UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly periodfiscal quarter ended March 31,September 30, 2021

OR

For the transition period from ___________ to ____________

Commission file number:  001-13621

UPD HOLDING CORP.

(Exact name of Registrant as specified in its charter)

75 Pringle Way, 8th Floor, Suite
804

Reno, Nevada89502

(Address of principal executive offices, including zip code)

775-829-7999 x112775-829-7999

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:   None.

Securities registered under Section 12(g) of the Exchange Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o   No þ

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 þ   No o

Indicate by check mark whether the registrant: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 oNoþ

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     oYes   oþNoþ

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a)13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act).  Yes  oNoþ

As of May 14,November 22, 2021, the issuerregistrant had 194,190,907194,750,907 shares of Common Stock outstanding,its $0.005 par value $.005 per share.common stock issued and outstanding.

Documents incorporated by reference:  None.

UPD HOLDING CORP.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDINGSTATEMENT ON FORWARD-LOOKING STATEMENTS

The statements contained in this QuarterlyAnnual Report on Form 10-Q that are not historical fact are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties.  These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.  Investors are cautioned that these forward-looking statements that are not historical facts are only predictions.  No assurances can be given that the future results indicated, whether expressed or implied, will be achieved. Because of the number and range of assumptions underlying the Company’s projections and forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond the reasonable control of the Company, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this report.  These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.  Therefore, the actual experience of the Company and the results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected.  The inclusion of projections and other forward-looking statements should not be regarded as a representation by the Company or any other person that these estimates and projections will be realized, and actual results may vary materially.  There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate.

PART I.

I – FINANCIAL INFORMATION

UPD HOLDING
CORP. AND
SUBSIDIARIESHolding Corp.

Consolidated Balance Sheets

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.

UPD HOLDING
CORP. AND
SUBSIDIARIESHolding Corp.

CONSOLIDATED STATEMENTS OF OPERATIONSConsolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.

UPD Holding Corp.

Consolidated Statements of Changes in Stockholders’ Deficit 

For the Three Months Ended September 30, 2021

(Unaudited)

For the Three Months Ended September 30, 2020

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

UPD HOLDING
CORP. AND
SUBSIDIARIESHolding Corp.

Consolidated Statements of Cash Flows 

(Unaudited)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE PERIODS ENDED

The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.

statements

UPD HOLDING
CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

UPD HOLDING
CORP. AND
SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS AND ORGANIZATION

UPD Holding Corp. (“UPD”, “Company”), incorporated in the State of Nevada, is a holding Company seeking to acquire assets and businesses to provide a competitive advantage through cost-sharing and other synergies. The Company is pursuing business development opportunities in the rehabilitation services industry.

On February 16, 2021, UPD completed its acquisition of Vital Behavioral Health, Inc., which intends to operate U.S. facilities focusing on substance abuse treatment and offer various programs that help provide a continuum of care to its patients.

The Company previously operated in the food and beverage industry through Record Street Brewing (“RSB”), which was sold as of December 31, 2020.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements

The accompanying unaudited interim consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission and are unaudited. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three and nine-month period ended March 31, 2021, may not be indicative of the results for the entire year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the Securities and Exchange Commission on August 14, 2020, and the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on May 4, 2021, which amends and supplements the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2021.

Principles of Consolidation

The Company consolidates the assets, liabilities, and operating results of its wholly owned and majority-owned subsidiaries: (i) iMetabolic Corp, a Nevada corporation; (ii) United Product Development Corp., a Nevada corporation; (iii) Vital Behavioral Health, Inc., a Nevada corporation (since February 16, 2021); (iv) VBH Frankfort LLC, a Nevada limited liability company (since February 16, 2021); (v) VSL Frankfort LLC, a Nevada limited liability company (since February 16, 2021); (vi) VBH Garden Grove Inc. (since February 17, 2021); (vii) VBH Kentucky Inc., a Nevada corporation (since March 16, 2021); and (viii) Record Street Brewing Co., a Nevada corporation (through December 31, 2020). All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of 90 days of less at the date of purchase. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts on deposit or invested are in excess of amounts that are insured. As of March 31,September 30, 2021 and June 30, 20202021 the Company did not have any cash equivalents or cash deposits in excess of the federally insured limits.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from these estimates.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Financial assets are marked to bid prices and financial liabilities are marked to offer prices.  The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.  In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.

Fair value measurements do not include transaction costs.  A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values.  Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The fair value hierarchy is defined into the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The Company's financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts payable and convertible and other notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

The fair value of the Company’s derivative liabilities are estimated using a Black-Scholes option pricing model with Level 3 unobservable inputs. Prior to the fiscal year ended June 30, 2021 the Company did not have any instruments valued within Level 3 of the fair value hierarchy.

Net Income (Loss) Per Share

The Company presents both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period under the treasury stock method using the if-converted method. Due to the incurrence of net losses, the Company did not include outstanding instruments convertible into common stock that would be anti-dilutive.

Business Combinations

Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in general and administrative expenses. Measurement period adjustments are made in the period in which the amounts are determined, and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed.

Lease Accounting

The Company leases office space and outpatient clinical space under a lease arrangement. These properties are generally leased under non-cancelable agreements that contain lease terms in excess of twelve months on the date of entry as well as renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for base minimum rental payment, as well non-lease components including insurance, taxes, maintenance, and other common area costs.

At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of twelve months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any prepayments to the lessor and initial direct costs such as brokerage commissions, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using the rate implicit in the contract if available or an estimate of our incremental borrowing rate for a collateralized loan with the same term as the underlying lease. The discount rates used for the initial measurement of lease liabilities as of the date of entry were based on the original lease terms.

Lease payments included in the measurement of lease liabilities consist of (i) fixed lease payments for the non-cancelable lease term, (ii) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (iii) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain real estate lease agreements require payments for non-lease costs such as utilities and common area maintenance. The Company has elected an accounting policy to not separate implicit components of the contract that may be considered non-lease related.

Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. The lease payments are allocated between a reduction of the lease liability and interest expense. Depreciation of the right-of-use asset for operating leases reflects the use of the asset on straight-line basis over the expected term of the lease.

Property and Equipment

Property and Equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of tenant improvements are the lesser of the estimated useful life of the asset or the term of the lease (2 years for current lease); furniture and fixtures are 5 to 7 years; operating lease right of use assets over the expected term of the operating lease; and office and computer equipment are 3 to 5 years.

The Company periodically reviews property and equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. Recoverability is assessed based on several factors, including the intention with respect to maintaining facilities and projected discounted cash flows from operations. An impairment loss would be recognized for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by the present value of their projected discounted cash flows.

