The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements
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.
On February 16, 2021, UPD completed its acquisition
of Vital Behavioral Health, Inc., which intends to operate U.S. facilities focusing on substance abuse treatment and offer various programs
that help provide a continuum of care to its patients.
The Company previously operated in the food and
beverage industry through Record Street Brewing Co. (“RSB”), which was sold as of December 31, 2020.
On January, 5, 2022, VBH Garden Grove Inc., a Nevada corporation, changed
its name to VBH Georgia Inc.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The Company consolidates the assets,
liabilities, and operating results of its wholly owned and majority-owned subsidiaries: (i) iMetabolic Corp, a Nevada corporation; (ii)
United Product Development Corp., a Nevada corporation; (iii) Vital Behavioral Health, Inc., a Nevada corporation (since February 16,
2021); (iv) VBH Frankfort LLC, a Nevada limited liability company (since February 16, 2021); (v) VSL Frankfort LLC, a Nevada limited
liability company (since February 16, 2021); (vi) VBH Garden Grove Inc., a Nevada corporation (since February 17, 2021); (vii) VBH
Kentucky Inc., a Nevada corporation (since March 16, 2021); and (viii) Record Street Brewing Co., a Nevada corporation (through December
31, 2020). 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, 2021 and June 30, 2021, 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.
Fair Value of Financial Instruments
The fair value of a financial instrument is the
amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The
fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions
specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including
the party’s own credit risk.
Fair value measurements do not include transaction
costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values.
Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices
in active markets for identical assets or liabilities.
Level 2: Observable market-based
inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs
that are not corroborated by market data.
The Company's financial instruments consist primarily
of cash and cash equivalents, restricted cash, accounts payable and convertible and other notes payable. The carrying amounts of such
financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest
rates of these instruments.
The fair value of the Company’s derivative
liabilities are estimated using a Black-Scholes option pricing model with Level 3 unobservable inputs. Prior to the fiscal year ended
June 30, 2021 the Company did not have any instruments valued within Level 3 of the fair value hierarchy.
Net Income (Loss) Per Share
The Company presents
both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss by the
weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period under the treasury stock method using the if-converted method. Due to the incurrence of net losses, the Company did
not include outstanding instruments convertible into common stock that would be anti-dilutive.
Business Combinations
Business combinations
are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in general and administrative expenses. Measurement
period adjustments are made in the period in which the amounts are determined, and the current period income effect of such adjustments
will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement
period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment
as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets,
in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible
assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled
by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the
estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment
of goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration
which would be expensed.
Lease Accounting
The Company leases office space and
outpatient clinical space under a lease arrangement. These properties are generally leased under non-cancelable agreements that contain
lease terms in excess of twelve months on the date of entry as well as renewal options for additional periods. The agreements, which have
been classified as operating leases, generally provide for base minimum rental payment, as well non-lease components including insurance,
taxes, maintenance, and other common area costs.
At the lease commencement date, the
Company recognizes a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of twelve
months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents
the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises
the initial amount of the lease liability, plus any prepayments to the lessor and initial direct costs such as brokerage commissions,
less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that
apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using the
rate implicit in the contract if available or an estimate of our incremental borrowing rate for a collateralized loan with the same term
as the underlying lease. The discount rates used for the initial measurement of lease liabilities as of the date of entry were based on
the original lease terms.
Lease payments included in the measurement
of lease liabilities consist of (i) fixed lease payments for the non-cancelable lease term, (ii) fixed lease payments for optional renewal
periods where it is reasonably certain the renewal option will be exercised, and (iii) variable lease payments that depend on an underlying
index or rate, based on the index or rate in effect at lease commencement. Certain real estate lease agreements require payments for non-lease
costs such as utilities and common area maintenance. The Company has elected an accounting policy to not separate implicit components
of the contract that may be considered non-lease related.
Lease expense for operating leases consists
of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. The lease
payments are allocated between a reduction of the lease liability and interest expense. Depreciation of the right-of-use asset for operating
leases reflects the use of the asset on straight-line basis over the expected term of the lease.
Property and Equipment
Property and Equipment are stated at cost less
accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that
significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The useful lives of tenant improvements are the lesser of the estimated
useful life of the asset or the term of the lease (2 years for current lease); furniture and fixtures are 5 to 7 years; operating lease
right of use assets over the expected term of the operating lease; and office and computer equipment are 3 to 5 years.
