| Table of Contents Index to Financial Statements |
U.S. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| ANNUAL REPORT PURSUANT TO SECTION 13 OR |
For the fiscal year endedJune 30, 2016
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| TRANSITION REPORT UNDER SECTION 13 OR |
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For the transition period from ___________ to ____________
Commission file number: Esio Water & Beverage Development Corp.001-13621
UPD HOLDING CORP.
(NameExact name of small business issuerRegistrant as specified in its charter)
| Nevada | 13-3465289 | |
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(State or other jurisdiction of incorporation | (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 underpursuant to Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, $.005 par value | OTC OB |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o Yesx¨ Noþ
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 o Yesx¨ Noþ
Indicate by check mark whether the registrant has (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Yesoþ No¨
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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 for such shorter period that the registrant was required to submit and post such files). Yes o Yesx¨ Noþ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)229.405) is not contained herein, and will not be contained, to the best of registrant’sregistrant’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.oþ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,”“accelerated filer”filer” and“smaller reporting company”company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes x Yeso¨ Noþ
State theThe aggregate market value of the registrant’s voting and non-voting common equitystock held by non-affiliates computed by reference toof the price at which the common equity was last sold, or the average bid and asked price of such common equity,registrant as of theDecember 31, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter. $685,917.quarter), was approximately $1,576,496 based on the last trading price of the registrant’s common stock of $0.023 as reported on the OTC Bulletin Board on such date.
At September 29, 2014,As of October 13, 2016, the issuerregistrant had outstanding 18,566,63679,766,636 shares of Common Stock,its $.005 par value $.005 per share.common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCEDocuments incorporated by reference: None.
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PART I
TABLE OF CONTENTS
Forward-Looking Information
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
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. The Company wishes to caution the readerInvestors are cautioned that itsthese 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. While sometimes presented with numerical specificity, these projections and other forward-looking statements are based upon a variety of assumptions relating to the business of the Company, which, although considered reasonable by the Company, may not be realized. 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. Consequently, theThe 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. The Company’srealized, 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.
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Item 1. DescriptionPART I
| ITEM 1. | BUSINESS |
Overview
Acquisition of Business.iMetabolic Corp.
GeneralOn 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.
Esio WaterAs 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 will be applying to FINRA to have our common stock traded under the new name and for a new trading symbol as soon as possible.
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.
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IMET has developed the following four new products to be marketed:
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. 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.
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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 & Beverage Development Corp.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 4,941,531 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, 2016, the Company does not currently engage in any business activities that generate cash flow. As of June 30, 2016, the Company had $1,619 in cash.
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, 2016.
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.
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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 originally incorporated in 1988 as Richard Barrie Fragrances, Inc. From March 1996 through February 2000 it operated as a “shell company” under the name FBR Capital Corp. In February 2000, it was merged with an operating company engaged in developing and selling employee time keeping systems. Its name was then changed to Vitrix, Inc., changed again to Time America, Inc. in November, 2003, and changed yet again to NETtime Solutions, Inc. in May 2007. Upon the sale of substantially all of its operating assets in February, 2008, it again became a shell company with no business plan except to seek to acquire or merge with an operating companyprincipal executive office located at 75 Pringle Way, 8th Floor, Suite 804, Reno, Nevada 89502 and its name was changed to Tempco, Inc. On November 5, 2012 our Board of Directors approved a name change to “Esio Water And Beverage Development Corp.” The name change became effective on January 18, 2013. In April 2012 we entered into a Regional Development Deposit Agreement with Esio Franchising, LLC (“ESIO”) with the intent of marketing and servicing ESIO’s multi-serve beverage dispensing systems and beverage products for use in the home and office. In August 2012 we paid the balance due on the purchase price of the first Regional Franchise Area for the Dallas/Ft. Worth region and entered into 3 franchise agreements with EFL. In February 2013 EFL and its parent, Esio Holding Company, LLC (“EHC”), filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court, district of Arizona (Phoenix). On August 15, 2013 the Chapter 11 petition was converted to a Chapter 7 petition. EFL’s conversion to a Chapter 7 petition made it unlikely that we would be able to develop our Dallas/Ft. Worth franchises in the future. As such, we were not successful in this endeavor and continue to seek to acquire or merge with an operating company.telephone number is (775) 829-7999.
Research and Development
We have not engaged in any material product research and development, nor do we anticipate having any in the next fiscal year.
Acquisitions of Plant and Equipment
We do not have any plans to acquire any plant or equipment.
Employees
At June 30, 2014, the Company had no employees apart from our Officers and Directors.
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Effect of Status as a “Shell” Company
Holders of restricted securities issued while we were a shell company may not re-sell them pursuant to SEC Rule 144 for a period of one year after we cease to be a shell. However, holders of the Company’s restricted securities for one year may re-sell the securities pursuant to Section 4(a)(1) of the Securities Act of 1933
| ITEM 1A. | RISK FACTORS |
Item 1A. Risk Factors
The risks associated with our Company is currently a “shell company”, having no business operations, its sole activity being to seek to find a suitable acquisition with an existing operating business or to develop a business of its own.
Competition
The market for acquiring profitable companies is highly competitive. The competition may hinder our ability to successfully locate a profitable company that desires to become public. We may not have the resources, expertise or other competitive factors to compete successfullyare set forth in the future. We expect to face competition from existing competitors and new market entrants in the future. Some"Risk Factors" section of our competitors will have greater resources than we do. As a result, these competitors may be able to acquire companies we would wish to acquire.Form 8-K filed with the SEC on March 20, 2015.
Market Price of Common Stock
Because of the range of the public trading for the Company’s Common Stock is so volatile and the trading volume so low, there can be no assurance that if, and when, an investor were to attempt to sell the Common Stock, the holder would be able to sell such shares of Common Stock for a profit or even recover his investment.
Penny Stock Rules
The Company’s Common Stock trades well below $5.00 per share and is therefore considered a “penny stock” under the Exchange Act and is subject to SEC rules and regulations that impose limitations on the manner in which it can be publicly traded. The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker dealers who sell our securities to persons other than accredited investors, who are, generally, institutions with assets in excess of $5,000,000, or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker–dealer must make a suitability determination for each purchaser and receive the purchaser’s written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures required by the SEC. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock and the associated risks. Generally, these regulations have the effect of limiting the liquidity of an investment in the Company’s Common Stock. Consequently, penny stock rules may also affect the ability of broker-dealers to make a market in or trade in the Company’s Common Stock and may also affect an investor’s ability to re-sell any shares purchased in the public markets. In addition, the over-the–counter market for the Company’s Common Stock is subject to large volume and price fluctuations. The securities of companies such as ours have historically seen extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors relating to the Company and its operations and in the investment markets in general, as well as economic conditions, may have a negative effect on the market price of its Common Stock.
Securities to be Issued Pursuant to an Exemption from Registration
In the future, Company securities will be offered and issued pursuant to Regulation D adopted under the Securities Act and pursuant to exemptions from registration in all states where they are being offered. There is no assurance that such offerings will qualify for such exemptions due, among other things, to the adequacy of the disclosure and the manner of distribution of the offering, other past, present and future offerings made or to be made by the Company, the conduct by the Company in other activities or any change in securities laws or regulations. If and to the extent that suits for rescission are brought and successfully concluded for failure to register an offering pursuant to the Securities Act, both the capital and assets of the Company could be adversely affected, thus jeopardizing the ability of the Company to operate successfully. Its capital could be depleted in defending any action by subscribers or by state or federal securities commissions, even if it is ultimately exonerated.
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Expenses of a Public Company
Operating a public company involves substantial costs to comply with reporting obligations under federal securities laws which are continuing to increase as provisions of the Sarbanes Oxley Act of 2002 are implemented. These reporting obligations impose a substantial financial expense on the Company on a quarterly and annual basis. The Company may not reach sufficient size to justify public reporting status. If the Company were forced to become a private company, shareholders may lose their ability to sell their shares and there would be substantial costs associated with becoming a private company.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Item 1B. Unresolved Staff CommentsNone.
| ITEM 2. | PROPERTIES |
Not applicable.Executive Offices
Item 2. DescriptionThe 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 Property.
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.
