registered pursuant to Section 12(b) of the Act:


Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.0001 per shareHCMCOTC Pink Marketplace

Securities registered pursuant to Section 12(g) of the Act:

None

:


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☐No Yes  No ☒


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☐No Yes  No ☒


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 Yes ☐ No

☐ No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ ☒Yes Yes ☐ No

☐ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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☒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 has filed a report on and attestation to its management assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒


If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐


Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes No☒


The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $67.9$46.3 million based on the June 30, 20222023 closing price of $0.0002$0.0001 per share.


Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 346,341,632,384478,266,632,384 shares outstanding as of March 30, 2023.


27, 2024.




INDEX

INDEX

Page
PART I
Item 1. Business
1
Item 1A. Risk Factors
16
14
Item 1B. Unresolved Staff Comments
16
14
Item 1C. Cybersecurity
14
Item 2. Properties
16
15
Item 3. Legal Proceedings
16
15
Item 4. Mine Safety Disclosures
16
15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
17
16
Item 6. Selected Financial Data
17
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
23
21
Item 8. Financial Statements and Supplementary Data
23
21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
23
21
Item 9A. Controls and Procedures
23
21
Item 9B. Other Information
24
22
PART III
Item 10. Directors, Executive Officers and Corporate Governance
25
23
Item 11. Executive Compensation
28
26
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
32
29
Item 13. Certain Relationships and Related Transactions, and Director Independence
34
30
Item 14. Principal Accounting Fees and Services
34
31
PART IV
Item 15. Exhibits, Financial Statement Schedules
35
31
Exhibit Index32
SIGNATURES34

 
Exhibit Index
36
SIGNATURES
38





PART I


Item 1. Business.


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.


Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company manages its intellectual property portfolio.


Through its wholly owned subsidiaries, Healthy Choice Markets, Inc., Healthy Choice Markets 2, LLC, Healthy Choice Markets 3, LLC, andHealthy Choice Markets 3 Real Estate, LLC, Healthy Choice Markets IV, LLC, and Healthy Choice Markets V, LLC respectively, the Company operates:


•●
Ada’s Natural Market, a natural and organic grocery store offering 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 (www.Adasmarket.com)
•●
Paradise Health & Nutrition’s three stores that likewise offer 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, (www.ParadiseHealthDirect.com)
•●
Mother Earth’s Storehouse, a two-store organic and health food and vitamin chain in New York’s Hudson Valley, which has been in existence for over 40 years (www.MotherEarthStorehouse.com).
•●
Greens Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products (www.Greensnaturalfoods.com).
●Ellwood Thompson’s, an organic and natural health food and vitamin store located in Richmond, Virginia. (www.ellwoodthompsons.com).

Through its wholly owned subsidiary, Healthy Choice Wellness, LLC,

•
The the Company operates a Healthy Choice Wellness Center in Kingston, NY and has a licensing agreement for a Wellness Center at the Casbah Spa & Salon in Fort Lauderdale, FL, offering IV hydration treatments within a spa setting.
The Company also has a service agreement for a Healthy Choice Wellness Center with Boston Direct Health, which provides aestheticslocated at the Casbah Spa and medical care for an optimized life, offering IV treatments and inter-muscular shots.
TheSalon in Fort Lauderdale, FL.

Through its wholly owned subsidiary, Healthy Choice Wellness II, LLC, the Company entered into service agreementa joint venture with an established healthcare provider, and the joint venture is in the process of creating a structure whereby it will engage in telemedicine evaluations of patients for additional Wellness Centers in Chicago that it expects to open during 2023.


semaglutide therapy. The operation will encompass, generally: medical evaluations of patients; treatment of patients with semaglutide; coordination with providers and patients.

Through its wholly owned subsidiary, Healthy U Wholesale, the Company sells vitamins and supplements, as well as health, beauty and personal care products on its website www.TheVitaminStore.com.


Additionally, through its wholly owned subsidiary, The Vape Store, Inc., the Company markets its patented Q-Unit™ and Q-Cup® technology. Information on these products and the technology is available on the Company’s website at www.theQcup.com.


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NATURAL AND ORGANIC GROCERIES AND DIETARY SUPPLEMENTS BUSINESS


Local. Organic. Fresh. Three words that define Healthy Choice Markets! With Ada’s Natural Market, a full-service grocery store and Greenleaf Grill, Ada’s flagship fast casual in-store restaurant, serving Fort Myers, FL, along with the eight Greens Natural Foods Stores in New Jersey and New York, three Paradise Health & Nutrition locations in the greater Melbourne, FL area, and our two Mother Earth’s Storehouse locations in Hudson Valley, NY, and the Ellwood Thompson store located in Richmond Virginia all serving their respective local communities, our stores provide all-natural and organic products in a friendly and helpful atmosphere, with aisles of traditional grocery complete with frozen, healthy home, vitamins & supplements, health & beauty, fresh produce, hormone and antibiotic free meats and bulk foods. Ada’s Natural Market, Greens Natural Foods, Paradise Health & Nutrition, and Mother Earth’s Storehouse, and Ellwood Thompson’s all offer chef-prepared ready-to-go foods and fresh-baked-daily baked goods. All store locations, with the exception of Saugerties, NY and Malabar, FL, offer a 100% organic juice & smoothie bar.

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Collectively, we focus on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We strive to generate long-term relationships with our customers based on quality and service by:


●●selling only all-natural and organic groceries;

●●offering affordable prices and a shopper-friendly retail environment; and

●●providing dine-in options at our Greenleaf Grill, Organic Juice Bar, and our free-trade coffee bar.

Our History and Founding Principles


We are committed to maintaining the following founding principles, which have helped foster our growth:


●●Quality. Every product on our shelves must go through a rigorous screening and approval process. Our mission includes providing the highest quality groceries and supplements, Natural Grocers branded products, European and United States Department of Agriculture (USDA) certified organic and fresh produce at the best prices in the industry.

●●Community. The Ada’s, Paradise, and now Mother Earth’s Storehouse, and Green'sGreen’s Natural Foods and now Ellwood Thompson’s brands have each been serving their respective communities for 40+ years.

●●Employees. Our employees make our companies great. We work hard to ensure that our employees are able to live a healthy, balanced lifestyle. We support them with free nutrition education programs, competitive pay and excellent benefits.

Our Market


We operate within the natural products retail industry, which is a subset of the United States grocery industry and the dietary supplement business. This industry includes conventional supermarkets, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. Industry-wide sales of natural and organic foods and dietary supplements have experienced meaningful growth over the past several years, and we believe that growth will continue for the foreseeable future.


We believe the growth in sales of natural and organic foods and dietary supplements continues to be driven by numerous factors, including:


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●●greater consumer focus on high-quality nutritional products;

●●an increased awareness of the importance of good nutrition to long-term wellness;

●●aging communities that are seeking healthy lifestyle alternatives;

●●heightened consumer awareness about the importance of food quality and a desire to avoid pesticide residues, growth hormones, artificial ingredients and genetically engineered ingredients in foods;

●●growing consumer concerns over the use of harmful chemical additives in body care and household cleaning supplies;

●●well-established natural and organic brands, which generate additional industry awareness and credibility with consumers; and

●●the growth in the number of consumers with special dietary requirements as a result of allergies, chemical sensitivities, auto-immune disorders and other conditions.


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Our Competitive Strengths


We are well-positioned to capitalize on favorable natural and organic grocery and dietary supplement industry dynamics as a result of the following competitive strengths:


Strict focus on high-quality natural and organic grocery products. We offer high-quality products and brands, including an extensive selection of widely-recognized natural and organic food, dietary supplements, body care products, pet care products and books. We offer our customers approximately 10,000 Stock Keeping Units (SKUs) of natural and organic products. We believe our broad product offering enables our customers to shop our stores for substantially all of their grocery and dietary supplement purchases. In our grocery departments, we primarily sell USDA certified organic produce and do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils. In addition, we only sell pasture-raised, humanely-raised dairy products. Consistent with this strategy, our product selection does not include items that do not meet our strict quality guidelines. Our store managers enhance our robust product offering by customizing their stores’ selections to address the preferences of local customers.


Engaging customer service experience based on education and empowerment. We strive to offer consistently exceptional customer service in a shopper-friendly environment, which we believe creates a differentiated shopping experience, enhances customer loyalty and generates repeat visits from our clientele. A key aspect of our customer service model is to provide free nutrition education to our customers. We believe this focus provides an engaging retail experience while also empowering our customers to make informed decisions about their health. We offer our science-based nutrition education through our trained employees, our newsletter and sales flyer, community out-reach programs, one-on-one nutrition health coaching, nutrition classes and cooking demonstrations.


Our Growth Strategies


We expect to pursue several strategies to continue ourhelp return the overall business to profitable growth, including:


Expand our store base. We intend to expand our store base through the acquisition of new stores.


Increase sales from existing customers. In order to increase our average ticket and the number of customer transactions, we plan to continue offering an engaging customer experience by providing science-based nutrition education and a differentiated merchandising strategy that delivers affordable, high-quality natural and organic grocery products and dietary supplements. We also plan to continue to utilize targeted marketing efforts to reach our existing customers, which we anticipate will drive customer transactions and convert occasional, single-category customers into core, multi-category customers.


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Grow our customer base. We plan to implement several measures aimed at building our brand awareness and growing our customer base, including: (i) redesigningcontinuously improving the design of all our website (www.adasmarket.com)websites to enhance functionality, create a more engaging user experience and increase its reach and effectiveness; (ii) introducing customer appreciation programs at all our stores; and (iii) developing new collateral marketing materials. We believe offering nutrition education has historically been one of our most effective marketing strategies for reaching new customers and increasing the demand for natural and organic groceries and dietary supplements in our markets.


Improve operating margins. We expect to continue to improve our operating margins as we benefit from investments we have made or are making in fixed overhead and information technology. As we add additional stores, we expect to achieve greater economies of scale through sourcing and distribution. To achieve additional operating margin expansion, we intend to further optimize performance, maintain appropriate store labor levels and effectively manage product selection and pricing.

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Our Products


Product Selection Guidelines. We have a set of strict quality guidelines covering all products we sell. For example:


●●we do not approve for sale food known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils or phthalates or parabens, regardless of the proportion of its natural or organic ingredients;

●

 we sell USDA certified organic produce; and


●we sell USDA certified organic produce; and

●we sell meats naturally raised without hormones, antibiotics or treatments and that were not fed animal by-products.

Our product review team analyzes all new products and approves them for sale based on ingredients, price and uniqueness within the current product set. We actively research new products in the marketplace through our product vendors, private label manufacturers, scientific findings, customer requests and general trends in popular media. Our stores are able to fully merchandise all departments by providing an extensive assortment of natural and organic products. We do not believe we need to sell conventional products to fill our selection, increase our margins or attract more customers.


What We Sell. We operate both a full-service natural and organic grocery stores and dietary supplement stores within our retail locations. The following is a breakdown of our product mix:


●●
Grocery. We offer a broad selection of natural and organic grocery products with an emphasis on minimally processed and single ingredient products that are not known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils. Additionally, we carry a wide variety of products associated with special diets such as gluten free, vegetarian and non-dairy.

●●
Produce. We sell USDA-certified organic produce and source from local, organic producers whenever feasible. Our selection varies based on seasonal availability, and we offer a variety of organic produce offerings that are not typically found at conventional food retailers.

●●
Bulk Food and Private Label Products. We sell a wide selection of private label repackaged bulk and other products, including nuts, water, pasta, canned seafood, dried fruits, grains, granolas, honey, eggs, herbs, spices and teas.

●●
Dry, Frozen and Canned Groceries. We offer a wide variety of natural and organic dry, frozen and canned groceries, including cereals, soups, baby foods, frozen entrees and snack items. We offer a broad selection of natural chocolate bars, and energy, protein and food bars.

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●●
Meats and Seafood. We offer naturally-raised or organic meat products. The meat products we offer come from animals that have never been treated with antibiotics or hormones or fed animal by-products. Additionally, we only buy from companies we believe employ humane animal-raising practices. Our seafood items are generally frozen at the time of processing and sold from our freezer section, thereby ensuring freshness and reducing food spoilage and safety issues.

●●
Dairy Products and Dairy Substitutes. We offer a broad selection of natural and organic dairy products such as milk, eggs, cheeses, yogurts and beverages, as well as non-dairy substitutes made from almonds, coconuts, rice and soy.

●●
Prepared Foods. Our stores have a convenient selection of refrigerated prepared fresh food items, including salads, sandwiches, salsa, humus and wraps. The size of this offering varies by location.

●●
Bread and Baked Goods. We receive regular deliveries of a wide selection of bakery products for our bakery section, which includes an extensive selection of gluten-free items.

●●
Beverages. We offer a wide variety of non-alcoholic and alcoholic beverages containing natural and organic ingredients.


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●●
Dietary Supplements. We offer a wide selection of vitamins, supplements and natural remedies. Our staff is well educated and trained on multiple aspects of natural medicine.

●●
Health, Beauty, and Personal Care. We offer a full range of cosmetics, skin care, hair care, fragrance and personal care products containing natural and organic ingredients. Our body care offerings range from bargain-priced basics to high-end formulations.

●●
Household and General Merchandise. Our offerings include sustainable, hypo-allergenic and fragrance-free household products, including cleaning supplies, paper products, dish and laundry soap and other common household products, including diapers.

Quality Assurance. We endeavor to ensure the quality of the products we sell. We work with reputable suppliers we believe are compliant with established regulatory and industry guidelines. Our purchasing department requires a complete supplier and product profile as part of the approval process. Our dietary supplement suppliers must follow Food and Drug Administration (FDA) current good manufacturing practices supported by quality assurance testing for both the base ingredients and the finished product. We expect our suppliers to comply with industry best practices for food safety.


Many of our suppliers are inspected and certified under the USDA National Organic Program, voluntary industry associations, and other third-party auditing programs with regards to additional ingredients, manufacturing and handling standards. We operate all our stores in compliance with the National Organic Program standards, which restricts the use of certain substances for cleaning and pest control and requires rigorous recordkeeping, among other requirements.


Our Pricing Strategy


We believe our pricing strategy allows our customers to shop our stores on a regular basis for their groceries and dietary supplements.


The key elements of our pricing strategy include:


●●heavily advertised discounts supported by manufacturer participation;

●●in-store specials generally lasting for 30 days and not advertised outside the store;

●●managers’ specials, such as clearance, overstock, short-dated or promotional incentives; and

●●specials on seasonally harvested produce.

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As we expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as administrative expenses, as well as increased economies of scale in sourcing products. We strive to keep our product, operating and general and administrative costs low, which allows us to continue to offer attractive pricing for our customers.


Store Management and Staffing. Our store staffing includes a manager and assistant manager, with department managers in each of the dietary supplement, grocery, dairy and frozen, produce, body care and receiving departments, as well as several non-management employees. Our regional manager is responsible for monthly store profit and loss, including labor, merchandising and inventory costs.


To ensure a high level of service, all employees receive training and guidance on customer service skills, product attributes and nutrition education. Employees are carefully trained and evaluated based on a requirement that they present nutrition information in an appropriate and legally compliant educational context while interacting with customers. Additionally, store employees are cross-trained in various functions, including cashier duties, stocking and receiving product.

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Inventory. We use a robust merchandise management and perpetual inventory system that values goods at the lower of cost and net realizable value using the average cost method. We manage shelf stock based on weeks-on-hand relative to sales, resupply time and minimum economic order quantity.


Sourcing and Vendors. We source from approximately 1,000 suppliers and offer over 4,000 brands. These suppliers range from small independent businesses to multi-national conglomerates. As of December 31, 2022,2023, we purchased approximately 68%73% of the goods we sell from our top 20 suppliers. For the year ended December 31, 2022,2023, approximately 36%40% of our total purchases were from one vendor. We maintain good relations with all our suppliers and believe we have adequate alternative supply methods, including self-distribution.


We have longstanding relationships with our suppliers, and we require disclosure from them regarding quality, freshness, potency and safety data information. Our bulk food private label products are packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores. Unlike most of our competitors, most of our private label nuts, trail mix and floursflour are refrigerated in our warehouse and stores to maintain freshness.


Our Employees


Commitment to our employees is one of our founding principles. Employees are eligible for health, long-term disability, vision and dental insurance coverage, as well as Company paid short-term disability and life insurance benefits, after they meet eligibility requirements. Additionally, our employees are offered a 401(k) retirement savings plan with discretionary contribution matching opportunities. This further offers our employees the opportunity to become more familiar with our products, which we believe improves the customer service our employees are able to provide. We believe these and other factors result in higher retention rates and encourage our employees to appreciate our culture, which helps them better promote our brand.


Our Customers


The growth in the natural and organic grocery and dietary supplement industries and growing consumer interest in health and nutrition have led to an increase in our core customer base. We believe the demands for affordable, nutritious food and dietary supplements are shared attributes of our core customers, regardless of their socio-economic status. Additionally, we believe our core customers prefer a retail store environment that offers carefully selected natural and organic products and dietary supplements. Our customers tend to be interested in health and nutrition, and expect our store employees to be highly knowledgeable about these topics and related products.


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Competition


The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry. Our competition varies by market and includes conventional supermarkets such as Publix and Winn-Dixie, mass or discount retailers such as Sprout'sSprout’s Farmers Market, Wal-Mart and Target, natural and gourmet markets such as Whole Foods and The Fresh Market, specialty food retailers such as Trader Joe’s, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. These businesses compete with us for customers on the basis of price, selection, quality, customer service, shopping experience or any combination of these or other factors. They also compete with us for products and locations. In addition, some of our competitors are expanding to offer a greater range of natural and organic foods. We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutritional education, differentiate us in the industry and provide a competitive advantage.


The Grocery business and COVID-19

The COVID-19 We believe we have acted proactively in response to the COVID-19 pandemic and the resulting government mandates. To date, all of our stores have continued operating since the start of the COVID-19 pandemic. We have experienced increased levels of net sales and average transaction size due to the COVID-19 pandemic as public health measures have been implemented by states across our footprint and customers have adjusted to these new circumstances by consuming more food at home. The COVID-19 pandemic and government mandates have also led to an increase in online orders for home delivery, which we offer at substantially all our stores in partnership with a third party.


To address the impact of the virus, we have instituted strict cleaning protocols at all locations, provided PPE equipment for all employees and offered online ordering and curbside pick-up for all customers preferring to not enter the store.

HEALTHY CHOICE WELLNESS CENTERS


and HEALTHY CHOICE WELLNESS II

Healthier choices extend past just healthy eating. HCMC, through its Healthy Choice Wellness Centers, offers premium and optimized whole person-centered care and services, tailored to promote and maximize one'sone’s general health and well-being. Healthy Choice Wellness Centers’ services are designed to address one or more common concerns, including but not limited to immunity, anxiety, mental fortitude, sports recovery, and more. Through these services, which include IV Nutrient Drip Infusions and Intramuscular (IM) Injection Treatments, Healthy Choice Wellness Centers seek to provide healthy alternatives that treat the mind and body to its core, thus offering optimized healthier living.

Through its wholly owned subsidiary, Healthy Choice Wellness II, LLC, the Company entered into a joint venture with an established healthcare provider, and the joint venture is in the process of creating a structure whereby it will engage in telemedicine evaluations of patients for semaglutide therapy. The operation will encompass, generally: medical evaluations of patients; treatment of patients with semaglutide; coordination with providers and patients.

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Defining Healthy Choice Wellness


•●
HEALTHY– an adjective

o○indicative of, conducive to, or promoting good health

•
●
CHOICE – a noun

o○an act of selecting or making a decision when faced with two or more possibilities

•
●
WELLNESS – a noun

o○the state of being in good health, especially as an actively pursued goal

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Our Mission


To assist in one's achievement of personal well-being, which is an optimal and dynamic state that allows people to achieve their full potential through both the individual pursuit of wellness and the commitment and support of the communities to which they belong.

To assist in maximizing overall individual wellness, which is an active process that helps individuals reach their optimal well-being by integrating all the dimensions of wellness into their lives; physical, social, emotional, spiritual, environmental, intellectual, occupational, and financial.

To provide the highest standards of professionalism, emphasizing on quality of care, ethical behavior, ensuring client confidentiality, and the treatment of all individuals with respect and dignity.

To provide clients an immaculate wellness facility designed for the optimal benefit of the clients to receive their desired treatments in a clean and sterile environment that fosters a tranquil space to maximize one's overall wellness and well-being.

To continue the powerful pursuit of knowledge and education by all of our professionals and practitioners, to better provide consult to our clients for them to best maximize their overall wellness and well-being.

●To assist in one’s achievement of personal well-being, which is an optimal and dynamic state that allows people to achieve their full potential through both the individual pursuit of wellness and the commitment and support of the communities to which they belong.

●To assist in maximizing overall individual wellness, which is an active process that helps individuals reach their optimal well-being by integrating all the dimensions of wellness into their lives; physical, social, emotional, spiritual, environmental, intellectual, occupational, and financial.

●To provide the highest standards of professionalism, emphasizing on quality of care, ethical behavior, ensuring client confidentiality, and the treatment of all individuals with respect and dignity.

●To provide clients an immaculate wellness facility designed for the optimal benefit of the clients to receive their desired treatments in a clean and sterile environment that fosters a tranquil space to maximize one’s overall wellness and well-being.

●To continue the powerful pursuit of knowledge and education by all of our professionals and practitioners, to better provide consult to our clients for them to best maximize their overall wellness and well-being.

Our Vision


Life comes with a lot of choices - some easier to make than others. Healthier Living should be the easiest of those choices, and so Healthy Choice Wellness Centers offers Health & Wellness services that assist in making those choices a lot easier. Healthy Choice Wellness Centers seek to continue the commitment of its parent company, Healthier Choices Management Corp., in providing consumers with healthier alternatives to everyday lifestyle choices.


Healthy Choice Wellness Centers offer premium and optimized whole person-centered care and services, tailored to promote and maximize one'sone’s general health and well-being. All of our services are designed to address one or more common concerns, including but not limited to immunity, anxiety, mental fortitude, sports recovery, and more. Through these services, Healthy Choice Wellness Centers seek to provide healthy alternatives that treat the mind and body to its core, thus offering optimized healthier living.


Our Values


Healthy Choice Wellness Centers are committed to building a culture of well-being. Our goal is to optimize wellness, both for today and all of our tomorrows.

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Healthy Choice Wellness Centers view the communities we serve as being comprised of whole and dynamic individuals. We are sensitive to the communal stresses of life that impact our health, wellness, and overall well-being. We promote and encourage personal responsibility and accountability in one'sone’s pursuit of achieving and maintaining their health and wellness. Our Healthy Choice Wellness team not only participates in the facilitation of services in the process of achieving one'sone’s wellness, but also are present to provide information, care, and knowledge to maintain course and maximize one'sone’s well-being according to their individual health goals, wants, and needs.


Healthy Choice Wellness Center also realizes that the whole is only as strong as its parts when it comes to those communities we serve. Thus, we put forth effort to strengthen the environments in which we live and work as they directly impact our well-being. This effort to support wellness for the individuals (the parts) must include working to create a healthy community at large (the whole) that supports the well-being of its members at large.


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Our Growth Strategy


We seek to operate and expand our Healthy Choice Wellness centers by approaching growth via three (3) different pathways:


1)Corporately owned and operated wellness centers

2)Wellness Centers implementing the services of Healthy Choice Wellness Centers by way of licensing agreements

3)Expansion by way of franchised locations

Our Products & Services


Healthy Choice Wellness Centers specialize primarily in IV Nutrient Drip Infusion and Intramuscular (IM) Injection treatments, however we seek to expand these offerings (both in the number of IV and IM options offered, but also by adding additional whole-person centered services for optimizing overall general health).


IV Nutrient Drip Infusion Treatments: Healthy Choice Wellness Center’s IV Nutrient Drip Infusions are used to deliver vitamins and minerals directly into the bloodstream, offering superior absorption over oral supplements. We offer server pre-formulated customized solutions to address a variety of issues including:


Immune System Strengthening
Anti-Aging
Optimal Athletic Performance & Recovery
Metabolism
Hangover & Headache Relief
Cold & Flu Symptoms
Chronic Fatigue
Brain Fog

●Immune System Strengthening
●Anti-Aging
●Optimal Athletic Performance & Recovery
●Metabolism
●Hangover & Headache Relief
●Cold & Flu Symptoms
●Chronic Fatigue
●Brain Fog

Currently, we offer eleven IV Nutrient Treatment Options: Quench, Get-Up-And-Go, Recovery & Performance, Immunity, Alleviate, Inner Beauty, Myers’ Cocktail, Nad+ (Premium Drip), Reboot, Glutathion, and Brainstorm.


