|
Item 1.
|
Financial Statements
|
UPD HOLDING
CORP. AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
934
|
|
|
$
|
7,215
|
|
Other current assets
|
|
|
755
|
|
|
|
—
|
|
Total current assets
|
|
|
1,689
|
|
|
|
7,215
|
|
Property and equipment, net
|
|
|
74,617
|
|
|
|
74,617
|
|
Total assets
|
|
$
|
76,306
|
|
|
$
|
81,832
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
195,255
|
|
|
$
|
179,671
|
|
Accrued interest
|
|
|
107,512
|
|
|
|
75,698
|
|
Convertible notes payable
|
|
|
185,561
|
|
|
|
155,000
|
|
Due to shareholders
|
|
|
72,225
|
|
|
|
71,074
|
|
Notes payable
|
|
|
455,560
|
|
|
|
485,560
|
|
Total current liabilities
|
|
|
1,016,113
|
|
|
|
967,003
|
|
Notes payable, net of current portion
|
|
|
—
|
|
|
|
—
|
|
Total liabilities
|
|
|
1,016,113
|
|
|
|
967,003
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 10,000,000 authorized and none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.005 par value; 200,000,000 shares authorized and 171,459,556 and 171,008,684 issued and
outstanding at December 31, 2019 and June 30, 2019, respectively
|
|
|
857,298
|
|
|
|
855,044
|
|
Additional paid-in-capital
|
|
|
1,752,535
|
|
|
|
1,709,731
|
|
Accumulated deficit
|
|
|
(3,549,640
|
)
|
|
|
(3,449,946
|
)
|
Total stockholders' deficit
|
|
|
(939,807
|
)
|
|
|
(885,171
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
76,306
|
|
|
$
|
81,832
|
|
The accompanying notes are an integral part
of the unaudited consolidated financial statements.
UPD HOLDING
CORP.
AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
—
|
|
|
|
65,653
|
|
|
|
—
|
|
|
|
85,863
|
|
Professional fees
|
|
|
60,322
|
|
|
|
20,363
|
|
|
|
84,746
|
|
|
|
36,654
|
|
Impairment of goodwill
|
|
|
—
|
|
|
|
2,170,124
|
|
|
|
—
|
|
|
|
2,170,124
|
|
General and administrative
|
|
|
1,420
|
|
|
|
24,398
|
|
|
|
3,516
|
|
|
|
56,975
|
|
Total operating costs and expenses
|
|
|
61,742
|
|
|
|
2,280,538
|
|
|
|
88,262
|
|
|
|
2,349,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(61,742
|
)
|
|
|
(2,280,538
|
)
|
|
|
(88,262
|
)
|
|
|
(2,335,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(17,709
|
)
|
|
|
(38,360
|
)
|
|
|
(34,871
|
)
|
|
|
(83,490
|
)
|
Other income, net
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
23,439
|
|
|
|
17,771
|
|
Loss from continuing operations, before income taxes
|
|
|
(79,451
|
)
|
|
|
(2,318,924
|
)
|
|
|
(99,694
|
)
|
|
|
(2,401,061
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(79,451
|
)
|
|
|
(2,318,924
|
)
|
|
|
(99,694
|
)
|
|
|
(2,401,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share from:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
169,545,852
|
|
|
|
162,566,772
|
|
|
|
169,414,938
|
|
|
|
162,566,772
|
|
The accompanying notes are an
integral part of the unaudited consolidated financial statements.
UPD HOLDING
CORP.