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| ITEM 3. | LEGAL PROCEEDINGS |
Item 3. Legal Proceedings.
As of the date of this report, we wereWe 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.proceedings in which we are an adverse party.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Common Stock
Our common stock is quoted on the OTC QB maintained by the NASDOTC 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. 1st Quarter =, the first quarter beginning July 1 throughand 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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Fiscal Year Ended: June 30, 2014 |
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First Quarter | $0.13 | $0.08 |
Second Quarter | 0.05 | 0.10 |
Third Quarter | 0.10 | 0.01 |
Fourth Quarter | 0.07 | 0.02 |
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Fiscal Year Ended: June 30, 2013 |
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First Quarter | $0.30 | $0.15 |
Second Quarter | 0.28 | 0.17 |
Third Quarter | 0.35 | 0.10 |
Fourth Quarter | 0.15 | 0.07 |
| Price Range | |||||||||
| Fiscal Year Ended June 30, 2016: | High | Low | |||||||
| Quarter Ended: | |||||||||
| September 30, 2015 | $ | .05 | $ | .05 | |||||
| December 31, 2015 | $ | 0.023 | $ | .023 | |||||
| March 31, 2016 | $ | .0216 | $ | .0216 | |||||
| June 30, 2016 | $ | 0.04 | $ | 0.04 | |||||
| Fiscal Year Ended June 30, 2015: | |||||||||
| Quarter Ended: | |||||||||
| September 30, 2014 | $ | 0.07 | $ | 0.04 | |||||
| December 31, 2014 | $ | 0.12 | $ | 0.05 | |||||
| March 31, 2015 | $ | 0.10 | $ | 0.0425 | |||||
| June 30, 2015 | $ | 0.14 | $ | 0.05 | |||||
Holders
As of September 29, 2014June 30, 2016, there were approximately 160178 holders of record of our common stock. This does not include beneficial owners holding stock in street name.
Dividend PolicyDividends
To date,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 not paid any cash dividends and our present policy isno plans to pay such dividends. Our Board of Directors currently intends to retain all earnings if any for use in our business.the business for the foreseeable future.
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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.
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| ITEM 6. | SELECTED FINANCIAL DATA |
Item 6. Selected Financial Data
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.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 7. Management’s Discussion and Analysis and Plan of Operation.
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 Operation
On August 14, 2012 Tempco, Inc.Reorganization (the “Registrant”) executed a Regional Developer Agreement (the “RDA”“Share Exchange Agreement”) and three franchise agreementsconsummated a share exchange (the “FA”“Share Exchange”) with ESIO Franchising, LLCiMetabolic Corp. (“EFL”IMET”) for, a Nevada corporation. The Effective Date of the Dallas/Fort Worth region of Texastransaction was March 16, 2015 (the “Territory”“Effective Date”) and three franchises therein. The Dallas/Fort Worth region has a population of over 7,700,000 people and over 2,800,000 households. Upon the execution of the RDA Registrant paid $250,000 cash to ESIO, including a credit of $70,000 from a payment made earlierresulted in the year on a deposit agreement covering 10 other regions with ESIO.
Registrant was to commence operationsacquisition of its Regional Development business and first 3 franchises within 1 year of the execution of the RDA. Further, Registrant was to sell or open 12 additional franchises in the Territory within the 10 year term of the RDA, the first two of which must be in operation within the third year after the execution of the RDA. Under the RDA once its three franchises are operating, Registrant was to receive 50% of the initial franchise fees ESIO received from its franchisees in the Territory and 40% of all royalties ESIO received from its franchisees in the Territory, excluding advertising fund payments.
IMET (the “Acquisition”). Pursuant to the terms of the RDAShare 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 FA RegistrantCompany.
As a further condition of the Share Exchange Agreement, the then current officers of the Company resigned on March 16, 2015 and future franchisees were to be marketingMark W. Conte was appointed President, CEO and servicing ESIO’s multi-serve beverage dispensing systemsa director of the Company, Kevin J. Pikero as CFO, Treasurer, Secretary, and beverage products for usea director and Andrew D. Smith as a director.
The IMET acquisition is discussed more fully in the homeForm 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, 2016 compared to fiscal year ended June 30, 2015.
General and office. The ESIO Beverage System included countertopAdministrative Expenses
For the fiscal years ended June 30, 2016 and floor stand beverage dispensers that conveniently offered any size hot2015, we have recorded operating expenses of $78,518 and cold drinks at$48,515, respectively, consisting primarily of general and administrative expenses along with professional fees all of which are associated with maintaining the touchCompany as a publicly traded entity.
Net Loss
For the fiscal years ended June 30, 2016 and 2015, we have recorded a net loss of a button. ESIO’s patented E-Paks delivered perfectly blended national brand$78,502 and private label juices, sport drinks, vitamin waters, teas$48,500, respectively.
| 11 |
Liquidity and coffees.Capital Resources
In February 2013 EFL and its parent, EHC, filed a Chapter 11 bankruptcy petition in U. S. Bankruptcy Court in Phoenix, Arizona. On August 15, 2013 the Chapter 11 petition was converted to a Chapter 7 petition. EFL’s conversion to a Chapter 7 petition made it unlikely that we would be able to develop our Dallas/Ft. Worth franchises in the future.
Currently, the Company’s business objective is to locate a suitable business combination opportunity. The Company does not currently engage in any business activities that generate cash flow. As of June 30, 20142016, the Company had current assets of $1,619 and working capital deficit of $(31,412). Over the next twelve months, we had approximately $146,000have estimated that in cash. We believe thisorder to maintain reporting company status as defined under the Securities Exchange Act of 1934, we will be sufficient to fund the costs of investigating and analyzing a suitable business combination or to fundrequire cash for general and administrative expenses for the next twelve months, however, if our efforts are unsuccessful within that time period, we will have to seek additional funds.
During the next 12 months we anticipate incurring costs related to:
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- 4 -
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, the Companywe may be unable to fund itsour operations. Accordingly, the Company’s financial condition could require that the Company seek the protection of applicable reorganization laws in order to avoid or delay actions by third parties, which could materially adversely affect, interrupt or cause the cessation of the Company’s operations. As a result, the Company’s independent registered public accounting firm has issued going concern opinions on the consolidated financial statements of the Company for
Accumulated Deficit & Stockholder’s Equity
For the fiscal years ended June 30, 20142016 and 2013.2015, the Company reported Accumulated Deficits of $139,840 and $61,338, respectively.
CRITICAL ACCOUNTING POLICIESFor the fiscal years ended June 30, 2016 and 2015, the Company reported Stockholders’ Equity (Deficits) of $(31,412) and $47,090, respectively.
“Management’s DiscussionOff-Balance Sheet Arrangements
During the fiscal years ended June 30, 2016 and Analysis2015, we did not engage in any off-balance sheet arrangements as set forth in Item 303(a)(4) of Financial Condition and Results of Operations ” (“MDA”) discusses ourthe Regulation S-K.
Critical Accounting Policies
Our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requiresAmerica, which require us to make estimates and assumptionsjudgments that significantly affect the reported amountamounts of assets, liabilities, revenues and liabilities at the date of the financial statements, theexpenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statementsstatements.Note 1, “Business, Basis of Presentation and Significant Accounting Policies” in the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to research and development costs, deferred income taxes and the impairment of long-lived assets. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The result of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; changes in these estimates as a result of future events may have a material effect on the Company’s financial condition. The SEC suggests that all registrants list their most “critical accounting policies” in MDA. A critical accounting policy is one which is both importantNotes to the portrayal of the Company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management believes the following critical accounting policies affect its more significant judgments and estimates in the preparation of its consolidated financial statements: The impairment of long-lived assets, stock based compensation, deferred income tax valuation allowances, pending or threatening litigation and the allocation of assets acquired and liabilities assumed in acquisitions.
Impairment or Disposal of long-lived assets.
In accordance with ASC 360 “Impairment or Disposal of Long-lived Assets”, the Company periodically evaluates whether events and circumstances have occurred that may indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair market value. DuringConsolidated Financial Statements for the year ended June 30, 2013, we recognized an impairment loss of $532,056.2016, describes our significant accounting policies which are reviewed by management on a regular basis.
Deferred tax assets.
In assessing the realizability 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.
Use of Estimates.
