The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Historical Information
The Healing Company Inc. (formerly “Lake Forest Minerals), a Nevada corporation, (hereinafter referred to as the “Company”) was incorporated in the State of Nevada on June 23, 2008. The Company was originally formed to engage in the acquisition, exploration and development of natural resource properties of merit.
Currently, the Company is an emerging health and wellness company that has identified the need for a change to healthcare, where conventional medicine and alternative healing can both be drawn on to provide a world of integrated healing encompassing conventional medicine and alternative medicine.
With the acquisition of NOEO GmbH (“NOEO”) on March 10, 2022, and the onboarding of a new management team, the Company commenced operations in the health and wellness sector.
Current Information
On March 3, 2023, the Company and Chopra HLCO LLC, a Delaware limited liability company and indirect wholly owned subsidiary of the Company (“Chopra HLCO”) (collectively the “Buyer”) simultaneously (i) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Chopra Global, LLC, a Delaware limited liability company (“Seller”), and solely with respect to certain specified indemnification provisions of the Purchase Agreement, Deepak Chopra, the majority member of Seller, to acquire (the “Acquisition”) certain assets of Seller (the “Purchased Assets”) and certain liabilities related to Seller’s business activities involving the Chopra Global Digital, Chopra Global Licensing and Chopra Global Products assets (these business activities are referred to herein as the “Chopra Business”) and (ii) closed the Acquisition (the “Closing”). Following the Closing, the Purchased Assets are being held by, and the Chopra Business is being operated through, Chopra HLCO. The consideration paid and payable by Buyer for the Purchased Assets is an aggregate purchase price (the “Purchase Price”) of up to Five Million Dollars ($5,000,000) in cash plus newly issued shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”). One Million Dollars ($1,000,000) of the cash portion of the Purchase Price was paid to Seller on March 3, 2023, along with the issuance to Seller of One Million Four Hundred Thousand 1,400,000) shares (the “Closing Shares”) of the Common Stock. A deferred cash payment of Two Million Five Hundred Thousand Dollars ($2,500,000) was paid to Seller prior to March 31, 2023. In addition, Seller may receive certain Earnout payments of up to $3 million by way of cash and shares upon certain terms and conditions.
Basis of Presentation
These condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company’s fiscal year end is June 30. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The unaudited financial statements for the three and nine months ended March 31, 2023, are not necessarily indicative of the results for the remainder of the fiscal year. As such, the information included in the condensed consolidated financial statements for the three and nine months ended March 31, 2023, should be read in conjunction with the audited financial statements and accompanying notes included in the Company’s Form 10-K for the Company’s fiscal year ended June 30, 2022, as filed with the Securities and Exchange Commission (the “SEC”).
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Going Concern
The Company had a working capital deficit of $7.225 million on March 31, 2023. During the year ended June 30, 2022, the Company entered into private placement subscription agreements to raise a total of $10 million by the sale of seed preferred stock at $2 per share, of which the Company has collected $9.66 million, with the remaining $0.34 million expected to be collected in before June 30, 2023. During the current nine months ended March 31, 2023, the Company sold an additional 50,000 shares of seed preferred stock at $2 per share for proceeds of $0.1 million and 125,000 shares of common stock at $2 per share for proceeds of $250,000, all of which has been collected to date. Subsequent to March 31, 2023, the Company raised an additional $1.5 million through the sale of an additional 750,000 shares of its Common Stock. The Company has commenced operations in the wellness sector initially through the acquisition of NOEO and more recently with the acquisition of the Your Super and Chopra Business assets. During the nine months ended March 31, 2023, the Company entered into a credit agreement with certain lenders (the “Lenders”) who agreed to extend a credit facility to the Company consisting of up to $75 million (which amount may be increased up to $150 million in accordance with the terms of the agreement) in aggregate principal amount of term loan commitments (the “Term Loans”)), the proceeds of which may be used to acquire assets that are deemed eligible by meeting certain criteria. To date, the Company has been funded $4.87 million under the terms of this agreement in order to facilitate the purchase of operating assets. The continuation of the Company as a going concern is dependent upon the ability to attain profitable operations from the Company’s existing and planned future business operations and sufficient financing to carry out those plans. If the Company is unable to obtain adequate capital as needed, or conduct revenue generating operations, the Company may be required to reduce the scope, delay, or eliminate some or all of its existing and planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
COVID-19 Pandemic and other factors
While the World Health Organization has recently declared that the COVID-19 pandemic is no longer a public health emergency of international concern and the global economy is focused on recovery, the impact of COVID-19 could continue to have an adverse impact on the Company going forward. COVID-19 caused significant disruptions to the global financial markets, which may continue to impact the Company’s ability to raise additional capital and to pursue certain acquisitions. Additional factors which may impact the Company’s ongoing operations include, but are not limited to, inflation, potential supply chain issues as a result of the aforementioned recovery from the COVID-19 pandemic, the recent war in the Ukraine and climate change. These events may have serious adverse impact on domestic and foreign economies which may impact the Company’s operations as a result of a variety of factors including the potential for reduced consumer spending. The Company is unable to predict the ongoing impact of these factors on the Company’s consolidated financial operations. There are no assurances that the Company will be able to meet its obligations, raise funds or conclude the acquisition of identified businesses.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of The Healing Company, Inc. and its 100% controlled subsidiaries, NOEO GmBH, NOEO, Inc., HLCO Borrower LLC, Your Super HLCO, LLC, Chopra HLCO LLC and the Your Super HLCO, LLC subsidiaries. All significant intercompany balances and transactions have been eliminated. “The Healing Company”, the “Company”, “we”, “our” or “us” is intended to mean The Healing Company, including the subsidiaries indicated above, unless otherwise indicated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of its assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and the Company includes any revisions to its estimates in its results for the period in which the actual amounts become known. Significant estimates in the period include the preliminary purchase price allocation with respect to the acquisition of the assets and liabilities of Your Super Inc. and Chopra HLCO, the allowance for doubtful accounts on accounts and other receivables, inventory allowance and impairment, valuation and useful lives of fixed assets, valuation of common stock and stock warrants, stock option valuations, imputed interest on due to related parties, and deferred tax valuation allowance.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Foreign Currency Translation and Transactions
The reporting currency of the Company is the U.S. dollar. The functional currencies of the Company’s Germany and Netherlands subsidiaries are the local currencies. The assets and liabilities of foreign subsidiaries are translated using exchange rates in effect at the consolidated balance sheet date. Revenues and expenses are translated using the average exchange rates prevailing during the period. Exchange-rate differences resulting from translation adjustments are accounted for as a component of accumulated other comprehensive loss. Borrowings in foreign currencies are recorded at the rate of exchange at the time of the transaction and are adjusted for any exchange rate gains or losses as of the balance sheet date.
Translation of amounts from Euro into US$ has been made at the following exchange rates for the periods ended March 31, 2023 and June 30, 2022:
| | March 31, 2023 | | | June 30, 2022 | |
Period-end Euro: US$ exchange rate | | $ | 1.0842 | | | $ | 1.0476 | |
Period average Euro: US$ exchange rate | | $ | 1.0428 | | | $ | 1.0725 | |
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated, as the case may be, at the rate on the date of the transaction and included in the results of operations as incurred.
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in shareholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as highly liquid investments with original maturities of 90 days or less at the time of purchase. The Company also considers amounts in transit from payment processors for customer credit card and debit card transactions to be cash and cash equivalents. At March 31, 2023 and June 30, 2022, the Company’s cash and cash equivalents consisted primarily of cash held in checking accounts, and payment in transit from payment processors for customer credit card and debit card transactions. As of March 31, 2023 and June 30, 2022, the cash and cash equivalent was $3.1 million and $6.5 million, respectively.
Concentration of Risk
Financial instruments that subject the Company to significant concentrations of credit risk primarily consist of cash and cash equivalents. The Company maintains substantially all of its cash and cash equivalents with three financial institutions, which, at times, may exceed federally insured limits. The Company has not incurred any losses associated with this concentration of deposits.
The Company currently has bank deposits with financial institutions in the U.S. which exceed FDIC insurance limits. FDIC insurance provides protection for bank deposits up to $250,000, so there were cumulative uninsured balances of $1,754 and $6,242 in the parent and its US based subsidiaries as of March 31, 2023 and June 30, 2022, respectively. There were no uninsured bank deposits with a financial institution outside the U.S. All uninsured bank deposits are held at high quality credit institutions.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated net of an allowance for doubtful accounts. When management becomes aware of circumstances that may decrease the likelihood of collection to a point where a receivable is no longer probable of being collected, it records an allowance against amounts due, which reduces the receivable to the amount that management reasonably believes will be collected. For all other customers, management determines the adequacy of the allowance based on historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with specific accounts. The Company does not have any off-balance-sheet credit exposure related to its customers. As of March 31, 2023 and June 30, 2022, the allowance for doubtful accounts amounted to $496 and $0, respectively.
Inventories
Inventories consist primarily of raw materials, work-in-process (blended superfood powder) and finished goods. Finished goods and work-in-process include direct materials, finished product kits, finished products, third-party blender and other overhead costs involved in manufacturing for e-commerce sales. The Company values inventory using the standard costing method whereunder product costs are allocated based on standard rates for materials, labor, and overhead. The Company analyses actual costs at regular intervals and accounts for any variance in its costs of goods sold. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in first-out method. Inventories have been reduced by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on our management’s review of inventories on hand compared to estimated future usage and sales. The Company performs cycle counts of inventories at its warehouse and distribution center throughout the year. An allowance for inventory shrinkage is established for estimated inventory shrinkage since the last physical inventory date through the reporting date.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization, and depreciated over their estimated lives using the straight-line method. The useful lives of leasehold improvements are determined by the economic useful lives of the assets or the term of the leases, whichever is shorter.
Depreciation and amortization is provided for by the straight-line method over the estimated useful lives as follows:
Property and Equipment | | Estimated Useful Life |
Computer and other equipment | | 3-7 years |
Office furniture and fixtures | | 5-7 years |
Leasehold improvements | | Shorter of lease or useful life |
Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Business Combinations
The Company accounts for business combinations using the purchase method of accounting. The purchase method requires the Company to determine the fair value of all acquired assets, including identifiable intangible assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Goodwill and Intangibles
Goodwill represents the excess of the purchase price over the fair market value of the net assets (including intangibles) acquired on October 13, 2022 and March 3, 2023, respectively. The Company has implemented the Business Combinations Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other. Goodwill and tradename are deemed to have an indefinite life, customer/distributor relationships have a definite life of approximately 5 years and non-compete provisions with key employees have a definite life of approximately 4 years. Goodwill and indefinite life intangible assets are not amortized but are subject to, at a minimum, annual impairment tests. The Company expenses costs to maintain or extend intangible assets as incurred.