AND
SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders' Deficit
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
BALANCE, June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
171,008,684
|
|
|
$
|
855,044
|
|
|
$
|
1,709,731
|
|
|
$
|
(3,449,946
|
)
|
|
$
|
(885,171
|
)
|
Issuance of common stock for conversion of
debt and interest
|
|
|
—
|
|
|
|
—
|
|
|
|
113,833
|
|
|
|
569
|
|
|
|
10,814
|
|
|
|
—
|
|
|
|
11,383
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,243
|
)
|
|
|
(20,243
|
)
|
BALANCE, September 30, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
171,122,517
|
|
|
$
|
855,613
|
|
|
$
|
1,720,545
|
|
|
$
|
(3,470,189
|
)
|
|
$
|
(894,031
|
)
|
Issuance of common stock for conversion of
debt and interest
|
|
|
—
|
|
|
|
—
|
|
|
|
337,039
|
|
|
|
1,685
|
|
|
|
31,990
|
|
|
|
—
|
|
|
|
33,675
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(79,451
|
)
|
|
|
(79,451
|
)
|
BALANCE, December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
171,459,556
|
|
|
$
|
857,298
|
|
|
$
|
1,752,535
|
|
|
$
|
(3,549,640
|
)
|
|
$
|
(939,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
162,566,772
|
|
|
$
|
812,834
|
|
|
$
|
949,552
|
|
|
$
|
(950,022
|
)
|
|
$
|
812,364
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,542
|
|
|
|
—
|
|
|
|
8,542
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,137
|
)
|
|
|
(82,137
|
)
|
BALANCE, September 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
162,566,772
|
|
|
$
|
812,834
|
|
|
$
|
958,094
|
|
|
$
|
(1,032,159
|
)
|
|
$
|
738,769
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,318,924
|
)
|
|
|
(2,318,924
|
)
|
BALANCE, December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
162,566,772
|
|
|
$
|
812,834
|
|
|
$
|
958,094
|
|
|
$
|
(3,351,083
|
)
|
|
$
|
(1,580,155
|
)
|
The accompanying notes are an
integral part of the unaudited consolidated financial statements.
UPD HOLDING
CORP. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(99,694
|
)
|
|
$
|
(2,401,061
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
8,542
|
|
Gain on settlement of debt
|
|
|
(23,439
|
)
|
|
|
—
|
|
Impairment of goodwill
|
|
|
—
|
|
|
|
2,170,124
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
—
|
|
|
|
2,783
|
|
Inventory
|
|
|
—
|
|
|
|
76,475
|
|
Other current assets
|
|
|
(755
|
)
|
|
|
—
|
|
Accrued interest
|
|
|
36,872
|
|
|
|
52,720
|
|
Accounts payable
|
|
|
16,735
|
|
|
|
(24,949
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(70,281
|
)
|
|
|
(115,366
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from related party notes payable
|
|
|
—
|
|
|
|
74,560
|
|
Proceeds from issuance of convertible notes payable
|
|
|
70,561
|
|
|
|
55,000
|
|
Principal payments on notes payable
|
|
|
(6,561
|
)
|
|
|
(22,500
|
)
|
Net cash provided by (used in) financing activities
|
|
|
64,000
|
|
|
|
107,060
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(6,281
|
)
|
|
|
(8,306
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
7,215
|
|
|
|
13,806
|
|
Cash and cash equivalents at end of period
|
|
$
|
934
|
|
|
$
|
5,500
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash paid for interest
|
|
$
|
4,000
|
|
|
$
|
30,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Supplemental Disclosures
|
|
|
|
|
|
|
|
|
Common stock issued for debt settlement
|
|
$
|
40,000
|
|
|
$
|
—
|
|
The accompanying notes are an
integral part of the unaudited consolidated financial statements.
UPD HOLDING
CORP. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS AND ORGANIZATION
UPD Holding Corp. (“UPD”,
“Company”), incorporated in the State of Nevada, is a holding Company seeking to acquire assets and businesses to provide
a competitive advantage through cost-sharing and other synergies. The Company currently operates in the food and beverage industry
through Record Street Brewing (“RSB”) and weight and health management with its distribution and marketing agreement
with iMetabolic (“IMET”). The Company is pursuing business development opportunities in the food and beverage industry
and other product licensing agreements.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying unaudited interim
consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted
accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission and
are unaudited. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation
of the results for the interim periods presented have been made. The results for the three and six-month period ended December
31, 2019, may not be indicative of the results for the entire year. These financial statements should be read in conjunction with
the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the Securities and Exchange Commission
on March 17, 2020.
The preparation of the Company’s
unaudited interim consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America 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 financial statements and the reported amounts of expenses during
the reporting periods. Management makes these estimates using the best information available at the time the estimates are made;
however, actual results could differ materially from these estimates.
Principles of Consolidation
The Company consolidates the
assets, liabilities, and operating results of its wholly owned and majority-owned subsidiaries; Net Edge Devices, LLC, an Arizona
Limited Liability Company, iMetabolic Corp, (“IMET”) a Nevada corporation, and Record Street Brewing Co. a Nevada corporation.
All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist
of cash and highly liquid investments with original maturities of 90 days of less at the date of purchase. The Company is exposed
to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts
on deposit or invested are in excess of amounts that are insured. As of December 31, 2019 and June 30, 2019 the Company did not
have any cash equivalents or cash deposits in excess of the federally insured limits.