Intramuscular (IM) Injection Treatments: Healthy Choice Wellness Center’s Intramuscular (IM) Injection treatments deliver vitamins and minerals directly into the bloodstream, offering superior absorption over oral supplements. We offer server pre-formulated customized solutions to address a variety of issues including:


Immune Functioning
General Health
Fight Illness
Boost Metabolism
Improve Mood
Increase Energy
Appetite Suppression
Burning Fat

●Immune Functioning
●General Health
●Fight Illness
●Boost Metabolism
●Improve Mood
●Increase Energy
●Appetite Suppression
●Burning Fat

Currently we offer four Injection Treatment Options: Vitamin B-12, Vitamin D-3, Glutathione, and our Skinny Shot.

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Our Employees


Each Healthy Choice Wellness Center is led by licensed and accredited medical professionals and practitioners who share a like-minded philosophy with that of the Wellness Centers, as does all our support staff – we do not just practice healthy choices, we live it! We encourage and support all of our professionals and practitioners to continue the powerful pursuit of knowledge and education, to better provide consult to our clients for them to best maximize their overall wellness and well-being.


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Our Customers


The client base for our wellness centers is not bound by age groups or genders. Our clients consist of a broad range of individuals all seeking a common universal goal of seeking to improve their overall wellness. These individuals tend to be those who consciously live a healthy lifestyle, and are seeking treatments to maximize and optimize their overall well-being. This includes athletes seeking treatments to help recover quicker from injury and/or rehydrate, middle aged men and women seeking treatments to maximize their cognitive fortitude, those wanting to help alleviate indigestion or stomach pains, and a slew of other individual reasons all ending with the drive for healthier living.


ONLINE SALES


HCMC is your online source for the leading products in the all-natural vitamin and supplement, and health, beauty, and personal care categories of Healthier Living.


Backed by 30+ years of combined experience in the health and nutrition industry, we provide our customers with only the best products on the market — Try our exclusive offering of Ada’s Naturals brand products or any of the top products from the most recognized national natural health brands in the industry.


●●VITAMINS & SUPPLEMENTS:

o○Product categories include, but are not limited to: Vitamins, Minerals & Herbals, Immunity, Multivitamins, Sports Nutrition, Protein Powders, Collagen, Stress & Anxiety, Sleep & Relax, Brain Health, Pain & Inflammation, Probiotics, Energy & Stamina, Joint & Bone Support, Digestion, Fish Oils, Just for Men, Kids/Children/Teens, and more.

o○Product varieties include, but are not limited to: Apple Cider Vinegar, BCAA, Biotin, Calcium, Chlorophyll, CLA, Collagen Peptides, Creatine, Elderberry, Omega-3’s, Garlin, Glucosamine, Iron, Magnesium, Melatonin, Potassium, Prenatals, Probiotics, Protein Powders (Plant and Whey), Ashwaghanda Turmeric, Ginseng, Vitamin B,C,D,E,K+, Zinc, and more.

o○Product brands include, but are not limited to: Ada’s Naturals, Enzymedica, Garden of Life, Natural Vitality, New Chapter, Renew Life, Solgar, and more.

●●HEALTH, BEAUTY, AND PERSONAL CARE:

o○Product categories include, but are not limited to: Oral Care, Hair Care, Body Wash, Skin & Face, Deodorant, Suncare, Soaps, Shaving, Feminine Hygiene, Lip Balms, Ear Candles, Lotions, Hand Sanitizers, Essential Oils, and more.

o○Product varieties include, but are not limited to: Body Wash, Deodorant, Ear Candles, Shampoos, Conditioners, Toothpaste, Mouthwashes, Shaving, Bar Soaps, Liquid Soaps, Suncare, and more.

o●Product brands include, but are not limited to: Ada’s Naturals, Alba Botanica, Aura Cacia, Derma-E, Desert Essence, Dr. Bronners, Every Man Jack, Heritage Store, Himalaya Botanique, Life-Flo, Lily of the Desert, Natracare, Naturally Fresh, Oral Essentials, South of France, Tea Tree Therapy, Thai Deodorant Stone, Thayers, and more.

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10


VAPORIZER BUSINESS


Retail Stores

While evaluating

Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, HCMC manages, and intends to expand, its intellectual property portfolio. Additionally, HCMC markets its patented Q-Unit™ and Q-Cup® technology through its wholly owned subsidiary The Vape Store, Inc.. Information on these products and the technology is available on the Company’s website at www.theQcup.com. During 2022, the Company evaluated its retail store operations in 2022,and management decided to close all retail stores as management has shiftedand shift its retailbrick and mortar sales focus totowards building a wholesale and the online channel.channel business.


Vaporizers

“Vaporizers” are battery-powered products that enable users to inhale nicotine vapor. Regardless of their construction, they are comprised of three functional components:

●a mouthpiece, which is a small plastic cartridge that contains a liquid nicotine solution;

●the heating element that vaporizes the liquid nicotine so that it can be inhaled; and

●the electronic devices which include: a lithium-ion battery, an airflow sensor, a microchip controller and an LED, which illuminates to indicate use.

When a user draws air through the vaporizer, the air flow is detected by a sensor, which activates a heating element that vaporizes the solution stored in the mouthpiece/cartridge, the solution is then vaporized and it is this vapor that is inhaled by the user. The cartridge contains either a nicotine solution or a nicotine free solution, either of which may be flavored.

Vaporizers feature a tank or chamber, a heating element and a battery. The vaporizer user fills the tank with e-liquid or the chamber with dry herb or leaf. The vaporizer battery can be recharged and the tank and chamber can be refilled.

Our Brands

We sell a wide variety of our e-liquid under the Vape Store brand. Our in-house engineering and graphic design teams work to provide aesthetically pleasing, technologically advanced and affordable vaporizer and e-liquid flavor options. We are in the process of preparing to commercialize additional brands which we intend to market to new customers and demographics

.


Our Improvements and Product Development on Intellectual Property


We have developed, trademarked and are preparing to commercialize additional products. We include product development expenses as part of our operating expenses. In October 2018, we announced the granting of three US patents related to our Q-Cup™ technology. This Q-Cup™ technology provides microdosing potentially more efficiency depending on the vaping method and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally. In addition, we have a suite of patent applications pending in the United States. There is no assurance that we will be awarded patents for of any of these pending patent applications.


The Market for Vaporizers

We market our vaporizers as an alternative From 2019 through December 31, 2023, the Company was granted 9 new patents related to traditional tobacco cigarettes and cigars. We offer our products in multiple nicotine strengths and flavors.

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electronic vaporizers.

Business Strategy


We believe that our history with our suppliers, including the volume of products we source, gives us an advantage over other market participants as it relates to favorable pricing, priority as to inventory supply and delivery and first access to new products, including first access to next generation products and technology. Management has shifted its retail sales focus to wholesale and online channel.


We believe that our reputation and our experience in the vaporizer industry, from a development, customer service and production perspective, give us an advantage in attracting wholesale customers and promotedevelop an online customer base.


Competition


Competition in the vaporizer and e-liquid industry is intense. We compete with other sellers, of vaporizes, most notably Altria Group, Inc., JT International, Imperial Tobacco, and Reynolds American, Inc., which are big tobacco companies that have vaporizer and electronic cigarette business segments.businesses that compete in the segment. The nature of our competitors is varied as the market is highly fragmented and the barriers to entry into the business are low. Our direct competitors sell products that are substantially similar to ours excluding any products which we hold patents. As a general matter, we have access to market and sell the similar vaporizers as our competitors and we sell our products at substantially similar prices as our competitors; accordingly, the key competitive factors for our success is the quality of service we offer our customers, the scope and effectiveness of our marketing efforts, including media advertising campaigns and, increasingly, the ability to identify and develop new sources of customers.


As discussed above, we compete against “big tobacco”, U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like Altria Group, Inc., JT International, Imperial Tobacco, and Reynolds American, Inc. We compete against “big tobacco” who offers not only conventional tobacco cigarettes and electronic cigarettes and vaporizers, but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. “Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands. Furthermore, we believe that “big tobacco” is devoting more attention and resources to developing, acquiring technology patents, and offering electronic cigarettes, vaporizers and e-liquids as these markets grow. Because of their well-established sales and distribution channels, marketing expertise and significant resources, “big tobacco” is better positioned than small competitors like us to capture a larger share of the electronic cigarette market. We also compete against numerous other smaller manufacturers or importers of cigarettes.importers. There can be no assurance that we will be able to compete successfully against any of our competitors, some of whom have far greater resources, capital, experience, market penetration, sales and distribution channels than us. If our major competitors were, for example, to significantly increase the level of price discounts offered to consumers, we could respond by offering price discounts, which could have a materially adverse effect on our business, results of operations and financial condition.

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Manufacturing


We have no manufacturing capabilities and do not intend to develop any manufacturing capabilities. Third party manufacturers make our products to meet our design specifications. We depend on third party manufacturers for our vaporizer e-liquid and accessories. Our customers associate certain characteristics of our products including the weight, feel, draw, unique flavor, packaging and other attributes of our products to the brands we market, distribute and sell. Any interruption in supply and or consistency of our products may harm our relationships and reputation with customers, and have a material adverse effect on our business, results of operations and financial condition. In order to minimize the risk of supply interruption, we currently utilize several third-party manufacturers to manufacture our products to our specifications.


We currently utilize several manufacturers both domestically and internationally. We contract with our manufacturers on a purchase order basis. We do not have any output or requirements contracts with any of our manufacturers. Our manufacturers provide us with finished products, which we hold in inventory for distribution, sale and use.

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Patent Litigation


Third party patent lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights have and could force us to do one or more of the following:


●●stop selling products or using technology that contains the allegedly infringing intellectual property;

●●incur significant legal expenses;

●●pay substantial damages to the party whose intellectual property rights we may be found to be infringing;

●●redesign those products that contain the allegedly infringing intellectual property; or

●●attempt to obtain a license to the relevant intellectual property from third parties, which may not be available to us on reasonable terms or at all.

Future third party lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.


We are required to obtain licenses to patents or proprietary rights of others and may be required to obtain more in the future and as the product continues to evolve. We cannot assure you that any future licenses required under any such patents or proprietary rights would be made available on terms acceptable to us or at all. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to design around such patents, or could find that the development, manufacture, or sale of products requiring such licenses could be foreclosed. Litigation may be necessary to defend against claims of infringement asserted against us by others, or assert claims of infringement to enforce patents issued to us or exclusively licensed to us, to protect trade secrets or know-how possessed by us, or to determine the scope and validity of the proprietary rights of others. In addition, we may become involved in oppositions in foreign jurisdictions, reexamination declared by the United States Patent and Trademark Office, or interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation, opposition, reexamination or interference proceedings could result in substantial costs to and diversion of effort by us, and may have a material adverse impact on us. In addition, we cannot assure you that our efforts to maintain or defend our patents will be successful.

.


Patent Enforcement


On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc. and Philip Morris Products S.A. in the U.S. District Court (“District Court”) for the Northern District of Georgia (the “Complaint”). The lawsuit alleged infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS™.” Philip Morris claims that it is currently approaching 14 million users of its IQOS® product and has reportedly invested over $3 billion in their smokeless tobacco products. On December 3, 2021, the District Court effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. On December 14, 2021, the Company filed an appeal of the District Court’s dismissal of the Company’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A.

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On April 12, 2023, the U.S. Court of Appeals for the Federal Circuit ruled in favor of HCMC believeson two separate appeals it had filed in its patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. pending in the district court for the Northern District of Georgia.

On September 26, 2023, HCMC filed a patent infringement lawsuit against R.J. Reynolds Vapor Company (“RJR”) in the U.S. District Court committed legal error by dismissing its complaint for patent infringement and also by denying the Company’s motion to amend its pleading.


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Middle District of North Carolina in connection with HCMC’s assertions that RJR’s Vuse electronic cigarette infringes one of HCMC’s patents.

Regulations


Since a 2010 U.S. Court of Appeals decision, the Food and Drug Administration (“FDA”) is permitted to regulate electronic cigarettes as “tobacco products” under the Family Smoking Prevention and the Tobacco Control Act. Under this decision, the FDA is not permitted to regulate electronic cigarettes as “drugs” or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed for therapeutic purposes. This is contrary to anti-smoking devices like nicotine patches, which undergo more extensive FDA regulation. Because the Company does not market its electronic cigarettes for therapeutic purposes, the Company’s electronic cigarettes are subject to being classified as “tobacco products” under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and packaging of tobacco products, although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero.


On September 9, 2020 the FDA began enforcing rules that extended its regulatory authority to electronic cigarettes and certain other tobacco products under the Tobacco Control Act. The rules required that electronic cigarette and e-liquid manufacturers (i) register with the FDA and report electronic cigarette products and ingredient listings; (ii) market new electronic cigarette products only after FDA review; (iii) only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the electronic cigarette product will benefit public health as a whole; (iv) not distribute free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 21; (vi) include a health warning; and (vii) not sell electronic cigarettes in vending machines, unless in a facility that never admits youth. It is not known how long finalizing and implementing this regulatory process may take. Accordingly, the Company has responded by beginning to take the necessary steps to ensure compliance.


In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by the FDA under the Tobacco Control Act. Costs, however, could be substantial and could have a material adverse effect on the Company’s business, results of operations and financial condition. In addition, failure to comply with the Tobacco Control Act and with FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on the Company’s business, financial condition and results of operations and ability to market and sell the Company’s products. At present, it is difficult to predict whether the Tobacco Control Act will impact the Company to a greater degree than competitors in the industry, thus affecting the Company’s competitive position.


State and local governments currently legislate and regulate tobacco products, including what is considered a tobacco product, how tobacco taxes are calculated and collected, to whom and by whom tobacco products can be sold and where tobacco products may or may not be smoked. State and local regulation of the e-cigarette market and the usage of e-cigarettes is beginning to accelerate.


As local regulations expand, vaporizers and electronic cigarettes may lose their appeal as an alternative to cigarettes, which may have the effect of reducing the demand for the Company’s products and as a result have a material adverse effect on the Company’s business, results of operations and financial condition.

At present, neither the Prevent All Cigarette Trafficking Act (which prohibits the use of the U.S. Postal Service to mail most tobacco products, which would require individuals and businesses that make interstate sales of cigarettes or smokeless tobacco to comply with state tax laws) nor the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed) apply to electronic cigarettes. The application of either or both of these federal laws to vaporizers and electronic cigarettes would have a material adverse effect on the Company’s business, results of operations and financial condition.


On July 1, 2015, the FDA published a document entitled “Advanced notice of proposed rulemaking” or the Advance. Through the Advance, the FDA solicited public comments on whether it should issue rules with respect to nicotine exposure warning and child-resistant packaging for e-liquids containing nicotine. Following public comment, the FDA may issue proposed rules in furtherance of the purposes outlined in the Advance and ultimately pass the rules as proposed or in modified form. We cannot predict whether rules will be passed or if they will have a material adverse effect on our future results of operations and financial conditions.

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14


The Company expects that the tobacco industry will experience significant regulatory developments over the next few years, driven principally by the World Health Organization’s FCTC. The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:


●●the levying of substantial and increasing tax and duty charges;

●●restrictions or bans on advertising, marketing and sponsorship;

●●the display of larger health warnings, graphic health warnings and other labelling requirements;

●●restrictions on packaging design, including the use of colors and generic packaging;

●●restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;

●●requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents’ levels;

●●requirements regarding testing, disclosure and use of tobacco product ingredients;

●●increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;

●●elimination of duty free allowances for travelers; and

●●encouraging litigation against tobacco companies.

If Vaporizers,vaporizers, and electronic cigarettes, or e-liquids, are subject to one or more significant regulatory initiates enacted under the FCTC, the Company’s business, results of operations and financial condition could be materially and adversely affected.


Seasonality


Our business is active throughout the calendar year and does not experience significant fluctuation caused by seasonal changes in consumer purchasing.


Insurance and Risk Management


We use a combination of insurance and self-insurance to cover workers’ compensation, general liability, product liability, director and officers’ liability, employment practices liability, associate healthcare benefits and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements and providers on an ongoing basis.


Information Technology Systems


We have made significant investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting automation, reporting and financial systems.

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Segment Information


We have two reporting segments, natural and organic retail stores (“Grocery”) and vapor products (“Vapor”), through which we conduct all of our business.


The Company has included the results of the Healthy Choice Wellness Centers and Healthy Choice Wellness II, LLC under the grocery segment due to its salesoperations being de minimis.


Going Concern and Liquidity


Management’s Plan

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the continuation of the Company as a going concern for the next twelve months from the issuance of this Form 10-K 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 consolidated 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 December 31, 2022,2023, cash totaled approximately $22.9$5.1 million. The Company anticipates that its current cash and cash generated from operations will not be sufficient to meet the projected operating expenses for the foreseeable future through at least twelve months from the issuance of these consolidated financial statements.


In order to improve the Company’s liquidity position, management’s plans include significantly reducing the use of outside consultants, which would result in over $1,000,000 in general and administrative expenses savings based on the actual spend which occurred during the year ended December 31, 2023. The Company contracted a third party consultant, whose expertise is streamlining operations, to identify areas of improvement and cost savings. The Company will implement the consultant’s recommendation in anticipation of realizing savings and achieving profitability. The Company plans on continuing to expand its Grocery segment via acquisition which will help achieve profitability. Also, the Company is formulating plans to raise capital from outside investors, as it has done in the past, to fund any operating losses and also provide capital for further business acquisitions. The result of the capital raise is to improve the Company’s operating and financial performance. The success of these plans is dependent upon various factors, foremost being the ability to reduce outside consulting expenses and the ability to secure additional capital from outside investors. There can be no assurance that such plans will be successful.

Item 1A. Risk Factors.


Not applicable to smaller reporting companies.


Item 1B. Unresolved Staff Comments.

None

Item 1C. Cybersecurity

We believe cybersecurity is critical importance to our success. We are susceptible to a number of significant and persistent cybersecurity threats, including those common to most industries as well as those we face as a retailer, operating in an industry characterized by a high volume of customer transactions and collection of sensitive data. These threats, which are constantly evolving, include data breaches, ransomware, and phishing attacks. We, and our vendors and suppliers, regularly face attempts by malicious actors to breach our security and compromise our information technology systems. A cybersecurity incident impacting us or any vendor or supplier could significantly disrupt our operations and result in damage to our reputation, costly litigation and/or government enforcement action. Accordingly, we are committed to maintaining robust cybersecurity and data protection and continuously evaluate the impact of cybersecurity threats, considering both immediate and potential long-term effects of these threats on our business strategy, operations, and financial condition.

Under the oversight of our Board of Directors, our management has established comprehensive processes for identifying, assessing and managing material risks from cybersecurity threats, and these processes are integrated into our overall enterprise risk management program. Our approach is proactive and adaptive, featuring regular security assessments, third-party audits, team member training, and continuous improvement of our cybersecurity infrastructure. We work to align our practices with industry best practices and regulatory standards. Our processes include detailed response procedures to be followed in the event of a cybersecurity incident, which outline steps to be followed from detection to assessment to notification and recovery, including internal notifications to management, the risk committee and the Board, as appropriate.

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None

Members of management, including our Chief Operating Officer, provide the Board updates on cybersecurity risk matters on a quarterly basis and more frequently if circumstances dictate. In these updates, members of the Board apprised of cybersecurity incidents that are deemed to have had a moderate or higher impact even if immaterial to us. In addition, management regularly discusses with among themselves the risks related to cybersecurity and critical systems in order to provide input on the appropriate level of risk for our company and reviews management’s strategies for adequately mitigating and managing the identified risks. Management regularly update our full Board with respect to cybersecurity matters.

Our Chief Operating Officer is primarily responsible for managing material risks from cybersecurity threats, and is supported by third party cybersecurity specialists. Management participates in periodic training and education on cybersecurity related topics. We engage specialized cybersecurity consultants and leverage third-party expertise to bolster our cybersecurity defenses. Our enterprise risk management program is designed to identify, prioritize and assess a broad range of risks, including risks from cybersecurity threats, that may affect our ability to execute our corporate strategy and fulfill our business objectives.

The following is a list of measures that were implemented as part of our increased focus on cybersecurity:

●Complete endpoint protection - All endpoints have been covered by an enhanced endpoint protection agent.
●Cloud infrastructure - Critical infrastructure started moving to the cloud and protected by enhanced anti-virus and recurring backup policies.
●Email services have been put through a rigorous intelligent phishing and spam filter to prevent attacks

In addition, our third-party vendors and service providers play a role in our cybersecurity. These third parties are integral to our operations but pose cybersecurity challenges due to their access to our data and our reliance for various aspects of our operations, including our supply chain. We conduct due diligence before onboarding new vendors and maintain ongoing evaluations to ensure compliance with our security standards.

As of the date of this report, no cybersecurity incidents have had, either individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.

Item 2. Properties.


The Company operates its business from numerous facilities in Florida, Virginia, New York and New Jersey. These leased facilities include our headquarters location, warehouse and retail stores.


Grocery Segment. As of December 31, 2022,2023, our Grocery segment had 1415 retail stores in Florida, New York, and New Jersey, and Virginia which aggregate approximately 102,000122,000 square feet, 1314 stores are leased by our grocery segment. The Company ownowns the property in Saugerties store in New York. The Company believes the properties used by our grocery segment are in good operating condition and are suitable for the conduct of its business.


Our headquarters and warehouse are located in Hollywood, Florida which aggregates approximately 10,000 square feet.


Item 3. Legal Proceedings.


No response is required under Item 103 of Regulation S-K.


Item 4. Mine Safety Disclosures.

None.

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None.

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PART II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


Our common stock is currently listed on the OTC Pink marketplace under the symbol “HCMC”.


As of March 30, 2023,27, 2024, there were approximately 1,400 stockholders of record for our common stock. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.


As of March 30, 2023,27, 2024, the last reported sale price of our common stock on the OTC Pink Marketplace was $0.0001 per share.


We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of our Board and will depend on then existing conditions, including our operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors our Board may deem relevant.


On August 18, 2022, the Company entered into a Securities Purchase Agreement pursuant to which the Company sold and issued 14,722 shares of its Series E Redeemable Convertible Preferred Stock to institutional investors for $1,000 per share or an aggregate subscription of $13.25 million. The number of shares issued to each participant is based on subscription amount multiplied by conversion rate of 1.1111. The Company also incurred offering costs of approximately $410,000, which covers legal and consulting fees.



As of March 27, 2024, 12,026 shares of Series E Redeemable Convertible Preferred Stock were redeemed, and 1,585 shares were converted into common stock.

Item 6. Selected Financial Data.


Not required for smaller reporting companies.


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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included elsewhere in this report. “Management’s Discussion and Analysis of Financial Condition” and “Results of Operations” contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.


Cautionary Note Regarding Forward Looking Statements


This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy, plans and objectives of management for future operations, are forward-looking statements.


Forward-looking statements contained in this report include:


●

 Our liquidity;


●Our liquidity;

 Opportunities for our business; and


●Opportunities for our business; and

 

●Growth of our business.

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The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.


The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the Risk Factors contained herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the Risk Factors below.


Factors Affecting Our Performance


We believe the following factors affect our performance:


Retail: We believe the operating performance of our retail stores will affect our revenue and financial performance. The Company has four natural and organic groceries and dietary supplement stores located in Florida, as well as ten located in New York and New Jersey. The Company has closed its last 4 remaining retail vape stores during the calendar year ended December 31, 2022, as management hashad shifted its retail sales focus to the wholesale and online channel. The adverse industry trends and increasing federal and state regulations that, if implemented, may negatively impact future wholesale and online operations in vapor segment.


Increased Competition: Food retail is a large and competitive industry. Our competition varies and includes national, regional, and local conventional supermarkets, national superstores, alternative food retailers, natural foods stores, smaller specialty stores, and farmers’ markets. In addition, we compete with restaurants and other dining options in the food-at-home and food-away-from-home markets. The opening and closing of competitive stores, as well as restaurants and other dining options, in regions where we operate will affect our results. In addition, changing consumer preferences with respect to food choices and to dining out or at home can impact us. We also expect increased product supply and downward pressure on prices to continue and impact our operating results in the future.


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Our Response to the COVID-19 Pandemic: We are proud to provide our guests with high quality, fresh foods and restaurant quality meals, delivered with impeccable service in an exceptionally clean and well-stocked store. With the ongoing COVID-19 pandemic, we continue to carefully monitor and adjust our safety protocols while following public health guideline and local ordinances. We have maintained many of the protocols established at the beginning of the pandemic to keep our team members and guests safe. The COVID-19 pandemic has presented many risks and challenges that we must manage. While we have experienced many challenges, including but not limited to, product shortages, staffing difficulties, and evolving customer shopping behaviors, our focus remains on both offering our customers a high quality service experience and supporting our essential front-line team members. Though we have successfully managed these challenges to date, our operations and financial condition could still be negatively affected by the COVID-19 pandemic and future developments, which are highly uncertain and cannot be predicted.