The Company reviews intangible assets (with a definite life), excluding goodwill and tradenames, for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. There were no impairments for the periods presented.
The Company tests goodwill, accreditation and trade names for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. There were no goodwill, accreditation or trade names impairments for the periods presented. Amortization of customer relationships and non-compete agreements on a straight-line basis totaled $126 in the nine-month period ended March 31, 2023.
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. The Company had no long-lived asset impairments as of March 31, 2023 and June 30, 2022, respectively.
Contract assets
In accordance with ASC 606-10-45-3, contract asset is when the Company’s right to payment for goods and services already transferred to a customer if that right to payment is conditional on something other than the passage of time. The Company will recognize a contract asset when it has fulfilled a contract obligation but must perform other obligations before being entitled to payment.
There were no contract assets at March 31, 2023 and June 30, 2022.
Contract liabilities
Deferred revenue, a contract liability, primarily consists of arrangement consideration collected in advance of order fulfillment and unsatisfied obligations related to outstanding loyalty points. The Company expects that the majority the revenue deferrals recorded at the balance sheet date will be recognized as revenue in the next 12 months as performance obligations are satisfied. Sales taxes collected from customers and remitted to government authorities are excluded from revenue and deferred revenue. Ownership passes to customers upon shipment. Deferred revenue represents amounts collected from, or invoiced to, customers in excess of revenues recognized, primarily from the billing of annual subscription agreements.
Also included in contract liabilities is the value of loyalty points with respect to the Company’s loyalty program described below. The value of these contract liabilities will increase or decrease based on the timing of invoices and recognition of revenue as customers use their rewards points.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
The Company offers a loyalty program to its customers which incorporates a points system for activities on the Company’s website, such as reviews, referrals, and purchases. Customers accumulate points based on their level of spending and type of participation. The points can be redeemed for purchases of goods offered at the Company’s websites. The Company defers the stand-alone selling price of earned reward points, net of rewards not expected to be redeemed (known as “breakage”), as liability for outstanding loyalty points. To estimate the stand-alone selling price for the points, the Company considers the stated redemption value per point dictated by the terms of the loyalty programs and then estimates the future breakage of reward points based on historical member activity. Upon redemption of points by customer, the Company recognizes revenue and reduces corresponding deferred revenue. The Company records breakage revenue of unredeemed points based on expected customer redemptions.
The Company’s total contract liability balance was $3.17 million and $0 at March 31, 2023 and June 30, 2022, respectively, of which $1.1 million primarily relates to the liability for outstanding loyalty points for Your Super and $2.06 million relates to customer subscription deposits with respect to membership fees from the Chopra wellness app which are collected in advance and amortized over the one (1) year term of the membership, advances on retreat packages and prepaid licensing fees.
Fair Value Measurements
The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, contracts receivable, accounts payable and accrued liabilities, contracts receivable recourse, deferred, unearned tuition, debt and a capital lease obligation. The carrying values of the Company's financial instruments approximate fair value.
FASB ASC 820, Fair Value Measurements and Disclosures ("ASC 820") establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:
Level 1—Quoted market prices for identical assets or liabilities in active markets or observable inputs;
Level 2—Significant other observable inputs that can be corroborated by observable market data; and
Level 3—Significant unobservable inputs that cannot be corroborated by observable market data.
The Company believes that the carrying amounts of cash and cash equivalents, accounts payable, and short-term borrowings approximate fair value based on either their short-term nature or on terms currently available to the Company in financial markets.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The Company accounts for revenue contracts with customers by applying the requirements of ASC 606, Revenue from Contracts with Customers, which includes the following five steps:
| i. | Identification of the contract with a customer. |
| ii. | Identification of the performance obligations in the contract. |
| iii. | Determination of the transaction price. |
| iv. | Allocation of the transaction price to the performance obligations in the contract. |
| v. | Recognition of revenue as the entity satisfies a performance obligation. |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
When a customer purchases product from the Company, ownership of the product transfers to them at the point of shipment and the Company has an enforceable right to payment for product sold at that time. Accordingly, the customer has control of the product purchased from the Company starting at the point of shipment. The risk of loss or damage during shipment resides exclusively with the shipping carrier and the Company assumes no obligation for loss or damage of product while in transit to the customer. As a result of this change in terms of sale, the Company recognizes revenue, including shipping revenue, when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers, which is at the point of shipment.
Sales are recorded net of returns, discounts, and any taxes collected from customers and remitted to government authorities.
The Company generates its revenues from a diversified a mix of e-commerce activities with the majority of the revenue earned thru e-commerce with sales direct to consumer.
The Company’s e-Commerce activities include the sale of organic nutritional superfood powder mixes online, through the Company’s website YourSuper.com and sales of the Chopra wellbeing line available at Chopra.com. During the nine-month period ended March 31, 2023, the Company’s direct to consumer sales of products accounted for 59% of total revenue.
In addition, the Company records revenue from the sale of memberships to the Chopra Wellbeing and Meditation App. Revenues from the membership are collected in advance and recognized over the term of the membership. Finally, the Company records net revenue in the form of commissions with respect to sales of attendance at its wellness retreats at various US based locations.
The Company records revenues from the sales on a “gross” basis pursuant to ASC 606-10 Revenue Recognition – Revenue from Contracts with Customers, when the Company controls the specified good before it is transferred to the end customer and have the risks and rewards as principal in the transaction, such as responsibility for fulfillment, retaining the risk for collection, and establishing the price of the products. If these indicators have not been met, or if indicators of net revenue reporting specified in ASC 606-10 are present in the arrangement, revenue is recognized net of related direct costs.
Cost of Revenue
Cost of revenue primarily consists of costs associated with the purchase of superfood products and materials and packaging for its Chopra wellness kits from third-party manufacturers. These costs include ingredients, packaging, third party manufacturing costs and freight-in shipping.
Product Warranties
The Company’s provision for estimated future warranty costs is based upon historical relationship of warranty claims to sales. Based upon historical sales trends and warranties provided by the Company’s, the Company has concluded that no warranty liability is required as of March 31, 2023 and June 30, 2022. To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.
Operating Expenses
Advertising and Marketing - The Company expenses advertising cost as incurred. Advertising costs amounted to $1.3 million and $0 for the nine-month periods ended March 31, 2023, and 2022, respectively.
Shipping and Logistics - Shipping and logistics expenses consist primarily of costs incurred to ship products to the customer.
ASC 606-10-25-18B
If shipping and handling activities are performed after a customer obtains control of the good, then the entity may elect to account for shipping and handling as activities to fulfill the promise to transfer the good. The entity shall apply this accounting policy election consistently to similar types of transactions. An entity that makes this election would not evaluate whether shipping and handling activities are promised services to its customers. If revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities shall be accrued. An entity that applies this accounting policy election shall comply with the accounting policy disclosure requirements in paragraphs 235-10-50-1 through 50-6.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
The Company treated shipping and handling activities as fulfillment cost and presented under operating expenses in the accompanying consolidated statements of operations and comprehensive loss.
General and administrative - General and administrative consists of salaries for employees, commissions and bonuses, consulting fees, employee benefit costs, stock-based compensation, bank processing fees, donations, travel and rent.
Stock-Based Compensation
The Company accounts for stock option awards granted to employees, non-employees, and directors using the accounting guidance in ASC 718 “Stock Compensation” (“ASC 718”). In accordance with ASC 718, we estimate the fair value of service-based options and performance-based options on the date of grant, using the Black-Scholes pricing model. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant. Compensation expense is recognized on a straight-line method over the requisite service period. Forfeitures are accounted for as they occur.
Business Segments
The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has three operating segments: Ecommerce sales of wellness products, sales of memberships to its wellness app and operation of its wellness focused retreats.
Commitments and Contingencies
The Company follows the ASC 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Income and Other Taxes
Income taxes are accounted for using the asset and liability method in accordance with ASC 740, Income Taxes (“ASC 740”), and in accordance with taxation principles currently effective in the United States and Germany, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
Net Loss per Common Share
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
The table below reflects the potentially dilutive securities at the end of each reporting period:
| | March 31, 2023 | | | June 30, 2022 | |
Seed Preferred stock (Convertible to Common stock 1:1) | | | 4,885,000 | | | | 4,660,000 | |
Seed Preferred warrants (Convertible to Common stock 1:1) | | | 1,560,148 | | | | - | |
Common stock warrants | | | 1,650,000 | | | | - | |
Stock options | | | 3,391,250 | | | | 3,166,250 | |
Total | | | 11,486,398 | | | | 7,826,250 | |
Recent Accounting Pronouncements – The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – ACQUISITIONS
Acquisition – Assets of Chopra Global, LLC
On March 3, 2023, the Company and Chopra HLCO LLC, simultaneously (i) entered into the Purchase Agreement with the Seller, and solely with respect to certain specified indemnification provisions of the Purchase Agreement, Deepak Chopra, to acquire the Purchased Assets and certain liabilities related to Seller’s business activities involving the Chopra Business and (ii) closed the Acquisition. Following the Closing, the Purchased Assets are being held by, and the Chopra Business is being operated through, Chopra HLCO.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
The consideration paid and payable by Buyer for the Purchased Assets is the Purchase Price of up to Five Million Dollars ($5,000,000) in cash plus newly issued shares of the Company’s Common Stock. In total, the initial cash purchase amount consists of $3.5 million in cash, of which the Company has paid $2.5 million as of March 31, 2023, with the final $1 million paid in April 2023, and 1,400,000 shares of the Company’s unregistered, restricted common stock issued on Closing. Additionally, up to three (3) earnout payments of One Million Dollars ($1,000,000) in value each (the “Earnout Payments”) may be paid to Seller, subject to and payable in accordance with earnout thresholds specified in the Purchase Agreement. Each of these Earnout Payments will be comprised of fifty percent (50%) in cash and fifty percent (50%) in shares of the Common Stock (the “Earnout Shares”). The Earnout Payments will be earned (i) for the period starting March 1, 2023 and ending December 31, 2023 if net revenue of the Chopra Business (then operated by Buyer) exceeds Five Million Nine Hundred Thousand Dollars $5,900,000; (ii) for the calendar year ending December 31, 2024 if such net revenue exceeds $11,000,000; and (iii) for the calendar year ending December 31, 2025 if such net revenue exceeds $15,000,000. The Earnout Shares will be valued at the market price at the time of issuance based on the five-day volume weighted average price of the Common Stock prior to the last day of the applicable measurement year. If the Company is taken private or undergoes a Change of Control (as defined in the Asset Purchase Agreement), any subsequent Earnout Payment will be paid 100% in cash. The Closing Shares are restricted securities and do not carry any registration rights that require or permit the filing of any registration statement in connection with their issuance. In accordance with the terms of a lock up/leak out agreement between the Company and Chopra Global effective as of the Closing (the “Lock Up/Leak Out Agreement”), the Closing Shares are subject to a three-year lock-up (unless released earlier as described below) from the date of the Closing (the “Lock Up”) and thereafter may be released in four equal quarterly installments beginning on the first day of the fiscal quarter beginning after the third anniversary of the Closing and on the first day of each of the next three fiscal quarters (the “Leak Out”) subject to a restricted volume of no more than three percent (3%) of the volume-weighted average trading of the Common Stock over the previous five trading days. The Closing Shares will be released from the Lock Up, but not from the Leak Out, upon (a) the closing of an underwritten, firm commitment public offering of at least $30,000,000 of the Common Stock, (b) a Change of Control or (c) the Company’s termination of reporting under the Securities Exchange Act of 1934, as amended.
