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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2022

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________

Commission file number: 001-13621

UPD HOLDING CORP.

(Exact name of Registrant as specified in its charter)

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

75 Pringle Way, 8th Floor, Suite 804

Reno, Nevada 89502

(Address of principal executive offices, including zip code)

775-829-7999

(Registrant’s telephone number, including area code)

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

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


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $.005 par value		OTC OB

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

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 x No ¨

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

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). o Yes x No

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.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer x		Smaller reporting company x
		Emerging growth company o

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

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

The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant as of December 31, 2021 (the last business day of the registrants most recently completed second fiscal quarter), was approximately $4,745,391.

As of March 28, 2023, the registrant had 194,982,479 shares of its $0.005 par value common stock issued and outstanding.

Documents incorporated by reference: None.

UPD HOLDING CORP.

TABLE OF CONTENTS

		Page

Cautionary Statement on Forward-Looking Statements		3

PART I

Item 1	Business	3
Item 1A	Risk Factors	17
Item 1B	Unresolved Staff Comments	32
Item 2	Properties	32
Item 3	Legal Proceedings	32
Item 4	Mine Safety Disclosures	32

PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	32
Item 6	Selected Financial Data	33
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8	Financial Statements and Supplementary Data	38
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A	Controls and Procedures	59
Item 9B	Other Information	59

PART III

Item 10	Directors, Executive Officers and Corporate Governance	60
Item 11	Executive Compensation	63
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13	Certain Relationships and Related Transactions, and Director Independence	65
Item 14	Principal Accountant Fees and Services	66

PART IV

Item 15	Exhibits and Financial Statement Schedules	67

SIGNATURES		68

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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report on Form 10-K that are not historical fact are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. 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

UPD Holding Corp is referred to herein as “we”, “our”, or “us”

ITEM 1.

BUSINESS

Incorporation

We were incorporated in the state of Nevada on June 6, 1988.

Our Subsidiaries

Our wholly owned subsidiaries consist of the following:

United Project Development Corporation (“United Project”), incorporated in Nevada on June 12, 2015.

Vital Behavioral Health, Inc. (“Vital”) incorporated in Nevada on October 1, 2020.

iMetabolic Corp (“iMetabolic”) incorporated in Nevada on July 1, 2013.

Vital’s subsidiaries consist of:

VBH Frankfort, LLC (“VBHF”)

VSL Frankfort LLC (“VSLF”)

The Vital Acquisition

On February 16, 2021, we completed a Stock Exchange Agreement with Vital and each of its shareholders, providing for:

Our acquisition of 100% of Vital’s outstanding shares via our issuance of 16,840,000 shares to Vital in exchange for 100% of Vital’s outstanding shares, at which time Vital became our wholly-owned subsidiary.

Our acquiring Vital’s assets and assuming Vital’s liabilities and its 2 wholly owned subsidiaries, VBHF and VSLF.

Pursuant to the Vital acquisition, we adopted our new business plan of providing inpatient and outpatient substance use treatment services for individuals with drug addiction, alcohol addiction, and co-occurring mental/behavioral health issues through facilities that we will operate.

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On February 17, 2021, Vital formed the following 2 new Nevada incorporated entities, which became Vital’s wholly owned subsidiaries:

VBH Kentucky, Inc. (“VVHK”)

VBH Garden Grove, Inc. (“VVH Garden”)

On January, 5, 2022, VBH Garden Grove Inc., a Nevada corporation, changed its name to VBH Georgia Inc.

VBH Kentucky, Inc.

VBH Kentucky succeeded to all of the preexisting and intended operations of VBH Frankfort (a wholly-owned predecessor entity of Vital), which substantially concluded all of its material operations as of May 3, 2021. VBH Kentucky operates an outpatient substance abuse treatment facility in Frankfort, Kentucky, for which we have secured a lease as disclosed below. On August 26, 2021, we received a license to operate a non-hospital based alcohol and other drug treatment facility from the Kentucky Cabinet for Health and Family Services Office of the Inspector General.

VSL Frankfort, LLC

VSL Frankfort will offer sober-designated living quarters for individuals who are in recovery in conjunction with the Frankfort, Kentucky facility operated by VBH Kentucky. We anticipate hiring 4 full time and 3 part time employees at our Frankfort facility, including a full time Clinical Director.

VBH Georgia, Inc.

VBH Georgia Inc. leased a facility in Fayetteville, Georgia beginning August 1, 2021 for an initial term of 18 months with a 5-year extension option. The facility is intended be used for in-patient services upon the receipt of regulatory approval.

Business Mission

We intend to be a provider of inpatient and outpatient substance use treatment services for individuals with drug addiction, alcohol addiction, and co-occurring mental/behavioral health issues through facilities that we operate. In connection with those treatment services we intend to perform clinical diagnostic laboratory services and provide physician services to our patients. Our operations are conducted through our subsidiaries as detailed below.

Prior Business History

Record Street Brewing Company – Craft Beer Business

On December 31, 2017, we closed on an Agreement of Exchange and Plan of Reorganization with Record Street Brewing Co. (“RSB”), a Nevada corporation (“RSB”), which required us to issue 80,000,000 of our restricted common stock shares to RSB’s 4 shareholders for all of RSB’s outstanding capital stock. We purchased RSB to pursue the craft beer business.

On December 31, 2020, we discontinued RSB’s operations pursuant to an Assumption Agreement between us and RSB whereby 100% of the issued and outstanding common stock of RSB was assigned to RSB’s co-founder/beneficial owner, the purchaser agreed to assume RSB’s outstanding liabilities of $251,164, and RSB acquired the rights to all royalties associated with the intellectual property licensing we previously held. During the years ended June 30, 2021 and 2020, RSB did not engage in material operations or generate material revenues.

RSB's business model was based upon a contract brewer and U.S. west coast distribution model that was permanently impacted by the loss of both its contract brewer and its statewide California distributor in close time proximity. In connection therewith, , RSB's original contract brewer, Mendocino Brewing Company, filed for bankruptcy and ceased to provide contract brewing services, and RSB's California distributor, Young's Market Company, LLC, exited the beer distribution business in California. RSB’s efforts to replace those vendors, however, were unsuccessful, and we determined that it was in our best interests to exit the adult beverage business in favor of the health and wellness business.

iMetabolic Corporation – Weight Loss and Weight Management Products

On July 1, 2013, we formed iMetabolic Corporation (“IMET”) in Nevada for the purpose of marketing products under the brand “iMetabolic” that previously were sold by the brand’s licensor, International Metabolic Institute LLC (“IMI”), as well trademark rights to IMET on July 22, 2013 (the “License”). The License was amended on March 16, 2015 to clarify IMET’s and IMI’s future rights. IMI produced a line of weight loss and weight management products, including, but not limited to, proprietary blend meal replacements, dietary specialty foods, and nutraceuticals, which are sold at IMI’s company store and doctors’ offices pursuant to a reservation of rights by IMI in the License and on IMI’s website at www.imetabolic.com. On October 5, 2021, pursuant to a termination agreement with IMET, we terminated IMI’s business and the license.

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DESCRIPTION OF OUR CURRENT BUSINESS – REHABILITATION SERVICES

The Lexington, Kentucky Lease and Lease Cancellation

On January 14, 2021, our wholly owned subsidiary, United Product Development Corporation, entered into a commercial 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 (the “Lexington Lease”). 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 for the first lease year and a 3% rental increase for each succeeding lease year. We were only obligated to pay $20,000 per month for up to the first six months until the property was re-zoned and licensed for our planned rehabilitation operations. The Lexington Lease 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.

On May 20, 2021, the Company terminated the Lexington Lease due to zoning and licensing challenges associated with the facility.

The Frankfort, Kentucky Lease

On November 18, 2020, VBH Frankfort as the tenant entered into a commercial lease (the “Frankfort Lease”) with Kell Properties, LLC, a Kentucky limited liability company, for the lease of 4,015 square feet of office space in Units B, C, and D of 915 Leawood Dr, Frankfort, Kentucky (i.e., the Frankfort Facility). The term of the Frankfort Lease is twenty-four months with no explicit extension options. The base monthly payment of the term of the Frankfort Lease is $2,365. The Frankfort Lease commenced on February 1, 2021 and was assigned to VBH Kentucky, effective as of April 1, 2021. VBH Kentucky intends to develop the Frankfort Facility for the purpose of operating an outpatient substance abuse treatment facility On August 26, 2021, our Non-Hospital-based Alcohol and Other Drug Treatment Entity (“AODE”) was approved by the Kentucky Office of the Inspector General.

The Fayetteville, Georgia Lease

VBH Georgia Inc. leased a facility in Fayetteville, Georgia beginning August 1, 2021 with an initial base rent of $13,617 per month for an initial term of 18 months with a 5-year extension option. The facility is intended be used for in-patient services upon the receipt of regulatory approval. The Company estimated the lease liability associated with the facility using a discount rate of 7.7%. The discount rate is based on an estimate of the Company’s incremental borrowing rate for a term similar to the lease term on the commencement date.

Business of Vital Behavioral Health, Inc.

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

Obtain sufficient debt or equity financing to operate U.S. substance abuse facilities.

Secure leases for the substance abuse facilities.

Secure and have approved the required state licenses to operate the substance abuse facilities.

Meet applicable zoning requirements.

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 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.

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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 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 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 is 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 it 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 the 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 individual’s treatment plan to emphasize the programs that have been more impactful to a particular patient.

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

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We plan to 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.

Detoxification (“detox”). Detoxification is usually conducted at an inpatient facility for patients with physical or psychological dependence. Detoxification services are designed to clear toxins out of the body so that the body can safely adjust and heal itself after being dependent upon a substance. Patients are medically monitored 24 hours per day, seven days per week, by experienced medical professionals who work to alleviate withdrawal symptoms through medication, as appropriate. We plan to provide detoxification services for several substances including alcohol, sedatives, and opiates.

Residential Treatment. Residential care is a structured treatment approach designed to prepare patients to return to the general community with a sober lifestyle, increased functionality, and improved overall wellness. Treatment is provided on a 24 hours per day, seven days per week basis, and services generally include a minimum of two individual therapy sessions per week, regular group therapy, family therapy, didactic and psycho-educational groups, exercise (if cleared by medical staff), case management, and recreational activities. Medical and psychiatric care will be available to all patients, as needed, through our planned contracted professional physician groups.

Partial Hospitalization. Partial hospitalization is a structured program providing care a minimum of 20 hours per week. This program is designed for patients who are stable enough physically and psychologically to participate in everyday activities but who still require a degree of medical monitoring. Services include a minimum of weekly individual therapy, regular group therapy, family education and family therapy, didactic and psycho-educational groups, exercise (if cleared by medical staff), case management, and off-site recovery meetings and activities. Medical and psychiatric care will be available to all patients, as needed, through our planned contracted professional physician groups.

Intensive Outpatient Services. Less intensive than the aforementioned levels of care, intensive outpatient services are comprised of a structured program providing care three days per week for three hours per day at a minimum. Designed as a “step down” from partial hospitalization, this program reinforces progress and assists in the attainment of sobriety, reduction of detrimental behaviors, and improved overall wellness of patients while they integrate and interact in the community. Services include weekly individual therapy, group therapy, family education and family therapy, didactic and psycho-educational groups, case management, off-site recovery meetings and activities, and intensive transitional and aftercare planning.

Outpatient Services. Traditional outpatient services are delivered in regularly scheduled sessions, usually less the nine hours per week. Outpatient services include professionally directed screening, assessment, therapy, and other services designed to support successful transition to the community and long-term recovery. These services are tailored to a person’s specific needs and stage of recovery and may involve many modalities, including motivational enhancement, family therapy, educational groups, occupational and recreational therapy, psychotherapy, and pharmacotherapy.

Ancillary Services. In addition to our inpatient and outpatient treatment services, we intend to provide medical monitoring for adherence to addiction treatment, clinical diagnostic laboratory services, and physician services to our patients through our contracted laboratories and professional physician groups. We believe toxicological monitoring of patients is an important component of substance abuse treatment. Patients are evaluated for illicit substances upon admission and thereafter on a random basis and as otherwise determined to be medically necessary by the treating physician.

Sober Living Facilities. We plan to provide sober living arrangements that serve as an interim environment for patients transitioning from inpatient treatment centers to lower levels of care and eventually back to their former living arrangements. Sober living facilities enable us to utilize existing beds for patients requiring higher levels of care, while still providing housing for patients completing outpatient treatment programs. We provide sober living arrangements to patients through our owned and leased properties in Texas, Nevada, Mississippi, and Florida. We plan to continue using sober living facilities as a complement to our outpatient services.

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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:

Clinical excellence and outcomes-driven treatment. Our operations require us to comply with the national standard for quality and sustainable outcomes in addiction treatment and to ongoing measurement and transparency regarding patient outcomes. In addition to measurement of patient outcomes and satisfaction with treatment, we plan to advance utilization of modern, evidence-based interventions that address addiction as a chronic brain disease, as supported by the science.

Improve census over time at existing facilities. We plan to connect with potential patients through a multi-faceted program that involves education about the disease of addiction and the development of relationships with healthcare professionals, digital marketing, as well as such traditional channels as television, radio and print advertising. We plan to will take a consultative, empathetic approach in operating our admissions department to allow our personnel to effectively identify and enroll patients who may benefit from our treatment service offerings.

Target complementary growth opportunities. We plan to pursue growth opportunities that are complementary to our business, including providing laboratory services to other substance abuse treatment providers and expanding other ancillary services.

Develop outpatient operations. We plan to selectively pursue opportunities to add outpatient centers to complement our broader network of inpatient treatment facilities. We believe expanding our reach by developing or acquiring premium outpatient facilities of a quality consistent with our inpatient services will further enhance our brand and our ability to provide a more comprehensive suite of services across the spectrum of care.

Opportunistically diversify our portfolio of treatment facilities. We intend to selectively seek acquisition opportunities to expand and diversify our geographic presence, service offerings, and the portion of the population that can access our services based on their individual healthcare coverage We believe that most mental health and substance abuse treatment companies in operation are small, regional operations and this high level of fragmentation presents us with the opportunity to acquire facilities or small providers and create economies of scale and enhanced patient care. All of the above plans are contingent upon adequate funding of which there are no assurances.

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:

National Marketing Force. We intend to deploy and manage a team of representatives that will focus on developing relationships with hospitals, other treatment facilities, psychiatrists, therapists, social workers, employers, unions, alumni, and employee assistance programs. Our sales representatives will educate these various constituents about the disease of addiction and the variety of treatment services that we provide.

Multi-Media Marketing. Through comprehensive online directories of treatment providers, treatment provider reviews, user content that discusses the disease of addiction, treatment and recovery, as well as discussion forums and professional communities, our future addiction-related websites will serve families and individuals who are struggling with addiction and seeking treatment options. Additionally, we plan to pursue advertising opportunities in television commercials, radio spots, newspaper articles, medical journals, and other print media that promote our facilities and have the intent to build our integrated, national brand.

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Recommendations by Alumni. We anticipate receiving new patients who are directly referred to our facilities by our satisfied and supportive alumni, as well as their friends and families. As our national brand continues to grow and our business continues to increase, we believe our alumni will become an increasingly important source of business for us.

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 15,163 different companies providing services to the adult and adolescent population, of which only 30% are operated by for-profit organizations (Source: IBISworld 2023 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:

quality of clinical programs and services;

reputation and brand recognition;

overall aesthetics of the facilities;

amenities offered to patients;

relationships with payors and referral sources;

sales and marketing capabilities;

information systems and proprietary data analytics;

senior management experience; and

national scope of operations.

Legal Proceedings

There are no legal actions currently threatened or pending against us, our subsidiaries, or the Vital Subsidiaries.

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Research and Development

We did not incur any research and development expenditures over the last two fiscal years or since our inception.

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.

Intellectual Property

We have no registered patents, trademarks, or other intellectual property.

Dependence On One or a Few Major Customers

We do not anticipate being depending upon any one or a few major customers since our facilities will accommodate multiple patients.

Seasonality of Business

Seasonality does not materially affect our business.

Government Regulations

Introduction

Healthcare service providers are required to comply with extensive and complex laws and regulations at the federal, state, and local government levels, including:

licensure, certification and accreditation of substance use treatment services;

licensure, Clinical Laboratory Improvement Amendments of 1988 (CLIA) certification and accreditation of laboratory services;

handling, administration and distribution of controlled substances;

necessity and adequacy of care and quality of services;

licensure, certification and qualifications of professional and support personnel;

referrals of patients and permissible relationships with physicians and other referral sources;

claim submission and collections, including penalties for the submission of, or causing the submission of, false, fraudulent or misleading claims and the failure to repay overpayments in a timely manner;

extensive conditions of participation for Medicare and Medicaid programs

consumer protection issues and billing and collection of patient-owed accounts issues;

communications with patients and consumers, including laws intended to prevent misleading marketing practices;

privacy and security of health-related information, patient personal information and medical records;

physical plant planning, construction of new facilities and expansion of existing facilities;

activities regarding competitors;

U.S. Federal Drug Administration (FDA) laws and regulations related to drugs and medical devices;

operational, personnel and quality requirements intended to ensure that clinical testing services are accurate, reliable and timely;

health and safety of employees;

handling, transportation and disposal of medical specimens and infectious and hazardous waste;

corporate practice of medicine, fee-splitting, self-referral and kickback prohibitions, including recent state and federal laws intended to eliminate bribes and kickbacks; and

the SUPPORT for Patients and Communities Act, which became law on October 24, 2018.

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Substance abuse treatment providers are regulated extensively at the federal, state, and local levels. In order to operate our business and obtain reimbursement from third-party payors, we must obtain and maintain a variety of licenses, permits, certifications, and accreditations. We also must comply with numerous other laws and regulations applicable to the provision of substance abuse disorder services. Our facilities also are subject to periodic on-site inspections by the regulatory and accreditation agencies in order to determine our compliance with applicable requirements.

