Quarterly Report (10-q)

Date : 05/20/2019 @ 9:23PM
Source : Edgar (US Regulatory)
Stock : Independence Energy Corp. (PC) (IDNG)
Quote : 0.001  0.0 (0.00%) @ 9:07PM

Quarterly Report (10-q)

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2019

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-54323

 

 
RedHawk Holdings Corp.
(Exact name of registrant as specified in its charter)

 

Nevada   20-3866475
(State or other jurisdiction
of incorporation or organization)
  (IRS Employer
Identification No.)

 

120 Rue Beauregard, Suite 206    
Lafayette, Louisiana   70508
(Address of principal executive offices)   (Zip Code)

 

(337) 269-5933  

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

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

 

Large accelerated filer   Accelerated filer
         
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

 

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

 

On May 20, 2019, 756,442,499 shares of common stock, par value 0.001 per share, were outstanding.

 

 

 

 

 

REDHAWK HOLDINGS CORP. 

Form 10-Q

 

TABLE OF CONTENTS

 

    Page No.
  PART I - FINANCIAL INFORMATION  
     
Item 1. Unaudited Consolidated Financial Statements 3
  Unaudited Consolidated Balance Sheets 3
  Unaudited Consolidated Statements of Operations 4
  Unaudited Consolidated Statements of Cash Flows 5
  Unaudited Consolidated Statements of  Stockholders’ Equity (Deficit) 6
  Notes to the Unaudited Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
Item 4. Controls and Procedures 24
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 26
     
Signatures 27

 

  2

 

PART I - FINANCIAL INFORMATION

 

Item 1. UNAUDITED Consolidated Financial Statements. 

 

REDHAWK HOLDINGS CORP.  

Consolidated Balance Sheets  

(unaudited)

 

    March 31,     June 30,  
    2019     2018  
             
ASSETS                
Current Assets:                
Cash   $ 30,877     $ 19,034  
Certificate of deposit     100,300       100,073  
Receivables     50,000       17,946  
Inventory, at cost    

185,178

      218,538  
Investment in real estate limited partnership     257,173       625,000  
Prepaid expenses     122,668       120,709  
Total Current Assets    

746,196

      1,101,300  
                 
Property and Improvements:                
Land     110,000       110,000  
Building and improvements     670,000       670,000  
      780,000       780,000  
Less, accumulated depreciation     (104,646 )     (81,146 )
      675,354       698,854  
                 
Other Assets:                
Intangible asset, net of amortization of $391,821 and $292,072, respectively     839,906       415,163  
      839,906       415,163  
Total Assets   $

2,261,456

    $ 2,215,317  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current Liabilities:                
Accounts payable and accrued liabilities   $

774,691

    $ 774,568  
Current maturities of long-term debt     9,863       9,450  
Short-term debt, net of $7,224 in deferred loan costs at March 31, 2019    

171,867

      100,553  
Insurance notes payable     5,715       7,786  
Total Current Liabilities    

962,136

      892,357  
Non-current Liabilities                
Due to related parties     183,250       118,924  
Other non-current liabilities    

702,476

       
Real estate note payable, net of current maturities     226,541       233,772  
Convertible notes payable, net of $34,495 and $60,420 in deferred loan costs and unamortized beneficial conversion of $42,692 and $59,042, respectively     790,730       861,189  
     

1,902,997

      1,213,885  
Total Liabilities    

2,865,133

      2,106,242  
Commitments and Contingencies            
Stockholders' Equity (Deficit):                
Preferred stock, 5,000 authorized shares and 2,723 issued and outstanding                
5% Series A, 2,750 shares designated, $1,170 and $1,127 stated value, and 1,473 issued and outstanding at March 31, 2019 and June 30, 2018, respectively     1,722,917       1,659,889  
5% Series B, 1,250 shares designated, $1,169 and $1,126 stated value, and 1,250 issued and outstanding at March 31, 2019 and June 30, 2018, respectively     1,460,780       1,407,342  
Common Stock, par value of $0.001 per share, 2,000,000,000 and 1,000,000,000 authorized shares, respectively, and 740,264,741 and 398,410,762 issued, respectively    

740,265

      398,411  
Additional paid-in capital     1,329,545       1,311,076  
Accumulated other comprehensive gain     2,735        
Accumulated deficit     (5,416,001 )     (4,302,291 )
     

(159,759

)     474,427  
Less, Treasury stock 87,848,643 and 35,471,535 shares, respectively, at cost     (443,918 )     (365,352 )
Total Stockholders' Equity    

(603,677

)     109,075  
Total Liabilities and Stockholders’ Equity   $

2,261,456

    $ 2,215,317  

  

The accompanying notes are an integral part of these financial statements

 

  3

 

REDHAWK HOLDINGS CORP.  

Consolidated Statements of Operations  

(unaudited) 

 

    Three Months Ended March 31,     Nine Months Ended March 31,  
    2019     2018     2019     2018  
                         
Revenues   $ 113,551     $ 63,549     $ 209,071     $ 363,646  
Less, discounts     (39,995 )     (580 )     (39,995 )     (106,547 )
      73,556       62,969       169,076       257,099  
                                 
 Operating Expenses:                                
 Costs of goods sold     17,986       7,972       49,016       112,984  
 Sales and marketing expenses     1,746       9,947       5,772       9,947  
 Professional fees     43,462       24,849       210,229       83,723  
 Operating expenses     97,384       6,922       106,795       35,830  
 Depreciation and amortization     19,208       22,166       80,359       66,498  
 General and administrative     27,973       85,946       171,936       189,856  
                                 
 Total Operating Expenses     207,759       157,802       624,107       498,838  
                                 
 Net Loss from Operations     (134,203 )     (94,833 )     (455,031 )     (241,739 )
                                 
 Other Income (Expense):                                
 Amortization of discount on convertible debentures     (5,450 )     (5,450 )     (16,350 )     (16,350 )
 Settlement loss     10,000             (386,500 )     (62,425 )
 Interest expense     30,954       (58,439 )     (139,364 )     (98,045 )
      35,504       (63,889 )     (542,214 )     (176,820 )
                                 
 Net Loss     (98,699 )     (158,722 )     (997,245 )     (418,559 )
                                 
