Notes
to the Unaudited Consolidated Financial Statements
March
31, 2017
1.
|
NATURE
OF OPERATIONS AND CONTINUANCE OF BUSINESS
|
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 on 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 business focus to include other operations.
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 SANDD™ Insulin Needle Destruction Unit (formerly
known as the Disintegrator™), the Carotid Artery Digital Non-Contact Thermometer and Zonis®. Through our United
Kingdom based subsidiary, we manufacture and market branded generic pharmaceuticals, certain other generic pharmaceuticals
known as “specials” and certain pharmaceuticals outside of the United Kingdom’s National Health Service
drug tariff referred to as NP8’s. 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. Our real estate
leasing revenues are generated from a commercial property under a long-term lease. Additionally, the Company’s real
estate investment unit holds a limited liability company interest in a commercial restoration project in Hawaii.
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies that the Company will not 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 nine month period ended March 31, 2017, the Company had a consolidated net loss of $317,559 and used
$390,736 of cash in operating activities. For the three month period ended March 31, 2017, however, the Company had consolidated
net income of $151,641 on net revenues of $427,276. As of March 31, 2017, the Company had cash of $16,891, working capital of
$193,697 and an accumulated deficit of $3,277,175. Although the Company did have consolidated net income for the quarter
ended March 31, 2017, the continuation of the Company as a going concern is still dependent upon the continued financial support
from its stockholders, the ability to raise equity or debt financing, cash proceeds from the sale of assets 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.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
unaudited interim condensed financial statements of the Company as of March 31, 2017 and for the three and nine month periods
ended March 31, 2017 and 2016 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. During 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, branded generic pharmaceutical 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.
Through our United Kingdom based subsidiary, we manufacture and market branded generic pharmaceuticals, certain other generic
pharmaceuticals known as “specials” and certain pharmaceuticals outside of the United Kingdom’s National Health
Service drug tariff referred to as NP8’s. 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. The Company did not hold any marketable equity securities at
March 31, 2017.
Accounts
Receivable
Accounts
receivables are amounts due from customers of our pharmaceutical, medical device and 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 March 31, 2017 and June 30, 2016.
Inventory
Inventory
consist of purchased thermometers, an advanced bleeding control, non-compression hemostasis, a patented antimicrobial ionic silver
calcium catheter dressing and certain branded generic pharmaceuticals held for resale. All inventories 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.
During
the three month period ended March 31, 2017, we decided to sell our Louisiana real estate holdings, which includes our corporate
headquarters on Chemin Metairie Road in Youngsville, Louisiana and a property on Jefferson Street in Lafayette, Louisiana that
we are leasing to a third party. As a result of that decision, we have reclassified the net book value of those properties along
with related mortgage notes are reflected as assets and liabilities held for sale in the balance sheets. All such amounts are
included in the land and hospitality segment. We expect the sale of those properties to occur in 2017 and have, accordingly, presented
the held for sale assets and liabilities as current. The comparable June 30, 2016 balances have also been reclassified held for
sale related assets and liabilities. Based on the present real estate market and discussions with brokers, no impairment of the
recorded amounts has occurred as of March 31, 2017. We are also pursuing the sale of our real estate limited partnership investment
but we cannot conclude such a transaction would occur within one year and, therefore, have not reclassified related assets and
liabilities as held for sale.
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 March 31, 2016, the Company
had 7,452,959 potentially dilutive shares from our warrants issued in connection with the November 2014 private equity sale. During
the three month period ended December 31, 2016, 3,726,480 warrants were exercised and the remaining warrants expired. There were
no outstanding warrants as of March 31, 2017.
At
March 31, 2017, including accrued but unpaid interest, there were 38,581,250 shares issuable upon conversion of the notes. Also
at March 31, 2017, including accrued but unpaid dividends, there were potentially 87,500,000 shares issuable upon the conversion
of the Series A Preferred Stock. In addition, including accrued but unpaid dividends, there were potentially 132,208,333 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.