The laws and regulations that affect substance abuse treatment providers are complex and change frequently. We must regularly review our organization and operations and make changes as necessary to comply with changes in the law or new interpretations of laws or regulations. In recent years, significant public attention has focused on the healthcare industry, including attention to the conduct of industry participants and the cost of healthcare services. Federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts relating to the healthcare industry. The ongoing investigations relate to, among other things, referral practices, cost reporting, billing practices, credit balances, physician ownership, and joint ventures involving hospitals and other healthcare providers. Recently, federal and state governmental officials have focused on fraud and abuse in the addiction treatment industry. In particular, new laws and regulations have been passed in recent years that are intended to prohibit the payment of kickbacks, bribes, and other inducements in exchange for referrals of patients to treatment providers, including residential treatment centers and outpatient programs. We expect that healthcare costs and other factors will continue to encourage both the development of new laws and regulations and increased enforcement activity, including among substance abuse treatment providers.

While we believe we are in substantial compliance with all applicable laws and regulations, and we are not aware of any material pending or threatened investigations involving allegations of wrongdoing, there can be no assurances of compliance. Compliance with such laws and regulations may be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from government health programs.

Environmental, Health and Safety Matters

We are subject to various federal, state, and local environmental laws that: (i) regulate certain activities and operations that may have environmental or health and safety effects, such as the handling, storage, transportation, treatment, and disposal of medical and pharmaceutical waste products generated at our facilities, the presence of other hazardous substances in the indoor environment and protection of the environment and natural resources in connection with the development or construction of our facilities; (ii) impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site or other releases of hazardous materials or regulated substances; and (iii) regulate workplace safety, including the safety of workers who may be exposed to blood-borne pathogens such as HIV, the hepatitis B virus, and the hepatitis C virus. Our laboratory and some of our treatment facilities generate infectious or other hazardous medical waste due to the illness or physical condition of our patients and in connection with performing laboratory tests. The management of infectious medical waste is subject to regulation under various federal, state, and local environmental laws that establish management requirements for such waste. These requirements include recordkeeping, notice, and reporting obligations. Management believes that our operations are generally in compliance with environmental and health and safety regulatory requirements or that any non-compliance will not result in a material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws and regulations at our facilities, including our laboratory, have not been material.

A CLIA certificate demonstrates that a testing laboratory meets the federal regulations for clinical diagnostic testing, ensuring quality and safety in the laboratory and laboratory results. The Clinical Laboratory Improvement Amendments of 1988 are administered by the Centers for Medicare & Medicaid Services (CMS).

The United States has recently enacted the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) to create a new federal crime for knowingly and willfully: (1) soliciting or receiving any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or (2) paying or offering any remuneration to induce such a referral or in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory. Certain states, including Florida, have enacted similar laws, or will likely enact similar laws in the future.

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Licensure, Accreditation, and Certification

All of our substance abuse treatment facilities will be licensed under applicable state laws where licensure is required. Licensing requirements vary significantly depending upon the state in which a facility is located and the types of services provided. The types of licensed services that our facilities will provide include medical detox, inpatient, partial hospitalization, intensive outpatient, outpatient treatment, ambulatory detox, and community housing. In addition, our employed case managers, therapists, nurses, medical providers, and technicians may be subject to individual state license requirements.

Our facilities that store and dispense controlled substances will be required to register with the U.S. Drug Enforcement Administration (“DEA”) and abide by DEA regulations regarding controlled substances. Each of our substance abuse treatment facilities will obtain accreditation from the Commission on Accreditation of Rehabilitation Facilities (“CARF”) and/or The Joint Commission, which are the primary accreditation bodies in the substance abuse treatment industry. This type of accreditation program is intended to improve the quality, safety, outcomes, and value of healthcare services provided by accredited facilities. CARF and The Joint Commission require an initial application and completion of on-site surveys demonstrating compliance with accreditation requirements. Accreditation is granted for a specified period, typically ranging from one to three years, and renewals of accreditation require completion of a renewal application and an on-site renewal survey.

The Clinical Laboratory Improvement Amendments of 1988 regulates virtually all clinical laboratories by requiring that they be certified by the federal government and comply with various technical, operational, personnel, and quality requirements intended to ensure that laboratory testing services are accurate, reliable, and timely. Standards for testing under CLIA are based on the level of complexity of the tests performed by the laboratory. A CLIA certificate of waiver may be sought by our treatment facilities that only perform the types of tests waived under CLIA, such as point-of-care drug analysis, glucose monitoring, and pregnancy testing.

We will contract with third-party clinical laboratory facilities to perform high complexity testing. Each such laboratory will hold a CLIA certificate of accreditation, certifying that it meets more stringent requirements than laboratories performing less complex testing. CLIA does not preempt state laws that may be more stringent than federal law. State laws may require additional personnel qualifications, quality control, record maintenance and/or proficiency testing. A number of states in which we intend to operate have implemented their own regulatory and licensure requirements. In addition, some states require laboratories that solicit or test samples collected from individuals within that state to hold a laboratory license even though the laboratory does not have physical operations within the state.

We intend that all of our in-house and outside contracted facilities and programs will be in substantial compliance with the then-current applicable state and local licensure, certification, and accreditation requirements. Periodically, state and local regulatory agencies, as well as accreditation entities, will conduct surveys of our facilities and may find that a facility is not in full compliance with all of the accreditation standards. Upon receipt of any such finding, the facility will submit a plan of correction and remedy any cited deficiencies.

FDA Laws and Regulations

The Food and Drug Administration (“FDA”) has regulatory responsibility over, among other areas, instruments, test kits, reagents, and other devices used by clinical laboratories to perform diagnostic testing. We may develop esoteric tests that are offered as laboratory developed tests (“LDTs”). The FDA has claimed regulatory authority over all LDTs but exercises enforcement discretion in not mandating FDA approval for most LDTs performed by high complexity CLIA certified laboratories. The FDA released draft guidance in 2014 that would increase regulation of LDTs but has indefinitely delayed finalizing the guidance.

Fraud, Abuse and Self-Referral Laws

We intend that most of our treatment facilities will be enrolled in Medicare or Medicaid and bill and accept payments from those governmental programs. Therefore, the majority of our operations will be impacted by the anti-kickback provisions of the Social Security Act, commonly known as the Anti-Kickback Statute, or the federal prohibition on physician self-referrals, commonly referred to as the Stark Law. We expect that over the longer term, an increasing number of our patients will be members of governmental health insurance programs and therefore, these rules and restrictions will increasingly affect our operations.

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The Anti-Kickback Statute prohibits the payment, receipt, offer, or solicitation of remuneration of any kind in exchange for items or services that are reimbursed under federal healthcare programs. The Stark Law prohibits physicians from referring Medicare and Medicaid patients to healthcare providers that furnish certain designated health services, including laboratory services and inpatient and outpatient hospital services, if the physicians or their immediate family members have ownership interests in, or other financial arrangements with, the healthcare providers. Many states have anti-kickback and physician self-referral prohibitions similar to the federal statutes and regulations. Some of these state laws are drafted broadly to cover all payors (i.e., not restricted to Medicare and other federal healthcare programs), and they often lack interpretative guidance. A violation of these laws could result in a prohibition on billing payors for such services, an obligation to refund amounts received, or civil or criminal penalties and could adversely affect the state license of any program or facility found to be in violation.

In addition to the Anti-Kickback Statute, the United States has recently enacted an addiction treatment-specific law known as the Eliminating Kickbacks in Recovery Act (“EKRA”). The EKRA created a new federal crime for knowingly and willfully: (1) soliciting or receiving any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or (2) paying or offering any remuneration to induce such a referral or in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory. Each conviction under EKRA is punishable by up to $200,000 in monetary damages, imprisonment for up to ten (10) years, or both. Unlike the Anti-Kickback Statutes, EKRA is not limited to services reimbursable under a government healthcare program. While EKRA contains certain exceptions similar to the Anti-Kickback Statute Safe Harbors, those exceptions are narrower than the Anti-Kickback Statute Safe Harbors. As such, certain practices that would not have violated the Anti-Kickback Statute may violate EKRA.

Federal prosecutors have broad authority to prosecute healthcare fraud. For example, federal law criminalizes the knowing and willful execution or attempted execution of a scheme or artifice to defraud any healthcare benefit program as well as obtaining by false pretenses any money or property owned by any healthcare benefit program. Federal law also prohibits embezzlement of healthcare funds, false statements relating to healthcare, and obstruction of the investigation of criminal offenses. These federal criminal offenses are enforceable regardless of whether an entity or individual participates in the Medicare program or any other federal healthcare program.

False Claims

We are subject to state and federal laws that govern the submission of claims for reimbursement. These laws generally prohibit an individual or entity from knowingly and willfully presenting a claim (or causing a claim to be presented) for payment from Medicare, Medicaid, or other third-party payors that is false or fraudulent. The standard for “knowing and willful” often includes conduct that amounts to a reckless disregard for whether accurate information is presented by claims processors. Penalties under these statutes include substantial civil and criminal fines, exclusion from the Medicare program, and imprisonment.

One of the most prominent of these laws is the federal False Claims Act (“FCA”), which may be enforced by the federal government directly or by a qui tam plaintiff (or whistleblower) on the government’s behalf. When a private plaintiff brings a qui tam action under the FCA, the defendant often will not be made aware of the lawsuit until the government commences its own investigation or determines whether it will intervene. When a defendant is determined by a court of law to be liable under the FCA, the defendant may be required to pay three times the amount of the alleged false claim, plus mandatory civil penalties of between $11,181 and $22,363 for each separate false claim. These and certain other civil monetary penalties will increase annually based on updates to the consumer price index.

Many states have passed false claims acts similar to the FCA. Under these laws, the government may impose a penalty and recover damages, often treble damages, for knowingly submitting or participating in the submission of claims for payment that are false or fraudulent or which contain false or misleading information. These laws may be limited to specific programs (such as state workers’ compensation programs) or may apply to all payors. In many cases, alleged violations of these laws may be brought by a whistleblower who may be an employee, a referring physician, a competitor, a patient, or other individual or entity, and who may be eligible for a portion of any recovery. Further, like the federal law, state false claims act laws generally protect employed whistleblowers from retribution by their employers.

Although we believe that we have procedures in place to ensure the accurate completion of claims forms and requests for payment, the laws, regulations, and standards defining proper billing, coding, and claim submission are complex and have not been subjected to extensive judicial or agency interpretation. Billing errors can occur despite our best efforts to prevent or correct them, and we cannot assure that the government or a payor will regard such errors as inadvertent and not in violation of the applicable false claims act laws or related statutes.

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Privacy and Security Requirements

There are numerous federal and state regulations that address the privacy and security of patient health information. In particular, federal regulations issued under the Drug Abuse Prevention, Treatment and Rehabilitation Act of 1979 (known as the “Part 2 Regulations”) restrict the disclosure of, and regulate the security of, patient identifiable information related to substance abuse and apply to any of our facilities that receive federal assistance, which is interpreted broadly to include facilities licensed, certified or registered by a federal agency. Further, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), extensively regulates the use and disclosure of individually identifiable health information (known as “protected health information”) and requires covered entities, which include most health providers, to implement and maintain administrative, physical and technical safeguards to protect the security of such information. Additional security requirements apply to electronic protected health information. These regulations also provide patients with substantive rights with respect to their health information.

The HIPAA privacy and security regulations and the Part 2 Regulations also require our substance abuse treatment programs and facilities to impose compliance obligations by written agreement on certain contractors to whom our programs disclose patient information known as “business associates.” Covered entities may be subject to penalties as a result of a business associate violating HIPAA privacy and security regulations if the business associate is found to be an agent of the covered entity. Business associates also are directly subject to liability under the HIPAA privacy and security regulations. In instances where our programs act as a business associate to a covered entity, there is the potential for additional liability beyond the program’s covered entity status.

Covered entities must report breaches of unsecured protected health information to affected individuals without unreasonable delay but not to exceed 60 days of discovery of the breach by a covered entity or its agents. Notification must also be made to the U.S. Department of Health and Human Services (“HHS”), and, in certain situations involving large breaches, to the media. HHS is required to publish on its website a list of all covered entities that report a breach involving more than 500 individuals. All non-permitted uses or disclosures of unsecured protected health information are presumed to be breaches unless the covered entity or business associate establishes that there is a low probability the information has been compromised. Various state laws and regulations may also require us to notify affected individuals in the event of a data breach involving individually identifiable information without regard to whether there is a low probability of the information being compromised.

With HHS’s 2022 updates to penalty amounts, violations of the HIPAA privacy and security regulations may result in civil penalties of up to $60,973 per violation for a maximum civil penalty of $1,919,173 in a calendar year for violations of the same requirement. These penalties will increase annually based on updates to the consumer price index. HIPAA also provides for criminal penalties of up to $250,000 and ten years in prison, with the severest penalties for obtaining or disclosing protected health information with the intent to sell, transfer, or use such information for commercial advantage, personal gain, or malicious harm. In addition, state attorneys general may bring civil actions seeking either injunction or damages in response to violations of the HIPAA privacy and security regulations that threaten the privacy of state residents. HHS is required to impose penalties for violations resulting from willful neglect and to perform compliance audits.

Our programs remain subject to any privacy-related federal or state laws that are more restrictive than the HIPAA privacy and security regulations. These laws vary by state and could impose additional requirements and penalties. For example, some states impose restrictions on the use and disclosure of health information pertaining to mental health or substance abuse treatment. The Federal Trade Commission also uses its consumer protection authority to initiate enforcement actions in response to data breaches or other privacy or security lapses.

We intend to enforce a health information privacy and security compliance plan that we believe complies with the HIPAA privacy and security regulations and other applicable requirements. We may be required to make operational changes to comply with revisions made to the Part 2 Regulations that generally became effective on August 14, 2020.

Mental Health Legislation and Reform Efforts

The regulatory framework in which we operate is constantly changing. For example, the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), is a federal parity law that requires large group health insurance plans that offer mental health and addiction coverage to provide that coverage on par with financial requirements and treatment limitations of coverage offered for other illnesses. The scope of coverage offered by health plans must comply with federal and state laws and must be consistent with generally recognized independent standards of current medical practice. The MHPAEA also contains a cost exemption that operates to temporarily exempt a group health plan from the MHPAEA’s requirements if compliance with the MHPAEA becomes too costly.

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The 21^st Century Cures Act (“Cures Act”), enacted in 2016, requires development of an action plan for enhanced enforcement of mental health parity requirements and additional compliance guidance for health plans regarding coverage under parity laws. Among other initiatives aimed at improving care for people with mental health and substance use disorders, the Cures Act includes provisions intended to increase the healthcare workforce dedicated to such treatment and expand programs that divert people with mental health and substance use disorders toward alternatives to incarceration. However, the impact of the Cures Act largely depends on its implementation by agencies such as HHS and on future appropriations by Congress.

Over the last decade, the U.S. Congress and certain state legislatures have passed a large number of laws intended to result in extensive change to the healthcare industry. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively known as the Affordable Care Act, is the most prominent of these legislative reform efforts. It resulted in reforms to the health insurance market and expansion of public program coverage, among other changes. As currently structured, the law requires all non-grandfathered small group and individual market health plans to cover ten essential health benefit categories, which currently include substance abuse addiction and mental health disorder services.

The Affordable Care Act poses both opportunities and risks for us but, overall, the expansion of health insurance coverage under the law has been beneficial for the substance abuse treatment industry. However, the overall and continued impact of the Affordable Care Act is difficult to determine, as the presidential administration and certain members of Congress have stated their intent to repeal or make significant changes to the Affordable Care Act, its implementation and its interpretation. For example, in October 2017, the president signed an executive order directing agencies to relax limits on certain health plans, potentially allowing for fewer plans that adhere to specific Affordable Care Act coverage mandates. In 2018, a federal district court in Texas ruled that the Affordable Care Act, in its entirety, is invalid. That decision has been stayed pending appeal, and will likely remain unresolved until finally decided by the United States Supreme Court. Further, effective January 1, 2019, Congress eliminated the financial penalty associated with the individual mandate that was established by the Affordable Care Act.

Addiction Treatment Legislation

In October 2018, Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the “SUPPORT Act”). The SUPPORT Act contains a number of provisions aimed at identifying at-risk individuals, increasing access to opioid abuse treatment, reducing overprescribing, funding treatment related research, and promoting data sharing with the primary goal of reducing the use and abuse of opioids. Most of the funding made available for treatment through the SUPPORT Act will be limited to patients covered by federal healthcare programs such as Medicaid. The SUPPORT Act also contains an addiction treatment-specific law known as the Eliminating Kickbacks in Recovery Act.

Health Planning and Certificates of Need

The construction of new healthcare facilities, the expansion, transfer, or change of ownership of existing facilities and the addition of new beds, services, or equipment may be subject to state laws that require prior approval by state regulatory agencies under certificate of need (“CON”) or determination of need (“DON”) laws. These laws generally require that a state agency determine the public need for construction or acquisition of facilities or the addition of new services. Review of CON or DON applications and other healthcare planning initiatives may be lengthy and may require public hearings. Violations of these state laws may result in the imposition of civil sanctions or revocation of a facility’s license.

Other State Healthcare Laws

Most states have a variety of laws that may potentially impact our operations and business practices. For instance, many states in which our programs may operate prohibit corporations (and other legal entities) from practicing medicine by employing physicians and certain non-physician practitioners. These prohibitions on the corporate practice of medicine impact how our programs structure their relationships with physicians and other affected non-physician practitioners. These arrangements, however, have typically not been vetted by either a court or the applicable regulatory body.

Similarly, many states prohibit physicians from sharing a portion of their professional fees with any other person or entity. These so-called fee-splitting prohibitions range from prohibiting arrangements resembling a kickback to broadly prohibiting percentage-based compensation and other variable compensation arrangements with physicians.

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If our arrangements with physicians are found to violate a corporate practice of medicine prohibition or a state fee-splitting prohibition, our contractual arrangements with physicians in such states could be adversely affected, which, in turn, may adversely affect both our operations and profitability. Further, we could face sanctions for aiding and abetting the violation of the state’s medical practice act.

State governments have in recent years increased regulation of addiction treatment providers. A number of states, such as Florida, have passed laws prohibiting patient brokering, which broadly refers to the practice of paying or receiving kickbacks or other benefits in exchange for patient referrals. A number of these statutes mirror federal healthcare Anti-Kickback Laws and, in some instances, the restrictions apply regardless of whether the payor source is a governmental or commercial entity. Further, some state governments have passed statutes aimed at prohibiting deceptive online addiction treatment marketing practices, such as the operation of websites and affiliated admission centers without disclosure to the caller about existing financial arrangements to promote particular treatment centers. We expect that these kinds of regulations and restrictions to increase.