 Other comprehensive income:                                
 Effect of foreign currency translation     (52 )     5,714       2,735       (1,417 )
      (52 )     5,714       2,735       (1,417 )
                                 
 Comprehensive Loss     (98,751 )     (153,008 )     (994,510 )     (419,976 )
                                 
 Preferred Stock Dividends     (39,305 )     (37,399 )     (116,466 )     (110,819 )
                                 
 Comprehensive Loss Available for Common Stockholders   $ (138,056 )   $ (190,407 )   $ (1,110,976 )   $ (530,795 )
                                 
                                 
 Net Loss Per Share                                
 Basic   $     $     $     $  
 Diluted   $     $     $     $  
                                 
 Weighted Average Shares Outstanding                                
 Basic     557,460,616       351,049,027       487,312,611       358,407,239  
 Diluted     557,460,616       351,049,027       487,312,611       358,407,239  

 

The accompanying notes are an integral part of these financial statements

 

  4

 

REDHAWK HOLDINGS CORP.  

Consolidated Statements of Cash Flows  

(unaudited)

 

    Nine Months Ended March 31,  
    2019     2018  
 CASH FLOWS FROM OPERATING ACTIVITIES:                
 Net loss   $ (997,245 )   $ (418,559 )
 Adjustments to reconcile net loss to net cash used in operating activities:                
 Amortization of intangibles     56,859       66,498  
 Amortization of discount on convertible debentures     16,350       16,350  
 Amortization of deferred loan costs     50,083       39,449  
 Depreciation     23,500        
 Non-cash interest expense     42,879       22,365  
 Non-cash settlement loss     224,976       62,475  
 Other non-cash expenses     52,363        
 Changes in operating assets and liabilities:                
 Accounts receivable     (32,327 )     (51,894 )
 Inventory     30,547       140,200  
 Prepaid expense and other assets     (2,903 )     7,379  
 Accounts payable and accrued liabilities     14,626       (211,968 )
 Net Cash Used in Operating Activities     (520,292 )     (327,705 )
 CASH FLOWS FROM INVESTING ACTIVITIES                
 Proceeds from distribution from limited liability partnership     367,827        
 Purchase of certificate of deposit           (100,000 )
 Investment in license     (46,250 )      
 Net Cash Provided by (Used in) Investing Activities     321,577       (100,000 )
 CASH FLOWS FROM FINANCING ACTIVITIES                
 Proceeds from (payments to) related parties, net     64,326       22,916  
 Proceeds from issuance of convertible notes     181,000       402,328  
 Proceeds from issuance of stock           20,735  
 Purchase of treasury stock     (78,566 )      
 Costs related to debt for equity conversions     (10,300 )      
 Deferred loan costs     (33,110 )     (70,732 )
 Proceeds from long-term debt     180,000        
 Proceeds from short-term debt     71,314       70,000  
 Net payments on insurance notes payable     (2,071 )     (7,225 )
 Principal payments on convertible notes     (132,726 )     (50,000 )
 Principal payments on long-term debt     (6,818 )     (6,671 )
 Net Cash Provided by Financing Activities     233,049       381,351  
 Effect of exchange rate on cash     (22,491 )     21,250  
 Net change in cash     11,843       (25,104 )
 Cash, Beginning of Period     19,034       53,939  
 Cash, End of Period   $ 30,877     $ 28,835  
                 
 Non-Cash Investing and Financing Activities:                
 Preferred stock dividends paid-in-kind   $ 116,466     $ 110,819  
  Conversion of notes payable to common stock   $ 184,635     $  
 Increase in liabilities related to license agreement acquisition   $ 403,750     $  
 Common stock issued related to license agreement acquisition   $ 17,500     $  
 Convertible debt issued in exchange for treasury shares   $     $ 29,250  
 Reduction in equity from share exchange to acquire 100% in EcoGen Europe Ltd.   $     $ 311,590  
                 
 Supplemental Disclosures:                
 Interest paid   $ 12,526     $ 11,171  
 Income tax paid   $     $  

 

The accompanying notes are an integral part of these financial statements

  

  5

 

REDHAWK HOLDINGS CORP.  

Consolidated Statements of Stockholders’ Equity (Deficit)  

(unaudited)

 

                                              ACCUMULATED                          
    SERIES A     SERIES B                 ADDITIONAL     OTHER                          
    PREFERRED STOCK     PREFERRED STOCK     COMMON STOCK     PAID-IN     COMPREHENSIVE     ACCUMULATED     TREASURY STOCK        
    SHARES     AMOUNT     SHARES     AMOUNT     SHARES     AMOUNT     CAPITAL     GAIN     DEFICIT     SHARES     AMOUNT     TOTAL  
FISCAL YEAR 2019                                                                        
                                                                         
BALANCE, JUNE 30, 2018     1,473     $ 1,659,889       1,250     $ 1,407,342       398,410,762     $ 398,411     $ 1,311,076     $     $ (4,302,291 )     35,471,535     $ (365,352 )   $ 109,075  
PIK dividends                                                     (116,465 )                 (116,465 )
Preferred stock dividends declared           63,028             53,438                                                 116,466  
Conversions                             293,453,979       293,454       (22,339 )                             271,115  
Stock grants                             48,400,000       48,400       40,808                               89,208  
Shares acquired                                                                             52,377,108       (78,566 )     (78,566 )
Net loss                                               2,735       (997,245 )                 (994,510 )
                                                                                                 
BALANCE, MARCH 31, 2019     1,473     $ 1,722,917       1,250     $ 1,460,780       740,264,741     $ 740,265     $ 1,329,545     $ 2,735     $ (5,416,001 )     87,848,643     $ (443,918 )   $ (603,677 )

 

                                              ACCUMULATED                                  
    SERIES A     SERIES B                 ADDITIONAL     OTHER                                  
    PREFERRED STOCK     PREFERRED STOCK     COMMON STOCK     PAID-IN     COMPREHENSIVE     NON-CONTROLLING     ACCUMULATED     TREASURY STOCK        
    SHARES     AMOUNT     SHARES     AMOUNT     SHARES     AMOUNT     CAPITAL     LOSS     INTERESTS     DEFICIT     SHARES     AMOUNT     TOTAL  
                                                                                 