Goodwill

Goodwill represents the excess of fair value over identifiable tangible and intangible net assets acquired in business combinations. Goodwill is not amortized, instead goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Advertising Expense

The Company recognizing advertising expense in the period in which it is incurred. For the three months ended September 30, 2021 the Company incurred advertising expense of $1,160 included in general and administrative expense in the accompanying consolidated statements of operations. The Company did not incur advertising expenses during the three months ended September 30, 2020.

Revenue Recognition

The Company previously licensed its beer and beverage products to its customers. The royalties earned from these licensing agreements represent revenue earned under contracts in which the Company bills and collects from its licensee in arrears. The Company determines the measurement of revenue and the timing of revenue recognition utilizing the following core principles:

Revenues from licensing royalties are recognized when the Company’s performance obligations are satisfied upon its licensee’s sales to its customers. The Company primarily invoices its licensee on a quarterly basis, net of returns. The Company did not realize material revenues in the current period through the disposition date on December 31, 2020.

The Company’s expected rehab service and facility revenue will be recognized in accordance with the same five core principles after meeting the applicable licensing requirements.

Property and Equipment

Property and Equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of tenant improvements are the lesser of the estimated useful life of the asset or the term of the lease (2 years for current lease); furnishings and fixtures are 5 to 7 years; and operating lease right of use assets over the expected term of the operating lease. and office and computer equipment are 3 to 5 years.Income Taxes

The Company periodically reviews propertyrecognizes deferred tax liabilities and equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. Recoverability is assessedassets using the liability method. Under this method, deferred tax liabilities and assets are determined based on several factors, including the intention with respect to maintaining facilitiestemporary differences between the financial statements carrying values and projected discounted cash flows from operations. An impairment loss would be recognized fortax bases of assets and liabilities using enacted tax rates in effect in the amount byyears in which the carrying amountdifferences are expected to reverse. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes is required. Judgments and interpretation of statutes are inherent in this process. Future income tax assets exceeds their fair value, as approximated byare recorded in the present value of their projected discounted cash flows.

Goodwill

Goodwill represents the excess of fair value over identifiable tangible and intangible net assets acquired in business combinations. Goodwillfinancial statements if realization is not amortized, instead goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it isconsidered more likely than not.

For previously taken tax positions considered to be uncertain, the Company prescribes a recognition threshold and measurement attribute. In the event certain tax positions do not meet the appropriate recognition threshold, de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions is required.

The Company files income tax returns in the U.S. federal jurisdiction.

Debt Issuance Costs

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized, netted against debt principal for balance sheet purposes, and amortized to interest expense over the terms of the related debt agreements using the effective interest method.

Derivative Liabilities

The Company classifies all of its embedded debt conversion features, and other derivative financial instruments as equity if the contracts (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) contracts that contain reset provisions. The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required. As of June 30, 2021, the Company did not have enough authorized and unissued shares to settle all outstanding equity-linked instruments resulting in the reclassification of certain instruments to liability. The Company reclassifies outstanding instruments based on allocating the unissued shares to contracts with the earliest inception date resulting in the contracts with the latest inception date being recognized as liabilities first.

The Company accounts for contracts convertible into common stock in excess of its authorized capital as derivative as liabilities. The derivative liabilities are re-measured at fair value with the changes in the value reported as a component of other income (expense) in the accompanying results of operations. The derivative liabilities are measured at fair value using a Black Scholes option pricing Model. The model is based on assumptions including quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock and are classified within Level 3 of the fair value hierarchy as established by US GAAP. As of September 30, 2021, all derivative liability contracts are convertible into a reporting unit is less than its carrying value.fixed number of shares of common stock.

Going Concern

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern, has reoccurring net losses and net capital deficiency. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (i) obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses; (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities; and (iii) completing a merger with or acquisition of an existing operating company. Management provides no assurances that the Company will be successful in accomplishing any of its plans.

NOTE 3- DISCONTINUED OPERATIONS

On December 31, 2020, the Company discontinued its RSB operations pursuant to the Assumption Agreement of the same date whereby 100%100% of the issued and outstanding common stock of RSB was assigned to RSB’s co-founder and a significant shareholder of the Company. As part of the disposition, the purchaser agreed to assume outstanding liabilities of RSB totaling $250,767 $251,164 and acquired the rights to all royalties associated with the intellectual property licensing previously held by the Company. The Company reclassified $250,167 of RSB liabilities outstanding as of June 30, 2020 to liabilities related to assets sold in the accompanying condensed consolidated balance sheets.

During the three and nine months ended March 31,September 30, 2021, and the three and nine monthsyear ended March 31, 2020,June 30, 2021 , RSB did not engage in material operations or generate material revenues. The Company did not allocate any interest expense to discontinued operations apart from interest accrued on the obligations that were assumed.

NOTE 4 – ACQUISITIONS

In February 2021, through a Stock Exchange Agreement (“Exchange Agreement”) in which 100% of the outstanding shares of Vital Behavioral Health Inc. (“Vital”) were acquired via the issuance of 16,840,000 shares of restricted common stock, the Company acquired the assets and assumed the liabilities of Vital and its two wholly owned subsidiaries: VBH Frankfort LLC (“VBHF”) and VSL Frankfort LLC (“VSLF”). The Company did not incur material acquisition costs associated with the Exchange Agreement.

The following table represents the fair value of the consideration paid allocated to the assets and liabilities acquired in applying the acquisition method for the completion of the Vital business combination:

Through the Vital acquisition, the Company intends to operate multiple facilities in the U.S. that will focus on substance abuse treatment and offer various programs that help provide a continuum of care to its patients. VBHF is intended to operate as an out-patient substance abuse treatment facility in Frankfort, Kentucky. VSLF is intended to offer sober-designated living quarters for individuals who are in recovery. Each of Vital, VBHF, and VSLF are in the early development stage and have not received any operational licenses or permits through the date of this report.

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation during the three months ended September 30, 2021, and the year ended June 30, 2021, was $9,017 and 6,702, respectively.

NOTE 46 – NOTES AND CONVERTIBLE NOTES PAYABLE 

The Company’s notes payable consistconsists of the following:following:

*As of December 31, 2020 $20,000 of notes payable outstanding at June 30, 2020 were reclassified to liabilities related to assets sold in the accompanying consolidated balance sheet.

Throughout the nine monthsfiscal year ended March 31,June 30, 2021, the Company did not have the financial resources to make current payments on these notes payable. All of the outstanding notes payable are due to officers of the Company who have informally agreed to defer payment until such time as the Company’s liquidity improves, however, they are under no formal obligation to continue to do so and may demand payment. The Company is in negotiations with the note holders and has not incurred significant penalties associated with the current defaults.

In August 2021, the Company entered into a promissory note with a lender in which the Company received cash proceeds totaling $500,000. The promissory note matures in August 2022 and carries an interest rate of 12% per annum. The Company is required to make monthly interest payments with outstanding principal and interest due on the maturity date. The Company issued the lender 1,000,000 warrants convertible into restricted shares of common stock at an exercise price of $0.005 per share for a period of five years. The Company recorded the fair value of the 1,000,000 warrants issued with debt at approximately $66,000 as a discount.

