UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2020

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from          to        

 Commission file number: 001-13621

 

UPD HOLDING CORP.

(Exact name of Registrant as specified in its charter)

 

Nevada 13-3465289
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

 

75 Pringle Way, 8th Floor, Suite
804 Reno, Nevada 89502

(Address of principal executive offices, including zip code)

 

775-829-7999 x112

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes o No þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o Accelerated filer o
Non-accelerated filer þ Smaller reporting company þ  
  Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report).      Yes x No

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

 

 

As of February 16, 2021, the issuer had 176,850,907 shares of Common Stock outstanding, par value $.005 per share.

 

 

 

     
 

 

UPD HOLDING CORP.

 

TABLE OF CONTENTS

 

 

Page

No.

Cautionary Note Regarding Forward-Looking Statements 1
   
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 2
   
Consolidated Balance Sheets- Unaudited 2
Consolidated Statements of Operations- Unaudited 3
Consolidated Statements of Changes in Stockholders’ Deficit- Unaudited 4
Consolidated Statements of Cash Flows- Unaudited 5
Notes to Consolidated Financial Statements- Unaudited 6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 12
Item 1A. Risk Factors 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Mine Safety Disclosures 13
Item 5. Other Information 13
Item 6. Exhibits 13
   
SIGNATURES 14

 

     

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

 

The statements contained in this Quarterly Report on Form 10-Q that are not historical fact are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Investors are cautioned that these forward-looking statements that are not historical facts are only predictions. No assurances can be given that the future results indicated, whether expressed or implied, will be achieved. Because of the number and range of assumptions underlying the Company’s projections and forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond the reasonable control of the Company, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this report. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. Therefore, the actual experience of the Company and the results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. The inclusion of projections and other forward-looking statements should not be regarded as a representation by the Company or any other person that these estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate.

 

  1  

 

PART I.

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

UPD HOLDING
CORP. AND
SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

    December 31,     June 30,  
    2020     2020  
ASSETS            
Current assets:            
Cash and cash equivalents   $ 60,328     $ 20,718  
Assets held for sale           755  
Total assets   $ 60,328     $ 21,473  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable   $ 5,848     $ 14,805  
Accrued interest     80,987       75,934  
Convertible notes payable     115,000       180,129  
Notes payable     194,560       84,560  
Liabilities related to assets sold           250,167  
Total liabilities     396,395       605,595  
                 
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 176,850,907 and 172,450,907 issued and
outstanding at December 31, 2020 and June 30, 2020, respectively
    884,255       862,255  
Additional paid-in-capital     1,953,152       1,872,632  
Accumulated deficit     (3,173,474 )     (3,319,009 )
Total stockholders' deficit     (336,067 )     (584,122 )
Total liabilities and stockholders' deficit   $ 60,328     $ 21,473  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

  2  

 

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,  
    2020     2019     2020     2019  
Revenues:                        
Net revenue   $     $     $     $  
                                 
Operating costs and expenses:                                
Professional fees     21,570       60,322       67,186       84,746  
General and administrative     2,712       1,420       5,192       3,516  
Total operating costs and expenses     24,282       61,742       72,378       88,262  
                                 
Operating loss     (24,282 )     (61,742 )     (72,378 )     (88,262 )
                                 
Interest expense, net     (3,990 )     (17,709 )     (9,849 )     (34,871 )
Other income, net     (23,402 )           (23,402 )     23,439  
Loss from continuing operations, before income taxes     (51,674 )     (79,451 )     (105,629 )     (99,694 )
Benefit from income taxes     10,852             10,852        
Loss from continuing operations     (40,822 )     (79,451 )     (94,777 )     (99,694 )
                                 
Discontinued operations:                                
Gain sale of discontinued operations, net of tax     240,312             240,312        
Income from discontinued operations, net of tax     240,312             240,312        
Net income (loss)   $ 199,490     $ (79,451 )   $ 145,535     $ (99,694 )
                                 
Basic and diluted earnings (loss) per share from:                                
Continuing operations   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
Discontinued operations     0.00       -       0.00       -  
Basic and diluted earnings (loss) per share from:   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
                                 
