hcmc8ka.htm

We have audited the financial statements of Mother Earth's Storehouse, Inc. (an S-corporation) (the “Company”), which comprise the balance sheets as of December 31, 2021 and 2020, and the related statements of income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Mother Earth's Storehouse, Inc. as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Mother Earth's Storehouse, Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

As discussed in Note 1 to the financial statements, on February 8, 2022, the Company sold all of its operations. The sale represents a significant portion of the Company’s total assets and all of the Company’s operations. Our opinion is not modified with respect to that matter.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Mother Earth's Storehouse, Inc.’s ability to continue as a going concern for one year after the date the financial statements are available to be issued.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than from one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

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Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Mother Earth's Storehouse, Inc.’s internal control. Accordingly, no such opinion is expressed.

•	Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Mother Earth's Storehouse, Inc.’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The Schedules of Store Operating Expenses, Employee Costs, and General and Administrative Expenses are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

Mother Earths Storehouse, Inc. is a grocery store for organic and all-natural foods. The Company has two locations in Kingston and Saugerties, New York. A third location, in Poughkeepsie, New York, operated until September 30, 2020, when it was sold (see Note 9). On February 8, 2022, the Company’s operations were purchased in the form of an asset sale by Healthy Choice Markets 3, LLC.

On February 8, 2022, the shareholders of the Company agreed to sell their business including the Kingston and Saugerties, New York store locations to a third-party for $5,300,000 subject to certain closing adjustments. Existing store leases were assigned to the buyer.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures.

Mother Earth’s Storehouse, Inc. has elected to be treated as an S Corporation for federal income tax purposes. No provision has been made for federal income taxes since S Corporations are not taxable entities. Individual partners/shareholders report their share of taxable income or loss in their personal tax returns.

The Company has evaluated any uncertain tax positions and related income tax contingencies and determined uncertain positions, if any, are not material to the financial statements, according to FASB ASC 740. Penalties and interest assessed by income taxing authorities are included in operating expenses, if incurred. None of the Company’s current returns are under examination.

Beginning in the year ended December 31, 2021, the Company elected to be subject to the New York State Pass-Through Entity Tax (the “PTET”). The Company must elect each year by March 15^th if it chooses to be subject to the PTET for the given year. The PTET will grant each shareholder a tax credit on their respective individual NYS income tax returns. Any PTET owed is a joint liability of the Company and the controlling shareholder. Since the individual shareholders receive the benefit of a tax credit, the Company has treated the PTET as a distribution to the shareholders in the Statements of Changes in Shareholders’ Equity. PTET paid on behalf of shareholders for the years ended December 31, 2021 and 2020, was $102,750 and $0, respectively.

Property, plant and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets. Expenditures for maintenance and repairs and minor renewals are charged to expense; betterments and major renewals are capitalized. Leasehold improvements are amortized over the lesser of the lease terms or the assets’ useful lives. Upon retirement or sale of assets, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to income.

The Company expenses advertising costs as they are incurred. They are presented as a component of store operating expenses. Advertising costs were $76,379 and $86,071 for the years ended December 31, 2021 and 2020, respectively.

The Company maintains a 401(k) plan. Under the terms of the 401(k) Plan, the employer makes up to 4% matching contributions. The plan will follow the Safe Harbor CODA in which a minimum contribution plan of 4% of salaries must be made by the Company each pay period. Plan contributions were $140,859 and $144,110 for the years ended December 31, 2021 and 2020, respectively.

The State of New York imposes sales taxes on all of the Company’s sales to nonexempt customers. The Company collects sales taxes from customers and remits the amounts to the state. The Company’s accounting policy is to exclude the tax collected and remitted to the State from revenues and expenses with the exception of excise taxes paid on purchases.

Financial instruments that potentially expose the Company to concentration of credit and market risk consist primarily of cash equivalents and a note receivable. Cash is maintained at Federal Deposit Insurance Corporation insured financial institutions and credit exposure is limited to any one institution. As of December 31, 2021, cash and cash equivalents were in excess of FDIC insurance coverage by approximately $2,210,000.

The Company has a concentration with two of its vendors related to the purchase of inventory. Approximately 29% and 21% of purchases were made with these vendors during the year ended December 31, 2021. Approximately 31% and 21% of purchases were made with these vendors during the year ended December 31, 2020.

Accounts payable consists of balances due to vendors for inventory the Company sells in its stores as well as services rendered to the Company on or before the year-end which have not been paid as of the year-end. At December 31, 2021 and 2020, one vendor represented 58% and 50% of accounts payable, respectively.

