Notes to the Unaudited Consolidated Financial
Statements
September 30, 2016
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1.
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NATURE
OF OPERATIONS AND CONTINUANCE OF BUSINESS
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RedHawk Holdings Corp. (formerly
Independence Energy Corp.) was incorporated in the State of Nevada on November 30, 2005 under the name “Oliver Creek Resources
Inc.” At inception, we were organized to acquire, explore and develop natural resource properties in the United States. Effective
August 12, 2008, we changed our name from “Oliver Creek Resources Inc.” to “Independence Energy Corp.”
and opened for trading with the Over-the Counter Bulletin Board under the symbol “IDNG.” Effective October 13, 2015,
by vote of a majority of the Company’s stockholders, the Company’s name was changed from “Independence Energy
Corp.” to “RedHawk Holdings Corp.”
On March 31, 2014, the Company
acquired the exclusive right to distribute certain medical devices and changed the focus of its operations to include medical
device distribution. We have expanded our operations to include specialized financial services, pharmaceutical sales, commercial
real estate leasing and investment, and a specialized security system.
Currently, we are a diversified
holding company which, through our subsidiaries, is engaged in sales and distribution of medical devices, sales of branded generic
pharmaceutical drugs, commercial real estate investment and leasing, sales of point of entry full-body security systems, and specialized
financial services. Through its medical products business unit, the Company sells WoundClot Surgical - Advanced Bleeding Control,
the Disintegrator™ Insulin Needle Destruction Unit, the Carotid Artery Digital Non-Contact Thermometer and Zonis®. Its
real estate leasing revenues are generated from a commercial property under a long-term lease. Additionally, the Company’s
real estate investment unit holds limited liability company interest in a commercial restoration project in Hawaii. The Company’s
financial service revenue is from brokerage services earned in connection with debt placement services. RedHawk Energy Corp.,
LLC holds the exclusive U.S. manufacturing and distribution rights for the Centri Controlled Entry System, a unique, closed cabinet,
nominal dose transmission full body x-ray scanner.
Going Concern
These financial statements
have been prepared on a going concern basis, which implies that the Company will be able to continue as a going concern without
further financing. Currently, the Company must continue to realize its assets to discharge its liabilities in the normal course
of business. The Company has generated minimal revenues to date and has never paid any dividends on its common stock and is unlikely
to pay any common stock dividends or generate significant earnings in the immediate or foreseeable future.
For the year ended
June 30, 2016, the Company had $29,450 in revenue, a net loss of $1,267,960, and cash of $1,172,960 used in
operating activities. For the quarter ended September 30, 2016, the Company had a consolidated net loss of $187,175 and used
$244,019 of cash in operating activities. As of September 30, 2016, the Company had cash of $340,680, a working capital
deficit of $96,598 and an accumulated deficit of $2,869,426. The continuation of the Company as a going concern is dependent
upon the continued financial support from its stockholders, the ability to raise equity or debt financing, and the attainment
of profitable operations from the Company’s businesses in order to discharge its obligations. These factors
raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do
not include any adjustments to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
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2.
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SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
The unaudited interim condensed financial statements
of the Company as of September 30, 2016 and for the three month periods ended September 30, 2016 and 2015 included herein have
been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The year-end condensed balance sheet dated as of June 30, 2016 is audited and is presented here as a basis for comparison. Although
the financial statements and related information included herein have been prepared without audit, and certain information and
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, the Company
believes that the note disclosures are adequate to make the information presented not misleading. These unaudited condensed
financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the
notes thereto included in the Company’s Annual Report on Form 10-K as of June 30, 2016. In the opinion of our management,
the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows
for the periods presented. The results of operations for interim periods are not necessarily indicative of the results expected
for the full year or any future period.
Principles of Consolidation
The consolidated financial
statements include the accounts of the Company and its subsidiaries in which we have a controlling voting interest – 50%
or more. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply
the variable interest entity model (“VIE”) to the entity, otherwise the entity is evaluated under the voting interest
model.
Where we hold current
or potential rights that give us the power to direct the activities of the VIE that most significantly impact the
VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant
benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE.
Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those
rights unilaterally. When changes occur to the design of an entity, we reconsider whether it is subject to the VIE model.
We continuously evaluate whether we have a controlling financial interest in a VIE. In the quarter ended September 30, 2016,
the Company reassessed the activities of EcoGen Europe Ltd. (EcoGen”), and concluded that EcoGen is a VIE and the
Company has the power to direct the activities of EcoGen and we have concluded that we are the primary beneficiary of EcoGen.
Therefore, we have consolidated herein the accounts of EcoGen.
All material intercompany
accounts have been eliminated upon consolidation. Certain prior year amounts are sometimes reclassified to be consistent with
the current year financial statement presentation. Equity investments, which we have an ownership greater than 20% but less than
50% through which we exercise significant influence over but do not control the investee and we are not the primary beneficiary
of the investee’s activities, are accounted for using the equity method of accounting. Equity investments, which we have
an ownership less than 20%, are recorded at cost.
Use of Estimates
The financial
statements and related notes are prepared in conformity with GAAP which requires our 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. The
Company regularly evaluates estimates and assumptions related to valuation and impairment of investments and long-lived
assets, and deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it
believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of
operations will be affected.
Revenue Recognition
We derive revenue
from several types of activities – medical device sales, commercial real estate leasing and financial services. Our
medical device sales include the marketing and distribution of certain professional and consumer grade digital
non-contact thermometers, needle destruction unit and advanced bleeding control, non-compression hemostasis. Our real estate
leasing revenues are from certain commercial properties under long-term lease. The financial service revenue is from
brokerage services earned in connection with debt placement services. The Company offers customer discounts in certain cases.
Such discounts are estimated at time of product sale and deducted from gross revenues and recorded as deferred revenue.
Cash and Cash Equivalents
We consider highly liquid
investments with an original maturity of 90 days or less to be cash equivalents.
Marketable Securities
We determine the
appropriate classification of our marketable securities at the time of purchase and reassess the appropriateness of the
classification at each reporting date. At June 30, 2016, all marketable securities held by the Company have been classified
as available-for-sale and, as a result, are stated at fair value with unrealized gains and losses included as a component of
accumulated other comprehensive income or loss. Realized gains and losses on the sale of marketable securities are determined
on a specific identification basis. Interest and dividend income is recorded when it is earned and deemed realizable by the
Company. At June 30, 2016, the fair value of the marketable securities on hand, which consisted entirely of widely recognized
publicly-traded securities, was $339,032. Gross unrealized loss on the fair market value of the marketable securities was
$38,860 as of June 30, 2016. As of June 30, 2016, we had trade date receivables of $302,288 recorded which was related
to a sale of securities that had a trade date prior to June 30, 2016 and a settlement date after that date. At September 30,
2016, the Company holds only $25,016 in marketable equity securities which was subsequently sold in October 2016.
Accounts Receivable
Accounts receivables are amounts
due from customers of our pharmaceutical, medical device and our financial services divisions. The amount is reported at the billed
amount, net of any expected allowance for bad debts. There was no allowance for doubtful accounts as of September 30, 2016 and
June 30, 2016.
Inventory
Inventory consist of purchased
thermometers and advanced bleeding control, non-compression hemostasis held for resale and are stated at the lower of cost or
net realizable value utilizing the first-in, first-out method.
Property and Improvements
Property and improvements
are stated at cost. We provide for depreciation expense on a straight line basis over each asset’s useful life depreciated
to their estimated salvage value. Buildings are depreciated over a useful life of 20 years. Building improvements are depreciated
over a useful life of 5 to 10 years.
Income Taxes
Potential benefits of income
tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted Accounting Standard
Codification (which we refer to as “ASC”) 740,
Income Taxes,
as of its inception. Pursuant to ASC 740, the
Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating
losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not
it will utilize the net operating losses carried forward in future years. The Company recognizes interest and penalties related
to uncertain tax positions in income tax expense in the period they are incurred. The Company does not believe that it has any
uncertain tax positions. The Company has not filed any corporate tax returns since its inception.