The Company’s acquisition of the operating assets of Chopra Global is being accounted for as a business combination.
In order to perform the purchase price allocation, the tangible and intangible assets were valued as of March 1, 2023.
The following is a summary of the estimated fair values of acquisition costs at the date of March 1, 2023:
(Dollars in thousands)
Consideration Paid – Fair Value | | | | | | |
Acquisition costs – Cash | | | | | $ | 3,500 | |
Stock issued: | | | | | | | |
Number of Shares issued: | | | 1,400,000 | | | | | |
Value per share | | $ | 0.15 | | | | | |
Total stock fair value | | | | | | | 210 | |
Total consideration | | | | | | $ | 3,710 | |
On March 31, 2023, a total of $2.5 million in cash consideration was paid with the remaining $1 million reflected as accounts payable, which amount was settled during April 2023.
The following is a summary of the estimated fair values of the assets acquired and liabilities assumed and additional information regarding the intangible assets acquired:
(Dollars in thousands)
Tangible assets acquired: | | | |
Cash | | $ | 292 | |
Inventory | | | 245 | |
Accounts receivable | | | 78 | |
Prepaid expenses and other assets | | | 326 | |
Total assets acquired | | | 941 | |
| | | | |
Assumed liabilities | | | | |
Contract liabilities | | | (2,257 | ) |
Total liabilities assumed | | | (2,257 | ) |
Net tangible assets/(liabilities) | | | (1,316 | ) |
Total liabilities acquired | | | (1,316 | ) |
Goodwill | | | 5,026 | |
| | | | |
Total Net asset acquired | | $ | 3,710 | |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
As of March 31, 2023, no impairment of the Company’s goodwill was required. The purchase accounting for the acquisition remains incomplete as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the respective dates of acquisition.
Acquisition - Assets of Your Super, Inc.
On September 9, 2022, the Company (‘Buyer”) acquired from CircleUp Credit Advisers LLC (“CircleUp”), for a cash consideration of $2 million plus 1,500,000 common stock purchase warrants for exercise at $2 per share for a term of seven years, all of CircleUp’s rights and interests of all loans and loan accommodations made to Your Superfoods, Inc and Your Super, Inc.
On September 30, 2022, the Company entered into an asset purchase agreement (the “YS Asset Purchase Agreement”) with Your Super, Inc. ( “YS”), to acquire all of the YS’ right, title and interest in and to substantially all of the assets owned by YS used in connection with the business of Your Super, Inc. The Closing took place on October 13, 2022.
The aggregate purchase price for the ownership interests of YS as stated in the YS Asset Purchase Agreement is as follows:
* | In consideration for the sale, assignment and delivery of the YS purchased assets, the Buyer (i) waived, canceled, and forgave payment by YS of the Loan Obligation and (ii) paid the aggregate purchase price for the YS purchased assets of $8 million (the “YS Purchase Price”), payable in accordance with Section 1.4(b) of the YS Asset Purchase Agreement. |
* | The YS Purchase Price for the YS purchased assets was comprised of and be payable as follows: o Equity Payment. At the Closing, the Buyer issued to YS 3,200,000 shares of Company Common Stock valued at $2.50 per share for an aggregate value of $8 million (the “Buyer Shares”), subject to lockup provisions. The Buyer Shares were issued according to applicable regulatory and compliance requirements, as restricted securities (as defined in Rule 144) and do not carry any registration rights. |
The Company’s acquisition of the operating assets of Your Super Inc. is being accounted for as a business combination as the Company treated the two transactions are being combined as the acquisition.
In order to perform the purchase price allocation, the tangible and intangible assets were valued as of September 30, 2022.
The following is a summary of the estimated fair values of acquisition costs at the date of September 30, 2022:
(Dollars in thousands)
Consideration Paid – Fair Value | | | | | | |
Debt acquisition costs – Cash | | | | | $ | 2,000 | |
Debt acquisition cost -1,500,000 common stock purchase warrants | | | | | | 687 | |
Stock issued: | | | | | | | |
Number of Shares: | | | 3,200,000 | | | | | |
Value per share | | $ | 0.15 | | | | | |
Total stock fair value | | | | | | | 496 | |
Total consideration | | | | | | $ | 3,183 | |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
The following is a summary of the estimated fair values of the assets acquired and liabilities assumed and additional information regarding the intangible assets acquired at the date of September 30, 2022:
(Dollars in thousands)
Tangible assets acquired: | | | |
Cash | | $ | 322 | |
Inventory | | | 4,707 | |
Accounts receivable | | | 886 | |
Prepaid expenses and other assets | | | 968 | |
Property and equipment | | | 81 | |
Security deposits | | | 63 | |
Deferred income taxes | | | 45 | |
Total assets acquired | | | 7,072 | |
| | | | |
Assumed liabilities | | | | |
Accounts payable and accrued liabilities | | | (8,883 | ) |
Contract liabilities | | | (970 | ) |
Income tax payable | | | (41 | ) |
Total liabilities assumed | | | (9,894 | ) |
Net tangible assets/liabilities | | | (2,822 | ) |
Intangible assets acquired: | | | | |
Tradename – trademarks, brand (indefinite life) | | | 990 | |
Customer base/distributors (expected 5 years) | | | 1,184 | |
Non-competes (expected 4 years) | | | 64 | |
Total intangible assets acquired | | | 2,238 | |
Goodwill | | | 3,767 | |
| | | | |
Total Net asset acquired | | $ | 3,183 | |
As of March 31, 2023, no impairment of the Company’s goodwill, nor other intangibles with an indefinite life was required. The purchase accounting for the acquisition remains incomplete as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the respective dates of acquisition.
Following are the supplemental consolidated financial results of the Company, Your Superfoods, Inc., Your Superfoods BV and Your Superfoods GmbH and the assets of Chopra Global on an unaudited pro forma basis, as if the acquisitions had been consummated as of the beginning of the fiscal year 2022 (i.e., July 1, 2021):
| | Three months ended March 31, | | | Nine months ended March 31, | |
| | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Revenue | | $ | 3,905 | | | $ | 8,378 | | | $ | 12,420 | | | $ | 30,370 | |
Net loss from operations | | $ | (2,106 | ) | | $ | (4,449 | ) | | $ | (10,150 | ) | | $ | (17,368 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of common shares used in per share calculations | | | 51,407,420 | | | | 44,001,312 | | | | 48,658,858 | | | | 44,000,431 | |
Basic and Diluted Loss Per Common Share | | $ | (0.04 | ) | | $ | (0.10 | ) | | $ | (0.21 | ) | | $ | (0.39 | ) |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Acquisition NOEO GmBH
On March 10, 2022, the Company closed a Share Purchase Agreement pursuant to which we acquired 100% of the issued and outstanding capital stock of NOEO GmBH, a German corporation, controlled by a member of our board of directors, for total consideration of $28,290 (EUR25,000), paid on closing. NOEO has established a series of wellness products, sold direct-to-consumer focusing on adaptogenic herbs and the marketing of three key products which include joint, memory and digestive complexes taken orally derived from functional mushrooms. The acquisition is in line with the Company’s current mandate of acquiring operating wellness-focused businesses. On closing, the shares of NOEO were transferred to the Company and NOEO became a wholly owned subsidiary of the Company.
The following table sets forth the net assets on acquisition date:
(Dollars in thousands)
| | March 10, 2022 | |
| | | |
Cash and cash equivalent | | $ | 8 | |
Inventory | | | 8 | |
Prepaid expenses | | | 69 | |
Recoverable value added tax | | | 21 | |
Intangible assets | | | 68 | |
Accounts payable and accrued liabilities | | | (33 | ) |
Advances and accounts payable, related party | | | (8 | ) |
Loan payable, related party | | | (158 | ) |
Net assets | | | (25 | ) |
Consideration: Cash purchase | | | 28 | |
Additions to intangible assets | | $ | 53 | |
The purchase accounting for the acquisition of NOEO was concluded as of June 30, 2022. On June 30, 2022, the impairment tests carried out by management indicated that certain intangible assets including trademarks, trade names, brand recognition and ecommerce websites were impaired, and the Company recorded a loss on impairment of $138,000 (ref: Note 4).
