UPD HOLDING CORP. - Annual Report: 2017 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended June 30, 2017
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☐
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to ____________
Commission file number: 001-13621
UPD HOLDING CORP.
(Exact name of Registrant as specified in its charter)
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Nevada
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13-3465289
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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75 Pringle Way, 8th Floor, Suite 804
Reno, Nevada 89502
(Address of principal executive offices, including zip code)
775-829-7999
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.005 par value
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OTC OB
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☑
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(Do not check if a smaller reporting company)
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Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant as of June 30, 2017 (the last business day of the registrants most recently completed fourth fiscal quarter), was approximately $414,787 based on the last trading price of the registrant’s common stock of $0.0052 as reported on the OTC Bulletin Board on such date.
As of October 13, 2017, the registrant had 81,266,636 shares of its $.005 par value common stock issued and outstanding.
Documents incorporated by reference: None.
UPD HOLDING CORP.
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4
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PART I
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Item 1
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5
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Item 1A
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8
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Item 1B
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Item 2
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Item 3
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8
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Item 4
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PART II
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Item 5
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9
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Item 6
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9
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Item 7
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10
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Item 7A
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11
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Item 8
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12
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Item 9
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25
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Item 9A
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25
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Item 9B
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26
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PART III
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Item 10
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27
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Item 11
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29
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Item 12
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Item 13
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30
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Item 14
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31
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PART IV
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Item 15
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32
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33
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The statements contained in this Annual Report on Form 10-K 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 I
Overview
Acquisition of iMetabolic Corp.
On December 31, 2014, we entered into an Agreement of Share Exchange and Plan of Reorganization (the “Share Exchange Agreement”) and consummated a share exchange (the “Share Exchange”) with iMetabolic Corp. (“IMET”), a Nevada corporation. The Effective Date of the transaction was March 16, 2015 (the “Effective Date”) and resulted in the acquisition of IMET (the “Acquisition”). Pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding capital stock of IMET from the 16 IMET shareholders for an aggregate of 60,000,000 shares, or 76.2% of the Company’s common stock.
As a result of the Share Exchange Agreement, the IMET shareholders transferred all their interest in IMET to the Company and, as a result, IMET became a wholly owned subsidiary of the Company.
As a further condition of the Share Exchange Agreement, the then current officers of the Company resigned on March 16, 2015 and Mark W. Conte was appointed President, CEO and a director of the Company, Kevin J. Pikero as CFO, Treasurer, Secretary, and a director and Andrew D. Smith as a director.
The IMET acquisition is discussed more fully in the Form 8-K we filed with the Securities and Exchange Commission (“SEC”) on March 20, 2015. Included as an exhibit to that Form 8-K is a copy of the Share Exchange Agreement.
Name Change
On December 30, 2015, the Company filed Articles of Merger (the “Merger”) with the Nevada Secretary of State. The Merger was between the Company and our wholly-owned subsidiary, UPD Holding Corp. (the “Subsidiary”). Pursuant to Nevada corporate law, we amended our Articles of Incorporation by the Merger to change our name to UPD Holding Corp. We believe our new name more properly indicates our current lines of business because the Company has not been in the water and beverage industry since 2012. “UPD” stands for United Product Development which is the name of one of our wholly-owned subsidiaries. We applied to FINRA to have our common stock traded under the new name and symbol UPDH. FINRA granted this new symbol on March 1, 2017.
IMET Products
IMET was formed on July 1, 2013 for the purpose of marketing products under the brand “iMetabolic” that were previously being sold by the brand’s licensor, International Metabolic Institute LLC (“IMI”), as well as to develop new products that would be specifically suited for a national marketing plan. IMI transferred certain product and trademark rights to IMET on July 22, 2013 (the “License”). The License was amended on March 16, 2015 to clarify IMET’s and IMI’s future rights. See “IMET License Agreement” below. The mission of IMET is to build upon preexisting brand equity and the expert copy and other literature authored by Dr. Kent Sasse as applied to the national launch of products with extraordinary profitability and novel market appeal.
A pre-existing line of five (5) soft-bound books authored by the founder of the iMetabolic brand, Dr. Kent Sasse, is available for sale under the brand “A Sasse Guide” on both the www.imetabolic.com and www.sasseguide.com websites. These books are titled: (i) Life-Changing Weight Loss; (ii) Doctor’s Orders – 101 Medically Proven Tips for Losing Weight; (iii) Outpatient Weight Loss Surgery – Safe and Successful Weight Loss with Modern Bariatric Surgery; (iv) Weight-Loss Surgery – Which One is Right for You?; and (v) After Weight Loss Surgery. Pursuant to the terms of the License Amendment these books will continue to be the property of and sold by IMI.
A pre-existing line of products, including, but not limited to, proprietary blend meal replacements, dietary specialty foods, and nutraceuticals, have been sold by IMI at IMI’s company store / doctor’s office pursuant to a reservation of rights in the License and online at www.imetabolic.com. An amendment to the License provides that after IMI has sold its entire inventory existing or ordered on March 16, 2015, IMI will not sell any more products which may be deemed to compete with IMET’s products.
IMET has developed the following four new products to be marketed:
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A new product concept to be marketed under the name iMetabolic “Catalyst”, which is intended to provide the essential vitamins and plant compounds that are necessary to aid in metabolic functions. Such ingredients include broad spectrum B-Complex Vitamins, as well as Green Tea Extract and Resveratrol (polyphenols).
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A new product concept to be marketed under the name iMetabolic “Mini-Meal”, which is intended to provide the essential whey protein isolate intake for a person who is on a four-to-five meal per day diet or needs a snack that will act as a low-calorie, high nutritional value appetite suppressant.
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A new product concept to be marketed under the name iMetabolic “Multi-Pro”, which is intended to provide the essential broad-spectrum vitamins and minerals that are typically marketed as “multi-vitamin supplements;” however, this product is specifically tailored to dovetail with the “Catalyst” so as to virtually eliminate the duplicate consumption of overlapping ingredients that routinely plagues supplement users.
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A new product concept to be marketed under the name iMetabolic “BittX.” This product is premised on the scientific theory that modern horticulture and food producers have systematically promoted foods that are sweet or lack bitterness, which is the flavor typically associated with foods that have the greatest health benefits. Accordingly, this product is intended to reform the body’s disposition toward bitter foods in a subtle, inoffensive way.
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We believe IMET’s current four products can be successfully marketed through the use of infomercials and have made progress with identifying a creator and producer for an infomercial to sell the products. Additionally, the Company is building a new website with e-commerce capabilities and plans to use SEO (search engine optimization), social media, e-mail marketing, and PPC (pay for click) venues as well to drive the business. However, there is no assurance IMET’s infomercial marketing strategy will be successful.
We have also investigated using regional distributors for our products and may use them in the future, on a region by region basis as working capital permits. The Company has identified some prospects and is working to move those prospects forward.
We believe IMET has located experienced nutrition and supplemental manufacturers who have indicated an interest and an ability to manufacture IMET’s initial four products. We have received written cost quotations from these manufactures and production timetables, as well. The Company is in the process of evaluating the best venue to move forward.
The Company was hopeful that it was going to be able to secure its new website, marketing program, and product manufacturing schedules to begin marketing our products within six months of the closing of the Exchange. In reality, these details are taking more time to prepare and thus the Company is now targeting some initial product and marketing launches in 2016 – 2017.