Results of Operations


The following table sets forth our Consolidated Statements of Operations for the years ended December 31, 20222023 and 20212022 which is used in the following discussions of our results of operations:

  For the Year Ended December 31,  2023 to 2022 
  2023  2022  Change $ 
SALES:         
Vapor sales, net $617  $257,363  $(256,746)
Grocery sales, net  55,689,793   29,009,640   26,680,153 
Total Sales  55,690,410   29,267,003   26,423,407 
Cost of sales vapor  787   112,880   (112,093)
Cost of sales grocery  35,341,569   18,929,905   16,411,664 
GROSS PROFIT  20,348,054   10,224,218   10,123,836 
             
OPERATING EXPENSES            
Selling, general and administrative  32,219,733   18,877,302   13,342,431 
Impairment of goodwill  6,104,000   -   6,104,000 
TOTAL OPERATING EXPENSES  38,323,733   18,877,302   19,446,431 
             
LOSS FROM OPERATIONS  (17,975,679)  (8,653,084)  (9,322,595)
             
OTHER INCOME (EXPENSES):            
Change in contingent consideration  774,900   333,100   441,800 
Other (expenses) income, net  (1,485,612)  913,092   (2,398,704)
Interest income (expense), net  211,996   202,653   9,343 
Loss on investment  (8,485)  (13,372)  4,887 
Total other income (expense), net  (507,201)  1,435,473   (1,942,674)
             
NET LOSS $(18,482,880) $(7,217,611) $(11,265,269)

17

 For the Year Ended December 31,  2022 to 2021 
  2022  2021  Change $ 
SALES:         
Vapor sales, net $257,363  $2,084,813  $(1,827,450)
Grocery sales, net  29,009,640   11,235,041   17,774,599 
Total Sales  29,267,003   13,319,854   15,947,149 
Cost of sales vapor  112,880   839,599   (726,719)
Cost of sales grocery  18,929,905   7,187,701   11,742,204 
GROSS PROFIT  10,224,218   5,292,554   4,931,664 
             
OPERATING EXPENSES  18,877,302   10,033,048   8,844,254 
LOSS FROM OPERATIONS  (8,653,084)  (4,740,494)  (3,912,590)
             
OTHER INCOME (EXPENSES):            
Gain on debt settlements  -   767,930   (767,930)
Other income (expenses), net  1,246,192   (26)  1,246,218 
Interest income (expense), net  202,653   (65,281)  267,934 
(loss) gain on investment  (13,372)  412   (13,784)
Total other income (expense), net  1,435,473   703,035   732,438 
             
NET LOSS $(7,217,611) $(4,037,459) $(3,180,152)
             

Net vapor sales decreased $1.8$0.3 million to $0.3 million$0.6 thousand for the year ended December 31, 20222023 as compared to $2.1$0.3 million for the same period in 2021.2022. The decrease in sales was primarily due to closing all our retail vape store,stores throughout 2022, as management has shifted its retail sales focus to the wholesale and online channel. The sales for 2023 were significantly impacted by technical issues associated with the processing of credit card payments on the Q-Cup.com website and the inability to bring new products to market via distribution. Net grocery sales increased $17.8$26.6 million to $29.0$55.7 million for the year ended December 31, 20222023 as compared to $11.2$29.0 million for the same period in 2021.2022. The $18.2$27.6 million increase in grocery sales was primarily due toa result of a full year operations for the year ended December 31, 2023 of Mother Earth’s Storehouse acquired in February 2022, Green’s Natural Foods acquired in October 2022 and the acquisition of Mother Earth's Storehouse and Green's Natural Foods,Ellwood Thompson’s in October 2023, offset by a decrease in same-store sales of $0.4$1.0 million.


Vapor cost of goods sold for the year ended December 31, 20222023 and 20212022 were $0.1$0.01 million and $0.8$0.1 million, respectively, a decrease of $0.7$0.1 million. The decrease in cost of goods sold was primarily due to closing all of our retail vape stores throughout 2022, as management has shifted its retail sales focus to build the wholesale and online channel. Grocery store cost of goods sold for the year ended December 31, 20222023 and 20212022 were $18.9$35.3 million and $7.2$18.9 million, respectively, an increase of $12.1$17.5 million was primarily due toa result of full year operations in 2023 of Mother Earth’s Storehouse acquired in February 2022, Green’s Natural Foods acquired in October 2022 and the acquisition of Mother Earth's Storehouse and Green's Natural Foods stores,Ellwood Thompson’s in October 2023, offset by a decrease in same-store cost of goods sold of $0.4$1.1 million.


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Total operatingselling, general and administrative expenses increased $8.8$13.3 million tofrom $18.9 million for the year ended December 31, 2022.2022 to $32.2 million for the year ended December 31, 2023. The increase of $6.0$11.3 million is due towas a result of full year operations for the year ended December 31, 2023 of Mother Earth’s Storehouse acquired in February 2022, Green’s Natural Foods acquired in October 2022 as well as the acquisition of Mother Earth's Storehouse and Green's Natural Foods stores, and theEllwood Thompson’s in October 2023. The remaining increase was primarily due to an increase in stock compensation of $3.4 million, offset by $0.8 million decrease in professional fees, of $1.7 million, related largely to the patent infringement lawsuit, coupled with a decrease in headquarter payroll and payroll benefits of $0.8$0.6 million.


Net other income

The Company had an impairment of $1.4$6.1 million for the year ended December 31, 2023. The Company experienced recurring losses coupled with the reduction in same store revenue, a highly competitive industry and certain operational costs that have impacted our expectations such that future growth and profitability is lower than previous estimates. Furthermore, during the fourth quarter of 2023, the Company operated with negative working capital which, although not a determinant on its own, when combined with the other factors indicated that the Company’s goodwill of $6.1 million was determined to be impaired for the year ended December 31, 2023.

Total other (expenses) income, net of $0.5 million for the year ended December 31, 2023 includes $0.8 million of other income related to the change in fair value of the contingent consideration with Green’s Natural Foods seller’s earn-out, interest income of $0.2 million, offset by $0.01 million loss on investment, and $1.5 million provision for probable and estimable legal matter issue. Net other income of $1.5 million for the year ended December 31, 2022 includes a gain on employee retention tax credit of $0.9 million, change in fair value of the contingent consideration with Green’s Natural Foods seller’s earn-out of $0.3 million, and interest income of $0.2 million, offset by $0.01 million loss on investment. Net other income of $0.7

 million for the year ended December 31, 2021

includes $0.8 million gain on debt settlement, offset by $ 0.07 million interest expense.


Liquidity and Capital Resources

  For the year ended December 31, 
  2023  2022 
Net cash (used in) provided by:      
Operating activities $(4,739,136) $(3,866,082)
Investing activities  (768,555)  (10,726,409)
Financing activities  (13,548,115)  12,786,211 
  $(19,055,806) $(1,806,280)

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 For the year ended December 31, 
  2022  2021 
Net cash provided by (used in):      
Operating activities $(3,866,082) $(3,528,205)
Investing activities  (10,726,409)  (87,322)
Financing activities  12,786,211   27,186,456 
  $(1,806,280) $23,570,929 

Our net cash used in operating activities of $3.9$4.7 million for the year ended December 31, 2023 resulted from our net loss of $18.5 million and a net cash usage of $1.9 million from changes in operating assets and liabilities, offset by a non-cash adjustments of $15.6 million. Our net cash used in continuing operating activities of $3.8 million for the year ended December 31, 2022 resulted from our net loss of $7.2 million and a net cash usage of $0.2 million from changes in operating assets and liabilities, offset by a non-cash adjustments of $3.5 million. Our

The net cash used in continuing operatinginvesting activities of $3.5$0.8 million for the year ended December 31, 20212023 resulted from our net loss from continuing operationsthe acquisition of $4.0 million, offset byEllwood Thompson’s, the collection of a net cash usagenote receivable, and purchases of $0.5 million from changes in operating assetsa patent and liabilitiesproperty and a non-cash adjustments of $0.9 million.


equipment. The net cash used in investing activities of $10.7 million for the year ended December 31, 2022 resulted from the collection of a note receivable, the acquisition of new businesses and purchases of a patent and property and equipmentequipment..

The net cash provided by investingused in financing activities of $0.1$13.5 million for the year ended December 31, 2021 resulted from2023 is due to Series E Preferred Stock redemptions and exercises, payment for deferred offering cost related with the issuancespin off, and collection of a note receivable, and purchases of a patent and property and equipment.


principle payment on loan payable. The net cash provided by financing activities of $12.8 million for the year ended December 31, 2022 is due to proceeds received from Securities Purchase Agreement of $12.8 million, partially offset by a principal payment of $0.09 million on promissory note. The net cash used in financing activities of $27.2 million for the year ended December 31, 2021 is due to proceeds received from the Rights Offering of $24.3 million and a Securities Purchase Agreement of $5.0 million, partially offset by a principal payment of $2.0 million on the line of credit.

At December 31, 20222023 and December 31, 2021,2022, we did not have any material financial guarantees or other contractual commitments with trade 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 are concentrated in threeone large financial institutionsinstitution and are generally in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. The Company has not experienced any losses on its cash and cash equivalents. The following table presents the Company’s cash position as of December 31, 20222023 and December 31, 2021.


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 December 31, 2022  December 31, 2021 
       
Cash $22,911,892  $26,496,404 
Total assets $55,255,030  $34,443,487 
Percentage of total assets  41.5%  76.9%

The Company reported net loss2022.

  

December 31,

2023

  

December 31,

2022

 
       
Cash $5,081,086  $22,911,892 
Total assets $30,969,579  $55,255,030 
Percentage of total assets  16.41%  41.5%

As of approximately $7.2 million for the year ended December 31, 2022. The2023, the Company also had positivecash of $5.1 million and negative working capital of $20.4$0.5 million. The Company has incurred recurring net losses and operations have not provided cash flows. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to satisfy business obligations, and to continue as a going concern. We believe that current cash on hand and cash flow from operations will not be sufficient to fund our working capital and other cash requirements for at leastover the next twelve months.


Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements other than operating leases for retail locations, equipment, and vehicles.


Seasonality


We do not consider our business to be seasonal.

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Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S.(U.S. GAAP) requires us to make estimates and assumptions. Our significant accounting policies are described inassumptions that affect the Notes to Consolidated Financial Statements. Certainreported amounts of these policies requireassets and liabilities and disclosures of contingent assets and liabilities at the application of subjective or complex judgments, often as a resultdate of the needfinancial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to make estimates about the effectoutcome of matters that are inherently uncertain.future conditions and circumstances. These estimates and assumptions are based on historical experience, changesinclude useful lives and impairment of long-lived assets, goodwill, deferred taxes and related valuation allowances, and the valuation of the assets and liabilities acquired in business combinations. Changes in the business environment, and other factors that we believestatus of certain facts or circumstances could result in material changes to be reasonable under the circumstances. Different estimates that could have been appliedused in the current period or changes inpreparation of the accountingfinancial statements and actual results could differ from the estimates that are reasonably likely can result in a material impact on our financial condition and operating results in the current and future periods. We review the development, selection and disclosure of these critical accounting estimates with the Audit Committee on an annual basis.assumptions.


The following discussion, which should be read in conjunction with the descriptions in the Notes to Consolidated Financial Statements, is furnished for additional insight into certain accounting estimates that we consider to be critical.

 

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized:

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●●Identification of the contract, or contracts, with a customer;

●●Identification of the performance obligations in the contract;

●●Determination of the transaction price;

●●Allocation of the transaction price to the performance obligations in the contract; and

●●Recognition of revenue when, or as, the Company satisfies a performance obligation.

Impairment of Long-Lived Assets

We review long-lived assets for impairment including intangible assets with determinable useful lives whenever events or changes in circumstances indicate that the carrying value of the corresponding asset group may not be realizable. The Company estimated future undiscounted cash flows associated with the asset group are compared to the asset group’s carrying amount to determine if an impairment of such asset is necessary. This requires us to make long-term forecasts of the future revenues and costs related to the assets groups subject to review. Forecasts require assumptions about demand for our products and future market conditions. Estimating future cash flows requires significant judgment, and our projections may vary from cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be reflected in operating income in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our long-lived assets and other intangibles and periodically review these estimates to determine whether these lives are appropriate.


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Goodwill

Goodwill is the excess of consideration paid for an acquired entity over the fair value of the amounts assigned to assets acquired, including other identifiable intangible assets, and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the company hires third party valuation firm to perform valuation and assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.

Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is met, then the company may apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The company determines fair value through multiple valuation techniques and weights the results accordingly. The company is required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of its reporting units. The company has elected to perform its annual goodwill impairment review on September 30 of each year or more often if deemed necessary.

Business Combinations


The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations.


Deferred Taxes and Valuation Allowance

We account for income taxes pursuant to the asset and liability method of accounting for income taxes pursuant to FASB ASC740, “Income Taxes.” Deferred tax assets and liabilities are recognized for taxable temporary differences and operating loss carry forwards. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Non-GAAP Financial Measures


The following discussion and analysis contains a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (GAAP). Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternative to, net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future financial results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.


Management believes stockholders benefit from referring to the Adjusted EBITDA in planning, forecasting, and analyzing future periods. Management uses this non-GAAP financial measure in evaluating its financial and operational decision making and as a means of evaluating period to period comparison.


We define Adjusted

EBITDA, as net loss from operations adjusted for non-cash charges foror earnings before interest, taxes, depreciation, and amortization, and stock compensation.is an alternate measure of profitability to net income. Management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of significant non-cash and non-recurring charges that effect comparability between reporting periods. We define Adjusted EBITDA as net loss adjusted for non-cash charges for depreciation and amortization, impairment of goodwill, stock compensation, change in contingent consideration, also adjusted for non-recurring other expense (income), net, loss on investment, and interest income. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items.


We have included a reconciliation of our non-GAAP financial measure to net loss from operations as calculated in accordance with GAAP. We believe that providing the non-GAAP financial measure, together with the reconciliation to GAAP, helps investors make comparisons between the Company and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to specific definitions being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable rules of the Securities and Exchange Commission.


 2022  2021 
Reconciliation from loss from operations to adjusted EBITDA:      
Operating loss $(8,653,084) $(4,740,494)
Depreciation and amortization  1,061,615   497,408 
Stock-based compensation expense  72,222   34,375 
Adjusted EBITDA $(7,519,247) $(4,208,711)

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  2023  2022 
Reconciliation from net loss to adjusted EBITDA:      
Operating loss $(18,482,880) $(7,217,611)
Interest expense  205,449   35,730 
Depreciation and amortization  1,492,261   1,061,615 
EBITDA  (16,785,170)  (6,120,266)
Stock-based compensation expense  3,430,250   72,222 
Impairment of goodwill  6,104,000   - 
Change in contingent consideration  (774,900)  (333,100)
Loss on investment  8,485   13,372 
Other expense (income), net  1,485,612   (913,092)
Interest income  (417,445)  (238,383)
Adjusted EBITDA $(6,949,168) $(7,519,247)

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.


Not applicable to smaller reporting companies.


Item 8. Financial Statements and Supplementary Data.


See pages F-1 through F-23.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.


None.


Item 9A. Controls and Procedures.


We are required to report under Section 404(a) of Sarbanes-Oxley regarding the effectiveness of our internal control over financial reporting.


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 during the year ended December 31, 20222023 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.

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Inherent Limitations of Internal Controls over Financial Reporting. The Company’s internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.


Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ending December 31, 20222023 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.


Management’s Annual Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its internal control over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 20222023 and noted the material weaknesses as follows:


23


●●Failure to have properly documented and designed disclosure controls and procedures and testing of the operating effectiveness of our internal control over financial reporting.

●●Failure to perform periodic and year-end inventory observations in a timely manner and adequate controls to sufficiently perform required rollback procedures of inventory counts to the year-end.

●●Weakness around our purchase orders and inventory procedures, inclusive of year-end physical inventory observation procedures as well as physical count procedures.

●●Segregation of duties due to lack of personnel.

●Information technology generalFailure to follow accounts payable policies and procedures for vendor information updates.

●The Company had ineffective design, implementation and, operation of controls (ITGCs) were not designed effectively to ensure that appropriateover logical access, security controls,program change management, and data center and network operations ITGCs were in place. These deficiencies constitute a material weakness as of December 31, 2022.vendor management controls. The Company controls on IT should have included the following:


○appropriate restrictions that would adequately prevent users from gaining inappropriate access to the financially relevant systems.
○IT program and data changes affecting the Company’s financial IT applications and underlying accounting records, should be identified, tested, authorized and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate.
○Obtaining and reviewing key third party service provider SOC reports.

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 December 31, 20222023 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).


Remediation Efforts


Following this assessment and during the twelve months ended December 31, 2022,2023, we have undertaken an action plan to strengthen internal controls and procedures:


●●Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong internal control backgrounds and inventory expertise.

●●Increasing 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. The Company implemented an open to buy program by comparing purchases with sales to better control overall inventory purchases.

●●
Establishing policies and procedures in the IT area to mitigate data breach, unauthorized access and address segregation of duties.duties, as well as review key third party service provider SOC reports.

●Using business intelligence to combine business analytics, data tools and infrastructure to help the Company quickly identify the issues in POS system and facilitate internal control over financial reporting. Developing dashboards for operation to monitor the margin at store level, department level and sku level.
●Providing sufficient training to accounts payable associates and enforcing accounts payable policies and procedures.

We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.


Item 9B. Other Information.

None.

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None.
24


PART III


Item 10. Directors, Executive Officers and Corporate Governance


Directors and Executive Officers


The following table sets forth information regarding our executive officers and directors as of December 31, 2022:


2023:

NameAgePosition
Executive Officers:
Jeffrey Holman56Chief Executive Officer, Chairman and Director
John A. Ollet6061Chief Financial Officer
Christopher Santi5253President and Chief Operating Officer
Non-Employee Directors:
Clifford J. Friedman6162Director
Dr. Anthony Panariello6364Director

Executive Officers


Jeffrey Holman has been our Chairman of the Board and Chief Executive Officer since April 2014. From February 2013 until March 4, 2015, Mr. Holman serviced as our President. Mr. Holman has been a member of our Board since May 2013 and has served as a member of the Board of Directors of our subsidiary Smoke Anywhere, USA since its inception on March 24, 2008. Since 1998, Mr. Holman has been the President of Jeffrey E. Holman & Associates, P.A., a South Florida based law firm. He has also been a Partner in the law firm of Holman, Cohen & Valencia since 2000. Mr. Holman was selected as a director for his business and legal experience. In addition, as one of the founders of Smoke Anywhere, Mr. Holman possesses an in-depth understanding of the challenges, risks and characteristics unique to our industry.


Christopher Santi has been our Chief Operating Officer since December 12, 2012 and has also served as the President since April 11, 2016. Previously, Mr. Santi served as Director of Operations of the Company beginning in October 2011. Mr. Santi served as the National Sales Manager of Collages.net from November 2007 to October 2011.


John A. Ollet has been our Chief Financial Officer since December 12, 2016. Mr. Ollet previously served as Executive Vice President-Finance for Systemax, Inc. (NYSE:SYX) from 2006 to 2016. His prior chief financial officer experience also includes serving as Vice President and Chief Financial Officer of Arrow Cargo Holdings, Inc., an airline logistics company, and VP Finance /CFO - The Americas - Cargo Division, KLM Royal Dutch Airlines, an airline company. He also previously served as Vice President Finance/Administration at Sterling-Starr Maritime Group, Inc. and served on the audit staff of Arthur Andersen & Co. Mr. Ollet received a bachelor’s degree in Finance/Economics and a master’s degree in business administration from Florida International University. Mr. Ollet is a Certified Public Accountant.


Non-Employee Directors


Anthony Panariello, M.D. has been a director since April 15, 2016. Dr. Panariello is a Board Certified in Pulmonology and Internal Medicine in Florida and has been in private practice since 1996, serving as an attending physician at a number of hospitals. Dr. Panariello is a member of the College of Physicians and the American College of Chest Physicians. Additionally, Dr. Panariello currently serves as a Lieutenant Commander in the Medical Corps of the United States Navy Reserve. Dr. Panariello received his Bachelor of Science from the State University of New York at Stony Brook and his medical degree from the Autonomous University of Guadalajara.


Clifford J. Friedman has been a director since April 15, 2016. Mr. Friedman is a certified public accountant in Coral Springs, Florida and manages his own public accounting, tax and consulting practice since 2001. From 1992 to 2000, Mr. Friedman was Vice President - Finance and Administration of the Box Worldwide, Inc., a Viacom company. He received an M.B.A. from Nova Southeastern University and his B.B.A. from Pace University.

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25

Corporate Governance


Board Responsibilities


The Board oversees, counsels, and directs management in the long-term interest of the Company and its stockholders. The Board’s responsibilities include establishing broad corporate policies and reviewing the overall performance of the Company. The Board is not, however, involved in the operating details on a day-to-day basis.


Board Committees and Charters


The Board and its Committees meet throughout the year and act by written consent from time-to-time as appropriate. The Board delegates various responsibilities and authority to different Board Committees. Committees regularly report on their activities and actions to the Board.


The Board currently has and appoints the members of: The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each of these committees have a written charter which can be found on our corporate website at www.healthiercmc.com/committee-charters/..


The following table identifies the independent and non-independent current Board and committee members:


NameIndependentAuditCompensationNominating And Corporate Governance
Jeffrey Holman
Dr. Anthony PanarielloXXXX
Clifford J. FriedmanXXXX

Director Independence


Our Board has determined that Clifford J. Friedman and Dr. Anthony Panariello are independent in accordance with standards under the OTC Pink Marketplace. Our Board determined that as a result of being an executive officer, Messrs. Jeffrey Holman is not independent under the OTC Pink Marketplace Bulletin Boards. Our Board has also determined that Clifford J. Friedman and Dr. Anthony Panariello are independent under the OTC Pink Marketplace independence standards for Audit and Compensation Committee members.


Committees of the Board


Audit Committee


The Audit Committee, which currently consists of Clifford J. Friedman (chair) and Dr. Anthony Panariello, reviews the Company’s financial reporting process on behalf of the Board and administers our engagement of the independent registered public accounting firm. The Audit Committee approves all audit and non-audit services, and reviews the independence of our independent registered public accounting firm.


Audit Committee Financial Expert


Our Board has determined that Clifford J. Friedman is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.


Compensation Committee


The function of the Compensation Committee is to determine the compensation of our executive officers. The Compensation Committee has the power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations with respect to stockholder proposals related to compensation matters. Additionally, the Compensation Committee is responsible for administering the Company’s equity compensation plans including the Company’s 2015 Equity Incentive Plan, as amended.


26

The members of the Compensation Committee are all independent directors within the meaning of applicable Nasdaq Listing Rules and all of the members are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act.

24

Nominating and Corporate Governance Committee


The responsibilities of the Nominating and Corporate Governance Committee include the identification of individuals qualified to become Board members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of the Board, establish procedures for the nomination process including procedures and the oversight of the evaluations of the Board and management. The Nominating and Corporate Governance Committee has not established a policy with regard to the consideration of any candidates recommended by stockholders since no stockholders have made any recommendations. If we receive any stockholder recommended nominations, the Nominating Committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith.


Compensation Committee Interlocks and Insider Participation


None of the members of our compensation committee has ever been an officer or employee of the Company. None of our executive officers serve, or have served during the last fiscal year, as a member of our compensation committee or other Board committee performing equivalent functions of any entity that has one or more executive officers serving on our Board or on our compensation committee.


Board Assessment of Risk


The Board is actively involved in the oversight of risks that could affect the Company. This oversight is conducted primarily through the Audit Committee, but the full Board has retained responsibility for general oversight of risks. The Audit Committee considers and reviews with our independent public accounting firm and management the adequacy of our internal controls, including the processes for identifying significant risks and exposures, and elicits recommendations for the improvements of such procedures where desirable. In addition to the Audit Committee’s role, the full Board is involved in oversight and administration of risk and risk management practices. Members of our senior management have day-to-day responsibility for risk management and establishing risk management practices, and members of management are expected to report matters relating specifically to the Audit Committee directly thereto, and to report all other matters directly to the Board as a whole. Members of our senior management have an open line of communication to the Board and have the discretion to raise issues from time-to-time in any manner they deem appropriate, and management’s reporting on issues relating to risk management typically occurs through direct communication with directors or committee members as matters requiring attention arise. Members of our senior management regularly attend portions of the Board’s meetings, and often discuss the risks related to our business.


Code of Ethics


The Company has a code of ethics, “Business Conduct: “Code of Conduct and Policy,” that applies to all of the Company’s employees, including its principal executive officer, principal financial officer and principal accounting officer, and the Board. A copy of this code is available on the Company’s website at http://www.healthiercmc.com/code-of-conduct. The Company intends to disclose any changes in or waivers from its code of ethics by posting such information on its website or by filing a Current Report on Form 8-K.