FISCAL YEAR 2018                                                                                
                                                                                 
BALANCE, JUNE 30, 2017     1,473     $ 1,579,425       1,250     $ 1,339,120       379,070,562     $ 379,071     $ 1,254,889     $ -     $ 62,500     $ (3,243,543 )     18,021,535     $ (76,102 )   $ 1,295,360  
                                                                                                         
PIK dividends             -               -               -       -       -       -       (110,808 )             -       (110,808 )
Preferred stock dividends declared             59,972               50,847               -       -       -       -       -               -       110,819  
Non-controlling interests acquired             -               -               -       -       -       ( 62,500 )       -       10,000,000       (260,000 )     (322,500 )
Stock sales             -               -       7,450,000       7,449       13,285       -       -       -       -       -       20,734  
Shares acquired             -               -                               -       -       -       7,450,000       (29,250 )     (29,250 )
Net loss             -               -               -       -       (1,417 )     -       (418,559 )             -       (419,976 )
                                                                                                       
BALANCE, MARCH 31, 2018     1,473     $ 1,639,397       1,250     $ 1,389,967       386,520,562     $ 386,520     $ 1,268,174     $ (1,417 )   $ -     $ (3,772,910 )     35,471,535     $ (365,352 )   $ 544,379  

  

The accompanying notes are an integral part of these financial statements

 

  6

 

REDHAWK HOLDINGS CORP.  

Notes to the Unaudited Consolidated Financial Statements  

March 31, 2019

 

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 primarily focused in sales and distribution of specialized line 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 the SANDD™ Insulin Needle Destruction Unit (formerly known as the Disintegrator™), WoundClot Surgical - Advanced Bleeding Control, 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. Centri Security Systems LLC, a wholly-owned subsidiary of the Company, 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 be able to continue as a going concern without further financing. The Company must continue to realize its assets to discharge its liabilities in the normal course of business. The Company has generated limited 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 three month period ended March 31, 2019, the Company had gross and net revenues of $113,551 and $73,556, respectively, and a consolidated net loss of $98,699. For the nine month period ended March 31, 2019, the Company had gross and net revenues of $209,071 and $169,076, respectively, a consolidated net loss of $997,245,and cash of $520,292 used in operating activities. For the year ended June 30, 2018, the Company had $384,279 in gross revenue, $275,845 in net revenue, a consolidated net loss of $910,062 and cash of $ 411,268 used in operating activities. As of March 31, 2019, the Company had cash of $30,877, a certificate of deposit of $100,300, a working capital deficit of $215,940 and an accumulated deficit of $5,416,001. 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. We cannot predict, with certainty, the outcome of our efforts to generate liquidity and profitability, or whether such actions would generate the expected proceeds to the Company. 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.

 

  7

  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The unaudited interim condensed financial statements of the Company as of March 31, 2019 and for the three and nine month periods ended March 31, 2019 and 2018 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, 2018 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, 2018. 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.

 

  8

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries in which we have a greater than 50% ownership. All material intercompany accounts have been eliminated upon consolidation. Certain prior year amounts have been 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, and certain other generic pharmaceuticals known as “specials”. Our real estate leasing revenues are from certain commercial properties under lease. The Company offers customer discounts in certain cases. Such discounts are estimated at time of product sale and deducted from gross revenues.

 

We adopted as of July 1, 2018, updated revenue recognition guidance (Topic 606). Topic 606 is an update to Topic 605, which was the revenue recognition standard in effect for all prior periods. Pursuant to Topic 605, revenue generally is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. Topic 606 changes the criteria for recognition of revenue. It establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. Revenue is recognized 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, we 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. The adoption of this standard did not affect our financial statements.

 

Cash and Cash Equivalents

 

We consider highly liquid investments with an original maturity of 90 days or less to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2019 or June 30, 2018.

 

  9

 

Accounts Receivable

 

Accounts receivables are amounts due from customers of our pharmaceutical and medical device 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, 2019 or June 30, 2018.

 

Inventory

 

Inventory consist of manufactured and purchased needle destruction devices, certain branded generic pharmaceuticals thermometers, an advanced bleeding control, non-compression hemostasis, and a patented antimicrobial ionic silver calcium catheter dressing, held for resale. All inventories are stated at the lower of cost or net realizable value utilizing the first-in, first-out method.

  

  10

 

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 to 30 years. Building improvements are depreciated over a useful life of 5 to 10 years.

 

During the year ended June 30, 2017, we decided to sell our Louisiana real estate holdings, which includes our former corporate headquarters on Chemin Metairie Road in Youngsville, Louisiana and a property on Jefferson Street in Lafayette, Louisiana that we were leasing to a third party. As a result of that decision, the net book value of those properties along with related mortgage notes were reflected as assets and liabilities held for sale in the balance sheets. At that time, we also ceased depreciating such assets. All such amounts are included in the land and hospitality segment. A sale of these properties did not occur in the fiscal year ended June 30, 2018 and, as such, the Company has returned these properties to assets held for use and depreciation expenses was recorded in the fourth quarter of fiscal year 2018 for the period the properties were included in assets held for sale.

 

Effective July 1, 2017, the Chemin Metairie Road property was leased under a one-year term at a rent of $1,500 per month. The lessee had an option to purchase the property during the lease for the lesser of $300,000 or the average of two independent appraisals. On June 30, 2018, the tenant did not exercise his option to purchase the property. The Company has returned the property to service and currently uses this property as offices for our medical products unit. Effective August 1, 2017, the tenant that leases the Jefferson Street property has renewed that lease through December 31, 2022 at a rent of $3,250 per month subject to certain increase adjustments.

 

We will continue to list these properties for sale, but it is uncertain if the sales will occur during the next twelve months. Based on our review of the current real estate market and discussions with brokers, no impairment of the recorded amounts has occurred as of March 31, 2019.

 

We are also pursuing the sale of our remaining investment in the real estate limited partnership investment, carried at cost in the balance sheets. In August 2018, based on stability of operations of the underlying real estate property and recent valuations, the partnership refinanced the property. In September 2018, we received a distribution of approximately $370,000 from the real estate limited partnership following this refinancing. This distribution is recorded as a reduction of our investment in the limited partnership, which is recorded at cost. We are currently in negotiations to sell our interest in the partnership and anticipate such a transaction will close prior to December 31, 2019. Thus, our investment is shown as a current asset as of March 31, 2019 and June 30, 2018 in the accompanying consolidated balance sheets.

