Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONDENSED CONSOLIDATED OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements. The terms "we," "us," "our," and the "Company" refer to Healthy Choice Wellness Corp. and its wholly-owned subsidiaries, Healthy Choice Markets, Inc. ("Ada's Natural Market"), Healthy Choice Markets 2, LLC ("Paradise Health and Nutrition"), Healthy Choice Markets 3, LLC ("Mother Earth's Storehouse"), Healthy Choice Markets IV, LLC ("Green's Natural Foods"), Healthy Choice Markets V, LLC ("Ellwood Thompson's), Healthy Choice Markets VI, LLC (GreenAcres Market), Healthy Choice Wellness, LLC, The Vitamin Store, LLC, and Healthy U Wholesale, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

Company Overview

Healthy Choice Wellness Corp. is a holding company focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives.

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

●	Healthy Choice Markets, Inc. (DBA 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.
●	Healthy Choice Markets 2, LLC (DBA Paradise Health & Nutrition), operating 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.
●	Healthy Choice Markets 3, LLC (DBA Mother Earth's Storehouse), an organic and health food and vitamin chain in New York's Hudson Valley, which has been in existence for over 40 years.
●	Healthy Choice Markets IV, LLC (DBA Green's Natural Foods), managing eight stores in New York and New Jersey, offering a selection of 100% organic produce, all-natural and 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.
●	Healthy Choice Markets V, LLC (DBA Ellwood Thompson's), an organic and natural health food and vitamin store located in Richmond, Virginia.
●	Healthy Choice Markets VI, LLC (DBA GreenAcres Market), an organic and natural health food and vitamin chain with five store locations in Kansas and Oklahoma. GreenAcres Market offers organic and all natural products and vitamins from both top national brands as well as locally sourced specialty brands.

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

Liquidity

The unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The Company currently and historically has reported net losses and has reported cash outflows from operations this quarter. As of March 31, 2026, the Company had cash and cash equivalents of approximately $2.3 million and negative working capital of $4.1 million.

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, nine stores located in New York and New Jersey, one store located in Virginia, three stores in Kansas, and two stores in Oklahoma.

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 on our operating results in the future.

Results of Operations

The following table sets forth our unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2026 and 2025 that is used in the following discussions of our results of operations:

		Three Months Ended March 31,								2026 to 2025
		2026				2025				Change $
SALES		$	18,245,038			$	20,259,606			$	(2,014,568	)
COST OF SALES			11,311,193				12,407,696				(1,096,503	)
GROSS PROFIT			6,933,845				7,851,910				(918,065	)
OPERATING EXPENSES, NET			8,549,384				8,261,585				287,799
LOSS FROM OPERATIONS			(1,615,539	)			(409,675	)			(1,205,864	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment			(176,806	)			(7,500	)			(169,306	)
Other (expense) income, net			(2,874	)			2,496				(5,370	)
Interest expense, net			(192,555	)			(297,731	)			105,176
Equity method loss			(65,507	)			-				(65,507	)
Impairment loss on equity method investment			(1,623,922	)			-				(1,623,922	)
TOTAL OTHER EXPENSES, NET			(2,061,664	)			(302,735	)			(1,758,929	)
NET LOSS		$	(3,677,203	)		$	(712,410	)		$	(2,964,793	)

Net sales decreased $2.0 million to $18.2 million for the three months ended March 31, 2026 as compared to $20.2 million for the same period in 2025. The decrease consisted of a same-store sales decrease of $2.2 million, partially offset by a $0.2 million increase in CO-OP revenue.

Cost of goods sold for the three months ended March 31, 2026 and 2025 were $11.3 million and $12.4 million, respectively. The decrease was driven by a $2.2 million reduction in net sales, which directly lowered variable cost of goods sold. Gross margin decreased 0.8 percentage points to 38.0% from 38.8% in the prior year period, primarily due to unfavorable product mix.

Total operating expenses for the three months ended March 31, 2026 and 2025 were $8.5 million and $8.3 million, respectively. The $0.2 million increase was primarily attributable to stock-based compensation expense, which was not incurred in the prior year period.

Total other expenses, net for the three months ended March 31, 2026 were $2.1 million, consisting of net interest expense of approximately $0.2 million, loss on debt extinguishment of approximately $0.2 million, equity method loss of approximately $0.1 million, and impairment loss on equity method investment of $1.6 million. Total other (expenses) income, net of $0.3 million for the three months ended March 31, 2025 consists of net interest expense of $0.3 million, other miscellaneous income of approximately $2,000, offset by $8,000 loss on debt extinguishment.

Lease Commitments, Known Trends and Uncertainties

As of March 31, 2026, the Company has operating lease obligations totaling $10.0 million, with a weighted-average remaining term of 3 years and a weighted-average discount rate of 5.52%. Rent expense for the three months ended March 31, 2026 was approximately $1.0 million, consistent with the same period in 2025. Future rent expense may be affected by lease expirations and new commitments at market rates, as well as fluctuations in property taxes, which have trended lower in the current year. Rising interest rates could increase the cost of future lease obligations, as evidenced by the increase in the weighted-average discount rate to 5.52% from 5.30% in the prior year.