Weighted average shares outstanding                                
Basic and diluted     172,450,907       169,545,852       172,450,907       169,414,938  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

  3  

 

UPD HOLDING
CORP. AND
SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE PERIODS ENDED

 

                            Additional           Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholders'  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
BALANCE, June 30, 2020         $       172,450,907     $ 862,255     $ 1,872,632     $ (3,319,009 )   $ (584,122 )
Net loss                                   (53,955 )     (53,955 )
BALANCE, September 30, 2020                 172,450,907     $ 862,255     $ 1,872,632     $ (3,372,964 )   $ (638,077 )

Issuance of common stock for conversion of related party debt and

interest

                3,900,000       19,500       71,370             90,870  
Stock based compensation                 500,000       2,500       9,150             11,650  
Net income                                   199,490       199,490  
BALANCE, December 31, 2020         $       176,850,907     $ 884,255     $ 1,953,152     $ (3,173,474 )   $ (336,067 )
                                                         
                                                         
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 )

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.


  4  

 

UPD HOLDING
CORP. AND
SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    December 31,     December 31,  
    2020     2019  
Cash flows from operating activities:            
Net income (loss)   $ 145,535     $ (99,694 )
Gain on sale of discontinued operations     (240,312 )      
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Stock-based compensation     11,650        
Loss (gain) on settlement of debt     23,402       (23,439 )
Changes in operating assets and liabilities:                
Other current assets     755       (755 )
Accrued interest     9,849       36,872  
Accounts payable     (9,602 )     16,735  
Net cash used in operating activities - continuing operations     (58,723 )     (70,281 )
Net cash used in operating activities - discontinued operations     (11,667 )      
Net cash used in operating activities     (70,390 )     (70,281 )
                 
Cash flows from financing activities:                
Proceeds from issuance of convertible notes payable           70,561  
Proceeds from issuance notes payable     110,000        
Principal payments on notes payable           (6,561 )
Net cash provided by financing activities     110,000       64,000  
                 
Net increase (decrease) in cash and cash equivalents     39,610       (6,281 )
Cash and cash equivalents at beginning of period     20,718       7,215  
Cash and cash equivalents at end of period   $ 60,328     $ 934  
                 
Cash paid for income taxes   $     $  
Cash paid for interest   $     $ 4,000  
                 
Non-Cash Supplemental Disclosures                
 Common stock issued for debt settlement   $ 90,870     $ 40,000  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

  5  

 

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 is pursuing business development opportunities in the rehabilitation services industry.

 

The Company previously operated in the food and beverage industry through Record Street Brewing (“RSB”), which was sold as of December 31, 2020 and further discussed in Note 3.

 

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-month period ended December 31, 2020, 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, 2020 filed with the Securities and Exchange Commission on August 14, 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; iMetabolic Corp, (“iMET”), a Nevada corporation; United Product Development Corp., a Nevada corporation; and through December 31, 2020, 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, 2020 and June 30, 2020 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.

 

  6  

 

Revenue Recognition

 

The Company previously licensed its beer and beverage products to its customers. The royalties earned from these licensing agreements represent revenue earned under contracts in which the Company bills and collects from its licensee in arrears. 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 licensing royalties are recognized when the Company’s performance obligations are satisfied upon its licensee’s sales to its customers. The Company primarily invoices its licensee on a quarterly basis, net of returns. The Company did not realize material revenues during the period ended December 31, 2020 and has reclassified these amounts as part of its discontinued operations in the accompanying consolidated results of operations.

 

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. Management provides no assurances that the Company will be successful in accomplishing any of its plans.

 

NOTE 3- DISCONTINUED OPERATIONS

 

On December 31, 2020, the Company discontinued its RSB operations pursuant to the Assumption Agreement of the same date (“Agreement”) whereby 100% of the issued and outstanding common stock of RSB was assigned to RSB’s co-founder and a significant shareholder of the Company. As part of the disposition, the purchaser agreed to assume outstanding liabilities of RSB totaling $250,767 and acquired the rights to all royalties associated with the intellectual property licensing previously held by the Company.

