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INCOME TAXES | 12 Months Ended
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Dec. 31, 2025
Income Taxes |
INCOME TAXES | NOTE 20. INCOME TAXES Overview and Spin-Off Prior to September 13, 2024, the date of the Spin-Off of HCWC as a stand-alone entity, separate tax returns were not filed as they were included in the consolidated tax reporting of the former parent entity HCMC. On September 13, 2024, HCWC completed its separation from HCMC through a tax-free distribution of HCWC common stock to HCMC shareholders. The Spin-Off was structured to qualify as tax-free under Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code (IRC). Pursuant to the Tax Matters Agreement (TMA) executed with HCMC in December 2023:
| ● | Pre-Spin Liabilities: HCMC retains responsibility for all taxes related to HCWC’s operations prior to September 13, 2024, including audits of HCMC’s consolidated returns.
| ● | Post-Spin Liabilities: HCWC is solely responsible for taxes attributable to its operations after the Spin-Off.
| ● | Indemnification: HCWC indemnifies HCMC for taxes arising from post-Spin actions that jeopardize the transaction’s tax-free status (e.g., violations of IRC Section 355(e)).
For periods prior to the Spin-Off, HCWC’s tax provision was calculated using the separate return method, as if HCWC had operated as a standalone taxpayer. Deferred tax assets and liabilities, including net operating losses (NOLs), were allocated to HCWC based on the carryover tax basis of assets and liabilities transferred in the Spin-Off. This method preserves the tax-free nature of the transaction. As of December 31, 2025 and 2024, all amounts related to the Company’s tax positions are recognized on the Consolidated Balance Sheet. Income taxes are accounted for under the asset and liability method. Correction of Prior Period Amounts (ASC 250) During the fiscal year ended December 31, 2025, the Company completed its analysis of the tax consequences of the Spin-Off and the TMA. Based on information and analyses that became available in 2025, including the finalization of HCMC’s 2024 consolidated tax returns, the Company determined that certain deferred tax assets reported in the 2024 consolidated financial statements were incorrectly attributed to HCWC and should have been retained by HCMC. Specifically, the following pre-spin tax attributes were incorrectly included in the 2024 deferred tax asset balance:
| ● | Net operating loss carryforwards generated prior to September 13, 2024.
| ● | Tax basis in goodwill and other intangible assets arising from pre-spin acquisitions.
| ● | Temporary differences related to warrant liabilities
| ● | Temporary differences prior to September 13, 2024.
In accordance with ASC 250, Accounting Changes and Error Corrections, the Company has evaluated the materiality of this error on both the prior period (2024) and the current period (2025). The correction of this error had no impact on the Company’s previously reported consolidated statements of operations, total assets, liabilities, or cash flows for any period, as the Company maintains a full valuation allowance against its net deferred tax assets and the adjustment was fully offset by a corresponding reduction in the valuation allowance. Accordingly, management has concluded that the error was immaterial to the 2024 financial statements and that correction of the error in 2025 would not materially misstate the 2025 financial statements. The following table presents the effect of the correction on the previously reported 2024 balances. The 2024 balances presented herein have been revised to reflect this correction. As of December 31, 2024 SCHEDULE OF CORRECTION ON THE PREVIOUSLY REPORTED
|  | As Previously Reported |  |  | Adjustment |  |  | As Revised |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
NOL carryforward |  | $ | 3,129,808 |  |  | $ | (3,085,556 | ) |  | $ | 44,252 |
Intangible assets |  |  | 1,958,875 |  |  |  | (1,958,875 | ) |  |  | - |
Warrant liability |  |  | 498,740 |  |  |  | (498,740 | ) |  |  | - |
Interest expense |  |  | 227,272 |  |  |  | (159,402 | ) |  |  | 67,870 |
