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EX-31 - SECTION 302 CERTIFICATION - UPD HOLDING CORP.ex_31-1.htm
EX-31 - SECTION 302 CERTIFICATION - UPD HOLDING CORP.ex_31-2.htm
EX-32 - SECTION 906 CERTIFICATION - UPD HOLDING CORP.ex_32-1.htm
EX-32 - SECTION 906 CERTIFICATION - UPD HOLDING CORP.ex_32-2.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


  X  

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


For the quarterly period ended September 30, 2013


___

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


For the transition period from _______________ to _______________


Commission File number 001-10320


Esio Water & Beverage Development Corp.

(Exact name of registrant as specified in its charter)


Nevada

13-3465289

(State or other jurisdiction of

(I.R.S. Employer

incorporation of organization)

Identification No.)


36508 N. 15th Lane, Phoenix, AZ 85086

(Address of principal executive offices)


(866) 545-4875

(Issuer’s telephone number)


_________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 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    X       No  ___


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)   Yes    X       No   ___


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


 

Large accelerated filer ___

Accelerated Filer ___

 

Non-accelerated filer ___
(Do not check if a smaller reporting company)

Smaller Reporting Company   X  


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


APPLICABLE ONLY TO CORPORATE ISSUERS


As of November 14, 2013 the issuer had 18,566,636 shares of Common Stock outstanding, par value $.005 per share.




PART I – FINANCIAL INFORMATION


Item 1. Financial Statements.


ESIO WATER & BEVERAGE DEVELOPMENT CORP.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


 

 

September 30,

 

June 30,

 

 

 

2013

 

2013

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

250,354

 

$

280,903

 

Prepaid expenses

 

 

2,921

 

 

9,375

 

 

 

 

 

 

 

 

 

Total current assets

 

 

253,275

 

 

290,278

 

 

 

 

 

 

 

 

 

Total Assets

 

$

253,275

 

$

290,278

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,497

 

$

2,095

 

Accrued liabilities

 

 

5,760

 

 

5,760

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

9,257

 

 

7,855

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

9,257

 

 

7,855

 

 

 

 

 

 

 

 

 

Commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

Common stock, $.005 par value 200,000,000 authorized; 18,566,636 issued and outstanding as of September 30, 2013 and June 30, 2013

 

 

92,833

 

 

92,833

 

Additional paid in capital

 

 

14,908,054

 

 

14,908,054

 

Accumulated deficit prior to reentering the development stage

 

 

(11,160,829

)

 

(11,160,829

)

Deficit accumulated in the development stage

 

 

(3,596,040

)

 

(3,557,635

)

 

 

 

 

 

 

 

 

Total stockholders’ equity (deficit)

 

 

244,018

 

 

282,423

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity (deficit)

 

$

253,275

 

$

290,278

 


The Accompanying Notes are an Integral Part of the Unaudited Financial Statements


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ESIO WATER & BEVERAGE DEVELOPMENT CORP.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


 

 

 

 

 

 

 

 

Cumulative Since

 

 

 

 

 

 

 

 

 

Reentering the

 

 

 

 

 

 

 

 

 

Development Stage,

 

 

 

For the Three Months Ended

 

February 5, 2008 to

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

General and administrative

 

$

35,405

 

$

127,856

 

$

1,589,995

 

Directors fees

 

 

3,000

 

 

3,000

 

 

498,092

 

Impairment expense

 

 

 

 

 

 

532,056

 

Operating loss

 

 

38,405

 

 

130,856

 

 

2,620,143

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from operations

 

 

(38,405

)

 

(130,856

)

 

(2,620,143

)

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

(733,554

)

 

(999,194

)

Interest income

 

 

 

 

 

 

23,547

 

 

 

 

 

 

(733,554

)

 

(975,647

)

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

(50

)

 

(250

)

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(38,405

)

$

(864,460

)

$

(3,596,040

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(0.00

)

$

(0.05

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

 

18,566,636

 

 

17,108,141

 

 

 

 


The Accompanying Notes are an Integral Part of the Unaudited Financial Statements


- 3 -



ESIO WATER & BEVERAGE DEVELOPMENT CORP.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


 

 

 

 

 

 

 

 

Cumulative Since

 

 

 

 

 

 

 

 

 

Reentering the

 

 

 

 

 

 

 

 

 

Development Stage,

 

 

 

For the Three Months Ended

 

February 5, 2008

 

 

 

September 30,

 

to

 

 

 

2013

 

2012

 

September 30, 2013

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(38,405

)

$

(864,460

)

$

(3,596,040

)

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

69,931

 

 

463,300

 

Amortization of intangibles

 

 

 

 

 

 

40,056

 

Amortization and depreciation

 

 

 

 

6,870

 

 

46,146

 

Amortization of beneficial conversion feature and offering costs

 

 

 

 

643,849

 

 

834,738

 

Financing expense due to sweetener for conversion of debt

 

 

 

 

85,800

 

 

85,800

 

Impairment expense

 

 

 

 

 

 

532,056

 

Loss on settlement of note receivable and accrued interest

 

 

 

 

 

 

69,750

 

Loss on settlement of notes payable

 

 