Local Land Use and Zoning

Municipal and other local governments may also regulate our treatment programs. Many of our facilities must comply with zoning and land use requirements in order to operate. For example, local zoning authorities regulate not only the physical properties of a healthcare facility, such as its height and size, but also the location and activities of the facility. In addition, community or political objections to the placement of treatment facilities can result in delays in the land use permit process and may prevent the operation of facilities in certain areas.

Risk Management and Insurance

The healthcare industry in general continues to experience an increase in the frequency and severity of litigation and claims. Like other providers of healthcare-related services, we could be subject to claims that our services have resulted in injury to our patients or had other adverse effects. In addition, resident, visitor and employee injuries could also subject us to the risk of litigation. While we believe that quality care is provided to our patients and that we substantially comply with all applicable regulatory requirements, an adverse determination in a legal proceeding or government investigation could have a material adverse effect on our financial condition.

Compliance Programs

Compliance with government rules and regulations is a significant concern throughout our industry, in part due to evolving interpretations of these rules and regulations. We seek to conduct our business in compliance with all statutes and regulations applicable to our operations. Our executive management team is responsible for the oversight and operation of our compliance program. We intent to provide periodic and comprehensive training programs to our personnel, which are intended to promote the strict observance of our policies designed to ensure compliance with the statutes and regulations applicable to us.

Employees

Effective as of July 1, 2021, we entered into 12 month consulting agreements with CEO Mark Conte and COO Patrick Ogle, providing for compensation of $5,000 per month to each officer for public company administration and behavioral health treatment facility operations No directors were compensated in Fiscal Years 2020 or 2021. We do not currently have a formal plan for compensating our directors.

Our wholly owned subsidiary, VDH Kentucky, Inc. has the following employees:

7 Salary Employees

4 Hourly Employees

1 Director of Operations

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.

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In its report on our financial statements for the year ended June 30, 2022, 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.

Item 1A. Risk Factors

Risks Related to Our Business

Our revenue, profitability and cash flows could be materially adversely affected if we are unable to operate certain key treatment facilities, our corporate office or our laboratory facilities.

We intend to derive a significant portion of our revenue from our flagship treatment facilities located in Kentucky. It is likely that a small number of facilities will continue to contribute a significant portion of our total revenue in any given year for the foreseeable future. Additionally, we have a centralized corporate office that houses our accounting, billing and collections, information technology, and admissions center departments, centralized and marketing offices. We also are building out a high complexity laboratory that will conduct quantitative drug testing and other laboratory services. If any event occurs that results in a complete or partial shutdown of any of these facilities, our centralized corporate office, our centralized marketing offices or laboratory, including, without limitation, any material changes in legislative, regulatory, economic, environmental, or competitive conditions in these states or natural disasters such as hurricanes, earthquakes, tornadoes, or floods or prolonged airline disruptions due to a natural disaster or for any reason, such event could lead to decreased revenue and/or higher operating costs, which could have a material adverse effect on our revenue, profitability, and cash flows.

Any disruption in our national sales and marketing program, including our digital marketing resources, could have a material adverse effect on our business, financial condition, and results of operations.

If any disruption occurs in our national sales and marketing program for any reason, or if we are unable to effectively attract and enroll new patients to our network of facilities, our ability to maintain census could be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations.

Internet search engines play an increasingly important role in addiction treatment marketing. Google and other search engines use complex algorithms to rank websites. The algorithms take into account many factors, including the domain name itself, website content and user-friendly factors such as the speed at which the website pages may be clicked through and viewed. We cannot predict or control changes in algorithms and website rankings, which may result in lower ranking search results for our websites. Additionally, Google and other online platforms have instituted review processes required to advertise on their websites. Some of these processes are time-consuming, complex and continuously evolving. We cannot predict how these private processes, rules and restrictions will evolve or be applied to individual advertising applicants. Unexpected changes in these areas may result in a decrease in calls to our admissions center, a decrease in interactions with potential patients and a lowering of our census, which could have and material adverse effects on our business, financial condition and results of operations.

In addition, our ability to grow or even to maintain our existing level of business depends significantly on our ability to establish and maintain close working and referral relationships with hospitals, other treatment facilities and clinicians, employers, alumni, employee assistance programs and other referral sources. We have no binding commitments with any of these referral sources. We may not be able to maintain our existing referral relationships or develop and maintain new relationships in existing or new markets. Negative changes to our existing referral relationships may cause the number of people to whom we provide care to decrease, which could have material adverse effects on our business, financial condition and results of operations.

If reimbursement rates paid by third-party payors are reduced, if we are unable to maintain favorable contract terms with payors or comply with our payor contract obligations, or if third-party payors otherwise restrain our ability to obtain or provide services to patients, our business, financial condition and results of operation could be adversely affected. This risk is heightened because we are generally an “out-of-network” provider.

Managed care organizations and other third-party payors pay for the services that we provide to many of our patients. We anticipate that approximately 90% or more of our revenue will be reimbursable by third-party payors, including amounts paid by such payors to patients, with the remaining portion payable directly by our patients. If any of these third-party payors reduce their reimbursement rates or elect not to cover some or all of our services, our business, financial condition, and results of operations may be materially adversely affected.

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In addition to limits on the amounts payors will pay for the services we provide to their members or participants, controls imposed by third-party payors designed to reduce admissions and the length of stay for patients, including pre-admission authorizations and utilization review, have affected and are expected to affect our facilities. Utilization review entails the review of the admission and course of treatment of a patient by third-party payors. Inpatient utilization, average lengths of stay, and occupancy rates are likely to be negatively affected by payor-required preadmission authorization and utilization review and by payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients.

We believe that, generally, health insurance companies have become more stringent and aggressive with respect to addiction treatment providers, taking measures that are putting pressure on reimbursement rates, length of stay, and timing of reimbursement throughout the industry. We expect that payor efforts to impose more stringent cost controls will continue. Although we are unable to predict the effect these controls and changes could have on our operations, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on our business, financial condition, and results of operations. If the rates paid or the scope of substance use treatment services covered by third-party commercial payors are reduced, our business, financial condition, and results of operations could be materially adversely affected.

Third-party payors often use plan structures, such as narrow networks or tiered networks, to encourage or require patients to use in-network providers. In-network providers typically provide services through third-party payors for a negotiated lower rate or other less favorable terms. Third-party payors generally attempt to limit use of out-of-network providers by requiring patients to pay higher copayment and/or deductible amounts for out-of-network care. Additionally, third-party payors have become increasingly aggressive in attempting to minimize the use of out-of-network providers by disregarding the assignment of payment from patients to out-of-network providers (i.e., sending payments directly to patients instead of to out-of-network providers), capping out-of-network benefits payable to patients, waiving out-of-pocket payment amounts, and initiating litigation against out-of-network providers for interference with contractual relationships, insurance fraud, and violation of state licensing and consumer protection laws. The majority of third-party payors consider certain of our facilities to be “out-of-network” providers. If third-party payors continue to impose and to increase restrictions on out-of-network providers, our revenue could be threatened, forcing our facilities to participate with third-party payors and accept lower reimbursement rates compared to our historic reimbursement rates.

Third-party payors also are entering into sole source contracts with some healthcare providers, which could effectively limit our pool of potential patients. Moreover, third-party payors are beginning to carve out specific services, including substance abuse treatment and behavioral health services, and establish small, specialized networks of providers for such services at fixed reimbursement rates. Continued growth in the use of carve-out arrangements could materially adversely affect our business to the extent we are not selected to participate in such smaller specialized networks or if the reimbursement rate is not adequate to cover the cost of providing the service.

If reimbursement rates paid by federal or state healthcare programs are reduced or if government payors otherwise restrain our ability to obtain or provide services to patients, our business, financial condition, and results of operation could be adversely affected.

Managed care organizations and other third-party payors, both government and commercial, pay for the services that we provide to many of our patients. We intend for a significant portion of our revenues to come from government healthcare programs, principally Medicare and Medicaid. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities.

We are unable to predict the effect of recent and future policy changes on our operations. In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, deterioration in general economic conditions and the funding requirements from the federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs. Changes in government healthcare programs may reduce the reimbursement we receive and could adversely affect our business and results of operations.

As federal healthcare expenditures continue to increase, and state governments continue to face budgetary shortfalls, federal and state governments have made, and continue to make, significant changes in the Medicare and Medicaid programs. These changes include reductions in reimbursement levels and to new or modified demonstration projects authorized pursuant to Medicaid waivers. Some of these changes have decreased, or could decrease, the amount of money we receive for our services relating to these programs. In some cases, private third-party payers rely on all or portions of Medicare payment systems to determine payment rates. Changes to government health care programs that reduce payments under these programs may negatively impact payments from private third-party payers.

In addition to limits on the amount payors will pay for the services we provide to their members, government and commercial payors attempt to control costs by imposing controls designed to reduce admissions and the length of stay for patients, including preadmission authorizations and utilization review. The ability of governmental payors to control healthcare costs using these measures may be enhanced by the increasing consolidation of insurance and managed care companies and vertical integration of health insurers with healthcare providers. Although we are unable to predict the effect these controls and changes could have on our operations, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on our business, financial condition and results of operations. If the rates paid or the scope of substance use treatment services covered by government payors are reduced, our business, financial condition and results of operations could be materially adversely affected.

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If we overestimate the reimbursement amounts that payors will pay us for out-of-network services performed, it would increase our revenue adjustments, which could have a material adverse effect on our revenue, profitability, and cash flows and lead to significant shifts in our results of operations from quarter to quarter that may make it difficult to project long-term performance.

For out-of-network services, we recognize revenue from payors at the time services are provided based on our estimate of the amount that payors will pay us for the services performed. We estimate the net realizable value of revenue by adjusting gross patient charges using our expected realization and applying this discount to gross patient charges. A significant or sustained decrease in our collection rates could have a material adverse effect on our operating results. There is no assurance that we will be able to maintain or improve historical collection rates in future reporting periods.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If our actual collections either exceed or are less than the net realizable value estimates, we will record a revenue adjustment, either positive or negative, for the difference between our estimate of the receivable and the amount actually collected in the reporting period in which the collection occurred. A significant negative revenue adjustment could have a material adverse effect on our revenue, profitability and cash flows in the reporting period in which such adjustment is recorded. In addition, if we record a significant revenue adjustment, either positive or negative, in any given reporting period, it may lead to significant changes in our results from operations from quarter to quarter, which may limit our ability to make accurate long-term predictions about our future performance.

Certain third-party payors are likely to account for a significant portion of our revenue, and the reduction of reimbursement rates or coverage of services by any such payor could have a material adverse effect on our revenue, profitability and cash flows.

We intend that certain payors such as Medicaid and Medicare will account for a significant portion of our revenue on an annual basis. If any of these or other third-party payors reduce their reimbursement rates for the services we provide or otherwise implement measures, such as specialized networks, that reduce the payments we receive, our revenue, profitability, and cash flows could be materially adversely affected.

A deterioration in the collectability of the accounts receivable could have a material adverse effect on our business, financial condition, and results of operations.

The collection of receivables from third-party payors and patients will be critical to our operating performance. Our primary collection risks are: (i) the risk of overestimating our net revenue at the time of billing, which may result in us receiving less than the recorded receivable; (ii) the risk of non-payment as a result of commercial insurance companies denying claims; (iii) in certain states, the risk that patients will fail to remit insurance payments to us when the commercial insurance company pays out-of-network claims directly to the patient; and (iv) resource and capacity constraints that may prevent us from handling the volume of billing and collection issues in a timely manner. Additionally, our ability to hire and retain experienced personnel may affect our ability to bill and collect accounts in a timely manner.

We intend to routinely review accounts receivable balances in conjunction with these factors and other economic conditions that might ultimately affect the collectability of the patient accounts and to adjust our allowances as warranted. Significant changes in business operations, payor mix or economic conditions, including changes resulting from legislation or other health reform efforts (including to repeal or significantly change the Affordable Care Act), could affect our collection of accounts receivable, cash flows, and results of operations. In addition, future patient concentration in states that permit commercial insurance companies to pay out-of-network claims directly to the patient instead of the provider, such as California and Nevada, could adversely affect our collection of receivables. Unexpected changes in reimbursement rates by third-party payors could have a material adverse effect on our business, financial condition, and results of operations.

Our business depends on our information systems. Failure to effectively integrate, manage, and keep our information systems secure could disrupt our operations and have a material adverse effect on our business.

Our business depends on effective and secure information systems that assist us in, among other things, admitting patients to our facilities, monitoring census and utilization, processing and collecting claims, reporting financial results, measuring outcomes and quality of care, managing regulatory compliance controls, and maintaining operational efficiencies. These systems may include software developed in-house and systems provided by external contractors and other service providers. To the extent that these external contractors or other service providers become insolvent or fail to support the software or systems, our operations could be negatively affected. Our facilities also depend upon our information systems for electronic medical records, accounting, billing, collections, risk management, payroll, and other information. If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to process transactions and produce timely and accurate reports could be adversely affected.

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Our information systems and applications require continual maintenance, upgrading, and enhancement to meet our operational needs. We regularly upgrade and expand our information systems’ capabilities. If we experience difficulties with the transition and integration of information systems or are unable to implement, maintain, or expand our systems properly or in a timely manner, we could suffer from, among other things, operational disruptions, regulatory problems, working capital disruptions, and increases in administrative expenses.

In addition, we could be subject to cybersecurity risks such as a cyber-attack that bypasses our information technology security systems and other security incidents that result in security breaches, including the theft, loss, destruction, or misappropriation of individually identifiable health information subject to HIPAA and other privacy and security laws, proprietary business information, or other confidential or personal data. Such an incident could disrupt our information technology systems, impede clinical operations, cause us to incur significant investigation and remediation expenses, and subject us to litigation, government inquiries, penalties, and reputational damages. Information security and the continued development, maintenance, and enhancement of our safeguards to protect our systems, data, software, and networks are a priority for us. As security threats continue to evolve, we may be required to expend significant additional resources to modify and enhance our safeguards and investigate and remediate any information security vulnerabilities. Cyber-attacks may also impede our ability to exercise sufficient disclosure controls. If we are subject to cyberattacks or security breaches, our business, financial condition, and results of operations could be adversely impacted.

Further, our information systems are vulnerable to damage or interruption from fire, flood, natural disaster, power loss, telecommunications failure, break-ins, and similar events. A failure to implement our disaster recovery plans or ultimately restore our information systems after the occurrence of any of these events could have a material adverse effect on our business, financial condition, and results of operations. Because of the confidential health information that we store and transmit, loss, theft or destruction of electronically-stored information for any reason could expose us to a risk of regulatory action, litigation, liability to patients and other losses.

Our acquisition strategy exposes us to a variety of operational, integration, and financial risks, which may have a material adverse effect on our business, financial condition, and results of operations.

An element of our business strategy is to grow by acquiring other companies and assets in the mental health and substance abuse treatment industry. We evaluate potential acquisition opportunities consistent with the normal course of our business. Our ability to complete acquisitions is subject to a number of risks and variables, including our ability to negotiate mutually agreeable terms with the counterparties, our ability to finance the purchase price and our ability to obtain any licenses or other approvals required to operate the assets to be acquired. We may not be successful in identifying and consummating suitable acquisitions, which may impede our growth and negatively affect our results of operations, and may also require a significant amount of management resources. In addition, rapid growth through acquisitions exposes us to a variety of operational and financial risks. We summarize the most significant of these risks below.

We may be subject to Integration Risks

We must integrate our acquisitions with our existing operations. This process involves various components of our business and the businesses we have acquired, including the following:

physicians and employees who are not familiar with our operations;

patients who may elect to switch to another substance abuse treatment provider;

assignment or termination of material contracts, including commercial payor agreements;

regulatory compliance programs and state and federal licensing requirements; and

disparate operating, information and record keeping systems and technology platforms.

The integration of acquisitions with our operations could be expensive, require significant attention from management, may impose substantial demands on our operations or other projects, and may impose challenges on the combined business including, without limitation, consistencies in business standards, procedures, policies, business cultures, internal controls, and compliance. In addition, certain acquisitions require a capital outlay, and the return we achieve on such invested capital may be less than the return that we could achieve on other projects or investments.

Expected benefits of acquisitions may not materialize.

When evaluating potential acquisition targets, we identify potential synergies and cost savings that we expect to realize upon the successful completion of the acquisition and the integration of the related operations. We may, however, be unable to achieve or may otherwise never realize the expected benefits. Our ability to realize the expected benefits from potential cost savings and revenue improvement opportunities is subject to significant business, economic, and competitive uncertainties, many of which are beyond our control. Such uncertainties may include changes to regulations impacting the substance abuse treatment and behavioral healthcare industries, reductions in reimbursement rates from third-party payors, operating difficulties, difficulties obtaining required licenses and permits, patient preferences, changes in competition, and general economic or industry conditions. If we do not achieve our expected results, it may adversely impact our results of operations.

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Assumptions of unknown liabilities may adversely affect our business

Businesses that we acquire may have unknown or contingent liabilities, including, without limitation, liabilities for failure to comply with healthcare laws and regulations. Although we typically attempt to exclude significant liabilities from our acquisition transactions and seek indemnification from the sellers of such facilities for at least a portion of these matters, we may experience difficulty enforcing those indemnification obligations, or we may incur material liabilities in excess of any indemnification for the past activities of acquired facilities. Such liabilities and related legal or other costs and/or resulting damage to a facility’s reputation could negatively impact our business.

We may be subject to additional acquisition risks.

Suitable acquisitions may not be accomplished due to unfavorable terms. Further, the cost of an acquisition could result in a dilutive effect on our results of operations, depending on various factors, including the amount paid for an acquired facility, the acquired facility’s results of operations, the fair value of assets acquired and liabilities assumed, effects of subsequent legislation, and limits on reimbursement rate increases. In addition, we may have to pay cash, incur additional debt, or issue equity securities to pay for any such acquisition, which could adversely affect our financial results, result in dilution to our existing stockholders, result in increased fixed obligations, or impede our ability to manage our operations.

We may encounter risks associated with managing our growth, which would adversely affect our results of operations.