The Company periodically reviews property and
equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or
amortization periods should be accelerated. Recoverability is assessed based on several factors, including the intention with respect
to maintaining facilities and projected discounted cash flows from operations. An impairment loss would be recognized for the amount by
which the carrying amount of the assets exceeds their fair value, as approximated by the present value of their projected discounted cash
flows.
Goodwill
Goodwill represents the excess of fair value over
identifiable tangible and intangible net assets acquired in business combinations. Goodwill is not amortized, instead goodwill is reviewed
for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely
than not that the fair value of a reporting unit is less than its carrying value.
Advertising Expense
The Company recognizing advertising expense in the period in which
it is incurred. For the six months ended December 31, 2021, the Company incurred advertising expense of $1,956 included in general and
administrative expense in the accompanying consolidated statements of operations. The Company did not incur advertising expenses during
the six months ended December 31, 2020.
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 in the current period
through the disposition date on December 31, 2021.
The Company’s expected rehabilitation
service and facility revenue will be recognized in accordance with the same five core principles stated above after meeting applicable
licensing requirements.
Income Taxes
The Company recognizes deferred tax liabilities
and assets using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences
between the financial statements carrying values and tax bases of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. In determining the future tax consequences of events that have been recognized in the
financial statements or tax returns, judgment and interpretation of statutes is required. Judgments and interpretation of statutes are
inherent in this process. Future income tax assets are recorded in the financial statements if realization is considered more likely than
not.
For previously taken tax positions considered
to be uncertain, the Company prescribes a recognition threshold and measurement attribute. In the event certain tax positions do not meet
the appropriate recognition threshold, de-recognition of income tax assets and liabilities, classification of current and deferred income
tax assets and liabilities, and accounting for interest and penalties associated with tax positions is required.
The Company files income tax returns in the U.S.
federal jurisdiction.
Debt Issuance Costs
Debt issuance costs incurred in connection with
the issuance of long-term debt are capitalized, netted against debt principal for balance sheet purposes, and amortized to interest expense
over the terms of the related debt agreements using the effective interest method.
Derivative Liabilities
The Company classifies all of its embedded debt
conversion features, and other derivative financial instruments as equity if the contracts (1) require physical settlement or net-share
settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including a requirement to net cash
settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of
net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) contracts that contain reset provisions.
The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification
between equity and liabilities (assets) is required. As of December 31, 2021, the Company did not have enough authorized and unissued
shares to settle all outstanding equity-linked instruments resulting in the reclassification of certain instruments to liability. The
Company reclassifies outstanding instruments based on allocating the unissued shares to contracts with the earliest inception date resulting
in the contracts with the latest inception date being recognized as liabilities first.
The Company accounts for contracts convertible
into common stock in excess of its authorized capital as derivative as liabilities. The derivative liabilities are re-measured at fair
value with the changes in the value reported as a component of other income (expense) in the accompanying results of operations. The derivative
liabilities are measured at fair value using a Black Scholes option pricing Model. The model is based on assumptions including quoted
market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock and are classified
within Level 3 of the fair value hierarchy as established by US GAAP. As of December 31, 2021, all derivative liability contracts are
convertible into a fixed number of shares of common stock.
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 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 $251,164 and acquired the rights to all royalties associated with the intellectual property
licensing previously held by the Company. The Company reclassified $250,167 of RSB liabilities outstanding as of June 30, 2020, to liabilities
related to assets sold in the accompanying consolidated balance sheets.
During the six months ended December
31, 2021 and the fiscal year ended June 30, 2021, 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 – ACQUISITIONS
In February 2021, through a Stock Exchange Agreement
(“Exchange Agreement”) in which 100% of the outstanding shares of Vital Behavioral Health Inc. (“Vital”) were
acquired via the issuance of 16,840,000 shares of restricted common stock, the Company acquired the assets and assumed the liabilities
of Vital and its two wholly owned subsidiaries: VBH Frankfort LLC (“VBHF”) and VSL Frankfort LLC (“VSLF”). The
Company did not incur material acquisition costs associated with the Exchange Agreement.
