ITEM
1. BUSINESS
General
We
were incorporated in the State of Nevada on November 30, 2005 under the name “Oliver Creek Resources Inc.” At inception,
we were an exploration stage company engaged in the acquisition, exploration and development of natural resources. In 2014, we
discontinued our oil and gas operations and changed our business focus. 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.
The
Company, through its medical products business unit, we manufacture and sell our Sharps and Needle Destruction Device (SANDD mini™)
and our Carotid Artery Digital Non-Contact Thermometer. We also distribute for third parties WoundClot – Advanced Bleeding
Control, the Thermofinder FS-700 Pro (professional model) and FS-700 (retail model digital non-contact thermometers and Zonis®.
The Company’s 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. 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.
Effective
June 22, 2012, we completed a forward split of our authorized and issued and outstanding shares of common stock on a 5 new for
1 old basis such that our authorized capital increased from 75,000,000 to 375,000,000 shares of common stock and, correspondingly,
our issued and outstanding shares of common stock increased from 24,360,831 to 121,804,155 shares of common stock, all with a
par value of $0.001 per share.
On
April 5, 2013, we entered into a private placement subscription agreement with Europa Capital AG (which we refer to as “Europa”),
pursuant to which we issued to Europa a convertible debenture in the aggregate amount of $46,000. The convertible debenture carried
interest at the rate of 6% per annum and could be converted into shares of our common stock at the rate of $0.01 per share. Interest
and principal were payable on the third anniversary of the debenture, provided that any unconverted portions could be pre-paid
at our discretion. As of January 31, 2014, we owed $2,284 of accrued interest in respect of the debenture. On January 31, 2014,
the debenture holder forgave the convertible promissory note and all accrued interest, resulting in a gain on forgiveness of loan
of $48,284.
Effective
July 22, 2013, we entered into and closed a securities purchase agreement with Asher Enterprises, Inc. (which we refer to as “Asher”).
Under the terms of the agreement, we issued an 8% convertible promissory note, in the principal amount of $57,000, with a maturity
date of April 17, 2014 which could be converted into shares of our common stock at a rate of 58% of the market price on any conversion
date, any time after 180 days from July 15, 2013, subject to adjustments as further set out in the note. We had the right to prepay
the note together with all accrued interest within 180 days of July 15, 2013 subject to a prepayment penalty equal to 15% during
the first 30 days of the prepayment period and increasing by 5% during each subsequent 30-day period. Following the maturity date
of April 17, 2014, the note bore interest at the rate of 22%. As of March 25, 2014, all of the unpaid principal and accrued interest
in respect to these convertible promissory notes was converted into shares of our common stock. (See “Recent Sales of Unregistered
Securities”)
On
September 23, 2013, we closed another securities purchase agreement dated September 17, 2013 with Asher. Under the terms of the
agreement, we issued an 8% convertible promissory note, in the principal amount of $32,500, with a maturity date of June 19, 2014
which could be converted into shares of our common stock at a rate of 58% of the market price on any conversion date, any time
after 180 days from June 19, 2014, subject to adjustments as further set out in the note. We had the right to prepay the note
together with all accrued interest within 180 days of September 17, 2013 subject to a prepayment penalty equal to 15% during the
first 30 days of the prepayment period and increasing by 5% during each subsequent 30-day period. Following the maturity date
of June 19, 2014, the note would have borne interest at the rate of 22%. As of April 8, 2014, all unpaid principal and accrued
interest in respect of the convertible promissory note was converted into shares of our common stock. (See “Recent Sales
of Unregistered Securities”).
Effective
November 12, 2014, we completed a private equity funding with certain accredited investors pursuant to a Securities Purchase Agreement
(“SPA”). Under the terms of the SPA, we sold 14,905,918 shares of our common stock in exchange for $50,000 ($0.0034
per share) in the aggregate. Additionally, in consideration of the purchase price, we granted warrants to acquire an additional
7,452,959 shares of our common stock over a two-year period at an aggregate exercise price of $0.0050 per share or gross proceeds
of $37,265.
On
July 31, 2015, by a vote of the majority of our shareholders, we changed our name from “Independence Energy Corp.”
to “RedHawk Holdings Corp.”, increased the number of authorized shares of common stock to 450,000,000, and authorized
the issuance of 5,000 shares of preferred stock with an initial stated value of $1,000 per share.
On
December 31, 2015, the Company received from Beechwood Properties, LLC (which we refer to as “Beechwood”) a working
capital injection of approximately $1.9 million of cash and marketable securities, net of an approximately $1.0 million line of
credit with a 3.5% per annum interest rate. This infusion was received in exchange for 1,000 shares of the Company’s newly
designated 5% Series B Convertible Preferred Stock, $1,000 stated value. Additionally, Beechwood converted into 100 shares of
the Company’s 5% Series A Convertible Preferred Stock, $1,000 par value, $100,000 of the Company’s outstanding obligation
to Beechwood. Beechwood beneficially owns approximately 51.9% of the Company’s outstanding common stock.