Some of the facilities we may acquire in the future either had or may have significantly lower operating margins than the facilities we operated prior to the time of our acquisition thereof or had or may have operating losses prior to such acquisition. If we fail to improve the operating margins of the facilities we acquire, operate such facilities profitably, or effectively integrate the operations of acquired facilities, our results of operations could be negatively impacted.

Liquidity risk could impair our ability to fund operations and meet our obligations as they become due, and our funding sources may be insufficient to fund our future operations and growth.

Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to obtain adequate funding. An inability to obtain such funding, at competitive rates or at all, could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the healthcare industry or economy in general.

Any substantial, unexpected and/or prolonged change in the level or cost of liquidity could have a material adverse effect on our ability to fund our future operations and growth, which could have a material adverse effect on our assets, business, cash flow, condition (financial or otherwise), liquidity, prospects and results of operations.

The uncertainties associated with the factors described above raise substantial doubt about our ability to continue as a going concern. In order for us to continue operations beyond the next twelve months and to be able to discharge our liabilities and commitments in the normal course of business, we must do some or all of the following: (i) increase the bed counts and other capacities at our facilities; (ii) increase gross revenues while improving operating margins through cost savings initiatives; and (iii) obtain additional financing. There can be no assurance that we will be able to achieve any or all of the foregoing objectives.

We will need additional financing to execute our long-term business plan and fund operations, at which time additional financing may not be available on reasonable terms or at all.

To fund our acquisition development and operational strategies, we may consider raising additional funds through various financing sources, including the sale of our common or preferred stock and the procurement of commercial debt financing. However, there can be no assurance that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Any debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and our stockholders may experience additional dilution in net book value per share.

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Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in our industry, which could impact the availability or cost of future financings. Any deterioration of credit and capital markets may adversely affect our access to sources of funding, and we cannot be certain that we will have access to adequate capital to fund our acquisition and development strategies when needed. In addition, substantial sales of our common stock by existing stockholders could adversely affect our stock price and limit our ability to raise capital. If the amount of capital we are able to raise from financing activities, together with our revenue from operations, is not sufficient to satisfy our capital needs, we may be required to decrease the pace of, or eliminate, our acquisition strategy and potentially reduce or even cease operations.

Our business may face significant risks with respect to future de novo expansion, including the time and costs of identifying new geographic markets, the ability to obtain necessary licensure and other zoning or regulatory approvals and significant start-up costs including advertising, marketing, and the costs of providing equipment, furnishings, supplies, and other capital resources.

As part of our growth strategy, we intend to develop new substance abuse treatment facilities in existing and new markets, either by building a new facility or by acquiring an existing facility with an alternative use and repurposing it as a substance abuse treatment facility. Such de novo expansion involves significant risks, including, but not limited to, the following:

the time and costs associated with identifying locations in suitable geographic markets, which may divert management attention from existing operations;

the possibility of changes to comprehensive zoning plans or zoning regulations that imposes additional restrictions on use or requirements, which could impact our expansion into otherwise suitable geographic markets;

the need for significant advertising and marketing expenditures to attract patients;

our ability to provide each de novo facility with the appropriate equipment, furnishings, materials, supplies, and other capital resources;

our ability to obtain licensure and accreditation, establish relationships with healthcare providers in the community, and delays or difficulty in installing our operating and information systems;

the costs of evaluating new markets, hiring experienced local physicians, management, and staff, and opening new facilities, and the time lags between these activities and the generation of sufficient revenue to support the costs of the expansion; and

our ability to finance de novo expansion and possible dilution to our existing stockholders if our common stock is used as consideration.

As a result of these and other risks, there can be no assurance that we will be able to develop de novo treatment facilities or that a de novo treatment facility will become profitable. De novo expansion could expose us to liabilities or loss.

Our ability to maintain census is dependent on a number of factors outside of our control, and if we are unable to maintain census (i.e., our daily patient occupancy), our business, results of operations and cash flows could be materially adversely affected.

Our revenue is directly impacted by our ability to maintain census (i.e., the daily patient occupancy of our facilities by bed count). Our ability to maintain census is dependent on a variety of factors, many of which are outside of our control, including our referral relationships, average length of stay of our patients, the extent to which third-party payors require preadmission authorization or utilization review controls, competition in the industry, and the decisions of our patients to seek and commit to treatment.

A significant decrease in census could materially adversely affect our revenue, profitability, and cash flows due to fewer or lower reimbursements received and the additional resources required to collect accounts receivable and maintain our existing level of business.

Given the patient-driven nature of the substance abuse treatment sector, our business is dependent on patients seeking and committing to treatment. Although increased awareness and de-stigmatization of substance abuse treatment in recent years has resulted in more people seeking treatment, the decision of each patient to seek treatment is ultimately discretionary. In addition, even after the initial decision to seek treatment, our patients may decide at any time to discontinue treatment and leave our facilities against the advice of our physicians and other treatment professionals. For this reason, among others, average length of stay can vary among periods without correlating to the overall operating performance of our business. If patients or potential patients decide not to seek treatment or discontinue treatment early, census could decrease and, as a result, our business, financial condition, and results of operations could be adversely affected.

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We operate in a highly competitive industry where competition may lead to declines in patient volumes and an increase in labor costs, which could have a material adverse effect on our business, financial condition, and results of operations.

The substance abuse treatment industry is highly competitive, and competition among substance abuse treatment providers (including behavioral healthcare facilities) for patients has intensified in recent years. In 2018, there were approximately 4,200 substance abuse treatment businesses in the United States. There are behavioral healthcare facilities that provide substance abuse and other mental health treatment services comparable to at least some of the services offered by our facilities in each of the geographical areas in which we intend to operate. Some of our competitors are owned by tax-supported governmental agencies or by nonprofit corporations and may have certain financial advantages not available to us, including endowments, charitable contributions, tax-exempt financing, and exemptions from sales, property, and income taxes. In some markets, certain of our competitors may have greater financial resources, be better equipped, and offer a broader range of services than we do. Some of our competitors are local, independent operators or physician groups with strong established reputations within the surrounding communities, which may adversely affect our ability to attract new patients in markets where we compete with such providers. If our competitors are better able to attract patients, expand services, or obtain favorable participation agreements with third-party payors, we may experience a decline in patient volume, which could have a material adverse effect on our business, financial condition and results of operations.

Our operations depend on the efforts, abilities, and experience of our management team, physicians, and medical support personnel, including our nurses, mental health technicians, therapists, addiction counselors, pharmacists, and clinical technicians. We compete with other healthcare providers in recruiting and retaining qualified management, mental health technicians, therapists, nurses, counselors, and other support personnel responsible for the daily operations of our facilities. The nationwide shortage of nurses and other medical support personnel has been a significant operating issue facing our industry in recent years. This shortage may require us to enhance our wages and benefits to recruit and retain nurses and other medical support personnel or require us to hire expensive temporary personnel. If we are unable to attract and retain qualified personnel, we may be unable to provide our services, the quality of our services may decline, and we could experience a decline in patient volume, all of which could have a material adverse effect on our business, financial condition, and results of operations.

Increased labor union activity is another factor that could adversely affect our labor costs. We do not currently employ a unionized labor force. In the event of the independent organization or unionization of our employees, we may become subject to the risk of labor disputes, strikes, work stoppages, slowdowns, and other labor-relations matters. Although we are not aware of any union organizing activity at any of our other facilities, we are unable to predict whether any such activity will take place in the future.

We depend heavily on key executives and other key management personnel, and the departure of one or more of our key executives or other key management personnel could have a material adverse effect on our business, financial condition, and results of operations.

The expertise and efforts of our key executives, including our Chief Executive Officer, Mark Conte, and Patrick Ogle our Chief Operating Officer other management personnel are critical to the success of our business. We currently do not have employment agreements or non-compete covenants with any of our key executives. The loss of the services of one or more of our key executives could significantly undermine our management expertise and our ability to provide efficient, quality healthcare services at our facilities. Furthermore, if one or more of our key executives were to terminate employment with us and engage in a competing business, we would be subject to increased competition, which could have a material adverse effect on our business, financial condition, and results of operations.

Failure to adequately protect our trademarks and any other proprietary rights could have a material adverse effect on our business, financial condition, and results of operations.

We intend to develop portfolio that we consider to be of significant importance to our business, and we may acquire additional trademarks or other proprietary rights in acquisitions that we pursue as part of our growth strategy. If the actions we take to establish and protect our trademarks and other proprietary rights are not adequate to prevent imitation of our services by others or to prevent others from seeking to block sales of our services as an alleged violation of their trademarks and proprietary rights, it may be necessary for us to initiate or enter into litigation in the future to enforce our trademark rights or to defend ourselves against claimed infringement of the rights of others. The cost of any such legal proceedings could be expensive, and such legal proceedings could result in an adverse determination that could have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to Regulatory Matters

If we fail to comply with the extensive laws and government regulations impacting our industry, we could suffer penalties, be the subject of federal and state investigations, or be required to make significant changes to our operations, which may reduce our revenue, increase our costs, and have a material adverse effect on our business, financial condition, and results of operations.

Healthcare service providers are required to comply with extensive and complex laws and regulations at the federal, state, and local government levels relating to, among other things:

licensure, certification and accreditation of substance use treatment services;

licensure, Clinical Laboratory Improvement Amendments of 1988 (CLIA) certification and accreditation of laboratory services;

handling, administration and distribution of controlled substances;

necessity and adequacy of care and quality of services;

licensure, certification and qualifications of professional and support personnel;

referrals of patients and permissible relationships with physicians and other referral sources;

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extensive conditions of participation for Medicare and Medicaid programs

consumer protection issues and billing and collection of patient-owed accounts issues;

communications with patients and consumers, including laws intended to prevent misleading marketing practices;

privacy and security of health-related information, patient personal information and medical records;

physical plant planning, construction of new facilities and expansion of existing facilities;

activities regarding competitors;

U.S. Federal Drug Administration (FDA) laws and regulations related to drugs and medical devices;

operational, personnel and quality requirements intended to ensure that clinical testing services are accurate, reliable and timely;

health and safety of employees;

handling, transportation and disposal of medical specimens and infectious and hazardous waste;

corporate practice of medicine, fee-splitting, self-referral and kickback prohibitions, including recent state and federal laws intended to eliminate bribes and kickbacks; and

the SUPPORT for Patients and Communities Act, which became law on October 24, 2018.

As a provider of addiction treatment services, we are subject to governmental investigations and potential claims and lawsuits by patients, employees, and others, which may increase our costs, cause reputational issues, and have a material adverse effect on our business, financial condition, results of operations, and reputation.

Given the addiction and mental health issues of patients and the nature of the services provided, the substance abuse treatment industry is heavily regulated by governmental agencies and involves significant risk of liability. We and others in our industry are exposed to the risk of governmental investigations, regulatory actions, and whistleblower lawsuits or other claims against us and our physicians and other professionals arising out of our day to day business operations, including, without limitation, patient treatment at our facilities and relationships with healthcare providers that may refer patients to us. Addressing any investigation, lawsuit, or other claim may distract management and divert resources, even if we ultimately prevail. Regardless of the outcome of any such investigation, lawsuit, or claim, the publicity and potential risks associated with the investigation, lawsuit, or claim could harm our reputation or the reputation of our management and negatively impact the perception of the Company by patients, investors, or others and could have a materially adverse impact on our financial condition and results of operations. Fines, restrictions, penalties, and damages imposed as a result of an investigation or a successful lawsuit or claim that is not covered by, or is in excess of, our insurance coverage may increase our costs and reduce our profitability. Our insurance premiums may increase year over year, and insurance coverage may not be available at a reasonable cost in the future, especially given the significant increase in insurance premiums generally experienced in the healthcare industry.

We also are subject to an inherent risk of potential medical malpractice lawsuits and other potential claims or legal actions in the ordinary course of business. From time to time, we may be subject to claims alleging that we did not properly treat or care for a patient, that we failed to follow internal or external procedures that resulted in death or harm to a patient, or that our employees mistreated our patients, resulting in death or harm. Any deficiencies in the quality of care provided by our employees could expose us to governmental investigations and lawsuits from our patients. Some of these actions may involve large claims as well as significant defense costs. We cannot predict the outcome of these lawsuits or the effect that findings in such lawsuits may have on us. In an effort to resolve one or more of these matters, we may decide to negotiate a settlement, and amounts we pay to settle any of these matters may be material. All professional and general liability insurance we purchase is subject to policy limitations. We believe that, based on our past experience, our insurance coverage is adequate considering the claims arising from the operation of our facilities. While we continuously monitor our coverage, our ultimate liability for professional and general liability claims could change materially from our current estimates. If such policy limitations should be partially or fully exhausted in the future or if payments of claims exceed our estimates or are not covered by our insurance, they could have a material adverse effect on our financial condition and results of operations.

We intend to care for a large number of patients with complex medical conditions, special needs, or who require a substantial level of care and supervision. There is an inherent risk that our patients could be harmed while in treatment, whether through negligence, by accident, or otherwise. Further, patients might engage in behavior that results in harm to themselves, our employees, or to one or more other individuals. Patient safety incidents may result in regulatory enforcement actions, negative press about us, or the addiction treatment industry generally, as well as in lawsuits filed by plaintiff’s lawyers against us. These developments could diminish public perception of the quality of our services, which in turn could lead to a loss of patient placements and referrals, resulting in a material adverse effect on our business, results of operations, and financial condition.

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Failure to comply with these laws and regulations could result in the imposition of significant civil or criminal penalties, loss of licenses or certifications, or require us to change our operations, or in the ultimate exclusion of one or more facilities from participation in Medicare, Medicaid, and other federal and state healthcare programs, any of which may have a material adverse effect on our business, financial condition, and results of operations. Both federal and state government agencies, as well as commercial payors, have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare organizations.

We endeavor to comply with all applicable legal and regulatory requirements; however, there is no guarantee that we will be able to adhere to all of the complex government regulations that apply to our business. We seek to structure all of our relationships with referral sources and patients to comply with applicable anti-kickback laws, physician self-referral laws, fee-splitting laws, and state corporate practice of medicine prohibitions. We monitor these laws and their implementing regulations and implement changes as necessary. However, the laws and regulations in these areas are complex and often subject to varying interpretations. For example, if an enforcement agency were to challenge the compensation paid under our contracts with professional physician groups, we could be required to change our practices, face criminal or civil penalties, pay substantial fines, or otherwise experience a material adverse effect as a result.

We may be required to spend substantial amounts to comply with legislative and regulatory initiatives relating to privacy and security of patient health information.

There currently are numerous legislative and regulatory initiatives at the federal and state levels addressing patient privacy and security concerns. For example, the regulations contained in 42 CFR Part 2 (the “Part 2 Regulations”) serve to protect patient records created by federally assisted programs for the treatment of substance use disorders (SUD) and are administered by the Substance Abuse and Mental Health Services Administration (SAMHSA) branch of the U.S. Department of Health and Human Services (HHS). Specifically, the Part 2 Regulations restrict the disclosure, and regulate the security, of our patient’s identifiable information related to substance abuse. These requirements apply to any of our facilities that receive federal assistance, which is interpreted broadly to include facilities licensed, certified or registered by a federal agency.

In addition, the federal privacy and security regulations issued under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) require our facilities to comply with extensive requirements on the use and disclosure of protected health information and to implement and maintain administrative, physical, and technical safeguards to protect the security of such information. Additional security requirements apply to electronic protected health information. These regulations also provide patients with substantive rights with respect to their health information and impose substantial administrative obligations on our facilities, including the requirement to enter into written agreements with contractors, known as business associates, to whom our programs disclose protected health information. We may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is found to be our agent. Covered entities must notify individuals, HHS and, in some cases, the media of breaches involving unsecured protected health information. HHS and state attorneys general are authorized to enforce these regulations. Violations of the HIPAA privacy and security regulations may result in significant civil and criminal penalties, and data breaches and other HIPAA violations may give rise to class action lawsuits by affected patients under state law.

Our programs remain subject to any privacy-related federal or state laws that are more restrictive than the HIPAA privacy and security regulations. These laws vary by state and may impose additional requirements and penalties. For example, some states impose strict restrictions on the use and disclosure of health information pertaining to mental health or substance abuse. Further, most states have enacted laws and regulations that require us to notify affected individuals in the event of a data breach involving individually identifiable information. In addition, the Federal Trade Commission may use its consumer protection authority to initiate enforcement actions in response to data breaches or other privacy or security lapses.

As public attention is drawn to issues related to the privacy and security of medical and other personal information, federal and state authorities may increase enforcement efforts and seek to impose harsher penalties, as well as revise and expand laws or enact new laws concerning these topics. Compliance with current as well as any newly established provisions or interpretations of existing requirements will require us to expend significant resources. Increased focus on privacy and security issues by enforcement authorities may increase the overall risk that our substance abuse treatment facilities may be found lacking under federal and state privacy and security laws and regulations.

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Our treatment facilities operate in an environment of increasing state and federal enforcement activity and private litigation targeted at healthcare providers.

Both federal and state government agencies have heightened and coordinated their civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and various segments of the healthcare industry. These investigations relate to a wide variety of topics, including relationships with physicians, billing practices and use of controlled substances. The Affordable Care Act included an additional $350 million of federal funding over ten years to fight healthcare fraud, waste, and abuse. The HHS Office of Inspector General and the Department of Justice have established national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. Some of our facilities participate in Medicare or Medicaid and, therefore, could be subject to government investigation.

Even if a facility does not currently bill Medicare or Medicaid for substance use treatment services, there is a risk that specific investigative initiatives or new laws such as EKRA could result in investigations or enforcement actions that include or affect our treatment services, laboratory service providers, or marketing operations. In addition, increased government enforcement activities, even if not directed towards our treatment facilities or laboratories, also increase the risk that our facilities, physicians, and other clinicians furnishing services in our facilities, or our executives and directors, could be named as defendants in private litigation such as state or federal false claims act cases or consumer protection cases, or could become the subject of complaints at the various state and federal agencies that have jurisdiction over our operations.

Any governmental investigations, private litigation, or other legal proceedings involving any of our facilities, laboratories, executives, or directors, even if we ultimately prevail, could result in significant expense, adversely affect our reputation or profitability and materially adversely affect our financial condition and results of operation. In addition, we may be required to make changes in our laboratory, substance use treatment services or marketing or other operational practices as a result of an adverse determination in any governmental enforcement action, private litigation or other legal proceeding, which could materially adversely affect our business and results of operations.