The following table represents
the fair value of the consideration paid allocated to the assets and liabilities acquired in applying the acquisition method for the completion
of the Vital business combination:
Description | |
As of February 16, 2021 | |
Fair value of 16,840,000 shares of restricted common stock | |
$ | 522,040 | |
Lease liabilities | |
| 52,787 | |
Other current liabilities | |
| 27,475 | |
Notes payable forgiven | |
| (122,250 | ) |
Total consideration | |
$ | 480,052 | |
| |
| | |
Cash | |
| 10,284 | |
Right of use assets | |
| 52,787 | |
Goodwill | |
| 416,981 | |
Total assets acquired | |
$ | 480,052 | |
Through the Vital acquisition, the Company intends
to operate multiple facilities in the U.S. that will focus on substance abuse treatment and offer various programs that help provide a
continuum of care to its patients. VBHF is intended to operate as an out-patient substance abuse treatment facility in Frankfort, Kentucky.
VSLF is intended to offer sober-designated living quarters for individuals who are in recovery. Each of Vital, VBHF, and VSLF are in the
early development stage and have not received any operational licenses or permits through the date of this report.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| |
December 31,
2021 | | |
June 30,
2021 | |
| |
| | |
| |
Furniture and fixtures | |
$ | 8,236 | | |
$ | 5,304 | |
Computer equipment and software | |
| 18,466 | | |
| 18,465 | |
Leasehold improvements | |
| 77,660 | | |
| 22,976 | |
Property and equipment | |
| 104,362 | | |
| 46,745 | |
Accumulated depreciation | |
| (27,260 | ) | |
| (6,702 | ) |
Property and equipment, net | |
$ | 77,102 | | |
$ | 40,043 | |
Depreciation for the six months ended
December 31, 2021 and December 31, 2020 was $20,558
and $0, respectively.
NOTE 6 – NOTES AND CONVERTIBLE NOTES PAYABLE
The
Company’s notes payable consists of the following:
Note Description | |
December 31, 2021 | | |
June 30, 2021 | |
Notes payable: | |
| | |
| |
Related party notes payable due October 2020 a nominal interest rate of 6% | |
$ | 117,560 | | |
$ | 114,560 | |
Notes payable due August 2022 a nominal interest rate of 12% | |
| 500,000 | | |
| - | |
Notes payable due November 2022 a nominal interest rate of 7.95% | |
| 12,833 | | |
| - | |
Total notes payable | |
$ | 630,393 | | |
$ | 114,560 | |
Unamortized discount | |
| (44,000 | ) | |
| - | |
Notes payable, net | |
| 586,393 | | |
| - | |
Accrued interest | |
| 16,709 | | |
| 13,199 | |
Total notes payable, net | |
$ | 603,102 | | |
$ | 127,759 | |
During the six months ended December
31, 2021, the Company did not have the financial resources to make current payments on these notes payable. All of the outstanding notes
payable are due to officers of the Company who have informally agreed to defer payment until such time as the Company’s liquidity
improves, however, they are under no formal obligation to continue to do so and may demand payment. The Company has not incurred significant
penalties associated with the current defaults.
In August 2021, the Company entered into a promissory
note with a lender in which the Company received cash proceeds totaling $500,000.
The promissory note matures in August
2022 and carries an interest rate of 12% per annum. The Company is required to make monthly interest payments with outstanding
principal and interest due on the maturity date. The Company issued the lender 1,000,000 warrants convertible into restricted shares
of common stock at an exercise price of $0.005 per share for a period of five years. The Company recorded the fair value of the 1,000,000
warrants issued with debt at approximately $66,000 as a discount.
In December 2021, the Company entered into a promissory
note with a lender in which the Company received two separate cash payments totaling $10,000 and $4,000. The promissory notes mature in
November 2022 and each carries an interest rate of 7.95% per annum. The Company is required to make monthly interest payments with outstanding
principal and interest due on the maturity date.