 

During the three and six months ended December 31, 2020 and the three and six months ended December 31, 2019, RSB did not engage in material operations or generate material revenues. The Company did not allocate any interest expense to discontinued operations apart from interest accrued on the obligations that were assumed.

 

 

NOTE 4 – NOTES AND CONVERTIBLE NOTES PAYABLE 

 

The Company’s notes payable consist of the following:

 

Note Description   December 31,
2020
    June 30,
2020
 
Notes Payable:            
Notes payable matured in December 2018 with a nominal interest rate
of 12%*
  $ -     $ 20,000  
Related party note payable matures in June 2021 with a nominal interest rate
of 6%
    100,000       -  
Related Party Note Payable due October 2020 a nominal interest
rate of 6%
    94,560       84,560  
 Total Notes payable   $ 194,560     $ 104,560  
Accrued interest     11,237       8,900  
Total notes payable, net   $ 205,797     $ 113,460  

 

*As of December 31, 2020 $20,000 of notes payable outstanding at June 30, 2020 were reclassified to liabilities related to assets sold in the accompanying consolidated balance sheet.

 

  7  

 

Throughout the six months ended December 31, 2020 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.

 

The Company’s convertible notes payable consist of the following:

  

Convertible Note Description   December 31, 2020     June 30, 2020  
             
Notes payable convertible into common stock at $0.025 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 July 2020 (related

party)

    -       65,129  
Notes payable convertible into common stock at $0.10 per share; nominal interest                
rate of 12%; and matures in the fourth quarter of fiscal 2021 (related party)     50,000       50,000  
Total Convertible notes payable   $ 115,000     $ 180,129  
Accrued interest     69,750       68,234  
Total convertible notes payable, net   $ 184,750     $ 248,363  

 

The principal and interest of the Company’s outstanding convertible notes, with the exception of the related party notes totaling $65,000 that matured in April 2018, automatically convert to shares of common stock at $0.10 per share upon maturity if not paid in full prior to maturity. The Company did not make any monthly and interest payments on its outstanding convertible notes payable.

 

During the six months ended December 31, 2020, a note holder became a related party through the acquisition (in a private transaction not involving the Company) of shares of outstanding common stock in excess of 5%. In October 2020, the Company issued the related a party a note payable for total cash proceeds of $100,000.

 

In December 2020, the Company settled related party convertible notes payable and accrued interest totaling approximately $69,000 via the issuance of 3,900,000 shares of common stock. As part of the settlement, the Company recognized a loss of approximately $23,000 associated with the estimated fair value of the stock issued being in excess of the carrying value of the debt.

 

During the three and six months ended December 31, 2020 the Company recognized interest expense on all outstanding notes and convertible notes payable totaling approximately $5,000 and $10,000, respectively. During the three and six months ended December 31, 2019 the Company recognized interest expense on all outstanding notes and convertible notes payable totaling approximately $18,000 and $35,000, respectively. 

 

 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. As of December 31, 2020, certain previously outstanding shareholder advances totaling approximately $72,000 were assumed by a third party as part of the RSB disposition as further discussed in Note 3. As discussed in Note 4, certain outstanding notes payable and convertible notes payable became related party obligations through the holder’s common stock ownership.

  

NOTE 6 – STOCKHOLDERS EQUITY

 

In December 2020, the Company issued a related party 3,900,000 shares of common stock for the settlement of convertible notes payable and accrued interest totaling approximately $69,000.

 

In December 2020, the Company issued a consultant 500,000 fully vested shares of common stock for total consideration of approximately $12,000.

 

  8  

 

NOTE 7 – SUBSEQUENT EVENTS

 

On January 14, 2021, our wholly owned subsidiary, United Product Development Corporation (the “Subsidiary”), a Nevada corporation, entered into a commercial lease (the “Lease”) with Athens Commons, LLC, a Kentucky limited liability company, for the lease of a 88,740 square foot building at 5532 Athens Boonsboro Road, Lexington, Kentucky. The Lease is for a 5-year term with options to renew for 2 additional 5-year terms. The effective beginning date of the Lease term is January 14, 2021. The Lease provides for minimum monthly rent of $50,000 for the first lease year and a 3% rental increase for each succeeding lease year. $30,000 per month of the monthly rent is abated during the period that the Subsidiary completes improvements or is waiting on government and municipal permits and licenses. The Subsidiary, as the tenant, is required to obtain an all-risk insurance policy covering the premises as well as a public liability insurance policy of not less than $1,000,000. The Subsidiary intends to develop the building for the purpose of operating a substance abuse detoxification facility.