The preparation of financial statements in accordance 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 reportable amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
There are no revenues reflected in our financial statements for the years ended June 30, 2014 or 2013.
- 5 -
General and Administrative Expenses
For the years ended June 30, 2014 and 2013 we have recorded general and administrative expenses of $123,192 and $360,949, respectively. Our general and administrative expenses in the current year consist primarily of officer’s salaries, legal and accounting fees, and other costs associated with maintaining the company as a publicly traded entity. The decrease in the current year is the result of a decrease in consulting and professional fees. For the years ended June 30, 2014 and 2013, we have recorded Directors’ fees of $71,960 and $12,000, respectively. The current year directors’ fees include stock based compensation expense of $59,960 there was no similar expense in the prior year. We also recognized an impairment loss of $532,056 in relation to the Regional Development Agreement during the year ended June 30, 2013.
Net Loss
For the years ended June 30, 2014 and 2013, we have reflected net loss of $195,152 and $1,638,609, respectively.
Liquidity and Capital Resources
As of June 30, 2014 we have current assets of $153,457 and working capital of $147,231. Over the next twelve months we estimate in order to maintain reporting company status as defined under the Securities Exchange Act of 1934, we will require cash for expenses, which include accounting, legal and other professional fees, as well as filing fees.
Off-balance sheet arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our Company doesexposure to market risks is limited to changes in interest rates. We do not investuse 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 any market sensitivedebt instruments either foreign or domestic.other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 8. Financial Statements and Supplementary Data.
The financial statements and schedules are included herewith commencing on page F-1.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
| Report of Independent Registered Public Accounting Firm |
| 14 |
| - As of June 30, 2016 and 2015 |
| 15 |
| Income – Years ended June 30, 2016 and 2015 |
| 16 |
Consolidated Statements of |
| 17 |
| - Years ended June 30, 2016 and 2015 |
| 18 |
| 19-25 |
| 13 |
Item 9. Changes
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders’ equity (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 audit includes 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. An audit also includes 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 And Disagreements With Accountants our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2016 and 2015, and the 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 suffered losses from operations and negative operating cash flows which 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MALONEBAILEY, LLP
www.malone-bailey.com
October 13, 2016
| 14 |
| PART I. | FINANCIAL INFORMATION |
| Item 1. | Financial Statements |
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| As of June 30, | ||||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,619 | $ | 64,638 | ||||
| Total current assets | 1,619 | 64,638 | ||||||
| TOTAL ASSETS | $ | 1,619 | $ | 64,638 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 27,271 | $ | 11,788 | ||||
| Accrued liabilities | 5,760 | 5,760 | ||||||
| Total current liabilities | 33,031 | 17,548 | ||||||
| Total Liabilities | $ | 33,031 | $ | 17,548 | ||||
| Commitments | — | — | ||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Common stock, $.005 par value 200,000,000 authorized: 78,766,636 and 23,400,000 issued and outstanding as of June 30, 2016 and June 30, 2015, respectively | 393,833 | 393,833 | ||||||
| Preferred stock, $.01 par value 10,000,000 authorized: none issued and outstanding as of June 30, 2016 and June 30, 2015, respectively | — | — | ||||||
| Additional paid-in capital | (285,405 | ) | (285,405 | ) | ||||
| Accumulated deficit | (139,840 | ) | (61,338 | ) | ||||
| Total stockholders’ equity (deficit) | (31,412 | ) | 47,090 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 1,619 | $ | 64,638 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 15 |
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Years Ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| OPERATING EXPENSES: | ||||||||
| General and administrative | $ | 78,518 | $ | 47,465 | ||||
| Professional fees | — | 1,050 | ||||||
| Total Operating Expenses | 78,518 | 48,515 | ||||||
| OPERATING LOSS | (78,518 | ) | (48,515 | ) | ||||
| OTHER INCOME: | ||||||||
| Interest income | 16 | 15 | ||||||
| Total Other Income | 16 | 15 | ||||||
| NET LOSS | $ | (78,502 | ) | $ | (48,500 | ) | ||
| 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 | 78,766,636 | 65,349,763 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 16 |
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balances at June 30, 2014 | 23,400,000 | $ | 117,000 | $ | (110,250 | ) | $ | (12,838 | ) | $ | (6,088 | ) | ||||||||
| Common stock issued for cash | 36,600,000 | 183,000 | (176,800 | ) | — | 6,200 | ||||||||||||||
| Common stock issued for cash | 200,000 | 1,000 | 9,000 | — | 10,000 | |||||||||||||||
| Common stock retained pursuant to the Reverse Merger | 18,566,636 | 92,833 | (7,455 | ) | — | 85,378 | ||||||||||||||
| Contributed capital | — | — | 100 | — | 100 | |||||||||||||||
| Net loss | — | — | — | (48,500 | ) | (48,500 | ) | |||||||||||||
| 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 | ) | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 17 |
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (78,502 | ) | $ | (48,500 | ) | ||
| Adjustment to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable | 15,483 | (3,350 | ) | |||||
| Prepaid expenses | — | 4,661 | ||||||
| Net Cash Used In Operating Activities | (63,019 | ) | (47,189 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash received from Esio in Reverse Merger | — | 89,615 | ||||||
| Net Cash Provided By (Used In) Investing Activities | — | 89,615 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock | — | 16,200 | ||||||
| Proceeds from contributed capital | — | 100 | ||||||
| Net Cash Provided By Financing Activities | — | 16,300 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (63,019 | ) | 58,726 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 64,638 | 5,912 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,619 | $ | 64,638 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Net asset loss assumed in reverse merger | — | 4,237 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 18 |
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 no cash equivalents.
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.
| 19 |
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES; GOING CONCERN (Continued)
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.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share as required by Accounting And Financial Disclosure.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, 2016 and 2015, the impact of outstanding stock equivalents was 10,258,245 and 11,518,245, respectively, which were excluded from the calculation of diluted EPS due to their anti-dilutive effect.
None.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 - 6Stock 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, 2016 and 2015, respectively. Also during the years ended June 30, 2016 and 2015, 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.
| 20 |
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES; GOING CONCERN (Continued)
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, 2016 and 2015.
Recently Issued Accounting Pronouncements
Other 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. 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.
| 21 |
Item 9A. Controls
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES; GOING CONCERN (Continued)
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 Procedures.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
During the fiscal year ended June 30, 2015, a shareholder contributed $100 to the Company to cover a deficit in the Company’s checking account. For the fiscal year ended June 30, 2016, the President has provided the Company rent at no charge.
NOTE 3 – 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, 2016 and 2015 deferred tax assets consist of the following:
| 2016 | 2015 | |||||||
| Federal loss carryforwards | $ | 48,944 | $ | 21,468 | ||||
| State loss carryforwards | — | — | ||||||
| Other | — | — | ||||||
| 48,944 | 21,468 | |||||||
| Less: valuation allowances | — | (21,468 | ) | |||||
| $ | 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, 2016 and 2015, the Company's likely Federal and State net operating loss carryforwards were $139,840 and $61,338, respectively. The Company provided a valuation allowance equal to the deferred income tax asset for the year ended June 30, 2016 and 2015 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.
NOTE 4 – STOCKHOLDERS’ EQUITY
Authorized Shares
At June 30, 2016, 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, 2016 and 2015, there were 78,766,636 and 78,766,636 shares of Common Stock issued and outstanding, respectively, and no shares of Preferred Stock issued and outstanding.
| 22 |
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)
Common Stock
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, 2016.