The Company’s convertible notes
payable consist of the following:
Convertible Note Description | |
December 31, 2021 | | |
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 $0.05 per share; nominal interest rate of 12%; and matures in March 2022 | |
| 100,000 | | |
| 100,000 | |
Notes payable convertible into common stock at $0.10 per share; nominal interest rate of 12%; and matures in February 2022 | |
| 15,000 | | |
| 15,000 | |
Notes payable convertible into common stock at $0.05 per share; nominal interest rate of 12%; and matures in July 2022 | |
| 41,000 | | |
| - | |
Total convertible notes payable | |
$ | 221,000 | | |
$ | 180,000 | |
Unamortized discount | |
| (18,285 | ) | |
| (17,452 | ) |
Convertible notes payable, net | |
| 202,715 | | |
| 162,548 | |
Accrued interest | |
| 79,461 | | |
| 70,600 | |
Total convertible notes payable, net | |
$ | 282,176 | | |
$ | 233,148 | |
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 $0.05 or $0.10 per share upon maturity if not paid in full prior to maturity. The Company did not
make any monthly interest payments on its outstanding convertible notes payable.
During the year ended June 30, 2021,
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 party a note payable for total cash proceeds of $100,000.
In February 2021, the Company acquired Vital., the previous holder of the note.
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.
In July 2021, the Company entered into
a total of $41,000 12% convertible promissory notes (3 notes total) with three investors. The convertible notes automatically convert
at maturity in July 2022 at a conversion price of $0.05.
As
of December 31, 2021, the Company did not have enough authorized and unissued shares of common stock to settle all its convertible
debt obligations. As a result, the Company recognized obligations to issue a total of 4,456,907 shares of common stock upon
convertible debt conversion to derivative liabilities in the accompanying consolidated balance sheets. The Company measures the
changes in the fair value of its derivative obligations using a Black-Scholes option pricing model with a volatility assumption of
122.73%; an expected term equal to the remaining term of the contract on the reclassification date (between eight to twelve months
for fiscal 2021); a risk-free rate of approximately 1%; and conversion prices of $0.10 (165,000 shares), $0.05 (3,061,000 shares),
and $0.025 (1,230,907 shares). The value of the derivative liability moves in parallel with the movement of the market value
of the shares of the Company. Due to the decline in share price from $0.1009 per share in June 30, 2021 to $0.300 in December 31,
2021, the value of the derivative liability has decreased significantly. For
the six months ended December 31, 2021, the Company recognized a gain on the change in the fair value of derivative liabilities of
$199,454 in other income (loss) in the accompanying consolidated statements of operations. The Company had derivative
liability obligations of $237,963 as
of June 30, 2021 compared to $38,509
as of December 31, 2021.
During the six months ended December 31,
2021, and the year ended June 30, 2021, the Company received $558,000 and $265,000, respectively, from funding on new notes and
convertible notes. The Company made $21,257 and $0, respectively of payments on the outstanding notes, convertible notes payable and
accrued interest, and recorded $17,538 and $20,911, respectively of interest expense and $45,367 and $7,548, respectively of debt
discount amortization expense. As of December 31, 2021, and June 30, 2021, the Company had approximately $96,170 and $83,799,
respectively of accrued interest. As of December 31, 2021, and June 30, 2021, the principal balance of outstanding notes and
convertible notes payable was $851,393 and $294,560, respectively.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the fiscal year ended June 30, 2021, the
Company’s Chief Executive Officer (“CEO”) provided the Company $30,000 in exchange for short-term 6% notes payable to
meet the Company’s on-going operating expense obligations. As of December 31, 2021, and June 30, 2021, the Company had outstanding
notes payable due to the CEO inclusive of accrued interest totaling $45,500 and $41,225, respectively. Additionally, our CEO provided
cash proceeds, totaling $15,000 in September 2016 under a convertible note arrangement. The note matured in 2018 and remains outstanding.
As of December 31, 2021, and June 30, 2021, the principal and interest due under the convertible note approximated $31,000 and $31,000,
respectively. The note, along with accrued interest, is convertible into restricted common stock at rate of $0.0125 per share at the option
of the Company’s CEO. By the terms of the convertible note, no additional interest was accrued during the three and six months ended
December 31, 2021, and during the fiscal year ended June 30, 2021.
As noted in Note 4, the Company acquired a 100%
interest in Vital . As of the date of acquisition in February 2021, the Company was indebted to Vital totaling approximately $100,000
under a 6% promissory note payable arrangement. Upon consummation of the merger, the promissory note and related accrued interest were
effectively eliminated. The Company did not make any cash payments under the promissory note arrangement through June 30, 2021. As of
June 30, 2021, the balance of the inter-company note payable was eliminated in the consolidation.