 

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.

 

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 statements 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. During the year ended June 30, 2017, 3,726,480 warrants were exercised, and the remaining warrants expired. There were no outstanding warrants as of March 31, 2019 or June 30, 2018.

 

  11

 

At March 31, 2019, including accrued but unpaid interest, there were 43,002,626 shares issuable upon conversion of our fixed rate convertible notes. There are $222,878 in convertible notes that are convertible at a variable conversion rate and not included in the issuable share amount in the preceding sentence. Also, at March 31, 2019, including accrued but unpaid dividends, there were potentially 114,861,100 shares issuable upon the conversion of the Series A Preferred Stock and, including accrued but unpaid dividends, there were potentially 146,077,945 shares issuable upon the conversion of the Series B Preferred stock. 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 Loss

 

ASC 220, Comprehensive Income , establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.

 

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’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, debt, and amounts due to related parties.

 

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.

 

Correction to Prior Periods

 

During the quarter ended March 31, 2019, we determined that we had over accrued interest expense in prior periods. A reversal of approximately $62,000 in accrued interest expense was recorded in the quarter ended March 31, 2019.

 

Reclassification

 

Certain amounts in prior periods have been reclassified to conform to the current year presentation.

 

  12

 

Recent Accounting Pronouncements Not Yet Adopted

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, Leases . This accounting standard requires lessees to recognize assets and liabilities related to lease arrangements longer than 12 months on the balance sheet as well as additional disclosures. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , to simplify the lease standard’s implementation. The amended guidance relieves businesses and other organizations of the requirement to present prior comparative years’ results when they adopt the new lease standard. Instead of recasting prior year results using the new accounting when they adopt the guidance, companies can choose to recognize the cumulative effect of applying the new standard to leased assets and liabilities as an adjustment to the opening balance of retained earnings. The standard is effective for annual periods beginning after December 15, 2019. The Company is currently assessing the impact of this pronouncement on its financial statements.

 

  13

 

  3. OTHER ASSETS

 

On December 31, 2015, RedHawk Land & Hospitality, LLC, a wholly-owned subsidiary of the Company, acquired from Beechwood Properties, LLC 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 Properties, LLC is a real estate limited liability company owned and controlled by G. Darcy Klug, a stockholder, Interim Chief Executive Officer, Chief Financial Officer and Chairman of the board of directors of the Company. This investment in real estate limited partnership is recorded at cost, less distributions, and the Company is not aware of any indicator of impairment as of March 31, 2019. In the quarter ended September 30, 2018, we received a distribution of $369,827 from the real estate development company. It is not practicable for the Company to estimate fair value of this investment. The investment is classified as a current asset as we expect to sell our interest by December 31, 2019 (see Note 2).

 

On March 23, 2016, one of our wholly-owned subsidiaries, RedHawk Pharma UK Ltd (which we refer to herein as “Pharma”), initially acquired a 25% equity interest in EcoGen Europe Ltd (which we refer to as “EcoGen”) from Scarlett Pharma Ltd (which we refer to herein as “Scarlett”). On September 12, 2017 we completed a share transfer agreement wherein we increased our ownership in EcoGen to 75%. On December 19, 2017 we completed another share transfer agreement wherein we increased our ownership in EcoGen to 100%. In connection with the December share transfer the non-controlling interest was eliminated. Under the terms of an agreement we reached with Scarlett and its affiliate related to these share exchanges, they surrendered ten (10) million shares of RedHawk common stock and transferred to RedHawk approximately $300,000 of EcoGen preferred stock and other consideration. In exchange, RedHawk assumed approximately $370,000 of obligations due to EcoGen by Scarlett and its affiliates. The RedHawk Shares were originally issued to Scarlett in connection with the Company’s March 2016 investment of 25% into EcoGen. As a result of these transactions, as of December 31, 2017, Pharma owned approximately $635,000 of EcoGen’s preferred stock and 100% of EcoGen’s common stock. The exchange agreements also settled numerous outstanding disputes between the Company, Scarlett, Warwick and the noncontrolling owners of the Company. A non-cash settlement loss of $62,425 resulted and was included in our results for the year ended June 30, 2018.

 

During the fiscal year ended June 30, 2017, we began to consolidate the accounts of EcoGen in our financial statements under the variable interest entity model. In the quarter ended September 30, 2017, we became the majority owner of EcoGen and as of December 31, 2017, we owned 100% of the common stock of EcoGen. As of March 31, 2019, we have approximately $$379,000, net of accumulated amortization in intangible assets related to licenses held by EcoGen. Such intangible assets are being amortized over an estimated useful life of 20 years.

 

In September 2018, the Company acquired the exclusive license rights to certain medical device technology for $450,000, plus a broker’s fee of $17,500. Under the terms of the license agreement, the Company has paid $25,000 plus the first of a total twenty quarterly payments of $21,250 each was paid in January 2019. Any remaining payments become immediately payable upon the receipt of final approval by the FDA of devices related to the technology. Additionally, the Company will pay a consulting fee of $1,000 per month for sixty months. The broker’s fee was paid through the issuance of 14 million shares of the Company’s common stock.

 

  4. LOAN AND INSURANCE NOTE PAYABLE

 

We finance a portion of our insurance premiums. At March 31, 2019, there was a $5,715 outstanding balance due on our premium finance agreements. The policies related to these premiums expire March 31, 2020.

 

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 provide for future borrowings. The advances are used to fund our operations. The Line of Credit accrues interest at 5% per annum and matured on March 31, 2019. At maturity, or in connection with a pre-payment, subject to the conditions set forth in the Line of Credit, the stockholder had the right to convert the amount outstanding (or the amount of the prepayment) into the Company’s Series A Preferred Stock at the par value of $1,000 per share. At March 31, 2019 and June 30, 2018, the principal balance totaled $0 and $22,674, respectively.

 

This same stockholder and officer also holds $16,250 of 5% convertible notes as of March 31, 2019, which mature in December 2020 and are convertible into common stock at a rate of $0.015 per share or 1,083,333 shares. During the quarter ended March 31, 2019, $13,000 of convertible notes held by this stockholder and officer was paid.