On
February 1, 2016, we issued 250 shares of the Company’s 5% Series B Convertible Preferred stock, $1,000 stated value, to
Thomas J. Concannon, our Chief Executive Officer in exchange for $250,000 in cash. Additionally, the Company has issued $340,000
of Convertible Notes (which we refer to as the “Convertible Notes”) in exchange for cash in the amount of $340,000.
The Convertible Notes accrue interest at a rate of 5% per annum, mature five years from their date of issuance and are secured
by certain Company real estate and real estate of an officer and shareholder of the Company.
As of June 30,
2017, we have issued approximately $586,000 of convertible promissory notes (“Convertible Notes”). The Convertible
Notes are secured by certain Company real estate holdings. 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 June 30, 2017, there were $586,140 ($462,384 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 39,075,990 shares.
Current
Business Segments
Branded
Generic Pharmaceuticals and Medical Device Sales and Distribution
Branded
Generic Pharmaceuticals
.
On March 24, 2016, RedHawk Pharma UK Ltd (“RedHawk Pharma”), a wholly-owned subsidiary
of RedHawk, signed a definitive agreement with Scarlett Pharma LTD (which we refer to as “Scarlett”) to complete the
acquisition of a 25% ownership investment in EcoGen, a United Kingdom based company specializing in the manufacturing and marketing
of certain branded generic pharmaceuticals and medical devices. Subsequent to June 30, 2017, the Company entered into a share
transfer agreement wherein RedHawk increased its ownership position in EcoGen to 75%. Further, the Company has reached an agreement
in principal with Scarlett and its affiliate wherein, when complete, RedHawk will further increases its ownership position in
EcoGen.
Under
the terms of the agreement in principal, Scarlett and its affiliate have agreed to surrender to the Company, 10 million shares
of RedHawk’s outstanding common stock, transfer to RedHawk Pharma approximately $300,000 of EcoGen’s preferred stock
plus other consideration in exchange for RedHawk Pharma assuming approximately $370,000 of obligations due to EcoGen.
In
order to expand EcoGen’s licensing assets and dossiers, and to pursue continuing organic and strategic branded generic pharmaceutical
growth opportunities, the Company announced in August 2017, the execution of a non-binding letter of intent to acquire a portfolio
of European (“EU”) hospital injectable anti-infective branded generic licenses for the ultimate issuance of market
authorizations in up to twelve (12) EU markets for seven core anti-infective products including piperacillin-tazobactam (PipTaz),
meropenem, imipenem/cilastatin and the four (4) most widely used cephalosporins.
A
generic drug is a pharmaceutical drug that is the equivalent to a brand name product in dosage, strength, route of administration,
quality, performance and intended use. The term may also refer to any drug marketed under its chemical name without advertising,
or to the chemical makeup of a drug rather than the brand name under which the drug is sold. Although they may not be associated
with a particular company, generic drugs are subject to government regulations in the countries where they are dispensed. They
are labeled with the name of the manufacturer and the nonproprietary adopted name of the drug. A generic drug must contain the
same active ingredients as the original brand name formulation. In most cases, generic drugs become available after the patent
afforded to a drug’s original developer expires. Once generic drugs enter the market, competition often leads to substantially
lower prices for both the brand name drug and its generic equivalents. Clinicians in the United Kingdom are encouraged to write
prescriptions for patent protected drugs by their generic name in preparation for such drugs losing their patent protected status,
with the prescribed drug being dispensed to the patient by a community pharmacy. Pharmacists are obligated by law to dispense
the brand that is written, should the clinician not use the generic name when prescribing a particular treatment, with all drugs
being dispensed against a set tariff pricing structure. The pharmacist therefore procures the generic drug at the lowest available
price from the wholesale supply chain, who in turn procures the lowest priced drug from any available manufacturer, ensuring that
the generic drug market in the United Kingdom is purely drive by cost. The legal obligation on United Kingdom pharmacists to dispense
a branded product if that is so prescribed presents the opportunity for the branded generic strategy of EcoGen. With a portfolio
of widely prescribed generic drugs listed as trademarked branded generics, EcoGen can offer significant budgetary savings when
compared to standard generics by offering these branded generics for sale at a price below the listed generic tariff. With UK
Commissioning Groups being driven to find savings across their budgets where possible, EcoGen’s branded generic strategy
has been met favorably and sales of EcoGen’ branded generic drugs initially occurred in the third calendar quarter
of 2016.
Needle
Destruction.
On December 31, 2015, the Company completed the acquisition of certain high-quality medical products technology,
including the tangible and intangible assets, for the Disintegrator Insulin Needle Destruction Unit (which we refer to as “Disintegrator”)
and the Carotid Artery Non-Contact Thermometer. The Disintegrator is the only needle destruction device which has been approved
by the United States Food and Drug Administration.
The
proper management of medical waste, also referred to as biohazardous waste, biomedical waste or infectious waste, which is generated
in healthcare facilities, commercial businesses and private home healthcare is extremely important to avoid regulatory issues
and more importantly to prevent the spread of infectious diseases. Needles and soft wastes, those saturated with blood or certain
other bodily fluids, must be properly handled, contained, stored, shipped and treated in accordance with all governmental regulations.