 

 

 

 

525,000

 

Accrued interest receivable

 

 

 

 

 

 

(14,750

)

Changes in Assets and Liabilities:

 

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

6,454

 

 

3,965

 

 

(15,920

)

Other assets

 

 

 

 

 

 

(46,146

)

Accounts payable

 

 

1,402

 

 

23,912

 

 

3,497

 

Accounts payable-related party

 

 

 

 

 

 

50,000

 

Accrued liabilities

 

 

 

 

11,657

 

 

14,917

 

Net cash used by operating activities

 

 

(30,549

)

 

(18,476

)

 

(1,007,596

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Purchase of intangible asset

 

 

 

 

(202,500

)

 

(272,500

)

Collection of note receivable

 

 

 

 

 

 

145,000

 

Net cash provided by (used) by  investing activities

 

 

 

 

(202,500

)

 

(127,500

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

Repayment of debt

 

 

 

 

 

 

(33,036

)

Repayment of debt-related party

 

 

 

 

 

 

(34,188

)

Proceeds from notes payable

 

 

 

 

 

 

262,486

 

Proceeds from convertible notes payable-related party

 

 

 

 

 

 

184,188

 

Proceeds from convertible notes payable

 

 

 

 

 

 

655,000

 

Proceeds from sale of common stock

 

 

 

 

 

 

342,000

 

Proceeds from exercise of option

 

 

 

 

 

 

9,000

 

Disbursement for repurchase of common stock

 

 

 

 

 

 

(25,000

)

Cash paid for the cancellation of an option

 

 

 

 

 

 

(15,000

)

Net cash provided by financing activities

 

 

 

 

 

 

1,345,450

 

Net change in cash and cash equivalents

 

 

(30,549

)

 

(220,976

)

 

210,354

 

Cash and cash equivalents at beginning of year

 

 

280,903

 

 

640,458

 

 

40,000

 

Cash and cash equivalents at end of period

 

$

250,354

 

$

419,482

 

$

250,354

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

50

 

$

50

 

$

200

 

Cash paid for interest

 

$

 

$

124

 

$

11,528

 

 

 

 

 

 

 

 

 

 

 

 

Non Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

 

 

Beneficial Conversion Feature

 

$

 

$

 

$

685,000

 

Beneficial Conversion Feature- related party

 

$

 

$

 

$

154,188

 

Forgiveness of debt- related party

 

$

 

$

 

$

50,000

 

Repayment of notes payable through issuance of common stock

 

$

 

$

655,000

 

$

1,039,157

 

Intangible assets acquired through issuance of warrant

 

$

 

$

 

$

299,612

 


The Accompanying Notes are an Integral Part of the Unaudited Financial Statements


- 4 -



ESIO WATER & BEVERAGE DEVELOPMENT CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Basis of Presentation and Going Concern


Esio Water & Beverage Development Corp. was incorporated in Nevada in June 1988 as Richard Barrie Fragrances, Inc. Over the years, the Company changed its name several times, most recently from Tempco, Inc. to Esio Water & Beverage Development Corp. The consolidated financial statements include the accounts of Esio Water & Beverage Development Corp. and its wholly-owned subsidiary (collectively, “We” “Our” or the “Company”), Net Edge Devices, LLC, an Arizona Limited Liability Company. All intercompany accounts and transactions have been eliminated in consolidation.


Interim Financial Statements


The accompanying unaudited condensed consolidated financial statements of Esio Water & Beverage Development Corp. and subsidiaries have been prepared in accordance with generally accepted accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission, and are unaudited. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three month period ended September 30, 2013, may not be indicative of the results for the entire year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013.


The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period.  Actual results could differ materially from these estimates.


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.  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.


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) commencing sales of ESIO Franchises. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.


- 5 -



Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operation.


Overview


This quarterly report on Form 10-Q covers the quarterly period ended September 30, 2013.  The Company has no operating business and is, in effect, a “shell” company with no significant liabilities and minimal cash. In April 2012 we had entered into a Regional Development Deposit Agreement with Esio Franchising, LLC (“ESIO”) with the intent of marketing and servicing ESIO’s multi-serve beverage dispensing systems and beverage products for use in the home and office. In August 2012 we paid the balance due on the purchase price of the first Regional Franchise Area for the Dallas/Ft. Worth region and entered into 3 franchise agreements with EFL. In February 2013 EFL and its parent, Esio Holding Company, LLC (“EHC”), filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court, district of Arizona (Phoenix). On August 15, 2013 the Chapter 11 petition was converted to a Chapter 7 petition. EFL’s conversion to a Chapter 7 petition made it unlikely that we would be able to develop our Dallas/Ft. Worth franchises in the future. As such, we were not successful in this endeavor and continue to seek to acquire or merge with an operating company.


On August 26, 2013 Mr. Silverman resigned all his positions with the Company because of health concerns.  On August 26, 2013 Mr. Ecclestone was appointed Chief Executive Officer upon Mr. Silverman’s resignation.


Our board of directors currently are looking for a private company that it can merge with or acquire and that has an operating business that will help increase shareholder value.  Your review of this quarterly report should be read with the above facts in mind.