 

In fiscal year 2018, certain stockholders of the Company made $67,000 in advances to the Company. Stockholders have made additional advances during fiscal year 2019 of $100,000 for a total of $167,000. These advances do not have a stated interest rate. In the three month period ended December 31, 2018, the Company agreed to issue 15.4 million shares of the Company’s common stock (cost of $19,250) in lieu of any interest, past or future, related to these advances.

 

All of the above liabilities are included in Due to Related Parties in the accompanying consolidated balance sheets.

 

  14

 

Beginning 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. As of March 31, 2019 and June 30, 2018, $50,000 and $60,000, respectively, in such fees remain unpaid and are recorded in accounts payable and accrued liabilities in the accompanying balance sheets.

 

  6.

DEBT

 

On November 12, 2015, we acquired certain commercial real estate from a related party that is an entity controlled by a stockholder and officer of the Company for $480,000 consisting of $75,000 of land costs and $405,000 of buildings and improvements. The purchase price was paid by through the assumption by the Company of $265,000 of long-term bank indebtedness (which we refer to as “Note”) plus the issuance of 215 shares of the Company’s newly designated Series A Preferred Stock. The purchase price also included the cost of specific security improvements requested by the lessee.

 

The Note is dated November 13, 2015 and has a principal amount of $265,000. Monthly payments under the Note are $1,962 including interest accruing at a rate of 5.95% per annum. The Note matures in June 2021 and is secured by the commercial real estate, guarantees by the Company and its real estate subsidiary and the personal guarantee of a stockholder who is also an officer of the Company. As of March 31, 2019, approximately $236,000 of the Note is outstanding.

 

We have authorized the issuance of up to $1 million in principal amount of convertible promissory notes (which we refer to as the “Fixed Rate Convertible Notes”). The Fixed Rate Convertible Notes are secured by certain Company real estate holdings.

 

The Fixed Rate Convertible Notes issued mature on March 15, 2021, 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. 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 Fixed Rate Convertible Notes. The Company may only issue the notice of its intent to redeem the Fixed Rate 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 Fixed Rate Convertible Notes has the right to convert all or any portion of the Fixed Rate Convertible Notes at the conversion price at any time prior to redemption.

 

At March 31, 2019, there were $645,039 ($577,975 net of deferred financing costs and beneficial conversion option) of Fixed Rate Convertible Notes outstanding, including $95,039 of interest paid in kind. The Fixed Rate Convertible Notes (plus accrued interest) are convertible into our common stock at a conversion rate of $0.015 per share or 43,002,600 shares. During the three and nine month periods ended March 31, 2019, we paid-in-kind $7,963 and $23,629, respectively, of interest on these convertible notes.

 

  15

 

In the three and nine months March 31, 2019, we issued an additional $38,000 and $181,000, respectively, of convertible notes to third parties with variable conversion rates (“Variable Rate Convertible Notes”). The Variable Rate Convertible Notes mature at various dates through May 2020. We received, net of financing costs incurred, $157,093 in cash from the issuance of these notes. These Variable Rate Convertible Notes have interest accruing at rates ranging between 8% - 12%. These notes issued to third parties have a variable conversion rate based on the price of the Company’s common stock. $184,878 of the convertible notes are currently convertible into our common stock at a variable conversion rate. During the quarter ended March 31, 2019, notes, including accrued and unpaid interest, totaling $86,101 were converted into equity. At March 31, 2019, there were $222,878 ($212,755 net of deferred financing costs) of Variable Rate Convertible Notes outstanding.

 

Some of the Variable Rate Convertible Notes have maturity dates prior to March 31, 2020. It is the Company’s expectation that we will either re-finance these convertible notes to longer terms or permit conversions and, therefore, have classified such notes as non-current.

 

Also, during the year ended June 30, 2018, we issued $29,250 of convertible notes to our majority stockholder in exchange for 7,450,000 shares of our common stock. The note matures in December 2020. As of March 31, 2019, the balance on the note is $16,250 and is convertible into 1,083,333 shares, or $0.015 per share. (See Note 5.)

 

In February 2018, we obtained a $100,000 line of credit from a bank. The line of credit matures in February 2021 and is collateralized by a $100,000 certificate of deposit at the bank. As of March 31, 2019, approximately $100,000 was drawn under the line of credit. As of March 31, 2019. the interest rate on the line of credit is 7.0% per annum.

 

On March 12, 2019, the RedHawk Land & Hospitality, a wholly-owned subsidiary of the Company, obtained a $180,000 real estate loan from Ameriquest Financial Services, LLC. Interest only is payable monthly and accrues at an interest at a rate of 12% per annum. The note matures on April 1, 2020 and is secured by certain real estate property and the personal guarantee of an officer and director of the Company.

 

In the quarter ended March 31, 2019, the Company completed several short-term working capital lines of credit, resulting in net proceeds of approximately $71,000, secured by the Company’s future accounts receivables and the personal guarantee of an officer and director of the Company. The working capital lines accrue interest at various rates.

 

The proceeds from the March 12, 2019 real estate loan and the short-term working capital lines of credit were used to settle certain litigation matters more fully described in Note 7.

 

7. COMMITMENTS AND CONTINGENCIES

 

On January 31, 2017, the Company and Beechwood Properties, LLC (“Beechwood”) filed suit against Daniel J. Schreiber (“Mr. Schreiber”) and the Daniel J. Schreiber Living Trust – Dtd 2/08/95 (“Schreiber Trust”) in the United States District Court for the Eastern District of Louisiana under Civil Action No. 2:2017cv819-B(3) (the “Louisiana Lawsuit”).

 

Mr. Schreiber and the Schreiber Trust answered the Louisiana Lawsuit and counter-claimed against the Company and Beechwood and made additional claims against Mr. G. Darcy Klug (“Mr. Klug”) in the Louisiana Lawsuit. Mr. Klug is an officer and director of RedHawk and is sole owner of Beechwood. Mr. Klug also holds voting control of RedHawk.

