SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Sep. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principals of Consolidation

The consolidated financial statements include the accounts of The Healing Company and its 100% controlled subsidiaries, NOEO GmbH, NOEO, Inc., HLCO Borrower LLC, Your Super HLCO, LLC, and Chopra HLCO LLC. 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 the Chopra Business, 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.

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 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 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 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.

	September 30, 2023		June 30, 2023
Seed Preferred stock (Convertible to Common stock 1:1)		645,000		2,620,000
Seed Preferred warrants (Convertible to Common stock 1:1)		1,560,148		1,560,148
Common stock warrants		1,650,000		1,650,000
Stock options		3,091,250		3,091,250
Total		6,946,398		8,921,398

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.

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 September 30, 2023 and June 30, 2023, 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 September 30, 2023 and June 30, 2023, cash and cash equivalents was $1,420 and $1,503, 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, so there were cumulative uninsured balances of $1,170 and $1,253 in the parent and its US based subsidiaries as of September 30, 2023 and June 30, 2023, 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.

Foreign currency translation and transactions

The Company uses the U.S. Dollar as the reporting currency for its financial statements. Functional currency is the currency of the primary economic environment in which an entity operates. The functional currency of the Company’s Germany and Netherlands subsidiaries are the local currencies.  The assets and liabilities of the Company’s foreign subsidiaries are translated into US Dollars 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$ have been made at the following exchange rates for the periods ended September 30, 2023 and June 30, 2023: 

	September 30, 2023		June 30, 2023
Period-end Euro: US$ exchange rate	$	1.0573	$	1.0915
Period-average Euro: US$ exchange rate	$	1.0880	$	1.0459

Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated, 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 the 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.

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 September 30, 2023 and June 30, 2023, the allowance for doubtful accounts amounted to $104 and $110, 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 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.

Goodwill

Goodwill represents the excess of the purchase price over the fair market value of the net assets 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 is deemed to have an indefinite life, and is not amortized but is subject to, at a minimum, an annual impairment test.

The Company tests goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. For the fiscal year ended June 30, 2023, the Company recorded impairment of goodwill of $3,869.  There was no impairment during the three months ended September 30, 2023.

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.

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 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 September 30, 2023 and June 30, 2023, respectively.

Contract Assets

In accordance with ASC 606-10-45-3, a contract asset is 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 September 30, 2023 and June 30, 2023.

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 of the revenue deferrals recorded at the balance sheet date will be recognized as revenue in the next 12 months as performance obligations are satisfied, in accordance with ASC 606, Revenue from Contracts with Customers. 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 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 $2,088 at September 30, 2023, of which $318 relates to the liability for outstanding loyalty points for Your Super and $1,770 relates to customer subscription deposits with respect to membership fees from the Chopra Meditation & Wellbeing app (“Chopra 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.

The Company’s total contract liability balance was $2,343 at June 30, 2023, of which $212 related to the liability for outstanding loyalty points for Your Super and $1,345 related to customer subscription deposits with respect to membership fees from the Chopra App.

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 revenue, debt and a capital lease obligation. The carrying value 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.

When a customer purchases a 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 the 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 revenues from a diversified mix of e-commerce activities with the majority of revenue earned through e-commerce direct sales 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 three months ended September 30, 2023, the Company’s direct to consumer sales of products accounted for 60% of total revenue. 

In addition, the Company records revenue from the sale of memberships to the Chopra 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.  Revenue for wellness retreats is deferred upon purchase and recognized at the time of the event with the transfer of services to the customer. 

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 the historical relationship of warranty claims to sales. Based upon historical sales trends and warranties, it has been concluded that no warranty liability is required as of September 30, 2023 and June 30, 2023. To date, product allowance and returns have been minimal and, based on experience, the Company believes that product returns will continue to be minimal.

Shipping and Logistics Expenses

Shipping and logistics expenses consist primarily of costs incurred to ship products to the customer.  If shipping and handling activities are performed after the customer obtains control of the good, then an entity may elect to account for shipping and handling as fulfillment activities and not promised services that require further evaluation under ASC 606.  If the entity elects this accounting policy, the costs related to the shipping and handling activities should be accrued when the entity recognizes revenue for the related promised goods. In addition, if this accounting policy is elected, the entity must apply it consistently to similar transactions and provide the accounting policy disclosures required by ASC 235.

The Company has elected to record shipping and handling activities performed after the customer obtains control of the product as fulfillment costs.  These expenses are presented as operating expenses in the accompanying consolidated statements of operations and comprehensive loss. 

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 the Chopra App and operation of its wellness focused retreats. 

Commitments and Contingencies

The Company accounts for contingencies in accordance with ASC 450-20, 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.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated 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.