Current Business Strategy


The Board has determined to maintain the Company as a public “shell” corporation, which will seek suitable business combination opportunities.  The Board believes that a business combination with an operating company has the potential to create greater value for the Company’s stockholders than a liquidation or similar distribution.


Effect of Status as a “Shell” Company


Because we are a shell company as defined under the Rules of the Securities and Exchange Commission, we are disqualified from using a short form of registration statement (S-8) for the issuance of employee stock options. Furthermore, holders of restricted securities issued while we were or are a shell company may not re-sell them pursuant to SEC Rule 144 for a period of one year after we cease to be a shell and have filed the necessary report with the SEC to that effect. However, holders of the Company’s restricted securities for one year may re-sell the securities pursuant to Section 4(a)(1) of the Securities Act of 1933


Plan of Operation


Currently, the Company’s business objective is to locate a suitable business combination opportunity. The Company does not currently engage in any business activities that generate cash flow. As of September 30, 2013 we had approximately $250,000 in cash. We believe this will be sufficient to fund the costs of investigating and analyzing a suitable business combination or to fund general and administrative expenses for the next twelve months, however, if our efforts are unsuccessful within that time period, we will have to seek additional funds.


During the next 12 months we anticipate incurring costs related to:


 

(i)

Filing of Exchange Act reports;

 

 

 

 

(ii)

Officer and director’s fees and, insurance, consulting fees; and

 

 

 

 

(iii)

Investigating and/or consummating an acquisition.


We believe we will be able to meet these costs through use of existing cash and cash equivalents or additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. 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. In the absence of obtaining additional financing, the Company may be unable to fund its operations.  Accordingly, the Company’s financial condition could require that the Company seek the protection of applicable reorganization laws in order to avoid or delay actions by third parties, which could materially adversely affect, interrupt or cause the cessation of the Company’s operations. As a result, the Company’s independent registered public accounting firm has issued going concern opinion on the consolidated financial statements of the Company for the fiscal year ended June 30, 2013.


- 6 -



Critical Accounting Policies


Our significant accounting policies are described in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2013.


General and Administrative Expenses


For the three months ended September 30, 2013 and 2012 we have recorded operating expenses of $38,405 and $130,856, respectively, which includes directors’ fees of $3,000 at September 30, 2013 and 2012. Our operating expenses in the current and prior fiscal year consist primarily of legal and accounting fees, and other costs associated with maintaining the company as a publicly traded entity and for the prior year quarter, costs incurred in relation to the execution of the Regional Development Agreement with ESIO. There were no similar expenses in the current quarter as we were not successful in marketing and servicing beverage drinking systems. Our operating expenses from the date of reentering the development stage (February 5, 2008) through September 30, 2013 were $2,620,143 which includes directors’ fees of $498,092.


Net Loss


For the three months ended September 30, 2013 and 2012, we have reflected net loss of $38,405 and $864,460, respectively. The decrease in the net loss is due to a charge to interest expense in the prior year quarter in the amount of $733,554 which arose due to beneficial conversion expense associated with notes payable converted to common stock and the issuance of warrants as a sweetener for the early conversion of the notes, as well as an increase in general and administrative expenses, offset by a decrease in directors fees. There were no similar charges in the current year quarter. Our net loss from the date of reentering the development stage (February 5, 2008) through September 30, 2013 is $3,596,040.


Off-balance sheet arrangements


We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.


Item 3. Quantitative and Qualitative Disclosures About Market Risk


Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. We do not have foreign currency exchange rate or commodity price market risk.


Interest Rate Risk—From time to time we temporarily invest our excess cash in interest-bearing securities issued by high-quality issuers. We monitor risk exposure to monies invested in securities in our financial institutions. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents in our condensed consolidated balance sheets and do not represent a material interest rate risk.


Item 4. Controls and Procedures.


Evaluation of Disclosure Controls and Procedures.   Our principal executive and financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a — 15e and 15d — 15e) as of the quarter ended September 30, 2013 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.


Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


- 7 -



FORWARD-LOOKING INFORMATION


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


PART II – OTHER INFORMATION


Item 1. Legal Proceedings.


As of the date of this report, the Company is not currently involved in any legal proceedings.


Item 1A. Risk Factors.


We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


All previous unregistered sales were disclosed in prior quarterly or current reports.


Item 3. Defaults Upon Senior Securities.


None.


Item 4. Mine Safety Disclosure.


Not applicable.


Item 5. Other information.


None.


- 8 -



Item 6. Exhibits.


Exhibit
Number

Description

By Reference
from Document

No. In
Document

 

 

 

 

31.1

Certification of President and 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 President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*

101

Interactive Data Files of Financial Statements and Notes

**

___________________

*

Filed herewith.

**

In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ESIO WATER & BEVERAGE DEVELOPMENT CORP.


Dated:  November 18, 2013

By  /s/ Andrew Ecclestone

Andrew Ecclestone

President and Chief Executive Officer



Dated:  November 18, 2013

By  /s/ Fred Burstein

Fred Burstein

Director



Dated:  November 18, 2013

By  /s/ Kimberly A Conley

Kimberly A Conley

Chief Financial Officer


- 9 -