 

On April 24, 2017, Mr. Schreiber and the Schreiber Trust also filed suit against the Company, Mr. Klug and six (6) other defendants in the United States District Court for the Southern District of California under Civil Action No. 3:17-cv-00824-WQH-BLM which case was dismissed without prejudice on September 26, 2017 (the “California Lawsuit” and along with the Louisiana Lawsuit, the “Litigations”).

 

  16

 

On March 22, 2019, the parties to the Litigations have entered into a Settlement Agreement and General Release (“Settlement Agreement”) to resolve all issues arising out of the subject matter of the Litigation.

 

In consideration of the mutual promises, covenants and conditions contained in the Settlement Agreement, the parties to the Litigation agreed that (i) Mr. Schreiber and the Schreiber Trust shall transfer all Company stock they presently own (52,377,108 common shares) to the Company and (ii) the Company shall (a) make to Mr. Schreiber and the Schreiber Trust a cash payment of Two Hundred Fifty Thousand and 00/100 Dollars (US$250,000.00) and (b) issue two Promissory Notes, each in the principal amount of Two Hundred Thousand and 00/100 Dollars (US$200,000.00), one of which shall be due and payable on or before September 6, 2020 and the other shall be due and payable on or before September 5, 2021.

 

Each Promissory Note shall be non-interest bearing, however each (i) shall bear a $15,000 late penalty if the principal amount is not repaid by the due date and (ii) shall bear interest at a rate of 18% per annum, from the issue date, if the principal is not repaid by the 30th date after the due date.

 

Pursuant to a Security Agreement between the parties, Mr. Klug and Beechwood secured the Company’s obligations to the Schreiber Trust under the Settlement Agreement by granting first-priority security interests in (i) 1,000 shares of Mr. Klug’s Series B Preferred Company Stock; and 1,473 shares of Mr. Klug’s Series A Preferred Company Stock, and (ii) Beechwood’s interest in the Tower Hotels Fund 2014, LLC. The Company may repurchase both Promissory Notes for a single payment of Three Hundred Thousand Dollars (US$300,000.00) provided such payment is tendered to the Schreiber Trust within 180 days of the execution of the Security Agreement.

 

8. STOCKHOLDERS’ EQUITY

 

Common Stock

 

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. On December 26, 2017, by a vote of the majority of our stockholders, we increased the number of our authorized shares from 450,000,000 to 1,000,000,000. On August 20, 2018, by a vote of the majority of our stockholders, we increased the number of our authorized shares from 1,000,000,000 to 2,000,000,000.

 

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.

 

During the three month periods ended March 31, 2019 and 2018, we paid-in-kind $39,305 and $37,399 respectively, of related preferred stock dividends. During the nine month periods ended March 31, 2019 and 2018, we paid-in-kind $116,465 and $110,819, respectively, of related preferred stock dividends.

 

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9. INCOME TAXES

 

As of June 30, 2018, the Company had approximately $3,600,000 of U.S. net operating losses (NOLs) carried forward to offset taxable income in future years which expire commencing in fiscal 2026 and run through 2038. As a result of the numerous common stock transactions that have occurred, the amount of these NOLs which is actually available to offset future income may be severely limited due to change-in-control tax provisions. The Company has not estimated the effect of such change-in-control limitation. The related deferred income tax asset of these NOLs, without consideration of any change-of-control limitation, was estimated to be approximately $750,000 as of June 30, 2018. As a result of the enactment of the Tax Cuts and Jobs Act (The Act) in December 31, 2017, the estimated deferred income tax asset related to U.S. NOL carry forwards is based on the reduced 21% corporate income tax rate. 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. The only change during the nine month period ended March 31, 2019 would be an increase to the NOL due to additional losses incurred.

 

Thus, there is no net tax asset recorded as of March 31, 2019 or June 30, 2018 as a 100% valuation allowance has been established for any tax benefit. EcoGen also has a net operating loss as of March 31, 2019 and June 30, 2018 for which no deferred tax asset has been provided. Similarly, there is no income tax benefit recorded on the net loss of the Company for the three month and nine month periods ended March 31, 2019 and 2018.

 

The Company did not have any accumulated foreign earnings for which taxes were deferred and subject to the one-time transition tax under The Act.

 

The Company accounts for interest and penalties relating to uncertain tax provisions in the current period statement of operations, as necessary. The Company’s tax years from inception are subject to examination. There are no income tax examinations currently in progress.

 

10. SEGMENT INFORMATION

 

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. Currently, we conduct our businesses in three operating segments – Land & Hospitality, Medical Device and Pharmaceutical, and Other Services. Our Land & Hospital and Other Services business units operate in the United States. Our Medical Device and Pharmaceutical business unit currently operates primarily in the United Kingdom. All remaining assets, primarily our corporate offices and investment portfolio, are located in the United States. The segment classified as Corporate includes corporate operating activities that support the executive offices, capital structure and costs of being a public registrant. These costs are not allocated to the operating segments when determining profit or loss. The following table reflects our segments as of September 30, 2018 and 2017 and for the three month periods then ended.

 

          MEDICAL                    
Nine months ended   LAND &     DEVICE &     OTHER              
March 31, 2019   HOSPITALITY     PHARMA     SERVICES     CORPORATE     TOTAL  
                               
Operating revenues, gross   $ 34,759     $ 174,312     $     $     $ 209,071  
Operating revenues, net   $ 34,759     $ 134,317     $     $     $ 169,076  
Operating loss   $ (11,097  )   $ (100,660  )   $ (201)      $ (343,073  )   $ (455,031 )
Interest expense   $ 12,526     $ 10      $     $ 126,828     $ 139,364  
Depreciation and amortization   $ 23,500      $ 56,859      $     $     $ 80,359  
Identifiable assets   $ 937,294     $ 693,185     $     $ 630,977     $ 2,261,456  

 

  18

 

          MEDICAL                    
Nine months ended   LAND &     DEVICE &     OTHER              
March 31, 2018   HOSPITALITY     PHARMA     SERVICES     CORPORATE     TOTAL  
                               