As mentioned in Note 1, the Company has 2 store locations in Kingston and Saugerties, New York. Because of this, there is a concentration of market risk as the Company is reliant upon the continued support of customers in the Kingston and Saugerties, New York communities and surrounding areas.

As part of the sale of the Poughkeepsie store location in 2020 (see Note 9), the purchaser entered into a note for the remaining $175,000 of the purchase price payable to the Company. The note is receivable in monthly installments of $3,294, including principal and interest at a fixed rate of 5.00% through maturity of November 1, 2022, at which time a balloon payment is due. Upon maturity of the note, the remaining balance of unpaid principal and interest is due, payable in full. The balance of this note was $130,305 and $169,828 at December 31, 2021 and 2020, respectively.

In April 2020, the Company applied for and received a loan from its bank in the amount of $669,500 through the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). In July 2021, the loan, including principal and interest was forgiven and considered repaid in full. The balance has been recorded as forgiveness of paycheck protection program loan for the year ended December 31, 2021 and a current liability as of December 31, 2020.

According to the rules of the SBA, the Company is required to retain PPP loan documentation for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of the SBA, including representatives of its Office of Inspector General, to access such files upon request. Should the SBA conduct such a review and reject all or some of the Company’s judgements pertaining to satisfying PPP loan eligibility or forgiveness conditions, the Company may be required to adjust previously reported amounts and disclosures in the financial statements.

The Company leased store space under an operating lease at 1955 South Road in Poughkeepsie, NY. The lease was on a month-to-month basis at $14,709 per month and transferred to the assignee when the location was sold (see Note 9). The Company leased a second store space under an operating lease at 1200 Ulster Avenue, Route 9W, Kingston, NY. The lease called for an annual increase of 2% in monthly rental expense on the anniversary date in September.

Beginning September 1, 2021, monthly lease payments were $15,923. The lease term expires on August 31, 2029 with the option to extend an additional ten years. Subsequent to the year ended December 31, 2021, the lease was assigned to the buyers when the Company was sold.

The accompanying unaudited pro forma condensed combined financial statements give effect to events that are (1) directly attributable to the following acquisition: (2) factually supportable, and with respect to the pro forma condensed combined statements of operations, (3) expected to have a continuing impact on the combined results following the business acquisition. The unaudited pro forma financial information considers the aggregation of financial statement impacts for the following transactions, referred to in this document as "the acquisition transaction".

On February 8, 2022, HCMC through its wholly owned subsidiary, Healthy Choice Markets 3, LLC, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Mother Earth’s Storehouse Inc. (“HCM3”) and its shareholders. (See Note 2 - Acquisition of Mother Earth’s Storehouse Inc.)

The business combinations of Healthier Choices Management Corp and of Mother Earth’s Storehouse Inc were accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, HCMC estimated the fair value of Mother Earth’s Storehouse Inc assets acquired and liabilities assumed and conformed the accounting policies to its own accounting policies.

The unaudited pro forma condensed combined balance sheet as of December 31, 2021, gives effect only to the acquisition of certain net business assets of Mother Earth’s Storehouse Inc and is included in HCMC’s consolidated Balance Sheet as of that date. The unaudited pro forma condensed combined statements of operations for the year-ended December 31, 2021give effect to the acquisition of certain net business assets of Mother Earth’s Storehouse Inc.

The unaudited pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisitions occurred on the dates indicated. They also do not reflect the realization of any expected cost savings from the acquisition transactions or planned cost savings initiatives following the completion of the transaction and may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

HEALTHIER CHOICES MANAGEMENT CORP.

PROFORMA CONDENSED COMBINED BALANCE SHEET

DECEMBER 31, 2021

(UNAUDITED)

	31-Dec-21
					Pro-Forma		Pro-Forma
	HCMC		MES *		Adjustments		HCMC
TOTAL CURRENT ASSETS	$	28,773,539	$	3,426,768	$	2,576,415	$	34,776,722

TOTAL ASSETS		34,443,487		4,341,726		8,249,722		47,034,935
								0
TOTAL CURRENT LIABILITIES		2,523,994		507,052		899		3,031,945
								0
TOTAL LIABILITIES		5,209,830		507,052		1,659,019		7,375,901


Stockholder's Equity		29,233,657		3,834,674		6,590,703		39,659,034
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	34,443,487	$	4,341,726	$	8,249,722	$	47,034,935

* Mother Earth’s Storehouse Inc.