NOTE 4 – INTANGIBLE ASSETS
The following table sets forth the details of intangible assets at March 31, 2023:
(Dollars in thousands)
Intangible assets, June 30, 2021 | | | |
Additions: | | | |
Intangible assets acquired from NOEO, March 10, 2022 | | $ | 142 | |
Tradenames and other intangibles | | | 11 | |
Impact of foreign exchange | | | (4 | ) |
Impairment of intangible assets, NOEO | | | (138 | ) |
Total, June 30, 2022 | | $ | 11 | |
Abandoned Trademark application fee refund | | | (3 | ) |
Tradename – trademarks (indefinite life) | | | 990 | |
Customer base/distributors (expected 5 years) | | | 1,184 | |
Non-competes (expected 4 years) | | | 64 | |
Less accumulated amortization | | | (126 | ) |
Total, March 31, 2023 | | $ | 2,120 | |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
(Dollars in thousands) | | March 31, 2023 | | | June 30, 2022 | |
Computer equipment | | $ | 228 | | | $ | - | |
Furniture and fixtures | | | 25 | | | | -- | |
| | | 253 | | | | - | |
Less: accumulated depreciation | | | (202 | ) | | | - | |
Property and equipment, net | | $ | 51 | | | $ | - | |
Depreciation expense for the periods ended March 31, 2023 was $31 and is included within general and administrative expense within the consolidated statements of operations and comprehensive loss. There are no assets held under capital leases.
NOTE 6 – REVENUE
Disaggregation of Revenue
The following table presents the Company’s revenue, from acquisition dates to the period ended March 31, 2023, from contracts with customers, disaggregated by Company location and sales channel:
Revenue by Geographical location
(Dollars in thousands) | | Acquisition Dates To March 31, 2023 | |
| | | |
US | | $ | 3,838 | |
Europe | | | 1,721 | |
Total | | $ | 5,559 | |
Revenue by product sales channel
(Dollars in thousands) | | Acquisition Dates To March 31, 2023 | |
Direct to Consumer | | $ | 3,280 | |
Amazon | | | 1,287 | |
Wholesale | | | 889 | |
Retreat/licensing | | | 88 | |
Digital | | | 15 | |
Total | | $ | 5,559 | |
From the acquisition dates to March 31, 2023, the Company had no customers who accounted for greater than 10% of total revenue. The Company primarily views its disaggregated revenue on a geographic basis.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Contract Liabilities
The deferred revenue balances were as follows:
(Dollars in thousands) | | | |
Deferred revenue, as of the acquisition dates, including reward liabilities of $965 (a) and prepaid membership, licensing and retreat fees of $2,257(b) | | $ | 3,227 | |
Increase in reward liabilities over the period, net | | | 22 | |
Decrease in deferred revenue over the period, net (b)(c) | | | (83 | ) |
Deferred revenue, end of the period, including rewards liabilities of $984 | | | 3,166 | |
| (a) | The Company records a liability for outstanding loyalty points earned by customers. As of March 31, 2023, and September 30, 2022 (acquisition date of Your Super, Inc. assets), the liability for outstanding loyalty points amounted approximately $987 and $965, respectively, and is included in contract liabilities in the accompanying consolidated balance sheets. |
| | |
| (b) | The Company records a liability for fees collected from customers with respect to its subscription-based wellness app, retreat package sales and licensing fees which amounts are recognized when earned. As of March 31, 2023, and September 30, 2022 (acquisition date of Chopra Global assets), the liabilities for unearned revenue totaled $2,064 and $2,257, respectively, and is included in contract liabilities in the accompanying consolidated balance sheets. |
| | |
| (c) | As of March 31, 2023, and September 30, 2022 (acquisition date of Your Super, Inc. assets), liabilities for unearned product sales totaled $115 and $5, respectively. |
Sales Returns Reserve
The Company offers a 30-day satisfaction guarantee and sales return refunds to its customers on their first order or first subscription order. The Company records a liability for estimated sales return refunds, which is based on historical returns and is included within accrued expenses on the consolidated balance sheet.
The reserve amounted to approximately $108 as of March 31, 2023 and is included in other current liabilities in the accompanying consolidated balance sheets.
The Company’s sales returns reserve was comprised of the following:
(Dollars in thousands) | | | |
Balance, the acquisition date | | $ | 103 | |
Charges to Costs and Expenses | | | 5 | |
Deductions | | | - | |
March 31, 2023 | | | 108 | |
NOTE 7 – ACCOUNTS RECEIVABLE, NET
Account receivable consisted of the following:
(Dollars in thousands) | | March 31, 2023 | | | June 30, 2022 | |
Accounts receivable | | $ | 997 | | | $ | - | |
Less: allowance for doubtful accounts | | | (496 | ) | | | - | |
Total | | $ | 501 | | | $ | - | |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts, based on historical bad debts, which amounted to an allowance of approximately $496 and $0 as of March 31, 2023 and June 30, 2022, respectively.
The Company’s allowance for doubtful accounts was comprised of the following:
(Dollars in thousands) | | | |
Balance, acquisition date | | $ | 314 | |
Charges to Costs and Expenses | | | 182 | |
Deductions | | | - | |
Balance as of March 31, 2023 | | $ | 496 | |
NOTE 8 – INVENTORY
The following table presents the detail of inventory:
(Dollars in thousands) | | March 31, 2023 | | | June 30, 2022 | |
Raw material | | $ | 2,926 | | | $ | - | |
Work-in-process | | | 418 | | | | - | |
Finished goods | | | 1,694 | | | | - | |
Inventory reserve | | | (1,014 | ) | | | - | |
Total | | $ | 4,024 | | | $ | - | |
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
(Dollars in thousands) | | March 31, 2023 | | | June 30, 2022 | |
Accounts payable | | $ | 4,919 | | | $ | 175 | |
Accrued payroll and related liabilities | | | 198 | | | | 27 | |
Accrued costs for inventory | | | 241 | | | | - | |
Accrual of estimated tax related expense | | | 434 | | | | - | |
Accrued expenses including accruals for professional fees, marketing costs, advertising, shipping and logistics | | | 293 | | | | 44 | |
Accrued interest expenses | | | 362 | | | | - | |
Other accrued liabilities including sales tax and returns | | | 70 | | | | - | |
Total accounts payable and accrued liabilities | | $ | 6,517 | | | $ | 246 | |
NOTE 10 – LOAN PAYABLE
On August 4, 2022, the Company and its controlled subsidiary HLCO Borrower LLC entered into a credit facility agreement (the “Credit Agreement”) with the Lenders who agreed to extend a credit facility to the Company consisting of up to $75,000,000 (which amount may be increased up to $150,000,000 in accordance with the terms of the Credit Agreement) in aggregate principal amount of Term Loans, the proceeds of which may be used to acquire assets that are deemed eligible by meeting certain criteria established by an administrative agent (the “Administrative Agent”) under the Credit Agreement.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Term Loans anticipated to be funded under the Credit Agreement will be in a minimum principal amount of at least $400,000, bear an annual interest rate of 12% and will mature the earlier of 12 months following the final draw down under a Term Loan and a date on which an event of default, as defined in the Credit Agreement, occurs. Term Loans will be repayable in full on their maturity dates and may be voluntarily prepaid in full (but not in part) at the option of the Company and prepaid on a mandatory basis on the sale of the assets underlying a particular Term Loan. Interest on any outstanding Term Loans will be paid monthly. The Company paid an upfront fee of $562,500 recorded as finance costs to the Administrative Agent for the benefit of the Lenders and will pay the Administrative Agent, for its own account, a quarterly fee of $12,500. Further, the Company is paying a daily rate to the Lenders in respect of undrawn funds to meet a minimum funding threshold until such time as funds drawn total $50 Million.
The Company and each of the subsidiaries of HLCO Borrower LLC have agreed to secure all of their future anticipated obligations under the Credit Agreement by granting the Lenders a first priority lien on substantially all of their assets and the Company has agreed to secure all future obligations to be incurred under the Credit Agreement by granting to a collateral agent, for the benefit of the lenders, a first priority lien on all of the capital stock of the subsidiaries held by the Company.
In connection with the transactions contemplated by the Credit Agreement, the Company issued to the Administrative Agent a seven-year warrant to purchase, for its own account, up to 1,560,148 shares of the Company’s Seed Preferred Stock at an exercise price of $2.00 per share. The warrant was fully vested on issue date and was immediately expensed as financing costs. (ref: Note 14 - Warrants).
On October 27, 2022, the Company was funded $3,000,000 under the Term Loan. During the three months ended March 31, 2023, the Company drew down an additional $1,873,000 under the Term Loan facility. During the three and nine months ended March 31, 2023 the Company paid $12,500 and $37,500 in administrative fees, paid $195,417 and $323,301 as interest in respect to the outstanding loan balance and daily interest on undrawn funds.
NOTE 11 – RELATED PARTY TRANSACTIONS
WAOW Group of Companies
In November 2021, as amended May 22, 2022, WAOW Entrepreneurship GmBH (“WAOWE”) entered into a subscription agreement with the Company whereunder they agreed to purchase 2,140,000 unregistered shares of Seed Preferred stock at $2 per share for total proceeds of $4.28 million. During the year ended June 30, 2022 and through March 31, 2023, the Company received cumulative cash proceeds of $3.95 million in respect to the aforementioned subscription and issued 1,975,000 shares of seed preferred stock. A total of $0.33 million remains receivable with respect to the remaining 165,000 shares subscribed as at March 31, 2023.
On March 10, 2022, the Company acquired NOEO (See Note 3). At the date of the acquisition, WAOW Advisory Group GmBH (“WAOW”) had outstanding loans with NOEO with a remaining principal balance of EUR139,793. During the period ended June 30, 2022, WAOW advanced an additional EUR18,000 to NOEO. At March 31, 2023 the loan had a balance outstanding of $171,080 (EUR157,793) which is unsecured and accrues interest at 5% per annum, and matured on December 31, 2022. On March 31, 2023 the loan remained in default and the Company and WAOW are currently negotiating terms of settlement.
Accrued and unpaid interest at March 31, 2023 totaled $12,119 (EUR11,178), (June 30, 2022 - $5,771), which is reflected in accounts payable – related parties.