The Company’s convertible notes payable consist of the following:following:

The principal and interest of the Company’s outstanding convertible notes, with the exception of the related party notes totaling $65,000$65,000 that matured in April 2018, automatically convert to shares of common stock at $0.10$0.05 or $0.10 per share upon maturity if not paid in full prior to maturity. The Company did not make any monthly and interest payments on its outstanding convertible notes payable.

During the nine monthsyear ended March 31,June 30, 2021, a note holder became a related party through the acquisition (in a private transaction not involving the Company) of shares of outstanding common stock in excess of 5%. In October 2020, the Company issued the related party a note payable for total cash proceeds of $100,000.$100,000. In February 2021, the Company acquired the entity, Vital Behavioral Health, Inc., holdingthe previous holder of the note.

In December 2020, the Company settled related party convertible notes payable and accrued interest totaling approximately $69,000$69,000 via the issuance of 3,900,000 shares of common stock. As part of the settlement, the Company recognized a loss of approximately $23,000$23,000 associated with the estimated fair value of the stock issued being in excess of the carrying value of the debt.

DuringIn July 2021, the Company entered into a total of $41,00012% convertible promissory notes (3 notes total) with three investors. The convertible notes automatically convert at maturity in July 2022 at a conversion price of $0.05.

As of September 30, 2020, the Company did not have enough authorized and unissued shares of common stock to settle all its convertible debt obligations. As a result, the Company recognized obligations to issue a total of 4,367,807 shares of common stock upon convertible debt conversion to derivative liabilities in the accompanying consolidated balance sheets. The Company measures the changes in the fair value of its derivative obligations using a Black-Scholes option pricing model with a volatility assumption of 125.98%; an expected term equal to the remaining term of the contract on the reclassification date (between eight to twelve months for fiscal 2021); a risk-free rate of approximately 1%; and conversion prices of $0.10 (160,500 shares), $0.05 (2,976,400 shares), and $0.025 (1,230,907 shares). For the three and nine months ended March 31,September 30, 2021, the Company recognized a loss on the change in the fair value of derivative liabilities of $38,943 in other income (loss) in the accompanying consolidated statements of operations. The Company had derivative liability obligations of $237,963 as of June 30, 2021.

During the three months ended September 30, 2021, and the year ended June 30, 2021, the Company received $544,000 and $265,000, respectively, from funding on new notes and convertible notes and paid $5,000 and $0 of interest expense on allthe outstanding notes and convertible notes payable. 

During the three months ended September 30, 2021, and the year ended June 30, 2021, the Company made no payments on the outstanding notes and convertible notes payable, totaling approximately $9,000 and $19,000, respectively. During the threerecorded $11,092 and nine months ended March 31, 2020$20,911, respectively of interest expense and $16,567 and $7,548, respectively of debt discount amortization expense. As of September 30, 2021, and June 30, 2021, the Company recognized interest expense on allhad approximately $89,817 and $83,799, respectively of accrued interest. As of September 30, 2021, and June 30, 2021, the principal balance of outstanding notes and convertible notes payable totaling approximately $6,000was $838,560 and $41,000,$294,560, respectively.

NOTE 57 – RELATED PARTY TRANSACTIONS

From time to timeDuring the fiscal year ended June 30, 2021, the Company’s Chief Executive Officer (“CEO”) provided the Company has$30,000 in exchange for short-term 6% notes payable to meet the Company’s on-going operating expense obligations. As of September 30, 2021, and June 30, 2021, the Company had outstanding notes payable due to the CEO inclusive of accrued interest totaling $44,855 and $41,225, respectively. Additionally, our CEO provided cash proceeds, totaling $15,000 in September 2016 under a convertible note arrangement. The note matured in 2018 and remains outstanding. As of September 30, 2021, and June 30, 2021, the principal and interest due under the convertible note approximated $31,000 and $31,000, respectively. The note, along with accrued interest, is convertible into restricted common stock at rate of $0.0125 per share at the option of the Company’s CEO. By the terms of the convertible note, no additional interest was accrued during the three months ended September 30, 2021, and the fiscal year ended June 30, 2021.

As noted in Note 4, the Company acquired a 100% interest in Vital Behavioral Health, Inc. (“Vital”). As of the date of acquisition in February 2021, the Company was indebted to Vital totaling approximately $100,000 under a 6% promissory note payable arrangement. Upon consummation of the merger, the promissory note and related accrued interest were effectively eliminated. The Company did not make any cash payments under the promissory note arrangement through September 30, 2021. As of September 30, 2021, the balance of the inter-company note payable was eliminated in the consolidation.

The Company sold an individual a 4.67% non-controlling interest in VBH Kentucky, Inc. in April 2021 for cash proceeds totaling $100,000. The non-controlling interest holder also entered into a $100,00012% convertible note payable with the Company in March 2021. The convertible note matures in March 2022 and is convertible into restricted common stock at $0.05 per share.

Effective December 31, 2020, Dr. George D. Shoenberger was appointed as a Board member of the Company. As of the date of the appointment and through September 30, 2021, Dr. Shoenberger held a convertible note payable issued in 2016 with an initial principal balance of $50,000. As of September 30, 2021, and June 30, 2021, the outstanding principal and accrued interest balance due under the convertible note agreement totaled $100,000 and $100,000, respectively. The note, along with accrued interest, is convertible at the option of Dr. Shoenberger into restricted common stock of the Company at a conversion rate of $0.025 per share. The Company did not make any settlement arrangement to cure the default of the convertible note payable during the three months ended September 30, 2021, and the fiscal year ended June 30, 2021.

In May 2020, the Company entered into a 12% convertible note arrangement with a shareholder in which the Company received total cash proceeds of $50,000. The noteholder was a previous 59% owner of Vital prior the Company’s acquisition. As of June 30, 2021, the Company converted the previously outstanding convertible note payable and accrued interest into 560,000 shares of restricted common stock. Upon consummation of the Vital acquisition, the noteholder was issued 10,000,000 shares of restricted common stock in exchange for the equity interest in Vital. In addition, the significant shareholder provided working capital advances totaling approximately $58,000 during the fiscal year ended June 30, 2021, of which approximately $51,000 was due and payable as of June 30, 2021. There were no outstanding payables due to the aforementioned significant shareholder as of September 30, 2021.

Throughout several of the most recent fiscal years, the Company received working capital advances from shareholders. These advances are useda significant shareholder. In December 2020, the Company settled the then outstanding obligations due to settlethe shareholder totaling approximately $69,000 via the issuance of 3,900,000 shares restricted common stock. As a result of the settlement, the Company recognized a fiscal 2021 loss of approximately $23,000 measured as the difference between the re-acquisition price of the debt (as measured by the estimated fair value of the restricted common stock issued) and the carrying cost of the debt on the date of settlement. The significant shareholder is the lessor of the Company’s on-going operating expenses.lease as of June 30, 2021. As of June 30, 2021, the Company owed the significant shareholder/lessor approximately $23,000 related to tenant improvement payments made on behalf of the Company. There were no outstanding payables due to the aforementioned significant shareholder as of September 30, 2021.