Comprehensive
Income (Loss)
ASC
220,
Comprehensive Income
, establishes standards for the reporting and display of comprehensive loss and its components
in the financial statements. All of our other comprehensive income (loss) results from our available-for-sale marketable securities.
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 at June 30, 2016 which are all publicly traded securities
with quoted prices in active markets. The fair value is based on Level 1 assumptions. The Company held no marketable securities
as of March 31, 2017.
The
Company’s financial instruments consist principally of cash, marketable securities, accounts receivable, 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 was effective for the Company in the first quarter of fiscal 2017, and applied on a retrospective basis. Our unamortized
debt issuance cost is $36,113 as of March 31, 2017 and $34,791 as of June 30, 2016. 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.
Beginning
with quarter ended September 30, 2016, we have consolidated the accounts of EcoGen in our financial statements. In the quarter
ended September 30, 2016, the Company reassessed the activities of EcoGen, and we again 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.
No change to that conclusion occurred in the quarter ended March 31, 2017.
On
September 26, 2016, the Company announced it had agreed to acquire up to a 25% interest in Marlin USA Energy Partners, LLC (“Marlin”),
the minority owner of Tigress Energy Partners, LLC. As of March 31, 2017, the Company has made a $70,000 cash investment related
to this agreement and has a 3.5% interest in Marlin. This investment is accounted for at cost as of March 31, 2017. Subsequent
to March 31, 2017, the Company sold its investment in Marlin for $70,000 cash.
4.
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LOAN
AND INSURANCE NOTE PAYABLE
|
We
finance a portion of our insurance premiums. At March 31, 2017, the outstanding balance due on our premium finance agreements
was $6,223.
5.
|
RELATED PARTY TRANSACTIONS
|
Effective December 1,
2016, the Company entered into a $250,000 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 March 31, 2018. 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 B Preferred Stock at the par
value of $1,000 per share. At March 31, 2017, the principal balance totaled $161,613. The amount is included in noncurrent assets
based on the expectation that either the Line of Credit maturity date will be extended or the amount outstanding will be converted
to preferred stock as allowed for in the agreement.
For
the nine months ended March 31, 2017, EcoGen had sales to customers which are controlled by individuals which are shareholders
of EcoGen and are the noncontrolling interests in our consolidated financial statements. These sales totaled $1,240,847 on a gross
basis and had discounts of $968,010. A portion of these discounts were at levels that exceeded discounts offered to unaffiliated
customers. During the quarter ended March 31, 2017, management of RedHawk and these noncontrolling shareholders of EcoGen reached
an agreement whereby $313,177 of such discounts are to be considered a deemed distribution and full settlement of preferred shares
in EcoGen that were previously outstanding. Accordingly, certain discounts recorded during the quarter ended March 31, 2017 and
in prior periods were reversed and reflected as a reduction to the noncontrolling interest equity account as of March 31, 2017.
In
the quarter ended March 31, 2017, certain members of management agreed to forego management fees in consideration of the operating
cash flow needs of the Company. There is not a set timeline to reinstitute such management fees.
6.
|
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 March 31, 2017, there were $571,844 ($449,439 net of deferred financing costs and beneficial conversion option)
of Convertible Notes outstanding, including $21,844 of interest paid in kind, which are convertible into our common stock at a
conversion rate of $0.015 per share or 38,581,250 shares.
We
had a $1,000,000 line of credit with a bank of which $1,000,495 was outstanding as of June 30, 2016. The line of credit was due
upon demand and was secured by marketable securities, a corporate guarantee and the guarantee of a stockholder who is also an
officer of the Company. During the nine month period ended March 31, 2017, 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, originally 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 six 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, originally 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 six 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 nine month period ended March 31, 2017, 3,726,480 warrants were exercised and the remaining warrants
expired.
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 March 31, 2017. However, there is no net tax asset recorded as of March 31, 2017 or June 30, 2016 as
a 100% valuation allowance has been established for the tax benefit generated. At March 31, 2017 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 March 31, 2017 and 2016 and
for the nine and three month periods then ended. Prior to the quarter ended March 31, 2016, we did not have separately identifiable
segments.