ASC 842 - Lease Accounting |  |  | 89,309 |  |  |  | 10,808 |  |  |  | 100,117 |
Charitable contributions |  |  | 30,336 |  |  |  | (22,339 | ) |  |  | 7,997 |
UNICAP 263a Adjustment |  |  | (3,823 | ) |  |  | 8,196 |  |  |  | 4,373 |
Allowances |  |  | 7,485 |  |  |  | (5,250 | ) |  |  | 2,235 |
Total deferred tax assets |  |  | 5,938,002 |  |  |  | (5,711,158 | ) |  |  | 226,844 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Net book value of fixed assets |  |  | (32,905 | ) |  |  | 29,763 |  |  |  | (3,142 | )
Intangible assets |  |  | - |  |  |  | (31,652 | ) |  |  | (31,652 | )
Total deferred tax liabilities |  |  | (32,905 | ) |  |  | (1,889 | ) |  |  | (34,794 | )
Net deferred tax assets |  |  | 5,905,097 |  |  |  | (5,713,047 | ) |  |  | 192,050 |
Valuation allowance |  |  | (5,905,097 | ) |  |  | 5,713,047 |  |  |  | (192,050 | )
Net deferred tax assets |  | $ | - |  |  | $ | - |  |  | $ | - |
The adjustment to the 2024 NOL carryforward reflects the removal of pre-spin federal and state net operating losses. Income Tax Provision The Company did not have a provision for income taxes (current or deferred) for the years ended December 31, 2025 and 2024. The following table reconciles income tax expense (benefit) computed at the U.S. federal statutory rate to the income tax expense (benefit) reflected in the accompanying statement of operations, and reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years then ended. The 2024 amounts have been revised to reflect the correction described above. SCHEDULE OF INCOME TAX EXPENSE (BENEFIT)
|  | Amount |  |  | Rate % |  |  | Amount |  |  | Rate % |
|  | Year Ended December 31, 2025 |  |  | Year Ended December 31, 2024 (As Revised) |
|  | Amount |  |  | Rate % |  |  | Amount |  |  | Rate % |
U.S. federal statutory rate |  | $ | (826,518 | ) |  |  | 21.0 | % |  | $ | (946,358 | ) |  |  | 21.0 | %
State tax benefit net of federal benefit |  |  | (213,571 | ) |  |  | 5.4 | % |  |  | (244,537 | ) |  |  | 5.4 | %
Change in valuation allowance |  |  | 906,217 |  |  |  | -23.0 | % |  |  | 192,050 |  |  |  | -4.3 | %
True-Up & Deferred Adjustment |  |  | 486 |  |  |  | 0.0 | % |  |  | - |  |  |  | 0.0 | %
Debt extinguishment |  |  | 99,507 |  |  |  | -2.5 | % |  |  | - |  |  |  | 0.0 | %
Other permanent items |  |  | 21,825 |  |  |  | -0.6 | % |  |  | 746 |  |  |  | 0.0 | %
Change in tax rate |  |  | 126 |  |  |  | 0.0 | % |  |  | - |  |  |  | 0.0 | %
Other |  |  | 11,929 |  |  |  | -0.3 | % |  |  | - |  |  |  | 0.0 | %
Pre Spin-off tax adjustment |  |  | - |  |  |  | 0.0 | % |  |  | 998,099 |  |  |  | -22.1 | %
Income tax provision/(benefit) |  | $ | - |  |  |  | 0.0 | % |  | $ | - |  |  |  | 0.0 | %
The 2024 revised income tax provision uses the full-year consolidated net loss before taxes of $4,506,466, which includes the Company’s results prior to the September 13, 2024 spin-off. The “Pre Spin-Off Tax Adjustment” line removes the tax effects of operations prior to the spin-off date, as responsibility for all taxes related to pre-spin periods is retained by HCMC under the TMA. For the year ended December 31, 2025, the Company made no cash payments for income taxes, net of refunds received. Accordingly, disaggregation by jurisdiction is not applicable. The reconciliation of the U.S. federal statutory income tax rate of 21.0% to the Company’s effective tax rate of 0% for the year ended December 31, 2025 is as follows:
| ● | The expected tax benefit at the federal statutory rate of $826,518 was reduced by a state tax benefit of $213,571 (5.4%). These benefits were fully offset by a change in valuation allowance of $906,217 (23.0%), which reflects management’s determination that it is more likely than not that the deferred tax assets generated during the year will not be realized.
| ● | Additional reconciling items include debt extinguishment of $99,507 (2.5%), representing a permanent difference arising from the non-deductible portion of debt extinguishment costs, and other permanent items of $21,825 (0.6%), primarily consisting of nondeductible expenses. True-up and other adjustments totaling approximately $12,600 (0.3%) reflect immaterial changes in estimates and rounding.