The Company sold an individual a 4.67% non-controlling
interest in VBH Kentucky, Inc. in April 2021 for cash proceeds totaling $100,000. The non-controlling interest holder also entered into
a $100,000 12% convertible note payable with the Company in March 2021. The convertible note matures in March 2022 and is convertible
into restricted common stock at $0.05 per share. In December 2021, the Company sold the same investor a 8.93% non-controlling interest
in its wholly owned subsidiary VBH Garden Grove Inc. for cash proceeds totaling $100,000.
Effective December 31, 2020, Dr. George D. Shoenberger
was appointed as a Board member of the Company. As of the date of the appointment and through September 30, 2021, Dr. Shoenberger held
a convertible note payable issued in 2016 with an initial principal balance of $50,000. As of December 31, 2021, and June 30, 2021, the
outstanding principal and accrued interest balance due under the convertible note agreement totaled $100,000 and $100,000, respectively.
The note, along with accrued interest, is convertible at the option of Dr. Shoenberger into restricted common stock of the Company at
a conversion rate of $0.025 per share. The Company did not make any settlement arrangement to cure the default of the convertible note
payable during the three and six months ended December 31, 2021, and during the fiscal year ended June 30, 2021.
In May 2020, the Company entered into a 12% convertible
note arrangement with a shareholder in which the Company received total cash proceeds of $50,000. The noteholder was a previous 59% owner
of Vital prior to the Company’s acquisition. As of June 30, 2021, the Company converted the previously outstanding convertible note
payable and accrued interest into 560,000 shares of restricted common stock. Upon consummation of the Vital acquisition, the noteholder
was issued 10,000,000 shares of restricted common stock in exchange for the equity interest in Vital. In addition, the significant shareholder
provided working capital advances totaling approximately $58,000 during the year ended June 30, 2021, of which approximately $51,000 was
due and payable as of June 30, 2021. There were no outstanding payables due to the aforementioned significant shareholder as of December
31, 2021.
Throughout several of the most recent fiscal years,
the Company received working capital advances from a significant shareholder. In December 2020, the Company settled the then outstanding
obligations due to the shareholder totaling approximately $69,000 via the issuance of 3,900,000 shares restricted common stock. As a result
of the settlement, the Company recognized a fiscal 2021 loss of approximately $23,000 measured as the difference between the re-acquisition
price of the debt (as measured by the estimated fair value of the restricted common stock issued) and the carrying cost of the debt on
the date of settlement. The significant shareholder is the lessor of the Company’s operating lease as of June 30, 2021. As of June
30, 2021, the Company owed the significant shareholder/lessor approximately $23,000 related to tenant improvement payments made on behalf
of the Company. There were no outstanding payables due to the aforementioned significant shareholder as of December 31, 2021.
During the previous periods the Company’s
Chief Operating Officer (“COO”) and Director made working capital advances to the Company that were converted to a promissory
note payable. The notes accrue interest at a rate of 6% per annum. The Company owed the COO approximately $88,000 and $87,000, respectively.
During the fiscal year ended June 30, 2021, 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.
Included in accounts
payable is $88,663 and $74,375 of payables to related parties as of December 31, 2021 and June 30, 2021, respectively.
NOTE 8 – STOCKHOLDERS EQUITY
In December 2020, the Company issued a related
party 3,900,000 fully vested shares of restricted common stock for the settlement of convertible notes payable and accrued interest totaling
approximately $68,000. As part of the settlement, the Company recognized an additional loss of approximately $23,000 as a result of the
difference between the fair value of the re-acquisition consideration and the carrying cost of the debt on the date of settlement.
In December 2020, the Company issued a consultant
500,000 fully vested shares of common stock for total consideration of $11,650.
In December 2021, the Company sold to an investor 750 shares
equivalent to 8.93% non-controlling interest in its wholly owned subsidiary, VBH Garden Grove Inc., for cash proceeds totaling
$100,000.
In December 2021, the Company sold to an investor 500 shares
equivalent to 12.30% non-controlling interest in its wholly owned subsidiary, VBH Kentucky, Inc., for cash proceeds totaling
$150,000.
Stock Payable
On September 2, 2021, the Company entered into
certain Mutual Release and Settlement Agreement with Athens Common, LLC to extinguish $31,310 of payables held by Athens Common, LLC.