Changes to federal, state, and local regulations, as well as different or new interpretations of existing regulations, could adversely affect our operations and profitability.

Because our treatment programs and operations are regulated at federal, state, and local levels, we could be affected by regulatory changes in different regional markets. Increases in the costs of regulatory compliance and the risks of noncompliance may increase our operating costs, and we may not be able to recover these increased costs, which may adversely affect our results of operations and profitability.

Many of the current laws and regulations are relatively new, including the EKRA and recent state laws intended to prohibit deceptive marketing practices in the addiction treatment industry. Thus, we do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. Evolving interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our treatment facilities, equipment, personnel, services or capital expenditure programs. A determination that we have violated these laws or a public announcement that we are being investigated for possible violations of these laws could adversely affect our business, operating results, and overall reputation in the marketplace.

In addition, federal, state, and local regulations may be enacted that impose additional requirements on our facilities. Adoption of legislation or the creation of new regulations affecting our facilities could increase our operating costs, restrain our growth or limit us from taking advantage of opportunities presented and could have a material adverse effect on our business, financial condition and results of operations. Adverse changes in existing comprehensive zoning plans or zoning regulations that impose additional restrictions on the use of, or requirements applicable to, our facilities may affect our ability to operate our existing facilities or acquire new facilities, which may adversely affect our results of operations and profitability.

We are subject to uncertainties regarding the direction and impact of healthcare reform efforts, particularly efforts to repeal or significantly modify the Affordable Care Act.

The healthcare industry is subject to changing political, regulatory, scientific and technological changes, which have resulted and may continue to result in initiatives intended to reform the industry. The most prominent of recent efforts, the Affordable Care Act, as currently structured, provides for increased access to coverage for healthcare and seeks to reduce healthcare-related expenses. Among other mandates, it requires all new small group and individual market health plans to cover ten essential health benefit categories, which currently include substance abuse addiction and mental health disorder services. However, efforts by the executive branch and some members of Congress to repeal or make fundamental changes to the Affordable Care Act, its implementation and/or its interpretation have cast significant uncertainty on the future of the law. For example, in 2017, Congress eliminated the penalties associated with the individual mandate, effective January 2019, which may affect rates of insurance coverage.

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We are unable to predict the full impact of the Affordable Care Act and related regulations or the impact of its repeal or modification on our operations in light of the uncertainty regarding whether or how the law will be changed, what alternative reforms, if any, may be enacted or what other actions may be taken. Any government efforts related to health reform may have an adverse effect on our business, results of operations, cash flow, capital resources and liquidity. Moreover, the general uncertainty of health reform efforts, particularly if Congress elects to repeal provisions of the Affordable Care Act but delays the implementation of repeal or fails to enact replacement provisions at the time of repeal, may negatively impact our payment sources or demand for our services.

The expansion of health insurance coverage under the Affordable Care Act has been beneficial to the substance abuse treatment industry. This is due, in part, to higher demand for treatment services, which resulted from the requirement that small group and individual market plans comply with the requirements of the Mental Health Parity and Addiction Equity Act of 2008, which previously applied only to group health plans and group insurers. The 21^st Century Cures Act requires development of an action plan for enhanced enforcement of mental health parity requirements and additional guidance for health plans regarding compliance with parity laws. Increased demand for treatment services may bring new competitors to the market, some of which may be better capitalized and have greater market penetration than we do. In addition, we expect increased demand for substance use treatment services to increase the demand for case managers, therapists, medical technicians and others with clinical expertise in substance abuse treatment, which may make it more difficult to adequately staff our substance abuse treatment facilities and could significantly increase our costs in delivering treatment, which may adversely affect both our operations and profitability.

One of the many impacts of the Affordable Care Act and subsequent legislation has been a dramatic increase in payment reform efforts by federal and state government payors as well as commercial payors. These efforts take many forms, including the growth of accountable care organizations, pay-for-performance bonus arrangements, partial capitation arrangements and the bundling of services into a single payment. One result of these efforts is that more risk of the overall cost of care is being transferred to providers. As institutional providers and their affiliated physicians assume more risk for the cost of care, we expect more services to be furnished within provider networks that are formed for these types of payment arrangements. Our ability to compete and to retain our traditional sources of patients may be adversely affected by our exclusion from such networks or our inability to be included in such networks.

Change of ownership or change of control requirements imposed by state and federal licensure and certification agencies as well as third-party payors may limit our ability to timely realize opportunities, adversely affect our licenses and certifications, interrupt our cash flows, and adversely affect our profitability.

State licensure laws and many federal healthcare programs (where applicable) impose a number of obligations on healthcare providers undergoing a change of ownership or change of control transaction. These requirements may require new license applications as well as notices given a fixed number of days prior to the closing of affected transactions. These provisions require us to be proactive when considering both internal restructuring and acquisitions of other treatment companies. Failure to provide such notices or to submit required paperwork can adversely affect licensure on a going forward basis, can subject the parties to penalties and can adversely affect our ability to operate our facilities.

Many third-party payor agreements, including government payor programs, also have change of ownership or change of control provisions. Such provisions generally include a prior notice provision as well as require the consent of the payor in order to continue the terms of the payor agreement. Abiding by the terms of such provisions may reopen pricing negotiations with third-party payors where the provider currently has favorable reimbursement terms as compared to the market. Failure to comply with the terms of such provisions can result in a breach of the underlying third-party payor agreement. As substance abuse treatment coverage and payment reform initiatives continue to expand, these types of provisions could have a significant impact on our ability to realize opportunities and could adversely affect our cash flows and profitability.

State efforts to regulate the construction or expansion of healthcare facilities could impair our ability to operate and expand our facilities.

The construction of new healthcare facilities, the expansion, transfer, or change of ownership of existing facilities and the addition of new beds, services, or equipment may be subject to state laws that require a determination of public need and prior approval by state regulatory agencies under CON laws or other healthcare planning initiatives. The National Health Planning and Resources Development Act of 1974 requires the withholding of federal funds from states that fail to adopt certificate-of-need (CON) laws regulating healthcare facilities.

CON laws require healthcare providers wishing to open or expand a healthcare facility to first prove to a regulatory body that the community needs the planned services. Review of CONs and similar proposals may be lengthy and may require public hearings. States in which we now or may in the future operate may require CONs under certain circumstances not currently applicable to us or may impose standards and other health planning requirements upon us. Violation of these state laws and our failure to obtain any necessary state approval could:

result in our inability to acquire a targeted facility, complete a desired expansion or make a desired replacement; or

result in the revocation of a facility’s license or imposition of civil or criminal penalties on us, any of which could have a material adverse effect on our business, financial condition and results of operations.

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If we are unable to obtain required regulatory, zoning, or other required approvals for renovations and expansions, our growth may be restrained, and our operating results may be adversely affected. In the past, we have not experienced any material adverse effects from such requirements, but we cannot predict their future impact on our operations

We could face risks associated with, or arising out of, environmental, health, and safety laws and regulations.

We are subject to various federal, state, and local laws and regulations that:

regulate certain activities and operations that may have environmental or health and safety effects, such as the generation, handling and disposal of medical and pharmaceutical wastes;

impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site and other releases of hazardous materials or regulated substances; and

regulate workplace safety.

Compliance with these laws and regulations could increase our costs of operation. Violation of these laws may subject us to significant fines, penalties, or disposal costs, which could negatively impact our results of operations, financial position, or cash flows. We could be responsible for the investigation and remediation of environmental conditions at currently or formerly operated or leased sites, as well as for associated liabilities, including liabilities for natural resource damages, third-party property damage, or personal injury resulting from lawsuits that could be brought by the government or private litigants relating to our operations, the operations of our facilities, or the land on which our facilities are located.

Liability for contamination under certain environmental laws can be imposed on current or past owners or operators of a site without regard to fault. Therefore, we may be subject to these liabilities regardless of whether we lease or own the facility or such environmental conditions were created by us, a prior owner or tenant, a third-party, or a neighboring facility whose operations may have affected such facility or land. We cannot assure you that environmental conditions relating to our prior, existing, or future sites or those of predecessor companies whose liabilities we may have assumed or acquired will not have a material adverse effect on our business.

Changes in tax laws or their interpretations, or becoming subject to additional U.S., state or local taxes, could negatively affect our business, financial condition, and results of operations.

We are subject to tax liabilities, including federal and state taxes such as excise, sales/use, payroll, franchise, withholding, and ad valorem taxes. Changes in tax laws or their interpretations could decrease the amount of revenues we receive, the value of any tax loss carryforwards and tax credits recorded on our balance sheet and the amount of our cash flow, and have a material adverse impact on our business, financial condition and results of operations. Some of our tax liabilities are subject to periodic audits by the respective taxing authority which could increase our tax liabilities. If we are required to pay additional taxes, our costs would increase.

COVID-19 RELATED RISKS

The coronavirus may negatively impact our business, results of operations and financial condition.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect our business, results of operations and financial condition.

The ultimate extent of the impact of any epidemic, pandemic, or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic, or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition, and results of operations.

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The effect of the COVID-19 may adversely affect occupancy at our rehabilitation facility.

The coronavirus may materially impact occupancy rates at our facility and the availability of our rehabilitation services, which would adversely affect our business, results of operations and financial condition.

The outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets in which operate and could significant increase the risk factors described above and herein.

Risk Related to Our Stock

Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.

We are authorized to issue up to 200,000,000 shares of common stock and 10,000,000 shares of preferred stock of which 194,982,479 shares of common stock are issued and outstanding and 100,000 shares of preferred stock are issued and outstanding. Our board of directors has the authority to cause us to issue additional shares of common stock and preferred stock, and to determine the rights, preferences, and privileges of shares of our preferred stock, without consent of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.

Trading on the OTC Pink Sheets stock market may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

Our common stock is quoted on the OTC Pink Sheets stock market operated by the OTC Markets Group with the trading symbol “UPDC”. Trading in stock quoted on OTC Pink Sheets is often characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, trading of securities on OTC Pink Sheets is often more sporadic than the trading of securities listed on a stock exchange like the NASDAQ or the NYSE. Accordingly, stockholders may have difficulty reselling any of our shares.

Our shares of common stock may be very thinly traded, or not at all, the price may not reflect our values and there can be no assurance that there will be an active market for our shares of common stock either now or in the future.

Shares of our common stock may be very thinly traded in the future, and the price, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to affect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.

Sales of our currently issued and outstanding stock may become freely tradeable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock.

Certain of our issued and outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that an “affiliated” person, such as our management, who have held our restricted securities for a period of at least one year from the date of this Form 8-K filing, may, under certain conditions, sell every three months in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the restricted securities have been held by the owner for a period of one year from the date of this Form 8-K filing. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.

The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.

We believe that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced salespersons;

Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

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We believe that many of these abuses have occurred with respect to the promotion of low-priced stock companies that lacked experienced management, adequate financial resources, an adequate business plan and/or marketable and successful business or product.

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our ability to continue operations, and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we plan to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our equity securities and we may be forced to go out of business.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined in Rule 15g-9) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules promulgated by the SEC, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

We do not intend to pay any cash dividends on our shares of common stock in the near future, and our stockholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.

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We may incur significant costs to ensure compliance with United States corporate governance and accounting requirements.

We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

We may not be able to meet the accelerated filing and internal control reporting requirements imposed by the Securities and Exchange Commission resulting in a possible decline in the price of our common stock and our inability to obtain future financing.

As directed by Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange Commission adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls.

While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. In the event that we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.

In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the Securities and Exchange Commission, which could also adversely affect the market price of our common stock and our ability to secure additional financing as needed.

Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.

Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s written promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we will be unable to recoup.

We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 (the “Securities Act”) and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develop.

Our board of directors has the authority, without stockholder approval, to issue shares of “blank check” preferred stock with terms that may not be viewed as beneficial to common stockholders, and which may adversely affect common stockholders.

Our articles of incorporation allow us to issue shares of preferred stock without any vote by our stockholders. Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of preferred stock that would grant to holders the preferred right to vote on decisions submitted for a vote of the stockholders, to a priority on distribution of our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock, and similar rights and priorities over our common stock.

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Item 1B – Unresolved Staff Comments

None

Item 2 – Properties

Our principal executive office is located at 75 Pringle Way, 8th Floor, Suite 804, Reno, Nevada 89502. The office premises are contributed free of charge by Mark W. Conte, our President and Chief Executive Officer. We believe that the offices are adequate to meet our current operational requirements. We do not own any real property.

In August 2021, Vital Behavioral Health, Inc. leased a facility in Fayetteville, Georgia with an initial base rent of $13,617 per month for an initial term of 18 months with a 5-year extension option. The facility is intended be used for in-patient services upon the receipt of regulatory approval.

Item 3 – Legal Proceedings

None.

Item 4 - Mine Safety Disclosures

Not applicable

Part II

Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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.

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ITEM 6.

SELECTED FINANCIAL DATA

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Background

Since 2016, under current management, we have sought revenue generating activities in various industries. Since then, we have made acquisitions in different industries, some of which have been disposed.

Over the last five years, we have been unable to sustain any material income from our operations, have incurred recurring losses, have been unsuccessful at raising material capital, either through debt or equity financing arrangements, and we have disposed of our beverage industry business line. These factors provide substantial doubt about our ability to continue as a going concern.

Despite these challenges, the Company has been able to continue as a going concern and has achieved certain operational successes that mitigate the historical trends of the Company. These recent successes, specifically occurring during the fiscal years ended June 30, 2022 and 2021, include the following:

In February 2021, the Company consummated the acquisition of Vital Behavioral Health, Inc. and its wholly owned subsidiaries via the issuance of equity which provides an opportunity to generate material operational revenues from in and out-patient rehabilitation services.

On April 4, 2022, the Company entered into a Preferred Stock Agreement to raise Two Million Five Hundred Thousand Dollars ($2,500,000) from the sale of its Series A Preferred Stock at a price of One Dollar ($1.00) per share for use in making capital improvements to its facilities, in developing its business, and as general working capital. Purchase to occur at $100,000 per month until approximately April 2024.

Plan of Operations

Subsequent to the entry into the rehabilitation services industry, primarily through the acquisition of Vital Behavioral and subsidiaries, we initiated the following plan of operations.

Capital Raising Activities (Current Commitments, Future Plans, Estimated Timelines)

As mentioned above, on April 4, 2022, the Company entered into a Preferred Stock Agreement to raise Two Million Five Hundred Thousand Dollars ($2,500,000) from the sale of its Series A Preferred Stock at a price of One Dollar ($1.00) per share for use in making capital improvements to its facilities, in developing its business, and as general working capital. Purchase to occur at $100,000 per month until approximately April 2024. To date, this agreement has not performed monthly as anticipated and is behind on its commitment. At the close of the fiscal year ended June 30, 2022, two monthly installments had not been received.

On August 26, 2021, the Company entered into a loan agreement whereby the Lender lent us $500,000. The loan bears interest at 12% per annum, payable monthly, and matures with a principal balloon payment on August 19, 2022. As additional consideration for the loan, the Company also issued the lender One Million Warrants exercisable into One Million Common Stock Shares at an exercise price of $0.005 per share. This lender has expressed a willingness and preference for increasing this loan principal size to $1,000,000.

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Operational Accomplishments/Paths to Revenue (Licensing Timelines, Additional Facilities, Future Acquisitions):

On August 1, 2021, the Company’s subsidiary VSL Frankfort LLC leased 10 apartments that are intended to provide sober living accommodations for patients of the outpatient facility for the Company’s subsidiary VBH Kentucky Inc. in Frankfort, Kentucky. Each unit will accommodate multiple patients on a weekly pay basis.

On August 26, 2021, the Company’s subsidiary VBH Kentucky Inc. received approval of its first license to operate an intensive outpatient facility for the treatment of substance use disorders in the Commonwealth of Kentucky. Substantially all costs to finish, and outfit the facility have been expended.

All facilities are intended to accept Medicaid and Medicare, out-of-network insurance and private pay patients.

As of the close of the fiscal year ended June 30, 2022, Vital Behavioral Health, Inc. and its subsidiaries had a census of approximately 50 patients and the Company had collected $38,190 beginning in April 2022 with census and trajectory to add approximately 10 additional patients per quarter and collections ramping up toward $100,000 per month.

RESULTS OF OPERATIONS

Results of Operations for the years ended June 30, 2022, and June 30, 2021.

	For the Years Ended June 30,

	2022			2021			$ Change			% Change
Revenue:
Net revenue	$	38,190		$	—		$	38,190			100.00	%

Operating expenses
Professional fees		199,036			208,688			(9,652	)		-4.63	%
General and administrative		1,136,209			268,051			868,158			323.88	%
Total operating costs and expenses		1,335,245			476,739			858,506			180.08	%
Operating loss		(1,297,055	)		(476,739	)		(820,316	)		172.07	%

Interest expense, net		(170,804	)		(28,459	)		(142,345	)		500.18	%
Gain (loss) on change in fair value of derivative liability		167,236			(212,963	)		380,199			-178.53	%
Other expense, net		—			(23,402	)		23,402			-100.00	%
Loss from continuing operations		(1,300,623	)		(741,563	)		(559,060	)		75.39	%

Discontinued operations:
Gain on sale of discontinued operations, net of tax		—			251,164			(251,164	)		-100.00	%
Income from discontinued operations, net of tax		—			251,164			(251,164	)		-100.00	%
Net loss	$	(1,300,623	)	$	(490,399	)	$	(810,224	)		165.22	%
Less: net loss attributable to non-controlling interest		(87,646	)		(4,934	)		(82,712	)		1676.37	%
Net loss attributable to UPD Holding Corp.	$	(1,212,977	)	$	(485,465	)	$	(710,604	)		146.38	%

Revenue and Cost of Revenue

Beginning in April 2022 we started generating revenues from behavioral health treatment services at our inpatient and outpatient treatment facilities located in Kentucky. Revenue for the year ended June 30, 2022 was $38,190 compared to no revenue for the year ended June 30, 2021.