To date, the most common system used to dispose of used needles has been sharp container boxes. Generally, this type of device
is compatible for use in healthcare facilities, commercial businesses and private homes. It is a portable device used to destroy
needles and lancets utilizing an electrical current which incinerates the lancet or syringes. It uses a rechargeable battery which
delivers an electrical current to produce an arc of electricity directed at the tip of the syringe. This electrical arc disintegrates
the needle and any residue is collected in a self-contained chamber in the device. The Company’s initial needle destruction
device is referred to as the Sharps and Needle Destruction Device, the SANDD mini. This device aims to change both the way patients
and physicians dispose of their needles and to eliminate the risk of needle stick injuries in the future. Utilizing a plasma arc
the SANDD mini heats the needle to over 2500 degrees Celsius in less than three seconds, eliminating both the needle and all known
pathogens in the process. The device uses a rechargeable battery to deliver the plasma arc to the needle. A fully charged battery
will disintegrate greater than 100 needles before needing to be recharged. The SANDD mini is designed to be used with hypodermic
needles attached to prefilled syringes or diabetic pen injection devices that measure less than 1 inch in length and between 27-32
gauges in diameter. The device produces little to no waste leaving the syringe to be disposed of in general waste as opposed to
the need for the use of a sharps box. The change in this route of waste disposal is projected to offer healthcare providers significant
budgetary savings and ease of disposal in home healthcare settings. The SANDD mini has completed its field evaluation and
is now available for sale.
Third
Party Medical Device Distribution
In the future,
we will only market products we own and manufacture. Until we adequately develop our product base, we will offer for sale, certain
medical devices owned by third parties. We will, however, periodically review the market acceptance of each third-party
product being marketed by us and examine the profitability of each third-party marketing effort in comparison to the cost
incurred in order to market that product. In the future, we may decide the market acceptance of a particular product is not adequate
or profitability of marketing such product is unacceptable. As such, we may periodically add, revise, amend or discontinue various
third-party distribution agreements.
Woundclot.
On February 2, 2016, the Company announced that RedHawk Medical Products UK Ltd, a wholly owned subsidiary of the Company,
had entered into a contract with Core Scientific Creations Ltd. for the distribution of WoundClot Surgical – Advanced Bleeding
Control (which we refer to as “WoundClot”) in the United Kingdom. WoundClot, developed and manufactured in Israel
by Core Scientific Creations Ltd, is the first UK Class III medical device, fully implantable surgical hemostat designed to stop
moderate to severe arterial and venous hemorrhage without the need to compress directly onto the wound.
Hemostatic
refers to a procedure, device or substance that arrests the flow of blood. Direct pressure, tourniquets and surgical clamps are
mechanical hemostatic measures. Gelatin sponges, solutions of thrombin and microfibrillar collagen, which cause the aggregation
of platelets and formation of clots, are used to arrest bleeding in surgical procedures. WoundClot is a single use sterile bio-absorb
Hemostatic product made of non-oxidized cellulose, which can be fabricated into a variety of forms suitable in controlling bleeding
from various kinds of wounds. WoundClot has been uniquely engineered and manufactured with a patented molecular structure, designed
to entrap platelets and coagulants in a modified physical molecular matrix. WoundClot is the first cellulose based product to
be manufactured using a non-oxidative process. This change in the manufacturing process of WoundClot results in major clinical
advantages. The first of these advantages is a significantly increased absorptive capability, enabling WoundClot to arrest and
control even severe arterial bleeding. Once bleeding has been stopped and coagulation has formed, WoundClot can be easily removed
without disrupting the already formed clot. Additionally, it opens up a much wider range of indications than traditional oxidized
cellulose based competitive products, has a truly non-compression application and is fully biodegradable within seven days, meaning
it can be implanted within the body, further minimizing the risk of secondary post-surgical bleeding.
During
2016, the Company, in conjunction with EcoGen Europe Ltd (which we refer to as “EcoGen”), our European branded generic
pharmaceutical subsidiary, has begun marketing the product to large teaching hospitals in the United Kingdom. While the product
has been successfully trialed in various surgery disciplines including cardiothoracic, hepatobiliary, pediatric neurosurgery,
vascular and trauma surgery and has been shown to outperform currently established products, market acceptance in the UK has been
disappointing. As such, we are considering the possible introduction of WoundClot into other markets including the United States.
Non-Contact
Thermometers.
On March 31, 2014, we entered into and closed an asset purchase agreement with American Medical Distributors,
LLC (which we refer to as “AMD”), pursuant to which we have acquired from AMD all right, title and interest of AMD
in and to a certain distribution contract (which we refer to as the “HuBDIC Agreement”) dated November 27, 2013 with
HuBDIC Co. Ltd., a Korean corporation (which we refer to as “HuBDIC”), pursuant to which AMD had been granted the
exclusive right to distribute in the Americas certain professional and consumer grade non-contact thermometers known as the Thermofinder
FS-700 Pro (professional model) and FS-700 (retail model), and any future versions (which we refer to as collectively, the “Thermofinder”).
In connection with the acquisition, we also received $60,000 and any assets of AMD related to its distribution business, including
all sales leads and related materials (which we refer to as collectively, including the HuBDIC Agreement, the “AMD Assets”),
and in consideration of the AMD Assets, we issued to four designees of AMD an aggregate of 152,172,287 shares of our common stock.