Common Stock Issuances
During the fiscal years ended June 30, 2016 and 2015, the Company recorded the issuance of shares of Common Stock as follows:
| (a) | Effective as of July 1, 2014, the Company issued 36,600,000 shares of its Common Stock for cash of $6,200. | |
| (b) | Effective as of February 2, 2015, the predecessor company issued 200,000 shares of Common Stock for cash of $10,000. | |
| (c) | Effective as of March 16, 2015, as part of the Reverse Merger, 18,566,636 shares of Common Stock were retained by the shareholders of the predecessor company. |
Options and Warrants
The Company did not issue any options or warrants during the years ended June 30, 2016 and 2015, respectively. As of March 16, 2015, the effective date of the Reverse Merger, the Company had 3,522,767 options outstanding pursuant to the predecessor company’s 1999 Equity Compensation Plan, of which 1,420,000 options have expired, leaving 2,102,767 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. These warrants expire in 2017. 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.
| 23 |
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)
Options Granted by Predecessor Company Prior to Reverse Merger (Continued)
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, 2014 | 3,522,767 | $ | 0.15 | ||
| Granted | — | — | |||
| Exercised | — | — | |||
| Expired | (160,000 | ) | 0.51 | ||
| Forfeited | — | — | |||
| 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 | ||
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 1,200,000 options were granted to directors on February 3, 2014 and are exercisable at $0.05 for 5 years.
| 24 |
UPD HOLDING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)
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, 2016 is as follows:
| Weighted | ||||||
| Number of | Average | |||||
| Shares | Exercise Price | |||||
| Warrants outstanding - June 30, 2014 | 8,155,478 | $ | 0.75 | |||
| Granted | — | — | ||||
| Expired | — | — | ||||
| Warrants outstanding - June 30, 2015 | 8,155,478 | $ | 0.75 | |||
| Granted | — | — | ||||
| Expired | — | — | ||||
| Warrants outstanding – June 30, 2016 | 8,155,478 | $ | 0.75 | |||
All the warrants outstanding as of June 30, 2016 are exercisable and expire in 2017.
NOTE 5 – SUBSEQUENT EVENTS
| 1. | On July 1, 2016 the Company sold 1,000,000 shares of its common stock at $0.025 per share in a private placement to raise additional working capital. |
| 2. | 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. This $65,000 escrow was funded by two private placements which have convertible notes associated with them. The notes are convertible on March 1, 2017 at $0.0125 per share. $15,000 of the $65,000 private placement was funded by the Company’s President. |
| 25 |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) ofWe conducted an evaluation under the Securities Exchange Act of 1934 as amended (the “Exchange Act”), as of the end of the period covered by thisAnnual Report on Form 10-K, the Company’s management evaluated,supervision and with the participation of the Company’s principal executiveour management, including our Chief Executive Officer and financial officer,Chief Financial Officer, of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures. The term “disclosure controls and procedures, (as” as defined in RuleRules 13a-15(e) or Ruleand 15d-15(e) under the Exchange Act). Disclosure controls and procedures are defined as thoseAct, means controls and other procedures of an issuera company that are designed to ensure that the information required to be disclosed by the issuercompany 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 an issuera company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’scompany’s management, including its principal executive officer and principal financial officer,officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on theirthis evaluation, of these disclosure controlsour Chief Executive Officer and procedures, the Company’s chairman of the board and chief executive and financial officer haveChief Financial Officer concluded that, theas of June 30, 2016, our disclosure controls and procedures were not effective asdue to the size and nature of the dateexisting business operation. Given the size of such evaluationour current operation and existing personnel, the opportunity to ensureimplement internal control procedures that material information relatingsegregate 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 Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly duringsize of the period in which thisAnnualcurrent organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.
Management’s Report on Form 10-K was being prepared.
Internal Control Overover Financial Reporting
Management of the CompanyOur management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internalreporting for the Company. Internal control over financial reporting has been designed(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 and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America,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 being made only in accordance with authorization of management authorization; and directors of the Company; and provideproviding reasonable assurance regarding prevention or timely detection ofthat unauthorized acquisition, use or disposition of the Company’scompany assets that could have a material effect on the Company’sour financial statements.statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting mayis not preventintended to provide absolute assurance that a misstatement of our financial statements would be prevented or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projectionsdetected. Also, projections of any evaluation of effectiveness to future periods are subject to the riskrisks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessedconducted an evaluation of the effectiveness, as of the Company’sJune 30, 2016, of our internal control over financial reporting atbased 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, 2014. Management has determined that, at June 30, 2014,2016, our disclosure controls and procedures were not effective due to the Company’ssize and nature of the existing business operation. Given the size of our current operation and existing personnel, the opportunity to implement internal control over financial reporting were effective.
This annual report doesprocedures 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 include an attestation reportbe implemented until they can be effectively executed and monitored. As a result of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rulessize of the SEC that permit the Company to provide only management’s report in this annual report.current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.
| 26 |
Changes in Internal Control overOver Financial Reporting.Reporting
There have not been changesDuring the fiscal year ended June 30, 2016, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of fiscal 2014 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.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, 2016.
| ITEM 9B. | OTHER INFORMATION |
None.
| 27 |
- 7 -
PART III
Item 10. Directors, Executive
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Appointment of New Officers and Corporate GovernanceDirectors
Information regarding our directors and executive officer is provided below:
ANDREW ECCLESTONE, age 52,In connection with the Share Exchange Agreement, Mark W. Conte was electedappointed as a Director of the Company on May 18, 2011. He was also elected as Chairman of the Board of Directors on that date. On August 26, 2013, he was also named as the Company’sPresident, Chief Executive Officer and President. Mr. Ecclestone is presently the portfolio manager of Mountainview Asset Management, a private investment fund in Toronto, Canada, which he founded in June 2002. From October 2000 to May 2002, he was the portfolio manager of Thomson Kernaghan Company Ltd, in Toronto, Canada. From June 1999 to September 2000, Mr. Ecclestone was the corporate finance consultant for Storm Investment Management Ltd. in North York, Ontario, Canada. Mr. Ecclestone received a Bachelor of Technology Degree, in industrial engineering, from the Ryerson Polytechnical Institute, Toronto, Canada, in 1985 and an M.B.A. from York University, North York, Ontario, in 1988. He has been a Chartered Financial Analyst since 1998.
FRED BURSTEIN, age 79, has been a director and officer of the company since February 4, 2008, becoming Chief Executive Officer on May 18, 2011 and serving in that position until April 12, 2012, when he resigned his position as an Officer. He continues as a director of the Company.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 | 55 | President, Chief Executive Officer, Director | March 16, 2015 | |||||
| Kevin J. Pikero | 60 | Chief Financial Officer, Director | March 16, 2015 | |||||
| Andrew D. Smith | 57 | Director | March 16, 2015 | |||||
Mark W. Conte. Mr. Burstein has beenConte is a lawyer since 1960 practicing lawbusiness professional and entrepreneur in Minneapolis, Minnesota. He holds both his Juris DoctorReno, Nevada with over 25 years of experience in marketing and Business Administration degrees fromoperations 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 Minnesota.Nevada at Reno with a B.S. in Finance.
KIMBERLY CONLEY, age 47, was elected Chief Financial Officer on April 12, 2012. Since May 2007, Ms. Conley has beenKevin 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 as an independent contractor to various companies, including the Company. From December 1999 to May 2007, she was employed by Semple Marchalfor a select domestic and international clientele of corporations, partnerships, sole proprietors, and individuals. Mr. Pikero’s professional history includes employment with: Haims & Cooper, LLP providing accountingCompany – (CPAs); E.F. Hutton Credit Corp.; Barclays Business Credit Inc.; Truckee River Bank; Bank of America Community Development Bank; and auditing services. Ms. Conley receivedUnited American Funding, Inc. Mr. Pikero is a Bachelorgraduate of ScienceBentley University with a B.S. in Criminal Justice from Northern Arizona University in 1993. She has been a certified public accountant since 2003.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)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, Exchange ActInc. (formerly Kemper Securities, Inc., 1993 to 1996), where he was the founder and co-head of 1934,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 amended, requires our directorsa General Securities Representative (Series 7), General Securities Principal (Series 24), and executivea 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.”
| 28 |
Employment Contracts
There are no employment agreements between the Company and its officers as well as persons beneficially owning more than 10% of our outstanding common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”) within specified time periods. Such officers, directors and shareholders are also required to furnish us with copies of all Section 16(a) forms they file.directors.
Based solely on its review of such forms received by us, or written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to our officers, directors and 10% shareholders were complied with during the fiscal year ended June 30, 2014; except Donald Schreifels became a beneficial owner of more than 10% in June 2012 and has not yet filed the forms with the SEC.
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. We have two directors, Fred Burstein and Andrew Ecclestone whoOur Board of Directors make all decisions that an audit committee would ordinarily make. We have no independent members of our Board of Directors and accordingly, we have determined that the Company does not have a member of its Board of Directors (or Audit Committee) that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K, or who is “independent” as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.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.