Lee Larson Elmore, Former Officer and Director
During the nine months ended March 31, 2023, Mr. Elmore, former officer and director of the Company received payments of $1,800, leaving $1,000 due and payable at March 31, 2023.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Simon Belsham, CEO, President and Director
On November 27, 2021, as amended, September 1, 2022, the Company entered into a two-year employment agreement with Simon Belsham whereby Mr. Belsham was engaged by the Company to provide certain management services and to accept the appointment of Chief Executive Officer, President and Director immediately upon the Board making such appointment. The agreement provides for annual compensation of $400,000 in years one and two and $500,000 per annum in year three, a $75,000 signing bonus (which amount was paid during the six months ended December 31, 2021) and for the first calendar year completed during Mr. Belsham’s employment an annual bonus, with a maximum pay-out opportunity of one hundred thousand dollars ($100,000). During the second calendar year completed the annual bonus has a maximum pay-out opportunity of two hundred thousand dollars ($200,000). Further, under the terms of the employment agreement, as amended, Mr. Belsham has been issued a total 1,000,000 shares of restricted common stock, subject to a restricted stock award agreement, whereby 25% of such award vested on September 1, 2022, and 1/36th vests each month thereafter, for which the Company has recorded stock-based compensation expense of $778,253 in the year ended June 30, 2022. During each of the three and nine months ended March 31, 2023, the Company recorded $236,301 and $708,904 as stock-based compensation expenses.
On September 1, 2022, Mr. Belsham acquired 2.5 million shares of the Company’s common stock in a private secondary stock purchase transaction with Ingenious Investments AG, a corporation controlled by Wanja Oberhof and a greater than 10% shareholder, for consideration of $0.001 per share, or $2,500, which consideration was based on a 409A valuation report dated October 1, 2021.
Steven Bartlett, Director
On January 10, 2022, as amended September 1, 2022, the Company entered into a services agreement with Flight Story Limited (“FSL”), a company controlled by Steven Bartlett, whereby FSL is providing various services to the Company. Under the terms of the agreement, as amended, FSL is paid $30,000 per month. Further, FSL has been granted non-statutory stock options to purchase a total of 1,000,000 shares of the Company’s Common Stock of which options to purchase 300,000 shares vested on January 10, 2023, and options to purchase a further 700,000 shares vest in accordance with certain performance based terms. During the year ended June 30, 2022, the Company recorded $530,137 as stock-based compensation in respect to the aforementioned option grant. During the year ended June 30, 2022, FSL was paid $109,178 for services rendered. In addition, R Agency, a marketing company also controlled by Mr. Bartlett was paid $88,459 in the year ended June 30, 2022, for services rendered.
During the three and nine months ended March 31, 2023, under the terms of the amended contract, FSL was paid $0 and $125,675, respectively, with $153,951 accrued and unpaid at March 31, 2023, and the Company recorded an additional $27,739 and $594,955 in the three and nine-month periods as stock-based compensation. During the three months ended March 31, 2023, FSL exercised fully vested stock options for the acquisition of a total of 100,000 shares of the Company’s Common Stock for cash consideration of $100, or $0.001 per share. In addition, R Agency, a marketing company also controlled by Mr. Bartlett, was paid $0 and $104,872 in the three and nine months ended March 31, 2023, with a total of $63,000 accrued and unpaid as of March 31, 2023.
On February 16, 2022, the Company entered into a Board of Directors Services Agreement with Steven Bartlett with a January 1, 2022 start date, whereunder Mr. Bartlett is to receive an annual fee of $37,500 paid in equal monthly installments over 12 months and was granted non-incentive stock options to purchase 125,000 shares of the Company’s Common Stock with an exercise price of $0.001 per share, vesting over a two (2) year period following the Vesting Start Date (January 1, 2022) with 12.5% of these option shares vesting on each three (3) month anniversary of the Vesting Start Date. During the year ended June 30, 2022, Mr. Bartlett was paid $18,750 under the terms of his contract and the Company recorded stock-based compensation expense of $115,312 in respect to 31,250 vested stock options. During the three and nine months ended March 31, 2023, Mr. Bartlett accrued and was paid $9,375 and $28,125, respectively under the terms of his contract. In addition, the Company recorded stock-based compensation expense of $57,656 and $172,969 in the three and nine months ended March 31, 2023 in respect to a cumulative 46,875 options which vested during the nine months ended March 31, 2023.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Poonacha Machaiah, Director
On July 16, 2021, the Company entered into an agreement with Poonacha Machaiah, in relation to his proposed appointment to the board of directors of the Company. Under the terms of the agreement, Mr. Machaiah is to receive an annual fee of $37,500 commencing January 1, 2022, paid in equal monthly installments over 12 months and was granted 125,000 non incentive stock options with an exercise price of $0.001 per share, vesting over a two (2) year period following the Vesting Start Date (December 28, 2021) with 12.5% of the Option Shares vesting on each three (3) month anniversary of the Vesting Start Date. During the year ended June 30, 2022, the company accrued $18,750 under the terms of his agreement, which amount is included in accounts payable, related parties, and the Company recorded stock-based compensation expense of $115,312 in respect to 31,250 vested stock options. During the three and nine months ended March 31, 2023, the company accrued a further $9,375 and $28,135, respectively under the terms of his agreement, which amount is included in accounts payable, related parties. A total of $46,875 remained due and payable to Mr. Machaiah at March 31, 2023. In addition, the Company recorded stock-based compensation expense of $57,656 and $172,969 in the three and nine months ended March 31, 2023 in respect to a cumulative 46,875 options which vested during the nine months ended March 31, 2023. Mr. Machaiah resigned as a member of the Company’s board of directors on May 2, 2023.
Anabel Oelmann, Director
On March 10, 2022, the Company entered into and closed a share purchase agreement with Anabel Oelmann pursuant to which the Company acquired 100% of the issued and outstanding capital stock of NOEO, involved in direct-to-consumer brand focusing on adaptogenic herbs and currently focused on three key products which include joint, memory and digestive complexes derived from mushrooms, in exchange for cash consideration of EUR25 (USD$29.8). Ms. Oelmann is a director of the Company and was the sole shareholder of NOEO. See Note 3.
At March 31, 2023 and June 30, 2022, Ms. Oelmann, through her controlled corporate entity, Trinity Holdings GmbH, was owed advances totaling $3,250 (EUR3 thousand) by the Company’s wholly owned subsidiary, NOEO. In addition, at March 31, 2023 and June 30, 2022 a total of $1,062 (EUR980 dollars) is included in accounts payable, related parties, in respect to expense reimbursements owing to Ms. Oelmann.
Kay Koplovitz, Chairperson of the Board
On March 23, 2022, the board of directors of the Company appointed Kay Koplovitz to the board of directors and as Chairman effective April 1, 2022 and approved a board service agreement with her. Under this agreement, Ms. Koplovitz will be paid an annual fee of $50,000 for her services as a director (the “Director’s Fee”), which shall be payable quarterly, in arrears, as long as she continues to fulfill her duties and provide her services under the agreement. A total of $12,500 was accrued during the year ended June 30, 2022, in respect to this agreement and is included in accounts payable, related parties. As further payment for the provision of her director services, the Company issued two-hundred fifty thousand (250,000) shares of restricted Common Stock to Ms. Koplovitz, subject to a restricted stock award agreement whereby the 250,000 shares will vest ratably over the two (2) year period commencing on April 1, 2022 (“Vesting Start Date”) as follows: 1/8th of the total shares shall vest each quarter, such that 100% of the Shares shall be vested as of the second anniversary of the Vesting Start Date, provided that Ms. Koplovitz is still a director of the Company on each such vesting date. During the year ended June 30, 2022, the Company recorded a total of $117,187 as stock-based compensation in respect to 31,250 vested stock awards.
During the three and nine months ended March 31, 2023, the Company accrued $12,500 and $37,500, respectively for Ms. Koplovitz’s director services and recorded a further $117,187 and $351,561 as stock-based compensation in respect to 31,250 and 93,750 cumulative vested stock awards. At March 31, 2023, Ms. Koplovitz was owed a total of $12,500.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Amit Kapur, Former CFO
On June 2, 2022, Mr. Amit Kapur entered into an at-will offer of employment whereunder he was appointed Chief Financial Officer with an annual base salary of $300,000. Under the terms of the agreement Mr. Kapur was eligible for discretionary annual bonuses as determined by the board of directors payable 75 days following the end of each calendar year. Further Mr. Kapur was issued a total of 1,250,000 shares of restricted common stock, subject to a restricted stock award agreement, whereby 25% of such award vests on the one-year anniversary of June 6, 2022, and 1/36th each month thereafter, for which the Company recorded stock-based compensation expense of $80,265 in the year ended June 30, 2022. During the three and nine months ended March 31, 2023, the Company recorded stock-based compensation expense of [*] and [*] respectively in respect to stock awards vested during the periods. On February 21, 2023, the Company entered into a Separation Agreement and Release of Claims with Mr. Kapur (the “Separation Agreement”), pursuant to which Mr. Kapur’s employment with the Company as Chief Financial Officer and roles as Treasurer and Secretary of the Company terminated effective March 3, 2023 (the “Separation Date”). Mr. Kapur’s original employment agreement provided that he may receive severance, at the rate of his current base salary, for three months following his termination if he is terminated other than for cause or for breaching the terms of his employment agreement, subject to, among other conditions, his execution of a release of claims in a form provided by the Company. Under the terms of the Separation Agreement, (a) Mr. Kapur agreed (i) to a general release of claims and covenant not to sue in favor of the Company and (ii) to be available following the Separation Date, upon the Company’s request, to consult with the Company upon certain matters concerning it or its clients; and (b) the Company agreed (i) to provide Mr. Kapur with severance for three months at his current base salary rate and (ii) to an amendment of his restricted stock award agreement such that seventy-five thousand (75,000) shares of the restricted stock would vest on the day immediately before the Separation Date. A total of 1,175,000 stock awards issued to Mr. Kapur were forfeited, returned to treasury and canceled subsequent to March 31, 2023.
Justin Figgins, CFO
Effective March 3, 2023, the board of directors of the Company appointed Justin E. Figgins, the Company’s Head of Strategy and M&A, as the Company’s Chief Financial Officer, Treasurer, and Corporate Secretary on an interim basis, until such time as the Company’s board of directors appoints his successor. During the three and nine months ended March 31, 2023, Mr. Figgins invoiced the Company a total of $76,749 and $247,935, respectively, including out of pocket reimbursements, through his controlled corporate entity, Digital Global Ventures Limited whereunder he is paid a consulting fee of $25,000 per month and reimbursement of applicable out of pocket costs. A total of $25,000 was due and payable to Mr. Figgins as at March 31, 2023, and is included in accounts payable – related parties on the Company’s balance sheet. In addition, Mr. Figgins was issued a total of 250,000 shares of restricted Common Stock, subject to a restricted stock award agreement, whereby 25% of such award vested quarterly over the first 12 months, with a vesting commencement date of September 1, 2021. During the nine months ended March 31, 2023, a total of $234,375 was expensed as stock-based compensation in respect to this award.