Operating revenues, gross   $ 48,185     $ 315,461     $     $     $ 363,646  
Operating revenues, net   $ 48,185     $ 208,914     $     $     $ 257,099  
Operating income (loss)   $ 16,226     $ (114,194   $ (1,757   $ (142,014   $ (241,739
Interest expense   $ 11,171     $ 1     $     $ 86,873     $ 98,045  
Depreciation and amortization   $     $ 66,498     $     $     $ 66,498  
Identifiable assets   $ 1,373,224     $ 10,515     $ 60     $ 1,025,005     $ 2,408,804  

 

          MEDICAL                    
Three months ended   LAND &     DEVICE &     OTHER              
March 31, 2019   HOSPITALITY     PHARMA     SERVICES     CORPORATE     TOTAL  
Operating revenues, gross   $ 10,250     $ 103,301     $     $     $ 113,551  
Operating revenues, net   $ 10,250     $ 63,306     $     $     $ 73,556  
Operating loss   $ (8,894 )   $ (15,899 )   $     $ (109,410 )   $ (134,203 )
Interest expense   $ 4,789     $ 10     $     $ (35,753 )   $ (30,954 )
Depreciation and amortization   $ 7,833     $ 11,375     $     $     $ 19,208  

 

          MEDICAL                    
Three months ended   LAND &     DEVICE &     OTHER              
March 31, 2018   HOSPITALITY     PHARMA     SERVICES     CORPORATE     TOTAL  
                               
Operating revenues, gross   $ 14,250     $ 49,299     $     $     $ 63,549  
Operating revenues, net   $ 14,250     $ 48,719     $     $     $ 62,969  
Operating income (loss)   $ 6,995     $ (59,367   $ (32   $ (42,429 )   $ (94,833 )
Interest expense   $ 3,642     $ (3 )   $     $ 54,800     $ 58,439  
Depreciation and amortization   $     $ 22,166     $     $     $ 22,166  

 

11. SUBSEQUENT EVENTS

 

The Company evaluated events occurring after March 31, 2019, and through the date the financial statements were issued, May 20, 2019 and concluded there were no events or transactions that would require recognition or disclosure in these financial statements, other than those described below:

 

Subsequent to March 31, 2019, approximately 104 million shares were issued to pay certain variable interest notes.

 

In May 2019, the Company began acquiring as investments certain life settlement insurance policies. These policies are purchased at a substantial discount to the face value of the life insurance policy acquired. The Company expects to use these investments as collateral for future loans.

 

  19

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. Forward-looking statements are all statements other than statements of historical facts. The words “may,” “can,” “will,” “should,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “potential,” “proposed,” and any similar expressions are intended to identify those assertions as forward-looking statements. Investors are cautioned that forward-looking statements are predictions and are inherently uncertain. Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties. In evaluating forward-looking statements, you should consider the various factors which may cause actual results to differ materially from any forward-looking statements, including the risks below and those listed in the “Risk Factors” section of our latest 10-K report:

 

  Changes in the effects of the significant level of competition that exists in the medical device distribution industry, or our inability to attract customers for other reasons.
     
  The unexpected cost of regulation applicable to our industry, and the possibility of future additional regulation.
     
  Our lack of insurance coverage in the event we incur an unexpected liability.
     
  Our lack of a proven operating history and the possibility of future losses that are greater than we currently anticipate.
     
  The possibility that we may not be able to generate revenues or access other financing sources necessary to operate our business.
     
  Our inability to attract necessary personnel to run and market our business.
     
  The volatility of our stock price.
     
  Changes in the market prices for our products, or our failure to perform or renew the distribution agreement for our products.
     
  Our failure to execute our growth strategy or enter into other lines of business that we may identify as potentially profitable for our company.
     
  Changes in economic and business conditions.
     
  Changes in accounting policies and practices we may voluntarily adopt or that we may be required to adopt under generally accepted accounting principles in the United States.

 

Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

  20

 

Overview

 

RedHawk Holdings Corp. was incorporated in the State of Nevada on November 30, 2005 under the name “Oliver Creek Resources, Inc”. At its inception, we were an exploration stage company engaged in the acquisition, exploration and development of natural resources. We discontinued our oil and gas operations in 2014 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. 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. Centri Security Systems LLC, a wholly-owned subsidiary of the Company, 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 commercial properties under lease. Additionally, the Company’s real estate investment unit holds limited liability company interest in a commercial restoration project in Hawaii.

 

Working Capital

 

    March 31,
2019
    June 30,
2018
 
Current Assets   $ 746,196     $ 1,101,300  
Current Liabilities   $ 962,136     $ 892,357  
Working Capital (Deficit)   $ (215,940 )   $ 208,943  

 

RESULTS OF OPERATIONS

 

Operating Revenues

 

During the quarter ended December 31, 2015, we commenced operations in our commercial real estate leasing business units. On December 31, 2015, our medical device business unit completed the acquisition of certain specialized tangible and intangible medical devices. On March 23, 2016, RedHawk Pharma UK Ltd acquired a 25% equity interest in EcoGen Europe Ltd, a United Kingdom based distributor of branded generic pharmaceuticals. During the three month period ended December 31, 2017, we increased our ownership in EcoGen to 100%. Sales efforts for our medical devices and branded generic pharmaceuticals commenced during the quarter ending September 30, 2016. Prior to the quarter ended September 30, 2016, we had earned minimal revenue.

 

For the three month and nine month periods ended March 31, 2019, net revenues from our pharmaceutical products, medical devices and commercial rentals totaled $73,556 and $169,076, respectively, as compared to net revenues of $62,969 and $257,099, respectively for the comparable periods ended March 31, 2018. During the three month period ended March 31, 2019, the Company shifted its marketing to focus on the sale of its needle incineration devices.

 

The primary reason for the decline in revenues for the nine month period ended March 31, 2019 as compared to the same nine period ended March 31, 2018, was the discontinuation of certain pharmaceutical reimbursement programs by the United Kingdom National Health Service (“NHS”). In April 2017, the NHS discontinued reimbursement of the NP8 pharmaceuticals, which represented a significant portion of our pharmaceutical sales in prior years. Since the discontinuation of reimbursement of NP8s, we have directed our focus solely on the marketing and sale of our branded generic pharmaceuticals and medical devices.