27

Stockholder Communications


Although we do not have a formal policy regarding communications with our Board, stockholders may communicate with the Board by writing to us at Healthier Choices Management Corp., 3800 N 28th Way, Hollywood, FL 33020, Attention: Corporate Secretary, or by facsimile (305) 600-5004. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

25

Section 16(a) Beneficial Ownership Reporting Compliance


Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and the other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC rules to furnish us with copies of all Section 16(a) reports they file.


Based solely on a review of the reports furnished to us, or written representations from reporting persons that all reportable transactions were reported and that no Form 5s were required, we believe that during 20222023 our officers, directors and greater than 10% owners timely filed all reports they were required to file under Section 16(a).


ITEM 11. Executive Compensation


The following information is related to the compensation paid, distributed or accrued by us for fiscal 20222023 to all Chief Executive Officers (principal executive officers) serving during the last fiscal year and the other most highly compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000. We refer to these individuals as our “named executive officers.”


Summary Compensation Table


Name and Principal PositionYear Salary ($)  Bonus ($)  
Restricted Stock/ (Forfeited) (1)$
  
Restricted Stock Awards(1) $
  All Other Compensation ($)  Total 
                    
Jeffrey Holman2022  598,379   350,000   -   -   -   948,379 
Chief Executive Officer2021  578,579   250,000   (302,500)  110,000   -   636,079 
                          
Christopher Santi2022  394,832   200,000   -   -   -   594,832 
President and Chief Operating Officer2021  359,192   160,000   (220,000)  80,000   -   379,192 
                          
John Ollet2022  260,616   125,000   -   -   -   385,616 
Chief Financial Officer2021  48,000   50,000   (82,500)  30,000   -   45,500 

(1)

 

Name and Principal Position Year  Salary ($)  Bonus ($)  Restricted Stock/ (Forfeited) (1)$  Restricted Stock Awards(1) $  All Other Compensation ($)  Total 
                      
Jeffrey Holman 2023   688,149   -   -   5,000,000   -   5,688,149 
Chief Executive Officer 2022   598,379   350,000   -   -   -   948,379 
                            
Christopher Santi 2023   405,321   -   -   2,500,000   -   2,905,321 
President and Chief Operating Officer 2022   394,832   200,000   -   -   -   594,832 
                            
John Ollet 2023   304,616   -   -   1,800,000   -   2,104,616 
Chief Financial Officer 2022   260,616   125,000   -   -   -   385,616 

(1) Amounts reflect the aggregate grant date fair value, without regard to forfeitures, computed in accordance with ASC 718. These amounts represent options and restricted stock of the Company’s common stock and do not reflect the actual amounts that may be realized by the Named Executive Officers. Our assumptions with respect to the calculation of the stock options and restricted stock value are set forth in Note 2 to the consolidated financial statements contained herein.


28


Named Executive Officer Employment Agreements


On August 13, 2018, the Company amended and restated its existing employment agreement with Jeffrey Holman, the Company’s Chief Executive Officer (the “Holman Employment Agreement”). The Holman Employment Agreement is for an additional three year term and provides for an annual base salary of $450,000 and a target bonus 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. The Holman Employment Agreement automatically renews each year unless terminated by either party on 30 days’ prior notice. 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 pursuant to the Holman Employment Agreement Amendment 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. On August 12, 2019, the Company agreed to extend the expiration date of the vesting period for the restricted stock by six months to February 13, 2020. On August 12, 2020, the Company agreed to extend for a second time the expiration date of the vesting period for the restricted stock by six months to February 13, 2021. The Term shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term. The above description of the terms of the Holman Employment Agreement is not complete and is qualified by reference to the complete document.

26

On February 26, 2021, the Company entered into an amended and restated employment agreement (the “Santi Employment Agreement Amendment”) with the Company’s President and Chief Operating Officer, Christopher Santi. Pursuant to the Employment Agreement Amendment,Amendment. Mr. Santi will continue to be employed as the Company’s President and Chief Operating Officer through January 30, 2024.  Mr. Santi will receivereceived a base salary of $0.4 million for 2021 and his salary will increasehas increased 10% in each subsequent year. The Termterm shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term. The above description of the terms of the Santi Employment Agreement is not complete and is qualified by reference to the complete document.


On February 2, 2022, the Company entered into a second amended and restated employment agreement (the “Ollet Employment Agreement Amendment”) with the Company’s Chief Financial Officer, John Ollet. Pursuant to the Employment Agreement Amendment, Mr. Ollet will continue to be employed as the Company’s Chief Financial Officer through February 14, 2025. Mr. Ollet will receivereceived a base salary of $300,000 for 2022 and his salary will increase 10% in each subsequent calendar year. The Termterm shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term. The above description of the terms of the Ollet Employment Agreement is not complete and is qualified by reference to the complete document.


29

Termination Provisions


The table below describes the severance payments that our Named Executive Officers are entitled to in connection with a termination of their employment upon death, disability, dismissal without cause, Change of Control or for Good Reason. All of the termination provisions are intended to comply with Section 409A of the Internal Revenue Code of 1986 and the Regulations thereunder.


HolmanSanti/Ollet
Death or Total DisabilityAny amounts due at time of termination plus full vesting of equity awardsAny amounts due at time of termination
Dismissal Without Cause or Termination by Executive for Good Reason or upon a Change of Control (1)Two years of Base Salary, full vesting of equity awards, benefit continuation for eighteen months plus pro-rated bonus if, any, that would have been earned for the fiscal year in which the termination occursFifteen months of Base Salary plus one additional month for every additional four months of service, up to eighteen months’ maximum
Termination upon a Change of Control (2)Two years of Base Salary, full vesting of equity awards, benefit continuation for eighteen months plus pro-rated bonus if, any, that would have been earned for the fiscal year in which the termination occursEighteen months of Base Salary

(1) Good reason is generally (with certain exceptions) defined, in the case of Holman, as (i) a material diminution in their authority, duties or responsibilities, (y) the Company failing to maintain an office in the stated area or (ii) any other action or inaction that constitutes a material breach by the Company of the Employment Agreement. Messrs. Ollet and Santi’s employment agreement do not include the concept of good reason.


(2) Change of Control is generally defined (i) in the case of Holman, as any Change of Control Event as defined in Treasury Regulation Section 1.409A-3(i)(5); and (ii) in the case of Santi, as (w) a sale of substantially all of the Company, (x) any “person” (as such term is defined under the Exchange Act) becomes the beneficial owners of over 50% of the Company’s voting power, (y) a change in the majority of the composition of the Board or (z) a transaction that results in over 50% of the Company’s voting power ceasing to hold a majority of the voting power post-transaction.

27

Risk Assessment Regarding Compensation Policies and Practices as they Relate to Risk Management


Our compensation program for employees does not create incentives for excessive risk taking by our employees or involve risks that are reasonably likely to have a material adverse effect on us. Our compensation has the following risk-limiting characteristics:


●●Our base pay programs consist of competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; and

●●Cash bonus awards are not tied to formulas that could focus executives on specific short-term outcomes.

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Outstanding Awards at Fiscal Year End


Listed below is information with respect to unexercised options that have not vested, and equity incentive plan awards for each named executive officer outstanding as of December 31, 2022:


2023:

Outstanding Equity Awards at 20222023 Fiscal Year-End


 Number of Shares Issued Under Stock Options  Number of Shares Issued Under Restricted Stock  Stock Options and Restricted Stock Exercise Price ($) Per Share of Stock Expiration Date Number of Shares That Have Not Vested (#)  Market Value of Shares That Name Have Not Vested ($) 
Jeffrey Holman  -   9,075,000,000   0.0001 8/13/2028  -   - 
Jeffrey Holman  39,000,000,000   -   0.0001 2/1/2027  -   - 
Christopher Santi  -   6,600,000,000   0.0001 8/13/2028  -   - 
Christopher Santi  17,000,000,000   -   0.0001 2/1/2027  -   - 
John Ollet  -   2,475,000,000   0.0001 8/13/2028  -   - 
John Ollet  1,000,000,000   -   0.0001 12/9/2026  -   - 
John Ollet  4,000,000,000   -   0.0001 8/30/2027  -   - 

  Number of Shares Issued Under Stock Options  Number of Shares Issued Under Restricted Stock  Stock Options and Restricted Stock Exercise Price ($) Per Share of Stock  Expiration Date Number of Shares That Have Not Vested (#)  Market Value of Shares That Name Have Not Vested ($) 
Jeffrey Holman  -   59,075,000,000   0.0001  8/13/2028  50,000,000,000   5,000,000 
Jeffrey Holman  39,000,000,000   -   0.0001  2/1/2027  -   - 
Christopher Santi  -   31,600,000,000   0.0001  8/13/2028  25,000,000,000   2,500,000 
Christopher Santi  17,000,000,000   -   0.0001  2/1/2027  -   - 
John Ollet  -   20,475,000,000   0.0001  8/13/2028  18,000,000,000   1,800,000 
John Ollet  1,000,000,000   -   0.0001  12/9/2026  -   - 
John Ollet  4,000,000,000   -   0.0001  8/30/2027  -   - 

Director Compensation


Non-employee directors are paid an annual fee of $10,000 or $15,000, plus a monthly fee of $1,000 and $1,500 for each meeting attended. On December 14, 2022, the Company granted 2,000,000,000 shares of Restricted Stock (the "Award"“Award”) to each non-employee director. Commencing on the first anniversary of the date of Grant, the Award will vest in 12.5% increments on the last day of each calendar quarterlyquarter thereafter.  The Because we do not pay any compensation to employee directors, Mr. Holman is omitted from the following table. Non-employee members of our Board of Directors were compensated for as follows:


31


Fiscal 20222023 Director Compensation

Name 

Fees Earned or

Paid in Cash ($)

 
    
Dr. Anthony Panariello $40,000 
Clifford J. Friedman $45,000 

28

NameFees Earned or Paid in Cash ($) 
   
Dr. Anthony Panariello $38,500 
Clifford J. Friedman $43,500 

Equity Compensation Plan Information


The 2015 Equity Incentive Plan (the “Plan”) was approved by the Company’s stockholders at the June 26, 2015 stockholders meeting. On November 21, 2016, the Company’s Board of Directors increased the number of shares of common stock available for issuance pursuant to the Plan to 100,000,000,000. On April 23, 2023, the Board of Directors (the “Board”) of HCMC approved the Second Amendment to the 2015 Equity Incentive Plan (the “Amended Plan”). The Amended Plan increased the number of shares of HCMC common stock authorized for issuance under the Amended Plan to 225,000,000,000 shares. The Plan is a broad-based plan in which all employees, consultants, officers, and directors of the Company are eligible to participate. The purpose of the Plan is to further the growth and development of the Company by providing, through ownership of stock of the Company and other equity-based awards, an incentive to its officers and other key employees and consultants who are in a position to contribute materially to the prosperity of the Company, to increase such persons’ interests in the Company’s welfare, by encouraging them to continue their services to the Company, and by enabling the Company to attract individuals of outstanding ability to become employees, consultants, officers and directors of the Company.


The following chart reflects the number of awards granted under equity compensation plans approved and not approved by stockholders and the weighted average exercise price for such plans as of December 31, 2023.2022

.


Name of Plan Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)  Weighted average exercise price of outstanding options, warrants and rights (b)  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) 
Equity compensation plans approved by security holders         
2015 Equity Incentive Plan  92,149,730,680   0.0001   7,850,269,320 
Total  92,149,730,680   -   7,850,269,320 

Name of Plan Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 
Equity compensation plans approved by security holders         
2015 Equity Incentive Plan  199,824,722,200   0.0001   25,175,277,800 
Total  199,824,722,200   -   25,175,277,800 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.


The following table sets forth the number of shares of our common stock beneficially owned as of March 30, 2023,27, 2024, by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director, (iii) our Named Executive Officers and (iv) all of our executive officers and directors of as a group. Unless otherwise specified in the notes to this table, the address for each person is: c/o Healthier Choices Management Corp., 3800 North 28th Way, Hollywood, Florida 33020.


32


Title of ClassBeneficial Owner 
Amount and Nature of Beneficial Owner (1)
  
Percent of Class (1)
 
Directors and Executive Officers:       
Common StockJeffrey E. Holman (2)  47,884,500,000   12.43%
Common StockChristopher Santi (3)  23,511,972,794   6.47%
Common StockJohn Ollet (4)  7,429,000,000   2.11%
Common StockDr. Anthony Panariello (5)  1,412,500,000   0.41%
Common StockClifford J. Friedman (6)  1,490,000,000   0.43%
All directors and officers as a group (5 persons) (7)  81,727,972,794   19.97%
          
5% Stockholders:         
None   -   0%
Total:   81,727,972,794   19.97%

(1)

 

Title of Class Beneficial Owner Amount and Nature of Beneficial Owner (1)  Percent of Class (1) 
Directors and Executive Officers:        
Common Stock Jeffrey E. Holman (2)  56,300,000,000   11.77%
Common Stock Christopher Santi (3)  30,225,000,000   6.32%
Common Stock John Ollet (4)  19,725,000,000   4.12%
Common Stock Dr. Anthony Panariello (5)  5,242,500,000   1.10%
Common Stock Clifford J. Friedman (6)  5,490,000,000   1.15%
All directors and officers as a group (5 persons) (7)    116,982,500,000   24.46%
           
5% Stockholders:          
None    -   0%
Total:    116,982,500,000   24.46%

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(1) Beneficial Ownership. Applicable percentages are based on 346,341,632,384478,266,632,384 shares of common stock outstanding as of March 30, 2023.27, 2024. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, convertible notes and preferred stock currently exercisable or convertible or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. The table includes shares of common stock, options, warrants, and preferred stock exercisable or convertible into common stock and vested or vesting within 60 days. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. The table does not include: (i) restricted stock units that do not have the right to vote until they vest and the shares are delivered or (ii) unvested options that do not vest within 60 days of the date listed above in this footnote.


(2)

 

(2) Holman. Chairman and Chief Executive Officer. Includes 39,000,000,000 vested options, and 8,884,500,0009,075,000,000 shares of vested restricted Common Stock and 50,000,000,000 shares of unvested restricted Common Stock.


(3)

 

(3) Santi. President and Chief Operation Officer. Includes 17,000,000,000 vested options, and 6,511,972,7946,600,000,000 shares of vested restricted Common Stock and 25,000,000,000shares of unvested restricted Common Stock.


(4)

 

(4) Ollet. Chief Financial Officer. Includes 5,000,000,000 vested options. He also holds 2,429,000,0002,475,000,000 shares of vested restricted Common Stock and 18,000,000,000 shares of unvested restricted Common Stock.


(5)

 

(5) Panariello. A director. Includes 1,000,000,000 vested options. He also holds 412,500,000662,500,000 shares of vested restricted Common Stock.Stock and 4,750,000,000 shares of unvested restricted Common Stock .


(6)

 

(6) Friedman. A director. Includes 990,000,000 vested options, 500,000,000750,000,000 shares of vested restricted Common Stock and 4,750,000,000 shares of unvested restricted Common Stock.


(7)

 

(7) Directors and Executive Officers. Includes executive officers who are not Named Executive Officers under the SEC’s rules and regulations.


33


Item 13. Certain Relationships and Related Transactions, and Director Independence.


For the yearyears ended December 31, 2022,2023, the Company did not have any related party transactions.


Policies and Procedures for Related Party Transactions


We have adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the prior consent of our audit committee. Our audit committee will review and oversee all transactions with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of any of the foregoing persons and such person would have a direct or indirect interest. In approving or rejecting any such transactions, our audit committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.

30

Item 14. Principal Accounting Fees and Services.


Our Audit Committee pre-approves audit and permissible non-audit services performed by its independent registered public accounting firm, as well as the fees charged for such services. All services related to audit fees and audit-related fees charged were pre-approved by the Audit Committee. The following table shows the fees for the years ended December 31, 20222023 and 2021.


 2022 ($)  2021 ($) 
Audit (1)  594,000   226,000 
Audit - Related  -   - 
Tax  -   - 
Other  -   - 
Total $594,000  $226,000 

2022.

  2023  2022 
Audit (1) $1,122,000  $594,000 
Audit - Related  -   - 
Tax  -   - 
Other  -   - 
Total $1,122,000  $594,000 

Audit fees — these fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements and our registration statements.


Audit-related fees - the aggregate fees billed for assurance and related services by the principal accountant that are related to the performance of the audit or review of the registrant'sregistrant’s financial statements and are not reported under paragraph (1) above.


Tax fees - the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.


Other fees - the aggregate fees billed other than the services reported in audit, audit-related and tax fees.



34


PART IV


Item 15. Exhibits, Financial Statement Schedules.


(a)Documents filed as part of the report.

(1)Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.

(2)Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report.

(3)Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

31

35


FINANCIAL STATEMENT INDEX


Report of Independent Registered Public Accounting Firm (PCAOB ID # 688))
F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 20222023 and 20212022
F-4
Consolidated Statements of Operations for the Years Ended December 31, 20222023 and 20212022
F-5
Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 20222023 and 20212022
F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 20222023 and 20212022
F-7
Notes to Consolidated Financial Statements
F-8


F-1

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of

Healthier Choices Management Corp.


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Healthier Choices Management Corp. (the “Company”) as of December 31, 20222023 and 2021,2022, the related consolidated statements of operations, changes in convertible preferred stock and stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20222023 and 2021,2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,2023, in conformity with accounting principles generally accepted in the United States of America.


Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion


These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.


Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


Critical Audit Matter


The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

F-2

F - 2


Valuation of Intangible Assets for Business Combinations


Combination

Description of the Matter


As disclosed in Note 8 to the financial statements, during the year ended December 31, 2022,2023, the Company completed the acquisitionsacquisition of Mother Earth’s Storehouse Inc. and Green’sEllwood Thompson’s Natural Foods, Inc.Market, L.C. for total aggregate consideration of approximately $14.4$1.5 million. The transactions weretransaction was accounted for as a business combinationscombination in accordance with Accounting Standards ASC 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed, based on their respective fair values identified, including intangible assets with an aggregate fair value (excluding goodwill) of approximately $4.9$0.3 million. The Company, with the assistance of a third-party valuation specialist, estimated the fair valuesvalue of the identified intangible assets using valuation models which require significant assumptions. The significant assumptions used to estimate the fair value of the identified intangible assets included discount rates, attritionroyalty rates, economic lives, and financial projections.


Auditing management’s assessment of the acquisition date fair value of the identified intangible assets is highly subjective and judgmental. Based on the level of management judgment, we have determined the evaluation of the acquisition date fair value of the acquired intangible assets to be a critical audit matter.


How We Addressed the Matter in our Audit


Our audit procedures related to the accounting for valuation of intangible assets for business combinations to address this critical audit matter included the following:


We gained an understanding of the Company’s process with regards to the methodology used, and the factors considered around the inputs, sources of data used, assumptions and estimates used to determine the acquisition date fair value of the intangible assets acquired.
We tested the mathematical accuracy of the underlying schedules used in the valuation reports. We tested the completeness, accuracy and relevance of source information underlying the data used in the models.
We evaluated the Company’s future revenue growth rates by comparing them to historical results to ensure the reasonableness of these forecasts.
We assessed the appropriateness of the overall approach and models used in determining the fair value of each intangible asset acquired.
We evaluated the reasonableness of the assumptions used by management.
We involved valuation professionals with specialized skills and knowledge in performing audit procedures to evaluate the reasonableness of the Company’s estimates and assumptions used by the specialist to determine the selection of revenue growth rates, discount rates, attrition rates and royalty rates.



●We gained an understanding of the Company’s process with regards to the methodology used, and the factors considered around the inputs, sources of data used, assumptions and estimates used to determine the acquisition date fair value of the intangible assets acquired.
●We tested the mathematical accuracy of the underlying schedules used in the valuation report. We tested the completeness, accuracy and relevance of source information underlying the data used in the models.
●We evaluated the Company’s future revenue growth rates by comparing them to historical results and performed a sensitivity calculation to ensure the reasonableness of these forecasts.
●We assessed the appropriateness of the overall approach and models used in determining the fair value of the intangible assets acquired.
●We evaluated the reasonableness of the assumptions used by management.
●We involved valuation professionals with specialized skills and knowledge in performing audit procedures to evaluate the reasonableness of the Company’s estimates and assumptions used by the specialist to determine the selection of revenue growth rates, discount rates, royalty rates and economic useful life.

/s/ Marcum LLP


Marcum LLP


We have served as the Company’s auditor since 2017.

Saddle Brook, NJ

March 27, 2024

F-3


New York, NY
March 30, 2023

F - 3



HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED BALANCE SHEETS


 December 31, 2022  December 31, 2021 
       
ASSETS      
CURRENT ASSETS      
Cash $22,911,892  $26,496,404 
Accounts receivable  55,815   28,481 
Notes receivable  189,225   247,915 
Inventories  3,817,192   1,521,199 
Prepaid expenses and vendor deposits  322,182   456,397 
Investment  9,771   23,143 
Other current assets  1,224,171   - 
Restricted cash  1,778,232   - 
TOTAL CURRENT ASSETS  30,308,480   28,773,539 
         
Property, plant, and equipment, net of accumulated depreciation  3,112,908   176,988 
Intangible assets, net of accumulated amortization  5,005,511   947,593 
Goodwill  5,747,000   916,000 
Right of use asset – operating lease, net  10,604,935   3,543,930 
Other assets  476,196   85,437 
TOTAL ASSETS $55,255,030  $34,443,487 
         
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable and accrued expenses $5,715,234  $1,642,848 
Contingent consideration  774,900   - 
Contract liabilities  198,606   23,178 
Operating lease liability, current  2,228,852   437,328 
Line of credit  453,232   418,036 
Current portion of loan payment  536,542   2,604 
TOTAL CURRENT LIABILITIES  9,907,366   2,523,994 
         
Loan payable, net of current portion  2,378,061   815 
Operating lease liability, net of current  8,041,504   2,685,021 
TOTAL LIABILITIES  20,326,931   5,209,830 
         
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)      
         
CONVERTIBLE PREFERRED STOCK        
Series E convertible preferred stock, $1,000 par value per share, 14,722 and 0 shares authorized, issued and outstanding as of  December 31, 2022 and December 31, 2021; aggregate liquidation preference of $14.7 million
  14,722,075   - 
         
STOCKHOLDERS’ EQUITY        
Series D convertible preferred stock, $1,000 par value per share, 5,000 shares authorized; 800 shares issued and outstanding as of  December 31, 2022 and 2021, respectively; aggregate liquidation preference of $0.8 million
  800,000   800,000 
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; 339,741,632,384 issued and outstanding as of December 31, 2022 and 2021, respectively
  33,974,163   33,974,163 
Additional paid-in capital  29,045,802   30,855,824 
Accumulated deficit  (43,613,941)  (36,396,330)
TOTAL STOCKHOLDERS’ EQUITY  20,206,024   29,233,657 
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY $55,255,030  $34,443,487 

  

December 31,

2023

  

December 31,

2022

 
       
ASSETS        
CURRENT ASSETS        
Cash $5,081,086  $22,911,892 
Accounts receivable  128,171   55,815 
Notes receivable  -   189,225 
Inventories  4,228,889   3,817,192 
Prepaid expenses and vendor deposits  1,668,324   322,182 
Other current assets  65,556   1,233,942 
Restricted cash  553,232   1,778,232 
TOTAL CURRENT ASSETS  11,725,258   30,308,480 
         
Property, plant, and equipment, net of accumulated depreciation  2,735,252   3,112,908 
Intangible assets, net of accumulated amortization  4,376,682   5,005,511 
Goodwill  -   5,747,000 
Right of use asset – operating lease, net  11,511,002   10,604,935 
Other assets  621,385   476,196 
TOTAL ASSETS $30,969,579  $55,255,030 
         
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable and accrued expenses $8,024,664  $5,715,234 
Contingent consideration  -   774,900 
Contract liabilities  207,513   198,606 
Operating lease liability, current  2,842,829   2,228,852 
Line of credit  453,232   453,232 
Current portion of loan payment  702,701   536,542 
TOTAL CURRENT LIABILITIES  12,230,939   9,907,366 
         
Loan payable, net of current portion  2,403,807   2,378,061 
Operating lease liability, net of current  8,465,617   8,041,504 
TOTAL LIABILITIES  23,100,363   20,326,931 
         
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)  -   - 
         
CONVERTIBLE PREFERRED STOCK        
Series E convertible preferred stock, $1,000 par value per share, 14,722 shares authorized, 1,111 shares and 14,722 shares issued and outstanding as of December 31, 2023 and 2022; aggregate liquidation preference of $1.1 million and $14.7 million as of December 31, 2023 and 2022, respectively.  1,111,100   14,722,075 
         
STOCKHOLDERS’ EQUITY        
Series D convertible preferred stock, $1,000 par value per share, 5,000 shares authorized; 0 and 800 shares issued and outstanding as of December 31, 2023 and 2022, respectively.  -   800,000 
Common Stock, $0.0001 par value per share, 750,000,000,000 shares authorized; 478,266,632,384 and 339,741,632,384 shares issued and outstanding as of December 31, 2023 and 2022, respectively.  47,826,663   33,974,163 
Additional paid-in capital  21,028,274   29,045,802 
Accumulated deficit  (62,096,821)  (43,613,941)
TOTAL STOCKHOLDERS’ EQUITY  6,758,116   20,206,024 
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY $30,969,579  $55,255,030 

See notes to consolidated financial statements.