The
material terms of the HuBDIC Agreement are as follows: (a) term of five years from November 7, 2013; (b) upon receiving U.S. Food
and Drug Administration (which we refer to as “FDA”) marketing clearance of the HuBDIC products, we are required to
purchase a minimum of 3,000 product units for re-sale during year one of the distribution period, 8,000 during year two, and 15,000
during each subsequent year; (c) a $10,000 distribution fee previously paid to HuBDIC by AMD will be credited toward our first
product order; and (d) the distribution fee is refundable to us at our election. On or about July 2, 2014, HuBDIC received marketing
clearance from the FDA for the sale and distribution of the Thermofinder. In November 2014, we paid for and took delivery of 500
units of the Thermofinder FS-700 Pro. We have agreed with HuBDIC to defer payment for and delivery of the balance of 2,500 units
until a later date. The Company is actively soliciting orders for and has sold some of the first 500 units. The Company’s
board of directors is currently evaluating future marketing strategies for the sales and distribution of additional units.
The
Thermofinder is medical grade non-contact thermometer that is currently approved and distributed in Asia and Europe, and its features
include the following:
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Two
measuring modes, including body temperature and surface/ambience modes, which allow the reading of air temperature and fluid
temperature (for example, bath water, baby’s bottles).
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Non-invasive
design—Operated by pointing and pressing within 3-5 centimeters of the patient’s forehead or other target.
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Easy
to read LCD backlit display with multi-color screen and alert function. A green light is shown for normal reading, and an
orange light for high readings.
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Less
than 2 second reading response time.
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Reading
accuracy within 0.3 degrees Celsius for body temperature and 2 degrees Celsius for object temperature.
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International
Organization for Standardization (ISO) 13485 and American Society for Testing and Materials (ASTM) Compliant.
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More
hygienic than conventional oral and ear reading thermometers—Eliminates the need for probe covers and reduces sterilization
requirements.
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The
FS-700 Pro model is equipped with a medical grade protection cover, logo lanyard, anti-microbial option, and rechargeable
battery and station.
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Zonis.
EcoGen distributes Zonis into a number of European countries, Australia and New Zealand. Zonis is a patented antimicrobial
ionic silver calcium catheter dressing with both wound healing and hemostatic properties. It is designed to be placed directly
over the exit site of all vascular and non-vascular percutaneous medical devices. Zonis reduces bacteria colonization and related
bloodstream infections by delivering ionic silver directly to the site.
Land
and Hospitality
Tower
Hotel Fund 2013, LLC.
On December 31, 2015, RedHawk Land & Hospitality, LLC, a wholly owned subsidiary of the Company,
acquired from Beechwood 280,000 Class A Units (approximately a 2.0% membership interest) of fully paid, non-assessable units of
limited liability company interest in Tower Hotel Fund 2013, LLC, a real estate development limited liability company formed in
the state of Hawaii for acquisition, restoration and development of the Naniloa Hilo Resort in Hilo, Hawaii. The $625,000 purchase
price was paid by the issuance of 625 shares of the Company’s Series A Preferred Stock. The purchase price was determined
by an independent third-party valuation. Beechwood is a real estate limited liability Company owned and controlled by G. Darcy
Klug, a stockholder and Chief Financial Officer of the Company.
Real
Estate Held for Sale
During
fiscal 2017, we announced the planned sale of certain real estate investments. The Company believes these properties have maximized
their return and the sale proceeds resulting therefrom will be better utilized in our more profitable branded generic pharmaceutical
and medical device business units.
Jefferson
Street Property.
On November 13, 2015, we acquired certain commercial rental property, consisting of $75,000 of land and
$405,000 of buildings and improvements, from Beechwood for $480,000. The purchase price was paid by the Company through the assumption
of $265,000 of long-term bank indebtedness (see Note 7) plus the issuance of 215 shares of the Company’s newly designated
Series A Preferred Stock (see Note 8). The purchase price of the property was determined by independent third-party appraisers
commissioned by the financial institution providing the long-term financing for the acquisition, which included the cost of specific
security improvements requested by the lessee.
In
August 2017, we entered into a new triple-net lease agreement with the Louisiana 3
rd
Circuit Court of Appeals to renew
and extend the current lease term to December 31, 2022.
Youngsville
Property.
On December 31, 2015, we acquired certain commercial real estate from Beechwood to be used as our corporate
office for $300,000, consisting of $35,000 of land and $265,000 of buildings and improvements. The purchase price was paid by
the Company with the issuance of 300 shares of the Company’s Series A Preferred Stock. The purchase price of the property
was determined by independent third-party appraisal.
We
have entered into an agreement for the lease, with an option to purchase, these former offices. Under the terms of the
new agreement, the tenant will lease the property through June 30, 2018 and, at the end of the lease term, the tenant has the
option to purchase the property for $300,000
Specialized
Security System Manufacturing and Distribution
Centri
Controlled Entry System.
