DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2024

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

NOTE 2. DISCONTINUED OPERATIONS

On September 13, 2024, the Company completed the previously announced separation and distribution of its Grocery segment into an independent publicly traded company, HCWC. The separation was structured as a tax-free spin-off, which occurred by way of a pro rata distribution to HCMC stockholders. Each of the HCMC stockholders received one share of HCWC Class A common stock and three shares of Class B common stock for every 208,632 shares of HCMC common stock held of record as of the close of business on September 13, 2024. HCWC is now an independent public company listed under the symbol “HCWC” on the NYSEAM. The Company retained no ownership interest in HCWC following the Separation.

Cash of $2.2 million held by HCWC and its subsidiary were transferred to HCWC on the Distribution Date. HCMC and HCWC settled intercompany balances in the amount of $1.2 million on the Spin-Off date.

During the third quarter of 2024, the Company recognized a net reduction to retained earnings of $1.0 million as a result of the Separation, primarily related to the transfer of certain assets and liabilities associated with its grocery business to HCWC.

Following the Spin-Off, the Company entered into several agreements with HCWC that govern the relationship of the parties. These agreements include:

● a Separation Agreement (“SA”) that will set forth HCWC’s and the Company’s agreements regarding the principal actions that both parties will take in connection with the Spin-Off and aspects of our relationship following the Spin-Off;

● a Transition Services Agreement pursuant to which HCWC and the Company will provide each other specified services on a transitional basis to help ensure an orderly transition following the Spin-Off.

● a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of HCWC and the Company after the Spin-Off with respect to all tax matters and will include restrictions to preserve the tax-free status of the Spin-Off; and

● an Employee Matters Agreement that will address employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities arising out of employee compensation and benefits programs in which our employees participated prior to the Spin-Off.

Under the terms of the transition services agreement, HCMC will provide to HCWC, on a transitional basis, certain services or functions, including information technology, accounting, human resources, and payroll functions. Generally, these services will be provided for a period of up to one year following the Spin-Off. Consideration and costs for the transition services will be determined using several billing methodologies as described in the agreements, including customary billing and pass-through billing. Costs for transition services provided to HCWC are recorded within the Consolidated Statements of Operations based on the nature of the services. Following the Spin-Off, the Company recognized a reduction of costs of $0.4 million for services provided to HCWC in the third and fourth quarters of 2024 pursuant to the transition services agreement.

Financial Information of Discontinued Operations

Net Loss from Discontinued Operations in the Consolidated Statements of Operations reflects the financial results of the HCWC and includes allocation of general corporate overhead expense of the Company.

The following table summarizes the significant line items included in Net Loss from Discontinued Operations, in the Consolidated Statements of Operations for the thirty-six-week period ended September 13, 2024 and for the twelve months ended December 31, 2023:

	Thirty-Six-Week Period Ended September 13, 2024			Twelve Months Ended December 31, 2023
SALES, NET	$	46,349,908		$	55,689,793
COST OF SALES		28,691,071			35,341,569
GROSS PROFIT		17,658,837			20,348,224
OPERATING EXPENSES, NET
Selling, general and administrative		19,212,986			24,768,293
Gain on sale of asset		(205,146	)		-
Impairment of intangible assets		-			6,104,000
TOTAL OPERATING EXPENSES, NET		19,007,840			30,872,293
LOSS FROM OPERATIONS		(1,349,003	)		(10,524,069	)
OTHER INCOME (EXPENSE)		(2,426,556	)		591,449
NET LOSS FROM DISCONTINUED OPERATIONS	$	(3,775,559	)	$	(9,932,620	)

The information presented as discontinued operations on the Consolidated Balance Sheets includes certain assets and liabilities that were transferred to HCWC pursuant to the Separation agreements.

There were no assets or liabilities classified as discontinued operations as of December 31, 2024. The following table summarizes the carrying value of the significant classes of assets and liabilities classified as discontinued operations as of December 31, 2023

	December 31, 2023
Cash and cash equivalents	$	1,422,580
Accounts receivable, net		128,171
Inventories		4,162,218
Prepaid expenses and vendor deposits		174,970
Other current assets		56,842
Current Assets of Discontinued Operations		5,944,781
Property and equipment, net of accumulated depreciation		2,676,639
Intangible assets, net of accumulated amortization		4,178,519
Right of use asset - operating lease		11,412,562
Other assets		467,056
Other Assets of Discontinued Operations	$	18,734,776
Accounts payable and accrued expenses	$	4,920,411
Contract Liabilities		207,513
Current portion of loan payable		702,701
Lease liability, current		2,748,824
Current Liabilities of Discontinued Operations		8,579,449
Due from related party		(3,753,003	)
Loan Payable, net of current portion		2,403,807
Lease liability, net of current		8,461,182
Other Long-term Liabilities of Discontinued Operations	$	7,111,986

The following table summarizes the significant operating cash and noncash items, capital expenditures and financing activities of discontinued operations for the period ended September 13, 2024 and December 31, 2023:

	Thirty-Six-Week Period Ended September 13, 2024			Twelve Months Ended December 31, 2023
Net loss	$	(3,775,559	)	$	(9,932,620	)
Depreciation and amortization		1,069,958			1,431,816
Loss on warrant liability extinguishment		1,888,889			-
Gain on sale of building		(205,146	)		-
Non-cash interest expense		72,250			32,000
Change in allowance for credit losses		-			15,425
Loss on vendor settlement		-			91,291
Amortization of right-of-use asset		2,381,131			2,570,202
Write-down of obsolete and slow-moving inventory		2,032,995			2,471,653
Change in contingent consideration		-			(774,900	)
Impairment of goodwill		-			6,104,000
Accounts receivable		(253,460	)		(88,366	)
Inventories		(2,000,669	)		(2,032,996	)
Prepaid expenses and vendor deposits		(48,693	)		(92,016	)
Other current assets		20,520			140,801
Due from related party		(2,736,272	)		(1,416,638	)
Other assets		(83,482	)		(16,090	)
Accounts payable and accrued expenses		998,829			1,430,867
Contract liabilities		(156,904	)		(21,604	)
Lease liability		(2,280,459	)		(2,438,179	)
NET CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS		(3,076,072	)		(2,525,354	)
Payment for acquisition		(5,475,000	)		(750,000	)
Proceeds from sale of Saugerties building		749,000			-
Purchases of property and equipment		(145,680	)		(179,623	)
NET CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS		(4,871,680	)		(929,623	)
Proceeds from security purchase agreement		1,700,000			-
Proceeds from acquisition loan		7,500,000			-
Principal payments on loan payable		(349,082	)		(558,095	)
Due from related party		(1,819,570	)		-
Net transfers to HCWC related to Spin-Off		(506,176	)		3,415,081
NET CASH PROVIDED BY FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS		6,525,172			2,856,986
NET DECREASE IN CASH	$	(1,422,580	)	$	(597,991	)