As of March 31, 2026, the Company holds an equity method investment in its former parent HCMC, with a carrying value of approximately $2.3 million. During the three months ended March 31, 2026, the Company recorded an impairment loss of $1,623,922 on its equity method investment due to an adverse PTAB IPR ruling that materially reduced the fair value of the investee. The fair value was estimated using a multi-method approach under ASC 820, incorporating observable transaction prices and a probability-weighted litigation model. Key assumptions used in the valuation included the probability of successful outcomes in the investee's pending litigation, the timing and amount of future cash flows, and the discount rate applied. The impairment loss is included in other income (expense) in the condensed consolidated statement of operations. Future adverse developments in the investee's litigation, continued operating losses, further dilution of the Company's ownership percentage, or a sustained decline in the investee's market value could result in additional material impairment charges in future periods.

Liquidity and Capital Resources

The following table summarizes the Company's cash flows for the three months ended March 31, 2026 and 2025:

		Three Months Ended March 31,
		2026				2025
Net cash (used in) provided by
Operating activities		$	(199,615	)		$	1,092,748
Investing activities			(184,816	)			(1,094,003	)
Financing activities			(285,677	)			(262,799	)
		$	(670,108	)		$	(264,054	)

Our net cash used in operating activities of approximately $0.2 million for the three months ended March 31, 2026 resulted from a net loss of $3.7 million and a net cash usage of $0.4 million from changes in operating assets and liabilities, offset by a non-cash adjustment of $3.9 million. Our net cash provided by operating activities of approximately $1.1 million for the three months ended March 31, 2025 resulted from a net loss of $0.7 million, offset by a non-cash adjustment of $2.0 million and a net cash usage of $0.2 million from changes in operating assets and liabilities.

The net cash used in investing activities of $0.2 million for the three months ended March 31, 2026 consists of $0.1 million cash advance to related party and $0.1 million purchases of property and equipment. The net cash used in investing activities of $1.1 million for the three months ended March 31, 2025 consists of $1.0 million payment to related party and $0.1 million purchases of property and equipment.

Net cash used in financing activities for both the three months ended March 31, 2026 and 2025 consists of $0.3 million in principal payments on loan payable.

At March 31, 2026 and December 31, 2025, we did not have any material financial guarantees or other contractual commitments with vendors that are reasonably likely to have an adverse effect on liquidity.

Our cash and cash equivalents balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. Most of our cash and cash equivalents are concentrated in two financial institutions. The portion of our balance held as cash deposits in these institutions is generally in excess of the FDIC insurance limit.

The Company has not experienced any losses on its cash or cash equivalents. The following table presents the Company's cash position as of March 31, 2026 and December 31, 2025.

		March 31, 2026				December 31, 2025
Cash and cash equivalents		$	2,349,510			$	3,019,618
Total assets		$	29,703,162			$	33,497,719
Cash and cash equivalents as a percentage of total assets			7.9	%			9.0	%

The Company reported a net loss of $3.7 million for the three months ended March 31, 2026. The Company also had negative working capital of $4.1 million. The Company expects to continue incurring losses for the foreseeable future.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Estimates

Our management's discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements. These estimates and assumptions include promotional discounts, manufacturer coupons and rebates, return allowances that are netted against revenue, useful lives and impairment of long-lived assets, goodwill and impairment, equity method investments and equity method investments impairment, allowance for credit losses, inventory provisions, deferred taxes and related valuation allowances, allocation of corporate general expenses, stock-based compensation, and the valuation of the assets and liabilities acquired in business combinations.

We base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Non-GAAP Financial Measures

The following discussion and analysis contain 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 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.

EBITDA, or earnings before interest, taxes, depreciation, and amortization, 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, change in contingent consideration, also adjusted for non-recurring other expense (income), 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 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.

		Three Months Ended March 31,
		2026				2025
Reconciliation from net loss to adjusted EBITDA:
Net loss		$	(3,677,203	)		$	(712,410	)
Interest expense			192,555				297,731
Depreciation and amortization			389,483				429,990
EBITDA			(3,095,165	)			15,311
Loss on debt settlement			176,806				-
Equity method loss			65,507				-
Impairment loss on equity method investment			1,623,922				-
Stock compensation			236,169				-
Other (expenses) income, net			2,874				5,004
Adjusted EBITDA		$	(989,887	)		$	20,315

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

There have been no material changes to the Company's critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the 2025 Annual Report, which we believe are the most critical to our business and the understanding of our results of operations and affect the more significant judgments and estimates that we use in the preparation of our condensed consolidated financial statements.

Seasonality

We do not consider our business to be seasonal.

Cybersecurity

We recognize that cybersecurity is of critical importance to our success. We are committed to maintaining robust cybersecurity and data protection and continuously evaluating the impact of cybersecurity threats, considering both immediate and potential long-term effects of these threats on our business strategy, operations, and financial condition. Our board oversees cybersecurity risks through quarterly updates from the Chief Operating Officer.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements including statements regarding retail expansion, the future demand for our products, competition, the adequacy of our cash resources and our authorized Common Stock, and our continued ability to raise capital.

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

The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include our future common stock price, customer acceptance of our products, and proposed federal and state regulation. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.