On April 11, 2016, the Company acquired the exclusive United States manufacturing and distribution
rights for the Centri Controlled Entry System (which we refer to as “Centri”), a unique, nominal dose transmission
x-ray full body scanner capable of finding weapons, drugs and other metallic and non-metallic contraband concealed on and within
the human body. The Company acquired these exclusive rights from Basic Technologies, Inc. who holds the exclusive worldwide license
to manufacture and sell Centri. During the quarter ended June 30, 2016, the Company received approval from the FDA for the importation,
assembly and demonstrations of Centri. Phase I radiation testing has been successfully completed. Approval for human testing and
the sale of Centri units was received from the Louisiana Department of Environmental Quality during the quarter ending September
30, 2016.
Customers,
Marketing and Contracting
Our
medical devices and branded generics are to be marketed to a broad base of users and are ideal for home and institutional use.
The market for our devices and branded generics include:
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Retail
Pharmacies
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Hospitals
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Physicians’
Offices
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Private
and Public Healthcare Clinics
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Corrections
Facilities
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Schools
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Veterinary
Clinics
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Emergency
Services
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Long
Term Care Facilities
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Safety
and Quality Assurance
Our
manufacturing operations require a wide variety of raw materials, including electronic and mechanical components, batteries, carry
bags, and molded plastic components and other supplies. We rely on third- party manufacturers to supply several components of
our medical devices. We typically enter into supply agreements for these components that specify quantity, quality requirements,
and delivery terms, which, in certain cases, can be terminated by either party upon relatively short notice. For each medical
device, we have elected to source certain key components from single sources of supply, including our batteries, molded plastic
components. While alternative sources of supply are readily available for these components, we believe that maintaining a single
source of supply allows us to control production costs and inventory levels, and to manage component quality. In order to mitigate
against the risks related to a single source of supply, we qualify alternative suppliers and develop contingency plans for responding
to disruptions. If any single-source supplier were no longer able to supply a component, we believe we would be able to promptly
and cost-effectively switch to an alternative supplier without a significant disruption to our business and operations. We have
adopted additional contingency plans to protect against an immediate disruption in supply of our battery components, and any potential
delay that may result from a switch to a new supplier. These contingency plans include our own inventory management, along with
a requirement that certain suppliers maintain specified quantities of inventory in multiple locations, as well as requiring certain
manufacturers to maintain redundant manufacturing sites. We believe that these contingency plans would limit any disruption to
our business in the event of an immediate termination of either our battery supply.
Governmental
Regulations
Our
medical devices and generic pharmaceuticals are subject to a wide variety of stringent federal, state and local laws and regulations.
We believe we have acquired all of the necessary permits and licenses necessary to manufacture, sell and safely distribute our
products.
Medical
Devices.
Government authorities in the United States, Canada, and other countries in the Americas regulate the research,
development, testing, manufacturing, labeling, promotion, advertising, distribution, marketing and export and import of medical
devices at the federal, state and local levels. The process of obtaining regulatory approvals and the subsequent substantial compliance
with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial
resources.
In
the United States, thermometers for human clinical use are classified as medical devices and require (i) an establishment license
and (ii) depending on the class of device sought to be marketed, pre-market approval (PMA) or the less rigorous pre-market clearance.
Establishment
License.
Owners or operators of places of business (also called establishments or facilities) that are involved in both
the production and distribution of medical devices intended for use in the United States (U.S.) are required to register annually
with the FDA. This process is known as establishment registration. Most establishments that are required to register with the
FDA are also required to list the devices that are made there and the activities that are performed on those devices. As a domestic
distributor of certain medical devices in the United States, we will not be required to obtain an establishment license for those
products, although the owner/operator of the products we distribute will be so required. Certain countries do not require an establishment
license. Our needle destruction unit has an establishment license registered with the FDA.
Depending
on the class designation of the device sought to be marketed, the owner/operator of the product must also obtain pre-market approval
(PMA) or pre-market notification clearance before marketing in the U.S.
U.S.
Medical Device Class Designations
.
The FDA has established classifications for different generic types of devices
and grouped them into medical specialties. Each of these devices is assigned to one of three regulatory classes based on the level
of control the FDA deems necessary to assure the safety and effectiveness of the device.
Class
I includes products of which several examples are already approved and marketed in Canada or the U.S. As long as the basic science
remains the same, the application for approval of a new product is straightforward. Examples of products in this category include
pregnancy tests or regular needles/syringes.
Class
II products are those which are non-invasive, meaning they are not injected or inserted into the patient. Often these products
are approved and sold throughout the world. The products which we are currently focusing on distributing all belong to Class II.
In order to secure the necessary license for these products, we are required to submit all the documentation which led to the
approval of the products in other countries. In our case, our products are already approved in Europe and Korea. We are required
to submit to the FDA all the scientific data, results, approval process and certificates of good quality management, ISO 13485.
Usually, products that have the ISO accreditation will satisfy FDA requirements.
Class
III and IV include medical devices that use invasive techniques. If the medical device has been approved in another region, it
is considered Class III. If it is new, it is considered Class IV. Invasive testing equipment such as colonoscopy, endoscopy, body
lesion removal devices etc., are all considered Class III or IV.
Premarket
Clearance.
