HCMC 10-K & 10-Q changes, risk factors and insider trading

Total selling, general and administrative expenses increaseddecreased $1.0$1.4 million from $7.5$8.4 million for the year ended December 31, 20232024 to $8.4$7.0 million for the year ended December 31, 2024.2025. The increasedecrease was primarily due to ana increasedecrease in stock compensation.

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. The majority of our cash areis concentrated in one large financial institution 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 on continuing basis as of December 31, 20242025 and December 31, 2023.2024.

On November 7, 2024, the Company entered into a commitment letter with an investor that will allow the Company to draw up to $5 million from a revolving credit facility (the “Facility”) through August 31, 2025. Any advances will be used for working capital purposes. Any amounts borrowed pursuant to the Facility will be repayable in full on April 30, 2026 and the interest rate on the amounts borrowed is 12% per annum. On April 11, 2025, the Company and the lender amended the agreement to extend the maturity date from April 30, 2026 to December 31, 2026. The Company anticipates its current cash and its ability to draw from the $5 million credit line with private private lender will be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. period. 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. These estimates include useful lives and impairment of long-lived assets, deferred taxes and related valuation allowances, allocation of corporate general expenses, the fair value determination of shares issued in the debt settlement, and the valuation of the assets and liabilities acquired in business combinations. 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.

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 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 CompanyCompany, 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.

As disclosed in Note 1 to the condensed consolidated financial statements, the Company entered into a Distribution Agreement on November 27, 2025, to commercialize a new product line, Quitcubes, utilizing the Company’s NatureTine™ ingredient. The distributor is responsible for marketing, customer fulfillment, and website management, while the Company is responsible for manufacturing. The launch was originally anticipated in the first quarter of 2026 but was delayed as the Company established the necessary operational infrastructure. As a result, the Company recorded no net sales from Quitcubes for the three and six months ended MarchJune 31,30, 2026. Subsequent to quarter end, the Company has made significant progress and expects the official commercial launch to occur in Junethe third quarter of 2026. Management believes the successful launch of Quitcubes is critical to generating future revenue and addressing the Company’s recurring losses.

The Company currently and historically has reported net losses and cash outflows from operations. As of MarchJune 31,30, 2026, the Company had cash and cash equivalent of approximately $1.1$1.2 million and negative working capital of $0.8$0.7 million. The Company’s liquidity needs through MarchJune 31,30, 2026 have been satisfied through financing agreement with private lenders.

Management believes that the Company’s cash on hand, together with the availability of up to $4.5 million in additional draws under the Sabby Loan Agreement, and the $50,000 in proceeds received on June 26, 2026 (with the formal loan agreement executed on July 6, 2026), will enable the Company to meet its obligations and capital requirements for at least twelve months from the date these financial statements are issued. Accordingly, no adjustment has been made to the financial statements to account for this uncertainty.

The following table sets forth our unaudited condensed consolidated Statements of Operations for the three months ended MarchJune 31,30, 2026 and 2025 that is used in the following discussions of our results of operations:

Net sales and cost of sales were de minimis for the three months ended MarchJune 31,30, 2026 and 2025. The Company closed all its brick-and-mortar retail vape stores, as management had shifted its retail sales focus to the wholesale and online channel. The sales and cost of sales for the three months ended MarchJune 31,30, 2026 and 2025 continued to be significantly impacted by the inability to bring new products to market via distribution.

Total other income (expense), income, net $20,000was approximately $9,000 for the three months ended June 30, 2026, which was primarily attributable to interest expense. Total other (expense) income, net was $12,000 for the three months ended MarchJune 31,30, 20262025, wasconsisting mainly attributable toof interest income of approximately $7,000$9,000 and $13,000other miscellaneous income. Total other income (expense), net of $14,000 for the three months ended March 31, 2025 consists of $23,000 loss on asset disposal offset by net interest income of $9,000.$3,000.

The following table and the discussion present the Company’s cash activities on continuing basis for threesix months ended MarchJune 31,30, 2026 and 2025:

Our net cash used in operating activities of approximately $0.6 million for the threesix months ended MarchJune 31,30, 2026 resulted from a net loss of of $0.8$0.7 million, offset by a non-cash adjustment of approximately $13,000$36,000 and a net cash changeincrease of $0.2 million$55,000 from changes in operating assets assets and liabilities. Our net cash used in operating activities of approximately $1.0$2.0 million for the threesix months ended MarchJune 31, 30, 2025 resulted from a net loss of $2.2$4.2 million, offset by a non-cash adjustment of $1.2$2.3 million and a net cash change of $40,000$0.1 million from changes in operating assets and liabilities.

There was no cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 and 2025.

The net cash provided by financing activities of $0.6$0.7 million for the threesix months ended MarchJune 31,30, 2026 is primarily due to $0.1 million net net transfers from HCWCHCWC, and $0.5 million cash proceeds from Sabby loan advance.advance, and $50,000 cash proceeds from convertible note received on June 26, 2026 (with the formal loan agreement executed on July 6, 2026). The net cash provided by financing activities of $0.5 $1.5 million for the threesix months ended MarchJune 31,30, 2025 is primarily due to $1.0$1.9 million net transfertransfers from HCWC and $0.5$0.4 million cash payment of the credit line.

At MarchJune 31,30, 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 balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion.operations. Most of our cash and cash equivalent are concentrated in one financial institution and is generally in excess of the FDIC insurance limit. The Company has not experienced any losses on its cash. The following table presents the Company’s cash position as of June March 31,30, 2026 and December 31, 2025.

The Company reported a net loss from continuing operation of $0.8$0.7 million for the threesix months ended MarchJune 31,30, 2026. The Company also had negative negative working capital of $0.8$0.7 million. The Company expects to continue incurring losses for the foreseeable future.

The Company anticipates its current cash and its ability to draw upfrom tothe $4.5$5 million undercredit theline Sabbywith Loanprivate Agreementlender will be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the condensedconsolidated consolidatedfinancial financial statements.