During the previous periods the Company’s Chief Operating Officer (“COO”) and Director made working capital advances to the Company that were converted to a promissory note payable. The shareholders have agreed to notnotes accrue interest onat a rate of 6% per annum. The Company owed the notes,COO approximately $88,000 and they are due on demand. As of March 31,$87,000, respectively.

During the fiscal year ended June 30, 2021, certain previously outstanding shareholder advances totaling approximately $72,000$72,000 were assumed by a third party as part of the RSB disposition as further discussed in Note 3. As discussed in Note 4, certain outstanding notes payable and convertible notes payable became related party obligations through the holder’s common stock ownership.

During the nine months ended March 31, 2021 a significant shareholder paid operating expenses on behalf of the Company. As of March 31, 2021 the Company owed the significant shareholder approximately $61,000.

NOTE 68 – STOCKHOLDERS EQUITY

In June 2021, the Company issued a related party 560,000 fully vested shares of restricted common stock for the settlement of convertible notes payable and accrued interest totaling approximately $56,000.

In April 2021, the Company issued an investor a 4.67% non-controlling interest in its previously wholly owned subsidiary VBH Kentucky, Inc. for cash proceeds totaling $100,000.

In February 2021, the Company issued 16,840,000 fully vested shares of restricted common stock for total consideration of approximately $522,000$522,000 for the acquisition of Vital Behavioral Health, Inc.

In February 2021, the Company issued a consultant 500,000 fully vested shares of restricted common stock for total consideration of approximately $16,000.$16,000.

In December 2020, the Company issued a related party 3,900,000 fully vested shares of restricted common stock for the settlement of convertible notes payable and accrued interest totaling approximately $69,000.$68,000. As part of the settlement, the Company recognized an additional loss of approximately $23,000 as a result of the difference between the fair value of the re-acquisition consideration and the carrying cost of the debt on the date of settlement.

In December 2020, the Company issued a consultant 500,000 fully vested shares of common stock for total consideration of approximately $12,000.$11,000.

NOTE 7 – ACQUISITIONStock Payable

In FebruaryOn September 2, 2021, throughthe Company entered into certain Mutual Release and Settlement Agreement with Athens Common, LLC to extinguish $31,310 of payables held by Athens Common, LLC. All parties agreed to a total exchange of 231,572 shares of common Stock Exchange Agreement (“Exchange Agreement”) in which 100% of the outstandingCompany, par value $0.001 per share, as payment for the settlement along with $15,000 in cash. The shares of Vital Behavioral Health Inc. (“Vital”) were acquired viavalued using the issuance of 16,840,000 shares of restricted common stock price $0.07 on the Company acquired the assets and assumed the liabilities of Vital and its two wholly owned subsidiaries: VBH Frankfort LLC (“VBHF”) and VSL Frankfort LLC (“VSLF”). The Company did not incur material acquisition costs associated with the Exchange Agreement.

The following table represents the fair valuedate of the consideration paid allocated to the assets and liabilities acquiredagreement resulting in applying the acquisition method for the completion of the Vital business combination:

$16,210 recorded in equity as stock payable.

ThroughWarrants

In August 2021, the Vital acquisition,Company issued the lender 1,000,000 warrants convertible into restricted shares of common stock at an exercise price of $0.005 per share for a period of five years. The Company intends to operate multiple facilitiesrecorded the fair value of the 1,000,000 warrants issued with debt at approximately $66,000 as a discount.

The following table summarizes the Company's warrant transactions during the three months ended September 30, 2021, and year ended June 30, 2021:

Warrants granted in the U.S. that will focus on substance abuse treatmentthree months ended September 30, 2021, were valued using the Black Scholes Model with the risk-free interest rate of 0.78%, expected life 5 years, expected dividend rate of 0% and offer various programs that help provide a continuumexpected volatility of care to its patients. VBHF is intended to operate as an out-patient substance abuse treatment facility in Frankfort, Kentucky. VSLF is intended to offer sober-designated living quarters for individuals who are in recovery. Each of Vital, VBHF, and VSLF are in the early development stage and have not received any operational licenses or permits through the date of this report.420.52%.

NOTE 89 – OPERATING LEASES

As of March 31,September 30, 2021, the Company, through its Vital subsidiaries, has the following a non-cancelable lease arrangement:

The following table summarizes the Company’s undiscounted cash payment obligations for its non-cancelable lease liabilities through the end of the expected term of the lease:

The weighted average remaining term of the Company’s non-cancelable operating leases as of March 31,September 30, 2021, was approximately 18 months.16 months.

On January 14, 2021, our wholly owned subsidiary, United Product Development Corporation (the “Subsidiary”), a Nevada corporation, entered into a commercial lease (the “Lexington Lease”) with Athens Commons, LLC, a Kentucky limited liability company, for the lease of a 88,740 square foot building at 5532 Athens Boonsboro Road, Lexington, Kentucky.Kentucky. The Lexington Lease is for a 5-year term with options to renew for 2 additional 5-year terms. The effective beginning date of the Lexington Lease term was January 14, 2021. The Lexington Lease provides for minimum monthly rent of $50,000$50,000 for the first lease year and a 3%3% rental increase for each succeeding lease year. The Company was only obligated to pay $20,000 per month for up to the first six month until the property was re-zoned and licensed for the Company’s planned rehabilitation operations.operations. The Company also has an option to cancel the lease during the first six months if it is unable to obtain re-zoning approval and applicable regulatory licensing. As of March 31,On May 20, 2021, the Company had not receivedterminated the applicable approvals necessaryLexington Lease to operatezoning and licensing challenges associated with the as a substance abuse detoxification facility and determinedfacility.

The total lease expense incurred during the likelihoodyear ended June 30, 2021, inclusive of the lease being canceled as probable.cancelled Lexington Lease, was $91,825.

On September 2, 2021, the Company entered into certain Mutual Release and Settlement Agreement with Athens Common, LLC to extinguish $31,310 of payables held by Athens Common, LLC. All parties agreed to a total exchange of 231,572 shares of common Stock of the Corporation, par value $0.001 per share, as payment for the settlement along with $15,000 in cash. The shares were valued using the stock price $0.07 on the date of the agreement resulting in $16,210 recorded in equity as stock payable.