 

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 30,2020, filed with the Securities and Exchange Commission on August 14, 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 the Record Street™ brand which was disposed as of December 31, 2020.

 

The Company has entered the rehabilitation services industry and intends to become a national operator of clinical and transitional housing services for clients affected by substance use disorders and co-occurring disorders. The Company’s treatment plans will be based on an individualized approach and are customized to meet each client’s specific needs.

 

Clients of the Company’s facilities are intended to have access to Medically Monitored Withdrawal Management Services (MMWM), a Partial Hospitalization Program (PHP), an Intensive Outpatient Program (IOP), and an Outpatient Program (OP). Clients who participate in the PHP, IOP, and OP treatment programs will be eligible for housing through sober living accommodations that will be designed to give a client the ability to participate in his or her daily affairs and work and to have access to daily on-campus treatment at convenient times and locations.

 

We intend that most of our treatment facilities will be enrolled in Medicare or Medicaid and bill and accept payments from those governmental programs.

 

In most cases, it takes between 45 and 90 days for a Medicaid application to be processed and either accepted or denied by the state Medicaid office. However, depending on the circumstances and the state in which one resides, the application process could be shorter or longer.

 

Most facilities that accept Medicaid generally provide programs with some degree of medical care and substance rehabilitation, including group and individual therapy, 12-step meetings, and other recovery activities, on a 24 hours per day basis in a highly structured setting. Short-term programs may last between 3 and 6 weeks and be followed by outpatient therapy. Long-term programs often last between 6 and 12 months and focus on re-socializing patients as they prepare to re-enter their communities.

 

Intensive outpatient services (IOPs) typically offer at least 9 hours of therapy per week in sets of three 3-hour sessions, and some studies have found them to be similar to residential and inpatient programs in both services and effectiveness.

 

Partial hospitalization programs (PHPs) provide care for people who need a more comprehensive level of treatment than standard or intensive outpatient. These programs typically consist of approximately 20 hours a week of treatment and may include vocational and educational counseling, family therapy, medically supervised use of medications, and treatment of co-occurring disorders. IOPs may also offer these services, but the time commitment of a PHP typically is greater.

 

The Company intends to offer both IOP and PHP services at the Leased facility and accept Medicare and Medicaid payor-qualified patients and clients.

 

  9  

 

By keeping the majority of its treatment facilities and housing on campuses that are conveniently located within walking distance to traditional community services, the Company hopes to create so-called ‘sober cities’ throughout the United States that will nurture its clients’ development at all stages from detox to long-term self-sufficiency.

 

The first of the Company’s facilities is the subject of the Lease executed by the Subsidiary on January 14, 2021 as reported herein and in the Form 8-K filed by the Company on January 14, 2021.

 

The Company is in the process of obtaining licensing and permitting necessary to operate the Leased facility and intends to commence operations within 12 months, subject to obtaining adequate financing.

 

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, 2020, 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 did not generate material revenues from its RSB operations through its disposal in December 2020. The Company has focused on entering into the rehabilitation services industry in the second half of fiscal 2021. As indicated in the Lease, the first facility to be operated by the Company is anticipated to be licensed and permitted by July 2021 with operations commencing shortly thereafter. That facility is anticipated to be revenue producing within 12 months from January 1, 2021.

 

Professional Fees

 

During the three and six months ended December 31, 2020, the Company recognized professional fees of approximately $22,000 and $67,000, respectively, representing a decrease of approximately 64% and 21%, respectively, from the prior comparable periods. This decrease is the result of the Company meeting its financial reporting obligations which were delinquent during the comparable periods in fiscal 2020.