Michael Kuech
On October 14, 2022, the Company’s subsidiary, Your Super HLCO LLC, entered into an employment agreement with Mr. Michael Kuech in respect to his role as President of Your Super HLCO LLC. Pursuant to the Employment Agreement, Mr. Kuech is entitled to an annual gross salary of $225,000 plus €30,000.00. This salary will increase to $250,000.00 and €50,000.00 on the six (6) month anniversary of the effective date of the agreement in the event Your Super HLCO LLC achieves certain mutually agreed upon performance thresholds. Mr. Kuech will also be eligible to receive an annual bonus in up to $150,000 based on certain mutually agreed upon performance goals. Upon mutual agreement of terms, Mr. Kuech will receive options to purchase 300,000 shares of restricted Common Stock of the Company subject to certain vesting conditions. Mr. Kuech is also eligible to participate in all employee benefit plans of Your Super HLCO LLC, including health insurance, commensurate with his position and for all standard employee benefits and certain holiday and leave allowances. Mr. Kuech’s employment with Your Super HLCO LLC will be for an initial term of three (3) years and will automatically renew for additional one-year periods unless otherwise terminated according to the terms of the agreement.
Kristel De Groot
On October 14, 2022, Your Super HLCO LLC entered into a consulting agreement with Kristel De Groot, spouse of Mr. Kuech pursuant to which Ms. Groot was appointed as Chief Brand Officer of the Company’s Your Super business on an independent contractor basis. Under this agreement, Ms. Groot’s annual salary paid to her controlled corporation, Ganesh Ventures Ltd., will be $225,000, and upon mutually agreeable terms, Ms. De Groot will be granted options to purchase 300,000 shares of restricted common stock of the Company subject to certain vesting conditions. Ms. Groot’s engagement may be terminated by either party with or without cause by delivering 30 days’ advance written notice.
Lizette De Groot
The Company’s European based operating subsidiary was invoiced a total of EUR7,167 and EUR29,902 by Lizette De Groot, sister of Kristel de Groot, in the three and nine months ended March 31, 2023.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
NOTE 12. STOCKHOLDERS’ EQUITY (DEFICIT)
One April 29, 2021, the Company’s board of directors approved a forward stock split of authorized, issued and outstanding shares of common stock on four (4) new shares for one (1) share held. Upon effectiveness of the forward split, the authorized shares increased to 300,000,000 shares of common stock and the issued and outstanding shares of common stock increased to 44,000,000 shares of common stock, all with a par value of $0.001.
On October 7, 2021, the Company amended its authorized capital to 290,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, $0.001 par value per share, of which 5,000,000 are designated as Seed Preferred Shares, each with a par value of $0.001 per share. On July 8, 2022, the Company’s board of directors and shareholders holding a majority of the Company’s Common Stock approved an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the Seed Preferred Shares from 5,000,000 authorized shares to 7,800,000 shares.
In case of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Seed Preferred Shares then outstanding will be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment will be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to 1.5 times the Seed Preferred Shares original issue price, plus any dividends declared but unpaid thereon (collectively, the “Seed Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Company the assets of the Company available for distribution to its stockholders is insufficient to pay the holders of Seed Preferred Shares the full amount to which they shall are entitled, the holders of shares of Seed Preferred Shares will share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment in full of all Seed Liquidation Amount required to be paid to the holders of Seed Preferred Shares, the remaining assets of the Company available for distribution to its stockholders will be distributed among the holders of Seed Preferred Shares and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of the Amended and Restated Articles of Incorporation immediately prior to such liquidation, dissolution or winding up of the Company.
At such date and time as is specified by our board of directors in connection with, but prior to, the closing of the sale of shares of our Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended,, and in connection with such offering the Common Stock is listed for trading on the Nasdaq Stock Market’s National Market, (i) all outstanding Seed Preferred Shares will automatically be converted into shares of Common Stock on a 1:1 (i.e., one share of Seed Preferred Shares for one share of common stock) basis, and (ii) such shares may not be reissued by the Company. The holders of the Seed Preferred Stock also have the right to convert shares of Seed Preferred Stock to Common Stock on a 1:1 basis at any time, upon written notice of conversion to the Company.
To the fullest extent permitted under the Nevada Revised Statutes and other applicable law, the holders of Seed Preferred Shares will not be entitled to vote on any matter submitted to the stockholders of the Company for a vote.
Any of the rights, powers, preferences and other terms of our Seed Preferred Shares may be waived on behalf of all holders of Seed Preferred Shares by the affirmative written consent or vote of the holders of at least 51% of the Seed Preferred Shares then outstanding.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Common Stock
During the three months ended March 31, 2023 the Company issued a total of 1,400,000 shares of Common Stock to Chopra Global, LLC, in respect to the acquisition of certain assets (re: Note 3).
During the three months ended March 31, 2023 the Company received $250,000 in cash proceeds from investors for the purchase accumulated of 125,000 shares of Common Stock at $2 per share.
During the three months ended March 31, 2023, 100,000 stock options are exercised at $0.001 per share.
As at March 31, 2023 and June 30, 2022, the Company has a total of 52,529,920 and 44,004,920 shares of Common Stock issued and outstanding, respectively.
Seed Preferred Stock
During the fiscal year ended June 30, 2022, the Company entered into definitive agreements with non-U.S. persons to issue a total of 5,000,000 shares of Seed Preferred stock in private transactions (the “Transactions”). Under the terms of the Transactions, the Company agreed to sell an aggregate of 5,000,000 Seed Preferred Shares at $2.00 per share for proceeds of $10,000,000. As at March 31, 2023, the Company had received total proceeds of $9,670,000 and is awaiting shortfall payments from one subscriber totaling $330,000.
During the three months ended March 31, 2023, the Company entered into a further stock purchase agreement with an individual subscriber for 175,000 Seed Preferred shares at $2 per share for total proceeds of $350,000.
At March 31, 2023 and June 30, 2022, the Company had a total of 4,885,000 and 4,660,000 shares of Seed Preferred Stock issued and outstanding, respectively.
NOTE 13. STOCK BASED COMPENSATION
On June 10, 2022, the Company’s board of directors approved (i) The Healing Company Inc. 2022 Omnibus Equity Incentive Plan (the “2022 Plan”) and (ii) the granting, in general terms, of awards and options which were previously contractually agreed to be granted upon formal approval of the 2022 Plan (the “Awards”).
Stock Options and Stock Awards:
During fiscal 2022 and the nine months ended March 31, 2023, the Company granted the following Stock options and Stock awards under its 2022 Plan:
Type | | Role | | Number of shares/options | | | Exercise Price /FMV | | | Vesting start Date | | Vesting Schedule * | | Term | |
Stock Award | | Executive | | | 1,250,000 | | | $ | 3.75 | | | 06/06/2022 | | A | | | N/A | |
Stock Award | | Management | | | 200,000 | | | $ | 3.75 | | | 04/04/2022 | | A | | | N/A | |
Stock Award | | Executive Support | | | 150,000 | | | $ | 3.75 | | | 11/27/2021 | | A | | | N/A | |
Stock Award | | Executive | | | 1,000,000 | | | $ | 3.75 | | | 09/01/2021 | | A | | | N/A | |
Stock Award | | Management | | | 250,000 | | | $ | 3.75 | | | 09/01/2021 | | F | | | N/A | |
Stock Award | | Advisor | | | 250,000 | | | $ | 3.75 | | | 04/01/2022 | | G | | | N/A | |
Stock Award | | Executive | | | 600,000 | | | $ | 3.75 | | | 07/05/2022 | | A | | | N/A | |
| | Total | | | 3,700,000 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Stock Option | | Management | | | 1,000,000 | | | $ | 0.001 | | | 01/01/2022 | | A | | 10 years | |
Stock Option | | Advisor | | | 300,000 | | | $ | 0.001 | | | 09/01/2021 | | D | | 10 years | |
Stock Option | | Recruitment Agency | | | 16,250 | | | $ | 0.001 | | | 06/05/2022 | | B | | 10 years | |
Stock Option | | Marketing Agency | | | 275,000 | | | $ | 0.001 | | | 04/13/2022 | | C | | 10 years | |
Stock Option | | Board Director | | | 125,000 | | | $ | 0.001 | | | 12/28/2021 | | H | | 10 years | |
Stock Option | | Board Director | | | 125,000 | | | $ | 0.001 | | | 01/01/2022 | | H | | 10 years | |
Stock Option | | Brand Strategy Advisor | | | 125,000 | | | $ | 0.001 | | | 09/07/2021 | | I | | 10 years | |
Stock Option | | IR/PR Agency | | | 1,000,000 | | | $ | 0.001 | | | 01/10/2022 | | J | | 5 years | |
Stock Option | | Chief Scientific Advisor | | | 200,000 | | | $ | 0.001 | | | 12/28/2021 | | K | | 10 years | |
Stock Option | | Marketing strategy | | | 100,000 | | | $ | 0.001 | | | 08/01/2022 | | E | | 10 years | |
Stock Option | | Financial Advisor | | | 125,000 | | | $ | 0.001 | | | 09./01/2022 | | H | | 10 years | |
| | Total | | | 3,391,250 | | | | | | | | | | | | | |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
*Vesting Schedule:
A. | The Restricted Stock shall vest over a four (4) year period following the Vesting Start Date with 25% of the Restricted Stock vesting on the one (1) year anniversary of the Vesting Start Date and thereafter will begin vesting on each monthly anniversary of the Vesting Start Date at a rate of 1/36 per month. |
B. | The Option Shares shall be fully vested upon the Vesting Start Date; however, the Participant will be unable to exercise the Option Shares for one (1) year from the Vesting Start Date. |
C. | The Option Shares shall vest with respect to 100,000 shares upon issuance of the option, with an additional 25,000 shares vesting upon achieving $0.5 million D2C revenue, an additional 50,000 shares vesting upon achieving $2 million D2C revenue and an additional 100,000 shares vesting upon achieving $10 million D2C revenue. |
D. | The Restricted Stock shall be fully vested upon the Vesting Start Date. |
E. | The Option Shares shall vest over a one (1) year period following the Vesting Start Date with 25% of the Option Shares vesting on each three (3) month anniversary of the Vesting Start Date. |
F. | The Restricted Stock shall vest over a one (1) year period following the Vesting Start Date with 25% of the Restricted Stock vesting on each three (3) month anniversary of the Vesting Start Date. |
G. | The Restricted Stock shall vest over a two (2) year period following the Vesting Start Date with 12.5% of the Restricted Stock vesting on each three (3) month anniversary of the Vesting Start Date. |
H. | The Option Shares shall vest over a two (2) year period following the Vesting Start Date with 12.5% of the Option Shares vesting on each three (3) month anniversary of the Vesting Start Date. |
I. | The Option Shares shall be fully vested upon the Vesting Start Date and the Participant shall have two (2) years to exercise the Option Shares post termination of Continuous Service. |
J. | The Option Shares shall vest with respect to 300,000 shares after one year from the date of the January 10, 2022 start date of the Services Agreement; 100,000 shares of Common Stock on getting to 100,000 cross-platform followers; 200,000 shares of Common Stock on sustained market capitalization of $200 million for a month assuming average daily trading volume (ADTV) of 100,000 shares; 200,000 shares of Common Stock on sustained market capitalization of $400 million for a month assuming ADTV of 100,000 shares; 200,000 shares of Common Stock on Nasdaq uplisting. |
K. | The Option Shares shall vest over a two (2) year period following the Vesting Start Date with 2% of the Option Shares vesting on each six (6) month anniversary of the Vesting Start Date. |
The following table summarizes the Company’s stock award activities:
| | Number of shares | | | Weighted Average Grant Date Fair Value Per Share | | | Weighted Average Remaining Recognition Period (Years) | |
Nonvested at June 30, 2021 | | | - | | | $ | - | | | | - | |
Granted | | | 3,100,000 | | | $ | 3.75 | | | | 1.95 | |
Vested | | | (218,750 | ) | | $ | 3.75 | | | | - | |
Forfeited | | | - | | | $ | - | | | | - | |
Nonvested at June 30, 2022 | | | 2,881,250 | | | $ | 3.75 | | | | 1.66 | |
Granted | | | 600,000 | | | $ | 3.75 | | | | 4.00 | |
Vested | | | (707,083 | ) | | $ | 3.75 | | | | - | |
Forfeited | | | (1,745,000 | )* | | $ | 3.75 | | | | - | |
Nonvested at March 31, 2023 | | | 1,029,167 | | | $ | 3.75 | | | | 1.17 | |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
(*) During the three months ended March 31, 2023 certain employees entered into separation agreements with the Company whereunder concurrent with the effective date of the termination of their employment with the Company a cumulative 1,745,000 restricted Common Stock awards were forfeit, returned to the Company and canceled. The cancelation of the restricted Common Stock awards occurred subsequent to the quarter ended March 31, 2023. As a result of the forfeiture, the Company recorded $0.8 against previously expensed stock-based compensation in respect to earned and forfeit stock awards and eliminated $5.7 million of previously deferred compensation expense.