We focus our medical device distribution business on Class I and II medical devices. WoundClot and electronic
clinical thermometers such as the Thermofinder are classified as Class II devices by the FDA are not subject to Premarket Approval
(PMA) SANDD is currently classified as a Class III medical device.
Each
person who wants to market in the U.S., a Class I or II device intended for human use, for which a Premarket Approval (PMA) is
not required, must submit a 510(k) application to the FDA unless the device is exempt from the Section 510(k) requirements of
the Federal Food, Drug, and Cosmetic Act (the Act).
A
510(k) application is a pre-market submission made to the FDA to demonstrate that the device to be marketed is at least as safe
and effective, that is, substantially equivalent to a legally marketed device that is not subject to PMA. Submitters must compare
their device to one or more similar legally marketed devices and make and support their substantial equivalency claims. A legally
marketed device is a device that was legally marketed prior to May 28, 1976, for which a PMA is not required, or a device that
has been reclassified from Class III to Class II or Class I, or a device which has been found substantially equivalent through
the 510(k) process. The legally marketed device(s) to which equivalence is drawn is commonly known as the “predicate.”
Although devices recently cleared under 510(k) are often selected as the predicate to which equivalence is claimed, any legally
marketed device may be used as a predicate. Legally marketed also means that the predicate cannot be one that is in violation
of the Act.
Before
marketing a device, each submitter must receive an order, in the form of a letter, from the FDA which finds the device to be substantially
equivalent and states that the device can be marketed in the U.S. This order “clears” the device for commercial distribution.
Until
the submitter receives an order declaring a device substantially equivalent, the submitter may not proceed to market the device.
Once the device is determined to be substantially equivalent, it can then be marketed in the U.S. The substantially equivalent
determination is usually made within 90 days and is made based on the information submitted by the submitter.
Substantial
Equivalence.
A 510(k) clearance requires demonstration of substantial equivalence to another legally U.S. marketed device.
Substantial equivalence means that the new device is at least as safe and effective as the predicate.
A
device is substantially equivalent if, in comparison to a predicate it:
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has
the same intended use as the predicate; and
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has
the same technological characteristics as the predicate;
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or
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has
the same intended use as the predicate;
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has
different technological characteristics and the information submitted to the FDA;
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does
not raise new questions of safety and effectiveness; and
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demonstrates
that the device is at least as safe and effective as the legally marketed device.
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A
claim of substantial equivalence does not mean the new and predicate devices must be identical. Substantial equivalence is established
with respect to intended use, design, energy used or delivered, materials, chemical composition, manufacturing process, performance,
safety, effectiveness, labeling, biocompatibility, standards, and other characteristics, as applicable.
A
device may not be marketed in the U.S. until the submitter receives a letter declaring the device substantially equivalent. If
the FDA determines that a device is not substantially equivalent, the applicant may:
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resubmit
another 510(k) application with new data;
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request
a Class I or II designation through the de novo process;
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file
a reclassification petition; or
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submit
a premarket approval application (PMA).
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Status
of Medical Device Premarket Clearance.
SANDD received its PMA in March 15, 2002. HuBDIC Co. Ltd. made a 510(k)
submission to the FDA on January 29, 2014 and received pre-market clearance for the Thermofinder FS-700 and FS-700 Pro on or about
July 2, 2014.
Future
Business Opportunities.
The Company’s board of directors is currently evaluating our future strategy for marketing
all of our medical devices including SANDD mini, WoundClot and the Thermofinder FS-700 and FS-700 Pro non-contact thermometers.
Under consideration is possibly contracting with third parties for the distribution of the our medical devices to hospitals, doctors,
schools, first responders, home health care providers, etc. The Company is considering engaging an independent marketing representative
to offer its SANDD mini and the consumer version of the digital non-contact thermometer, Thermofinder FS-700, through retail chains.
No decision has yet been made on the future marketing strategies.
Our
board of directors is evaluating whether to seek opportunities related to the distribution of other medical devices besides WoundClot,
Zonis and the Thermofinder.
The
Company’s board of directors is also considering entry into other lines of business including, but not necessarily limited
to, commercial and hospitality real estate, specialized financial services and equipment rental services. No decision has yet
been made on entering these or other future lines of business.
Insurance
Branded
Generic Pharmaceuticals and Medical Devices.
Our operations and products are subject to inherent risks of personal safety
and injury and, as such, we maintain insurance policies on the sale of our products to protect us in the event of a loss. Insurance
coverage is provided for us by the owners of the products we distribute for third parties where we consider such coverage necessary.
We
believe our insurance coverages for these risks are adequate. Historically, we have not experienced a loss in excess of our policy
limits; however, there can be no assurance that we will be able to maintain adequate insurance at rates we consider to be commercially
reasonable, nor can there be any assurance such coverage will be adequate to all of the claims that may arise.
Property
and Casualty.
We also maintain insurance against property damage, flood and other catastrophic events that may result
in physical damage or destruction to our real estate. All policies are subject to deductibles and other coverage limitations.
While we believe over coverage limits are adequate to protect against loss, there can be no assurance that we will be able to
maintain adequate insurance at rates we consider to be commercially reasonable, nor can there be any assurance such coverage will
be adequate to all of the claims that may arise.