Use of Estimates
The preparation
of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America 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 financial statements and the reported amounts of expenses
during the reporting periods. Management makes these estimates using the best information available at the time the estimates are
made; however, actual results could differ materially from these estimates.
Revenue Recognition
The Company
sells beer and beverage products to its customers. The product sales represent revenue earned under contracts in which the Company
bills and collects charges for delivery of products. The Company determines the measurement of revenue and the timing of revenue
recognition utilizing the following core principles:
|
1.
|
Identifying the contract with a customer;
|
|
2.
|
Identifying the performance obligations in the contract;
|
|
3.
|
Determining the transaction price;
|
|
4.
|
Allocate the transaction price to the performance obligations in the contract; and
|
|
5.
|
Recognize revenue when (or as) the Company satisfies its performance obligations.
|
Revenues from product sales are
recognized when the Company’s performance obligations are satisfied upon delivery. The Company primarily invoices its customers
when orders are received and does not provide any refunds, rights of return, or warranties to its customers. The Company has not
recognized any revenue since the quarter ended September 30, 2018.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 – Leases
(Accounting Standards Codification (“ASC” )Topic 842). Under the new guidance a lessee will be required to recognize
assets and liabilities for leases with lease terms more than 12 months, whether that lease be classified as a capital or operating
lease. This update is effective in annual reporting periods beginning after December 15, 2018 and the interim periods within that
year. On the Company’s adoption date, July 1, 2019, there were no non-cancelable leases. As a result, the adoption of ASC
842 did not have a material impact on the Company’s financial statements.
Going Concern
The Company’s financial
statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not
yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern,
has reoccurring net losses and net capital deficiency. The ability of the Company to continue as a going concern is dependent on
the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain
adequate capital, it could be forced to cease operations. These factors raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
In order to continue as a going
concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources
for the Company include (i) obtaining capital from management and significant stockholders sufficient to meet its minimal operating
expenses; (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities; and (iii) completing
a merger with or acquisition of an existing operating company. However, management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans.
NOTE 3 – NOTES AND CONVERTIBLE
NOTES PAYABLE
The Company’s notes payable consist
of the following:
Note Description
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|
December 31,
2019
|
|
|
June 30,
2019
|
|
Notes Payable:
|
|
|
|
|
|
|
Notes Payable matured in December 2018 a nominal interest rate
of 12%
|
|
$
|
281,000
|
|
|
$
|
281,000
|
|
Notes Payable matured in December 2018 a nominal interest rate
of 18%
|
|
|
100,000
|
|
|
|
100,000
|
|
Related Party Note Payable due October 2020 a nominal interest
rate of 6%
|
|
|
74,560
|
|
|
|
74,560
|
|
Note payable issued with a maturity date of December 2019 and a
nominal interest rate of 12%.
|
|
|
—
|
|
|
|
30,000
|
|
Total Notes payable
|
|
$
|
455,560
|
|
|
$
|
485,560
|
|
Accrued interest
|
|
|
24,110
|
|
|
|
3,000
|
|
Total convertible and other notes payable, net
|
|
$
|
479,670
|
|
|
$
|
488,560
|
|
Throughout the six months ended
December 31, 2019 the Company did not have the financial resources to make current payments on these notes payable. The Company
is in negotiations with the note holders and has not incurred significant penalties associated with the current default.
In August 2019, the Company
settled a previously outstanding note payable totaling $30,000 with a cash payment of $6,561 and recognized a gain on settlement
of $23,439.
