|
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.