Professional Fees

We incurred professional fees of $199,036 and $208,688 for the years ended June 30, 2022, and 2021, respectively. Our professional fees decreased by $9,652 for the year ended June 30, 2022, compared to the same period in 2021, the decrease of which is primarily attributable to a decrease in accounting and legal fees.

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As funding permits, we expect to incur higher professional fees associated with on-going development of our brand, customers, and other relationship development.

General and Administrative Expenses

For the years ended June 30, 2022, and 2021, we incurred general and administrative expenses of $1,136,209 and $268,051, respectively, representing an increase of $868,158 for the year ended June 30, 2022, compared to the same period in 2021. The $868,158 increase in general and administrative expenses is primarily attributable to our acquisition of VBH, Vital, and VSL consisting of the following expenses: rent expense and related facilities; payroll expenses; insurance expense and consulting fees.

We expect our expenses to increase over the next several periods should we be successful in our new business plan, which will primarily consist of facilities costs, management and other salaries, travel, and other corporate overhead.

Interest Expense

Interest expense was $170,804 and $28,459 for the years ended June 30, 2022, and 2021, respectively, representing an increase of $142,345. The increase is primarily the result of the incurrence of new debt obligations totaling $564,000.

Change in Fair Value of Derivative Liabilities

Discontinued Operations

On December 31, 2020, we completed the disposition of our prior RSB 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 $251,164, net of tax of approximately $11,000.

Liquidity and Capital Resources

As of June 30, 2022, we had a working capital deficit of approximately $1,748,265. 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.

We believe we will be able to meet these costs by raising additional funds 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 commence during the second quarter of fiscal 2023. 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. Further, we have recently entered the rehabilitation services industry and may not be able to operate our facilities at levels sufficient to meet our on-going obligations.

For the year ended June 30, 2022, our 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. Net cash used in operating activities was $800,750 during the year ended June 30, 2022 and consisted of a net loss of $1,300,623 and net change in operating assets and liabilities of $511,757, offset by net non-cash items of $11,884. The primary non-cash items for the year ended June 30, 2022, consisted of change in derivative liabilities of $167,236 and offset by the depreciation and amortization of $44,503, non-cash warrant amortization of $55,000, amortization of debt discount of $39,639 and stock issued for settlement of debt of $16,210. The significant change in operating assets and liabilities was a gain in the fair value of derivative liabilities. We expect these operational cash uses to increase as we begin our operations in the first half of fiscal 2023.

Our investing activities consisted of acquiring property and equipment totaling $75,819. We expect to make additional capital expenditures as our rehabilitation facilities increase operations.

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During the year ended June 30, 2022, we generated $863,083 of net cash from financing activities through the issuance of convertible debt and notes payable of $564,000, proceeds from the sale of non-controlling interest of $250,000, proceeds from issuance of preferred stock of $100,000 and from related party notes payable of $3,000, which was offset by $53,917 of payments on notes payable and accrued interest. We expect to continue our financing efforts throughout fiscal 2023.

Off-Balance Sheet Arrangements

During the fiscal years ended June 30, 2022, and 2021, we did not engage in any off-balance sheet arrangements as set forth in Item 303(a)(4) of the Regulation S-K.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future.

Business Combinations

Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in general and administrative 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 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 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, 2022, 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 statements 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 June 30, 2022, all derivative liability contracts are convertible into a fixed number of shares of common stock.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8 - Financial Statements and Supplementary Data

UPD HOLDING CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		39-40
(PCAOB ID 374)

Consolidated Balance Sheets - As of June 30, 2022 and 2021		41

Consolidated Statements of Operations – Years ended June 30, 2022 and 2021		42

Consolidated Statements of Changes in Stockholders’ Deficit - Years ended June 30, 2022 and 2021		43

Consolidated Statements of Cash Flows - Years ended June 30, 2022 and 2021		45

Notes to Consolidated Financial Statements		46-58

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

UPD Holding Corp. and Subsidiaries

Reno, Nevada

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of UPD Holding Corp. and Subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has not yet established an ongoing source of revenue, suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Income Tax Provision

As discussed in Notes 2 and 11 to the consolidated financial statements, the Company’s income tax expense includes U.S. and state income taxes. Deferred tax assets and liabilities are recognized for the consequences of temporary differences between the financial reporting basis and the tax basis of existing assets and liabilities. The tax rate used to determine the deferred tax assets and liabilities is based on the enacted tax rate for the year and the manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.

We identified management’s calculation of income tax expense and deferred tax assets and liabilities (net of valuation allowance) as a critical audit matter because of the significant judgments and estimates management makes to determine these amounts. Performing audit procedures to evaluate the reasonableness of management’s interpretation of tax law in its estimate of the associated provisions and tax charges required a high degree of auditor judgment and increased effort. Our audit procedures consisted of 1) evaluating historical tax filings, and 2) assessing the reasonableness of the valuation allowance.

Accounting for Embedded Derivative Liabilities Related to Convertible Notes Payable

As described in Notes 2 and 6 to the financial statements, the Company had embedded debt conversion features, and other derivative financial instruments which required complex accounting considerations and significant estimates.

The Company determined that variable conversion features issued in connection with certain convertible debt required derivative liability classification. These variable conversion features were initially measured at fair value and subsequently have been remeasured to fair value at each reporting period. The Company determined the fair value of the embedded derivatives using the Black-Scholes-Merton option pricing model.

We identified the accounting considerations and related valuations, including the related fair value determinations of the embedded derivative liabilities of such as a critical audit matter. The principal considerations for our determination were: (1) the accounting consideration in determining the nature of the various features (2) the evaluation of the potential derivatives and potential bifurcation in the instruments, and (3) considerations related to the determination of the fair value of the various debt and equity instruments and the conversion features that include valuation models and assumptions utilized by management. Auditing these elements is especially challenging and requires auditor judgement due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

Our audit procedures related to management’s conclusion on the evaluation and related valuation of embedded derivatives, included the following, among others: (1) evaluating the relevant terms and conditions of the various financings, (2) assessing the appropriateness of conclusions reached by the Company with respect to the accounting for the convertible debt, and the assessment and accounting for potential derivatives and (3) independently recomputing the valuations determined by Management.

/s/ WSRP, LLC

We have served as the Company's auditor since 2019.

Salt Lake City, Utah

April 5, 2023

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PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

UPD Holding Corp.

Consolidated Balance Sheets

As of


	June 30,			June 30,
	2022			2021

ASSETS
Current assets:
Cash and cash equivalents	$	2,928		$	16,414
Accounts receivable, net		24,220			—
Total current assets		27,148			16,414

Property and equipment, net		71,359			40,043
Right of use asset, net		108,576			42,447
Other assets		28,675			2,365
Goodwill		416,981			416,981
Total assets	$	652,739		$	518,250

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	640,870		$	155,394
Accrued interest		114,145			83,799
Convertible notes payable, net of discount		218,987			162,548
Derivative liability		70,727			237,963
Notes payable, net		503,083			—
Related party notes payable		117,560			114,560
Lease liability		110,041			26,206
Total current liabilities		1,775,413			780,470
Lease liability, net of current portion		—			16,241
Total liabilities		1,775,413			796,711

Commitments and Contingencies
Stockholders' deficit
Preferred stock, $0.01 par value; 10,000,000 authorized, 100,000 issued and outstanding at June 30, 2022		1,000			—
Common stock, $0.005 par value; 200,000,000 shares authorized; 194,982,479 and 194,750,907 issued and outstanding at June 30, 2022 and June 30, 2021, respectively		974,913			973,755
Additional paid-in-capital		3,012,414			2,558,162
Accumulated deficit		(5,017,451	)		(3,804,474	)
Total UPD Holding Corp. stockholders' deficit		(1,029,124	)		(272,557	)
Non-controlling interest		(93,550	)		(5,904	)
Total stockholders' deficit		(1,122,674	)		(278,461	)
Total liabilities and stockholders' deficit	$	652,739		$	518,250

The accompanying notes are an integral part of these Consolidated Financial Statements

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UPD Holding Corp.

Consolidated Statements of Operations


	For the Years Ended
	June 30,			June 30,
	2022			2021
Revenues:
Net revenue	$	38,190		$	—

Operating costs and expenses:
Professional fees		199,036			208,688
General and administrative		1,136,209			268,051
Total operating costs and expenses		1,335,245			476,739
Operating loss		(1,297,055	)		(476,739	)

Other income (expense):
Interest expense, net		(170,804	)		(28,459	)
Gain/(loss) on change in fair value of derivative liability		167,236			(212,963	)
Other expense net		—			(23,402	)
Loss from continuing operations		(1,300,623	)		(741,563	)

Discontinued operations:
Gain on sale of discontinued operations, net of tax		—			251,164
Income from discontinued operations, net of tax		—			251,164
Net loss	$	(1,300,623	)	$	(490,399	)
Less: net loss attributable to non-controlling interest		(87,646	)		(4,934	)
Net loss attributable to UPD Holding Corp.	$	(1,212,977	)	$	(485,465	)

Basic and diluted earnings (loss) per share from:
Continuing operations	$	(0.01	)	$	(0.00	)
Discontinued operations		0.00			0.00
Basic and diluted earnings (loss) per share from:	$	(0.01	)	$	(0.00	)

Weighted average shares outstanding
Basic and diluted		194,815,620			181,006,414

The accompanying notes are integral part of these Consolidated Financial Statements

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UPD Holding Corp.

Consolidated Statements of Changes in Stockholders’ Deficit

For the Year Ended June 30, 2022

														Total
														UPD Holding
									Additional					Corp.						Total
	Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholders'			Non-Controlling			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit			Interest			Deficit
Balance, June 30, 2021		-	$	-		194,750,907	$	973,755	$	2,558,162	$	(3,804,474	)	$	(272,557	)	$	(5,904	)	$	(278,461	)
Beneficial conversion feature for convertible debt		-		-		-		-		24,200		-			24,200			-			24,200
Fair value of warrants issued with debt		-		-		-		-		66,000		-			66,000			-			66,000
Debt settlement		-		-		231,572		1,158		15,052		-			16,210			-			16,210
Sale of non-controlling interest		-		-		-		-		250,000		-			250,000			-			250,000
Issuance of preferred stock for cash		100,000		1,000		-		-		99,000		-			100,000			-			100,000
Net loss		-		-		-		-		-		(1,212,977	)		(1,212,977	)		(87,646	)		(1,300,623	)
Balance, June 30, 2022		100,000	$	1,000		194,982,479	$	974,913	$	3,012,414	$	(5,017,451	)	$	(1,029,124	)	$	(93,550	)	$	(1,122,674	)

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

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UPD Holding Corp.

Consolidated Statements of Changes in Stockholders’ Deficit

For the Year Ended June 30, 2021

															Total
															UPD Holding
									Additional						Corp.						Total
	Preferred Stock				Common Stock				Paid-in			Accumulated			Stockholders'			Non-Controlling			Stockholders'
	Shares		Amount		Shares		Amount		Capital			Deficit			Deficit			Interest			Deficit
Balance, June 30, 2020		-	$	-		172,450,907	$	862,255	$	1,872,632		$	(3,319,009	)	$	(584,122	)	$	-		$	(584,122	)
Issuance of common stock for conversion of debt and interest		-		-		4,460,000		22,300		124,570			-			146,870			-			146,870
Issuance of common stock for acquisition of Vital Behavioral Health, Inc.		-		-		16,840,000		84,200		437,840			-			522,040			-			522,040
Cash received for minority interest in VBH Kentucky Inc.		-		-		-		-		100,970			-			100,970			(970	)		100,000
Reclassification of convertible instrument		-		-		-		-		(25,000	)		-			(25,000	)		-			(25,000	)
Beneficial conversion feature for convertible debt		-		-		-		-		25,000			-			25,000			-			25,000
Stock based compensation		-		-		1,000,000		5,000		22,150			-			27,150			-			27,150
Net loss		-		-		-		-		-			(485,465	)		(485,465	)		(4,934	)		(490,399	)
Balance, June 30, 2021		-	$	-		194,750,907	$	973,755	$	2,558,162		$	(3,804,474	)	$	(272,557	)	$	(5,904	)	$	(278,461	)

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

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UPD Holding Corp.

Consolidated Statements of Cash Flows


	For the Years Ended
	June 30,			June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(1,300,623	)	$	(490,399	)
Gain on sale of discontinued operations		—			(251,164	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		44,503			6,702
Stock-based compensation		—			27,150
Loss on settlement of debt		—			23,402
(Gain) loss on change in fair value of derivative liability		(167,236	)		212,963
Non-cash warrant amortization		55,000			—
Amortization of debt discount and issuance costs		39,639			7,548
Stock issued for settlement of debt		16,210			—
Changes in operating assets and liabilities:
Accounts receivable		(24,220	)		—
Other assets		(26,310	)		(2,365	)
Asset held for sale		—			755
Accrued interest		75,346			20,911
Accounts payable		486,941			112,469
Net cash used in operating activities-continued operations		(800,750	)		(332,028	)
Net cash used in operating activities-discontinued operations		—			(815	)
Net cash used in operating activities		(800,750	)		(332,843	)

Cash flows from investing activities:
Purchase of property and equipment		(75,819	)		(46,745	)
Cash acquired in business combination		—			10,284
Net cash used in investing activities		(75,819	)		(36,461	)

Cash flows from financing activities:
Proceeds from related party notes payable		3,000			30,000
Proceeds from issuance of preferred stock, net		100,000			—
Proceeds from issuance of convertible notes payable		41,000			115,000
Proceeds from issuance notes payable		523,000			120,000
Payments on notes payable		(53,917	)		—
Proceeds from sale of non-controlling interest		250,000			100,000
Net cash provided by financing activities		863,083			365,000

Net decrease in cash and cash equivalents		(13,486	)		(4,304	)
Cash and cash equivalents at beginning of period		16,414			20,718
Cash and cash equivalents at end of period	$	2,928		$	16,414

Cash paid for income taxes	$	—		$	—
Cash paid for interest	$	45,709		$	—

Non-Cash Supplemental Disclosures
Debt settlement with stock payable	$	16,210		$	140,870
Debt discount on convertible notes	$	24,200		$	—
Warrant discount issued on debt	$	66,000		$	—
Notes payable forgiven in for asset disposition	$	—		$	92,225
Notes payable forgiven in business acquisition	$	—		$	120,000
Common stock issued for asset acquisition	$	—		$	522,040

The accompanying notes are an integral part of these Consolidated Financial Statements

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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 Co. (“RSB”), which was sold as of December 31, 2020.

On January 5, 2022, VBH Garden Grove Inc., a Nevada corporation, changed its name to VBH Georgia Inc.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 Georgia Inc., a Nevada corporation (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 June 30, 2022 and June 30, 2021, 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.

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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 future 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. 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.

Accounts Receivable

The Company records accounts receivable from insurance companies and government program payors based on our estimate of the amount that payors will pay us for the services performed less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written off against the allowance upon management’s determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations. The allowance for doubtful accounts was $0 for the years ended June 30, 2022 and 2021.

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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

Advertising Expense

The Company recognizes advertising expense in the period in which it is incurred. For the fiscal years ended June 30, 2022 and 2021 the Company incurred advertising expense of $4,023 and $11,500, respectively included in general and administrative expense in the accompanying consolidated statements of operations.

Revenue Recognition

The Company generates revenue 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. Beginning in April 2022 we started generating revenues from behavioral health treatment services at our inpatient and outpatient treatment facilities located in Kentucky.

The Company determines the measurement of revenue and the timing of revenue recognition utilizing the following core principles:

Identifying the contract with a customer;

Identifying the performance obligations in the contract;

Determining the transaction price;

Allocate the transaction price to the performance obligations in the contract; and

Recognize revenue when (or as) the Company satisfies its performance obligations.

Income Taxes

The Company recognizes deferred tax liabilities and assets using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements carrying values and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences 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 are recorded in the financial statements if realization is considered 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.

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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 accounts for contracts convertible into common stock in excess of its authorized capital as derivative 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 June 30, 2022, all derivative liability contracts are convertible into a 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% 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 $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 consolidated balance sheets.

During the nine months ended March 31, 2022 and the fiscal year ended 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.

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NOTE 4 – ACQUISITIONS

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:

Description	As of February 16, 2021
Fair value of 16,840,000 shares of restricted common stock	$	522,040
Lease liabilities		52,787
Other current liabilities		27,475
Notes payable forgiven		(122,250	)
Total consideration	$	480,052

Cash		10,284
Right of use assets		52,787
Goodwill		416,981
Total assets acquired	$	480,052

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:

	June 30,			June 30,
	2022			2021

Furniture and fixtures	$	26,438		$	5,304
Computer equipment and software		18,466			18,465
Leasehold improvements		77,660			22,976
Property and equipment		122,564			46,745
Accumulated depreciation		(51,205	)		(6,702	)
Property and equipment, net	$	71,359		$	40,043

Depreciation for the years ended June 30, 2022 and 2021 were $44,503 and $6,702, respectively.

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NOTE 6 – NOTES AND CONVERTIBLE NOTES PAYABLE

The Company’s notes payable consists of the following:

Note Description	June 30, 2022			June 30, 2021
Notes payable:
Related party notes payable due on demand a nominal interest rate of 6%	$	117,560		$	114,560
Notes payable due August 2022 a nominal interest rate of 12%		500,000			-
Notes payable due May 2023 a nominal interest rate of 7.95%		14,083			-
Total notes payable	$	631,643		$	114,560
Unamortized discount		(11,000	)		-
Notes payable, net		620,643			-
Accrued interest		25,235			13,199
Total notes payable, net	$	645,878		$	127,759

During the year ended June 30, 2022, the Company did not have the financial resources to make current payments on these notes payable. All of the outstanding notes payable 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.

During the year ended June 30, 2022, the Company entered into various promissory notes with a lender in which the Company received cash payments totaling $23,000. The promissory notes mature from November 2022 to May 2023 and each carries an interest rate of 7.95% per annum. The Company is required to make monthly interest payments with outstanding principal and interest due on the maturity date.

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

	June 30,			June 30,
Convertible Note Description	2022			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		(2,013	)		(17,452	)
Convertible notes payable, net		218,987			162,548
Accrued interest		88,910			70,600
Total convertible notes payable, net	$	307,897		$	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.

