NOTE 11. RELATED PARTY TRANSACTIONS

Prior to the Spin-Off, HCWC was a subsidiary of HCMC. After Spin-Off, HCWC operated as a separate, stand-alone company, accordingly has had various relationships with HCMC whereby HCMC provided services to HCWC as noted below. Related party transactions prior to the Spin-Off include allocation of general corporate expenses and cash advances between HCMC and HCWC.

Allocation of General Corporate Expenses

The Company provided human resources, accounting, payroll processing, legal and other managerial services to HCWC prior to the Spin-Off. The accompanying consolidated financial statements include allocations of these expenses. Following the Spin-Off, HCWC and HCMC entered into a TSA, under which both companies agreed to provide certain transitional services to one another to ensure smooth separation. These services are provided on a transitional basis and will continue for a period of up to one year following the Spin-Off.

Management adopted a proportional cost allocation method to allocate the shared expenses to HCWC. The allocation method calculates the appropriate share of overhead costs to HCWC based on management’s estimate that the sum of management time and resources spent managing HCWC is approximately equal to the amount of time and resources spent managing HCMC and its subsidiaries. As a result, 50% of HCMC overhead on a weighted average basis was allocated to HCWC based on the fact that management spent an equal amount of time managing both companies. The Company believes the allocation methodology used is reasonable and has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had HCWC been a stand-alone entity or of future services. HCMC allocated approximately $2.1 million for the year ended December 31, 2024. The pre Spin-Off allocated amount was not cash settled and was included in the Net Parent’s Investment.

Net Parent’s Investment

For the thirty-six weeks ended September 13, 2024, the net operating expenses of $1.7 million incurred by HCMC on behalf of the HCWC was included in Investment in Subsidiary. Upon the Spin-Off, the Company wrote off the investment in subsidiary balance to retained earnings.

Due to Related Party

Prior to the Spin-Off, there was no intercompany agreement between the Company and HCWC. Management has determined those intercompany receivables and payables will be settled within twelve months after the balance sheet date. As a result, the Company’s intercompany balances are reflected as “due to” or “due from” accounts in the consolidated balance sheets. At the time of Spin-ff, the Company had a net receivable balance from HCWC in the amount of $1.2 million, and HCWC paid the balance in full to settle on the Spin-Off date of September 13, 2024. The Company had a net Due to Related Party balance of $4.0 million and $0.2 million to HCWC as of December 31, 2025 and 2024, respectively.

Settlement of Related Party Payable

On December 31, 2025, the Company entered into a Stock Purchase and Satisfaction of Debt Agreement with HCWC to settle the outstanding related party payable. Pursuant to this agreement, the Company issued 43,889,786,222 shares of its common stock to HCWC in full and final settlement of the payable, which had a carrying value of $3,950,080 as of the settlement date. The shares were issued at a contractual price of $0.00009 per share.

In accordance with ASC 850, Related Party Disclosures, and SAB Topic 5.T, transactions involving related parties are recorded based on their substance rather than merely their legal form. Related party transactions cannot be presumed to be carried out on an arm’s-length basis. Accordingly, the payable was extinguished at its carrying amount of $3,950,080, and no gain or loss was recognized. The substance of this transaction is a capital transaction, a conversion of intercompany funding to equity, not a gain-generating event.

For disclosure purposes only, the Company determined the fair value of the common stock issued as of December 31, 2025 in accordance with ASC 820, Fair Value Measurement. HCWC, as the investor, performed an impairment assessment of its investment in the Company using a third-party valuation. That assessment, which utilized a multi-method approach including observable and unobservable inputs, concluded that the fair value of the Company’s common stock exceeded HCWC’s carrying value; therefore, no impairment was recorded.