The Company’s convertible notes payable consist of the
following:
Convertible Note Description
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matured in April 2018 (related
|
|
|
|
|
|
|
|
|
party)
|
|
$
|
65,000
|
|
|
$
|
65,000
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matured in the fourth quarter of
|
|
|
|
|
|
|
|
|
fiscal 2019
|
|
|
5,000
|
|
|
|
40,000
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matured in the first quarter
|
|
|
|
|
|
|
|
|
of fiscal 2020
|
|
|
10,000
|
|
|
|
10,000
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 15%; and matured in the third quarter of
|
|
|
|
|
|
|
|
|
fiscal 2020
|
|
|
5,000
|
|
|
|
5,000
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matures in the fourth quarter of
|
|
|
|
|
|
|
|
|
fiscal 2020
|
|
|
30,000
|
|
|
|
30,000
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matures in the first quarter of
|
|
|
|
|
|
|
|
|
fiscal 2021
|
|
|
35,000
|
|
|
|
—
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matures in the second quarter of
|
|
|
|
|
|
|
|
|
fiscal 2021
|
|
|
15,000
|
|
|
|
—
|
|
Notes payable convertible into common stock at $0.10 per share;
|
|
|
|
|
|
|
|
|
nominal interest rate of 12%; and matures in the second quarter of
|
|
|
|
|
|
|
|
|
fiscal 2020
|
|
|
—
|
|
|
|
5,000
|
|
Notes payable convertible into common stock at $0.10 per share; nominal interest
|
|
|
|
|
|
|
|
|
rate of 12%; and matures in the third quarter of fiscal 2021
|
|
|
20,561
|
|
|
|
—
|
|
Total Convertible notes payable
|
|
$
|
185,561
|
|
|
$
|
155,000
|
|
Accrued interest
|
|
|
83,402
|
|
|
|
72,698
|
|
Total convertible and other notes payable, net
|
|
$
|
268,963
|
|
|
$
|
227,698
|
|
The Company did not make monthly
and interest payments on its outstanding convertible notes payable. During the six months ended December 31, 2019, the Company
settled previously outstanding convertible note principal and interest totaling approximately $45,000 via the issuance of 450,872
shares of restricted and unregistered common stock.
During the six months ended December 31, 2019 and 2018 the Company
recognized interest expense on all outstanding notes and convertible notes payable totaling approximately $35,000 and $83,000,
respectively. During the three months ended December 31, 2019 and 2018 the Company recognized interest expense on all outstanding
notes and convertible notes payable totaling approximately $18,000 and $38,000, respectively.
NOTE 4 – STOCKHOLDERS’ EQUITY
At December 31, 2019, the Company’s
authorized capital stock consists of 200,000,000 shares of common stock, par value of $.005, and 10,000,000 shares of preferred
stock, par value $.01. At December 31, 2019, there were 171,459,556 shares of common stock issued and outstanding, respectively,
and no shares of preferred stock issued and outstanding.
The following provides a description of the shares issued during
the nine months ended December 31, 2019:
During the three months ended
December 31, 2019 the Company issued 337,039 shares of common stock for the settlement of convertible notes and accrued interest
totaling $33,675.
During the three months ended
September 30, 2019 the Company issued 113,833 shares of common stock for the settlement of convertible notes and accrued interest
totaling $11,383.
NOTE 5 – RELATED PARTY TRANSACTIONS
From time to time the Company has received
working capital advances from shareholders. These advances are used to settle the Company’s on-going operating expenses.
The shareholders have agreed to not accrue interest on the notes, and they are due on demand. Through December 31, 2019 the shareholders
have informally agreed to defer payment until the Company’s operations are generating sufficient cash flows, however, they
are under no obligation to do so in the future.
NOTE 6 – SUBSEQUENT EVENTS
In June 2020 the Company, through its Record Street Brewing
subsidiary, entered into a licensing agreement whereby its beer brands will be produced and distributed by a third-party. The third
party operates a gastropub in Reno, Nevada under the Record Street Brewery name. The licensing agreement has an effective date
of July 1, 2020 and is set to receive 25% of the gross profits sold and distributed outside of the gastropub premises.
In May 2020 the Company entered
into a convertible promissory note payable for cash proceeds totaling $50,000. The note carries 12% interest, matures in one year
from the date of issuance, and is convertible into common stock at a price of $0.10 per share.
In February 2020 the Company’s CEO
entered into a promissory note payable in which the Company received cash proceeds totaling $10,000. The note carries a nominal
interest rate of 6% and matures in October 2020.
In January 2020, the Company
settled a total of $250,000 previously outstanding notes payable with a nominal interest rate of 12% and $100,000 previously outstanding
notes payable with a nominal interest rate of 18% in exchange for property and equipment and other assets with a net book value
totaling $74,617. As a result of the settlement the Company recognized a gain of $301,383 during the three and nine months ended
December 31, 2019.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following management
discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim
consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q, and with
our audited financial statements included in our Form 10-K for the fiscal year ended June 30,2019, filed with the Securities and
Exchange Commission on March 17, 2020.
This discussion and analysis
provides information that management believes is relevant to an assessment and understanding of our results of operations and financial
condition for the periods presented. The following selected financial information is derived from our historical consolidated financial
statements and should be read in conjunction with such consolidated financial statements and notes thereto set forth elsewhere
herein and the “Forward- Looking Statements” explanation included herein.