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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 Vital, 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 June 30, 2022, 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 4,866,679 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 254.20%; an expected term equal to the remaining term of the contract on the reclassification date (between eight to twelve months for fiscal 2022); a risk-free rate of approximately 2.8%; and conversion prices of $0.10 (174,000 shares), $0.05 (3,230,200 shares), and $0.025 (1,462,479 shares). The value of the derivative liability moves in parallel with the movement of the market value of the shares of the Company. For the year ended June 30, 2022, the Company recognized a gain on the change in the fair value of derivative liabilities of $167,236 in other income (loss) in the accompanying consolidated statements of operations. The Company had derivative liability obligations of $70,727 as of June 30, 2022 compared to $237,963 as of June 30, 2021.

During the years ended June 30, 2022, and June 30, 2021, the Company received $567,000 and $265,000, respectively, from funding on new notes and convertible notes. The Company made $53,917 and $0, respectively of payments on the outstanding notes, convertible notes payable and accrued interest, and recorded $76,164 and $20,911, respectively of interest expense and $94,639 and $7,548, respectively of debt discount amortization expense. As of June 30, 2022, and June 30, 2021, the Company had approximately $114,145 and $83,799, respectively of accrued interest. As of June 30, 2022, and June 30, 2021, the principal balance of outstanding notes and convertible notes payable was $852,643 and $294,560, respectively.

NOTE 7 – RELATED PARTY TRANSACTIONS

During the fiscal years ended June 30, 2022 and 2021, the Company’s Chief Executive Officer (“CEO”) provided the Company $43,000 in exchange for short-term 6% notes payable to meet the Company’s on-going operating expense obligations. As of June 30, 2022 and 2021, the Company had outstanding notes payable due to the CEO inclusive of accrued interest totaling $46,790 and $41,225, respectively. Additionally, our CEO provided cash proceeds, totaling $15,000 in September 2016 under a 12% convertible note arrangement. The note matured in 2018 and remains outstanding. As of June 30, 2022 and 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 fiscal year ended June 30, 2022 and 2021.

As noted in Note 4, the Company acquired a 100% interest in 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 June 30, 2021. As of June 30, 2021, the balance of the inter-company note payable was eliminated in the consolidation.

In April 2021, the Company sold an individual a 4.67% non-controlling interest in VBH Kentucky, Inc. for cash proceeds totaling $100,000. The non-controlling interest holder also entered into a $100,000 12% 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. In December 2021, the Company sold the same investor a 8.93% non-controlling interest in its wholly owned subsidiary, VBH Garden Grove Inc., for cash proceeds totaling $100,000.

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 12% convertible note payable issued in 2016 with an initial principal balance of $50,000. As of June 30, 2022, 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. By the terms of the convertible note, no additional interest was accrued during the fiscal year ended June 30, 2022 and 2021. The Company did not make any settlement arrangement to cure the default of the convertible note payable during the fiscal year ended June 30, 2022 and 2021.

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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 to 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 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 June 30, 2022.

Throughout several of the most recent fiscal years, the Company received working capital advances from a significant shareholder. In December 2020, the Company settled the then outstanding obligations due to the 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 was the lessor of the Company’s operating 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 June 30, 2022.

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 notes accrue interest at a rate of 6% per annum. As of June 30, 2022 and 2021, the Company owed the COO approximately $91,000 and $87,000, respectively.

During the fiscal year ended June 30, 2021, certain previously outstanding shareholder advances totaling approximately $72,000 were assumed by a third party as part of the RSB disposition as further discussed in Note 3.

Included in accounts payable is $328,846 and $74,375 of payables to related parties as of June 30, 2022 and June 30, 2021, respectively.

NOTE 8 – STOCKHOLDERS EQUITY

Common Shares

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 $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 $11,000.

In April 2021, the Company sold to an investor 250 shares equivalent to 4.67% non-controlling interest in its wholly owned subsidiary, VBH Kentucky, Inc., for cash proceeds totaling $100,000.

In December 2021, the Company sold to an investor 500 shares equivalent to 8.93% non-controlling interest in its wholly owned subsidiary, VBH Georgia Inc. for cash proceeds totaling $100,000.

In December 2021, the Company sold to an investor 750 shares equivalent to 12.30% non-controlling interest in its wholly owned subsidiary, VBH Kentucky, Inc., for cash proceeds totaling $150,000.

Stock Payable

On September 2, 2021, the Company entered into certain Mutual Release and Settlement Agreement with Athens Common, LLC (“Athens Common”) to extinguish $31,310 of payables held by Athens Common. All parties agreed to a total exchange of 231,572 shares of common stock, par value $0.005 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.

In March 2022, the Company issued the 231,572 shares of common stock valued at $16,210 which had been initially recorded in equity as stock payable.

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Warrants

In August 2021, the Company issued a 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 following table summarizes the Company's warrant transactions during the years ended June 30, 2022 and 2021:

	Number of Warrants		Weighted Average Exercise Price
Outstanding at June 30, 2020		-	$	-
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding at June 30, 2021		-	$	-
Granted		1,000,000		0.005
Exercised		-		-
Expired		-		-
Outstanding at June 30, 2022		1,000,000	$	0.005

Warrants granted in the fiscal year ended June 30, 2022, 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 expected volatility of 420.52%.

Preferred Stock

The total authorized preferred stock currently consists of Ten Million (10,000,000) shares, $0.01 par value. On April 15, 2022, Board of Directors has authorized the issuance of Two Million Five Hundred Thousand (2,500,000) shares of a new series of Preferred Stock that are convertible into Fifty Million (50,000,000) shares of Common Stock designated “Series A Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.

The Series A Preferred Stock shall not be entitled to vote on any matters affecting holders of the Common Stock and shall not have any voting rights whatsoever, except as may be required by law with respect to any rights affecting the Series A Preferred Stock among the holders of that specific class and series of capital stock of the Company.

The Series A Preferred Stock shares shall not entitle a holder to receive any dividends whatsoever, irrespective of whether the holders of the Common Stock may be entitled to dividends.

The Series A Preferred Stock shares shall not have any rights whatsoever in the event of the voluntary or involuntary dissolution, liquidation, or winding up of the Company, and shall be subordinate in the relative rights of priority, if any, to each and every other class or series of capital stock of the Company, including, but not limited to, the Common Stock.

The holders of the Series A Preferred Stock shares shall have no preemptive right to purchase or otherwise acquire shares of any class or series of capital stock of the Company now or hereafter authorized.

On April 15, 2022, the Company sold to an investor, 100,000 shares, of the Series A Preferred Stock for cash proceeds totaling $100,000.

NOTE 9 – OPERATING LEASES

As of June 30, 2022, the Company, through its Vital subsidiaries, has the following a non-cancelable lease arrangement:

Office facility intended to be used in its substance abuse treatment operations located in Frankfort, Kentucky (the “Frankfort Lease”). The term of the Frankfort Lease is twenty-four months with no explicit extension options. The base monthly payment of the term of the Frankfort Lease is $2,365. The Company estimated the lease liability associated with the facility using a discount rate of 7.7%. The discount rate is based on an estimate of the Company’s incremental borrowing rate for a term similar to the lease term on the commencement date. The Frankfort Lease commenced on February 1, 2021.

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Vital leased a facility in Fayetteville, Georgia with an initial base rent of $13,617 per month for an initial term of 18 months with a 5-year extension option. The facility is intended be used for in-patient services upon the receipt of regulatory approval. The Company estimated the lease liability associated with the facility using a discount rate of 7.7%. The discount rate is based on an estimate of the Company’s incremental borrowing rate for a term similar to the lease term on the commencement date. The Frankfort Lease commenced on August 1, 2021.

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:


2022	$	96,089
2023		16,082
2024		-
2025		-
2026		-
Total undiscounted cash payments		112,171
Less interest		(2,130	)
Present value of payments	$	110,041

The weighted average remaining term of the Company’s non-cancelable operating leases as of June 30, 2022, was approximately 7 months.

On January 14, 2021, the Company’s 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. 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 provided for minimum monthly rent of $50,000 for the first lease year and a 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 months until the property was re-zoned and licensed for the Company’s planned rehabilitation operations. The Company also had an option to cancel the lease during the first six months if it was unable to obtain re-zoning approval and applicable regulatory licensing. On May 20, 2021, the Company terminated the Lexington Lease due to zoning and licensing challenges associated with the facility.

The total lease expense incurred during the year ended June 30, 2021, inclusive of the cancelled Lexington Lease, was $91,825.

NOTE 10 – GOODWILL

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. Under the acquisition method for the completion of the Vital business combination, the purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of assets and liabilities acquired of $416,981 was recorded as goodwill.

The following table summarizes the Company's carrying amount of goodwill during the years ended June 30, 2022, and fiscal year ended June 30, 2021:

	Goodwill
Balance at June 30, 2020	$	-
Acquisition		416,981
Impairment		-
Balance at June 30, 2021	$	416,981
Acquisition		-
Impairment		-
Balance at June 30, 2022	$	416,981

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During each fiscal year, we periodically assessed whether any indicators of impairment existed which would require us to perform an interim impairment review. As of each interim period end during each fiscal year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our reporting units below their carrying values. We performed our annual test of goodwill for impairment as of June 30, 2022. The results of the goodwill impairment test indicated that the fair values of reporting unit were in excess of the carrying value, and, thus, we did not require an impairment charge.

NOTE 11 – INCOME TAXES

Income (loss) before provision (benefit) for income taxes consists of the following:

June 30,

2022

June 30,

2021

United States

(1,300,623

)

(741,563

)

Total income (loss) before provision (benefit) for income taxes

(1,300,623

)

(741,563

)

The provision (benefit) for income taxes consists of the following:

	June 30, 2022			June 30, 2021
Current:
Federal	$	-		$	-
State	-			-
Total current		-			-
Deferred:
Federal		(247,611	)		(16,863	)
State		-			-
Change in valuation allowance		247,611			16,863
Total deferred		-			-
Total provision (benefit) for income taxes	$	-		$	-

The provision (benefit) for income tax differs from the amount computed by applying the statutory federal income tax rate to income before taxes as follows:

	June 30, 2022			June 30, 2021
Statutory federal income tax rate		21.0	%		21.0	%
State tax provision		-			-
Change in valuation allowance		(19.0	)		13.0	)
Permanent differences – Insolvency Exclusion		(2.0	)		(8.0	)
Total provision for income taxes		-	%		-	%

As of June 30, 2022 and 2021, the net deferred tax asset consisted of the following:

	June 30, 2022			June 30, 2021
Deferred tax assets:
Fixed assets	$	-		$	1,407
Accrued expenses		-			3,150
Lease liability		23,109			8,914
Start-up expenditures		425,830			232,123
Net operating loss carryforwards		73,139			-
Total gross deferred tax assets		522,078			245,594
Less valuation allowance		(484,291	)		(236,680	)
Total deferred tax assets		37,787			8,914

Deferred tax liabilities:
Fixed assets		(14,985	)		-
Right-of-use asset		(22,802	)		(8,914	)
Total deferred tax liabilities		(37,787	)		(8,914	)

Net deferred tax asset/(liability)	$	-		$	-

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Valuation allowances are established when necessary to reduce deferred tax assets, including temporary differences and net operating loss carryforwards, to the amount expected to be realized in the future. The Company had cumulative losses from continuing operations in the U.S. for the four-year period ended June 30, 2022. The Company considered this negative evidence along with all other available positive and negative evidence and concluded that, as of June 30, 2022, it is more likely than not that the Company’s U.S. deferred tax assets will not be realized. As of June 30, 2022, a full valuation allowance of $484,291 has been recognized since it is more likely than not, the deferred tax assets will not be utilized prior to expiration based on the information currently available to management. A reconciliation of the beginning and ending amount of the valuation allowance is as follows:

	June 30, 2022		June 30, 2021
Valuation allowance at beginning of year	$	236,680	$	253,543
Change in valuation allowance		247,611		(16,863	)
Valuation allowance at end of year	$	484,291	$	236,680

On December 31, 2020, the Company discontinued its RSB operations, whereby 100% of the issued and outstanding common stock of RSB was assigned to RSB’s co-founder. As of December 31, 2020, all of the Company’s net operating losses were generated by RSB and had not been utilized, and the net operating losses were retained by RSB after the Company discontinued its RSB operations. The $251,164 gain on sale from discontinued operations is net of $0 tax expense. As of June 30, 2022, the Company had a federal net operating loss carryforwards of $348,280 and did not have a state net operating loss carryforwards.

The Company estimates the impact of a tax position recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of June 30, 2022, the Company had no liability for unrecognized tax benefits.

The Company files U.S. and California tax returns, with various statutes of limitation. As of June 30, 2022, the tax returns for fiscal year 2014 through fiscal year 2022 remain subject to examination. Annual tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. As of June 30, 2022, there are no income tax returns currently under audit

NOTE 12 – SUBSEQUENT EVENTS

On August 30, 2022, the Company sold to an investor, 50,000 shares, of the Series A Preferred Stock for cash proceeds totaling $50,000.

Acquisition

On December 30, 2022, the Company’s wholly owned subsidiary, United Product Development Corp., a Nevada corporation (“United Product”), completed an Asset Purchase Agreement with Hall Global, LLC , a Texas Limited Liability Company (“Hall Global”), providing for United Product’s purchase of the following assets from Hall Global: (a) Tooling consisting of all models, designs, drawings, molds, dies, casting, and tooling; and (b) Equipment consisting of several furniture, fixtures, and equipment, but not to include certain Excluded Assets consisting of monies, vendor accounts, intellectual property, certain equipment, and inventory. United Product intention is to utilize the purchased assets to develop, manufacture, and sell beverage products. The Agreement was approved by our Board of Directors.

The Purchase Price to be paid by United Product is $3,750,000 and consists of: (a) $1,250,000 of our Common Stock Shares valued at a fixed price of $0.025 per Share; and (b) a $2,500,000 secured promissory note payable by United Product to Hall Global.

The secured promissory note provides for repayment by: (a) a payment of principal and 12% interest of $1,000,000 and $225,000, respectively, on December 31, 2023; and (b) a payment of principal and 12% interest of $1,500,00 and $135,000, respectively, on December 31, 2024. The Agreement is subject to respective representations by United Product and Hall Global and a mutual indemnification provision holding harmless the respective counterparty to the transaction.

The secured promissory note is further subject to a Security Agreement providing that United Product secures the Principal Sum of $2,500,000 with collateral consisting of: (a) all of the United Product’s right, title and interest in and to the Purchased Assets; and (b) all proceeds and replacements of the Purchased Assets and any after acquired property.

Additionally, Hall Global agrees to a 1 year non-complete to not engage in any activity that competes with United Product

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Disposition

On December 31, 2022, the Company and its subsidiary, Vital Behavioral Health Inc., a Nevada corporation (“Vital Health”), entered into settlement agreements and assignments of stock with Gary Plichta and Samuel Kesaris (the “Investors”), whereby the Investors extinguished all of the Company’s and Vital Health’s debts and obligations to the Investors, totaling in excess of $400,000, plus interest, in exchange for all of Vital Health’s ownership in VBH Kentucky Inc., a Nevada corporation and previously majority held subsidiary of Vital Health (“VBHK”).

Legal

On November 17, 2022, the following complaint was filed against the Company alleging breaches of contract in connection with a $500,000 promissory note between Corey Shader and UPD Holding Corp: Shader v. UPD Holding Corp. et al (2^nd Judicial District, Nevada, Washoe County; Case No. CV22-02026). On February 14, 2023, the Clerk of the Court entered an Application for Entry of Default of the remaining balance due of $150,000 plus interest and fees.

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Item 9 - Changes in Disagreements with Accountants and Financial Disclosure

None

Item 9A - 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 June 30, 2022 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 procedures will not be implemented until they can be effectively executed and monitored. As a result of the size of the current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness, as of June 30, 2022, of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our Chief Executive and Chief Financial Officer concluded that, as of June 30, 2022, our internal controls over financial reporting were not effective due to the size and nature of the existing business operation for the following reasons: lack of segregation of duties; lack of multiple levels of review; insufficient written policies and procedures for accounting and financial reporting; and lack of an independent director or audit committee. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedures 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.

Item 9B - Other Information

None

Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Identification of Directors and Executive Officers

The following table sets forth the name, age and positions of our executive officers and directors as of the Effective Date. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Directors are elected annually by our stockholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.

Name	Age	Position	Director Since
Mark W. Conte	60	CEO/CFO, Director	March 16, 2015
Patrick Ogle	43	Chief Operating Officer, Director, General Counsel	February 16, 2021***
Dr. George Shoenberger	47	Director	January 1, 2021
Kevin J. Pikero	64	Chief Financial Officer, Director	March 16, 2015*
Andrew D. Smith	61	Director	March 16, 2015**

*Kevin J. Pikero resigned as CFO/Director on February 16, 2021. As disclosed on Form 8-K, Kevin J. Pikero’s resignation was not due to any disagreement with us or our management regarding or operations, policies or practices. **Andrew D. Smith resigned on December 31, 2020. As disclosed on Form 8-K Andrew D. Smith’s resignation was not due to any disagreement with us or our management regarding or operations, policies or practices. ***Patrick Ogle resigned as our Chief Operating Officer (“COO”) and Director on December 31, 2022. As disclosed on Form 8-K Patrick Ogle’s resignation was not due to any disagreement with us or our management regarding or operations, policies or practices.

Current Officers/Directors

Mark W. Conte

Mark W. Conte has been our Chief Executive Officer/Director since March 16, 2015 and our Chief Financial Officer since February 16, 2021. He is a business professional and entrepreneur in Reno, Nevada with over 35 years of experience in marketing and operations in the health, nutraceutical, technology, agricultural sciences, and banking industries. Mr. Conte is a co-founder of iMetabolic Corp and its President. Mr. Conte was a co-founder/ co-Managing Member of International Metabolic Institute LLC, which developed the “iMetabolic” brand and an initial line of dietary and nutraceutical products. Prior thereto, Mr. Conte was: a Partner in 1Globe Wireless, Inc.; the B2B Sales Manager for AT&T Wireless; Managing Director and Manager of Operations for Perten Instruments; Vice President of Marketing for AIQ Systems, Inc.; and as a Corporate Banking Specialist and Foreign Exchange Representative for Valley Bank of Nevada. Mr. Conte received a B.S. in Finance from the University of Nevada at Reno in 1984.

Patrick Ogle - Chief Operating Officer/Director/General Counsel

Patrick Ogle has been our Chief Operating Officer/Director/General Counsel since February 16, 2021. He is licensed as an attorney to practice law in Nevada, Arkansas, and the District of Columbia. Since January 2018, he has served as the Manager of Nevada Corporate Counsel LLC in Reno, Nevada, a professional services firm with a focus on corporate law. From September 2018 through August 2019, Mr. Ogle served as Chief Operating Officer and as a Director of Isodiol International, Inc., a hemp-derived consumer products company in Vancouver, British Columbia. From August 2017 through August 2018, he was Isodiol International Inc.’s General Counsel. From March 2018 through March 2019, Mr. Ogle served as General Counsel of Chemesis International Inc., a medical and recreational cannabis-derived consumer products company in Vancouver, British Columbia. From March 2010 to July 2017, Mr. Ogle engaged in the practice of law as a solo practitioner and as outsourced general counsel for various companies in Reno, Nevada and Washington, D.C. Prior thereto, Mr. Ogle practiced law in the Investment Management practice group at the law firm of Seward & Kissel LLP, as a legal consultant at the Inter-American Development Bank, and as a judicial law clerk at the U.S. District Court for the Western District of Arkansas. Mr. Ogle holds a B.S.B.A. in Accounting from Bucknell University, a J.D. from University of Arkansas School of Law, and an LL.M. in Securities and Financial Regulation from Georgetown University Law Center.

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Dr. George Shoenberger – Director

Dr. Shoenberger has been our Director since December 31, 2020. He is a Nevada Licensed Psychologist and since 2015 has served as the Manager of Health Psychology Associates LLC in Reno, Nevada. He obtained both bachelor’s and master’s degrees in psychology at California State University, Chico, and later attended the clinical psychology doctoral program at the University of Nevada, Reno, where he completed a Ph.D. with an emphasis on cognitive-behavioral treatments for anxiety disorders and addictions. Dr. Shoenberger completed his pre-doctoral internship at the Portland VA Medical Center and received specialized training in psychological assessment, behavioral medicine and health psychology, eating disorders treatment, and chronic disease management. He then completed post-doctoral training with an emphasis on behavioral pediatrics and adolescent psychology. In addition to his client practice, Dr. Shoenberger has consulted with several healthcare agencies that specialize in behavioral health and lifestyle change. Dr. Shoenberger has actively practiced as a licensed psychologist since 2009.

Former Officers/Directors – Fiscal Year Ending June 30, 2021

Kevin J. Pikero – Former Chief Financial Officer/Director

Mr. Pikero was our Chief Financial Officer/Director from March 16, 2015 to his resignation on February 16, 2021. Mr. Pikero’s resignation was not due to any disagreement with the Company, its board of directors, or its management. Mr. Pikero is a retired Certified Public Accountant (CPA) in Reno, Nevada with over 40 years of experience in the financial and accounting business. Mr. Pikero operated Kevin J. Pikero & Associates, Inc. (CPAs) in Reno, Nevada providing accounting, tax, and financial services for a select domestic and international clientele of corporations, partnerships, sole proprietors, and individuals. Mr. Pikero’s professional history includes employment with: Haims & Company – (CPAs); E.F. Hutton Credit Corp.; Barclays Business Credit Inc.; Truckee River Bank; Bank of America Community Development Bank; and United American Funding, Inc. Mr. Pikero is a graduate of Bentley University with a B.S. in Accounting and of the University of Bridgeport, Bridgeport, CT with a M.B.A. in Finance.

Andrew D. Smith -Former Director

Andrew D. Smith was our Director from March 16, 2015 until his resignation on December 31, 2020. Mr. Smith is a Certified Public Accountant in Chicago, Illinois with over 35 years of experience in the financial and accounting business. He is a co-founder and the current President of Houlihan Capital, an investment banking firm with specializations in mergers and acquisitions and valuations. Previously to his time at Houlihan Capital, Mr. Smith was: a Senior Vice President for EVEREN Securities, Inc. (formerly Kemper Securities, Inc., 1993 to 1996), where he was the founder and co-head of the firm’s Mergers & Acquisitions Group; a Managing Director at Geneva Capital Markets; and an auditor for Ernst & Whinney, where he specialized in serving financial institutions. Mr. Smith is a graduate, with honors, of Ohio Wesleyan University with a BA in Economics, is registered with FINRA as a General Securities Representative (Series 7), General Securities Principal (Series 24), and a Financial and Operations Principal (Series 27), is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society, and is credentialed through the American Institute of Certified Public Accountants as “Accredited in Business Valuation.”

Employment Contracts

No directors were compensated in Fiscal Years 2020 or 2021. We do not currently have a formal plan for compensating our directors.

Code of Ethics

We have not yet adopted a Code of Business Conduct and Ethics.

Audit Committee, Compensation Committee and Nominating Committee

As of the date of this filing, we do not have a formal Audit Committee, Compensation Committee or Nominating Committee. Our Board of Directors make all decisions that an audit committee would ordinarily make. We have determined that we do, not have a member of its Board of Directors that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.

We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our consolidated financial statements. In addition, we believe that at this time, retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any revenues to date.

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Conflicts of Interest

Certain potential conflicts of interest are inherent in the relationships between our officers and directors, and us.

From time to time, one or more of our affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that we own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage additional other businesses which may compete with ours with respect to operations, including financing and marketing, management time and services and potential customers. These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates are associated. Our affiliates are in no way prohibited from undertaking such activities, and neither we nor our shareholders will have any right to require participation in such other activities.

Further, because we intend to transact business with some of our officers, directors, and affiliates, as well as with firms in which some of our officers, directors or affiliates have a material interest, potential conflicts may arise between the respective interests of us and these related persons or entities. We believe that such transactions will be affected on terms at least as favorable to us as those available from unrelated third parties.

With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of our disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.

Involvement in Certain Legal Proceedings.

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

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Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires the Company’s officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes of ownership with the Securities and Exchange Commission (the “SEC”). Officers, directors, and beneficial owners of more than ten percent of the Common Stock are required by SEC regulations to furnish the Company with copies of all reports that they file with the SEC pursuant to Section 16(a) of the Exchange Act. Our Officers and Directors have not complied with Section 16.

ITEM 11.

EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded to, earned by, or paid to each named executive officer during each of the fiscal years ended June 30, 2022, and 2021.

Summary Compensation Table
Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Mark W. Conte (1)	2022		--		--		--		--		--		--		$60,000		$60,000
Chief (Principal) Executive Officer/Chief Financial Officer/ Director	2021		--		--		--		--		--		--		--		--
Patrick Ogle	2022		--		--		--		--		--		--		$60,000		$60,000
Chief Operating Officer	2021		--		--		--		--		--		--		--		--
Kevin J. Pikero (1) *	2022		--		--		--		--		--		--		--		--
Former Chief (Principal) Financial Officer and Director	2021		--		--		--		--		--		--		--		--

*Kevin J. Pikero resigned as CFO/Director on February 16, 2021.

Director Compensation

No directors were compensated in Fiscal Years 2020 or 2021. We do not currently have a formal plan for compensating our directors.

Compensation Committee Interlocks and Insider Participation

Not applicable.

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Indemnification of Officers and Directors

The General Corporation Law of Nevada provides that directors, officers, employees or agents of Nevada corporations are entitled, under certain circumstances, to be indemnified against expenses (including attorneys’ fees) and other liabilities actually and reasonably incurred by them in connection with any suit brought against them in their capacity as a director, officer, employee or agent, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. This statute provides that directors, officers, employees and agents may also be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by them in connection with a derivative suit brought against them in their capacity as a director, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made without court approval if such person was adjudged liable to the corporation.

Our by-laws provide that we shall indemnify our officers and directors in any action, suit or proceeding unless such officer or director shall be adjudged to be derelict in his or her duties.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 28, 2023, certain information regarding beneficial ownership of our capital stock according to the information supplied to us, that were beneficially owned by (i) each person known by the Company to be the beneficial owner of more than 5% of each class of the Company’s outstanding voting stock, (ii) each director, (iii) each named executive officer identified in the Summary Compensation Table, and (iv) all named executive officers and directors as a group.

Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable. There are not any pending or anticipated arrangements that may cause a change in control.

Name and Address of Beneficial Owner (1)	Amount Nature of Direct Beneficial Ownership (Common Stock Shares)	Percentage of Common Stock (1) (2)
Officers and Directors
Mark W. Conte Chief (Principal) Executive Officer/Director	12,189,369	6.3
Patrick E. Ogle Chief Operating Officer & Director	14,034,893	7.2
G. Deacon Shoenberger Director	10,346,931	5.3
All Officers/Directors as a Group	36,571,193	18.8
Over 5% Holders
Jesse Corletto	12,000,000	6.2
Terie Ogle	10,000,000	5.1
Gary Plitchta 10655 Versailles Blvd Wellington, Florida 33449	20,000,000	10.3
Samuel Kesaris 2186 SW Destin Drive Port Saint Lucie, Florida 34952	10,560,000	5.4
Philip Kesaris 7 Bradenton Court Gaithersburg, Maryland 20878	10,000,000	5.1

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(1) Applicable percentage of ownership is based on 194,982,479 shares of common stock outstanding as of February 1, 2023, together with securities exercisable or convertible into 9,716,000 shares of common stock within sixty (60) days of June 30, 2022, for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of June 30, 2022, are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Currently none of the officers or directors of the Company hold options or warrants of the Company. The business address of each person named as an officer or director is 75 Pringle Way, 8th Floor, Suite 804 Reno, Nevada 89502/

(2)

Share percentages reflect single digit rounding.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Apart from the transactions described below, we do not have any transactions during fiscal years 2021 and 2020 with any director, director nominee, executive officer, security holder known to us to own of record or beneficially more than 5% of our common stock, or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeded $150,000.

During the fiscal year ended June 30, 2022, our Chief Executive Officer (“CEO”) provided us with approximately $77,000 to meet our on-going operating expense obligations and deferred $40,000 of compensation which is included in accounts payable at June 30, 2022. As of June 30, 2022, and 2021, we had 6% promissory note due to the CEO inclusive of accrued interest totaling approximately $47,000 and $41,000, respectively. Additionally, our CEO provided cash proceeds in the amount of $15,000 in September 2016 under a convertible note arrangement. The note matured in 2018 and remains outstanding. As of June 30, 2022, and 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 our CEO. Pursuant to the terms of the convertible note, no additional interest was accrued during the fiscal years ended June 30, 2022 and 2021.

During the fiscal year ended June 30, 2022, our Chief Operating Officer/Director provided us with approximately $10,000 to meet our on-going operating expense obligations and deferred $40,000 of compensation which is included in accounts payable at June 30, 2022. As of June 30, 2022, and 2021, we had a 6% promissory note due to the COO inclusive of accrued interest totaling approximately $91,000 and $87,000, respectively

Effective December 31, 2020, Dr. George D. Shoenberger was appointed as our Board member. As of the date of his appointment and through June 30, 2022, Dr. Shoenberger held a convertible note payable with us issued in 2016 with an initial principal balance of $50,000. As of June 30, 2022, and 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 Dr. Shoenberger’s option into our restricted common stock at a conversion rate of $0.025 per share. We did not cure the default of the convertible note payable during the fiscal years ended June 30, 2022, and 2021.

During the fiscal year ended June 30, 2022, we received approximately $136,000 working capital advances from a significant shareholder to meet our on-going operating expense obligations. The significant shareholder is the lessor of our operating lease. As of June 30, 2021, we owed the significant shareholder/lessor approximately $23,000 related to tenant improvement payments made on our behalf. As of June 30, 2022, and 2021, we owed the significant shareholder an amount, which is included in accounts payable, totaling approximately $159,000 and $23,000, respectively.

A significant shareholder provided working capital advances totaling approximately $58,000 during the year ended June 30, 2021 of which approximately $51,000 was due and payable as of June 30, 2021. During the fiscal year ended June 30, 2022, we paid approximately $48,000 against the payable. As of June 30, 2022, and 2021, we owed the significant shareholder an amount, which is included in accounts payable, totaling approximately $3,000 and $51,000, respectively.

In December 2021, the Company sold to an investor 500 shares equivalent to 8.93% non-controlling interest in its wholly owned subsidiary, VBH Georgia Inc. for cash proceeds totaling $100,000 and in April 2021, 250 shares equivalent to 4.67% non-controlling interest in its wholly owned subsidiary, VBH Kentucky, Inc., for cash proceeds totaling $100,000. The non-controlling interest holder also purchased 100,000 shares of Series A Preferred Stock for cash proceeds totaling $100,000 in April 2022 and entered into $100,000 12% convertible note payable with us in March 2021. The convertible note matured in March 2022 and is convertible into restricted common stock at $0.05 per share. As of June 30, 2022, the note had not been converted.

In December 2021, the Company sold to an investor 750 shares equivalent to 12.30% non-controlling interest in its wholly owned subsidiary, VBH Kentucky, Inc., for cash proceeds totaling $150,000.

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We acquired a 100% interest in Vital Behavioral Health, Inc. As of the date of acquisition in February 2021, we were indebted to Vital for approximately $100,000 under a 6% promissory note. Upon consummation of the merger with Vital, the promissory note and related accrued interest were effectively eliminated. We did not make any cash payments under the promissory note arrangement through June 30, 2021.

During the fiscal year ended June 30, 2021, certain previously outstanding shareholder advances totaling approximately $72,000 were assumed by a third party as part of the RSB disposition.

In June 2021, we 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.

Director Independence

Although we are not listed on a national securities exchange, in determining whether the members of our Board are independent, the Company has elected to use the definition of “independence” set forth by the NASDAQ Stock Market (“NASDAQ”) and the standards for independence established by NASDAQ. After review of relevant transactions or relationships between each director, or any of his family members, and the Company, its senior management and the Board, have determined that none of our officers or directors are independent directors within the meaning of the applicable listing standards of NASDAQ. Mark W. Conte and Patrick Ogle are not independent directors under the NASDAQ standard based in part on their positions as executive officers and employees of the Company.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table summarizes the aggregate fees billed to us by our registered independent auditor in relation to the audits and quarterly reviews of the Company for the fiscal years ended June 30, 2022 and 2021:

Fee Category	Year Ended June 30, 2022	Year Ended June 30, 2021
Audit Fees (1)	$52,000	$60,000
Audit-Related Fees (2)	$ -	$ -
Tax Fees (3)	$5,000	$ -
All Other Fees (4)	$ -	$ -

(1)

Audit Fees. Audit fees include fees for professional services performed for the audit of our annual consolidated financial statements, review of quarterly consolidated financial statements included in our SEC filings, and assistance and issuance of consents associated with other SEC filings.

(2)

Audit-Related Fees. Audit-related fees are fees for assurance and related services that are reasonably related to the audit. This category includes fees related to assistance consulting on financial accounting/reporting standards.

(3)

Tax Fees. Tax fees primarily include professional services performed with respect to preparation of our federal and state tax returns for our consolidated subsidiaries.

(4)

All Other Fees. All other fees include products and services provided, other than the services reported comprising Audit Fees, Audit Related Fees and Tax Fees.

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The Board of Directors has reviewed the services provided by WSRP for the fiscal years ended June 30, 2022 and 2021 and the amounts billed for such services and after consideration, have determined that the receipt of these fees is compatible with the provision of independent audit services. The Board has discussed these services and fees with its registered independent audit firm and Company management to determine that they are appropriate under the rules and regulations concerning auditor independence promulgated by the U.S. Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as under guidelines of the American Institute of Certified Public Accountants.

Pre-Approval Policies and Procedures

The entire Board of Directors acts as our Audit Committee. The Board of Directors does not have a financial expert serving on its committee at this time due to our size and nature.

All audit and non-audit services are pre-approved by the Board of Directors which considers, among other things, the possible effect of the performance of such services on the auditors’ independence. The Board of Directors pre-approves the annual engagement of the principal independent registered public accounting firm, including the performance of the annual audit and quarterly reviews for the subsequent fiscal year, and pre-approves specific engagements for tax services performed by such firm. The Board of Directors have also established pre-approval policies and procedures for certain enumerated audit and audit related services performed pursuant to the annual engagement agreement, including such firm’s attendance at and participation at Board and committee meetings; services associated with SEC registration statements approved by the Board of Directors; review of periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings, such as comfort letters and consents; assistance in responding to any SEC comments letters; and consultations with such firm as to the accounting or disclosure treatment of transactions or events and the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, Public Company Accounting Oversight Board (PCAOB), Financial Accounting Standards Board (FASB), or other regulatory or standard-setting bodies. The Audit Committee is informed of each service performed pursuant to its pre-approval policies and procedures. The Board of Directors have considered the role of WSRP in providing services to us for the fiscal years ended June 30, 2022 and 2021 and has concluded that such services are compatible with such firm’s independence.

PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit Number	Description

21.1*	Subsidiaries of the Registrant
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS*	XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.**
Exhibit 101.SCH*	Inline XBRL Taxonomy Extension Schema Document.**
Exhibit 101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.**
Exhibit 101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.**
Exhibit 101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.**
Exhibit 101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.**
Exhibit 104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Filed herewith.

In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Financial Statement Schedules

None.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	UPD HOLDING CORP.


Date: April 5, 2023	By:	/s/ Mark W. Conte
		Mark W. Conte
		Chief Executive Officer
		(Principal Executive Officer)

Date: April 5, 2023	By:	/s/ Mark W. Conte
		Mark W. Conte
		Chief Financial Officer
		(Principal Financial Officer/Chief Accounting Officer)

Date: April 5, 2023	By:	/s/ Patrick E. Ogle
		Patrick E. Ogle
		Chief Operations Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date


/s/ Mark W. Conte	Chief Executive Officer, Director	April 5, 2023
Mark W. Conte	(Principal Executive Officer)


/s/ Mark W. Conte	Chief Financial Officer/ Chief Accounting Officer Director	April 5, 2023
Mark W. Conte	(Principal Financial Officer)


/s/ Patrick E. Ogle	Chief Operating Officer//Director	April 5, 2023
Patrick Ogle


/s/ G. Deacon Sheonberger	Director	April 5, 2023
Deacon Shoenberger

UPD HOLDING CORP. 10-K