NOTE 910 – SUBSEQUENT EVENTS

On May 20,October 8, 2021, International Metabolic Institute, LLC, a Nevada Limited Liability Company (as the CompanyLicensor), completed a Mutual Termination of License Agreement with our wholly owned subsidiary, iMetabolic, Inc. (as the Licensee). The termination agreement terminated the Lexington operating lease agreement with Athens Commons without early termination penalties. PriorLicensor’s licensing to our subsidiary, iMetabolic, Inc., the Licensee, to commercialize consumer products pursuant to the termination,trademarked brand, “iMetabolic” in exchange for the Company made monthly base rent paymentsLicensee’s payment of $20,000 plus utilities.certain compensation to the Licensor. 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q, and with our audited financial statements included in our Form 10-K for the fiscal year ended June 30,2020,30, 2021, filed with the Securities and Exchange Commission on August 14, 2020.October 13, 2021.

This discussion and analysis providesprovide information that management believes is relevant to an assessment and understanding of our results of operations and financial condition for the periods presented. The following selected financial information is derived from our historical consolidated financial statements and should be read in conjunction with such consolidated financial statements and notes thereto set forth elsewhere herein and the “Forward- Looking Statements” explanation included herein.

Overview of Business

We are a health and wellness company with a focus in the rehabilitation services industry. We intend to become a national operator of clinical and transitional housing services for clients affected by substance use disorders and co-occurring disorders. The Company’s treatment plans will be based on an individualized approach and are customized to meet each client’s specific needs.

Clients of the Company’s facilities are intended to have access to Medically Monitored Withdrawal Management Services (MMWM), a Partial Hospitalization Program (PHP), an Intensive Outpatient Program (IOP), and an Outpatient Program (OP). Clients who participate in the PHP, IOP, and OP treatment programs will be eligible for housing through sober living accommodations that will be designed to give a client the ability to participate in his or her daily affairs and work and to have access to daily on-campus treatment at convenient times and locations.

We intend that most of our treatment facilities will be enrolled in Medicare or Medicaid and bill and accept payments from those governmental programs.

In most cases, it takes between 45 and 90 days for a Medicaid application to be processed and either accepted or denied by the state Medicaid office. However, depending on the circumstances and the state in which one resides, the application process could be shorter or longer.

Most facilities that accept Medicaid generally provide programs with some degree of medical care and substance rehabilitation, including group and individual therapy, 12-step meetings, and other recovery activities, on a 24 hours per day basis in a highly structured setting. Short-term programs may last between 3 and 6 weeks and be followed by outpatient therapy. Long-term programs often last between 6 and 12 months and focus on re-socializing patients as they prepare to re-enter their communities.

Intensive outpatient services (IOPs) typically offer at least 9 hours of therapy per week in sets of three 3-hour sessions, and some studies have found them to be similar to residential and inpatient programs in both services and effectiveness.

Partial hospitalization programs (PHPs) provide care for people who need a more comprehensive level of treatment than standard or intensive outpatient. These programs typically consist of approximately 20 hours a week of treatment and may include vocational and educational counseling, family therapy, medically supervised use of medications, and treatment of co-occurring disorders. IOPs may also offer these services, but the time commitment of a PHP typically is greater.

The Company intends to offer both IOP and PHP services at the Leased facility and accept Medicare and Medicaid payor-qualified patients and clients.

By keeping the majority of its treatment facilities and housing on campuses that are conveniently located within walking distance to traditional community services, the Company hopes to create so-called ‘sober cities’ throughout the United States that will nurture its clients’ development at all stages from detox to long-term self-sufficiency.

During the current reporting period, UPD completed the acquisition of Vital Behavioral Health, Inc. (“Vital”), which intends to operate U.S. facilities focusing on substance abuse treatment and offer various programs that help provide a continuum of care to its patients. As of March 31, 2021, Vital had four wholly owned subsidiaries, VBH Kentucky Inc. (“VBH Kentucky”), VBH Frankfort LLC (“VBH Frankfort”), VSL Frankfort LLC (“VSL Frankfort”), and VBH Garden Grove Inc. (“VBH Garden Grove”).

VBH Kentucky has succeeded to all of the preexisting and intended operations of VBH Frankfort, which has substantially concluded all of its material operations as of May 3, 2021. VBH Kentucky intends to operate an outpatient substance abuse treatment facility in Frankfort, Kentucky and an inpatient substance abuse detoxification facility in Lexington, Kentucky. VBH Kentucky is in its early development stage and do not possess any operational licenses or permits at this time.

The first of our leased facilities, located in Lexington, Kentucky, was entered into on January 14, 2021. Since the Vital acquisition, VBH Kentucky has assumed that lease and taken over development of the project. VBH Kentucky has engaged legal and other professional services with respect to the Lexington project and spoken to governmental authorities and other stakeholders concerning viability of the project. However, there is a contingent of ‘not in my back yard’ advocates that wish to maintain the use of the rural overlay district in which the facility and its current transitory services zone are located. We cannot make any assurances about its ability to obtain a conditional or special use permit, zoning variance, or zoning change that would be necessary to complete its current project in Lexington, Kentucky. However, at the present time, we do not anticipate any significant issues in obtaining the necessary non-land use regulatory permits or licenses for the project. VBH Kentucky may cancel the lease prior to June 30 under the terms and seek other facilities in the area.

VBH Kentucky has applied for its license to operate an outpatient substance use treatment facility in Frankfort, Kentucky on April 9, 2021 and anticipates that facility will be operational within our fiscal fourth quarter ended June 30, 2021.

VSL Frankfort intends to offer sober-designated living quarters for individuals who are in recovery. Operations for VSL Frankfort are intended to commence once VBH Kentucky obtains the operating entitlements for its outpatient substance use treatment facility in Frankfort, Kentucky. Until such time, VSL Frankfort’s operations likely will be limited to planning and preparation.

VBH Garden Grove intends to identify substance use disorder treatment facilities located in California to provide a West Coast patient solution that is able to economically accept select insurance payors that facilitate a broader national patient base for Vital. VBH Garden Grove has identified various potential license holders and facilities located in Southern California and is in the due diligence phase for transaction consideration; however, there are no binding transactions for any licenses or facilities in California as of May 3, 2021.

Going Concern

Our financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. Our ability to continue as a going concern is dependent on our company obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to significantly curtail or cease operations.

In its report on our financial statements for the year ended June 30, 2020, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We will need to raise additional funds to finance continuing operations. However, there are no assurances that we will be successful in raising additional funds. Without sufficient additional financing, it would be unlikely for us to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in this report and eventually secure other sources of financing and attain profitable operations.

RESULTS OF OPERATIONS

The Company did not generate material revenues from its RSBResults of Operations for the Three Months Ended September 30, 2021, and 2020.

Below is a summary of the results of operations through its disposal in Decemberfor the three months ended September 30, 2021, and 2020. The Company has focused on entering into

Revenue and Cost of Revenue

We generated no revenue for the rehabilitation services industry in the second half of fiscal 2021. The Company has focused its efforts on obtaining the necessary licenses to operate various rehabilitation facilitiesthree months ended September 30, 2021, and if successful, expects to commence operations in fiscal 2022.September 30, 2020.  

