UPD HOLDING CORP. - Quarter Report: 2012 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


X	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012


___	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to _______________

Commission File number 001-10320

Tempco, Inc.

(Exact name of registrant as specified in its charter)


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

7625 East Via Del Reposo, Scottsdale, AZ 85258

(Address of principal executive offices)

(480) 272-8745

(Issuer’s telephone number)

_________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 X No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes X No ___

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


	Large accelerated filer ___	Accelerated Filer ___
	Non-accelerated filer ___ (Do not check if a smaller reporting company)	Smaller Reporting Company X

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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of April 17, 2012 the issuer had 14,490,016 shares of Common Stock outstanding, par value $.005 per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TEMPCO, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	March 31,			June 30,
	2012			2011

ASSETS

Current assets:
Cash and cash equivalents	$	232,703		$	6,615
Prepaid expenses		312			9,892

Total current assets		233,015			16,507

Total Assets	$	233,015		$	16,507

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:
Accounts payable	$	23,663		$	37,703
Accrued liabilities		7,275			15,611
Accrued liabilities-related party		5,588			—
Note payable - current portion		250,000			7,437
Convertible notes payable - related party - current, net of discount		—			4,450
Note payable - related party		34,188			—

Total current liabilities		320,714			65,201

Total Liabilities		320,714			65,201

Commitments:		—			—

Stockholders’ equity (deficit):
Common stock, $.005 par value 50,000,000 authorized; 14,490,016 and
11,490,016 issued and outstanding as of March 31, 2012 and June 30, 2011		104,845			89,845
Additional paid in capital		12,259,385			11,649,885
Accumulated deficit prior to reentering the development stage		(11,160,829	)		(11,160,829	)
Deficit accumulated in the development stage		(1,291,100	)		(627,595	)

Total stockholders’ equity (deficit)		(87,699	)		(48,694	)

Total liabilities and stockholders’ equity (deficit)	$	233,015		$	16,507

The Accompanying Notes are an Integral Part of the Financial Statements

TEMPCO, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


													Cumulative Since
													Reentering the
													Development Stage,
	Three Months Ended						Nine Months Ended						February 5, 2008 to
	March 31,						March 31,						March 31,
	2012			2011			2012			2011			2012

Costs and Expenses
General and administrative	$	24,252		$	33,251		$	108,646		$	69,774		$	609,520
Directors fees		7,000			9,000			209,500			27,000			354,500
Operating loss		31,252			42,251			318,146			96,774			964,020

Net loss from operations		(31,252	)		(42,251	)		(318,146	)		(96,774	)		(964,020	)

Other Income (Expense)
Interest expense		(3,958	)		—			(33,309	)		—			(38,427	)
Interest income		—			5			—			105			23,547
Debt conversion expense-related party		(312,000	)		—			(312,000	)		—			(312,000	)
		(315,958	)		5			(345,309	)		105			(326,880	)

Provision for income taxes		—			—			(50	)		(50	)		(200	)

Net Loss	$	(347,210	)	$	(42,246	)	$	(663,505	)	$	(96,719	)	$	(1,291,100	)


Basic and diluted loss per share	$	(0.03	)	$	—		$	(0.06	)	$	(0.01	)

Basic and diluted weighted average common shares outstanding		12,215,291			11,490,016			11,730,016			11,490,016

The Accompanying Notes are an Integral Part of the Financial Statements

TEMPCO, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


							Cumulative Since
							Reentering the
							Development Stage,
	Nine Months Ended						February 5, 2008 to
	March 31,						March 31,
	2012			2011			2012

Cash flows from operating activities
Net income	$	(663,505	)	$	(96,719	)	$	(1,291,100	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Stock based compensation		112,500			—			200,400
Amortization of beneficial conversion feature		25,550			—			30,000
Debt conversion expense - related party		312,000			—			312,000
Loss on settlement of note receivable and accrued interest		—			—			69,750
Forgiveness of debt-related parties		50,000			—			50,000
Accrued interest receivable		—			—			(14,750	)
Changes in Assets and Liabilities:
Prepaid expenses		9,580			9,559			(20,219	)
Accounts payable		(14,040	)		1,076			23,663
Accrued liabilities		(2,748	)		(347	)		12,863
Net cash used by operating activities		(170,663	)		(86,431	)		(627,393	)

Cash flows from investing activities
Collection of note receivable		—			—			145,000
Net cash provided by investing activities		—			—			145,000

Cash flows from financing activities:
Repayment of debt		(7,437	)		—			(5,578	)
Proceeds from notes payable		250,000			—			250,000
Proceeds from notes payable-related party		154,188			—			154,188
Proceeds from convertible notes payable-related party		—			—			42,486
Proceeds from sale of common stock		—			—			225,000
Proceeds from exercise of option		—			—			9,000
Net cash used by financing activities		396,751			—			675,096
Net change in cash and cash equivalents		226,088			(86,431	)		192,703
Cash and cash equivalents at beginning of year		6,615			114,779			40,000
Cash and cash equivalents at end of period	$	232,703		$	28,348		$	232,703

Supplemental Disclosures:
Cash paid for income taxes	$	50		$	—		$	200
Cash paid for interest	$	337		$	—		$	844

Non Cash Investing and Financing Activities
Beneficial Conversion Feature	$	—		$	—		$	30,000
Repayment of notes payable through issuance of common stock	$	150,000		$	—		$	150,000

The Accompanying Notes are an Integral Part of the Financial Statements

TEMPCO, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation and Interim Consolidated Financial Statements

Tempco, Inc. was incorporated in Nevada in June 1988 as Richard Barrie Fragrances, Inc. Over the years, the Company changed its name several times, most recently to Tempco, Inc. on February 4, 2008. The consolidated financial statements include the accounts of Tempco, Inc. and its wholly-owned subsidiaries (collectively, the “Company”), NETtime Solutions, Inc. an Arizona corporation, and Net Edge Devices, LLC, an Arizona Limited Liability Company. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of Tempco, Inc. and subsidiaries have been prepared in accordance with generally accepted accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission, and are unaudited. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three and nine month periods ended March 31, 2012, 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, 2011.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

Note 2 - 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. 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.

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) seeking out and completing a merger with an existing operating company. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attaining profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 3 - Recent Accounting Pronouncements

The Company has implemented all new relevant accounting pronouncements that are in effect through the date of these financial statements. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Note 4 - Deferred Offering Costs

In January 2012 the Company has recorded Deferred Offering Costs in the amount of $46,076 to expense legal fees incurred related to a Private Placement. The offering was aborted and the deferred offering costs were expensed.

TEMPCO, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Stock Options

In July 2011, the Company issued options to each of its directors’ to purchase 250,000 shares of common stock. The fair value of option grants of $.15 was estimated utilizing the Black-Scholes option-pricing model using the following assumptions:


Expected volatility		176%
Risk-free interest rate		2%
Expected dividends		0%
Expected lives (in years)		0.5

The options were fully vested as of the date of grant and accordingly, the Company recognized compensation expense in the amount of $112,500 in relation to the options.

Following is a schedule of option activity for the period ended March 31, 2012:


		Weighted
	Number of	Average
	Options	Exercise Price
Outstanding at June 30, 2011	2,507,287	$ 0.29
Granted	750,000	0.15
Exercised	—	—
Expired	—	—
Forfeited	—	—
Outstanding at March 31, 2012	3,257,287	$ 0.28

Note 6 - Related Party Transactions

During the year ended June 30, 2011, the Company has received proceeds from notes convertible notes payable from a Director in the amount of $30,000. The convertible notes were convertible at the rate of $.05 per share. The notes bear interest at the rate of 6% per annum. Th e Company had recorded a beneficial conversion expense in the amount of $30,000 related to the notes.In March 2012, the holder of the notes elected to convert the $30,000 convertible notes to 600,000 shares of common stock.

In March 2012, the Company and the note holder agreed to convert an additional $120,000 of principal to 2.4 million shares of common stock at the rate of $.05 per share. At March 31, 2012 the balance outstanding on the notes payable is $34,188. In relation to the conversion the Company has recorded debt conversion expense of $312,000.

Note 7 - Notes Payable

In February 2012, the Company received proceeds from a note payable in the amount of $250,000. The note is unsecured, originally due on April 15, 2012 and bears interest at the rate of 6% per annum. See Note 6.

Note 8 - Subsequent Events

On April 12, 2012, we entered into a Regional Developer Deposit Agreement with Esio Franchising, wherein Esio granted the Company an option to purchase up to 11 Esio Regional Development Franchises in certain optioned areas. The Company paid Esio a nonrefundable deposit of $50,000 in relation to this agreement.

In April 2012 the Company issued a warrant to the holder of the $250,000 note payable to purchase one million shares of common stock at the rate of $.75 per share for a term of five years in exchange for extending the due date of the note to October 15, 2012.

Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operation.

Overview

This quarterly report on Form 10-Q covers the quarterly period ended March 31, 2012. The Company has no operating business and is, in effect, a “shell” company with no significant liabilities and minimal cash. Our management team and board of directors currently are looking for a private company that it can merge with or acquire and that has an operating business that will help increase shareholder value. Your review of this quarterly report should be read with the above facts in mind.

Current Business Strategy

The Board has determined to maintain the Company as a public “shell” corporation, which will seek suitable business combination opportunities. The Board believes that a business combination with an operating company has the potential to create greater value for the Company’s stockholders than a liquidation or similar distribution.

Critical Accounting Policies

Our significant accounting policies are described in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2011.

Effect of Status as a “Shell” Company

Because we are a shell company as defined under the Rules of the Securities and Exchange Commission, we are disqualified from using a short form of registration statement (S-8) for the issuance of employee stock options. Furthermore, holders of restricted securities issued while we were or are a shell company may not re-sell them pursuant to SEC Rule 144 for a period of one year after we cease to be a shell and have filed the necessary report with the SEC to that effect.

Plan of Operation

The Company’s current business objective is to locate suitable business combination opportunities. The Company does not currently engage in any business activities that provide cash flow. As of March 31, 2012, we have approximately $232,700 in cash and cash equivalents. We do not believe this will be sufficient to fund the costs of investigating and analyzing a suitable business combination or to fund general and administrative expenses for the next 12 months. We will have to seek additional funds.

During the next 12 months we anticipate incurring costs related to:


	(i)	Filing of Exchange Act reports;

	(ii)	Officer and director’s salaries and rent; and

	(iii)	Consummating an acquisition.

We believe we will be able to meet these costs through use of existing cash and cash equivalents or additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. However, no assurance can be given that we will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on acceptable terms. In the absence of obtaining additional financing, the Company may be unable to fund its operations. Accordingly, the Company’s financial condition could require that the Company seek the protection of applicable reorganization laws in order to avoid or delay actions by third parties, which could materially adversely affect, interrupt or cause the cessation of the Company’s operations. As a result, the Company’s independent registered public accounting firm has issued a going concern opinion on the consolidated financial statements of the Company for the fiscal year ended June 30, 2011.

Prior to consummating a business combination transaction, we do not anticipate:


	(i)	Any expenditures for research and development;

	(ii)	Any expenditures or cash receipts for the purchase or sale of any property plant or equipment; or

	(iii)	Any significant change in the number of employees.

General and Administrative Expenses

For the three and nine months ended March 31, 2012 we have recorded general operating expenses of $31,252 and $318,146, as compared to $42,251 and $96,774 for the same periods of the prior fiscal year, which includes Directors’ fees of $7,000 and $209,500 for the current three and nine month periods and $9,000 and $27,000 for the same periods of the prior fiscal year. Our operating expenses in the current and prior fiscal year consist primarily of legal and accounting fees, and other costs associated with maintaining the company as a publicly traded entity. Our operating expenses from the date of reentering the development stage (February 5, 2008) through March 31, 2012 were $964,020, which includes Directors’ fees of $354,500.

Net Loss

For the three and nine months ended March 31, 2012, we have reflected net loss of $347,210 and $301,505, respectively as compared to net losses of $42,246 and $96,719 of the same period of the prior fiscal year. Our net loss from the date of reentering the development stage (February 5, 2008) through March 31, 2012 was $1,291,100.

Off-balance sheet arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. We do not have foreign currency exchange rate or commodity price market risk.

Interest Rate Risk — From time to time we temporarily invest our excess cash in interest-bearing securities issued by high-quality issuers. We monitor risk exposure to monies invested in securities in our financial institutions. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents in our condensed consolidated balance sheets and do not represent a material interest rate risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Our principal executive and financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15e and 15d - 15e) as of the quarter ended March 31, 2012 (the “Evaluation Date”), has concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING INFORMATION

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.

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.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other information

None.

Item 6. Exhibits

(a) The following exhibits are filed herewith pursuant to Item 601 of Regulation S-K.


Exhibit Number	Description

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**	Interactive Data Files of Financial Statements and Notes

* Filed herewith.

** In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

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.

TEMPCO, INC.

Dated: May 21, 2012

By /s/ Anthony Silverman

Anthony Silverman

President and Chief Executive Officer

Dated: May 21, 2012

By /s/ Kimberly A. Conley

Kimberly A. Conley

Chief Financial Officer