 

The Company expects its professional fees to increase throughout the remainder of fiscal 2021 as it develops its rehabilitation facilities and service which requires significant additional regulatory compliance.

 

General and Administrative Expenses

 

The Company incurred general and administrative expenses totaling approximately $2,700 and $5,200 for the three and six months ended December 31, 2020, respectively. 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 if we are successful in executing our business plans which will primarily consist of facilities costs, management and other salaries, travel, and other corporate overhead.

 

Discontinued Operations

 

On December 31, 2020 we completed the disposition of our prior Record Street Brewing Operations. The primary consideration in the disposal was the purchaser’s assumption of liabilities totaling approximately $251,000. As a result of the assets acquired not having any book value, we recognized a gain on disposal of approximately $240,000, net of tax of approximately $11,000.

 

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Interest Expense

 

Throughout fiscal 2020 and the first half of fiscal 2021, we settled several of our previously outstanding promissory notes and convertible promissory notes payable. Additionally, certain interest-bearing notes payable totaling approximately $20,000 were assumed by the purchaser in our RSB disposal. As a result, interest expense decreased approximately 73% and 72% to approximately $5,000 and $10,000 for the three and six months ended December 31, 2020, respectively. 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.

 

Liquidity and Capital Resources

 

As of December 31, 2020, the Company had a working capital deficit of approximately $336,000. 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. Additionally, we will need to raise additional capital to pursue our rehabilitation facility and services plans. As of the date of this report, we have not entered into any firm funding commitments and 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, 2020, 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. The Company’s operational cash uses primarily consisted of the incurrence of on-going professional and general and administrative expenses for the six months ended December 31, 2020. 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.

 

During the six months ended December 31, 2020, the Company received a total of $110,000 from the issuance of notes payable to related parties .

 

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.

 

  11  

 

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 accompanying 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, 2020. 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a "smaller reporting company" (as defined by Item 10 of Regulation S-K), the Company is not required to provide the information required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020 our disclosure controls and procedures were not effective due to the size and nature of the existing business operation. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedure will not be implemented until they can be effectively executed and monitored. As a result of the size of the current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.

 

Changes in Internal Control Over Financial Reporting

 

During the three months ended December 31, 2020, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.

OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of the date of this report, the Company is not currently involved in any legal proceedings.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. However, the risks associated with our Company are set forth in the "Risk Factors" section of our Form 10-K filed with the SEC on August 14, 2020.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There are no recent sales of unregistered equity securities that were not previously disclosed.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

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Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

The exhibits listed below are filed herewith.

 

Exhibit

Number

  Description
     
5.1   Resignation of Director Andrew D. Smith dated 12/31/20 (previously filed on Form 8-K dated 1/7/21)
10.1   Commercial Lease with Athens Commons, LLC dated 1/14/21 (previously filed on Form 8-K dated 1/20/21
10.1   Assumption Agreement dated 12/31/20 with Record Street Brewing Company and Jesse Corletto (previously filed on Form 8-K dated 1/7/21)
10.2   Mutual Release and Settlement Agreement dated 12/31/209 dated with Property Resource Associates, LLC  and Gary Plicta (previously filed on Form 8-K dated 1/7/21)
10.3   Consulting Agreement dated 12/31/20 with Sage Intergroup, Inc. (previously filed on Form 8-K dated 1/7/21)
31.1*   Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*   XBRL Instance Document**
101.CAL*   XBRL Extension Calculation Linkbase Document**
101.SCH*   XBRL Extension Schema Document**
101.DEF*   XBRL Extension Definition Linkbase Document**
101.LAB*   XBRL Extension Labels Linkbase Document**
101.PRE*   XBRL Extension Presentation Linkbase Document**

 

_________________
* Filed herewith.

**In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

  UPD HOLDING CORP. 
   
     
Dated:  February 16, 2021 By: /s/ Mark W. Conte
    Mark W. Conte
    President and Chief Executive Officer
    (Principal Executive Officer)
     
     
Dated:  February 16, 2021 By: /s/ Kevin J. Pikero
    Kevin J. Pikero
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

14

 

 

 

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