- 8 -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 effected 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 2015 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.
| 29 |
Item 11. Executive Compensation.
| ITEM 11. | EXECUTIVE COMPENSATION |
Summary Compensation Table
The following table summarizes allsets forth the compensation awarded to, earned by or paid to our Chief Executive Officers foreach named executive officer during each of the fiscal years ended June 30, 20142016 and 2013. We did not have any other executive officers whose total annual salary and bonus exceeded $100,000 for the periods presented.2015.
Summary Compensation Table
|
|
|
|
|
|
| All other |
|
|
| |
|
|
|
| Salary |
| Compensation |
| Total | |||
Name and Principal Position |
| Year |
| ($) |
| ($)(2) |
| ($) | |||
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Ecclestone, Chairman of the Board, |
| 2014 |
| $ | — |
| $ | 29,980 |
| $ | 29,980 |
Principal Executive Officer (1) |
| 2013 |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Anthony Silverman, Principal Executive Officer (3) |
| 2013 |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Fred Burstein, Director |
| 2014 |
| $ | 12,000 |
| $ | 29,980 |
| $ | 41,980 |
|
| 2013 |
| $ | 12,000 |
| $ | — |
| $ | 12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Kimberly A Conley, Principal Accounting Officer |
| 2014 |
| $ | 42,000 |
| $ | — |
| $ | 42,000 |
|
| 2013 |
| $ | 44,000 |
| $ | — |
| $ | 44,000 |
___________________
| All Other | ||||||||||||||||
| Salary | Compensation | Total | |||||||||||||
| Name and Principal Position | Year | ($) | ($) | ($) | ||||||||||||
| Andrew Ecclestone (1) | 2016 | $ | — | $ | — | $ | — | |||||||||
| Chairman of the Board, Principal Executive Officer | 2015 | — | — | — | ||||||||||||
| Fred Burstein (2) | 2016 | — | — | — | ||||||||||||
| Director | 2015 | — | — | — | ||||||||||||
| Kimberly A Conley (2) | 2016 | — | — | — | ||||||||||||
| Principal Accounting Officer | 2015 | — | — | — | ||||||||||||
| Mark W. Conte (3) | 2016 | — | — | — | ||||||||||||
| President, Chief (Principal) Executive Officer, Director | 2015 | — | — | — | ||||||||||||
| Kevin J. Pikero (3) | 2016 | — | — | — | ||||||||||||
| Chief (Principal) Financial Officer and Director | 2015 | — | — | — | ||||||||||||
| Andrew D. Smith (3) | 2016 | — | — | — | ||||||||||||
| Director | 2015 | — | — | — |
_________________
| (1) | Mr. Ecclestone began serving as the Principal Executive Officer and President on August 26, 2013. He resigned on March 16, 2015. |
| (2) | Mr. Burstein and Ms. Conley resigned 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.
| 30 |
| Table of |
| Index to Financial Statements |
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.
Following is information regarding outstanding equity awards for each of our named executive officers as of the fiscal year ended June 30, 2014:
Outstanding Equity Awards at Fiscal Year End
|
| Option Awards | ||||
Name |
| Number of securities |
| Option |
| Option |
|
|
|
|
|
|
|
Andrew Ecclestone |
| 250,000 |
| $ 0.25 |
| 7/11/2016 |
Andrew Ecclestone |
| 600,000 |
| $ 0.05 |
| 2/03/2019 |
Fred Burstein |
| 250,000 |
| $ 0.25 |
| 7/11/2016 |
Fred Burstein |
| 600,000 |
| $ 0.09 |
| 2/28/2016 |
Fred Burstein |
| 600,000 |
| $ 0.05 |
| 2/03/2019 |
Item 12. Security Ownership Of Certain Beneficial Owners And Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table sets forth, information regarding the number of shares of our common stock that may be issued pursuant to our equity compensation plans or arrangements as of the end of fiscal 2014.
- 9 -
Plan Category |
| Number of Securities |
| Weighted-Average |
| Number of Securities Remaining Available For Future Issuance Under |
|
|
|
|
|
|
|
Equity compensation plans approved by security holders |
| None (1) |
| $ — |
| 600,000 (3) |
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders |
| 3,272,767 (2) |
| $ 0.57 |
| — |
|
|
|
|
|
|
|
TOTAL |
| 3,272,767 |
| $ 0.57 |
| 600,000 |
___________________
|
|
|
|
|
|
Security Ownership of Certain Beneficial Owners
The following table sets forthJune 30, 2016, certain information as of September 28, 2014 concerning theregarding beneficial ownership of shares of Common Stock ofour capital stock according to the Companyinformation supplied to us, that were beneficially owned by (i) each person known by the Company to beneficially ownbe the beneficial owner of more than 5% of each class of the Company’s Common Stock;outstanding voting stock, (ii) each Director;director, (iii) each named executive officer identified in the Company’s Chief Executive Officer;Summary Compensation Table, and (iv) all directors andnamed executive officers of the Companyand directors as a group. ToExcept as otherwise indicated, the knowledge of the Company, all persons listednamed in the table have sole voting and investmentdispositive power with respect to theirall shares exceptbeneficially owned, subject to the extentcommunity property laws where applicable. There are not any pending or anticipated arrangements that authority is shared with their respective spouse under applicable law.may cause a change in control.
|
| Shares Beneficially Owned (1) | ||
Name and Address of Beneficial Owner(2) |
| Number |
| Percent of Class |
|
|
|
|
|
Anthony Silverman |
| 2,404,380 |
| 13.0% |
Fred Burstein (5) |
| 1,479,151 |
| 7.4% |
Andrew Ecclestone (3) |
| 850,000 |
| 4.4% |
Donald Schreifels (4) |
| 3,299,500 |
| 16.0% |
Kimberly Conley |
| 52,000 |
| 0.3% |
Executive officers as a group |
| 2,381,151 |
| 11.4% |
|
| Amount and Nature of Beneficial Ownership | ||||
| Name and Address of Beneficial Owner (1) | Nature of Security | Number of Shares | Percentage of Common Stock (1) | |||
| 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) | 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 |
| (2) | Share percentages reflect single digit rounding. Actual share ownership to two decimal points is less than 5.0%. |
| 31 |
- 10 -
|
|
|
|
|
|
Item 13. Certain Relationships And Related Transactions, and Director Independence.
The Company did not have any transactions during fiscal years 20142016 and 20132015 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
DuringAlthough the year ended June 30, 2014Company is not listed on a national securities exchange, in determining whether the members of our directors were Fred Burstein and Andrew Ecclestone. Only Mr. Burstein would be considered “independent”.
“Independent director” means a person other than an executive officer or employeeBoard are independent, the Company has elected to use the definition of the company or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent:
(A) a director who is, or at any time during the past three years was, employed“independence” set forth by the company;
(B) aNASDAQ Stock Market (“NASDAQ”) and the standards for independence established by NASDAQ. After review of relevant transactions or relationships between each director, who accepted or who has a Family Member who accepted any compensation from the company in excess of $100,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
|
| |
|
| |
|
|
Provided, however, that in addition to the requirements contained in this paragraph (B), audit committee members are also subject to additional, more stringent requirements under Rule 4350(d).
(C) a director who is a Family Member of an individual who is, or at any time during the past three years was, employed by the company as an executive officer;
(D) a director who is, or has a Family Member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services in the current or any of his family members, and the past three fiscal yearsCompany, its senior management and the Board, have determined that exceed 5%Andrew D. Smith is an independent director within the meaning of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other thanapplicable listing standards of NASDAQ. Mark W. Conte and Kevin J. Pikero are not independent directors under the following:NASDAQ standard based in part on their positions as executive officers and employees of the Company.
(E) a director of the issuer who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the issuer serve on the compensation committee of such other entity; or
- 11 -
(F) a director who is, or has a Family Member who is, a current partner of the company’s outside auditor, or was a partner or employee of the company’s outside auditor who worked on the company’s audit at any time during any of the past three years.
(G) in the case of an investment company, in lieu of paragraphs (A)–(F), a director who is an “interested person” of the company as defined in Section 2(a)(19) of the Investment Company Act of 1940, other than in his or her capacity as a member of the board of directors or any board committee.