Professional Fees

During the three and nine months ended March 31, 2021, the Company recognizedWe incurred professional fees of approximately $76,000$57,817 and $143,000, respectively, representing an increase of approximately 160%$45,616 for the three months ended September 30, 2021, and 25%, respectively, fromSeptember 30, 2020, respectively. Our professional fees increased by $12,201 for the prior comparable periods. Thisthree months ended September 30, 2021, compared to the same period in 2020. The increase is the result of the Company’s change in business industry, diligence procedures associated with seeking acquisition targets,primarily attributable to accounting and legal and accountingfees.

As funding permits, we expect to incur higher professional fees associated with the disposalon-going development of its former foodour brand, customers, and beverage operations.other relationship development.

The Company expects its professional fees to increase throughout the remainder of fiscal 2021 and into fiscal 2022 as it develops its rehabilitation facilities and service which requires significant additional regulatory compliance.

General and Administrative Expenses

The CompanyFor the three months ended September 30, 2021, and September 30, 2020, we incurred general and administrative expenses totaling approximately $116,000of $240,161 and $121,000$2,480, respectively, representing an increase of $237,681 for the three and nine months ended March 31,September 30, 2021, respectively.compared to the same period in 2020. The significant$237,681 increase in the current fiscal year from the immaterial amounts incurred in the prior comparable periodsgeneral and administrative expenses is primarily related travelattributable to incurring rent expense and related facilities costs fortotaling approximately $69,584; approximately $51,786 in payroll expenses; approximately $11,388 in insurance expense and approximately $86,590 in consulting fees, none of which were incurred during the performance of diligence procedures, and facility rental expenses. three months ended September 30, 2020.

We expect these itemsour expenses to increase over the next several periods ifshould we arebe successful in executing our new business plansplan, which will primarily consist of facilities costs, management and other salaries, travel, and other corporate overhead.

Discontinued Operations

On December 31, 2020 we completed the disposition of our prior Record Street Brewing Operations. The primary consideration in the disposal was the purchaser’s assumption of liabilities totaling approximately $251,000. As a result of the assets acquired not having any book value, we recognized a gain on disposal of approximately $240,000, net of tax of approximately $11,000.

Interest Expense

Throughout fiscal 2020Interest expense was $27,659 and the first half of fiscal 2021, we settled several of our previously outstanding promissory notes and convertible promissory notes payable. Additionally, certain interest-bearing notes payable totaling approximately $20,000 were assumed by the purchaser in our RSB disposal. As a result, interest expense decreased approximately 53% to approximately $19,000 for the nine months ended March 31, 2021, respectively. During the three months ended March 31, 2021 we issued 12% convertible notes for cash proceeds totaling $115,000. As a result of the additional convertible notes outstanding, interest expense$5,859 for the three months ended March 31,September 30, 2021, increased approximately 61%and September 30, 2020, respectively, representing an increase of $21,800. The increase is primarily the result of the incurrence of new debt obligations totaling $544,000.

Change in Fair Value of Derivative Liabilities

As of September 30, 2021, the Company did not have enough authorized and unissued shares of common stock to approximately $9,000 fromsettle all its convertible debt obligations. As a result, the prior comparable period. Our future interest expenseCompany recognized obligations are dependentto issue a total of 4,367,807 shares of common stock upon convertible debt conversion to derivative liabilities in the accompanying consolidated balance sheets. For the three months ended September 30, 2021, the Company recognized a loss on the typeschange in the fair value of financing arrangements we are successful in arranging over the next twelve months, if any.derivative liabilities of $38,943. The Company had derivative liability obligations of $276,906 as of September 30, 2021.

Liquidity and Capital Resources

As of March 31,September 30, 2021, the Companywe had a working capital deficit of approximately $424,000. We estimate that, over$1,244,902. Over the next twelve months, we have estimated that in order to maintain reporting company status as defined under the Securities Exchange Act of 1934, we will require cash for general and administrative expenses primarily consisting of facilities costs payroll expenses and professional fees, which include accounting, legal and other professional fees, as well as filing fees. Additionally,

We believe we will needbe able to raisemeet these costs by raising additional capitalfunds through various financing sources, including the sale of our common or preferred stock and the procurement of commercial debt financing, and through our operations which are expected to pursue our rehabilitation facility and services plans. Ascommence during the second quarter of the date of this report, we have not entered into any firm funding commitments andfiscal 2022. 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. InFurther, we have recently entered the absence of obtaining additional financing, werehabilitation services industry and may not be unableable to fundoperate our operations.facilities at levels sufficient to meet our on-going obligations. 

DuringFor the ninethree months ended March 31,September 30, 2021, the Company’sour operational cash flows primarily consisted of incurring expenses in the normal course of business at levels commensurate with its funding levels and resulting inabilities to commence commercially viable operations. The Company’s operationalNet cash uses primarilyused in operating activities was $335,677 during the three months ended September 30, 2021 and consisted of the incurrencea net loss of on-going professional$364,580 and generalnet change in operating assets and administrative expensesliabilities of $35,624, which was offset by non-cash items of $64,527. The primary non-cash items for the ninethree months ended March 31, 2021.September 30, 2021, consisted of amortization of debt discount of $11,067 and non-cash warrant amortization of $5,500 and change in derivative liabilities of $38,943. The Company expectssignificant change in operating assets and liabilities was an increase in accounts payable and accrued liabilities. We expect these operational cash uses to continue until sufficient capital is raised, if any.

The Company’s investing activities consisted of acquiring the assets of Vital Behavioral Health, Inc. totaling approximately $63,000, exclusive of goodwill. The Company also acquired approximately $5,000 of office furniture and equipment and completed approximately $23,000 of tenant improvements for its Frankfort facility.

During the nine months ended March 31, 2021, the Company received a total of $245,000 from the issuance of notes payable and convertible notes payable. In addition, $120,000 of previously outstanding notes payable were forgivenincrease as we begin our operations in the acquisitionfirst half of Vital Behavioral Health.

Depending on the size, type, and location of a detoxification or rehabilitation facility at issue, there may be significant capital expenditures necessary to engage in the intended lines of business, including the costs to carry the property while obtaining zoning variances, conditional use permits, regulatory licenses, and other legal entitlements.

VBH Kentucky anticipates up to $75,000 of additional capital expenditures to get our outpatient facility in Frankfort, Kentucky fully operational, which primarily will consist of ordinary costs associated with outfitting a facility of this type over the next 30-45 days. VBH Kentucky also anticipates up to $1,500,000 of additional capital expenditures to get our inpatient facility in Lexington, Kentucky fully operational, which expenditures will include the costs of rent and utilities, legal, engineering, and regulatory fees, and ordinary costs associated with outfitting a facility of this type over the next six to twelve months.fiscal 2022.