Competition
The
medical device and branded generic pharmaceutical distribution industries are highly competitive. We are a development stage company
without established operations in our industry and have a weak competitive position. We aim to compete with junior and senior
medical device and branded generic pharmaceutical manufacturers or distributors who are actively seeking to develop or acquire
and sell devices competitive with our own. Competition for the medical device and branded generic pharmaceutical assets is intense
and we may lack the technological information, human resources, infrastructure, expertise, and financial resources available to
our competitors. Such competition could adversely impact our ability to attain the financing necessary for us to develop our current
assets, generate revenues, or obtain and develop future assets.
Many
of the companies with which we aim to compete for financing and for the acquisition of medical device and branded generic pharmaceutical
assets have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to
spend greater amounts on assets of merit or on developing and distributing their own technologies.
General
competitive conditions may be substantially affected by various forms of regulation introduced from time to time by the governments
of the United States and other countries, as well as factors beyond our control, including overall levels of supply and demand
for the product types which we seek to distribute.
In
the face of competition, we may not be successful in acquiring or successfully exploiting any distribution rights which we have
acquired or may acquire in the future. Despite this, we hope to compete successfully in the medical device industry by:
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maintaining
low operating costs;
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relying
on the strength of our management’s and future sales team’s contacts;
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utilizing
our team’s previous product and sales and support experience in the specific device area; and
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using
our size and experience to our advantage by adapting quickly to changing market conditions or responding swiftly to potential
opportunities.
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Employees
Currently,
we do not have any employees. Our officers are providing their services to us on an independent consultant basis, but, at this
time, we have not entered into any consulting or employment agreements with them. Our directors, executive officers and certain
contracted individuals play an important role in the running of the Company. We do not expect any material changes in the number
of employees over the next 12-month period. We intend to engage contractors from time to time to consult with us on specific corporate
affairs or to perform specific tasks in connection with our anticipated sales and marketing programs.
Available
Information
We
are required to file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K with the
U.S. Securities and Exchange Commission (which we refer to as the “SEC”) and our filings are available to the public
on our website at
www.redhawkholdingscorp.com
and at the SEC’s website at http://www.sec.gov.
ITEM
1A. RISK FACTORS
Our
business routinely encounters and attempts to address risks, some of which will cause our future results to differ, sometimes
materially, from those originally anticipated. Below, we have described our present view of the most significant risks facing
the Company. The risk factors set forth below are not the only risks that we may face or that could adversely affect us. If any
of the circumstances described in the risk factors discussed in this Form 10-K actually occur, our business, prospects, liquidity,
financial condition and results of operations could be materially and adversely affected. If this were to occur, the trading price
of our securities could decline significantly, and stockholders may lose all or part of their investment.
The
following discussion of risk factors contains “forward-looking statements,” which may be important to understanding
any statement in this Form 10-K or in our other filings and public disclosures. In particular, the following information should
be read in conjunction with the sections in this Form 10-K entitled, “Cautionary Note about Forward-Looking Statements,”
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item
8. Financial Statements and Supplementary Data.”
Risks
Related to Our Overall Business Operations
We
have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We have a limited
history of profitable operations – we first reported net income from our operations for the three-month period ended March
31, 2017. We incurred net losses of $407,681 and $1,306,820 for the fiscal years ended June 30, 2017 and 2016, respectively.
As a result, at June 30, 2017, including preferred stock dividends, we had an accumulated deficit of $3,243,543. We have
sustained significant costs in connection with the acquisition and development of certain technologies and businesses combined
with significant legal fees incurred in connection with certain litigation matters. Prior to the fiscal year ending June 30, 2017,
we did not generate any significant revenues. Our continued profitability will require reduction of our operating costs, reduced
non-recurring legal fees and the successful commercialization of our medical device technology, branded pharmaceutical, security
systems or future products for which we may acquire a distribution license. We may not, however, be able to successfully exploit
any distribution rights which we acquire and may never become profitable.
There
is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient
cash resources to meet our business objectives, all of which means that we may not be able to continue operations
.
As
discussed in Note 1 to our financial statements for the year ended June 30, 2017, with the exception of the three-month period
ended March 31, 2017, we have generated operating losses since inception, and our cash resources are insufficient to meet our
planned business objectives. We expect to continue to incur development costs and operating costs, losses and negative cash flows
until our products gain market acceptance sufficient to generate a commercially viable and sustainable level of sales, and/or
additional products are developed and commercially released, and sales of such products made so that we are operating in a profitable
manner. 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. Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with our 2017 financial statements that states there is substantial doubt about our ability
to continue as a going concern.
We
have had negative cash flows from operations since inception. We will require significant additional financing, the availability
of which cannot be assured, and if we are unable to obtain such financing, our business may fail.
To
date, we have had negative cash flows from operations and have depended on sales of our equity securities, debt financing and
stockholder loans to meet our cash requirements. We may continue to have negative cash flows. There is no assurance that actual
cash requirements will not exceed our estimates. We may require additional funds to finance working capital and pay for operating
expenses and capital requirements until we achieve a positive cash flow.