The net effect of these items results in an effective tax rate of 0% for 2025, consistent with the Company’s full valuation allowance position. Deferred Tax Assets and Liabilities As of December 31, 2025 and 2024, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
|  | 2025 |  |  | 2024 revised |
|  | Year Ended December 31, |
|  | 2025 |  |  | 2024 revised |
Deferred tax assets: |  |  |  |  |  |  |  |
NOL carryforward |  | $ | 654,697 |  |  | $ | 44,252 |
Accrued expenses |  |  | 20,661 |  |  |  | - |
Stock Compensation |  |  | 25,766 |  |  |  | - |
Interest expense |  |  | 335,593 |  |  |  | 67,870 |
ASC 842 - Lease Accounting |  |  | 119,949 |  |  |  | 100,117 |
Charitable contributions |  |  | 33,724 |  |  |  | 7,997 |
UNICAP 263a Adjustment |  |  | - |  |  |  | 4,373 |
Allowances |  |  | 4,986 |  |  |  | 2,235 |
Total deferred tax assets |  |  | 1,195,376 |  |  |  | 226,844 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Net book value of fixed assets |  |  | (44,410 | ) |  |  | (3,142 | )
Intangible assets |  |  | (49,098 | ) |  |  | (31,652 | )
UNICAP 263a Adjustment |  |  | (3,600 | ) |  |  | - |
Total deferred tax liabilities |  |  | (97,108 | ) |  |  | (34,794 | )
Net deferred tax assets |  |  | 1,098,268 |  |  |  | 192,050 |
Valuation allowance |  |  | (1,098,268 | ) |  |  | (192,050 | )
Net deferred tax assets |  | $ | - |  |  | $ | - |
Valuation Allowance In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the positive and negative evidence available—including the Company’s history of cumulative losses, negative working capital, and going concern uncertainties—management has determined that a valuation allowance is required at December 31, 2025 and 2024 to reduce the deferred tax assets to amounts that are more likely than not to be realized. The valuation allowance was $192,050 as of December 31, 2024 (revised). During 2025, the valuation allowance increased by $906,217, primarily related to current year net operating losses and other temporary differences. Accordingly, the valuation allowance balance as of December 31, 2025 was $1,098,268. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary. Net Operating Loss Carryforwards At December 31, 2025, the Company had U.S. federal and state post-2017 net operating loss carryforwards (“NOLs”) of approximately $2.5 million and $2.6 million, respectively. The Tax Cuts and Jobs Act (TCJA) allows NOLs incurred in tax years beginning in 2018 to be carried forward indefinitely, subject to an 80% limitation on taxable income under Internal Revenue Code Section 172. The decrease in NOL carryforwards from the prior year reflects the correction of an error in the 2024 financial statements, whereby certain pre-spin NOLs generated prior to September 13, 2024, were incorrectly attributed to the Company. Under the Tax Matters Agreement, these NOLs were always the property of HCMC, the former parent, and have been removed from the Company’s deferred tax assets upon finalization of HCMC’s 2024 tax returns. Certain net operating loss carryforwards are also subject to annual limitations under Internal Revenue Code Section 382 and separate return limitation year (SRLY) rules, which may restrict the amount of pre-change losses that can be utilized in future periods. Florida, Kansas, and Oklahoma net operating losses generated in taxable years beginning after December 31, 2017, may be carried forward indefinitely and do not expire; however, NOLs in these states are subject to an annual limitation of 80% of taxable income. New York, New Jersey, and Virginia net operating losses expire after twenty years. Recent Tax Legislation On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate alternative minimum tax on applicable corporations and a 1% excise tax on stock repurchases made after December 31, 2022. The IRA is not expected to have an impact on the consolidated financial statements. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which, among other things, modifies certain business tax provisions, including interest expense limitations, depreciation and amortization rules, and selected energy-related incentives that interact with the IRA. The Company has evaluated the OBBBA and does not currently expect it to have a material impact on its consolidated financial statements. Uncertain Tax Positions The Company had no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2025 and 2024.

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