Our investing activities consisted of acquiring property and equipment totaling approximately $56,807. We expect to make additional capital expenditures as its rehabilitation facilities increase operations.

During the three months ended September 30, 2021, we generated $544,000 of net cash from financing activities through the issuance of convertible debt and notes payable which was offset by a $5,000 payment of accrued interest. We expect to continue our financing efforts throughout fiscal 2022.

Off-Balance Sheet Arrangements

We doDuring the three months ended September 30, 2021, and the year ended June 30, 2020, we did not haveengage in any off-balance sheet arrangements as set forth in Item 303(a)(4) of the Regulation S-K.

Critical Accounting Policies

Our Unaudited Financial Statements

The discussion and Notes to Unaudited Financial Statementsanalysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S.US GAAP. The preparation of these financial statements requires our management to make significant estimates judgments, and assumptionsjudgments that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policiesexpenses, and estimates used to prepare the accompanying financial statements. The estimatesrelated disclosure of contingent assets and liabilities. These items are based on historical experiencemonitored and assumptions believed to be reasonable under currentanalyzed by our management for changes in facts and circumstances. Actual amountscircumstances, and results could differ frommaterial changes in these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussedcould occur in our Annual Report on Form 10-K for the year ended June 30, 2020. During the period ended March 31, 2021 we identified the following additional critical accounting policies:future.

Business Combinations

Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in general and administrative expenses.expenses; previously held equity interests are valued at fair value upon the acquisition of a controlling interest; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Measurement period adjustments are made in the period in which the amounts are determined, and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of goodwill or the recognition of additional consideration which would be expensed. The fair value of contingent consideration is re-measured each period based on relevant information and changes to the fair value are included in the operating results for the period.

Goodwill

Goodwill represents the excess of fair value over identifiable tangible and intangible net assets acquired in business combinations. Goodwill is not amortized. Instead,amortized, instead goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Embedded Conversion Features and Other Equity-linked Instruments (Derivative Liabilities)

The Company needs additional funding to executeclassifies all of its business plans. Inembedded debt conversion features, and other derivative financial instruments as equity if the eventcontracts (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is unable raise additional fundsoutside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) contracts that contain reset provisions. The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required. As of September 30, 2021, the Company did not have enough authorized and unissued shares to settle all outstanding equity-linked instruments resulting in the reclassification of certain instruments to liability. The Company reclassifies outstanding instruments based on allocating the unissued shares to contracts with the earliest inception date resulting in the contracts with the latest inception date being recognized as liabilities first.

The Company accounts for contracts convertible into common stock in excess of its authorized capital as derivative as liabilities. The derivative liabilities are re-measured at fair value with the changes in the value reported as a component of other income (expense) in the accompanying consolidated results of operations. The derivative liabilities are measured at fair value using a Black Scholes option pricing model. The model is based on assumptions including quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock and are classified within Level 3 of the fair value hierarchy as established by US GAAP. As of September 30, 2021, all derivative liability contracts are convertible into a fixed number of shares of common stock.

DESCRIPTION OF OUR CURRENT BUSINESS – REHABILITATION SERVICES

VBH Garden Grove

VBH Garden Grove intends to identify substance use disorder treatment facilities located in California to provide patient solutions that are able to economically accept select insurance payors to facilitate a broader patient base for Vital. VBH Garden Grove has identified various potential license holders and facilities located in Southern California and is in the due diligence phase for transaction consideration; however, there are no binding transactions for any licenses or facilities in California as of October 13, 2021.

Business of Vital Behavioral Health, Inc.

Vital’s operational plans are contingent upon whether we are able to:

Upon our acquisition of Vital we became a health and wellness company with a focus in the drug and alcohol rehabilitation services industry. Vital intends to operate U.S. facilities focusing on substance abuse treatment and offer various programs that help provide a continuum of care to its patients. We intend to become a national operator of clinical and transitional housing services for clients affected by substance use disorders and co-occurring disorders. Our treatment plans will be based on an individualized approach and will be customized to meet each client’s specific needs.

The facilities we intend to operate have access to Medically Monitored Withdrawal Management Services (MMWM), a Partial Hospitalization Program (PHP), an Intensive Outpatient Program (IOP), and an Outpatient Program (OP). Clients who participate in the PHP, IOP, and OP treatment programs will be eligible for housing through sober living accommodations that will be designed to give a client the ability to participate in his or her daily affairs and work and to have access to daily on-campus treatment at convenient times and locations.

We intend that most of our treatment facilities will be enrolled in Medicare or Medicaid and will bill and accept payments from those governmental programs. In most cases, it takes between 45 and 90 days for a Medicaid application to be processed and either accepted or denied by the state Medicaid office. However, depending on the circumstances and the state in which one resides, the application process could be shorter or longer. Most facilities that accept Medicaid generally provide programs with some degree of medical care and substance rehabilitation, including group and individual therapy, 12-step meetings, and other recovery activities, on a 24 hours per day basis in a highly structured setting. Short-term programs may last between 3 and 6 weeks and be followed by outpatient therapy. Long-term programs often last between 6 and 12 months and focus on re-socializing patients as they prepare to re-enter their communities. Intensive outpatient services (IOPs) typically offer at least 9 hours of therapy per week in sets of three 3-hour sessions, and some studies have found them to be similar to residential and inpatient programs in both services and effectiveness.

Partial hospitalization programs (PHPs) provide care for people who need a more comprehensive level of treatment than standard or intensive outpatient. These programs typically consist of approximately 20 hours a week of treatment and may include vocational and educational counseling, family therapy, medically supervised use of medications, and treatment of co-occurring disorders. IOPs may also offer these services, but the time commitment of a PHP typically is greater.

We will offer both IOP and PHP services at our facilities and accept Medicare and Medicaid payor-qualified patients and clients.

VSL Frankfort intends to perform impairment testsoffer sober-designated living quarters for individuals who are in recovery. Operations for VSL Frankfort are intended to commence once VBH Kentucky obtains the operating entitlements for its outpatient substance use treatment facility in Frankfort, Kentucky. Until such time, VSL Frankfort’s operations will be limited to planning and preparation.

All of our plans reflected above and below are contingent upon receiving adequate debt and/or equity financing of which there are no assurances we will be successful in obtaining.

Our Future Services and Solutions

We intend to provide quality, comprehensive, and compassionate care to adults struggling with alcohol and/or drug abuse and dependence as well as co-occurring mental health issues. We will maintain a research-based, disciplined treatment plan for all patients with schedules designed to engage the patient in an enriched recovery experience. Our purpose and passion are to empower the individual, their families, and the broader community through the promotion of optimal wellness of the mind, body, and spirit.

We plan to offer the following types of therapy: motivational interviewing, cognitive behavioral therapy, rational emotive behavior therapy, dialectical behavioral therapy, solution-focused therapy, eye movement desensitization and reprocessing, and systematic family intervention. Our variety of therapy settings includes individual, group, and family therapies, recovery-oriented challenge therapies, expressive therapies (with a focus on music and art), and trauma therapies.