F-4
F - 4


HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS


 For the Year Ended December 31, 
  2022  2021 
SALES:      
Vapor sales, net $257,363  $2,084,813 
Grocery sales, net  29,009,640   11,235,041 
TOTAL SALES, NET  29,267,003   13,319,854 
         
Cost of sales vapor  112,880   839,599 
Cost of sales grocery  18,929,905   7,187,701 
GROSS PROFIT  10,224,218   5,292,554 
         
OPERATING EXPENSES  18,877,302   10,033,048 
         
LOSS FROM OPERATIONS  (8,653,084)  (4,740,494)
         
OTHER INCOME (EXPENSE):        
Gain on debt settlements  -   767,930 
Other income (expense), net  1,246,192   (26)
Interest income (expense), net  202,653   (65,281)
(Loss) gain on investment  (13,372)  412 
Total other income (expense), net  1,435,473   703,035 
         
NET LOSS $(7,217,611) $(4,037,459)
         
NET LOSS PER SHARE BASIC AND DILUTED $0.00  $0.00 
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING        
BASIC AND DILUTED  339,741,632,384   307,912,959,368 

  2023  2022 
  For the Year Ended December 31, 
  2023  2022 
SALES:      
Vapor sales, net $617  $257,363 
Grocery sales, net  55,689,793   29,009,640 
TOTAL SALES, NET  55,690,410   29,267,003 
         
Cost of sales vapor  787   112,880 
Cost of sales grocery  35,341,569   18,929,905 
GROSS PROFIT  20,348,054   10,224,218 
         
OPERATING EXPENSES        
Selling, general and administrative  32,219,733   18,877,302 
Impairment of goodwill  6,104,000   - 
TOTAL OPERATING EXPENSES  38,323,733   18,877,302 
         
LOSS FROM OPERATIONS  (17,975,679)  (8,653,084)
         
OTHER INCOME (EXPENSE):        
Change in contingent consideration  774,900   333,100 
Other (expense) income, net  (1,485,612)  913,092 
Interest income (expense), net  211,996   202,653 
Loss on investment  (8,485)  (13,372)
Total other income (expense), net  (507,201)  1,435,473 
         
NET LOSS  (18,482,880)  (7,217,611)
         
Induced conversions of preferred stock  (152,500)  - 
         
Net loss attributable to common stockholders $(18,635,380) $(7,217,611)
         
NET LOSS PER SHARE BASIC AND DILUTED $0.00  $0.00 
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING        
BASIC AND DILUTED  429,919,440,601   339,741,632,384 

See notes to consolidated financial statements.

F-5

F - 5


HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY


FOR THE YEARS ENDED DECEMBER 31, 20222023 AND 2021


 
Series E Convertible
Preferred Stock
  
Convertible
Preferred Stock
  
Common Stock
  
Additional
Paid-In
  Accumulated    
  Shares     Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance – January 1, 2021  -     $-   16,277  $16,277,116   143,840,848,017  $14,384,084  $3,955,039  $(32,358,871) $2,257,368 
                                        
Issuance of common stock  -      -   -   -   1,182,831,056   118,283   1,289,273   -   1,407,556 
Stock options exercised  -      -   -   -   2,275,000,000   227,500   -   -   227,500 
Series C Preferred stock exercised  -      -   (16,277)  (16,277,116)  162,771,153,001   16,277,116   -   -   - 
Issuance of Series D Convertible Preferred stock in connection with the Securities Purchase Agreement      -   -   5,000   5,000,000   -   -   -   -   5,000,000 
Series D Convertible Preferred Stock exercised              (4,200)  (4,200,000)  6,562,500,000   656,250   3,543,750   -   - 
Issuance of common stock in connection with the Rights Offering, net of offering expenses              -   -   27,046,800,310   2,704,680   21,639,637   -   24,344,317 
Issuance of award stock for officers  -       -   -   -   2,200,000,000   220,000   (220,000)  -   - 
Issuance of awarded stock for board member  -       -   -   -   50,000,000   5,000   (5,000)  -   - 
Cancellation of awarded stock for officers  -       -   -   -   (6,050,000,000)  (605,000)  605,000   -   - 
Cancellation of awarded stock for board member  -       -   -   -   (137,500,000)  (13,750)  13,750   -   - 
Stock-based compensation expense  -       -   -   -   -   -   34,375   -   34,375 
Net loss  -       -   -   -   -   -   -   (4,037,459)  (4,037,459)
Balance – December 31, 2021  -      $-   800  $800,000   339,741,632,384  $33,974,163  $30,855,824  $(36,396,330) $29,233,657 
Issuance of Series E Convertible Preferred stock in connection with the Securities Purchase Agreement, net of offering costs  14,722       14,722,075   -   -   -   -   (1,882,244)  -   (1,882,244)
Stock-based compensation expense  -       -   -   -   -   -   72,222   -   72,222 
Net loss  -       -   -   -   -   -   -   (7,217,611)  (7,217,611)
Balance – December 31, 2022  14,722      $14,722,075   800  $800,000   339,741,632,384  $33,974,163  $29,045,802  $(43,613,941) $20,206,024 

2022

  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
  

Series E Redeemable Convertible

Preferred Stock

  

Series D Convertible

Preferred Stock

  Common Stock  

Additional

Paid-In

  Accumulated    
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance – January 1, 2022  -  $-   800  $800,000   339,741,632,384  $33,974,163  $30,855,824  $(36,396,330) $29,233,657 
 Issuance of Series E Convertible Preferred stock in connection with the Securities Purchase Agreement, net of offering costs  14,722   14,722,075   -   -   -   -   (1,882,244)  -   (1,882,244)
Stock-based compensation expense  -   -   -   -           72,222   -   72,222 
Net loss  -   -   -   -   -   -   -   (7,217,611)  (7,217,611)
Balance – December 31, 2022  14,722  $14,722,075   800  $800,000   339,741,632,384  $33,974,163  $29,045,802  $(43,613,941) $20,206,024 
Balance  14,722  $14,722,075   800  $800,000   339,741,632,384  $33,974,163  $29,045,802  $(43,613,941) $20,206,024 
Series E convertible preferred stock redeemed  (12,026)  (12,025,975)  -   -   -   -   22,222   -   22,222 
Conversion of series E convertible preferred stock  (1,585)  (1,585,000)  -   -   15,850,000,000   1,585,000   -       1,585,000 
Series D Convertible Preferred Stock exercised  -   -   (800)  (800,000)  8,000,000,000   800,000   -   -   - 
Issuance of awarded stock  -   -       -   111,675,000,000   11,167,500   (11,167,500)  -   - 
Induced conversions of preferred stock  -   -       -   -   -   (152,500)  -   (152,500)
Stock-based compensation expense  -   -       -   -   -   3,430,250   -   3,430,250 
Issuance of common stock for legal service                  3,000,000,000   300,000   (150,000)      150,000 
Net loss  -   -   -   -   -   -   -   (18,482,880)  (18,482,880)
Balance – December 31, 2023  1,111  $1,111,100   -  $-   478,266,632,384  $47,826,663  $21,028,274  $(62,096,821) $6,758,116 
Balance  1,111  $1,111,100   -  $-   478,266,632,384  $47,826,663  $21,028,274  $(62,096,821) $6,758,116 

See notes to consolidated financial statements.

F-6
F - 6



HEALTHIER CHOICES MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS


 For the year ended December 31, 
  2022  2021 
OPERATING ACTIVITIES:      
       
Net loss $(7,217,611) $(4,037,459)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  1,061,615   497,408 
Net gain on debt settlements  -   (767,930)
Amortization of right-of-use asset  1,164,027   534,691 
Gain (loss) on investment  13,372   (412)
Write-down of obsolete and slow-moving inventory  1,507,213   707,710 
Stock-based compensation expense  72,222   34,375 
Change in contingent consideration  (333,100)  - 
Write off intangible assets  53,958   - 
Changes in operating assets and liabilities:        
Accounts receivable  (27,334)  (4,806)
Inventories  (1,357,169)  (478,663)
Prepaid expenses and vendor deposits  134,215   (170,332)
Other current assets  (1,224,171)  - 
Other assets  (390,759)  4,161 
Accounts payable and accrued liabilities  4,072,386   557,185 
Accrued interest on loan payable  -   60,809 
Contract liabilities  (317,921)  1,916 
Lease liability  (1,077,025)  (466,858)
NET CASH USED IN OPERATING ACTIVITIES  (3,866,082)  (3,528,205)
         
INVESTING ACTIVITIES:        
Payment for acquisition  (10,291,674)  (75,000)
Collection of note receivable  58,690   56,596 
Purchases of patent  (12,500)  (12,500)
Purchases of property and equipment  (480,925)  (56,418)
NET CASH USED IN INVESTING ACTIVITIES  (10,726,409)  (87,322)
         
FINANCING ACTIVITIES:        
Proceeds from line of credit  35,196   418,036 
Principal payment on the line of credit  -   (2,000,000)
Principal payments on loan payable  (88,816)  (803,397)
Proceeds from issuance of preferred stock  12,839,831   5,000,000 
Proceeds from rights offering, net of offering costs  -   24,344,317 
Proceeds from exercise of stock options  -   227,500 
NET CASH PROVIDED BY FINANCING ACTIVITIES  12,786,211   27,186,456 
         
NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH  (1,806,280)  23,570,929 
CASH AND RESTRICTED CASH — BEGINNING OF YEAR  26,496,404   2,925,475 
CASH AND RESTRICTED CASH — END OF YEAR $24,690,124  $26,496,404 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for interest $35,730  $115,584 
Cash paid for income tax $-  $- 
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Issuance of common stock in connection with the exchange agreement $-  $1,407,556 
Issuance of promissory note in connection with acquisition $3,000,000  $- 
Lease acquired $8,225,033  $- 
Contingent consideration relating to acquisition $1,108,000  $- 

  2023  2022 
  For the year ended December 31, 
  2023  2022 
OPERATING ACTIVITIES:        
         
Net loss $(18,482,880) $(7,217,611)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  1,492,261   1,061,615 
Change in allowance for credit losses  15,425   - 
Loss on disposal of assets  2,073   - 
Loss on notes receivable settlement  10,931   - 
Loss on vendor settlement  91,291     
Issuance common stocks for services  150,000   - 
Amortization of right-of-use asset  2,590,325   1,164,027 
Loss on investment  8,485   13,372 
Write-down of obsolete and slow-moving inventory  2,471,653   1,507,213 
Stock-based compensation expense  3,430,250   72,222 
Change in contingent consideration  (774,900)  (333,100)
Non-cash interest expense  32,000   - 
Write off intangible assets  -   53,958 
Impairment of Goodwill  6,104,000   - 
Changes in operating assets and liabilities:        
Accounts receivable  (87,781)  (27,334)
Inventories  (2,032,838)  (1,357,169)
Prepaid expenses and vendor deposits  (177,374)  134,215 
Other current assets  1,068,610   (1,224,171)
Other assets  (145,189)  (390,759)
Accounts payable and accrued liabilities  1,974,429   4,072,386 
Contract liabilities  (21,604)  (317,921)
Lease liability  (2,458,303)  (1,077,025)
NET CASH USED IN OPERATING ACTIVITIES  (4,739,136)  (3,866,082)
         
INVESTING ACTIVITIES:        
Payment for acquisition  (750,000)  (10,291,674)
Collection of note receivable  178,294   58,690 
Purchases of patent  (12,500)  (12,500)
Purchases of property and equipment  (184,349)  (480,925)
NET CASH USED IN INVESTING ACTIVITIES  (768,555)  (10,726,409)
         
FINANCING ACTIVITIES:        
Proceeds from line of credit  -   35,196 
Payments for deferred offering costs  (833,767)  - 
Principal payments on loan payable  (558,095)  (88,816)
Proceeds from issuance of preferred stock  -   12,839,831 
Payment for series E preferred stock redemption  (12,003,753)  - 
Payment of induced conversions of preferred stock  (152,500)  - 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES  (13,548,115)  12,786,211 
         
NET DECREASE IN CASH AND RESTRICTED CASH  (19,055,806)  (1,806,280)
CASH AND RESTRICTED CASH — BEGINNING OF YEAR  24,690,124   26,496,404 
CASH AND RESTRICTED CASH — END OF YEAR $5,634,318  $24,690,124 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for interest $205,449  $35,730 
Cash paid for income tax $-  $-
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Issuance of common stock in connection with series E preferred stock conversion $1,585,000  $- 
1% stated value reduction on preferred stock redemption  22,222   - 
Non-cash deferred offering cost  335,001   - 
Issuance of promissory note in connection with acquisition $718,000  $3,000,000 
Lease acquired $1,325,409  $8,225,033 
Contingent consideration relating to acquisition $-  $1,108,000 

See notes to consolidated financial statements

F-7
F - 7



HEALTHIER CHOICES MANAGEMENT CORP.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1. ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS


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.


Through its wholly owned subsidiary HCMC Intellectual Property Holdings, LLC, the Company manages and intends to expand on its intellectual property portfolio. 


Through its wholly owned subsidiaries, the Company operates:


•●
Ada’s Natural Market, a natural and organic grocery store offering 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 itemsitems.
●Paradise Health & Nutrition’s three stores that likewise offer 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.
●Mother Earth’s Storehouse, a two-store organic and health food and vitamin chain in New York’s Hudson Valley, which has been in existence for over 40 years.
●Greens Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products
●Ellwood Thompson’s, an organic and natural health food and vitamin store located in Richmond, Virginia. (www.ellwoodthompsons.com).

Paradise Health & Nutrition’s three stores that likewise offer 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.

Mother Earth’s Storehouse, a two-store organic and health food and vitamin chain in New York’s Hudson Valley, which has been in existence for over 40 years.

Greens Natural Foods’ eight stores in New York and New Jersey, offering a selection of 100% organic produce and all-natural, non-GMO groceries & bulk foods; a wide selection of local products; an organic juice and smoothie bar; a fresh foods department, which offers fresh and healthy “grab & go” foods; a full selection of vitamins & supplements; as well as health and beauty products

Through its wholly owned subsidiary, Healthy Choice Wellness, LLC, the Company operates:


 Licensing agreements foroperates a Healthy Choice Wellness CentersCenter in Kingston, NY and has a licensing agreement for a Healthy Choice Wellness Center located at the Casbah Spa and Salon in Fort Lauderdale, FL, Boston Direct Health in Boston, MA and Green Care Medical Services in Chicago, IL.

FL.

These centers offer multiple vitamin drip mixes and intramuscular shots for clients to choose from that are designed to help boost immunity, fight fatigue and stress, reduce inflammation, enhance weight loss, and efficiently deliver antioxidants and anti-aging mixes. Additionally, there are IV vitamin mixes and shots for health, beauty, and re-hydration.


Through its wholly owned subsidiary, Healthy Choice Wellness II, LLC, the Company entered into a joint venture with an established healthcare provider, and the joint venture is in the process of creating a structure whereby it will engage in telemedicine evaluations of patients for semaglutide therapy. The operation will encompass, generally: medical evaluations of patients; treatment of patients with semaglutide; coordination with providers and patients.

Through its wholly owned subsidiary, Healthy U Wholesale, the Company sells vitamins and supplements, as well as health, beauty, and personal care products on its websitewww.TheVitaminStore.com.

 www.TheVitaminStore.com.


Additionally, the Company markets its patented the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which a customer partially fills with either cannabis or CBD concentrate (approximately 50mg) purchased from a third party. 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.

F-8

F - 8


COVID-19 Management Update

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020 and has negatively impacted the U.S. and global economies, disrupted global supply chains and, mandated closures and stay-at-home orders and created significant disruptions of the global financial markets. The Company adjusted certain aspects of the operations to protect their employees and customers while still meeting customers’ needs. While we have experienced many challenges, including but not limited to, product shortages, staffing difficulties, and evolving customer shopping behaviors, our focus remains on both offering our customers a high quality service experience and supporting our essential front-line team members. Though we have successfully managed these challenges to date, our operations and financial condition could still be negatively affected by the COVID-19 pandemic and future developments, which are highly uncertain and cannot be predicted.

Sourcing and Vendors


We source from multiple suppliers. These suppliers range from small independent businesses to multinational conglomerates. For the fiscal years ended December 31, 2023 and 2022, approximately 40% and 2021, approximately 36% and 25%36% of our total purchases were from one vendor.


Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP")

. The consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.Spin-Off


The consolidated financial statements include the accounts of the Company Healthier Choices Management Corp., and its wholly-owned subsidiaries, Healthy Choice Markets, Inc., 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), HCMC Intellectual Property Holdings, LLC, Healthy Choice Wellness, LLC, The Vitamin Store, LLC, Healthy U Wholesale, Inc., The Vape Store, Inc. (“Vape Store”), Vaporin, Inc. (“Vaporin”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine the Vape Store, LLC (“Emagine”), IVGI Acquisition, Inc., Vapormax Franchising LLC, Vaporin LLC, and Vaporin Florida, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

Spin-Off

The Company is planning to spin off its grocery segment and wellness business into a new publicly traded company (hereinafter referred to as “NewCo”). NewCo will continue the path of growth in the health verticals started by HCMC and explore other growth opportunities that comport with HCMC’s healthier lifestyle mission. HCMC will retain its entire patent suite, the Q-Cup® brand, and continue to develop its patent suite through R&D as well as continuing its path of enforcing its patent rights against infringers and attempting to monetize said patents through licensing deals.


At the time of the Spin-Off, HCMC will distribute all the outstanding shares of Common Stock held by it on a pro rata basis to holders of HCMC’s common stock. Each share of HCMC’s common stock outstanding as of the record date for the Spin-Off (the “Record Date”), will entitle the holder thereof to receive shares of Common Stock in NewCo. The distribution will be made in book-entry form by a distribution agent. Fractional shares of Common Stock will not be distributed in the Spin-Off and any fractional amounts will be rounded down. Please seeSee more disclosure in Note 14 StockholderStockholders’ Equity and Note 19 Subsequent Events.


F - 9


Note 2. LIQUIDITY


GOING CONCERN AND MANAGEMENT’S PLANS

The accompanying 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.


As of December 31, 2022,2023, the Company had cash of approximately $22.9$5.1 million and negative working capital of $20.4$0.5 million. In the past,Management has made plans to reduce certain costs and raise needed capital, however there can be no assurance the Company financedcan successfully implement these plans. The Company anticipates its current cash and cash generated from operations principallywill not be sufficient to meet projected operating expenses for the foreseeable future through issuancesat least twelve months from the issuance of common stockthe consolidated financial statements.

The Company has incurred recurring net losses and convertible preferred stock.  Duringoperations have not provided cash flows. In view of these matters, there is substantial doubt about our ability to continue as a going concern. In order to improve the Company’s liquidity position, management’s plans include significantly reducing the use of outside consultants, which would result in a reduction of over $1,000,000 in general and administrative expenses savings based on the actual spend for the year ended December 31, 2022,2023. The Company contracted a third party consultant, whose expertise is streamlining operations, to identify areas of improvement and cost savings. The Company will enact the consultant’s recommendation in anticipation of realizing savings and achieving profitability. The Company plans on continuing to expand via acquisition which will help achieve profitability. Also, the Company strengthened its liquidityis formulating plans to raise capital from outside investors, as it has done in the past, to fund operating losses and also provide capital for further business acquisitions. The result of the capital raise is to improve the Company’s operating and financial condition through issuanceperformance. The success of Series E Convertible Preferred Stock in connection with Securities Purchase Agreement - see note 13 for a discussion.these plans is dependent upon various factors, foremost being the ability to reduce outside consulting expenses and the ability to secure additional capital from outside investors. There can be no assurance that such plans will be successful.

F-9

The Company believes current cash on hand is sufficient to meet its obligations and capital requirements for at least the next twelve months from the date these financial statements are issued.

Note 3.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The 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 consolidated financial statements include the accounts of the Company Healthier Choices Management Corp., and its wholly-owned subsidiaries, Healthy Choice Markets, Inc., 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), HCMC Intellectual Property Holdings, LLC, Healthy Choice Wellness, LLC, Healthy Choice Wellness II, LLC, The Vitamin Store, LLC, Healthy U Wholesale, Inc., and The Vape Store, Inc. (“Vape Store”). All intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting


Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s decision-making group are the senior executive management team. The Company and the decision-making group view the Company’s operations and manage its business as two operating segments. All long-lived assets of the Company reside in the U.S.


Use of Estimates in the Preparation of the Financial Statements


The preparation of 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 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, valuing equity securitiesinventory provisions, useful lives and hybrid instruments, share-based payment arrangements,impairment of long-lived assets, goodwill, deferred taxes and related valuation allowances, 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 of 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 recognizes revenue in accordance with the following five-step model:


F - 10


●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.


F-10

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. For the years ended December 31, 20222023 and 2021,2022, shipping and handling costs of approximately $98,000$117,000 and $68,000,$98,000, were included in cost of sales, respectively.


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 are concentrated in oneone large financial institution, which is in excess of Federal Deposit Insurance Corporation (FDIC) coverage. The Company did notnot have any cash equivalents as of December 31, 20222023 and 2021.


2022.

A summary of the financial institutions that had a cash and cash equivalents in excess of FDIC limits of $250,000  on$250,000 as of December 31, 20222023 and 20212022 is presented below:


December 31, 2022 December 31, 2021 
Total cash and restricted cash in excess of FDIC limits
 
$
21,682,144
  
$
26,023,593
 

SCHEDULE OF CASH AND CASH EQUIVALENTS IN EXCESS OF FDIC LIMIT

  

December 31,

2023

  

December 31,

2022

 
Total cash and restricted cash in excess of FDIC limits $3,814,426  $21,682,144 

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.


The following table provides a reconciliation of cash cash equivalents and restricted cash to amounts shown in consolidatedconsolidated statements of cash flowflow:

: 


 December 31, 2022  December 31, 2021 
Cash $22,911,892  $26,496,404 
Restricted cash  1,778,232   - 
Total cash and restricted cash $24,690,124  $26,496,404 

SCHEDULE OF CASH AND RESTRICTED CASH

  

December 31,

2023

  

December 31,

2022

 
Cash $5,081,086  $22,911,892 
Restricted cash  553,232   1,778,232 
Total cash and restricted cash $5,634,318  $24,690,124 

Restricted Cash

The Company'sCompany’s restricted cash consisted of cash balances which were restricted as to withdrawal or usage under the August 18, 2022 security purchase agreement for the purpose of funding any amounts due under the Series E Certificate of Designation upon the redemption of the Series E Preferred Stocks. The balance also included cash held in the collateral account to cover the cash draw from the line of credit.


F - 11


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.

F-11

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.


Accounts receivable balance represents credit sales, sales on account and billing to vendors for advertising vendors'vendors’ products in our stores. Concentration of accounts receivable consist of the following:


 December 31, 2022  December 31, 2021 
       
Customer A  17%  0%
Customer B  -   12%
Customer C  6%  30%

SCHEDULE OF ACCOUNTS RECEIVABLE REPRESENTS CREDIT SALES

  

December 31,

2023

  

December 31,

2022

 
       
Customer A      2%       17%
Customer B  4%  -%
Customer C  -%  6%
Customer  -%  6%

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. Included in “Other“Other current assets” on our consolidated balance sheets are amounts primarily related to other receivables or non-trade receivable from government and other companies.


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 inventory to their net realizable value. The Company’s inventories consist primarily of merchandise available for resale, such as vitamins, fresh produce, perishable grocery items and non-perishable consumable goods.


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, displays with useful lives range from two to ten years. Leasehold improvements are amortized over the shorter of the life of the asset or the term of the lease.


F - 12

Identifiable Intangible Assets and Goodwill


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 various periods of time, ranging from 4 and years to 10 years. Similar to tangible personal property and equipment, the Company periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite-lived intangible assets, such as goodwill are not amortized.