IMET License Agreement
IMET entered into a license with IMI, a Nevada limited liability company, on July 22, 2013 (the “License”). In the License, IMI granted to IMET the exclusive licenses to use, produce, market and sell: (i) five marks (the “Licensed Marks”); (ii) four books written by Dr. Sasse (the “Licensed Content”); and (iii) approximately 150 supplements and foods created and previously sold by IMI (the “Licensed Articles”). The Licensed Marks include the trademark “iMetabolic” the domain name “www.imetabolic.com” the trademark “iMetabolic Catalyst” and a trademark and domain name related to Dr. Sasse. The License had a term of three years, commencing on July 1, 2013 (the “Initial Term”), with a provision stating that the term of the License would automatically become perpetual if IMET sold $3.0 Million of Licensed Content or Licensed Articles before July 1, 2016. As a result of this date passing, an extension was executed until December 31, 2018. IMET is to bear all expenses of the creation and sale of the Licensed Content and Licensed Articles. The License contains other provisions standard in licenses.
In conjunction with closing the Exchange, on March 16, 2015 IMI and IMET executed an amendment to the License (the “License Amendment”). In the License Amendment: (i) IMET returned to IMI all rights to the Licensed Content (Dr. Sasse’s books), the two Dr. Sasse Licensed Marks and all revenues from the sale of the Licensed Articles since July 1, 2013 through the date of closing the Exchange; (ii) the Initial Term was increased from three to four years; (iii) a provision was added stating that after the closing of the Exchange, IMI shall not sell any more of the Licensed Articles or any other products IMET deems as competing with the Licensed Articles; (iv) a provision was added stating that upon reaching the $3.0 Million milestone, IMI shall transfer and or assign to IMET the three remaining Licensed Marks; and (v) a provision was added stating that upon completion of the Initial Term, IMET shall have all rights, obligations, and burdens of enforcing the Licensed Marks.
During 2014, the trademark “iMetabolic” expired at the U.S. Patent and Trademark Office. In conjunction with the closing of the Exchange, IMI re-applied for that trademark and the service mark "iMetabolic" on December 16, 2014. In May 2015, we engaged Drinker, Biddle & Reath, LLP to correspond with the U.S. Patent and Trademark Office regarding our application. As of April 19, 2016, the Company was awarded Registration Number 4,941,53 in the Class 5 Category. Additionally, on September 6, 2016, the Company was awarded Registration Number 5,034,186 in the Class 44 Category. At this juncture, the Company has succeeded in reclaiming both marks for consideration in its future operations.
Plan of Operation
At June 30, 2017, the Company does not currently engage in any business activities that generate cash flow. As of June 30, 2017, the Company had $65,308 in cash and cash equivalents.
Over the next 12 months we anticipate our operating expenses will include: (i) general and administrative expenses, (ii) any officer, director and/or consulting fees, and (ii) costs associated with maintaining the Company as a publicly traded entity, including the filing of Exchange Act reports. We believe we will be able to meet these costs through the use of existing cash and cash equivalents or additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. However, no assurance can be given that we will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on acceptable terms. In the absence of obtaining additional financing, we may be unable to fund our operations. Accordingly, the Company’s financial condition could require that it 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 its operations. As a result, the Company’s independent registered public accounting firm has issued going concern opinion on the consolidated financial statements of the Company for the fiscal year ended June 30, 2017.
Competition
The business of marketing weight management and nutrition products is highly competitive and sensitive to the introduction of new products or weight management plans, including various prescription drugs, which may rapidly capture a significant share of the market. These market segments include numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers both in the United States and abroad. Some of these competitors have longer operating histories, significantly greater financial, technical, product development, marketing and sales resources, greater name recognition, larger established customer bases and better-developed distribution channels than we do. Our present or future competitors may be able to develop products that are comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends and standards or customer requirements, or devote greater resources to the development, promotion and sale of their products than we do. For example, if our competitors develop other diet or weight loss treatments that prove to be more effective than our products, demand for our products could be reduced. Accordingly, we may not be able to compete effectively in our markets and competition may intensify.
We are also subject to significant competition from network marketing organizations, including those that market weight management products, dietary and nutritional supplements and personal care products as well as other types of products. We compete for global customers and distributors with regard to weight management, nutritional supplement and personal care products. Our competitors include both direct selling companies such as Herbalife, NuSkin Enterprises, Nature’s Sunshine, Alticor/Amway, Melaleuca, Avon Products, Oriflame and Mary Kay, as well as retail establishments in which we are not a vendor such as Weight Watchers, Jenny Craig, General Nutrition Centers, Wal-Mart and retail pharmacies.
In addition, because the industry in which we operate is not particularly capital intensive or otherwise subject to high barriers to entry, it is relatively easy for new competitors to emerge who will compete with us for our distributors and customers.
Government Regulation
In both domestic and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, importation, exportation, licensing, sale and storage of our products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions. There can be no assurance that we or our distributors are in compliance with all of these regulations. Our failure or our distributors’ failure to comply with these regulations or new regulations could lead to the imposition of significant penalties or claims and could negatively impact our business. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant loss of sales revenues.
Employees
We currently have informal arrangements with three individuals, who are officers and Directors of the Company, who serve as support staff for the functioning of all the corporate activities. There are no written agreements with these individuals. If administrative requirements expand, we anticipate that we may hire additional employees, and utilize a combination of employees and consultants as necessary to conduct our business.
Available Information
The Company is a Nevada corporation with its principal executive office located at 75 Pringle Way, 8th Floor, Suite 804, Reno, Nevada 89502 and its telephone number is (775) 829-7999 x112.
The risks associated with our Company are set forth in the "Risk Factors" section of our Form 8-K filed with the SEC on March 20, 2015.
None.
Executive Offices
The Company’s principal executive office is located at 75 Pringle Way, 8th Floor, Suite 804, Reno, Nevada 89502. The office premises are contributed free of charge by Mark W. Conte, our President and Chief Executive Officer. We believe that the offices are adequate to meet our current operational requirements. We do not own any real property.
We are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceeding is threatened, the results of which would have a material impact on our properties, results of operation, or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.
Not applicable.
PART II
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market for Common Stock
Our common stock is quoted on the OTC QB maintained by the OTC Markets under the symbol “ESWB.” The high and low bid prices of our common stock as reported for the periods presented, by fiscal quarter (i.e., the first quarter beginning July 1 and ended September 30), were as follows. The quotations reflect inter-dealer prices, without retail markup, mark-down, or commission and may not represent actual transactions.
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Price Range
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Fiscal Year Ended June 30, 2017:
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High
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Low
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Quarter Ended:
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September 30, 2016
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$
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0.04
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0.0025
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December 31, 2016
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$
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0.025
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0.0111
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March 31, 2017
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$
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0.0369
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0.007
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June 30, 2017
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$
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0.01
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0.0042
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Fiscal Year Ended June 30, 2016:
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Quarter Ended:
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September 30, 2015
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$
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0.05
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0.05
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December 31, 2015
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$
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0.23
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0.23
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March 31, 2016
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$
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0.0216
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0.0216
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June 30, 2016
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$
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0.04
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0.04
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Holders
As of June 30, 2017, there were approximately 178 holders of record of our common stock. This does not include beneficial owners holding stock in street name.