We also intend to provide Medicated-Assisted Treatment (“MAT”), which is the use of FDA-approved medications, in combination with counseling and behavioral therapies, to provide a “whole-patient” approach to the treatment of substance use disorders. We believe that could resultit is particularly effective for treating certain conditions such as opioid use disorder, alcohol use disorder, and tobacco use disorder. The use of MAT has been shown to significantly reduce overdoses from opioids and to improve long-term abstinence.

Considering the high level of co-occurring substance abuse, mental health, and medical conditions, we will offer patients a spectrum of psychiatric, medical, and wellness-focused services based upon individual needs as assessed through comprehensive evaluations at admission and throughout participation in recognizingthe program. To maximize the likelihood of long-term recovery, all program levels will provide patients access to the following services: assessment of individual substance abuse, mental health, medical history, and physical condition promptly upon admission; psychiatric evaluations; psychological evaluations, and services based on patient needs; follow-up appointments with physicians and psychiatrists; medication monitoring; educational classes regarding health risks, nutrition, smoking cessation, HIV awareness, life skills, healthy nutritional programs, and dietary plans; access to fitness facilities; interactive wellness activities; and structured daily schedules designed for restorative sleep patterns.

We plan to emphasize clinical treatment, as well as the therapeutic value of overall physical and nutritional wellness. We are committed to providing fresh and nutritious meals throughout a patient’s stay in order to promote healthy routines, beginning with diet and exercise. Our facilities will offer comprehensive work-out facilities either on-site or within walking distance, as well as various exercise classes and other amenities. We will support long-term recovery for patients through research-based methodologies and individualized treatment planning while utilizing 12-step programs, which are a set of guiding principles outlining a course of action for recovery.

We plan to have a differentiated ability to manage dual diagnosis cases and coordinate treatment of individuals suffering from the common combination of mental illness and substance abuse simultaneously. These patients participate in education and discussion-oriented groups designed to provide information regarding the psychiatric disorders that co-occur with chemical dependency.

We plan to have a strong emphasis on tracking patient satisfaction scores in order to measure our patient and staff interaction and overall outcome and reputation. In addition to patient satisfaction surveys that we will receive after a patient’s discharge, we also will solicit feedback during a patient’s stay at our inpatient facilities. This allows us to further tailor an impairment chargeindividual’s treatment plan to earningsemphasize the programs that have been more impactful to a particular patient.

We believe in future periods.tracking clinical outcomes. We intend to track and measure patient outcomes in order to drive continual improvement in our programs.

We plan offer a full spectrum of treatment services to patients based upon individual needs that are assessed through comprehensive evaluations at admission and throughout their participation in the program. The assignment and frequency of services will correspond to individualized treatment plans within the context of the level of care and treatment intensity level.

Business Strategies

Vital plans to hire highly trained and experienced clinical staff to deploy research-based treatment programs with structured curricula for detoxification, inpatient treatment, partial hospitalization, and intensive outpatient care. By keeping the majority of its treatment facilities and housing on campuses that are conveniently located within walking distance to traditional community services, we are striving to create so-called ‘sober cities’ in the United States that will nurture its clients’ development at all stages from detox to long-term self-sufficiency. By applying a tailored treatment program based on the individual needs of each patient, many of whom require treatment for a co-occurring mental health disorder such as depression, bipolar disorder, or schizophrenia, we believe we will offer the level of quality care and service necessary for our patients to achieve and maintain sobriety. Development of our business and the Vital Behavioral Health and Vital Sober Living national brands is contingent upon our ability to raise sufficient funds to fund hiring clinical experts, leasing facilities, and hiring professional staff, and national sales and marketing programs. We will engage the following strategies:

Sales and Marketing

We intend to use a multi-faceted approach to reach potential patients suffering from the disease of addiction and co-occurring psychiatric disorders. This multi-pronged approach will include:

The extent that we are able to implement the foregoing or even able to implement any of the foregoing sales and marketing plans are contingent upon adequate funding, of which there are no assurances.

Admissions Center Operations

We intend to maintain a 24-hours per day, seven days per week, remote admissions center. Our centralized admissions center initially will be provided by a third-party provider that will focus on outreach and enrolling patients. As part of its role, the admissions center team will conduct benefits verification, handle initial communication with insurance companies, complete patient intake screenings, consult with our clinicians where necessary regarding a potential patient’s specific medical or psychological condition, begin the pre-certification process for treatment authorization, help each patient choose a proper treatment facility for his or her clinical and financial needs, and assist patients with arrangements and logistics.

Professional Groups

We plan to become affiliated with groups of physicians and mid-level service providers that may provide certain professional services to our patients through professional services agreements with certain of our treatment facilities (the “Professional Groups”). Under the professional services agreements, the Professional Groups may provide a physician to serve as medical director for the applicable facility. The Professional Groups may either bill the payor for their services directly or be compensated by the treatment facility based on fair market value hourly rates.

Competition

Our competitors have greater assets, revenues, operational resources and financial resources than we do. The market for mental health and substance abuse treatment facilities is highly fragmented with approximately 12,000 different companies providing services to the adult and adolescent population, of which only 30% are operated by for-profit organizations (Source: DHHS, 2020 Data on Substance Abuse Treatment Facilities). Our inpatient treatment facilities will compete with several national competitors and many regional and local competitors. Some of our competitors are government entities that are supported by tax revenue, and others are non-profit entities that are primarily supported by endowments and charitable contributions. We do not receive financial support from these sources. Some larger companies in our industry compete with us on a national scale and offer substance use treatment services among other behavioral healthcare services. To a lesser extent, we also compete with other providers of substance use treatment services, including other inpatient behavioral healthcare facilities and general acute care hospitals.

We believe the primary competitive factors affecting our business include:

Revenues

We plan to generate revenues through our Vital Behavioral Health operations from behavioral health treatment services at our inpatient and outpatient treatment facilities, which will be derived from personally funded patients (i.e., private payor), insurance companies (e.g., United Healthcare and Blue Cross and Blue Shield), and government program payors (e.g., Medicaid and Medicare) that act as the primary payment or reimbursement source of funds for our patient services. We also plan to generate revenues through our Vital Sober Living operations as a landlord through the provision of sober living residences that are supported by our Vital Behavioral Health patient services. Initially, we expect that our revenue-producing operations will commence in Frankfort, Kentucky.

RESULTS OF OPERATIONS

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a "smaller reporting company" (as defined by Item 10 of Regulation S-K), the Company is not required to provide the information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31,September 30, 2021, our disclosure controls and procedures were not effective due to the size and nature of the existing business operation. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedure will not be implemented until they can be effectively executed and monitored. As a result of the size of the current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31,September 30, 2021, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings