UPD HOLDING CORP. The following management discussion and analysis of our financial condition and
results of operations should be read in conjunction with our unaudited interim
consolidated financial statements and related notes which are included in Item 1
of this Quarterly Report on Form 10-Q, and with our audited financial statements
included in our Form 10-K for the fiscal year ended
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This discussion and analysis provide 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.
Our Business Incorporation
We were incorporated in the state of
Our Subsidiaries
Our wholly owned subsidiaries consist of the following
·
·
2020.
· iMetabolic Corp ("iMetabolic") incorporated in
Vital's subsidiaries consist of:
·
·
The Vital Acquisition
On
· 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.
On
·
·
VBH Kentucky, Inc.
VBH Kentucky has 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
21 Table of ContentsVSL Frankfurt, LLC
VSL Frankfort will offer sober-designated living quarters for individuals who
are in recovery in conjunction with the
VBH Garden Grove, Inc.
VBH Garden intends to identify substance use disorder treatment facilities
located in
VBH Garden Grove
VBH Garden Grove intends to identify substance use disorder treatment facilities
located in
Business of
Vital's operational plans are contingent upon whether we are able to:
· Obtain sufficient debt or equity financing to operate
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
The facilities we intend to operate have access to Medically Monitored Withdrawal Management Services (MMWM), a Partial Hospitalization Program (PHP), an Intensive Outpatient Program (IOP), and an Outpatient Program (OP). Clients who participate in the PHP, IOP, and OP treatment programs will be eligible for housing through sober living accommodations that will be designed to give a client the ability to participate in his or her daily affairs and work and to have access to daily on-campus treatment at convenient times and locations.
We intend that most of our treatment facilities will be enrolled in Medicare or Medicaid and will bill and accept payments from those governmental programs. In most cases, it takes between 45 and 90 days for a Medicaid application to be processed and either accepted or denied by the state Medicaid office. However, depending on the circumstances and the state in which one resides, the application process could be shorter or longer. Most facilities that accept Medicaid generally provide programs with some degree of medical care and substance rehabilitation, including group and individual therapy, 12-step meetings, and other recovery activities, on a 24 hours per day basis in a highly structured setting. Short-term programs may last between 3 and 6 weeks and be followed by outpatient therapy. Long-term programs often last between 6 and 12 months and focus on re-socializing patients as they prepare to re-enter their communities. Intensive outpatient services (IOPs) typically offer at least 9 hours of therapy per week in sets of three 3-hour sessions, and some studies have found them to be similar to residential and inpatient programs in both services and effectiveness.
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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
All of our plans reflected above and below are contingent upon receiving adequate debt and/or equity financing of which there are no assurances we will be successful in obtaining.
Our Future Services and Solutions
We intend to provide quality, comprehensive, and compassionate care to adults struggling with alcohol and/or drug abuse and dependence as well as co-occurring mental health issues. We will maintain a research-based, disciplined treatment plan for all patients with schedules designed to engage the patient in an enriched recovery experience. Our purpose and passion are to empower the individual, their families, and the broader community through the promotion of optimal wellness of the mind, body, and spirit.
We plan to offer the following types of therapy: motivational interviewing, cognitive behavioral therapy, rational emotive behavior therapy, dialectical behavioral therapy, solution-focused therapy, eye movement desensitization and reprocessing, and systematic family intervention. Our variety of therapy settings includes individual, group, and family therapies, recovery-oriented challenge therapies, expressive therapies (with a focus on music and art), and trauma therapies.
We also intend to provide Medicated-Assisted Treatment ("MAT"), which is the use of FDA-approved medications, in combination with counseling and behavioral therapies, to provide a "whole-patient" approach to the treatment of substance use disorders. We believe that 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.
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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.
We plan offer a full spectrum of treatment services to patients based upon individual needs that are assessed through comprehensive evaluations at admission and throughout their participation in the program. The assignment and frequency of services will correspond to individualized treatment plans within the context of the level of care and treatment intensity level.
· 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.
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· 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 inTexas ,Nevada ,Mississippi , andFlorida . We plan to continue using sober living facilities as a complement to our outpatient services. 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
· 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.
25 Table of Contents
· 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.
· 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.