Basic and Diluted Net Loss Per Share
The Company computes net loss
per share in accordance with ASC 260,
Earnings Per Share,
which requires presentation of both basic and diluted earnings
per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to
all dilutive potential common shares outstanding during the period using the treasury stock method and the convertible notes and
the convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential shares if their effect is anti-dilutive. As of September 30, 2016 and 2015, the Company had 7,452,959
potentially dilutive shares from our warrants issued in connection with the November 2014 private equity sale. At September 30,
2016, there were 36,666,666 shares issuable upon conversion of the notes. Also at June 30, 2016, there were potentially 82,666,666
shares issuable upon the conversion of the Series A Preferred Stock. In addition, there were potentially 125,000,000 shares issuable
upon the conversion of the Series B Preferred stock. The shares to be issued upon conversion of the warrants and the shares issuable
from the conversion of the notes and the Series A and Series B Preferred stock have been excluded from earnings per share calculations
because these shares are anti-dilutive. Subsequent to September 30, 2016, 3,726,480 warrants were exercised.
Comprehensive Income (Loss)
ASC 220,
Comprehensive
Income
, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
During the year ended June 30, 2016, the Company had $38,860 of other comprehensive loss resulting from the unrecognized loss
on marketable securities. During the three month periods ended September 30, 2016 and 2015, the Company had no items that represented
other comprehensive income or loss.
Financial Instruments
Pursuant to ASC 820,
Fair
Value Measurements and Disclosures
, an entity is required to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs
into the following three levels that may be used to measure fair value:
Level 1.
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2.
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3.
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
The Company
had marketable securities with a fair market value of $339,032 and $25,016 at June 30, 2016 and September 30, 2016,
respectively, which are all publicly traded securities with quoted prices in active markets. The fair value is based on
Level 1 assumptions.
The Company’s
financial instruments consist principally of cash, marketable securities, accounts payable and accrued liabilities, debt, and
amounts due to related parties. Pursuant to ASC 820 and ASC 825, the fair value of our cash is determined based on
“Level 1” inputs, which consist of quoted prices in active markets for identical assets.
We believe that the recorded
values of all of our other financial instruments approximate their current fair values because of their nature and respective
maturity dates or durations.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial
Accounting Standards Board (which we refer to as the “FASB”) issued new guidance intended to change the criteria for
recognition of revenue. The new guidance establishes a single revenue recognition model for all contracts with customers, eliminates
industry specific requirements and expands disclosure requirements. The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity
should apply the following five steps: (1) identify contracts with customers, (2) identify the performance obligations in the
contracts, (3) determine the transaction price, (4) allocate the transaction price to the performance obligation in the contract,
and (5) recognize revenue as the entity satisfies performance obligations. In July 2015, the FASB permitted early adoption and
deferred the effective date of this guidance one year; therefore, it will be effective for the Company in the first quarter of
fiscal 2019 and may be implemented retrospectively to all years presented or in the period of adoption through a cumulative adjustment.
We are currently evaluating what impact the adoption of this guidance would have on our financial position, results of operations,
cash flows and disclosures.
Going Concern
In August 2014, the FASB issued
guidance on disclosures of uncertainties about an entity’s ability to continue as a going concern. The guidance requires
management’s evaluation of whether there are conditions or events that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment
must be made in connection with preparing financial statements for each annual and interim reporting period. Management’s
evaluation should be based on the relevant conditions and events that are known and reasonably knowable at the date the financial
statements are issued. If conditions or events raise substantial doubt about the entity’s ability to continue as a going
concern, but this doubt is alleviated by management’s plans, the entity should disclose information that enables the reader
to understand what the conditions or events are, management’s evaluation of those conditions or events and management’s
plans that alleviate that substantial doubt. If conditions or events raise substantial doubt and the substantial doubt is not
alleviated, the entity must disclose this in the footnotes. The entity must also disclose information that enables the reader
to understand what the conditions or events are, management’s evaluation of those conditions or events and management’s
plans that are intended to alleviate that substantial doubt. The amendments are effective for annual periods and interim periods
within those annual periods beginning after December 15, 2016. We do not expect that adoption will have a material impact on our
financial position, results of operations, cash flows or disclosures.