Item 14. Principal Accountant Fees and Services.
The following table sets forthsummarizes the aggregate fees billed to usthe Company by our auditors duringMaloneBailey, LLP in relation to the audits and quarterly reviews of the Company for the fiscal years ended June 30, 20142016 and 2013 for: (i)2015:
| Year Ended June 30, 2016 | Year Ended June 30, 2015 | |||||||
| Audit Fees (1) | $ | 14,000 | $ | 8,000 | ||||
| Audit-Related Fees (2) | $ | 0 | $ | 0 | ||||
| Tax Fees (3) | $ | 0 | $ | 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 rendered forprovided by MaloneBailey, LLP during the audit of our annual financial statementsfiscal year ended June 30, 2016 and the reviewamounts billed for such services, and after consideration, has determined that the receipt of our quarterly financial statements, (ii)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 our auditors that are reasonably relatedthe U.S. Securities and Exchange Commission to implement the performanceSarbanes-Oxley Act of 2002, as well as under guidelines of the audit or reviewAmerican Institute of our financial statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees for services rendered.Certified Public Accountants.
|
|
| June 30, 2014 |
| June 30, 2013 |
|
|
|
|
|
|
(i) | Audit Fees |
| $ 12,500 |
| $ 12,500 |
(ii) | Audit Related Fees |
| — |
| — |
(iii) | Tax Fees |
| — |
| — |
(iv) | All Other Fees |
| — |
| — |
| 32 |
Audit Committee Pre-Approval Policies and Procedures
The entire boardBoard of directorsDirectors 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 boardBoard of directorsDirectors 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, 20142016 and has concluded that such services are compatible with such firm’s independence.
- 12 -
| 33 |
PART IV
Item 15. Exhibits.
The exhibits as indexed immediately following the signature page of this Report are included as part of this Form 10-K.
EXHIBIT INDEX
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Exhibit Number | Description | |||
|
|
|
| |
| 2.1 | Share Exchange Agreement, dated December 31, 2014, by and among Esio Water & Beverage Development Corp. and iMetabolic Corp.(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed March 20, 2015). | |||
| Subsidiaries of the Registrant | |||
| 31.1* | Certification of Chief Executive Officer pursuant to |
|
| |
| Certification of Chief Financial Officer pursuant to |
|
| |
| Certification |
|
| |
|
| 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 |
Financial Statement Schedules
None.
|
|
| Table of Contents | |||
|
|
|
|
___________________
|
|
| In accordance with |
- 13 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, of 1934, the Registrantregistrant caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized.
| UPD HOLDING CORP. | ||
| Date: October 13, 2016 | By: | /s/ Mark W. Conte |
| Mark W. Conte | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: October 13, 2016 | By: | /s/ Kevin J. Pikero |
| Kevin J. Pikero | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
Esio Water & Beverage Development Corp.
/s/ Andrew Ecclestone
Andrew Ecclestone, President and Chief Executive Officer
(Principal Executive Officer)
Dated: October 14, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this Reportreport has been signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on the dates indicated.
| Name | Title | Date | ||
|
|
| ||
/s/ |
|
| ||
| ||||
|
|
| ||
|
| |||
| President, Chief Executive Officer, | October | ||
Mark W. Conte | (Principal Executive Officer) | |||
| /s/ Kevin J. Pikero | Chief Financial Officer, Director | October 13, 2016 | ||
| Kevin J. Pikero | (Principal Financial Officer) | |||
| /s/ Andrew | Director | October 13, 2016 | ||
| Andrew D. Smith | ||||
- 14 -
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
REPORTFILED PURSUANT TO SECTION 15(d) OF INDEPENDENTTHE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED PUBLIC ACCOUNTING FIRMSECURITIES PURSUANT TO SECTION 12 OF THE ACT
To the Board of Directors
Esio Water & Beverage Development Corp.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Esio Water & Beverage Development Corp. and its subsidiaries (a development stage company) (collectively, the “Company”) as of June 30, 2014 and 2013 and the related consolidated statements of expenses, shareholders’ equity (deficit), and cash flows for the years then ended. These 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 also 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 financial statements referred to above present fairly, in all material respects, the financial position of Esio Water & Beverage Development Corp. and its subsidiaries as of June 30, 2014 and 2013 and the 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 financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered reoccurring losses since inception, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ MALONEBAILEY, LLP
MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
October 14, 2014
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
CONSOLIDATED BALANCE SHEETS
|
| June 30, |
| June 30, |
| ||
|
| 2014 |
| 2013 |
| ||
|
|
|
|
|
|
|
|
ASSETS | |||||||
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 146,086 |
| $ | 280,903 |
|
Prepaid expenses |
|
| 7,371 |
|
| 9,375 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 153,457 |
|
| 290,278 |
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 153,457 |
| $ | 290,278 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 466 |
| $ | 2,095 |
|
Accrued liabilities |
|
| 5,760 |
|
| 5,760 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 6,226 |
|
| 7,855 |
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 6,226 |
|
| 7,855 |
|
|
|
|
|
|
|
|
|
Commitments: |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
Common stock, $.005 par value 200,000,000 authorized; 18,566,636 issued and outstanding as of June 30, 2014 and 2013 |
|
| 92,833 |
|
| 92,833 |
|
Additional paid in capital |
|
| 14,968,014 |
|
| 14,908,054 |
|
Accumulated deficit prior to reentering the development stage |
|
| (11,160,829 | ) |
| (11,160,829 | ) |
Deficit accumulated in the development stage |
|
| (3,752,787 | ) |
| (3,557,635 | ) |
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
| 147,231 |
|
| 282,423 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
| $ | 153,457 |
| $ | 290,278 |
|
The accompanying notes are an integral part of these consolidated financial statements
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| June 30, |
| ||||
|
| 2014 |
| 2013 |
| ||
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
General and administrative |
| $ | 123,192 |
| $ | 360,949 |
|
Directors fees |
|
| 71,960 |
|
| 12,000 |
|
Impairment expense |
|
| — |
|
| 532,056 |
|
Operating loss |
|
| 195,152 |
|
| 905,005 |
|
|
|
|
|
|
|
|
|
Net loss from operations |
|
| (195,152 | ) |
| (905,005 | ) |
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
Interest expense |
|
| — |
|
| (733,554 | ) |
|
|
| — |
|
| (733,554 | ) |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| — |
|
| (50 | ) |
|
|
|
|
|
|
|
|
Net Loss |
| $ | (195,152 | ) | $ | (1,638,609 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
| $ | (0.01 | ) | $ | (0.09 | ) |
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding |
|
| 18,566,636 |
|
| 18,222,741 |
|
The accompanying notes are an integral part of these consolidated financial statements
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT
|
| Common Stock |
| Treasury Stock |
| Additional |
| Accumulated |
| Deficit |
|
|
| ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Stage |
| 2008 |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2012 |
| 15,490,016 |
| $ | 77,450 |
| — |
| $ | — |
| $ | 13,944,172 |
| $ | (11,160,829 | ) | $ | (1,919,026 | ) | $ | 941,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for the cancellation of an option |
| — |
|
| — |
| — |
|
| — |
|
| (15,000 | ) |
| — |
|
| — |
|
| (15,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of notes payable and accrued interest |
| 2,656,620 |
|
| 13,283 |
| — |
|
| — |
|
| 650,874 |
|
| — |
|
| — |
|
| 664,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued as a sweetener for early conversion |
| — |
|
| — |
| — |
|
| — |
|
| 168,177 |
|
| — |
|
| — |
|
| 168,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for services |
| — |
|
| — |
| — |
|
| — |
|
| 69,931 |
|
| — |
|
| — |
|
| 69,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
| 520,000 |
|
| 2,600 |
| — |
|
| — |
|
| 127,400 |
|
| — |
|
| — |
|
| 130,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finders fees |
| — |
|
| — |
| — |
|
| — |
|
| (13,000 | ) |
| — |
|
| — |
|
| (13,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares issued for cash |
| (100,000 | ) |
| (500 | ) | — |
|
| — |
|
| (24,500 | ) |
| — |
|
| — |
|
| (25,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,638,609 | ) |
| (1,638,609 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013 |
| 18,566,636 |
|
| 92,833 |
| — |
|
| — |
|
| 14,908,054 |
|
| (11,160,829 | ) |
| (3,557,635 | ) |
| 282,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
| — |
|
| — |
| — |
|
| — |
|
| 59,960 |
|
| — |
|
| — |
|
| 59,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (195,152 | ) |
| (195,152 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014 |
| 18,566,636 |
