NOTE 5. ACCOUNTS RECEIVABLE, NET

Accounts receivable is mainly related to CO-OP billing. HCWC bills its vendors for advertising vendors’ products in our sales channels. Advertising revenue is included in sales revenue in the condensed consolidated statement of operations. The Company recorded advertising revenue of approximately $535,000 and $328,000 for the three months ended March 31, 2026 and 2025, respectively. The Company’s accounts receivable amounted to approximately $283,000, $364,000 and $510,000 at March 31, 2026, December 31, 2025 and January 1, 2025, respectively.

The Company’s credit loss is attributable to accounts receivable arising from contracts with customers under ASC 606. The Company has early adopted ASU 2025-05 and elected the practical expedient permitted for current accounts receivable. Under this expedient, the Company assumes that current conditions as of the balance sheet date remain unchanged for the remaining life of the receivables; accordingly, the Company is not required to develop reasonable and supportable forecasts of future economic conditions for these assets. The allowance is determined based on customer credit history and current conditions. Amounts are recorded to the allowance when it is determined that expected credit losses may occur. The Company reserved approximately $19,000 and $10,000 in credit loss as of March 31, 2026 and December 31, 2025, respectively.