26 Table of Contents Revenues
We plan to generate revenues through our
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended
Below is a summary of the results of operations for the three months endedDecember 31, 2021 , and 2020. For the Three Months Ended December 31, 2021 2020 $ Change % Change Revenue: Net revenue $ - $ - $ - 0.00 % Operating expenses Professional fees 69,028 21,570 47,458 220.02 % General and administrative 268,547 2,712 265,835 9802.18 % Total operating costs and expenses 337,575 24,282 313,293 1290.23 % Operating loss (337,575 ) (24,282 ) (313,293 ) 1290.23 % Interest expense, net (50,246 ) (3,990 ) (46,256 ) 1159.30 % Gain on change in fair value of derivative liability 238,397 - 238,397 0.00 % Other income (expense), net - (23,402 ) 23,402 -100.00 % Net loss, before income taxes (149,424 ) (51,674 ) (97,750 ) -189.17 % Benefit from income taxes - 10,852 (10,852 ) -100.00 % Loss from continuing operations (149,424 ) (40,822 ) (108,602 ) 266.04 % Discontinued operations: Gain on sale of discontinued operations, net of tax - 240,312 (240,312 ) -100.00 % Income from discontinued operations, net of tax - 240,312 (240,312 ) -100.00 % Net income (loss)$ (149,424 ) $ 199,490 $ (348,914 ) -174.90 % Less: net loss attributable to non-controlling interest (6,056 ) - (6,056 ) 0.00 % Net income (loss) attributable to UPD Holding Corp.$ (143,368 ) $ 199,490 $ (342,858 ) -171.87 % 27 Table of Contents Revenue and Cost of Revenue
We generated no revenue for the three months ended
Professional Fees
We incurred professional fees of
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 three months ended
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
Change in Fair Value of Derivative Liabilities
As of
Discontinued Operations
On
28 Table of Contents
Results of Operations for the Six Months Ended
Below is a summary of the results of operations for the six months endedDecember 31, 2021 , and 2020. For the Six Months Ended December 31, 2021 2020 $ Change % Change Revenue: Net revenue $ - $ - $ - 0.00 % Operating expenses Professional fees 126,845 67,186 59,659 88.80 % General and administrative 508,708 5,192 503,516 9697.92 % Total operating costs and expenses 635,553 72,378 563,175 778.10 % Operating loss (635,553 ) (72,378 ) (563,175 ) 778.10 % Interest expense, net (77,905 ) (9,849 ) (68,056 ) 690.99 % Gain on change in fair value of derivative liability 199,454 - 199,454 0.00 % Other income (expense), net - (23,402 ) 23,402 -100.00 % Net loss, before income taxes (514,004 ) (105,629 ) (408,375 ) -386.61 % Benefit from income taxes - 10,852 (10,852 ) -100.00 % Loss from continuing operations (514,004 ) (94,777 ) (419,227 ) 442.33 % Discontinued operations: Gain on sale of discontinued operations, net of tax - 240,312 (240,312 ) -100.00 % Income from discontinued operations, net of tax - 240,312 (240,312 ) -100.00 % Net income (loss)$ (514,004 ) $ 145,535 $ (659,539 ) -453.18 % Less: net loss attributable to non-controlling interest (10,822 ) - (10,822 ) 0.00 % Net income (loss) attributable to UPD Holding Corp.$ (503,182 ) $ 145,535 $ (648,717 ) -445.75 % Revenue and Cost of Revenue
We generated no revenue for the three months ended
Professional Fees
We incurred professional fees of
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 six months ended
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.
29 Table of Contents Interest Expense
Interest expense was
Change in Fair Value of Derivative Liabilities
As of
Discontinued Operations
On
Liquidity and Capital Resources
As of
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 2022. However, no assurance can be given that we will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on acceptable terms. 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 six months ended
Our investing activities consisted of acquiring property and equipment totaling
approximately
During the six months ended
30 Table of Contents
Off-Balance Sheet Arrangements
During the six months ended
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
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
31 Table of Contents
The Company accounts for contracts convertible into common stock in excess of
its authorized capital as derivative as liabilities. The derivative liabilities
are re-measured at fair value with the changes in the value reported as a
component of other income (expense) in the accompanying consolidated results of
operations. The derivative liabilities are measured at fair value using a Black
Scholes option pricing model. The model is based on assumptions including quoted
market prices and estimated volatility factors based on historical quoted market
prices for the Company's common stock and are classified within Level 3 of the
fair value hierarchy as established by US GAAP. As of
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