Debt Issuance Costs
In April 2015, the FASB issued
new guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value
of the associated debt liability, consistent with the presentation of a debt discount. The new guidance does not affect the recognition
and measurement of debt issuance costs. Therefore, the amortization of such costs will continue to be calculated using the interest
method and be reported as interest expense. The new guidance does not specifically address, and therefore does not affect, the
balance sheet presentation of debt issuance costs for revolving debt arrangements. This new guidance is effective for the Company
in the first quarter of fiscal 2017, and will be applied on a retrospective basis. Early adoption is permitted for financial statements
that have not been previously issued. To date, our debt issuance cost of $40,675 as of September 30, 2016 and $34,791 as
of June 30, 2016 has not been significant. As the Company continues to raise capital to execute its growth strategy, the use of
debt in the future may have additional issuance costs to be accounted for under this guidance.
Leases
In February 2016, the FASB
issued ASU 2016-02,
Leases
, which amended guidance for lease arrangements in order to increase transparency and comparability
by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance
requires reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
The new guidance is effective for the Company in the first quarter of fiscal year 2020 and will be applied on a modified retrospective
basis beginning with the earliest period presented. The Company is currently evaluating the impact of adopting this guidance on
our consolidated financial statements.
On March 23, 2016, RedHawk
Pharma UK Ltd acquired a 25% equity interest in EcoGen Europe Ltd (which we refer to as “EcoGen”) from Scarlett Pharma
Ltd (which we refer to as “Scarlett”). The Company has agreed to issue to Scartlett up to 100 million restricted shares
of common stock of the Company. Under the terms of the purchase agreement, 10 million shares were issued to Scarlett at closing
with an additional 90 million shares (which we refer to as the “Earnout Shares”) to be issued and vested pro rata
as EcoGen reports audited EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The issuance and vesting of
the Earnout Shares will occur annually based upon audited results of EcoGen and will conclude with the earlier of EcoGen attaining
cumulative EBITDA of $100 million or seven years from the closing date.
Additionally, during the
seven-year period commencing on the closing date, the Company has the right, but not the obligation, to increase its ownership
position in EcoGen up to a maximum of 49% of the entire capital of EcoGen. Should the Company exercise its option to increase
its ownership position, the Company will issue to Scarlett, pro rata, up to an additional 100 million restricted shares of the
common stock of the Company.
Concurrent with the execution
of the purchase agreement, the Company entered into a consultancy agreement with Scarlett for the marketing and distribution in
the United Kingdom and, where available, other European and Middle East countries, certain medical device products offered by
RedHawk Medical Products UK Ltd.
In the quarter ended
September 30, 2016, the Company reassessed the activities of EcoGen, and concluded that EcoGen is a VIE and the Company has
the power to direct the activities of EcoGen and we have concluded that we are the primary beneficiary of EcoGen. Therefore,
beginning with quarter ended September 30, 2016, we have consolidated the accounts of EcoGen in our financial statements.
On September 26, 2016,
the Company announced it had agreed to acquire up to a 25% interest in Marlin USA Energy Partners, LLC, the minority owner of
Tigress Energy Partners, LLC. As of the date of this report, the Company has made a $70,000 cash investment related to this agreement.
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4.
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LOAN AND
INSURANCE NOTE PAYABLE
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We finance a portion of
our insurance premiums. At September 30, 2016, the outstanding balance due on our premium finance agreements was $36,495.
Effective September 30,
2016, the Company entered into a $100,000 Commercial Note Line of Credit (which we refer to as the “Line of Credit”)
with a stockholder and officer of the Company to evidence prior indebtedness and provide for future borrowings. The advances are
used to fund our operations.
The Line of Credit accrues
interest at 5% per annum and matures on December 31, 2017. At maturity, or in connection with a pre-payment, subject to the conditions
set forth in the Line of Credit, the stockholder has the right to convert the amount outstanding (or the amount of the prepayment)
into the Company’s Series A Preferred Stock at the par value of $1,000 per share.