	HCMC		MES *		Proforma
SALES:
Vapor sales, net	$	2,084,813	$	-	$	2,084,813
Grocery sales, net		11,235,041		14,292,166		25,527,207
Total Sales		13,319,854		14,292,166		27,612,020
Cost of sales vapor		839,599		-		839,599
Cost of sales grocery		7,187,701		9,389,790		16,577,491
GROSS PROFIT		5,292,554		4,902,376		10,194,930

EXPENSES:
Selling, general and administrative		10,033,048		4,042,520		14,075,568
Total operating expenses		10,033,048		4,042,520		14,075,568
Operating loss		(4,740,494)		859,856		(3,880,638)

OTHER INCOME (EXPENSES):
Gain on debt settlements		767,930		-		767,930
Other expenses, net		(26)		678,514		678,488
Interest expense, net		(65,281)		-		(65,281)
Gain (loss) on investment		412		-		412
Total other income (expense), net		703,035		678,514		1,381,549

NET LOSS	$	(4,037,459)	$	1,538,370	$	(2,499,089)

* Mother Earth’s Storehouse Inc.

The following is a brief description of the amounts presented in each of the column headings for each of the unaudited pro forma condensed combined balance sheets and statements of operations, which should be read in conjunction with the Healthier Choices Management Corp. historical consolidated financial statements and accompanying notes included in HCMC's Annual Report on Form 10-K for the year ended December 31, 2021.

The columns reflect the audited balance sheet of Mother Earth’s Storehouse Inc. as of December 31, 2021, and historical audited operating results of Mother Earth’s Storehouse Inc. for the pre-acquisition periods January 1, 2021, to December 31, 2021, which were derived from the audited financial statements of Mother Earth’s Storehouse Inc. presented in Exhibit 99.1.

The pro forma adjustments column on the combined balance sheet as of December 31, 2021, include the estimated fair values of the assets acquired and liabilities assumed from Mother Earth’s Storehouse Inc. as of the date of the acquisition.

On February 8, 2022, the Company through its wholly owned subsidiary, Healthy Choice Markets 3, LLC, 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 assume 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 is approximately $4.5 million, with an additional $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 acquisition of Mother Earth’s Storehouse Inc is a considered significant as defined under Rule 3-05 of Regulation S-X. The audited financial statements of Mother Earth’s Storehouse Inc for the years ended December 31, 2021, and 2020 are included in this Amended Form 8-K.

The purchase consideration paid to the Seller was allocated to the preliminary fair value of the net tangible assets acquired, with the remainder recorded as goodwill on a preliminary basis. Goodwill recognized from the transaction mainly represented the expected operational synergies upon acquisition of the combined entity and intangibles not qualifying for separate recognition. Goodwill is not expected to be deductible for income tax purposes in the tax jurisdiction of the acquired business. The preliminary purchase price allocation was based, in part, on management’s knowledge of Mother Earth’s Storehouse Inc. business and the results of a third-party appraisal commissioned by management. The Company also incurred approximately $70,000 of transaction costs because of the Mother Earth’s Storehouse Inc, which are not presented in the accompanying audited condensed combined financial statements as these costs do not have a continuing impact on the Company’s operating results.

Purchase Consideration
Cash Consideration paid	$	5,278,000

Purchase price allocation
Inventory		805,000
Property and equipment		3,001,000
Intangible assets		1,755,000
Other liabilities		(283,000)
Long term debt		(1,883,000)
Net assets acquired		3,395,000
Goodwill		1,883,000
Total Consideration		5,278,000

Finite-lived intangible assets
Trade Names/Trademarks		640,000
Customer Relationships		714,000
Non-Compete Agreement		401,000
Other liabilities	$	1,755,000

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the accompanying pro forma balance sheets and statements of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of long-lived assets, (2) changes in the allocation of purchase consideration in excess of fair value to separately identifiable intangible assets and (3) other changes to assets and liabilities.

	Page
INDEPENDENT AUDITOR’S REPORT	1
FINANCIAL STATEMENTS
Balance Sheets	4
Statements of Income	5
Statements of Changes in Shareholders’ Equity	6
Statements of Cash Flows	7
Notes to the Financial Statements	8
SUPPLEMENTAL INFORMATION
Schedules of Store Operating Expenses, Employee Costs, and General and Administrative Expenses	13