HEALTHY CHOICE WELLNESS CORP.
For the period ended Mar 31, 2026. Filed May 15, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed May 15, 2026
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ITEM 4. 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, carried out an evaluation on internal controls as of March 31, 2026 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. Based on the evaluation, 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.
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 March 31, 2026 and noted the material weaknesses as follows:
| ● | Management does not evidence independent preparer and reviewer of journal entries, to demonstrate adequate segregation of duties, and the precision of the review of journal entries. |
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| ● | Ineffective design and implementation over Information Technology General Controls (“ITGCs”): |
| (a) | Multiple individuals in the accounting software system have virtually unlimited access to the accounting application and to the inventory point of sale applications. As such, such individuals can post journal entries and change pricing, which poses a risk that duties amongst employees with incompatible roles are not adequately segregated. |
| (b) | Ineffective design, implementation and operation of controls over logical user access, physical security, change management, cyber security, and vendor management. The Company should have had controls for: |
| (i) | Periodic review of access rights for networks and applications on a defined periodic basis, at least once per year; |
| (ii) | Ensuring adequate physical safeguards and environmental controls over the Company’s servers at all Company locations, including stores; |
| (iii) | Performing a cybersecurity assessment, training all personnel, performing phishing exercises, obtaining cybersecurity insurance; and performing third party audits when appropriate; |
| (iv) | 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. |
| (v) | Obtaining and reviewing third party service provider SOC reports, and; |
| (vi) | Review of Service-Level Agreements (SLAs) for all IT service relationships across the Company to ensure active SLAs are in place and enforced. |
| ● | Lack of Formal Related Party Transaction Policy: The Company did not maintain a formal written policy and related controls for the timely identification, evaluation, and accounting treatment of transactions with related parties. The absence of this formal framework resulted in the initial misapplication of accounting guidance for a significant related party transaction during the year. In addition, during the first quarter of 2026, the Company impaired this investment by $1,623,922. Management initially had not identified an impairment charge because of a recent negative decision issued by the Patent Trial and Appeal Board (“PTAB”) in the Inter Parties Review (“IPR”) proceeding initiated by R.J. Reynolds Vapor Company against HCMC. The Company will appeal this decision. However, this triggering event should have been evaluated and reflected in the Company’s impairment analysis. |
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| ● | Ineffective Controls over Statement of Cash Flows Preparation: Controls over the preparation and review of the statement of cash flows were ineffective, resulting in the misclassification of cash flows related to advances made to a related party. |
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 March 31, 2026 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Planned Remediation
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, management identified material weaknesses in our internal control over financial reporting and initiated an action plan to remediate these deficiencies. During the three months ended March 31, 2026, we continued to execute on this plan. Progress during the quarter included the following:
| ● | Segregation of Duties and Journal Entry Review: Remediation of this control is dependent upon the remediation of information technology general controls (“ITGCs”), specifically the removal or mitigation of super user privileges within the Company’s accounting systems that currently allow certain individuals to create, approve, and post journal entries without independent review. During the quarter, the Company began developing a formal journal entry review process, including requirements for independent preparer and reviewer sign-offs. However, because super user privileges remain in place, segregation of duties has not yet been achieved, and individual journal entries were not subject to effective independent review during the quarter. The Company expects to complete remediation of ITGCs and implement the journal entry review process in a future period. |
| ● | Information Technology General Controls: The Company continued to develop its comprehensive IT control framework. Periodic access rights reviews for networks and applications are underway. Enhanced physical security and environmental controls over servers at all locations have been deployed. The formal cybersecurity assessment is progressing, with mandatory training and phishing exercises being conducted, and cybersecurity insurance has been obtained. Work continues on establishing controls for IT program and data changes affecting financial applications, as well as procedures for reviewing third-party service provider SOC reports and enforcing Service-Level Agreements. |
| ● | Related Party Transactions: The Company is finalizing a formal written policy for the identification, evaluation, approval, and accounting treatment of related party transactions. Implementation of this policy is expected during the second quarter of 2026. In addition, the Company is implementing enhanced procedures for the timely identification and evaluation of impairment indicators, including formal quarterly reviews of investee-specific events and documented assessments of their impact on fair value. |
| ● | Statement of Cash Flows Preparation and Review: Enhanced procedures for the preparation and review of the statement of cash flows, including specific review protocols for related party transactions and other non-routine items, continue to be refined and applied. The Company continues to engage external consultants, as needed, to assist with complex accounting matters and provide independent review of significant transactions. |
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.
Changes in Internal Controls over Financial Reporting
During the three months ended March 31, 2026, there were no significant changes in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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