Overview of Business
We are a health and wellness
company with a focus on nutraceutical and alternative and specialty beverages. Our past development efforts have included weight
loss and weight management products marketed under our iMetabolic® brand and craft beer offerings under our
Record Street™ brand. Current development efforts are focused on alternative and specialty beverages that leverage
and combine the Company’s regulated nutraceutical and beverage manufacturing experience to create novel and trending beverages
that have health benefits, such as waters infused with hemp-based nootropics, cannabinoids, and terpenes. We also are pursuing
the franchising and licensing of the Record Street™ brand for live music venues and brewpubs throughout the United
States.
Effective December 31, 2017
we acquired the “Record Street” brand and its contract brewing and distribution operations for its three flagship ales.
In the quarter ending March 31, 2018, RSB entered into a production relationship with Brew Hub and launched the new Stylus lager
in all formats as well as blonde and pale ales in cans along with the Company’s existing 1/6 and 1/2-barrel kegs and 12 oz
bottles. RSB ceased contract brewing with Brew Hub in April 2018 and ceased beer sales in September 2018. Effective as of December
31, 2019, RSB determined to cease pursuing contract brewing operations in an effort to stem future losses from the exit of RSB’s
primary distributor, Young’s Market Distribution Company, from the beer business. The loss of Young’s Market Distribution
Company as RSB’s California statewide beer distributor contributed to a significant impairment to the value of the Company’s
acquisition of RSB.
On June 10, 2020, RSB entered into a license
of the Record Street™ and Stylus™ brands with a related-party private entity, Alpine Group Inc. (the
“Licensee”), that recently opened a brewpub located in Reno, Nevada. Effective as of July 1, 2020, the Licensee will
have the exclusive right to brew and distribute Record Street™ and Stylus™ brand beers in the State of
Nevada.
RSB shall be entitled to receive 25% of
the gross profits from all sales of Record Street™ and Stylus™ branded products by the Licensee for an
initial term of five (5) years and a five (5) year renewal term. The license will renew in perpetuity after the first renewal term
if the Licensee achieves gross sales of licensed products of $2,000,000 during the initial term and first renewal term, collectively.
The president and principal shareholder of the Licensee is Jesse Corletto, a previously related party to the Company, who ceased
to hold any officer or director positions with the Company or RSB as of December 31, 2019.
In addition to brewing and off-premise
distribution licensing opportunities, RSB also is developing a taproom, restaurant, and lounge business model that can be franchised
under the Record Street™ brand. RSB taprooms will focus on the sale of Record Street™ branded beers and
are envisioned as music and sports lounges that sell RSB’s beers, affordable fast casual cuisine, and related merchandise.
With RSB’s beers displayed on a prominently featured tap system, beer sales will be the primary revenue driver. The economic
strategy of the tap rooms will be value pricing, high margins, and high volumes. The flagship location for the first RSB taproom
is intended for Reno, Nevada.
RSB intends to utilize the excess brewing
capacity of the Licensee to restart its beer distribution business and support taproom franchise locations. The Licensee intends
to commence off-premise beer distribution in July 2020.
With fewer barriers to entry,
such as reduced minimum order quantities (MOQs), lower costs of goods sold (COGS), and reduced regulatory licensing requirements,
the Company has determined to focus its brand extensions and product innovations in the health and wellness beverage category.
We believe there is increasing consumer demand for enhanced and functional (value-added) beverages and expect to capitalize on
this and potential consumer demand with the development and launch of new products focused on growing trends in the beverage space,
particularly infused beverages.
Going Concern
Our financial statements are
prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing
source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. Our ability to continue
as a going concern is dependent on our company obtaining adequate capital to fund operating losses until we become profitable.
If we are unable to obtain adequate capital, we could be forced to significantly curtail or cease operations.
In its report on our financial
statements for the year ended June 30,2019, our independent registered public accounting firm included an explanatory paragraph
regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
We will need to raise additional
funds to finance continuing operations. However, there are no assurances that we will be successful in raising additional funds.
Without sufficient additional financing, it would be unlikely for us to continue as a going concern. Our ability to continue as
a going concern is dependent upon our ability to successfully accomplish the plans described in this annual report and eventually
secure other sources of financing and attain profitable operations.
RESULTS OF OPERATIONS
The Company’s revenue is generated
through the sale of its beer products. In September 2018 the Company made its last sales under its previous distribution arrangements.
Since September 2018, the Company has not recognized any revenue nor did it have any inventory. Effective July 1, 2020 the Company
entered into a licensing agreement in which the Company will receive 25% of beer sales distributed outside the gastropub operated
my licensee. The licensee began its gastropub operations in late April 2020.