| $ | 92,833 |
| — |
| $ | — |
| $ | 14,968,014 |
| $ | (11,160,829 | ) | $ | (3,752,787 | ) | $ | 147,231 |
|
The accompanying notes are an integral part of these consolidated financial statements
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the Year Ended |
| ||||
|
| June 30, |
| ||||
|
| 2014 |
| 2013 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
| $ | (195,152 | ) | $ | (1,638,609 | ) |
Adjustments to reconcile net loss to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
Stock based compensation |
|
| 59,960 |
|
| 152,308 |
|
Amortization of intangilbes |
|
| — |
|
| 40,056 |
|
Amortization and depreciaton |
|
| — |
|
| 46,146 |
|
Amortization of beneficial conversion feature |
|
| — |
|
| 597,703 |
|
Financing expense due to sweetener for conversion of debt |
|
| — |
|
| 85,800 |
|
Impairment expense |
|
| — |
|
| 532,056 |
|
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
Prepaid expenses |
|
| 2,004 |
|
| (7,033 | ) |
Accounts payable |
|
| (1,629.00 | ) |
| (21,860 | ) |
Accounts payable-related party |
|
| — |
|
| (2,027 | ) |
Accrued liabilities |
|
| — |
|
| 3,905 |
|
Net cash used by operating activities |
|
| (134,817 | ) |
| (211,555 | ) |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchase of intangible asset |
|
| — |
|
| (225,000 | ) |
Net cash provided by (used) by investing activities |
|
| — |
|
| (225,000 | ) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from sale of common stock |
|
| — |
|
| 117,000 |
|
Disbursement for repurchase of common stock |
|
| — |
|
| (25,000 | ) |
Cash paid for the cancellation of an option |
|
| — |
|
| (15,000 | ) |
Net cash provided by financing activities |
|
| — |
|
| 77,000 |
|
Net change in cash and cash equivalents |
|
| (134,817 | ) |
| (359,555 | ) |
Cash and cash equivalents at beginning of year |
|
| 280,903 |
|
| 640,458 |
|
Cash and cash equivalents at end of period |
| $ | 146,086 |
| $ | 280,903 |
|
|
|
|
|
|
|
|
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | — |
| $ | 50 |
|
Cash paid for interest |
| $ | — |
| $ | — |
|
Non Cash Investing and Financing Activities of common stock |
| $ | — |
| $ | 664,157 |
|
The accompanying notes are an integral part of these consolidated financial statements
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization, Basis of Presentation, Description of Business and Principles of Consolidation
Esio Water & Beverage Development Corp. (“the Company” or “ESWB”) 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 Vitrix, Inc. in October 1999, to Time America, Inc. in December 1993, then to NETtime Solutions, Inc. in January 2007. The name was changed again on February 4, 2008 to Tempco, Inc. The consolidated financial statements include the accounts of ESWB and its wholly-owned subsidiaries (collectively, “We” “Our” or the “Company”), NETtime Solutions, Inc. an Arizona corporation, and Net Edge Devices, LLC, an Arizona Limited Liability Company. All intercompany accounts and transactions have been eliminated in consolidation. The company is a Development stage Company, as defined by accounting Standards Codification 915, Development Stage Entities.
On April 11, 2012, the Company entered into a Regional Developer Deposit Agreement with ESIO Franchise, LLC. The Agreement gave the Company the option to purchase up to ten regional franchise areas for the sale of ESIO franchises, as well as requiring the Company to operate three franchises within the optioned areas. The Company planned to market and service ESIO’s multi-serve beverage dispensing system and beverage products for use in the home and office. In connection with that agreement, the Company changed its name to Esio Water & Beverage Development Corp. in January 2013. We were unsuccessful in that endeavor.
The Company intends to locate and combine with an existing company that is profitable or which, in management’s view, has growth potential, irrespective of the industry in which it is engaged. A combination may be structured as a merger, consolidation, exchange of the Company’s common stock for stock or assets or any other form, and continue to seeking to negotiate and consummate a combination or merger with another business.
Note 2 – Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Companyregistrant has not yet established an ongoing source of revenue sufficientsent to cover its operating costs and allow it to continue as a going concern. The ability ofsecurity holders any annual report covering the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (i) obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses; (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities; and (iii) seeking out and completing a merger with an existing operating company. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attaining profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 or revenues and expenses during the period. Actual results could differ from those estimates. Significant estimates include deferred income taxes and fair value of stock-based compensation. It is at least reasonably possible a material change in these estimates may occur in the near term.
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Beneficial Conversion Features
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 deferred financing costs are 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.
Stock-Based Compensation
We account for share-based awards to employees in accordance with ASC 718 “Stock Compensation”. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the period in which the related services are rendered.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be all highly liquid investments purchased with an initial maturity of three months or less.
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 Financing Costs
Debt financing costs are amortized over the contractual term of the underlying note payable using the effective interest method. If debt is retired prior to the end of its contractual term, the unamortized deferred financing costs are expensed in the period of the retirement to interest expense.
Impairment of Long Lived Assets
Impairment losses are to be recognized when the carrying amount of a long lived asset is not recoverable or exceeds its fair value. The Company evaluates its long lived assets for impairment whenever events or changes in circumstances indicate that a carrying value may not be recoverable. The Company uses estimates of future cash flows over the remaining useful life of a long lived asset or asset group to determine the recoverability of the asset. These estimates only include the net cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the asset or asset group. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. During theregistrant’s fiscal year ended June 30, 2013, the Company recorded an impairment loss of $532,056 related to an intangible asset.2016.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, accounts payable and other accrued expenses and notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at June 30, 2013 and 2012. The fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 35 |
Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter.
The Company does not have any assets or liabilities measured at fair value on a recurring basis as of June 30, 2014 and 2013.
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, 2014 and 2013.
Income (Loss) Per Share:
Diluted income (loss) per share is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Potentially dilutive securities are options and warrants that are exercisable into common stock and convertible notes payable. Dilutive securities are not included in the weighted average number of shares when inclusion would increase the income per share or decrease the loss per share. At June 30, 2014 and 2013, there were options and warrants outstanding to purchase 11,426,245 and 10,872,765, respectively, shares of the Company’s common stock. At June 30, 2014 and 2013, there were no potentially dilutive securities included in the calculation as their effect was anti-dilutive.
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements as follows:
|
| Loss |
| Shares |
| Per Share |
| ||
|
| (Numerator) |
| (Denominator) |
| Amount |
| ||
Basic and diluted loss per share |
|
|
|
|
|
|
|
|
|
For the year ended June 30, 2014 |
| $ | (195,152 | ) | 18,566,636 |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
|
For the year ended June 30, 2013 |
| $ | (1,638,609 | ) | 18,222,741 |
| $ | (0.09 | ) |
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. In the year ended August 31, 2014, the Company elected to early adopt ASU 2014-10 and removed the inception to date information and all reference to development stage.
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Intangible Assets
On August 14, 2012 the Company executed the Regional Developer Agreement (the “RDA”) and three franchise agreements (the “FA”) with ESIO Franchising, LLC (“EFC”) for the Dallas/Fort Worth region of Texas (the “Territory”) and three franchises therein. The Company paid $225,000 cash to EFC and issued a warrant valued at $299,612 in the year ended June 30, 2012 toward the purchase of the RDA and FA and $25,000 towards legal fees associated with the agreements. The agreements have a ten year term with an option to renew for two additional ten year periods.