Impairment of Long-Lived Assets


The Company reviews all long-lived assets such as property, plant, and equipment and amortizeddefinite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. 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. ThereThe Company conducted the long-lived assets impairment test, and based on Step 1 qualitative assessment, the Company concluded that the recurring losses coupled with the reduction in same store revenue and negative working capital were no triggering events that would indicate impairment of long-lived assets at December 31, 2022.2023. The Company hired a third-party valuation firm to perform Step 2 quantitative assessment on long-lived assets. The Company used undiscounted cash flow method at weighted average cost of capital of 16.5% as discount rate to calculate the fair value of the total assets. Based on the Step 2 quantitative assessment, the Company’s long-lived assets were not impaired as of December 31, 2023.

F-12

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. As part

The Company experienced recurring losses coupled with the reduction in same store revenue, a highly competitive industry and certain operational costs that have impacted our expectations such that future growth and profitability is lower than previous estimates. Furthermore, during the fourth quarter of management's qualitative analysis at2023, the Company operated with negative working capital which, although not a determinant on its own, when combined with the other factors indicated that the Company’s goodwill of $6.1 million was determined to be impaired for the year ended December 31, 2022 management determines whether any triggering events have occurred since2023. See Note 10 - Goodwill and Intangibles. There was no impairment of goodwill during the annual test date of September 30, 2022, which would indicate an impairment. Management determined no triggering events had occurred throughyear ended December 31, 2022.


Advertising


The Company expenses advertising costs as incurred. For the years ended December 31, 20222023 and 2021,2022, the company incurred advertising expenses of $146,000$564,000 and $43,000,$146,000, respectively.


Income Taxes


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 unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 20222023 or December 31, 2021. 2022. The Company had nono uncertain tax positions as of December 31, 2022,2023 and 2021.2022.


F - 13


Leases


Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company'sCompany’s incremental borrowing rates. Related operating ROU 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 in year 20222023 and 2021.2022. If the Company enters into a finance lease in the future, it will be accounted for in accordance with ASC Topic 842.

F-13

Stock-Based Compensation


The Company accounts for stock-based compensation for employees and directors under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using an appropriate valuation model, whereby compensation cost is the fair value of the award as determined by the valuation model at the grant date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company recognize forfeitures as they are incur.


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.


Business Combination


The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts. Acquisition-related expenses were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations


F - 14


operations.

Recent Accounting Pronouncements


Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the Company’s current or reasonably foreseeable operating structure.


There were no accounting pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued inAccounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (ASC 326)” This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to certain financial assets. The Company adopted ASC 326 on January 1, 2023, and estimated expected credit losses based on aging schedule, and provisioned approximately $15,000 credit loss for the year or with future effective datesended December 31, 2023.

F-14

On November 27, 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which requires public entities to consider relevant qualitative and quantitative factors when determining whether segment expense categories and amounts are significant, and identify segment expenses on the basis of amounts that are either applicable norregularly provided to the chief operating decision maker (CODM), and included in reported segment profit or loss. The ASU is effective for fiscal years beginning after Dec. 15, 2023, and interim periods within fiscal years beginning after Dec. 15, 2024. The Company does not believe this will have a material impact on the consolidated financial statements.

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.


Company’s consolidated financial statements.

Reclassification

Certain amounts in the consolidated financial statements and related notes have been reclassified to conform to the current year presentation. Such reclassifications do not impact the Company’s previously reported financial position or net loss. Below summarized reclassifications we made:

●Change in contingent consideration of $333,100 was previously presented in the consolidated statement of operations in other (expense) income, net for the year ended December 31, 2022, and was reclassified out of other (expense) income, net, and presented under change in contingent consideration.
●Investment for the amount of $9,771 was previously presented as Investment within total current assets in the December 31, 2022 consolidated balance sheet was reclassified to other current assets.

Note 4. 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.


 December 31, 2022  December 31, 2021 
       
Vapor sales, net $257,363  $2,084,813 
Grocery sales, net  29,009,640   11,235,041 
Total revenue $29,267,003  $13,319,854 
         
Retail Vapor $257,363  $2,084,744 
Retail Grocery  25,867,061   9,923,137 
Food service/restaurant  3,126,709   1,202,122 
Online/e-Commerce  15,870   93,600 
Wholesale Grocery  -   16,182 
Wholesale Vapor  -   69 
Total revenue $29,267,003  $13,319,854 



SCHEDULE OF DISAGGREGATION OF REVENUES

  

December 31,

2023

  

December 31,

2022

 
       
Vapor sales, net $617  $257,363 
Grocery sales, net  55,689,793   29,009,640 
Total revenue $55,690,410  $29,267,003 
         
Retail Vapor $-  $257,363 
Retail Grocery  47,243,163   25,867,061 
Food service/restaurant  8,440,245   3,126,709 
Online/e-Commerce  6,385   15,870 
Wholesale Vapor  617   - 
Total revenue $55,690,410  $29,267,003 

Note 5. INVESTMENT


In 2018, the Company invested $150,000$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 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. Investment is classed with Level 1 of the valuation hierarchy. Fair value for the investment is based on quoted prices in active markets. Investment is presented in other current assets in consolidated balance sheets.

F-15

F - 15


The following table summarizes the investment measured at fair value on a recurring basis as of December 31, 20222023 and 2021:


DescriptionFair Value Measurements Using Quoted Prices in Active Market (Level 1) Mark to Market December 31, 2022 
Investment $23,143  $(13,372) $9,771 


DescriptionFair Value Measurements Using Quoted Prices in Active Market (Level 1) Mark to Market December 31, 2021 
Investment $22,731  $412  $23,143 

2022:

SCHEDULE OF FAIR VALUE OF INVESTMENT

Description 

Fair Value

Measurements

Using Quoted Prices in

Active Market

(Level 1)

  

Mark to

Market

  

December 31,

2023

 
Investment $9,771  $(8,485) $1,286 

Description 

Fair Value

Measurements

Using Quoted Prices in

Active Market

(Level 1)

  

Mark to

Market

  

December 31,

2022

 
Investment $23,143  $(13,372) $9,771 

Note 6. INVENTORIES


Inventories are measured at the lower of cost and net realizable value using the average cost method.method. If the cost of the inventories exceeds their market value, adjustments are recorded to write down excess inventory to its net realizable value. The Company, as a result of its physical inventory observations recorded the write down of inventories amounting to approximately $2.51.5 million and $1.50.7 million approximately, in 20222023 and 2021,2022, respectively. The Company’s inventories consist primarily of merchandise available for resale.


 December 31, 2022  December 31, 2021 
       
Vapor Business $66,828  $188,793 
Grocery Business  3,750,364   1,332,406 
Total $3,817,192  $1,521,199 

SCHEDULE OF INVENTORIES

  

December 31,

2023

  

December 31,

2022

 
       
Vapor Business $66,671  $66,828 
Grocery Business  4,162,218   3,750,364 
Total $4,228,889  $3,817,192 

Note 7. NOTES RECEIVABLE AND OTHER INCOME


On September 6, 2018, the Company entered into a secured, 36-month36-month promissory note (the "Note"“Note”) with VPR Brands L.P. for $582,260.$582,260. The Note bears an interest rate of 7%7%, which payments thereunder are $4,141$4,141 weekly. The Company records all proceeds related to the interest of the Note as interest income as proceeds are received.


On August 31, 2022, the Company amended and restated the Secured Promissory Note (the "Amended Note"“Amended Note”) to extend the maturity date for one year. The outstanding balance for the amended note is $211,355.$211,355. The Amended Note bears an interest rate of 7%7%, which payments thereunder are $1,500$1,500 weekly, with such payments commencing as of September 3, 2022. The Amended Note has a balloon payment of $145,931$145,931 for all remaining accrued interest and principal balance due in the final week of the 1-year1-year extension of the Amended Note.


In August 2023, VPR Brands L.P. settled with the Company for the remaining notes receivable balance of $145,931 by making a balloon payment of $135,000 cash. The Company recognized a loss of $10,931 from this settlement which is included in other (expense) income net in the accompanying unaudited condensed consolidated statements of operations.

A summary of the Amended Note as of December 31, 20222023 and 20212022 is presented below:


 December 31, 
Description2022 2021 
Promissory Note $189,225  $247,915 

SUMMARY OF AMENDED NOTES

  December 31, 
Description 2023  2022 
Promissory Note $    -  $189,225 

For the years ended December 31, 20222023 and 2021,2022, the Company had notes receivable collections of approximately $59,000$178,000 and $57,000,$59,000, respectively. These collections are recorded to other income in the Consolidated Statement of Operations.

F-16
F - 16



Note 8. ACQUISITIONS


The purchase method of accounting in accordance with ASC 805, Business Combinations, was applied for the Mother Earth'sEarth’s Storehouse, and Green'sGreen’s Natural Foods and Ellwood Thompson’s acquisitions. This requires the total cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill. Goodwill arising from the acquisition is attributable to expected operational synergies from combining the operations of the acquired business with those of the Company.Company. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations.


Mother Earth'sEarth’s Storehouse


On February 9, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets 3, LLC (“HCM3”), entered into an Asset Purchase Agreement with Mother Earth’s Storehouse Inc. (“HCM3”) and its shareholders. Pursuant to the Purchase Agreement, HCM3 acquired certain assets and assumed certain liabilities related to Mother Earth’s grocery stores in Kingston and Saugerties, New York. The Company intends to continue to operate the grocery stores under their existing name. The cash purchase price under the Asset Purchase Agreement was $4,472,500,$4,472,500, with an additional $677,500$677,500 paid for inventory at closing. In addition, the Company assumed a lease obligation for the Kingston, NY store and entered into an employment agreement with the store manager.


The following table summarizes the purchase price allocation based on fair values of the net assets acquired at the acquisition date:


Purchase Consideration   
Cash consideration paid $5,150,000 
     
Purchase price allocation    
   Inventory  805,000 
   Property, plant, and equipment  1,278,000 
   Intangible assets  1,609,000 
   Right of use asset - operating lease  1,797,000 
   Other liabilities  (283,000)
   Operating lease liability  (1,797,000)
   Goodwill  1,741,000 
Net assets acquired $5,150,000 
     
Finite-lived intangible assets    
   Trade Names (8 years) $513,000 
   Customer Relationships (6 years)  683,000 
   Non-Compete Agreement (5 years)  413,000 
Total intangible assets $1,609,000 

SUMMARY OF PURCHASE PRICE ALLOCATION BASED ON FAIR VALUES OF THE NET ASSETS ACQUIRED

Purchase Consideration   
Cash consideration paid $5,150,000 
     
Purchase price allocation    
Inventory $805,000 
Property, plant, and equipment  1,278,000 
Intangible assets  1,609,000 
Right of use asset - operating lease  1,797,000 
Other liabilities  (283,000)
Operating lease liability  (1,797,000)
Goodwill  1,741,000 
Net assets acquired $5,150,000 
     
Finite-lived intangible assets    
Trade Names (8 years) $513,000 
Customer Relationships (6 years)  683,000 
Non-Compete Agreement (5 years)  413,000 
Total intangible assets $1,609,000 

The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purpose.


The results of operations of Mother'sMother’s Earth have been included in the consolidated statements of operations as of the effective date of operations.

F-17

Revenue and net income for year ended December 31, 2022 from date of acquisition were $11.911.9 million and $0.300.30 million, respectively. Acquisition-related expenses of $157,000157,000 were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022. The expenses primarily related to legal and other professional fees.


F - 17


Green’s Natural Foods


On October 14, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets IV, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Dean’s Natural Food Market of Shrewsbury, Inc., a New Jersey corporation, Green’s Natural Foods, Inc., a Delaware corporation, Dean’s Natural Food Market of Chester, LLC, a New Jersey limited liability company, Dean’s Natural Food Market of Basking Ridge, LLC, a New Jersey limited liability company, and Dean’s Natural Food Market, Inc., a New Jersey corporation (collectively, the “Sellers”), and shareholders of the Sellers. Pursuant to the Purchase Agreement, the Company acquired certain assets and assumed certain liabilities of an organic and natural health food and vitamin chain with eight store locations in New York and northern and central New Jersey (the “Stores”).


The cash purchase price under the Asset Purchase Agreement was $5,142,0005,142,000, with an additional $3,000,0003,000,000 provided by the seller financing in the form of a promissory note. In addition, the seller is entitled to a contingent earn-out based on a certain revenue threshold within the one-year period of the closing.


The Company recorded $1,108,000$1,108,000 of contingent consideration based on the estimated financial performance for the one year following closing. The contingent consideration was discounted at an interest rate of 3.8%3.8%, which represents the Company'sCompany’s weighted average discount rate. Contingent consideration related to the acquisition is recorded at fair value (level 3) with changes in fair value recorded in other expense (income), net.


The following table summarizes the change in fair value of contingent consideration from acquisition date to December 31, 2022:


 Fair Market Value - Level 3 
Balance as of October 14, 2022 $1,108,000 
Remeasurement  (333,100)
Balance as of December 31, 2022 $774,900 

2023:

SCHEDULE OF CHANGE IN FAIR VALUE OF CONTINGENT CONSIDERATION

  

Fair Market

Value - Level 3

 
Balance as of October 14, 2022 $1,108,000 
Remeasurement  (333,100)
Balance as of December 31, 2022 $774,900 
Remeasurement  (774,900)
Balance as of December 31, 2023 $- 

The following table summarizes the purchase price allocation based on fair values of the net assets acquired at the acquisition date:

SUMMARY OF PURCHASE PRICE ALLOCATION BASED ON FAIR VALUES OF THE NET ASSETS ACQUIRED

  October 14, 2022 
Purchase Consideration    
Cash consideration paid $5,142,000 
Promissory note  3,000,000 
Contingent consideration issued to Green’s Natural seller  1,108,000 
Total Purchase Consideration $9,250,000 
     
Purchase price allocation    
Inventory $1,642,000 
Property and equipment  1,478,000 
Intangible assets  3,251,000 
Right of use asset - Operating lease  6,427,000 
Other liabilities  (211,000)
Operating lease liability  (6,427,000)
Goodwill  3,090,000 
Net assets acquired $9,250,000 
     
Finite-lived intangible assets    
Trade Names (8 years) $1,133,000 
Customer Relationships (6 years)  1,103,000 
Non-Compete Agreement (5 years)  1,015,000 
Total intangible assets $3,251,000 

F-18

 October 14, 2022 
Purchase Consideration   
Cash consideration paid $5,142,000 
Promissory note  3,000,000 
Contingent consideration issued to Green's Natural seller  1,108,000 
Total Purchase Consideration $9,250,000 
     
Purchase price allocation    
Inventory $1,642,000 
Property and equipment  1,478,000 
Intangible assets  3,251,000 
Right of use asset - Operating lease  6,427,000 
Other liabilities  (211,000)
Operating lease liability  (6,427,000)
Goodwill  3,090,000 
Net assets acquired $9,250,000 
     
Finite-lived intangible assets    
Trade Names (8 years)
 $1,133,000 
Customer Relationships (6 years)
  1,103,000 
Non-Compete Agreement (5 years)
  1,015,000 
Total intangible assets $3,251,000 

F - 18


The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purpose.


Revenue and net income for year ended December 31, 2022 were $6.36.3 million and $0.050.05 million, respectively, from the date of acquisition through December 31, 2022. Acquisition-related expenses of $906,000906,000 were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022. The expenses primarily related to legal and other professional fees.

Ellwood Thompson’s

On October 1, 2023, the Company through its wholly owned subsidiary, Healthy Choice Markets V, LLC, entered into an Asset Purchase Agreement with (i) ET Holding, Inc., d/b/a Ellwood Thompson’s Local Market, a Virginia corporation, (ii) Ellwood Thompson’s Natural Market, L.C., a Virginia limited liability company, and (iii) Richard T. Hood, an individual resident of the Commonwealth of Virginia. Pursuant to the Purchase Agreement, the Company acquired certain assets and assumed certain liabilities related to Ellwood Thompson’s grocery stores in Richmond, Virginia. The Company intends to continue to operate the grocery stores under their existing name.

The cash purchase price under the Asset Purchase Agreement was $750,000, and a promissory note with a fair value of $718,000 provided by the seller. The principle amount of the promissory note was $750,000 with a fair value was $718,000, and the Company expensed the discount associated with the promissory note and recognized interest expense of approximately $32,000 for the year ended December 31, 2023. In addition, the Company entered into a new lease agreement with the landlord and entered into an employment agreement with the store manager.

The following table summarizes the purchase price allocation based on fair values of the net assets acquired at the acquisition date:

SUMMARY OF PURCHASE PRICE ALLOCATION BASED ON FAIR VALUES OF THE NET ASSETS ACQUIRED

  October 1, 2023 
Purchase Consideration    
Cash consideration paid $750,000 
Promissory note  718,000 
Total Purchase Consideration $1,468,000 
     
Purchase price allocation    
Inventory $851,000 
Intangible assets  291,000 
Right of use asset - Operating lease  1,325,000 
Other liabilities  (31,000)
Operating lease liability  (1,325,000)
Goodwill  357,000 
Net assets acquired $1,468,000 
     
Finite-lived intangible assets    
Trade Names (8 years) $291,000 
Total intangible assets $291,000 

F-19

The acquisition is structured as asset purchase in a business combination, and goodwill is tax-deductible, and amortizable over 15 years for tax purposes.

Revenue and net income were $3.1 million and $0.3 million, respectively, from the date of acquisition through December 31, 2023. Acquisition-related expenses of $131,000 were expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2023. The expenses primarily related to legal and other professional fees.

Revenue and Earnings


The following unaudited pro forma summary presents consolidated information of the Company, including Mother Earth'sEarth’s Storehouse, and Green'sGreen’s Natural Foods and Ellwood Thompson’s, as if the business combinations had occurred on January 1, 2021,2022, the earliest period presented herein:


December 31, 
 2022 2021 
Sales $55,103,386  $62,858,123 
Net loss  (4,685,191)  (403,154)

SCHEDULE OF SUPPLEMENTAL PRO FORMA INFORMATION

  2023  2022 
  December 31, 
  2023  2022 
Sales $65,262,783  $68,786,398 
Net loss  (18,670,111)  (4,171,713)

The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible and remove non-recurring transaction costs directly associated with the acquisitions, such as legal and other professional service fees. The proforma data gives effects to actual operating results prior to the acquisition. These proforma amounts do notnot purport to be indicative of the results that would have actually been obtained if the acquisitions occurred as of the beginning of each period presented or that may be obtained in future periods. For the year ended ended December 31, 2022,, the pro forma financial information excludes $1,063,0001,063,000 of non-recurring acquisition-related expenses.


EIR Hydration

On November 30, 2021, For the Company, through its wholly owned subsidiary, Healthy Choice Wellness Center, LLP, acquired EIR Hydration, an IV therapy center located in Roslyn Heights, NY. The costyear ended December 31, 2023, the pro forma financial information excludes $131,000 of the transaction was $non-recurring acquisition-related expenses.75,000 and it was treated as an asset purchase. The Company closed Roslyn Heights, NY wellness center in December 2022, and wrote off remaining book value of intangible assets in the amount of $54,000.

Note 9. PROPERTY, PLANT, AND EQUIPMENT


Property, plant, and equipment consist of the following:


 Year Ended December 31, 
  2022  2021 
       
Displays $312,146  $305,558 
Building  575,000   - 
Furniture and fixtures  560,256   246,496 
Leasehold improvements  1,910,719   136,504 
Computer hardware & equipment  160,210   151,924 
Other  587,602   315,788 
   4,105,933   1,156,270 
Less: accumulated depreciation and amortization  (993,025)  (979,282)
Total property, plant, and equipment $3,112,908  $176,988 

SCHEDULE OF PROPERTY PLANT AND EQUIPMENT

  2023  2022 
  Year Ended December 31, 
  2023  2022 
       
Displays $312,146  $312,146 
Building  575,000   575,000 
Furniture and fixtures  596,355   560,256 
Leasehold improvements  1,925,385   1,910,719 
Computer hardware & equipment  190,019   160,210 
Other  688,774   587,602 
Property and equipment, gross  4,287,679   4,105,933 
Less: accumulated depreciation and amortization  (1,552,427)  (993,025)
Total property, plant, and equipment $2,735,252  $3,112,908 

The Company incurred approximately $0.3$0.6 million and $0.1$0.3 million of depreciation expense for the years ended December 31, 2023 and 2022, and 2021, respectively.

F-20
F - 19



Note 10. GOODWILL AND INTANGIBLE ASSETS


The Company tests goodwill for impairment annually on September 30 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its estimated fair value.

The Company experienced recurring losses coupled with the reduction in same store revenue, a highly competitive industry and certain operational costs that have impacted our expectations such that future growth and profitability is lower than previous estimates. Furthermore, during the fourth quarter of 2023, the Company operated with negative working capital which, although not a determinant on its own, when combined with the other factors indicated that the Company’s goodwill may be impaired.

Because the qualitative test indicated that the Company’s goodwill was determined to be impaired, a second phase of the goodwill impairment test (“Step 2”) was performed. Under Step 2, the fair value of the Company was estimated for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of the impairment. The Company evaluated the fair value of its equity through the use of Guideline Public Company Method and Discounted Cash Flow Method. These two methods first calculated market value of invested capital, then the Company applied 50% of weighting to each method to derive the weight equity value. The Guideline Public Company Method calculated the Company’s equity using public markets’ relevant comparable set with market multiples that are applicable to the company. The Discounted Cash Flow Method discounted projected free cashflows of the Company at a computed weighted average cost of capital of 16.5% as the discount rate. The Discounted Cash Flow Method requires the use of significant estimates and assumptions to calculate projected future cash flow, weighted average cost of capital, and future economic and market conditions. The Company based the forecasts on its knowledge of the industry, recent performance and expected future performance, and other assumptions management believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

As a result, the entire $6.1 million carrying amount of the Company’s goodwill was recognized as a non-cash impairment charge during the year ended December 31, 2023. There was no impairment of goodwill during the year ended December 31, 2022.

The changes in the carrying amount of goodwill for the years ended December 31, 20222023 and 20212022 are as follows:


 December 31, 2022  December 31, 2021 
       
Beginning balance $916,000  $916,000 
Acquisitions  4,831,000   - 
Ending balance $5,747,000  $916,000 

SCHEDULE OF CHANGES IN CARRYING AMOUNT OF GOODWILL

  December 31, 2023  

December 31,

2022

 
       
Beginning balance $5,747,000  $916,000 
Acquisitions  357,000   4,831,000 
Impairment  (6,104,000)  - 
Ending balance $-  $5,747,000 

Intangible assets, net are as follows:

SCHEDULE OF INTANGIBLE ASSETS, NET

December 31, 2023 Useful Lives (Years) 

Gross Carrying

Amount

  Accumulated Amortization  

Net Carrying

Amount

 
Customer relationships 4-6 years $2,669,000  $(1,330,972) $1,338,028 
Trade names 8-10 years  2,860,000   (1,035,443)  1,824,557 
Patents 10 years  397,165   (199,001)  198,164 
Non-compete 4-5 years  1,602,000   (586,067)  1,015,933 
Intangible assets, net   $7,528,165  $(3,151,483) $4,376,682 

F-21

December 31, 2022 Useful Lives (Years) 

Gross Carrying

Amount

  Accumulated Amortization  

Net Carrying

Amount

 
Customer relationships 4-6 years $2,669,000  $(1,033,306) $1,635,694 
Trade names 8-10 years  2,569,000   (725,723)  1,843,277 
Patents 10 years  384,665   (159,658)  225,007 
Non-compete 4-5 years  1,602,000   (300,467)  1,301,533 
Intangible assets, net   $7,224,665  $(2,219,154) $5,005,511 

December 31, 2021
Useful Lives (Years) 
Gross Carrying
Amount
  Accumulated Amortization  
Net Carrying
Amount
 
Customer relationships4-5 years $883,000  $(685,823) $197,177 
Trade names8-10 years  923,000   (536,661)  386,339 
Patents10 years  372,165   (122,233)  249,932 
Non-compete4-5 years  238,000   (133,646)  104,354 
Website4 years  10,000   (209)  9,791 
Intangible assets, net  $2,426,165  $(1,478,572) $947,593 

Amortization expense was approximately $0.8$0.9 million and $0.4$0.8 million for the years ended December 31, 2023 and 2022, and 2021, respectively.


The weighted-average remaining amortization period of the Company’s amortizable intangible assets is approximately 5 years as of December 31, 2022.2023. The estimated future amortization of the intangible assets is as follows:


For the years ending December 31,   
2023 $922,358 
2024  922,358 
2025  916,858 
2026  838,877 
2027  694,456 
Thereafter  710,604 
Total $5,005,511 

SCHEDULE OF FUTURE ANNUAL ESTIMATED AMORTIZATION EXPENSE

  - 
For the years ending December 31,   
2024 $959,391 
2025  953,891 
2026  875,910 
2027  731,489 
2028  412,819 
Thereafter  443,182 
Total $4,376,682 

Note 11. CONTRACT LIABILITIES


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.