All parties agreed to a total exchange of 231,572 shares of common Stock of the Corporation, par value $0.001 per share, as payment for
the settlement along with $15,000 in cash. The shares were valued using the stock price $0.07 on the date of the agreement resulting in
$16,210 recorded in equity as stock payable.
Warrants
In August 2021, the Company issued the lender
1,000,000 warrants convertible into restricted shares of common stock at an exercise price of $0.005 per share for a period of five years.
The Company recorded the fair value of the 1,000,000 warrants issued with debt at approximately $66,000 as a discount.
The following table summarizes the Company's warrant
transactions during the six months ended December 31, 2021, and year ended June 30, 2021:
| | |
Number of Warrants | | |
Weighted Average Exercise Price | |
Outstanding at year ended June 30, 2020 | | |
| - | | |
$ | - | |
Granted | | |
| - | | |
| - | |
Exercised | | |
| - | | |
| - | |
Expired | | |
| - | | |
| - | |
Outstanding at year ended June 30, 2021 | | |
| - | | |
$ | - | |
Granted | | |
| 1,000,000 | | |
| 0.005 | |
Exercised | | |
| - | | |
| - | |
Expired | | |
| - | | |
| - | |
Outstanding at six months ended December 31, 2021 | | |
| 1,000,000 | | |
$ | 0.005 | |
Warrants granted in the six months ended
December 31, 2021, were valued using the Black Scholes Model with the risk-free interest rate of 0.78%, expected life 5 years,
expected dividend rate of 0% and expected volatility of 420.52%.
NOTE 9 – OPERATING LEASES
As of December 31, 2021, the Company, through
its Vital subsidiaries, has the following a non-cancelable lease arrangement:
| · | Office facility intended to be used in its substance
abuse treatment operations located in Frankfort, Kentucky (the “Frankfort Lease”). The term of the Frankfort Lease is twenty-four
months with no explicit extension options. The base monthly payment of the term of the Frankfort Lease is $2,365. The Company estimated
the lease liability associated with the facility using a discount rate of 7.7%. The discount rate is based on an estimate of the Company’s
incremental borrowing rate for a term similar to the lease term on the commencement date. The Frankfort Lease commenced on February 1,
2021. |
| · | Vital leased a facility in Fayetteville, Georgia with an initial base rent of $13,617 per month for an
initial term of 18 months with a 5-year extension option. The facility is intended be used for in-patient services upon the receipt of
regulatory approval. The Company estimated the lease liability associated with the facility using a discount rate of 7.7%. The discount
rate is based on an estimate of the Company’s incremental borrowing rate for a term similar to the lease term on the commencement
date. The Frankfort Lease commenced on August 1, 2021. |
The following table summarizes the Company’s
undiscounted cash payment obligations for its non-cancelable lease liabilities through the end of the expected term of the lease:
| | |
| | |
2022 | | |
$ | 94,902 | |
2023 | | |
| 112,171 | |
2024 | | |
| - | |
2025 | | |
| - | |
2026 | | |
| - | |
Total undiscounted cash payments | | |
| 207,073 | |
Less interest | | |
| (8,570 | ) |
Present value of payments | | |
$ | 198,503 | |
The weighted average remaining term
of the Company’s non-cancelable operating leases as of December 31, 2021, was approximately 13 months.
On January 14, 2021, the Company’s wholly
owned subsidiary, United Product Development Corporation (the “Subsidiary”), a Nevada corporation, entered into a commercial
lease (the “Lexington 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 Lexington Lease is for a 5-year term with options to renew for 2
additional 5-year terms. The effective beginning date of the Lexington Lease term was January 14, 2021. The Lexington Lease provides for
minimum monthly rent of $50,000 for the first lease year and a 3% rental increase for each succeeding lease year. The Company was only
obligated to pay $20,000 per month for up to the first six month until the property was re-zoned and licensed for the Company’s
planned rehabilitation operations. The Company also has an option to cancel the lease during the first six months if it is unable to obtain
re-zoning approval and applicable regulatory licensing. On May 20, 2021, the Company terminated the Lexington Lease due to zoning and
licensing challenges associated with the facility.
The total lease expense incurred during the year
ended June 30, 2021, inclusive of the cancelled Lexington Lease, was $91,825.
NOTE 10 – SUBSEQUENT EVENTS
On January, 5, 2022 VBH Garden Grove Inc., a Nevada corporation changed
its name to VBH Georgia Inc.