NOTES AND CONVERTIBLE NOTES PAYABLE

3 Months Ended

Sep. 30, 2021

NOTE 6 – NOTES AND CONVERTIBLE NOTES PAYABLE

The Company’s notes payable consists of the following:

Note Description	September 30, 2021			June 30, 2021
Notes Payable:
Related Party Notes Payable due October 2020 a nominal interest rate of 6%	$	117,560		$	114,560
Notes Payable due August 2022 a nominal interest rate of 12%		500,000			-
Total Notes payable	$	617,560		$	114,560
Unamortized discount		(60,500	)		-
Notes payable, net		557,060			114,560
Accrued interest		14,496			13,199
Total notes payable, net	$	572,006		$	127,759

Throughout the fiscal year ended 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 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:

	September 30,			June 30,
Convertible Note Description	2021			2021
Notes payable convertible into common stock at $0.025 per share; nominal interest rate of 12%; and matured in April 2018 (related party)	$	65,000		$	65,000
Notes payable convertible into common stock at $0.05 per share; nominal interest rate of 12%; and matures in March 2022		100,000			100,000
Notes payable convertible into common stock at $0.10 per share; nominal interest rate of 12%; and matures in February 2022		15,000			15,000
Notes payable convertible into common stock at $0.05 per share; nominal interest rate of 12%; and matures in July 2022		41,000			-
Total Convertible notes payable	$	221,000		$	180,000
Unamortized discount		(30,585	)		(17,452	)
Convertible notes payable, net		190,415			162,548
Accrued interest		74,870			70,600
Total convertible notes payable, net	$	265,285		$	233,148

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

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

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

In July 2021, the Company entered into a total of $41,000 12% convertible promissory notes (3 notes total) with three investors. The convertible notes automatically convert at maturity in July 2022 at a conversion price of $0.05.

As of 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 months ended 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 on the 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, and recorded $11,092 and $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 had 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 was $838,560 and $294,560, respectively.

UPD HOLDING CORP. 10-Q