Dividends
Any future determination as to the declaration and payment of dividends on shares of our Common Stock will be made at the discretion of our Board of Directors out of funds legally available for such purpose. We are under no contractual obligations or restrictions to declare or pay dividends on our shares of Common Stock. In addition, we currently have no plans to pay such dividends. Our Board of Directors currently intends to retain all earnings for use in the business for the foreseeable future.
Recent Sales of Unregistered Securities
All previous unregistered sales were disclosed in prior quarterly or current reports.
Transfer Agent
Our transfer agent and registrar are American Stock Transfer and Trust Co., 6201 15th Avenue, 3rd Floor, Brooklyn, NY 11219, Telephone (718) 921-8210.
We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
The following 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
On December 31, 2014, we entered into an Agreement of Share Exchange and Plan of Reorganization (the “Share Exchange Agreement”) and consummated a share exchange (the “Share Exchange”) with iMetabolic Corp. (“IMET”), a Nevada corporation. The Effective Date of the transaction was March 16, 2015 (the “Effective Date”) and resulted in the acquisition of IMET (the “Acquisition”). Pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding capital stock of IMET from the 16 IMET shareholders for an aggregate of 60,000,000 shares, or 76.2% of the Company’s common stock.
As a result of the Share Exchange Agreement, the IMET shareholders transferred all their interest in IMET to the Company and, as a result, IMET became a wholly owned subsidiary of the Company.
As a further condition of the Share Exchange Agreement, the then current officers of the Company resigned on March 16, 2015 and Mark W. Conte was appointed President, CEO and a director of the Company, Kevin J. Pikero as CFO, Treasurer, Secretary, and a director and Andrew D. Smith as a director.
The IMET acquisition is discussed more fully in the Form 8-K we filed with the SEC on March 20, 2015. Included as an exhibit to that Form 8-K is a copy of the Share Exchange Agreement.
For complete details regarding the business of the Company, see “Item 1. Business,” above.
RESULTS OF OPERATIONS
Fiscal year ended June 30, 2017 compared to fiscal year ended June 30, 2016.
General and Administrative Expenses
For the fiscal years ended June 30, 2017 and 2016, we have recorded operating expenses of $39,242 and $78,518 respectively, consisting primarily of general and administrative expenses along with professional fees all of which are associated with maintaining the Company as a publicly traded entity.
Net Loss
For the fiscal years ended June 30, 2017 and 2016, we have recorded a net loss of $104,240 and $78,502 respectively.
Liquidity and Capital Resources
As of June 30, 2017, the Company had current assets of $65,308 and working capital deficit of $(110,652). Over the next twelve months, we have estimated that in order to maintain reporting company status as defined under the Securities Exchange Act of 1934, we will require cash for general and administrative expenses and professional fees, which include accounting, legal and other professional fees, as well as filing fees. We believe we will be able to meet these costs through the use of existing cash and cash equivalents or additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. However, no assurance can be given that we will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on acceptable terms. In the absence of obtaining additional financing, we may be unable to fund our operations.
Accumulated Deficit & Stockholder’s Equity
For the fiscal years ended June 30, 2017 and 2016, the Company reported Accumulated Deficits of $244,080 and $139,840 respectively.
For the fiscal years ended June 30, 2017 and 2016, the Company reported Stockholders’ Equity (Deficits) of $(110,652) and $(31,412) respectively.
Off-Balance Sheet Arrangements
During the fiscal years ended June 30, 2017 and 2016, we did not engage in any off-balance sheet arrangements as set forth in Item 303(a)(4) of the Regulation S-K.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Note 1, “Business, Basis of Presentation and Significant Accounting Policies” in the Notes to the Consolidated Financial Statements for the year ended June 30, 2017, describes our significant accounting policies which are reviewed by management on a regular basis.
Our exposure to market risks is limited to changes in interest rates. We do not use derivative financial instruments as part of an overall strategy to manage market risk. We have no debt outstanding nor do we have any investment in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.
UPD HOLDING CORP.
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18-24
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To the Board of Directors and Stockholders’
UPD Holding Corp and Subsidiaries
Reno, NV.
We have audited the accompanying consolidated balance sheets of UPD Holding Corp. and Subsidiaries (the “Company”) as of June 30, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the UPD Holding Corp. and Subsidiaries as of June 30, 2017 and 2016, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no revenue source, suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MALONEBAILEY, LLP
www.malone-bailey.com
Houston, Texas
October 13, 2017
| PART I. |
FINANCIAL INFORMATION
|
| Item 1. |
Financial Statements
|
UPD HOLDING CORP.
AND SUBSIDIARIES
|
|
As of June 30,
|
|||||||
|
|
2017
|
2016
|
||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$
|
65,308
|
$
|
1,619
|
||||
|
|
||||||||
|
Total current assets
|
65,308
|
1,619
|
||||||
|
|
||||||||
|
TOTAL ASSETS
|
$
|
65,308
|
$
|
1,619
|
||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Accounts payable
|
$
|
40,202
|
$
|
27,271
|
||||
|
Accrued liabilities
|
70,758
|
5,760
|
||||||
|
Convertible note payable
|
50,000
|
—
|
||||||
|
Convertible note payable – related party
|
15,000
|
—
|
||||||
|
Total current liabilities
|
175,960
|
33,031
|
||||||
|
|
||||||||
|
Total Liabilities
|
$
|
175,960
|
$
|
33,031
|
||||
|
|
||||||||
|
|
||||||||
|
STOCKHOLDERS’ DEFICIT:
|
||||||||
|
Common stock, $.005 par value 200,000,000 authorized: 79,766,636 and 78,766,636
issued and outstanding as of June 30, 2017 and June 30, 2016, respectively
|
398,833
|
393,833
|
||||||
|
Preferred stock, $.01 par value 10,000,000 authorized: none issued and outstanding as
of June 30, 2017 and June 30, 2016, respectively
|
—
|
—
|
||||||
|
Additional paid-in capital
|
(265,405
|
)
|
(285,405
|
)
|
||||
|
Accumulated deficit
|
(244,080
|
)
|
(139,840
|
)
|
||||
|
|
||||||||
|
Total stockholders’ deficit
|
(110,652
|
)
|
(31,412
|
)
|
||||
|
|
||||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$
|
65,308
|
$
|
1,619
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
UPD HOLDING CORP.
AND SUBSIDIARIES
|
|
Years Ended June 30,
|
|||||||
|
|
2017
|
2016
|
||||||
|
|
||||||||
|
OPERATING EXPENSES:
|
||||||||
|
General and administrative
|
$
|
4,348
|
$
|
78,518
|
||||
|
Professional fees
|
34,894
|
—
|
||||||
|
|
||||||||
|
Total Operating Expenses
|
39,242
|
78,518
|
||||||
|
|
||||||||
|
OPERATING LOSS
|
(39,242
|
)
|
(78,518
|
)
|
||||
|
|
||||||||
|
OTHER INCOME:
|
||||||||
|
Interest Income
|
—
|
16
|
||||||
|
|
||||||||
|
Total Other Income
|
—
|
16
|
||||||
|
|
||||||||
| OTHER EXPENSE: | ||||||||
|
Interest Expense
|
(64,998
|
)
|
—
|
|||||
|
Total Other Expense
|
(64,998
|
)
|
—
|
|||||
|
NET LOSS
|
$
|
(104,240
|
)
|
$
|
(78,502
|
)
|
||
|
|
||||||||
|
BASIC AND DILUTED PER SHARE DATA:
|
||||||||
|
Net Loss per common share, basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||
|
Weighted average common shares outstanding, basic and diluted
|
79,750,198
|
78,766,636
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
UPD HOLDING CORP.
AND SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
|
Additional
|
||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Accumulated
|
||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
|
Balances at June 30, 2015
|
78,766,636
|
393,833
|
(285,405
|
)
|
(61,338
|
)
|
47,090
|
|||||||||||||
|
Net loss
|
—
|
—
|
—
|
(78,502
|
)
|
(78,502
|
)
|
|||||||||||||
|
Balances at June 30, 2016
|
78,766,636
|
$
|
393,833
|
$
|
(285,405
|
)
|
(139,840
|
)
|
(31,412
|
)
|
||||||||||
|
Common stock issued for cash
|
1,000,000
|
5,000
|
20,000
|
—
|
25,000
|
|||||||||||||||
|
Net loss
|
—
|
—
|
—
|
(104,240
|
)
|
(104,240
|
)
|
|||||||||||||
|
Balances at June 30, 2017
|
79,766,636
|
$
|
398,833
|
$
|
(265,405
|
)
|
(244,080
|
)
|
(110,652
|
)
|
||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
UPD HOLDING CORP.
AND SUBSIDIARIES
|
|
||||||||
|
|
Years Ended June 30,
|
|||||||
|
|
2017
|
2016
|
||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net loss
|
$
|
(104,240
|
)
|
$
|
(78,502
|
)
|
||
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts Payable
|
12,931
|
15,483
|
||||||
|
Accrued Interest
|
64,998
|
|||||||
|
|
||||||||
|
Net Cash Used In Operating Activities
|
(26,311
|
)
|
(63,019
|
)
|
||||
|
|
||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Proceeds from Sale of Common Stock
|
25,000
|
—
|
||||||
|
Proceeds from Convertible Notes Payable – Related Party
|
15,000
|
—
|
||||||
|
Proceeds from Convertible Notes Payable
|
50,000
|
—
|
||||||
|
|
||||||||
|
Net Cash Provided by Financing Activities
|
90,000
|
—
|
||||||
|
|
||||||||
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
63,689
|
(63,019
|
)
|
|||||
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,619
|
64,638
|
||||||
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
65,308
|
$
|
1,619
|
||||
|
|
||||||||
|
SUPPLEMENTAL DISCLOSURES:
|
||||||||
|
Income tax paid
|
$
|
—
|
$
|
—
|
||||
|
Interest paid
|
$
|
—
|
$
|
—
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES; GOING CONCERN
Business, Operations and Organization
Esio Water & Beverage Development Corp. was incorporated in Nevada in June 1988 as Richard Barrie Fragrances, Inc. Over the years, the Company changed its name several times, most recently from Tempco, Inc. to Esio Water & Beverage Development Corp. Esio Water & Beverage Development Corp. and its wholly-owned subsidiaries Net Edge Devices, LLC, an Arizona Limited Liability Company, and iMetabolic Corp, (“IMET”) a Nevada Corporation are hereinafter collectively referred to as the “Company.”
On March 16, 2015, the Company issued to the IMET 16 shareholders of record an aggregate of 60,000,000 shares, or 76.2% of the Company’s common stock. Prior to the close of the reverse merger, IMET had 10,000,000 common shares outstanding immediately prior to the merger and net liabilities of $20,500. Prior to closing, the predecessor company had 18,566,636 shares outstanding and net assets of $85,378, of which $89,615 was cash and $4,237 was non-cash. As a result of the closing of this transaction, IMET is now a wholly owned subsidiary of the Company and its business and operations represent those of the “Company.”
For accounting purposes, this transaction is being accounted for as a reverse merger and has been treated as a recapitalization of the Company with IMET considered the accounting acquirer, and the financial statements of the accounting acquirer become the financial statements of the registrant. This transaction is hereinafter referred to as the “Reverse Merger.” The Company did not recognize goodwill or any intangible assets in connection with the transaction. The 60,000,000 common shares issued to the shareholders of IMET in conjunction with the share exchange transaction have been presented as outstanding for all periods.
On December 30, 2015, the Company filed Articles of Merger (the “Merger”) with the Nevada Secretary of State. The Merger was between the Company and our wholly-owned subsidiary, UPD Holding Corp. (the “Subsidiary”). Pursuant to Nevada corporate law, we amended our Articles of Incorporation by the Merger to change our name to UPD Holding Corp. We believe our new name more properly indicates our current lines of business because the Company has not been in the water and beverage industry since 2012. “UPD” stands for United Product Development.
Related Parties
The Company enters into transactions with affiliated entities, or “related parties,” which are recorded net as “Due to Related Parties” in the accompanying Consolidated Balance Sheets. Related party disclosures are governed by ASC Topic 850, Related Party Disclosures. Refer to Note 2 –“Related Party Transactions” for additional information regarding the Company’s related party transactions.
Beneficial Conversion Feature
The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Net Edge Devices, LLC, an Arizona Limited Liability Company, and iMetabolic Corp, (“IMET”) a Nevada Corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Cash and Cash Equivalents
The Company considers those short-term, highly liquid investments with maturities of three months or less as cash and cash equivalents. At times, cash in banks may be in excess of the FDIC limits. The Company has $65,000 in an unrestricted escrow account pending its ongoing funding negotiation.
Management Estimates and Assumptions
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 values of the Company’s financial instruments include cash, accounts payable, accrued expenses and notes payable approximate their carrying amounts because of the short maturities of these instruments or because of restrictions.
As required by the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company's financial instruments consist primarily of cash and cash equivalents, restricted cash receivable and accounts 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.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share as required by Accounting Standards Codification subtopic 260-10, Earnings per Share (ASC 260-10”). Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. For the fiscal years ended June 30, 2017 and 2016, the impact of outstanding stock equivalents was 5,733,515 and 10,258,245 respectively.
Stock-Based Compensation
FASB ASC 718 requires companies to measure all stock compensation awards using a fair value method and recognize the related compensation cost in its financial statements. The Company has adopted the provisions of FASB ASC 718 and expenses the fair value of employee stock options and similar awards in the financial statements. The Company accounts for share based payments in accordance with ASC 718, Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date, the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.
The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period.
The Company did not recognize any stock-based administrative compensation for common stock options issued to administrative personnel and consultants during the years ended June 30, 2017 and 2016, respectively. Also during the years ended June 30, 2017 and 2016, the Company did not pay stock based compensation consisting of common stock issued to non-employees.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution. At times, such balances may be in excess of any insured limits.
Deferred Tax Assets.
In assessing the realization of deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely a valuation allowance is established. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. To date, we have fully reserved for our deferred tax assets based primarily on our history of recurring losses.
Income Taxes
In accordance with ASC 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of June 30, 2017 and 2016.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period did not, or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern, has reoccurring net losses and net capital deficiency. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The June 30, 2017 financial statements do not include any adjustments that might be necessary if UPD Holding Corp. is unable to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (i) obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses; (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities; and (iii) completing a merger with or acquisition of an existing operating company. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
NOTE 2 – RELATED PARTY TRANSACTIONS
For the twelve months ended June 30, 2017 and 2016, the President has provided the Company rent at no charge. We believe that the offices are adequate to meet our current operational requirements. We do not own any real property.
On September 1, 2016, through unanimous approval by it Board, the Company opened an escrow to initiate a proposed funding arrangement for future capital demands. The related party portion of this escrow consists of a $15,000 convertible Note held by the Company’s President which matured March 1, 2017. As a result of this date expiring, the President extended the maturity of the note to April 1, 2018. The Company analyzed the extension under ASC 470-50 and concluded that this modification was not considered to be substantial. If not repaid by maturity, the note is convertible into 1,875,000 common shares at $0.0125 per share. If share conversion is not elected, then interest will be due in the amount of $15,000.
As of June 30, 2017, we owed Mark Conte, our President and Chief Executive Officer, $11,796 in administrative expenses paid on our behalf. The amount is recorded in accounts payable, and is due upon demand and non-interest bearing.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging” and determined that the instrument does not qualify for derivative accounting.
The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does have a beneficial conversion feature equivalent. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
NOTE 3 – CONVERTIBLE DEBT
On September 1, 2016, through unanimous approval by its Board, the Company opened an escrow to initiate a proposed funding arrangement for future capital demands. A single private placement provided $50,000 of this escrow in the form of a convertible note. This convertible note matured on March 1, 2017. As a result of this date expiring, the single private placement has executed an extension of the maturity of the note to April 1, 2018. If not repaid by maturity, the note is convertible into 4,000,000 common shares at $0.0125 per share. If share conversion is not elected, then interest will be due at the face value of the original note of $50,000.
NOTE 4 – INCOME TAXES
The income tax benefit differs from the amount computed by applying the federal income tax rate of 35% to net loss before income taxes. As of June 30, 2017 and 2016 deferred tax assets consist of the following:
|
|
2017
|
2016
|
||||||
|
|
||||||||
|
Federal loss carryforwards
|
$
|
85,428
|
$
|
48,944
|
||||
|
State loss carryforwards
|
—
|
—
|
||||||
|
Other
|
—
|
—
|
||||||
|
|
85,428
|
48,944
|
||||||
|
Less: valuation allowances
|
(85,428
|
)
|
(48,944
|
)
|
||||
|
|
||||||||
|
|
$
|
—
|
$
|
—
|
||||
As a result of the Reverse Merger, the Company's ability to utilize the net operating losses of the predecessor company is unlikely under the Internal Revenue Code. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. As of June 30, 2017 and 2016, the Company's likely Federal and State net operating loss carryforwards were $244,080 and $139,840, respectively. The Company provided a valuation allowance equal to the deferred income tax asset for the year ended June 30, 2017 and 2016 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The potential tax benefit arising from the loss carryforward will expire in 2035. Additionally, all annual tax returns have been filed and the last two years are open for inspection should the need arise.
NOTE 5 – STOCKHOLDERS’ EQUITY
Authorized Shares
At June 30, 2017, our authorized capital stock consists of 200,000,000 shares of Common Stock, par value of $.005, and 10,000,000 shares of Preferred Stock, par value $.01. At June 30, 2017 and 2016, there were 79,766,636 and 78,766,636 shares of Common Stock issued and outstanding, respectively, and no shares of Preferred Stock issued and outstanding.
Common Stock
At June 30, 2017, we had a total of 1,232,767 shares reserved for issuance pursuant to the 1,232,767 outstanding options and 4,500,748 outstanding warrants issued by the predecessor company. See “Options and Warrants” below for additional information.
At June 30, 2016, we had a total of 10,258,245 shares reserved for issuance pursuant to the 2,102,767 outstanding options and 8,155,478 outstanding warrants issued by the predecessor company. See “Options and Warrants” below for additional information.
Preferred Stock
The Company’s Board of Directors has the authority to divide the preferred stock shares into series and to fix the voting powers, designation, preference, and relative participating, option or other special rights, and the qualifications, limitations, or restrictions of the shares of any series so established. The Company has issued no preferred stock shares as of June 30, 2017.
Common Stock Issuances
During the fiscal years ended June 30, 2017 and 2016, the Company recorded the issuance of shares of Common Stock as follows:
| (a) |
Effective as of July 1, 2016, the Company issued 1,000,000 shares of its Common Stock for cash of $25,000.
|
Options and Warrants
The Company did not grant any options or warrants during the years ended June 30, 2017 and 2016, respectively. As of March 16, 2015, the effective date of the Reverse Merger, the Company had 2,102,767 options outstanding pursuant to the predecessor company’s 1999 Equity Compensation Plan, of which 870,000 options have expired, leaving 1,232,767 options outstanding. In addition, as of the effective date of the Reverse Merger, the Company had 8,155,478 warrants outstanding issued by the predecessor company. Since the Reverse Merger, 3,655,000 have expired and 4,500,748 remain. This remaining balance expires in late 2017 and early 2018. See “Options Granted by Predecessor Company Prior to Reverse Merger” and “Warrants Granted by Predecessor Company Prior to Reverse Merger” below for additional information. Also, additional information about the predecessor company’s options and warrants and expense calculations can be found in that company’s financial statements contained in its Annual Report on Form 10-K filed with the SEC on October 14, 2014.
Options Granted by Predecessor Company Prior to Reverse Merger
On July 13, 1999, the Board of Directors of the predecessor company authorized the 1999 Equity Compensation Plan (the “Plan”). The Plan allowed for the award of incentive stock options, non-statutory stock options or restricted stock awards to certain employees, directors, consultants and independent contractors. The predecessor company reserved an aggregate of 600,000 shares of common stock for distribution under the Plan. Incentive stock options granted under the Plan may be granted to employees only, and may not have an exercise price less than the fair market value of the common stock on the date of grant. Options may be exercised on a one-for-one basis, with a maximum term of ten years from the date of grant. Incentive stock options granted to employees generally vest annually over a four-year period.
A summary of the activity of options under the plan and non-statutory options granted outside the plan follows:
|
|
Weighted
|
|||||||
|
|
Number of
|
Average
|
||||||
|
|
Options
|
Exercise Price
|
||||||
|
|
||||||||
|
Outstanding at June 30, 2015
|
3,362,767
|
$
|
0.13
|
|||||
|
Granted
|
—
|
—
|
||||||
|
Exercised
|
—
|
—
|
||||||
|
Expired
|
(1,260,000
|
)
|
0.13
|
|||||
|
Forfeited
|
—
|
—
|
||||||
|
Outstanding at June 30, 2016
|
2,102,767
|
$
|
0.13
|
|||||
|
Granted
|
—
|
—
|
||||||
|
Exercised
|
—
|
—
|
||||||
|
Expired
|
(870,000
|
)
|
0.24
|
|||||
|
Forfeited
|
—
|
—
|
||||||
|
Outstanding at June 30, 2017
|
1,232,767
|
$
|
0.01
|
|||||
Additional information about outstanding options to purchase the Company’s common stock as of June 30, 2017 is as follows:
|
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||||||||||||
|
|
Weighted
|
Weighted
|
||||||||||||||||||||||||||||||
|
|
Average
|
Weighted
|
Average
|
Weighted
|
||||||||||||||||||||||||||||
|
|
Number
|
Remaining
|
Average
|
Aggregate
|
Remaining
|
Average
|
Aggregate
|
|||||||||||||||||||||||||
|
Exercise
|
of
|
Contractual
|
Exercise
|
Intrinsic
|
Number of
|
Contractual
|
Exercise
|
Intrinsic
|
||||||||||||||||||||||||
|
Price
|
Shares
|
Life (Years)
|
Price
|
Value
|
Shares
|
Life (Years)
|
Price
|
Value
|
||||||||||||||||||||||||
|
$0.13
|
32,767
|
0.17
|
$
|
0.13
|
$
|
—
|
32,767
|
0.17
|
$
|
0.13
|
$
|
—
|
||||||||||||||||||||
|
$0.05
|
1,200,000
|
1.60
|
$
|
0.05
|
$
|
—
|
1,200,000
|
1.60
|
$
|
0.05
|
$
|
—
|
||||||||||||||||||||
|
|
1,232,767
|
1,232,767
|
||||||||||||||||||||||||||||||
The 1,200,000 options were granted to directors on February 3, 2014 and are exercisable at $0.05 for 5 years.
Additional information about outstanding options to purchase the Company’s common stock as of June 30, 2016 is as follows:
|
|
||||||||||||||||||||||||||||||||
|
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||||||||||||
|
|
Weighted
|
Weighted
|
||||||||||||||||||||||||||||||
|
|
Average
|
Weighted
|
Average
|
Weighted
|
||||||||||||||||||||||||||||
|
|
Number
|
Remaining
|
Average
|
Aggregate
|
Remaining
|
Average
|
Aggregate
|
|||||||||||||||||||||||||
|
Exercise
|
of
|
Contractual
|
Exercise
|
Intrinsic
|
Number of
|
Contractual
|
Exercise
|
Intrinsic
|
||||||||||||||||||||||||
|
Price
|
Shares
|
Life (Years)
|
Price
|
Value
|
Shares
|
Life (Years)
|
Price
|
Value
|
||||||||||||||||||||||||
|
$0.25
|
750,000
|
0.03
|
$
|
0.25
|
$
|
—
|
750,000
|
0.03
|
$
|
0.25
|
$
|
—
|
||||||||||||||||||||
|
$0.13-$0.16
|
152,767
|
1.04
|
$
|
0.15
|
$
|
—
|
152,767
|
1.04
|
$
|
0.15
|
$
|
—
|
||||||||||||||||||||
|
$0.05
|
1,200,000
|
2.60
|
$
|
0.05
|
$
|
—
|
1,200,000
|
2.60
|
$
|
0.05
|
$
|
—
|
||||||||||||||||||||
|
|
2,102,767
|
2,102,767
|
||||||||||||||||||||||||||||||
The options were granted to directors on February 3, 2014 and are exercisable at $0.05 for 5 years.
Warrants Granted by Predecessor Company Prior to Reverse Merger
Prior to the Reverse Merger, the predecessor company issued 8,155,478 Warrants primarily in connections with financing arrangements and consulting services. Activity relative to these warrants for the year ended June 30, 2017 is as follows:
|
|
||||||||
|
|
Weighted
|
|||||||
|
|
Number of
|
Average
|
||||||
|
|
Shares
|
Exercise
Price |
||||||
|
|
||||||||
|
Warrants outstanding - June 30, 2015
|
8,155,748
|
$
|
0.75
|
|||||
|
Granted
|
—
|
—
|
||||||
|
Expired
|
—
|
—
|
||||||
|
|
||||||||
|
Warrants outstanding - June 30, 2016
|
8,155,478
|
$
|
0.75
|
|||||
|
Granted
|
—
|
—
|
||||||
|
Expired
|
3,655,000
|
0.75
|
||||||
|
Warrants outstanding – June 30, 2017
|
4,500,748
|
$
|
0.75
|
|||||
All the warrants outstanding as of June 30, 2017 are exercisable and expire in 2017 and 2018.
Additional information about outstanding warrants to purchase the Company’s outstanding warrants as of June 30, 2017 is as follows:
|
|
||||||||||||||||||||||||||||||||
|
|
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||||||||||||
|
|
Weighted
|
Weighted
|
||||||||||||||||||||||||||||||
|
|
Average
|
Weighted
|
Average
|
Weighted
|
||||||||||||||||||||||||||||
|
|
Number
|
Remaining
|
Average
|
Aggregate
|
Remaining
|
Average
|
Aggregate
|
|||||||||||||||||||||||||
|
Exercise
|
of
|
Contractual
|
Exercise
|
Intrinsic
|
Number of
|
Contractual
|
Exercise
|
Intrinsic
|
||||||||||||||||||||||||
|
Price
|
Warrants
|
Life (Years)
|
Price
|
Value
|
Warrants
|
Life (Years)
|
Price
|
Value
|
||||||||||||||||||||||||
|
$0.75
|
4,500,748
|
0.01
|
$
|
0.75
|
$
|
—
|
4,500,748
|
0.01
|
$
|
0.75
|
$
|
—
|
||||||||||||||||||||
|
|
4,500,748
|
4.500,748
|
||||||||||||||||||||||||||||||
Additional information about outstanding warrants to purchase the Company’s outstanding warrants as of June 30, 2016 is as follows:
|
|
||||||||||||||||||||||||||||||||
|
|
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||||||||||||
|
|
Weighted
|
Weighted
|
||||||||||||||||||||||||||||||
|
|
Average
|
Weighted
|
Average
|
Weighted
|
||||||||||||||||||||||||||||
|
|
Number
|
Remaining
|
Average
|
Aggregate
|
Remaining
|
Average
|
Aggregate
|
|||||||||||||||||||||||||
|
Exercise
|
of
|
Contractual
|
Exercise
|
Intrinsic
|
Number of
|
Contractual
|
Exercise
|
Intrinsic
|
||||||||||||||||||||||||
|
Price
|
Warrants
|
Life (Years)
|
Price
|
Value
|
Warrants
|
Life (Years)
|
Price
|
Value
|
||||||||||||||||||||||||
|
$0.75
|
8,155,478
|
0.03
|
$
|
0.75
|
$
|
—
|
8,155,478
|
0.03
|
$
|
0.75
|
$
|
—
|
||||||||||||||||||||
|
|
8.155.478
|
8.155.478
|
||||||||||||||||||||||||||||||
NOTE 6 - SUBSEQUENT EVENTS
As a result of the Company’s ongoing financing activities, the two convertible promissory notes were extended to April 1, 2018.
On September 22, 2017, the Company entered into a consulting agreement with Sage Intergroup. 1,500,000 shares were issued in conjunction with the execution of this agreement and a monthly payment of $31,250, payable in arrears was agreed upon for 12 months with the facility to renegotiate from time to time to adjust for increased or decreased demands upon the Consultant.
On October 6, 2017, the Company loaned Record Street Brewing, a Company of which UPD’s CEO is a minority shareholder, $20,000 at the Applicable Federal Rate for the month of October 2017 and a maturity date of October 6, 2018.
There have been no changes in our accountants during the last two fiscal years, and we have not had any material disagreements with our existing accountants during that time.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2017, our disclosure controls and procedures were not effective due to the size and nature of the existing business operation. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedure will not be implemented until they can be effectively executed and monitored. As a result of the size of the current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness, as of June 30, 2017, of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our Chief Executive and Chief Financial Officer concluded that, as of June 30, 2017, our internal controls over financial reporting were not effective due to the size and nature of the existing business operation for the following reasons: lack of segregation of duties; lack of multiple levels of review; insufficient written policies and procedures for accounting and financial reporting; and lack of an independent director or audit committee. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedure will not be implemented until they can be effectively executed and monitored. As a result of the size of the current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.
Changes in Internal Control Over Financial Reporting
During the fiscal year ended June 30, 2017, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
The Company’s independent registered public accounting firm is not required to issue, and has not issued, an attestation report on the Company’s internal control over financial reporting as of June 30, 2017.
None.
PART III
Appointment of New Officers and Directors
In connection with the Share Exchange Agreement, Mark W. Conte was appointed as President, Chief Executive Officer and a director of the Company, Kevin J. Pikero was appointed as Chief Financial Officer, Treasurer, Secretary and a director of the Company, and Andrew D. Smith was appointed as a director. Furthermore, concurrent with the Effective Date of the Share Exchange Agreement, our former officers and Directors resigned from their positions.
Identification of Directors and Executive Officers
The following table sets forth the name, age and positions of our new executive officer and director as of the Effective Date. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Directors are elected annually by our stockholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.
|
Name
|
|
Age
|
|
Position
|
|
Director Since
|
|
|
|
|
|
|
|
|
|
Mark W. Conte
|
|
56
|
|
President, Chief Executive Officer, Director
|
|
March 16, 2015
|
|
Kevin J. Pikero
|
|
61
|
|
Chief Financial Officer, Director
|
|
March 16, 2015
|
|
Andrew D. Smith
|
|
58
|
|
Director
|
|
March 16, 2015
|
Mark W. Conte. Mr. Conte is a business professional and entrepreneur in Reno, Nevada with over 25 years of experience in marketing and operations in the health, nutraceutical, technology, agricultural sciences, and banking industries. Mr. Conte is a co- founder and currently serves as President of iMetabolic Corp. Formerly, Mr. Conte was a co-founder and co-Managing Member of International Metabolic Institute LLC, which developed the “iMetabolic” brand and initial line of dietary and nutraceutical products. Prior thereto, Mr. Conte was: a Partner in 1Globe Wireless, Inc.; the B2B Sales Manager for AT&T Wireless; Managing Director and Manager of Operations for Perten Instruments; Vice President of Marketing for AIQ Systems, Inc.; and as a Corporate Banking Specialist and Foreign Exchange Representative for Valley Bank of Nevada. Mr. Conte is a graduate of the University of Nevada at Reno with a B.S. in Finance.
Kevin J. Pikero. Mr. Pikero is a practicing Certified Public Accountant (CPA) in Reno, Nevada with over 35 years of experience in the financial and accounting business. Mr. Pikero currently operates Kevin J. Pikero & Associates, Inc. (CPAs) in Reno, Nevada providing accounting, tax, and financial services for a select domestic and international clientele of corporations, partnerships, sole proprietors, and individuals. Mr. Pikero’s professional history includes employment with: Haims & Company – (CPAs); E.F. Hutton Credit Corp.; Barclays Business Credit Inc.; Truckee River Bank; Bank of America Community Development Bank; and United American Funding, Inc. Mr. Pikero is a graduate of Bentley University with a B.S. in Accounting and of the University of Bridgeport, Bridgeport, CT with a M.B.A. in Finance.
Andrew D. Smith. Mr. Smith is a Certified Public Accountant in Chicago, Illinois with over 25 years of experience in the financial and accounting business. He is a co-founder and the current President of Houlihan Capital, an investment banking firm with specializations in mergers and acquisitions and valuations. Previously to his time at Houlihan Capital, Mr. Smith was: a Senior Vice President for EVEREN Securities, Inc. (formerly Kemper Securities, Inc., 1993 to 1996), where he was the founder and co-head of the firm’s Mergers & Acquisitions Group; a Managing Director at Geneva Capital Markets; and an auditor for Ernst & Whinney, where he specialized in serving financial institutions. Mr. Smith is a graduate, with honors, of Ohio Wesleyan University with a BA in Economics, is registered with FINRA as a General Securities Representative (Series 7), General Securities Principal (Series 24), and a Financial and Operations Principal (Series 27), is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society, and is credentialed through the American Institute of Certified Public Accountants as “Accredited in Business Valuation.”
Employment Contracts
There are no employment agreements between the Company and its officers and directors.
Code of Ethics
We have not yet adopted a Code of Business Conduct and Ethics.
Audit Committee, Compensation Committee and Nominating Committee
As of the date of this filing, we do not have a formal Audit Committee, Compensation Committee or Nominating Committee. Our Board of Directors make all decisions that an audit committee would ordinarily make. We have determined that the Company does not have a member of its Board of Directors that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our consolidated financial statements. In addition, we believe that at this time, retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any revenues to date.
Conflicts of Interest
Certain potential conflicts of interest are inherent in the relationships between our officers and directors, and us.
From time to time, one or more of our affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that we own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage additional other businesses which may compete with ours with respect to operations, including financing and marketing, management time and services and potential customers. These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates are associated. Our affiliates are in no way prohibited from undertaking such activities, and neither we nor our shareholders will have any right to require participation in such other activities.
Further, because we intend to transact business with some of our officers, directors and affiliates, as well as with firms in which some of our officers, directors or affiliates have a material interest, potential conflicts may arise between the respective interests of us and these related persons or entities. We believe that such transactions will be affected on terms at least as favorable to us as those available from unrelated third parties.
With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of our disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, requires the Company’s officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes of ownership with the Securities and Exchange Commission (the “SEC”). Officers, directors and beneficial owners of more than ten percent of the Common Stock are required by SEC regulations to furnish the Company with copies of all reports that they file with the SEC pursuant to Section 16(a) of the Exchange Act. Based solely on a review of the copies of such forms furnished to the Company, the Company believes that during fiscal 2017 its current officers, directors and beneficial owners of more than ten percent of the Common Stock complied with all applicable Section 16(a) filing requirements.
Summary Compensation Table
The following table sets forth the compensation awarded to, earned by or paid to each named executive officer during each of the fiscal years ended June 30, 2017 and 2016.
Summary Compensation Table
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
Salary
|
|
Compensation
|
|
Total
|
|
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark W. Conte (1)
|
|
2017
|
|
—
|
|
—
|
|
—
|
|
|
President, Chief (Principal) Executive Officer, Director
|
|
2016
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin J. Pikero (1)
|
|
2017
|
|
—
|
|
—
|
|
—
|
|
|
Chief (Principal) Financial Officer and Director
|
|
2016
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew D. Smith (1)
|
|
2017
|
|
—
|
|
—
|
|
—
|
|
|
Director
|
|
2016
|
|
—
|
|
—
|
|
—
|
|
_________________
| (1) |
Messrs. Conte, Pikero and Smith were appointed to their positions on March 16, 2015.
|
Director Compensation
We do not currently have a formal plan for compensating our directors.
Compensation Committee Interlocks and Insider Participation
Not applicable.
Indemnification of Officers and Directors
The General Corporation Law of Nevada provides that directors, officers, employees or agents of Nevada corporations are entitled, under certain circumstances, to be indemnified against expenses (including attorneys’ fees) and other liabilities actually and reasonably incurred by them in connection with any suit brought against them in their capacity as a director, officer, employee or agent, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. This statute provides that directors, officers, employees and agents may also be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by them in connection with a derivative suit brought against them in their capacity as a director, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made without court approval if such person was adjudged liable to the corporation.