At September 30, 2016,
the principal balance plus accrued interest totaled $15,100.
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6.
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LONG-TERM
DEBT, DEBENTURES AND LINE OF CREDIT
|
We have authorized the
issuance of up to $1 million in principal amount of convertible promissory notes (which we refer to as the “Convertible
Notes”). The Convertible Notes are secured by certain Company real estate holdings and real estate holdings of a stockholder.
The Convertible Notes mature on the fifth anniversary of the date of issuance and are convertible into shares of our common stock
at a price of $0.015 per share. Interest accrues at a rate of 5% per annum and is payable semi-annually. Beginning 180 days after
issuance of the Convertible Notes, the Company has the option to issue a notice of its intent to redeem, for cash, an amount equal
to the sum of (a) 120% of the then outstanding principal balance, (b) accrued but unpaid interest and (c) all liquidated damages
and other amounts due in respect of the Convertible Notes. The Company may only issue the notice of its intent to redeem the Convertible
Notes if the trading average of the Company’s common stock equals or exceeds 300% of the conversion price during each of
the five business days immediately preceding the date of the notice of intent to redeem. The holder of the Convertible Notes has
the right to convert all or any portion of the Convertible Notes at the conversion price at any time prior to redemption. At September
30, 2016, there were $550,000 ($412,133 net of deferred financing costs and beneficial conversion option) of Convertible Notes
outstanding which are convertible into our common stock at a conversion rate of $0.015 per share or 36,666,666 shares.
Our line of credit with
a bank totals $1,000,000 of which $299,174 and $1,000,495 was outstanding as of September 30, 2016 and June 30, 2016, respectively.
The line of credit is due upon demand and is secured by marketable securities, a corporate guarantee and the guarantee of a stockholder
who is also an officer of the Company. Interest accrues at the rate of one-month LIBOR plus 2.75% and is paid monthly. The interest
rate at September 30, 2016 was 4.78%. Subsequent to September 30, 2016 the outstanding balance on the line of credit was paid
in full.
Effective on October 13,
2015, we amended and restated our articles of incorporation as previously adopted by a majority vote of our stockholders. The
amended and restated articles of incorporation, among other things, changed our name to RedHawk Holdings Corp., authorized 5,000
shares of Preferred Stock, and increased the number of authorized shares of common stock from 375,000,000 to 450,000,000.
Preferred Stock
Pursuant to a certificate
of designation filed with the Secretary of State of the State of Nevada, effective November 12, 2015, 2,750 shares of our authorized
Preferred Stock have been designated as Series A 5% Convertible Preferred Stock, with a $1,000 stated value (which we refer to
as “Series A Preferred Stock”). The holders of the Series A Preferred Stock are entitled to receive cumulative dividends
at a rate of 5% per annum, payable quarterly in cash, or at the Company’s option, such dividends shall be accreted to, and
increase, the stated value of the issued Series A Preferred Stock (which we refer to as “PIK”). Holders of the Series
A Preferred Stock are entitled to votes on all matters submitted to stockholders at a rate of ten votes for each share of common
stock into which the Series A Preferred Stock may be converted. After nine months from issuance, each share of Series A Preferred
Stock is convertible, at the option of the holder, into the number of shares of common stock equal to the quotient of the stated
value, as adjusted for PIK dividends, by $0.015, as adjusted for stock splits and dividends.
Pursuant to a certificate
of designation filed with the Secretary of State of the State of Nevada, effective February 16, 2016, 1,250 shares of our authorized
Preferred Stock have been designated as Series B 5% Convertible Preferred Stock, with a $1,000 stated value (which we refer to
as “Series B Preferred Stock”). The holders of the Series B Preferred Stock are entitled to receive cumulative dividends
at a rate of 5% per annum, payable quarterly in cash, or at the Company’s option, such dividends shall be accreted to, and
increase, the stated value of the issued Series B Preferred Stock (which we refer to as “PIK”). Holders of the Series
B Preferred Stock are entitled to votes on all matters submitted to stockholders at a rate of ten votes for each share of common
stock into which the Series B Preferred Stock may be converted. After nine months from issuance, each share of Series B Preferred
Stock is convertible, at the option of the holder, into the number of shares of common stock equal to the quotient of the stated
value, as adjusted for PIK dividends, by $0.01, as adjusted for stock splits and dividends.