Our
ability to market and sell our medical devices will be dependent upon our ability to raise significant additional financing. If
we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise
additional funds to:
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support
our planned growth and carry out our business plan;
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hire
quality personnel for all areas of our business; and
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address
competing technological and market developments.
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We
have a total of 450,000,000 authorized shares, of which 361,049,027 shares of our common stock were outstanding as of June 30,
2017. Because of the limited number of available authorized shares, we may not be able to obtain adequate additional equity or
debt financing on acceptable terms as required. In order to raise adequate levels of capital necessary to meet the Company’s
future needs, the board of directors may need to consider completing a reverse stock split, amending our articles of incorporation
to increase the number of authorized shares or authorize the possible issuance of preferred stock. Certain of these considerations
may require regulatory approval.
Subsequent
to June 30, 2017, we reached an agreement in principal on various matters including the surrender by Scarlett of 10 million shares
of our outstanding stock which, when completed, these shares will be returned into our treasury. This agreement is in the process of being finalized as of the date of this filing.
Even
if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements.
Any additional equity financing may involve substantial dilution to our then existing shareholders. If we require, but are unable
to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond
to changing business or economic conditions, withstand adverse operating results and compete effectively. More importantly, if
we are unable to raise further financing when required, we may be forced to scale down our operations or sell significant assets,
and our ability to generate revenues may be negatively affected.
If
we fail to effectively manage the growth of the Company and the commercialization of our medical devices, our future business
results could be harmed, and our managerial and operational resources may be strained.
As
we proceed with the commercialization of our medical devices and the expansion of our marketing and commercialization efforts,
we expect to experience significant growth in the scope and complexity of our business. We will need to add staff to market our
services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We anticipate that
we will be required to hire a broad range of personnel in order to successfully advance our operations. This growth is likely
to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire
and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our business,
or the failure to manage growth effectively, could have a material adverse effect on our business and financial condition.
The
effect of competition in our industry could adversely impact our ability to generate revenues.
The
medical device distribution industry is highly competitive. We are a development stage company without established operations
in our industry and have a weak competitive position. We aim to compete with junior and senior medical device manufacturers or
distributors who are actively seeking to develop or acquire and sell devices competitive with our own. Competition for the medical
device assets is intense and we may lack the technological information, human resources, infrastructure, expertise, and financial
resources available to our competitors. Such competition could adversely impact our ability to attain the financing necessary
for us to develop our current assets, generate revenues, or obtain and develop future assets.
The
Company has failed to file tax returns since inception.
The
Company has never filed federal or state tax returns. While the Company has incurred losses since its inception and no tax liabilities
are expected, the failure to file federal and state tax returns could result in penalties. The Company expects to bring its tax
filings current during the fiscal year ending June 30, 2018.
Risks
Related to the Market for Our Stock
The
market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you
may want to sell your holdings.
Because
our stock is thinly traded, the market price of our common stock can fluctuate significantly. Numerous factors, many of which
are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include: our
earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet
the expectations of financial market analysts and investors; changes in financial estimates by us or by any securities analysts
who might cover our stock; speculation about our business in the press or the investment community; significant developments relating
to our relationships with our customers or suppliers; stock market price and volume fluctuations of other publicly traded companies
and, in particular, those that are in our industry; customer demand for our products; changes in governmental regulation of the
medical devices that we distribute; investor perceptions of our industry in general and the Company in particular; the operating
and stock performance of comparable companies; general economic conditions and trends; announcements by us or our competitors
of new products, significant acquisitions, strategic partnerships or divestitures; changes in accounting standards, policies,
guidance, interpretation or principles; loss of external funding sources; sales of our common stock, including sales by our directors,
officers or significant stockholders; and additions or departures of key personnel. Securities class action litigation is often
instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted
against us, it could result in substantial costs to us and divert our management’s attention and resources.
Moreover,
securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating
performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests
in the Company at a time when you want to sell your interest in us.
We
have never declared or paid any cash dividends on shares of our common stock and do not anticipate doing so.
We
intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash
dividends on our common stock in the foreseeable future but will review this policy as circumstances dictate. Should we
decide in the future to do so, our ability to pay dividends and meet other obligations may depend upon the receipt of dividends
or other payments from any operating subsidiaries we may have in the future.
We
are subject to penny stock regulations and restrictions, therefore the market for our common stock is limited and you may have
difficulty selling your shares.
The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock
is therefore subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange
Act”), or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and “accredited investors” (generally, individuals with a net
worth in excess of $1,000,000 (excluding the value of their primary residence) or annual incomes exceeding $200,000 individually,
or $300,000 together with their spouses). For transactions covered by the Penny Stock Rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about
sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.
There
can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common
stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction
would be in the public interest.
A
large number of shares may be eligible for future sale and may depress our stock price.
We
may be required, under terms of future financing arrangements, to offer a large number of common shares to the public, or to register
for sale by future private investors a large number of shares sold in private sales to them.
Sales
of substantial amounts of common stock, or a perception that such sales could occur, and the existence of options or warrants
to purchase shares of common stock at prices that may be below the then-current market price of our common stock, could adversely
affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities,
either of which would decrease the value of any earlier investment in our common stock.