During the second quarter of fiscal 2019,
the Company determined that its initial beer products for sale spoiled resulting in the Company fully impairing its previously
held inventory. As a result of the impairment, the Company recognized an obsolescence loss of $65,653 during the nine months ended
March 31, 2019 included in cost of revenue in the accompanying consolidated statements of operations.
Professional Fees
During the three and six months
ended December 31, 2019, the Company recognized professional fees of approximately $60,000 and $85,000, respectively, representing
increases of approximately 196% and 131%, respectively, from the prior comparable periods. These increases are the result of the
Company engaging accounting consultants and auditors to assist in meeting the Company’s financial reporting obligations which
were delinquent during the comparable periods in fiscal 2019.
The Company expects its professional
fees to decline throughout the remainder of fiscal 2020 and into the first half of fiscal 2021 as it expects to meet its compliance
obligations on a timely basis.
Goodwill Impairment
Due to the Company’s need
for additional funding and lack of firm funding commitments to execute its business plans, the Company was unable to continue to
develop its RSB branding, grow its market share, and produce additional inventory. These facts and circumstances triggered the
Company to perform an impairment test on its RSB assets in the second quarter of the fiscal year ended June 30, 2019. As a result
of the uncertainties surrounding its capital resources and corresponding impacts on forecasted undiscounted cash flows, the Company
fully impaired its goodwill during the six months ended December 31,2019, totaling $2,170,124.
General and Administrative Expenses
The Company incurred general and administrative expenses totaling
approximately $1,400 and $3,500 for the three and six months ended December 31, 2019, respectively representing decreases of approximately
99% and 94%, respectively from the comparable periods of fiscal 2019. Similar to other operational items, our funding challenges
have resulted in overall declines in activity and corresponding expenses incurred.
We expect these items to increase over the next several periods
with the success of our business plans and will primarily consist of facilities costs, management and other salaries, travel, and
other corporate overhead.
Interest Expense
Through December 31, 2019 we
settled several of our previously outstanding promissory notes and convertible promissory notes payable. As a result interest expense
decreased approximately 54% to approximately $18,000 from the prior three month period ended December 31 and approximately 58%
to approximately $35,000 from the prior six months ended December 31.
Our future interest expense obligations
are dependent on the types of financing arrangements we are successful in arranging over the next twelve months, if any.
Other Income
During the three and six months ended December 31, 2019 we were
able to settle previously outstanding obligations for less than their carrying values on the date of settlement. As a result, we
recognized a non-recurring gain on debt settlement of approximately $23,000 for the three and six months ended December 31, 2019,
respectively.
Liquidity and Capital Resources
As of December 31, 2019, the
Company had a working capital deficit of approximately $1,014,000. We estimate that, over the next twelve months, in order to maintain
reporting company status as defined under the Securities Exchange Act of 1934, we will require cash for general and administrative
expenses and professional fees, which include accounting, legal and other professional fees, as well as filing fees. We believe
we will be able to meet these costs through the use of existing cash and cash equivalents or additional amounts, as necessary,
to be loaned by or invested in us by our stockholders, management or other investors. However, no assurance can be given that we
will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on acceptable terms.
In the absence of obtaining additional financing, we may be unable to fund our operations.
During the six months ended December
31, 2019, the Company’s operational cash flows primarily consisted of incurring expenses in the normal course of business
at levels commensurate with its funding levels and resulting inabilities to commence commercially viable operations. Net of the
non-cash and non-recurring gains on debt settlements of approximately $23,000, the Company’s operational cash uses primarily
consisted of the incurrence of on-going general and administrative expenses for the six months ended December 31, 2019. The Company
expects these operational cash uses to continue until sufficient capital is raised, if any.
The Company does not have sufficient
resources to engage in significant investing activities. As funding permits, the Company expects to invest in expanding its beer
production and related products.
During the six months ended
December 31, 2019, the Company generated approximately $64,000 of net cash from financing activities through the issuance of convertible
debt totaling $71,000 partially off-set by making an approximate $7,000 payment on its other outstanding notes payable.
Off-Balance Sheet Arrangements
We do not have any off-balance
sheet arrangements as set forth in Item 303(a)(4) of the Regulation S-K.
Critical Accounting Policies
Our Unaudited Financial Statements
and Notes to Unaudited Financial Statements have been prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities,
revenues, and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements.
The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances.
Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant
management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report
on Form 10-K for the year ended June 30, 2019.