Warrants
During November 2014,
we completed a private equity sale of 14,905,918 shares of common stock generating proceeds of $49,900. As a component of this
private equity sale, 7,452,959 warrants to acquire common stock of the Company were also issued with an exercise price of $0.005
per share. During the three month period ended September 30, 2016, no warrants were exercised and 7,452,959 warrants remain outstanding.
Subsequent to September 30, 2016, 3,726,480 of the warrants were exercised.
As of June 30, 2016,
the Company had approximately $2,400,000 of net operating losses carried forward to offset taxable income in future years
which expire commencing in fiscal 2026 and run through 2036. The related deferred income tax asset of these net operating
losses is estimated to be $800,000 as of June 30, 2016 based on statutory federal income tax rates in effect. Such amounts
have increased slightly as of September 30, 2016. However, there is no net tax asset recorded as of September 30 or June
30, 2016 as a 100% valuation allowance has been established for the tax benefit generated. At September 30, 2016 and June 30,
2016, the Company had no uncertain tax positions.
The Company accounts for
interest and penalties relating to uncertain tax provisions in the current period statement of operations, as necessary. The Company
has never filed a tax return. In order to utilize the available net operating loss carryforwards, the Company will need to prepare
and file all tax returns since its inception. The Company’s tax years from inception are subject to examination.
Due to our history of
operating losses and the uncertainty surrounding the realization of the deferred tax assets in future years, our management has
determined that it is more likely than not that the deferred tax assets will not be realized in future periods. Accordingly, the
Company has recorded a valuation allowance against its net deferred tax assets.
SFAS No. 131,
“Disclosures
About Segments of an Enterprise and Related Information,”
requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and measuring their performance. Currently, we conduct our businesses
in three operating segments – Land & Hospitality, Medical Device and Pharmaceutical, and Other Services. Our Land &
Hospital and Other Services business units operate in the United States. Our Medical Device and Pharmaceutical business unit currently
operates primarily in the United Kingdom. All remaining assets, primarily our corporate offices and investment portfolio, are
located in the United States. The segment classified as Corporate includes corporate operating activities that support the executive
offices, capital structure and costs of being a public registrant. These costs are not allocated to the operating segments when
determining profit or loss. The following table reflects our segments as of September 30, 2016 and for the quarter then ended. For the quarter ended September 30, 2015, we did not have separately identifiable segments.
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MEDICAL
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LAND &
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DEVICE &
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OTHER
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HOSPITALITY
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PHARMA
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SERVICES
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CORPORATE
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TOTAL
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Operating revenues, net
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$
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9,750
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$
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230,652
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|
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$
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-
|
|
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$
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-
|
|
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$
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240,402
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Operating income (loss)
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$
|
(4,498
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)
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$
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(140
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)
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$
|
(21,737
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)
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$
|
(113,398
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)
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$
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(139,773
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)
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Interest expense
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$
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3,971
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|
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$
|
546
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|
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$
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-
|
|
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$
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20,702
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|
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$
|
25,219
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Depreciation and amortization
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$
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7,833
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|
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$
|
17,316
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|
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$
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-
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|
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$
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-
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|
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$
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25,149
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Identifiable assets
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$
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1,385,489
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$
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1,579,904
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|
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$
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40,226
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|
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$
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404,257
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|
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$
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3,409,876
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The Company
evaluates subsequent events through the time of our filing on the date we issue our financial statements, which was on
December 5, 2016. The following are matters which occurred subsequent to September 30, 2016:
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Subsequent to September 30, 2016, 3,726,480
warrants were exercised;
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On October 25, 2016, the Company announced that it had received pre-market
clearance from the U.S. Food and Drug Administration for the sale of its Sharps and Needle Destruction Device in the United States;
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Subsequent to September 30, 2016, the outstanding balance on our line of credit was paid in full.
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