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.




  33


   Table of Contents

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.



  34


   Table of Contents

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





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 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. The
Company had derivative liability obligations of $70,727 as of June 30, 2022
compared to $237,963 as of June 30, 2021.



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.



  35


   Table of Contents





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.



  36


   Table of Contents

© Edgar Online, source Glimpses