Our by-laws provide that we shall indemnify our officers and directors in any action, suit or proceeding unless such officer or director shall be adjudged to be derelict in his or her duties.
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following table sets forth, as of June 30, 2017, certain information regarding beneficial ownership of our capital stock according to the information supplied to us, that were beneficially owned by (i) each person known by the Company to be the beneficial owner of more than 5% of each class of the Company’s outstanding voting stock, (ii) each director, (iii) each named executive officer identified in the Summary Compensation Table, and (iv) all named executive officers and directors as a group. Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable. There are not any pending or anticipated arrangements that may cause a change in control.
|
|
|
Amount and Nature of Beneficial Ownership
|
||||
|
Name and Address of Beneficial Owner (1)
|
Nature of
Security |
Number of
Shares |
Percentage of
Common Stock (1) |
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|
|
|
|
|
|
|
|
|
Mark W. Conte
|
|
Common Stock
|
|
3,900,000 (1)
|
|
5.0% (2)
|
|
President, Chief (Principal) Executive Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin J. Pikero
|
|
Common Stock
|
|
1,500,000 (1)
|
|
1.9%
|
|
Chief (Principal) Financial Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew D. Smith
|
|
Common Stock
|
|
3,900,000 (1)
|
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5.0% (2)
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (3 persons)
|
|
Common Stock
|
|
9,300,000 (1)
|
|
11.8%
|
___________________
| (1) |
Applicable percentage of ownership is based on 79,766,636 shares of common stock outstanding as of June 30, 2017, together with securities exercisable or convertible into shares of common stock within sixty (60) days of June 30, 2017, for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of June 30, 2017, are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Currently none of the officers or directors of the Company hold options or warrants of the Company.
|
| (2) |
Share percentages reflect single digit rounding. Actual share ownership to two decimal points is less than 5.0%.
|
The Company did not have any transactions during fiscal years 2017 and 2016 with any director, director nominee, executive officer, security holder known to the Company to own of record or beneficially more than 5% of the Company’s common stock, or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeded $120,000.
Director Independence
Although the Company is not listed on a national securities exchange, in determining whether the members of our Board are independent, the Company has elected to use the definition of “independence” set forth by the NASDAQ Stock Market (“NASDAQ”) and the standards for independence established by NASDAQ. After review of relevant transactions or relationships between each director, or any of his family members, and the Company, its senior management and the Board, have determined that Andrew D. Smith is an independent director within the meaning of the applicable listing standards of NASDAQ. Mark W. Conte and Kevin J. Pikero are not independent directors under the NASDAQ standard based in part on their positions as executive officers and employees of the Company.
The following table summarizes the aggregate fees billed to the Company by MaloneBailey, LLP in relation to the audits and quarterly reviews of the Company for the fiscal years ended June 30, 2017 and 2016:
|
|
Year Ended
June 30, 2017 |
Year Ended
June 30, 2016 |
||||||
|
|
||||||||
|
Audit Fees (1)
|
$
|
17,000
|
$
|
14,000
|
||||
|
Audit-Related Fees (2)
|
$
|
0
|
$
|
0
|
||||
|
Tax Fees (3)
|
$
|
800
|
$
|
0
|
||||
|
All Other Fees (4)
|
$
|
0
|
$
|
0
|
||||
_______________
| (1) |
Audit Fees. Audit fees include fees for professional services performed for the audit of our annual consolidated financial statements, review of quarterly consolidated financial statements included in our SEC filings, and assistance and issuance of consents associated with other SEC filings.
|
| (2) |
Audit-Related Fees. Audit-related fees are fees for assurance and related services that are reasonably related to the audit. This category includes fees related to assistance consulting on financial accounting/reporting standards.
|
| (3) |
Tax Fees. Tax fees primarily include professional services performed with respect to preparation of our federal and state tax returns for our consolidated subsidiaries.
|
| (4) |
All Other Fees. All other fees include products and services provided, other than the services reported comprising Audit Fees, Audit Related Fees and Tax Fees.
|
The Board of Directors has reviewed the services provided by MaloneBailey, LLP during the fiscal year ended June 30, 2017 and the amounts billed for such services, and after consideration, has determined that the receipt of these fees by MaloneBailey, LLP is compatible with the provision of independent audit services. The Board has discussed these services and fees with MaloneBailey, LLP and Company management to determine that they are appropriate under the rules and regulations concerning auditor independence promulgated by the U.S. Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as under guidelines of the American Institute of Certified Public Accountants.
Pre-Approval Policies and Procedures
The entire Board of Directors acts as the Company’s Audit Committee. The Audit Committee does not have a financial expert serving on its committee at this time due to the size and nature of the Company.
All audit and non-audit services are pre-approved by the Audit Committee, which consists of the members of the Board of Directors which considers, among other things, the possible effect of the performance of such services on the auditors’ independence. The Audit Committee pre-approves the annual engagement of the principal independent registered public accounting firm, including the performance of the annual audit and quarterly reviews for the subsequent fiscal year, and pre-approves specific engagements for tax services performed by such firm. The Audit Committee has also established pre-approval policies and procedures for certain enumerated audit and audit related services performed pursuant to the annual engagement agreement, including such firm’s attendance at and participation at Board and committee meetings; services associated with SEC registration statements approved by the Board of Directors; review of periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings, such as comfort letters and consents; assistance in responding to any SEC comments letters; and consultations with such firm as to the accounting or disclosure treatment of transactions or events and the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, Public Company Accounting Oversight Board (PCAOB), Financial Accounting Standards Board (FASB), or other regulatory or standard-setting bodies. The Audit Committee is informed of each service performed pursuant to its pre-approval policies and procedures. The Audit Committee has considered the role of MaloneBailey, LLP in providing services to us for the fiscal year ended June 30, 2016 and has concluded that such services are compatible with such firm’s independence.
PART IV
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
2.1
|
|
|
|
21.1*
|
|
|
|
31.1*
|
|
|
|
31.2*
|
|
|
|
32.1*
|
|
|
|
101.INS*
|
|
XBRL Instance Document**
|
|
101.SCH*
|
|
XBRL Extension Schema Document**
|
|
101.CAL*
|
|
XBRL Extension Calculation Linkbase Document**
|
|
101.DEF*
|
|
XBRL Extension Definition Linkbase Document**
|
|
101.LAB*
|
|
XBRL Extension Labels Linkbase Document**
|
|
101.PRE*
|
|
XBRL Extension Presentation Linkbase Document**
|
__________________
| * |
Filed herewith.
|
| ** |
In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|
Financial Statement Schedules
None.
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
UPD HOLDING CORP.
|
|
|
|
|
|
|
|
|
|
|
Date: October 13, 2017
|
By:
|
/s/ Mark W. Conte
|
|
|
Mark W. Conte
|
|
|
|
President and Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
Date: October 13, 2017
|
By:
|
/s/ Kevin J. Pikero
|
|
|
Kevin J. Pikero
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Mark W. Conte
|
|
President, Chief Executive Officer, Director
|
|
October 13, 2017
|
|
Mark W. Conte
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kevin J. Pikero
|
|
Chief Financial Officer, Director
|
|
October 13, 2017
|
|
Kevin J. Pikero
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Andrew D. Smith
|
|
Director
|
|
October 13, 2017
|
|
Andrew D. Smith
|
|
|
|
|
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The registrant has not sent to its security holders any annual report covering the registrant’s fiscal year ended June 30, 2016.
33