A summary of the contract liabilities activity for the years ended December 31, 20222023 and 20212022 is presented below:


 Year ended December 31, 
  2022  2021 
Beginning balance as of January1, $23,178  $21,262 
Issued  859,383   39,469 
Redeemed  (628,012)  (37,463)
Breakage recognized  (55,943)  (90)
Ending balance as of December 31, $198,606  $23,178 

SUMMARY OF CONTRACT LIABILITIES ACTIVITY

  2023  2022 
  Year ended December 31, 
  2023  2022 
Beginning balance as of January1, $198,606  $23,178 
Issued  891,060   859,383 
Redeemed  (812,694)  (628,012)
Breakage recognized  (69,459)  (55,943)
Ending balance as of December 31, $207,513  $198,606 

Note 12. DEBT


The following table provides a breakdown of the Company'sCompany’s debt as of December 31, 20222023 and 20212022 is presented below:

SCHEDULE OF BREAKDOWN OF DEBT

  2023  2022 
  December 31, 
  2023  2022 
Promissory note $3,106,508  $2,460,556 
Line of credit  453,232   453,232 
Other debt  -   815 
Total debt  3,559,740   2,914,603 
Current portion of long-term debt  (1,155,933)  (536,542)
Long-term debt $2,403,807  $2,378,061 

F-22

 December 31, 
  2022  2021 
Promissory note $2,913,788  $- 
Other debt  815   3,419 
Total debt $2,914,603  $3,419 
Current portion of long-term debt  (536,542)  (2,604)
Long-term debt $2,378,061  $815 

Revolving Line of Credit


On November 3, 2021,, the Company entered into an agreement for a new revolving line of credit of $2.02.0 million and a blocked/restricted deposit account (“blocked account”) with Professional Bank in Coral Gables, Florida. The agreement included a variable interest rate that it is based on a rate of 1.01.0%% over what is earned on the collateral account. Based on the agreement with the bank, each draw request from the credit line will be 100100%% cash secured with moneys held from the blocked account. The outstanding balances werebalance was $453,232453,232 and $418,036 as of December 31, 2022 and 2021, respectively.


Term Loan Credit Agreement

On December 31, 2019, the Company entered into a Term Loan Credit Agreement (the “Credit Agreement”) with Professional Bank, a Florida banking corporation (the “Bank”), pursuant to which the Company issued a Term Note (the “Term Note”) in the principal amount of $1,400,000 in favor of the Bank. The Term Note bears interest at a rate equal to 1.5 percentage points in excess of that rate shown in the Wall Street Journal as the prime rate, adjusted annually (which was 5.50% as of December 31, 20202023 and 2021).2022, respectively. The proceedsline of the Term Note were used for acquisitions and for general working capital requirements.

On December 21, 2021, the Company paidcredit will expire in full the outstanding balance of $410,000 from the Term Loan.

F - 20


Paycheck Protection Program

On May 15, 2020, the Company was granted a loan (the “Loan”) from Customers Bank, in the aggregate amount of $876,515, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The Loan, which was in the form of a Note dated May 6, 2020 issued by the Company, matures on May 6, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 6, 2020. Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred after May 6, 2020. The Company intends to use the entire Loan amount for these qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. On December 9, 2020, the Company submitted the forgiveness application for the PPP Loan to the Small Business Bureau.

On May 3, 2021, the Company received a letter from Customers Bank to inform the Company that the PPP Loan was paid and fully forgiven by the Small Business Administration (SBA). The forgiveness of $885,227 was reported in gain on debt settlements on the consolidated statements of operations.

2024.

Promissory Note


In connection with the Green'sGreen’s Natural Foods acquisition, on October 14, 2022, the Company issued a secured promissory note (the “Greens Note”) in the principal amount of $3,000,000$3,000,000 as a portion of the purchase price. The Greens Note has a five-year term, an interest rate of 6.0%6.0% per annum and is secured by the assets of the Green'sGreen’s Natural Foods.


The outstanding balance was approximately $2,378,000 and $2,914,000 as of December 31, 2023 and 2022, respectively. The Company incurred approximately $160,000 and $30,000 interest expense for the years ended December 31, 2023 and 2022, respectively.

In connection with the Ellwood Thompson’s acquisition, on October 1, 2023, the Company issued a secured promissory note (the “Ellwood Note”) in the principal amount of $750,000, and discounted present value of $718,000 as a portion of the purchase price. The Ellwood Note has a five-year term, an interest rate of 6.0% per annum. The outstanding balance of the Ellwood Note was approximately $728,000 in principle amount as of December 31, 2023. The Company expensed the discount on promissory note and recognized interest expense of approximately $39,000 for the year ended December 31, 2023.

The Company may, at its option, at any time or from time to time prepay the outstanding principal amount or any accrued but unpaid interest, in each case in whole or in part, without penalty or premium, provided that any such prepayment of any outstanding amount of principal shall be accompanied by the payment of all accrued but unpaid interest on the amount of principal being prepaid, plus any costs and fees incurred.



The following table summarizes the 5-year repayment schedule:

SCHEDULE OF MATURITIES OF LONG TERM DEBT

  - 
For the years ending December 31,   
2024 $702,701 
2025  746,042 
2026  792,056 
2027  724,333 
2028  141,376 
Total $3,106,508 

Note 13. COMMITMENTS AND CONTINGENCIES


Employment Agreements 

On August 13, 2018, the Company amended and restated its existing employment agreement with Jeffrey Holman, the Company’s Chief Executive Officer (the “Holman Employment Agreement”). The Holman Employment Agreement is for an additional three year term and provides for an annual base salary of $450,000450,000 and a target bonus for 2020 only in an amount ranging from 2020%% to 200200%% 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 1111 billion shares of restricted common stock pursuant to the Holman Employment Agreement Amendment on the condition that 1111 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. On August 12, 2019, the Company agreed to extend the expiration date of the vesting period for the restricted stock by six months to February 13, 2020. On August 12, 2020, the Company agreed to extend for a second time the expiration date of the vesting period for the restricted stock by six months to February 13, 2021.The term of the employment agreement shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term.

F-23

F - 21



On February 26, 2021, the Company entered into an amended and restated employment agreement (the “Employment Agreement Amendment”) with the Company’s President and Chief Operating Officer, Christopher Santi. Pursuant to the Employment Agreement Amendment, Mr. Santi will continue to be employed as the Company’s President and Chief Operating Officer through January 30, 2024. Mr. Santi will receive a base salary of $0.40.4 million for 2021 and his salary will increase 1010%% in each subsequent year. The term of the amended employment agreement shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term.


On February 02, 2022, the Company entered into a second amended and restated employment agreement (the “Employment Agreement Amendment”) with the Company’s Chief Financial Officer, John Ollet. Pursuant to the Employment Agreement Amendment, Mr. Ollet will continue to be employed as the Company’s Chief Financial Officer through February 14, 2025. Mr. Ollet will receive a base salary of $0.3$0.3 million for 2022 and his salary will increase 10%10% in each subsequent calendar year. The term of the amended and restated employment agreement shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term.


Legal Proceedings


Two lawsuits were filed against the Company and its subsidiaries in connection with alleged claimed battery defects for an electronic cigarette device. Plaintiffs claim these batteries were sold by a store of the Company’s subsidiary and have sued for an undetermined amount of damages (other than a total of $0.4 million of medical costs). The initial complaints were filed between January 2019 and April 2019. We responded to the complaints in April 2019 and May 2019, respectively. Given the lack of information presented by the plaintiffs to date, the Company is unable to predict the outcome of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to these legal proceedings.

On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc., and Philip Morris Products S.A. in the U.S. District Court for the Northern District of Georgia. The lawsuit alleges infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS®”. Philip Morris claims that it is currently approaching 1414 million users of its IQOS® product and has reportedly invested over $3 3billion in their smokeless tobacco products. On December 3, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc., and Philip Morris Products S.A. On December 14, 2021, the Company filed an appeal of the District Court for the Northern District of Georgia’s dismissal of the Company’s patent infringement action against Philip Morris USA, Inc., and Philip Morris Products S.A.


On December 31, 2021, the District Court for the Northern District of Georgia effectively dismissed HCMC’s patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. In connection with such dismissal, the defendants sought to recover attorney’s fees from the Plaintiff. On February 22, 2022, the District Court for the Northern District of Georgia granted the defendant’s an award of approximately $575,000 $575,000 in attorneys’ fees to be paid by the Company. The Company has fully provisioned this amount as of December 31, 2021. HCMC appealed this ruling on June 22, 2022.

On April 12, 2023, the U.S. Court of Appeals for the Federal Circuit ruled in favor of HCMC on two separate appeals it had filed in its patent infringement action against Philip Morris USA, Inc. and Philip Morris Products S.A. pending in the district court for the Northern District of Georgia.

In the first appeal, HCMC appealed the ruling of the District Court dismissing HCMC’s patent infringement action and denying HCMC’s motion to amend its pleading. In the second appeal, HCMC appealed the District Court’s award of attorneys’ fees to Philip Morris. In its decisions, the Federal Circuit ruled for HCMC by reversing both of those decisions and remanded the case back to the District Court for further proceedings. As a result of the ruling, the Company reversed the $575,000, which was previously fully provisioned, during the three months ended March 31, 2023.

F-24

There were two lawsuits in connection with alleged claimed battery defects for an electronic cigarette device. One has been dismissed by the court wherein the plaintiff settled with the Company’s insurance carrier with no economic impact to the Company. In the second lawsuit, as of December 31, 2023, the Company has reached an arrangement with the plaintiff to resolve the matter, limiting potential exposure to $1.5 million.  While this arrangement is presently not formalized by a signed agreement, the Company has accrued a liability of $1.5 million, reflected in accounts payable and accrued expenses, to represent management’s estimate of the probable settlement amount based on the current status of discussions.  The settlement remains subject to finalization, and until a definitive agreement is executed, no assurance can be given that the outcome will differ from this accrual. The case has been removed from the courts trial calendar.

On September 26, 2023, HCMC filed a patent infringement lawsuit against R.J. Reynolds Vapor Company (“RJR”) in the U.S. District Court for the Middle District of North Carolina in connection with HCMC’s assertions that RJR’s Vuse electronic cigarette infringes one of HCMC’s patents.

From time to time the Company is involved in legal proceedings arising in the ordinary course of our business. We believe that there is no other litigation pending that is likely to have, individually or in the aggregate, a material adverse effect on our financial condition or results of operationsoperations. As of December 31, 2022. With2023, with respect to legal costs, we record such costs as incurred.


Fontem License Agreement

On July 7, 2023, the Company entered into a patent licensing agreement for one of its patents in the vape segment. The Company hasas the licensor, grants to licensee during the term a non-exclusive right and license under the Licensed Patents to certainmake, use, offer to sell, sell, and import licensed products in the territory of the United States of America. The licensee will pay to the licensor a royalty based on net sales of all licensed products in the territory during the term of the agreement. Either party can cancel the agreement with Fontem Ventures B.V. (“Fontem”).60-days written notice. The Company will make quarterly license and royalty payments in perpetuity to Fontem, based on the sale of qualifying products as definedis still in the license agreement at a royalty rateprocess of 5.25%. Forbuilding this operation, and no product sales or no royalties earned as of the years ended December 31, 2022 and 2021, the Company recorded expensesdate of $1,000 and $12,000 as part of its cost of goods. The agreement was terminated when the Company closed all retail stores.

F - 22


Notethis filing.

Note 14. STOCKHOLDERS’ EQUITY


Equity Compensation Plans


The Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), awards grants to employees. On April 23, 2023, the Board of Directors (the “Board”) of HCMC approved the Second Amendment to the 2015 Equity Incentive Plan (the “Amended Plan”). The plan can award up to 100 billionAmended Plan increased the number of shares of HCMC common stock authorized for issuance under the Amended Plan to 225,000,000,000 shares, and currently 5.52.5 billion shares are available for grant as of December 31, 2022.


2023.

The Company’s 2009 Equity Incentive Plan (the “2009 Plan”) awards grants to employees, non-employee directors and consultants in connection with their retention and/or continued employment by the Company. The 2009 Plan had no shares of common stock available for grant as of December 31, 2022.


Rights Offering

On 2023.June 18, 2021, the Company issued 27,046,800,310

 shares of common stock in connection with the Rights Offering at a subscription price of $0.0010

 per share, generating gross proceeds of $27.0 million. The Company incurred direct financing costs of $2.7 million in connection with the offering resulting in net proceeds to the Company of $24.3 million.


Exchange Agreement

On March 29, 2021, the Company entered into exchange agreements with the holders of the $2.7 million Loan and Security Agreement (the "Credit Agreement"). The agreement with the holders of the Company’s indebtedness (the “Notes”) in an aggregate amount of $1.3 million to exchange the Notes for 1,172,964,218 shares at a conversion price of $0.0011. The Notes were issued pursuant to the Credit Agreement dated as of August 18, 2020, among The Vape Store, Inc., the Company, Healthy Choice Markets, Inc., Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund, Ltd. In connection with the Exchange, the Credit Agreement and all related loan documents was terminated and the Holder’s on the assets of the Company and its subsidiaries was cancelled. The Company recognized a loss on debt extinguishment of $0.1 million for the year ended December 31, 2021.

Series C Convertible Preferred Stock

On November 17, 2020, the Company finalized the closing of the stock exchange with certain holders of its Series B Stock to exchange all the Series B Stock for 20,150 shares of Series C Convertible Preferred Stock (the “Series C Stock”). Each share of Series C 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. The Series C Stocks have no voting rights.

During the years ended December 31, 2022 and 2021, the Company issued 0 share and 162.8 billion shares of Company common stock in connection with the exercise of Series C stock.

Series D Convertible Preferred Stock

On February 7, 2021,, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold and issued 5,0005,000 shares of its Series D Convertible Preferred Stock (the “Preferred Stock”) to accredited investors for $1,0001,000 per share or an aggregate subscription of $5.05.0 million. In 2021,  million.4,200 shares of Series D Convertible Preferred Stock were exercised and converted into common stocks. As of DecemberDecember 31, 2021,2023, the Company has issued 8.06.6 billion shares of Companythe Company’s common stock in connection with the exercise of the remaining 8004,200 shares of the Series D Convertible Preferred Stock at a conversion price of $0.00010.00064 per share. The conversion price for the exerciseAs of theDecember 31, 2023, all Series D preferred stock was reset to the 80% of the lowest daily volume-weighted average price ("VWAP") during the 5 Trading Days immediately preceding the effective date of August 11, 2021. stocks have been converted. The Series D Stocks have no voting rights.

F - 23


Series E Redeemable Convertible Preferred Stock


On August 18, 2022, the Company entered into a Securities Purchase Agreement(" (“HCMC Preferred Stock"Stock”)pursuant to which the Company sold and issued 14,722 shares of its Series E Convertible Preferred Stock to institutional investors for $1,000$1,000 per share or an aggregate subscription of $13.25$13.25 million. The number of shares issued to each participant is based on subscription amount multiplied by conversion rate of 1.1111.1.1111. The Company also incurred offering costs of approximately $410,000,$410,000, which covers legal and consulting fee.fees.

F-25

For the year ended December 31, 2023, 1,585 shares of Series E preferred stock were converted into 15,850,000,000 shares of common stock as a result of the Series E preferred stock conversion. 12,026 shares of Series E preferred stock were redeemed and approximately $12,004,000 was paid for redemption.

The HCMC Preferred Stock have voting rights on as converted basis at the Company’s next stockholders’ meeting. However, as long as any shares of HCMC Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the HCMC Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the HCMC Preferred Stock or alter or amend the Certificate of Designation, (b) increase the number of authorized shares of HCMC Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing. Each share of Preferred Stock shall be convertible, at any time and from time to time at the option of the Holder thereof, into that number of shares of Common Stock (subject to the beneficial ownership limitations). The conversion price for the HCMC Preferred Stock shall equal $0.0001.


$0.0001.

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designation), the holders of HCMC Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $1,000$1,000 per share of HCMC Preferred Stock.


Unless earlier converted or extended as set forth below, a holder may require the redemption of all or a portion of the stated value of the HCMC Preferred Stock either (1) six months after closing or (2) the time at which the balance is due and payable upon an event of default.


On March 1, 2023, the Company entered into a First Amendment to HCMC Series E Preferred Stock with each purchaser (“Purchaser”) identified as those who participated in the HCMC Series E Preferred Stock, dated as of August 18, 2022. The parties amended the HCMC Preferred Stock related to the conversion payment whereby upon conversion of the Series E Preferred Stock prior to the record date for the Spin-Off,


the Company will pay the Purchaser ten percent (10%) of the stated value of the Series E Preferred Stock converted. The record date was May 1, 2023.

On May 15, 2023, the Company and the Purchaser entered into the Second Amendment to the Securities Purchase Agreement, pursuant to which the Company agreed to extend the time period for the Conversion Payment eligibility to December 1, 2023. The Company filed an amendment to the Certificate of Designation to make the redemption price of the Preferred Stock (the “Redemption Price”) equal the Stated Value regardless of the date on which it is redeemed. Prior to this amendment, the Redemption Price was discounted by 1% for each month after the seven-month anniversary of the Issue Date that the Purchaser elected not to redeem.

On October 30, 2023, the Company entered into a Third Amendment to the Securities Purchase Agreement with its Series E Redeemable Convertible Preferred Stock purchasers. The parties agreed to: (1) set the initial conversion price for the Series A Preferred Stock to be the 5-day volume weighted average price measured using the 5 trading days preceding the purchase of the Series A Preferred Stock, (2) on the 40th calendar day (the “Reset Date”) after the sale of the Series A Preferred Stock, reset the conversion price in the event the closing price of the Class A common stock on such date is less than the initial conversion, (3) have the reset conversion price equal a 10% discount to the 5-day volume weighted average price measured using the 5 trading days preceding the Reset Date; provided, however, in no instance will the conversion price be reset below 30% of the initial conversion price, and (4) amend the date on which the obligation to acquire the Series A Preferred Stock ceases to March 1, 2024.

On February 20, 2024, the Company entered into a Fourth Amendment to the Securities Purchase Agreement with its Series E Redeemable Convertible Preferred Stock purchasers, pursuant to which the Company and such parties agreed to amend the date on which the obligation to acquire the Series A Preferred Stock ceases to June 1, 2024.

Spin-Off

The Company is planning to spin off its grocery segment and wellness business into a new publicly traded company (hereinafter referred to as “NewCo”). NewCo will continue the path of growth in the health verticals started by HCMC and explore other growth opportunities that comport with HCMC’s healthier lifestyle mission. HCMC will retain its entire patent suite, the Q-Cup® brand, and continue to develop its patent suite through R&D as well as continuing its path of enforcing its patent rights against infringers and attempting to monetize said patents through licensing deals.

F-26

At the time of the Spin-Off, HCMC will distribute all the outstanding shares of Common Stock held by it on a pro rata basis to holders of HCMC’s common stock. Each share of HCMC’s common stock outstanding as the record date for the Spin-Off (the “Record Date”), will entitle the holder thereof to receive shares of Common Stock in NewCo. The distribution will be made in book-entry form by a distribution agent. Fractional shares of Common Stock will not be distributed in the Spin-Off and any fractional amounts will be rounded down


down.

Pursuant to the Securities Purchase Agreement, purchasers of the Series E Convertible Preferred Stock will also be required to purchase Series A Convertible Preferred Stock (“NewCo Series A Stock”) of a newly created public company (“NewCo”)NewCo resulting from spin off of HCMC’s grocery and wellness businesses in the same subscription amounts that the Purchasers paid for the HCMC Preferred Stock.


Restricted Stock

On January 14, 2021,October 27, 2023, the Compensation CommitteeCompany filed a new registration statement on Form S-1 (the “Spin-off S-1”) in connection with the spin-off of all of the Company approved an issuance of restrictedexisting HCWC common stock toby Healthier Choices Management Corp. with the OfficersSecurities and a Director ofExchange Commission (the “Commission”).

On October 30, 2023, the Company in consideration for agreeingfiled Amendment No. 1 to a new vesting schedule forits registration statement on Form S-1 (the “IPO S-1”) with the existing awarded restricted stock. Each individual was granted a Commission.10%

 increase from the original award agreement for a total of 2.3

 billion shares of restricted common stock with fair value of $225,000, which will vest quarterly in equal amounts until On December 31, 2022, provided that the grantee remains an employee of20, 2023, the Company throughfiled Amendment No. 1 to its Spin-off S-1 with the vesting date.Commission.

F - 24


On March 30, 2021,December 21, 2023, the Company andfiled Amendment No. 2 to its IPO S-1 with the Officers and a Director of the Company agreed to forfeit a total of Commission.3.09

 billion of restricted stocks that were due to vest on March 31, 2021

.Restricted Stock


On June 29, 2021, the Company and the Officers and a Director of the Company agreed to forfeit a total of 3.09

 billion of restricted stocks that were due to vest on June 30, 2021.


On January 1, 2022, the Company granted 1,500,000,0001,500,000,000 restricted shares of common stock to a non-employee for service rendered with fair value of $150,000150,000 that would vest in25% each quarter starting from June 30, 2023 andthrough March 31, 2024.


On December 14, 2022, the Company granted 4,000,000,0004,000,000,000 shares of restricted stocks with fair value of $400,000400,000 to the two Directors of the Company that would vest onstarting from the first anniversary of the grant date at 12.5% for each calendar quarter for two years.

On April 23, 2023, HCMC’s board of directors has approved the issuance of approximately 107,675,000,000 shares of restricted common stock to the employees and executive officers of HCMC. Each grant of restricted common stock will commence vesting of 12.5two Directors% of the Company.award on February 1, 2024 and will vest in 12.5


% increments on the last day of each calendar quarter thereafter through September 30, 2025. All shares of restricted common stock related to the April 23, 2023 issuance remain unvested as of December 31, 2023.

The following table reflects the activity for all unvested restricted stocks during 2022:2023:

 SCHEDULE OF UNVESTED RESTRICTED STOCK

  Shares  

Weighted

Average

Grant Date

Fair Value

 
Unvested at January 1, 2023  5,500,000,000  $550,000 
Granted  107,675,000,000   10,767,500 
Vested  (1,625,000,000)  (162,500)
Forfeited  -   - 
Unvested at December 31, 2023  111,550,000,000  $11,155,000 

F-27

 Shares  Weighted Average Grant Date Fair Value 
Unvested at January 1, 2022  -  $- 
Granted  5,500,000,000   284,677 
Vested  -   - 
Forfeited  -   - 
Unvested at December 31, 2022  5,500,000,000  $284,677 

Stock Options


A summary of option activity during the years ended December 31, 20222023 and 20212022 is as follows:


 Number of Options  
Weighted Average
Exercise
Price
  Weighted Average Remaining Term (Yrs.)  Aggregate Intrinsic Value 
             
Outstanding, January 1, 2021
  69,862,230,680  $0.00   6  $- 
Options granted  -   0.00       - 
Options forfeited or expired  (2,275,000,000)  0.00       - 
Outstanding, December 31, 2021
  67,587,230,680  $0.00   5  $- 
Options granted  -   0.00       - 
Options exercised  -   0.00       - 
Options forfeited or expired  -   0.00       - 
Outstanding, December 31, 2022
  67,587,230,680  $0.00   4   - 
Exercisable on December 31, 2022
  67,587,230,680  $0.00   4  $- 

SUMMARY OF OPTION ACTIVITY

  Number of Options  

Weighted Average

Exercise

Price

  Weighted Average Remaining Term (Yrs.)  Aggregate Intrinsic Value 
             
Outstanding, January 1, 2022  67,587,230,680  $0.0001   5  $- 
Options granted  -   0.0001       - 
Options forfeited or expired      0.0001       - 
Outstanding, December 31, 2022  67,587,230,680  $0.0001         4  $       - 
Options granted  -   0.0001       - 
Options exercised  -   0.0001       - 
Options forfeited or expired  (8,480)  0.0001       - 
Outstanding, December 31, 2023  67,587,222,200  $0.0001   3   - 
Exercisable on December 31, 2023  67,587,222,200  $0.0001   3  $- 

During the years ended December 31, 20222023 and 2021,2022, the Company recognized stock-based compensation expense of approximately $72,222$3,430,000 and $34,375,$72,000, respectively, in connection with the amortization of restricted stocks and stock options. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.