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MEDICAL
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Nine months ended
|
|
LAND &
|
|
|
DEVICE &
|
|
|
OTHER
|
|
|
|
|
|
|
|
March 31, 2017
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues, gross
|
|
$
|
29,250
|
|
|
$
|
1,527,298
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,556,548
|
|
Operating revenues, net
|
|
$
|
29,250
|
|
|
$
|
795,142
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
824,392
|
|
Operating income (loss)
|
|
$
|
(5,079
|
)
|
|
$
|
137,718
|
|
|
$
|
(26,292
|
)
|
|
$
|
(354,903
|
)
|
|
$
|
(248,556
|
)
|
Interest expense
|
|
$
|
11,665
|
|
|
$
|
766
|
|
|
$
|
-
|
|
|
$
|
32,946
|
|
|
$
|
45,377
|
|
Depreciation and amortization
|
|
$
|
15,667
|
|
|
$
|
52,671
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
68,338
|
|
Identifiable assets
|
|
$
|
1,373,352
|
|
|
$
|
589,530
|
|
|
$
|
74,465
|
|
|
$
|
562,456
|
|
|
$
|
2,599,803
|
|
|
|
|
|
|
MEDICAL
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
LAND &
|
|
|
DEVICE &
|
|
|
OTHER
|
|
|
|
|
|
|
|
March 31, 2016
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues, gross
|
|
$
|
14,950
|
|
|
$
|
-
|
|
|
$
|
4,750
|
|
|
$
|
-
|
|
|
$
|
19,700
|
|
Operating income (loss)
|
|
$
|
(2,768
|
)
|
|
$
|
(276,283
|
)
|
|
$
|
(17,098
|
)
|
|
$
|
(666,764
|
)
|
|
$
|
(962,913
|
)
|
Interest expense
|
|
$
|
5,995
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,567
|
|
|
$
|
12,562
|
|
Depreciation and amortization
|
|
$
|
10,646
|
|
|
$
|
51,498
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,144
|
|
Identifiable assets
|
|
$
|
1,395,344
|
|
|
$
|
674,776
|
|
|
$
|
4,602
|
|
|
$
|
1,670,664
|
|
|
$
|
3,745,386
|
|
|
|
|
|
|
MEDICAL
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
LAND
&
|
|
|
DEVICE
&
|
|
|
OTHER
|
|
|
|
|
|
|
|
March
31, 2017
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues, gross
|
|
$
|
9,750
|
|
|
$
|
329,181
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
338,931
|
|
Operating
revenues, net
|
|
$
|
9,750
|
|
|
$
|
417,526
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
427,276
|
|
Operating
income (loss)
|
|
$
|
8,178
|
|
|
$
|
121,337
|
|
|
$
|
(22,446
|
)
|
|
$
|
62,284
|
|
|
$
|
169,353
|
|
Interest
expense
|
|
$
|
11,664
|
|
|
$
|
766
|
|
|
$
|
-
|
|
|
$
|
(3,242
|
)
|
|
$
|
9,188
|
|
Depreciation
and amortization
|
|
$
|
(30
|
)
|
|
$
|
17,795
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,765
|
|
|
|
|
|
|
MEDICAL
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
LAND
&
|
|
|
DEVICE
&
|
|
|
OTHER
|
|
|
|
|
|
|
|
March
31, 2016
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues, gross
|
|
$
|
9,750
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,750
|
|
Operating
income (loss)
|
|
$
|
(2,666
|
)
|
|
$
|
(229,960
|
)
|
|
$
|
-
|
|
|
$
|
(439,400
|
)
|
|
$
|
(672,026
|
)
|
Interest
expense
|
|
$
|
8,869
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,869
|
|
Depreciation
and amortization
|
|
$
|
7,833
|
|
|
$
|
17,166
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
24,999
|
|
The
Company evaluates subsequent events through the time of our filing on the date we issue our financial statements, which was on
June 14, 2017. The following are matters which occurred subsequent to May 31, 2017:
|
-
|
Subsequent
to March 31, 2017, the Company sold its investment in Marlin for $70,000 cash;
|
|
|
|