On November 1, 2012 we entered into the Second Amendment to Regional Development Deposit Agreement with ESIO Franchising, LLC which delayed the dates which we must purchase our second and subsequent regional developer areas from EFC for an additional three months from November 1, 2012. The expiration dates for the five regional areas commenced on February 1, 2013 with the next region option expiring every 3 months thereafter through December 1, 2013. We paid $25,000 to EFC for this region option extension, of which $22,500 was to be credited against the purchase price of a region we acquired from EFC, and the balance of $2,500 related to legal fees for the agreement. In addition, we had an option to purchase Regional Development Franchises in the following Optioned Areas in the State of California: San Francisco, CA –Bay Area and Eureka; Sacramento, CA and Chico, Reno, Nevada; Orange County, CA; San Diego and Imperial, California; and Northwest Los Angeles, CA – Ventura to San Luis Obispo. The option period for each of the optioned areas in the State of California commenced on June 25, 2012, with the effective registration of the 2012 Franchise Disclosure Document with the state of California (“the Registration Date”) and expired June 25, 2013.
On February 25, 2013, we were notified that Esio Holding Company, LLC and Esio Franchising, LLC a subsidiary of EHC, filed a Chapter 11 petition in U.S. Bankruptcy Court, District of Arizona (Phoenix), on February 22, 2013.
Through the period ended March 31, 2013, the Company had recorded amortization expense in the amount of $40,056 in relation to the license agreements.
Additionally, at that time, due to the bankruptcy proceeding, the company evaluated the carrying value of the license agreement and had determined that the undiscounted future cash flows are insufficient to recover the carrying value of the license agreement and therefore recorded and impairment loss in the amount of $532,056.
Note 5 – Income Taxes
As of June 30, 2014 and 2013 deferred tax assets consist of the following:
|
| 2014 |
| 2013 |
| ||
|
|
|
|
|
|
|
|
Federal loss carryforwards |
| $ | 3,275,423 |
| $ | 3,228,106 |
|
State loss carryforwards |
|
| 127,295 |
|
| 131,686 |
|
Other |
|
| — |
|
| — |
|
|
|
| 3,402,718 |
|
| 3,359,792 |
|
Less: valuation allowances |
|
| (3,402,718 | ) |
| (3,359,792 | ) |
|
| $ | — |
| $ | — |
|
The Company has established a valuation allowance equal to the full amount of the deferred tax assets primarily because of uncertainty in the utilization of net operating loss carryforwards.
As a result of stock ownership changes, the Company’s ability to utilize net operating losses in the future could be limited, in whole or part, under Internal Revenue Code. As of June 30, 2014 the Company’s federal and state net operating loss carryforwards were $9,358,352 and $1,591,186, respectively, and expire through 2034.
The Company’s tax expense differed from the statutory rate primarily due to the change in the deferred tax asset valuation allowance.
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Stockholders’ Equity
At June 30, 2014 and 2013 the Company has 200,000,000 shares of Common Stock with a par value of $.005 authorized. At June 30, 2014 and 2013, there were 18,566,636 shares are issued and outstanding. There are also authorized 10,000,000 shares of preferred stock, par value $.01, none of which are issued and outstanding.
Between July 31, 2012 and August 14, 2012, the Company issued 2,656,620 shares of its common stock along with warrants to purchase 2,656,620 shares of its common stock at an exercise price of $.75 for the conversion of $655,000 of convertible notes payable and accrued interest of $9,157. As consideration for the conversion of the notes, the Company issued the note holders a warrant to purchase 12,500 shares of common stock at $.75 for each $25,000 of principal converted resulting in the issuance of 327,500 additional warrants. Included as interest expense at June 30, 2013 is $85,800 related to the additional warrants issued to the note holders for the early conversion of their notes as well as $597,703 of interest related to the discount on the notes payable and $46,146 of deferred financing costs. In relation to the conversion of the notes, the Company also issued warrants to purchase an additional 241,358 shares at $.75 to finders.
During the year ended June 30, 2013 we received proceeds of $130,000 from the sale of 520,000 Units in a private placement. The Units consisted of one share and a warrant to purchase an additional share at $.75. In connection with the private placements we paid finders’ fees of $13,000. In May 2013, the Company refunded one of the investors $25,000 and cancelled the 100,000 shares units issued.
In August 2012, the Company paid $15,000 for the cancellation of an option to purchase 300,000 shares of common stock. The options had an exercise price of $.09 per share.
On September 17, 2012, the Company authorized the issuance of 1 million warrants to a third party for consulting services. The warrants vest 250,000 at issuance and 250,000 warrants every three months thereafter. The agreement was terminated in April 2013. The Company has recorded stock compensation expense in relation to the 750,000 warrants issued prior to the termination of the agreement in the amount of $152,308.
Stock Options:
On July 13, 1999, the Board of Directors authorized the 1999 Equity Compensation Plan. The plan allows for the award of incentive stock options, non-statutory stock options or restricted stock awards to certain employees, directors, consultants and independent contractors. The Company has 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.
The fair value of option grants is estimated as of the date of grant utilizing the Black-Scholes option-pricing model. The assumptions used at that the time of the most recent issuances were as follows:
| ||
| ||
| ||
|
| |
|
| |
|
| |
|
|
The weighted average fair value at date of grant for options granted during the year ended June 30, 2014 was $.05. There were no options issued under the plan during the year ended June 30, 2014 or 2013.
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2012 | 3,197,287 |
|
| 0.28 | |
Granted |
| — |
|
| — |
Exercised |
| — |
|
| — |
Expired |
| (480,000 | ) |
| 0.25 |
Forfeited |
| — |
|
| — |
Outstanding at June 30, 2013 | 2,717,287 |
|
| 0.28 | |
Granted |
| 1,200,000 |
|
| 0.05 |
Exercised |
| — |
|
| — |
Expired |
| (394,520 | ) |
| 0.81 |
Forfeited |
| — |
|
| — |
Outstanding at June 30, 2014 |
| 3,522,767 |
| $ | 0.14 |
Additional information about outstanding options to purchase the Company’s common stock as of June 30, 2014 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 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.51-$0.43 |
| 320,000 |
| 1.50 |
| $ | 0.47 |
| $ | — |
| 320,000 |
| 1.50 |
| $ | 0.47 |
| $ | — |
$0.16-$0.13 |
| 152,767 |
| 3.04 |
| $ | 0.02 |
| $ | — |
| 152,767 |
| 3.04 |
| $ | 0.15 |
| $ | — |
$0.25 |
| 750,000 |
| 2.03 |
| $ | 0.25 |
| $ | — |
| 750,000 |
| 2.03 |
| $ | 0.25 |
| $ | — |
$0.09 |
| 1,100,000 |
| 1.66 |
| $ | 0.09 |
| $ | — |
| 1,100,000 |
| 1.66 |
| $ | 0.09 |
| $ | — |
$0.05 |
| 1,200,000 |
| 4.60 |
| $ | 0.05 |
| $ | — |
| 1,200,000 |
| 4.60 |
| $ | 0.05 |
| $ | — |
|
| 3,522,767 |
|
|
|
|
|
|
|
|
| 3,522,767 |
|
|
|
|
|
|
|
|
The Company recognized stock based compensation expense of $59,960 during the year ended June 30, 2014 in relation to 1,200,000 options issued outside of the plan for options issued to two directors of the Company. The options were granted to directors on February 3, 2014 and are exercisable at $0.05 for 5 years.
Non-Employee Stock Options and Warrants:
As of June 30, 2014 the Company has warrants outstanding that were issued primarily in connections with financing arrangements and consulting services. Activity relative to these warrants for the year ended June 30, 2014 is as follows:
|
|
|
| Weighted | |
|
| Number of |
| Average | |
|
| Shares |
| Exercise Price | |
|
|
|
|
|
|
Warrants outstanding - June 30, 2012 |
| 4,045,000 |
| $ | 0.71 |
Granted |
| 4,625,478 |
|
| 0.75 |
Expired |
| (515,000 | ) |
| 0.41 |
Warrants outstanding - June 30, 2013 |
| 8,155,478 |
| $ | 0.75 |
Granted |
| — |
|
| — |
Expired |
| — |
|
| — |
Warrants outstanding - June 30, 2014 |
| 8,155,478 |
| $ | 0.75 |
ESIO WATER & BEVERAGE DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All the warrants outstanding as of June 30, 2014 are exercisable.
Note 7 – Commitments
The Company leased office space on a month to month basis at the rate of $300 per month from September 2012 through August 2013. Included in general and administrative expense at June 30, 2014 and 2013 is $600 and $3,000, respectively, for rent expense.
F-12