F - 25


Income (Loss) per Share


Basic income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon (a) the exercise of stock options (using the treasury stock method); (b) the conversion of Series D and Series E convertible preferred stocks; (c) the exercise of warrants (using the if-converted method); (d) the vesting of restricted stock units; and (e) the conversion of convertible notes payable. Diluted income (loss) per share excludes the potential common shares, as their effect is antidilutive. The following table summarizes the Company’s securities that have been excluded from the calculation of basic and dilutive income (loss) per share as their effect would be anti-dilutive:

SCHEDULE OF DILUTIVE LOSS PER SHARE

  2023  2022 
  December 31, 
  2023  2022 
       
Preferred stock  11,111,000,000   148,470,000,000 
Stock options  67,587,222,200   67,587,230,680 
Restricted stock  113,175,000,000   5,500,000,000 
Total  191,873,222,200   221,557,230,680 

F-28

 December 31, 
  2022  2021 
       
Preferred stock  148,470,000,000   1,250,000,000 
Stock options  67,587,230,680   67,587,230,680 
Restricted stock  5,500,000,000   - 
Total  221,557,230,680   68,837,230,680 


Note 15. LEASE


LEASES

The Company has various lease agreements with terms up to 20 years, including leases of retail stores, headquarterheadquarters and equipment. All the leases are classified as operating leases.


The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of December 31, 2022.


Maturity of Lease Liabilities by Fiscal Year   
2023 $2,572,637 
2024  1,995,148 
2025  1,688,859 
2026  1,504,408 
2027  1,177,509 
Thereafter  2,934,186 
Total undiscounted operating lease payments $11,872,747 
Less: Imputed interest  (1,602,391)
Present value of operating lease liabilities $10,270,356 

2023.

 SCHEDULE OF MATURITY OF LEASE LIABILITIES

Maturity of Lease Liabilities by Fiscal Year    
2024 $3,212,909 
2025  2,862,488 
2026  2,521,339 
2027  1,535,080 
2028  834,710 
Thereafter  1,363,363 
Total undiscounted operating lease payments $12,329,889 
Less: Imputed interest  (1,021,443)
Present value of operating lease liabilities $11,308,446 

The following summarizes the Company'sCompany’s operating leases:


Balance Sheet Classification 
December 31, 2022
  December 31, 2021 
Right of use asset $10,604,935  $3,543,930 
         
Operating lease liability, current $2,228,852  $437,328 
Operating lease liability, net of current  8,041,504   2,685,021 
Total operating lease liabilities $10,270,356  $3,122,349 
F - 26


SCHEDULE OF BALANCE SHEET CLASSIFICATION AND OTHER INFORMATION

Balance Sheet Classification 

December 31,

2023

  

December 31,

2022

 
Right of use asset $11,511,002  $10,604,935 
         
Operating lease liability, current $2,842,829  $2,228,852 
Operating lease liability, net of current  8,465,617   8,041,504 
Total operating lease liabilities $11,308,446  $10,270,356 

The amortization of the right-of-use asset of $1,164,027 wasapproximately $2,590,000 and $1,164,000 for the years ended December 31, 2023 and 2022, respectively, were included in operating cash flows.


Other Information   
Weighted-average remaining lease term for operating leases 65 years 
Weighted-average discount rate for operating leases  3.833.98%

Rent expense for the years ended December 31, 20222023 and 20212022 was approximately $1.5 million$3,500,000 and $0.9 million,$1,500,000, respectively, is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.


The following table represents the components of lease cost are as follows for twelve months ended December 31, 2022:


 December 31, 2022 
Operating lease cost $759,207 
Variable lease cost  403,329 
Short-term lease cost  377,024 
Total rent expense $1,539,560 

2023:

SCHEDULE OF LEASE EXPENSE

  December 31, 2023 
Operating lease cost $2,265,820 
Variable lease cost  944,987 
Short-term lease cost  324,507 
Total rent expense $3,535,313 

The aggregate cash payments under the leasing arrangement was approximately $1,077,000$2,458,000 for the year ended December 31, 20222023 and was included in operating cash flows.

F-29


Note 16. INCOME TAXES


The Company did not have a provision for income taxes (current or deferred tax expense) for tax years ended December 31, 2022 and 2021. The following is a reconciliation of thes expected tax expense (benefit) at the U.S. statutory rate to the actual tax expense (benefit) reflected in the accompanying statement of operations:


 Year Ended December 31, 
  2022  2021 
       
U.S. federal statutory rate $(1,515,700) $(847,867)
State and local taxes, net of federal benefit  (359,643)  (111,900)
Change in valuation allowance  2,733,655   734,615 
True-up & deferred adjustment  144   11,441 
Stock based compensation  -   8,171 
Forgiveness of PPP loan  -   (210,432)
Other permanent items  -   - 
Change in tax rate  (252,392)  89,360 
Expired warrants  -   - 
Other  (606,064)  326,612 
  $-  $- 

F - 27


SCHEDULE OF INCOME TAX RECONCILIATION EXPECTED EXPENSE (BENEFIT)

  2023  2022 
  Year Ended December 31, 
  2023  2022 
       
U.S. federal statutory rate $(3,881,403) $(1,515,700)
State and local taxes, net of federal benefit  (1,036,963)  (359,643)
Change in valuation allowance  4,999,204   2,733,655 
True-up & deferred adjustment  (19,998)  144 
Other permanent items  2,928   - 
Change in tax rate  (63,768)  (252,392)
Other  -   (606,064)
Total income tax benefit $-  $- 

As of December 31, 20222023 and 2021,2022, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following:


 Year Ended December 31, 
  2022  2021 
Deferred tax assets:      
Net operating losses $17,030,852  $14,136,491 
Inventory reserves and allowances  -   30,156 
Unrealized loss on investment  36,436   - 
Accrued Expenses and Deferred Income  149,402   136,686 
Charitable contribution  5,737   5,134 
Stock based compensation  2,099,241   1,903,413 
Net book value of fixed assets  -   1,961 
Net book value of intangible assets  314,775   671,954 
ASC 842 - Lease Accounting  44,484   33,891 
Total deferred tax assets  19,680,927   16,919,686 
         
Deferred tax liabilities:        
   Net book value of fixed assets  (27,540)  - 
Total deferred tax liabilities  (27,540)  - 
         
Net deferred tax assets  19,653,342   16,919,686 
Valuation allowance  (19,653,342)  (16,919,686)
Net deferred tax assets $-  $- 

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

  2023  2022 
  Year Ended December 31, 
  2023  2022 
Deferred tax assets:        
Net operating losses $19,684,763  $17,030,852 
Unrealized loss on investment  39,580   36,436 
Accrued Expenses and Deferred Income  -   149,402 
Charitable contribution  8,330   5,737 
Stock based compensation  3,029,964   2,099,241 
Net book value of intangible assets  1,801,150   314,775 
UNICAP 263a Adjustment  53,284   - 
ASC 842 - Lease Accounting  65,172   44,484 
Total deferred tax assets  24,682,243   19,680,927 
         
Deferred tax liabilities:        
Net book value of fixed assets  (29,652)  (27,540)
Total deferred tax liabilities  

(29,652

)  (27,540)
         
Net deferred tax assets  24,652,591   19,653,387 
Valuation allowance  (24,652,591)  (19,653,387)
Net deferred tax assets $-  $- 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the positive and negative evidence available, management has determined that a valuation allowance is required at December 31, 20222023 and 20212022 to reduce the deferred tax assets to amounts that are more likely than not to be realized. The Company’s valuation increased by $4,999,2042,733,655 and $2,733,655734,615 for the tax years ended 20222023 and 2021,2022, respectively. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary.

F-30

At December 31, 20222023 the Company had U.S. federal and state net operating loss carryforwards (“NOLS”) of $79.569.6 million and $64.854.0 million, respectively. Federal NOLs of $46.346.3 million expire beginning in 20322030 through 2037 and $33.223.3 million do not expire and are subject to 80% of taxable income under Internal Revenue Code Section 172. State NOLs of $36.3$36.3 million expire beginning in 20322030 through 2037 and $28.517.7 million do not expire and maybe subject to income limitations under each State statute. Utilization of our NOLS may be subject to an annual limitation under section 382 and similar state provisions of the Internal Revenue Code due to changes of ownership that may have occurred or that could occur in the future, as defined under the regulations.


On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic, which, among other things, outlines the provisions of the Employer Retention Credit (the “ERC”). The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021. Eligible employers can claim the ERC on an original or amended employment tax return for a period within those dates. The Company determined that it met the criteria to be eligible to claim a refundable credit during two 2021 periods. Under the terms of the CARES Act, the Company submitted amended 2021 payroll tax filings during 2022. As a result, the Company treated this credit of  $932,574 as a reduction of payroll and wages expenses for tax purpose.
F - 28


On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate alternative minimum tax on applicable corporations and 1% excise tax on stock repurchases made after December 31, 2022. The IRA is not expected to have ana material impact on the consolidated financial statements.


The Company files a federal income tax return and income tax returns in various state tax jurisdictions and the Company is generally no longer subject examinations by federal and state tax authorities for years before 2019.


2020.

Note 17. 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 profitresults for each reporting segment:


 Year Ended 
  Net Sales  Segment Gross Profit 
  December 31, 2022  December 31, 2021  December 31, 2022  December 31, 2021 
Vapor $257,363  $2,084,813  $144,483  $1,245,214 
Grocery  29,009,640   11,235,041   10,079,735   4,047,340 
Total $29,267,003  $13,319,854   10,224,218   5,292,554 
Corporate expenses          18,877,302   10,033,048 
Operating loss          (8,653,084)  (4,740,494)
Corporate other income (expense), net          1,435,473   703,035 
Net loss          (7,217,611)  (4,037,459)

SCHEDULE OF INFORMATION ABOUT REPORTABLE SEGMENTS

  Year Ended 
  Net Sales  Segment Gross Profit 
  December 31, 2023  December 31, 2022  December 31, 2023  December 31, 2022 
Vapor $617  $257,363  $(170) $144,483 
Grocery  55,689,793   29,009,640   20,348,224   10,079,735 
Total $55,690,410  $29,267,003   20,348,054   10,224,218 
Corporate expenses          38,323,733   18,877,302 
Operating loss          (17,975,679)  (8,653,084)
Corporate other (expense) income, net          (507,201)  1,435,473 
Net loss          (18,482,880)  (7,217,611)

For the year ended December 31, 2023 depreciation and amortization was approximately $18,000 and $1.5 million for Vapor and Grocery, respectively.

For the year ended December 31, 2022 depreciation and amortization was approximately $19,000$19,000 and $1.0$1.0 million for Vapor and Grocery, respectively.


For the year ended December 31, 2021 depreciation and amortization was approximately $1,000 and $0.5 million for Vapor and Grocery, respectively.


Note 18. EMPLOYEE RETENTION CREDITS


Congress passed programs to provide financial assistance to companies during the COVID-19 pandemic, including the employee retention credit (ERC). The ERC provides eligible employers with credits per employee based on qualified wages and health insurance benefits paid. In December 2022, the Company filed application for Employee Retention Credits with the Internal Revenue Service. The company is reasonably assured the eligibility is met. The total amount eligible is $930,000.$930,000. The amount was recorded in other current assets in consolidated balance sheet and other income in statement of operation.


F - 29


operation in 2022. As of December 31, 2023, the Company received the payment in full eligible amount.

Note 19. SUBSEQUENT EVENTS


On February 14, 2023,

In connection with the spin off, on January 18, 2024, the Company completed the confidential submission of a Form S-1 draft registration statement with the U.S. Securities and Exchange Commission for the spin-off of its natural food grocery and wellness operations to a wholly owned subsidiary, Healthier Choices Wellness Corp., by way of dividend to HCMC stockholders.


On March 1, 2023, Healthier Choices Management Corp., entered in a First Amendment to that certaininto Securities Purchase Agreement (“SPA”)  with each purchaserinstitutional investors whereby the Company issued a total of approximately $1.9 million in unsecured promissory notes (the “Notes). The Notes were issued at a 10% original issue discount and accrue interest at a rate of 10% per annum. All principle and accrued interest on the Notes shall be due and payable upon the earlier of (1) the closing of the potential initial public offering (“Purchaser”IPO”) identified as those who participated, (2) the one-year anniversary of issuance or (3) the time at which the balance is due and payable upon an event of default. The investors agreed to acquire $1,700,000 of Class A common stock in the IPO, and the Company will issue 188,889 shares of Class A common stock (assuming an IPO offering price of $10 per share) to institutional investors upon IPO.

On February 13, 2024, the Company filed Amendment No. 2 to its Spin-off S-1 with the Commission with respect to the Spin-Off.

On February 13, 2024, the Company filed Amendment No. 3 to its IPO S-1 with the Commission with respect to the IPO.

On February 20, 2024, the Company entered into a Fourth Amendment to the Securities Purchase Agreement dated as of August 18, 2022. with its Series E Redeemable Convertible Preferred Stock purchasers, pursuant to which the Company and such parties agreed to amend the date on which the obligation to acquire the Series A Preferred Stock ceases to June 1, 2024.

On February 9, 2024, in order to maximize profitability and improve operation efficiency, management made decision to close the Saugerties store. The parties amendedbuilding that the SPA related tostore is located is owned by the conversion payment whereby upon conversionCompany, and it is currently for sale. At the time of the Preferred Stockfiling, no sales agreement has been signed.

 prior to the record date for the Spin Off, the Company will pay the Purchaser ten percent (10%) of the Stated Value of the Preferred Stock converted.

F-31

As of March 30, 2023, 6,600,000,000 shares of common stocks were subsequently issued as a result of Series E preferred stock conversion. 556 shares of Series E Preferred Stock was redeemed, and approximately $556,000, including interest was paid.



F - 30


EXHIBIT INDEX

Exhibit   Incorporated by Reference Filed or Furnished
No. Exhibit Description Form Date Number Herewith
           
1.1 Form of Underwriting Agreement S-1 7/10/15 1.1  
2.1(a) Business Sale Offer and Acceptance Agreement, dated April 11, 2016, by and between Vapor Corp. and Ada’s Whole Food Market LLC 8-K 5/23/16 2.1  
2.1(b) Asset Purchase Agreement, dated July 29, 2016, by and between Vapor Corp. and VPR Brands, L.P. 8-K 8/3/16 1.1  
2.1(c) Asset Purchase Agreement, dated November 19, 2018, by and among the Company and Paradise Health Foods, Inc. 8-K 11/21/18 2.1  
2.1(d) Membership Interest Purchase Agreement, dated December 14, 2018, by and among Healthy U Wholesale, Inc. and the Sellers named therein 8-K 12/26/18 2.2  
2.1(e) Asset Purchase Agreement, dated February 8, 2022, by and among the Healthy Choice Markets 3, LLC, Mother Earth’s Storehouse Inc., Christopher Schneider and Kevin Schneider 8-K 2/8/22 2.1  
2.1(f) Commercial Contract of Sale, dated of 9th day of February, 2022, between Mother Earth’s Storehouse, Inc. and Healthy Choice Markets 3 Real Estate LLC        
3.1 Certificate of Incorporation 10-Q 11/16/15 3.1  
3.1(a) Certificate of Amendment to Certificate of Incorporation 8-K 3/03/17 3.1  
3.1(b) Certificate of Amendment to Certificate of Incorporation S-1 7/10/15 3.2  
3.1(c) Certificate of Amendment to Certificate of Incorporation S-4 12/11/15 3.2  
3.1(d) Certificate of Amendment to Certificate of Incorporation 8-K 2/2/16 3.1  
3.1(e) Certificate of Amendment to Certificate of Incorporation 8-K 3/9/16 3.1  
3.1(f) Certificate of Amendment to Certificate of Incorporation 8-K 6/1/16 3.1  
3.1(g) Certificate of Amendment to Certificate of Incorporation 8-K 8/5/16 3.1  
3.1(h) Certificate of Designation of Preferences, Rights And Limitations of Series D Convertible Preferred Stock 8-K 2/8/21 2.1  
3.1(i) Cancellation of Certificate of Designations        
3.2 Bylaws 8-K 12/31/13 3.4  
10.1 Form of Securities Purchase Agreement dated March 3, 2015 8-K 3/05/15 10.1  
10.2* 2015 Equity Incentive Plan S-1 6/01/15 10.28  
10.3 Form of Letter Agreement dated June 19, 2015 8-K 6/25/15 10.4  
10.4 Form of Letter Agreement dated June 19, 2015 8-K 6/25/15 10.5  
10.9 RLOC Credit Agreement, dated December 23, 2021, by and among Healthier Choices Management Corp. and Professional Bank        
10.10 Revolving Credit Note, dated December 31, 2019, issued by Healthier Choices Management Corp. in favor of Professional Bank        

32

Exhibit   Incorporated by Reference Filed or Furnished
No. Exhibit Description Form Date Number Herewith
           
1.1 
Form of Underwriting Agreement
 S-1 7/10/15 1.1  
2.1(a) 
Business Sale Offer and Acceptance Agreement, dated April 11, 2016, by and between Vapor Corp. and Ada’s Whole Food Market LLC
 8-K 5/23/16 2.1  
2.1(b) 
Asset Purchase Agreement, dated July 29, 2016, by and between Vapor Corp. and VPR Brands, L.P.
 8-K 8/3/16 1.1  
2.1(c) 
Asset Purchase Agreement, dated November 19, 2018, by and among the Company and Paradise Health Foods, Inc.
 8-K 11/21/18 2.1  
2.1(d) 
Membership Interest Purchase Agreement, dated December 14, 2018, by and among Healthy U Wholesale, Inc. and the Sellers named therein
 8-K 12/26/18 2.2  
2.1(e) 
Asset Purchase Agreement, dated February 8, 2022, by and among the Healthy Choice Markets 3, LLC, Mother Earth’s Storehouse Inc., Christopher Schneider and Kevin Schneider
 8-K 2/8/22 2.1  
2.1(f) 
Commercial Contract of Sale, dated of  9th day of February, 2022, between Mother Earth’s Storehouse, Inc. and Healthy Choice Markets 3 Real Estate LLC
        
3.1 
Certificate of Incorporation
 10-Q 11/16/15 3.1  
3.1(a) 
Certificate of Amendment to Certificate of Incorporation
 8-K 3/03/17 3.1  
3.1(b) 
Certificate of Amendment to Certificate of Incorporation
 S-1 7/10/15 3.2  
3.1(c) 
Certificate of Amendment to Certificate of Incorporation
 S-4 12/11/15 3.2  
3.1(d) 
Certificate of Amendment to Certificate of Incorporation
 8-K 2/2/16 3.1  
3.1(e) 
Certificate of Amendment to Certificate of Incorporation
 8-K 3/9/16 3.1  
3.1(f) 
Certificate of Amendment to Certificate of Incorporation
 8-K 6/1/16 3.1  
3.1(g) 
Certificate of Amendment to Certificate of Incorporation
 8-K 8/5/16 3.1  
3.1(h) 
Certificate of Designation of Preferences, Rights And Limitations of Series D Convertible Preferred Stock
 8-K 2/4/21 3.1  
3.1(i) 
Cancellation of Certificate of Designations
        
3.2 
Bylaws
 8-K 12/31/13 3.4  
10.1 
Form of Securities Purchase Agreement dated March 3, 2015
 8-K 3/05/15 10.1  
10.2* 
2015 Equity Incentive Plan
 S-1 6/01/15 10.28  
10.3 
Form of Letter Agreement dated June 19, 2015
 8-K 6/25/15 10.4  
10.4 
Form of Letter Agreement dated June 19, 2015
 8-K 6/25/15 10.5  
10.9 
RLOC Credit Agreement, dated December 23, 2021, by and among Healthier Choices Management Corp. and Professional Bank
        
10.10 
Revolving Credit Note, dated December 31, 2019, issued by Healthier Choices Management Corp. in favor of Professional Bank
        
36


Exhibit   Incorporated by Reference Filed or Furnished
No. Exhibit Description Form Date Number Herewith
10.11* 
Amendment to Vapor Corp. 2015 Equity Incentive Plan
 S-8 2/8/17 4.2  
10.12* 
Form of Restricted Stock Award Agreement
 8-K 8/20/18 10.4  
10.13* 
Second Amended and Restated Employment Agreement, entered into as of February 26, 2021 by and between the Company and Christopher Santi
 8-K 3/5/21 10.1  X
10.14* 
Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and Jeffrey Holman
  10-K  3/8/21 
 10.12
 
  
10.15* 
Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and Christopher Santi
  10-K  3/8/21  10.13  
10.16* 
Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and John Ollet
  10-K  3/8/21  10.14  
10.17* 
Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and Anthony Panariello
  10-K  3/8/21  10.15  
10.18* 
Second Amended and Restated Employment Agreement, dated as of February 2, 2022 by and between the Company and John Ollet
 8-K 2/2/22 10.1  
10.19* 
Amended and Restated Employment Agreement, dated as of March 13, 2018 by and between the Company and Jeffrey Holman
 8-K 8/20/18 10.3  
10.20 
Securities Purchase Agreement, dated as of August 18, 2022, by and between Healthier Choices Management Corp. and the purchasers named therein
 8-K 8/18/2022 10.1  
10.21 
First Amendment to Securities Purchase Agreement, dated as of March 1, 2023, by and between Healthier Choices Management Corp. and the purchasers named therein
       X
16.1 
Letter from Morrison, Brown, Argiz & Farra, LLC, dated April 26, 2017
 8-K 4/28/17 16.1  X
21.1 
List of Subsidiaries
       X
23.1 
Consent of Marcum LLP
       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 and 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 Link base Document       Filed
101.DEF XBRL Taxonomy Extension Definition Link base Document       Filed
101.LAB XBRL Taxonomy Extension Label Link base Document       Filed
101.PRE XBRL Taxonomy Extension Presentation Link base Document       Filed

Exhibit   Incorporated by Reference Filed or Furnished
No. Exhibit Description Form Date Number Herewith
10.11* Amendment to Vapor Corp. 2015 Equity Incentive Plan S-8 2/8/17 4.2  
10.12* Form of Restricted Stock Award Agreement 8-K 8/20/18 10.4  
10.13* Second Amended and Restated Employment Agreement, entered into as of February 26, 2021 by and between the Company and Christopher Santi 8-K 3/5/21 10.1 
10.14* Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and Jeffrey Holman 10-K 3/8/21 

 10.12

 

  
10.15* Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and Christopher Santi 10-K 3/8/21  10.13  
10.16* Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and John Ollet 10-K 3/8/21  10.14  
10.17* Third Amended and Restated Restricted Stock Agreement dated as of February 12, 2021 by and between Healthier Choices Management Corp. and Anthony Panariello 10-K 3/8/21  10.15  
10.18* Second Amended and Restated Employment Agreement, dated as of February 2, 2022 by and between the Company and John Ollet 8-K 2/2/22 10.1  
10.19* Amended and Restated Employment Agreement, dated as of March 13, 2018 by and between the Company and Jeffrey Holman 8-K 8/20/18 10.3  
10.20 Securities Purchase Agreement, dated as of August 18, 2022, by and between Healthier Choices Management Corp. and the purchasers named therein 8-K 8/18/2022 10.1  
10.21 First Amendment to Securities Purchase Agreement, dated as of March 1, 2023, by and between Healthier Choices Management Corp. and the purchasers named therein 8-K/A 3/6/23 10.1 
10.22 Second Amendment to Securities Purchase Agreement, dated as of May 15, 2023, by and between Healthier Choices Management Corp. and the purchasers named therein 8-K/A 5/19/23 10.1  
10.23 Third Amendment to Securities Purchase Agreement, dated as of October 30, 2023, by and between Healthier Choices Management Corp. and the purchasers named therein 

8-K/A

 

11/3/23

 10.1  
10.24 Fourth Amendment to Securities Purchase Agreement, dated as of February 20, 2024, by and between Healthier Choices Management Corp. and the purchasers named therein 

8-K/A

 

2/23/24

 10.1  
21.1 List of Subsidiaries       X
23.1 Consent of Marcum LLP       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 and 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 Link base Document       Filed
101.DEF XBRL Taxonomy Extension Definition Link base Document       Filed
101.LAB XBRL Taxonomy Extension Label Link base Document       Filed
101.PRE XBRL Taxonomy Extension Presentation Link base Document       Filed

* Management contract or compensatory plan or arrangement.


** 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.


Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at 3800 North 28th Way, Hollywood, Florida 33020.

33
37


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 2023.


27, 2024.

Healthier Choices Management Corp.
By:
/s/ Jeffrey Holman
Jeffrey Holman
Jeffrey Holman
Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SignatureTitleDate
/s/ Jeffrey HolmanPrincipal Executive OfficerMarch 30, 2023
Jeffrey Holmanand DirectorMarch 27, 2024
Jeffrey Holman
/s/ John A. OlletChief Financial OfficerMarch 30, 202327, 2024
John A. Ollet(Principal Financial and Accounting Officer)
/s/ Clifford J. FriedmanDirectorMarch 30, 202327, 2024
Clifford J. Friedman
/s/ Anthony PanarielloDirectorMarch 30, 202327, 2024
Anthony Panariello


34


38