The Company recorded $1.88 million as stock-based compensation expenses during the fiscal year ended June 30, 2022 and a further ($0.12) million and $1.78 million, respectively in the three and nine months ended March 31, 2023. Deferred compensation expense associated with unvested stock awards is $3.7 million as of March 31, 2023. The weighted average period over which these costs are expected to be recognized is approximately 1.17 years.
The following table summarizes the Company’s stock option activities:
| | Number of Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Term in Years | | | Aggregate Intrinsic Value | |
Outstanding at June 30, 2021 | | | - | | | $ | - | | | | - | | | $ | - | |
Granted | | | 3,166,250 | | | $ | 0.001 | | | | 10 | | | | - | |
Exercised | | | - | | | | - | | | | - | | | | - | |
Cancelled | | | - | | | | - | | | | - | | | | - | |
Outstanding at June 30, 2022 | | | 3,166,250 | | | $ | 0.001 | | | | 7.60 | | | $ | - | |
Granted | | | 225,000 | | | $ | 0.001 | | | | 10 | | | | - | |
Exercised | | | - | | | | - | | | | - | | | | - | |
Cancelled | | | - | | | | - | | | | - | | | | - | |
Outstanding at March 31, 2023 | | | 3,391,250 | | | $ | 0.001 | | | | 7.25 | | | $ | - | |
Options exercisable at March 31, 2023 | | | 1,491,250 | | | $ | 0.001 | | | | 8.07 | | | $ | - | |
The stock options were valued using Black-Scholes pricing model. The Black-Scholes pricing model applied the following assumptions: risk-free interest rate of 3.26%, expected term of 5 to 10 years, expected volatility of 62.49% and dividend yield of 0%.
The Company recorded $0.62 million and $2.30 million, respectively as stock based compensation expenses in the three and nine months ended March 31, 2023. Unamortized compensation expense associated with unvested stock options is $7 million as of March 31, 2023. The weighted average period over which these costs are expected to be recognized is approximately 1.13 years.
NOTE 14. WARRANTS
Warrant to Purchase Seed Preferred Stock
On August 4, 2022, in accordance with a credit facility (ref: Note 10) the Company initially issued to the Administrative Agent a seven-year warrant to purchase up to 1,300,123 shares of the Company’s Seed Preferred Stock at an exercise price of $2.00 per share. As an inducement for the $3 million loan and for a waiver of certain terms of the credit facility with respect to this loan, we issued to the Administrative Agent an amended and restated warrant increasing the number of warrant shares from 1,300,123 shares of our seed preferred stock to 1,560,148 shares of this stock. The stock warrants vested immediately and were valued using the Black-Scholes pricing model. The Black-Scholes pricing model applied the following assumptions: risk-free interest rate of 2.73%, expected term of 7 years, expected volatility of 62.56% and dividend yield of 0%. The Company recorded $4 million as financing costs, included in professional and consulting fees, during the nine months ended March 31, 2023.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Warrant to purchase Seed Preferred Stock transactions are summarized as follows:
| | Number of shares | | | Weighted Average Exercise Price ($) | | | Weighted Average Remaining Recognition Period (Years) | |
Balance, June 30, 2022 | | | - | | | $ | - | | | | - | |
Warrants issued | | | 1,560,148 | | | $ | 2.00 | | | | 7 | |
Warrants expired | | | - | | | $ | - | | | | - | |
Balance, March 31, 2023 | | | 1,560,148 | | | $ | 2.00 | | | | 6.58 | |
Number of Warrants | | Exercise Price ($) | | Expiry Date |
1,560,148 | | 2.00 | | August 04, 2029 |
Warrant to Purchase Common Stock
On September 9, 2022, in conjunction with a Loan Purchase and Sale Agreement, (ref: Note 3) the Company issued CircleUp a warrant to purchase 1,500,000 restricted shares of the Company’s common stock at an exercise price of $2.00 per share. This warrant will begin to vest on the one-year anniversary of the closing of the purchase of the Loan with 12.5% of the Warrant amount (187,500 shares) vesting on that date and the remaining portion of the Warrant vesting in seven quarterly installments of 187,500 shares each over the next seven quarters. Vesting of the Warrant will be accelerated upon the occurrence of a sale or merger of the Company. The Warrant will terminate on the seventh anniversary of the closing date and will be subject to customary adjustments of the warrant price and number of shares for splits, stock dividends, recapitalizations and the like. The stock warrants were valued using Black-Scholes pricing model. The Black-Scholes pricing model applied the following assumptions: risk-free interest rate of 4.25%, expected term of 3 years, expected volatility of 60% and dividend yield of 0%. The Company has valued the warrants as of the transaction date with a total value of $687,000, as part of purchase consideration. The first tranche of warrants do not initially vest until the one year anniversary of the agreement date, and therefore there is no financial impact as a result of the warrant during the current reporting period ended March 31, 2023.
On November 10, 2022, the Company issued one vendor a warrant to purchase 150,000 restricted shares of the Company’s common stock at an exercise price of $2.00 per share under certain Tri-Party Assignment and Settlement Agreement where under the outstanding balance payable of $1,077,929 was agreed to be settled by the issuance of common stock purchase warrants (the “Warrant”). This Warrant shall vest over a period of three years, pro rata on monthly basis, beginning on November 10, 2022. The Warrant will terminate on the seventh anniversary of the closing date and will be subject to customary adjustments of the warrant price and number of shares for splits, stock dividends, recapitalizations and the like. The stock warrants were valued using Black-Scholes pricing model. The Black-Scholes pricing model applied the following assumptions: risk-free interest rate of 3.89%, expected term of 7 years, expected volatility of 63.52% and dividend yield of 0%. The Company has valued the warrants as of the transaction date with a total value of $427,000 which amount was recorded as a noncash payment, and the gain on debt settlement of $650,429 recorded as other income. The Company recorded $35,000 and $59,000 against other current liabilities during the three and nine month periods ended March 31, 2023 in respect to the amortization of the vesting period of the warrant. The unamortized amount associated with unvested warrants is $368,000 as of March 31, 2023. The weighted average period over which the outstanding balance is expected to be recognized is approximately 6.46 years.
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Transactions involving Warrants to purchase Common Stock are summarized as follows:
| | Number of shares | | | Weighted Average Exercise Price ($) | | | Weighted Average Remaining Recognition Period (Years) | |
Nonvested at June 30, 2022 | | | - | | | $ | - | | | | - | |
Granted | | | 1,650,000 | | | $ | 2.00 | | | | 7 | |
Vested | | | (20,834 | ) | | | - | | | | 6.62 | |
Forfeited | | | - | | | | - | | | | - | |
Nonvested at March 31, 2023 | | | 1,629,166 | | | $ | 2.00 | | | | 6.46 | |
NOTE 15. COMMITMENTS
(a) | On November 15, 2021, with an effective date of November 27, 2021, the Company entered into an employment agreement with Kelly Zuar. Under the terms of the agreement, Ms. Zuar will fill the position of executive business partner, reporting to the Company’s CEO. The agreement provides for an annual salary of $105,000. Further, under the terms of the employment agreement, Ms. Zuar has been issued a total of 150,000 shares of restricted common stock at a fair market value of $3.75 per share, subject to a restricted stock award agreement for which the Company has recorded stock-based compensation expense of $83,219 in the year ended June 30, 2022 and a further $35,445 in each of the quarters ended September 30, 2022, December 31, 2022 and March 31, 2023. |
(b) | Effective December 28, 2021, the Company entered into a two-year Board Advisory Agreement with Deepak Chopra LLC for services to the Advisory Board of the Company. As consideration, Deepak Chopra LLC will receive $12,500 for each fiscal quarter. Additionally, the Advisor has been granted 200,000 Non Statutory Stock options with a term of 10 years which vest as to 25% each 6 months over two years for exercise at $0.001 per share. The Company recorded stock-based compensation of $187,500 in respect to 50,000 options which vested during the year ended June 30, 2022. Further under the agreement, the Company is to make an annual donation to The Chopra Foundation for Fifty Thousand Dollars ($50,000.00), with the first annual donation to be paid within thirty (30) days of the date of execution of the agreement. The Company remitted the required donation in April 2022. During each of the quarters ended September 30, 2022, December 31, 2022 and March 31, 2023, the Company recorded $93,750 as stock-based compensation in respect to the granted options. |
(c) | On January 1, 2022, the Company entered into an independent contractor agreement with KET Consulting LLC (“KET”) to provide various marketing services, brand and go-to-market strategy and other operational services at the direction of the Board and the CEO. The contract has an initial term of 18 months and is renewable by mutual consent for a further term. Compensation is $240,000 per annum commencing January 1, 2022, payable monthly in arrears. Additionally, the Advisor has been granted 1,000,000 Non-Statutory Stock options with a term of 10 years which vest as to 25% on the one-year anniversary of January 1, 2022 and 1/36 each month thereafter, at an exercise at $0.001 per share. During the year ended June 30, 2022 the Company recorded stock based compensation of $464,897. During each of quarters ended September 30, 2022, December 31, 2022 and March 31, 2023, the Company recorded additional stock-based compensation of $236,301, respectively. |
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(d) | On March 23, 2022 the Company entered into an agreement with Mint Performance Marketing (“Mint”) for certain marketing services including development of an e-commerce strategy, paid social media, influencer marketing, affiliate marketing and other create services with a term of one year and fees payable within 15 days of invoice in the approximate amount of $35,000 for the identified scope of work. In addition, under the terms of the agreement Mint is entitled to a 5% share of any future Shopify s-store revenue associated with developed content, net of returns and promotions. During the year ended June 30, 2022, the founder of Mint was granted a total of 275,000 non statutory stock options, 100,000 of which vested on grant date, with a further 175,000 vesting upon the occurrence of reaching certain income targets with respect to certain direct to consumer marketing programs. During the year ended June 30, 2022 the Company recorded total stock based compensation of $375,000 in respect to the vested options. As of March 31, 2023, none of the conditions had been met for the additional options to vest. |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
(e) | On July 28, 2022, the Company entered into an agreement with Marketerhire LLC whereunder Marketerhire shall receive a minimum fee of $1,500 each four weeks for any individual talent engaged by the Company under the terms of the agreement. Further, under the terms of the agreement Marketerhire shall receive a buyout fee of $20,000 for each individual hired by the Company within 30 days thereof. |
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(f) | On August 1, 2022 the Company entered into a Consulting Agreement with RayRos Holdings LLC for an initial term of three months at a rate of $5,000 per month for marketing strategy and assessment and partnership development services focused on the wellness and healing sector. In addition, the Company granted a non statutory stock option to purchase 100,000 shares of common stock, exercisable at $0.001 per share to the founder, Mr. John Hoekman, which options vest quarterly as to 25% each quarter from grant date, August 1, 2022. During the nine months ended March 31, 2023, the Company recorded stock-based compensation of $281,250. |
(g) | On September 1, 2022 the Company entered into a consulting agreement with Lee Forster for an initial term of 24 months, with automatic successive renewals unless otherwise terminated 30 days prior to the end of the current term, whereunder Mr. Forster shall act as an advisor to the Company on financing and fundraising efforts, growth opportunities, endorsements and other corporate strategy at a rate of $3,125 per month. In addition, the Company granted a non-statutory stock option to purchase 125,000 shares of common stock, exercisable at $0.001 per share to Mr., Forster, which options vest over a two (2) year period following the Vesting Start Date with 12.5% of the Option Shares vesting on each three (3) month anniversary of the Vesting Start Date. During the nine months ended March 31, 2023 the Company recorded $134,531 as stock based compensation in respect to the aforementioned agreement. |
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(h) | On December 21, 2022, with an effective date of January 23, 2023, the Company entered into an employment agreement with Neel Naik. Under the terms of the agreement, Mr. Naik will fill the position of Vice President and Head of Financial Operations, reporting jointly to the Company’s CEO and CFO. The agreement provides for an annual salary of $185,000. Further, under the terms of the employment agreement, upon mutual agreement of the exercise price, Mr. Naik will be granted a total of 700,000 incentive stock options, vesting over a four (4) year period, with 25% of the Option Shares vesting on the 12-month anniversary of the Vesting Start date, and thereafter at a rate of 1/48 each month. At March 31, 2023, the Company and Mr. Naik have not yet determined an agreeable exercise price for the aforementioned options. Mr Naik is eligible to participate in the Company’s employee benefit plans, when adopted, and is eligible to receive an annual bonus at the discretion of the Board. |
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(i) | On January 24, 2023, with an effective date of February 6, 2023, the Company entered into an employment agreement with Daniel Carmody. Under the terms of the agreement, Mr. Carmody will fill the position of Senior Manager of Growth and Retention, reporting directly to the Company’s Chief Marketing Officer. The agreement provides for an annual salary of $145,000. Further, under the terms of the employment agreement, upon mutual agreement of the exercise price, Mr. Carmody will be granted a total of 200,000 incentive stock options, vesting over a four (4) year period, with 25% of the Option Shares vesting on the 12-month anniversary of the Vesting Start date, and at a rate of 1/48 each month thereafter. At March 31, 2023, the Company and Mr. Carmody have not yet determined an agreeable exercise price for the aforementioned options. Mr Carmody is eligible to participate in the Company’s employee benefit plans, when adopted, and is eligible to receive an annual bonus at the discretion of the Board. |
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(j) | On February 14, 2023, the Company entered into a services agreement with Peter Kash. Under the terms of the agreement, Mr. Kash will be employed as an independent contractor in order identify growth opportunities, among other services. The agreement has a term of two (2) years, unless earlier terminated, and provides for compensation in the form of stock options, which options shall be granted upon mutual agreement of the exercise price. Under the terms of the option agreement Mr. Kash will be granted a total of 75,000 incentive stock options, vesting as to 1/8 each quarter from grant date. In addition, Mr. Kash shall be entitled to certain additional compensation up to an additional 225,000 stock options for each qualifying entity acquired by the Company. At March 31, 2023, the Company and Mr. Kash have not yet determined an agreeable exercise price for the aforementioned options. |
The Healing Company Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2023
(k) | On February 14, 2023, the Company entered into a services agreement with Dr. Linda Friedland. Under the terms of the agreement, Dr. Friedland will be employed as an independent contractor in order identify growth opportunities, among other services. The agreement has a term of two (2) years, unless earlier terminated, and provides for compensation in the form of stock options, which options shall be granted upon mutual agreement of the exercise price. Under the terms of the option agreement Dr. Friedland will be granted a total of 75,000 incentive stock options, vesting as to 1/8 each quarter from grant date. In addition, Mr. Kash shall be entitled to certain additional compensation up to an additional 225,000 stock options for each qualifying entity acquired by the Company. At March 31, 2023, the Company and Dr. Friedland have not yet determined an agreeable exercise price for the aforementioned options. |
NOTE 16. COMMITMENTS AND CONTINGENCIES
On June 21, 2022 and June 22, 2022, counsel for Your Superfoods, Inc. received trademark infringement notices from Shopify Inc. (“Shopify”) on behalf of Ogilvie Brands, Inc. (“Ogilvie”), alleging that Your Super’s “GUT FEELING” product infringes Ogilvie’s “GUT FEELINGS PROBIOTIC” trademark. On June 28, 2022, counsel for Your Superfoods sent a response letter to Shopify explaining the lack of a likelihood of confusion between the Your Super’s use of “GUT FEELING” and Ogilvie’s trademark, especially in light of the differences between the marks and the crowded field of dietary supplement marks containing the terms “GUT” and “FEELING.” Your Superfoods and Ogilvie are currently in settlement negotiations regarding this matter and the Company does not believe the aforementioned negotiations will have a material adverse effect on its business.
A complaint filed in July 2022 in the Superior Court for the State of California, County of Santa Clara, by Spinaca Farms, Inc (“Plaintiff”), a supplier of Your Superfoods alleging (i) non-payment of certain invoices and (ii) a claim for reimbursement of certain custom products held by the plaintiff, was settled effective November 7, 2022 for certain cash consideration following which the complaint was dismissed.
An arbitration proceeding commenced in September 2022 against Your Superfoods, Inc. by Power Digital Marketing, a service provider of Your Superfoods, Inc., was settled for certain cash consideration in November 2022, and the arbitration proceeding was dismissed.
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. Management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results, other than as set out below:
NOTE 17 - SUBSEQUENT EVENTS
On April 6, 2023, FSL, a company controlled by Mr. Steven Bartlett, director, exercised an option to purchase 200,000 shares of unregistered, restricted Common Stock for cash consideration of $0.001 per share.
On April 20, 2023, the board of directors resolved to amend (the “Amendment”) the Company’s Amended and Restated Articles of Incorporation, as amended, to restate in its entirety Article Fourth, Section B – Preferred Stock (i) to allow for the optional conversion of the Company’s outstanding Seed Preferred Shares and (ii) to conform and correct certain provisions in Article Fourth, Section B relating primarily to the calculation of, and adjustments to, the conversion price of the Seed Preferred Shares. Concurrently, the holders of shares of the Company’s Common Stock, constituting approximately 54.42% of the total issued and outstanding voting capital stock of the Company as of the that date approved the Amendment by written consent.
On April 27, 2023, the Company issued a total of 750,000 shares of its Common Stock in a private placement to two subscribers. Under the terms of their subscription agreements, the subscribers purchased 750,000 shares of Common Stock at $2.00 per share for aggregate proceeds of $1,500,000.
On May 2, 2023, Poonacha Machaiah resigned from his position as a member of the Board of Directors, effective as of that date.
The Company’s management has reviewed all material subsequent events through the date these financial statements were issued in accordance with ASC 855-10.