 

Revenues in the pharmaceutical and medical device business unit are expected to improve as market acceptance of our products increases and we continue to expand marketing of our SANDD medical devices. Additionally, net profits are expected to improve as the Company’s sales increase in our more profitable medical device sales and pharmaceutical sales become more weighted to its branded generics which offer lower discounts than the discounts offered by the Company for its highly competitive “special” pharmaceuticals and require significantly lower operating costs.

 

  21

 

Operating Expenses and Loss from Continuing Operations

 

For the three month period ended March 31, 2019, we report consolidated net loss of $98,699 on net revenues of $73,556 as compared to a net loss of $158,722 on net revenues of $62,969 for the comparable three month period ended March 31, 2018. The net loss for the three month period ended March 31, 2019 includes approximately $25,000 of non-recurring legal fees resulting from certain litigation.

 

For the nine month period ended March 31, 2019, we report consolidated net loss of $997,245 on net revenues of $169,076 as compared to a net loss of $418,559 on net revenues of $257,099 for the comparable nine month period ended March 31, 2018. The increase in the net loss for March 31, 2019 period includes a settlement loss of approximately $386,000 and non-recurring legal fees of approximately $112,000 resulting from the Schreiber litigation.

 

Professional fees for the nine month period ended March 31, 2019 totaled $210,229, a $126,506 increase from the $83,723 of professional fees for the comparable period ended March 31, 2018. The increase in professional fees was primarily attributable to the legal expenses incurred in connection with settling the Schreiber litigation.

 

Liquidity and Capital Resources

 

As of March 31, 2019, we had cash of $30,877 and a certificate of deposit of $100,300 compared with cash of $19,034 and a certificate of deposit of $100,073 at June 30, 2018.

 

During the nine month period ended March 31, 2019, we completed the funding of $181,000 of variable convertible notes (proceeds of $147,890, net of financing costs). We also obtained certain real estate and working capital loans in the amount of $251,314. The proceeds from these loans were used to pay $250,000 to the Schreiber Trust associated with certain ongoing litigation and to re-purchase approximately 52 million shares of our stock from a former officer of the Company (See Note 7). We expect to re-finance the loans into longer term credit facilities under more favorable terms and rates.

 

During the nine month period ended March 31, 2019, we repaid $132,726 of the variable interest convertible notes and permitted conversion of an additional $184,635 of variable interest convertible notes.

 

During the nine month period ended March 31, 2019, we also received a distribution of approximately $370,000 in connection with our real estate limited partnership investment in Hawaii. We used these cash inflows to fund current period operating activities and pay certain liabilities owed to creditors.

  

The Company is continuing to pursue the sale of its real estate holdings. Also refer to the Going Concern section of Note 1 to our unaudited consolidated financial statements.

 

Cash Flows

 

   

Nine months ended
March 31,

 
    2019     2018  
Cash Flows (used in) Operating Activities   $ (520,292 )   $

(327,705

Cash Flows provided by (used in) Investing Activities

  $ 321,577     $ (100,000 )
Cash Flows provided by Financing Activities   $ 233,049     $

381,351

 
Net Change in Cash During Period   $ 11,843     $

(25,104

)

 

Cash Flow from Operating Activities

 

During the nine month period ended March 31, 2019, $520,292 of cash was used by our operating activities as compared to $327,705 used in our operating activities for the comparable nine month period ended March 31, 2018. Changes to our operating activities are sporadic and result from the early stage of implementation of our business strategies that are supported by capital raising activities.

 

  22

 

Cash Flows from Investing Activities

 

As discussed above, during the nine month period ended March 31, 2019, we received approximately $370,000 in distributions from our limited liability real estate investment in Hawaii.

 

Cash Flows from Financing Activities

 

During the nine month period ended March 31, 2019, we received net proceeds, after financing costs incurred, of approximately $147,890 from the issuance and sale of new variable interest convertible debentures and we received $251,314 from certain short-term real estate and working capital credit facilities. Additionally, during this same nine month period ended March 31, 2019, we repaid approximately $133,000 of variable interest convertible notes and re-purchased approximately 52 million shares of our common stock.

 

Going Concern

 

We continue to incur operating losses and use cash in our operating activities and are dependent upon asset sales, obtaining third party financing or shareholder loans to pursue any acquisitions and continue our operating activities. For these reasons, there is substantial doubt that we will be able to continue as a going concern without further financing. Also refer to the Going Concern section of Note 1 to our unaudited consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

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

 

Future Financings

 

We will continue to rely on financial support from our stockholders and our ability to raise equity capital or debt financing in order to continue to fund our business operations. Issuances of additional shares and debt instruments convertible into shares of our stock will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

 

Use of Estimates and Critical Accounting Policies

 

Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A summary of these policies is included in the notes to our financial statements. In general, our management’s estimates are based on historical experience, information from third party professionals, and various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

  23

 

Recently Issued Accounting Pronouncements

 

We have implemented all new accounting pronouncements that are in effect and applicable to us. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations. Pending accounting pronouncements that are effective for future periods are discussed in Note 2 to our unaudited consolidated financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a smaller reporting company, we are not required to provide the information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Management’s Report on Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow for timely decisions regarding required disclosure.

 

As of the end of the quarter covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded, in light of material weaknesses in our internal controls, that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company does not have an Audit Committee and has a limited number of employees and, as such, segregation of duties surrounding certain processes are not adequately maintained, including over cash receipts and disbursements. This also means there is limited review of accounting and financial reporting conclusions made by the Company’s chief financial officer.

 

Changes in Internal Control Over Financial Reporting

 

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

  24

  

PART II - OTHER INFORMATION

 

ITEM 1 . LEGAL PROCEEDINGS.

 

With the settlement of the Schreiber litigation described in Note 7 to the unaudited financial statements included in this filing, we know of no other material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are also no proceedings in which our directors, officers or any affiliates, or any registered or beneficial stockholder, is a party adverse to us or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS.

 

As a smaller reporting company, we are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4 . MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

  25

 

ITEM 6. EXHIBITS.

 

The following exhibits are either filed herewith or incorporated herein by reference:

 

Exhibit Number   Description of Exhibit
(3)   Articles of Incorporation and Bylaws
     
3.01   Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form SB-2 filed on March 7, 2006)
     
3.02   Bylaws (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form SB-2 filed on March 7, 2006)
     
3.03   Certificate of Amendment filed on July 23, 2008 (incorporated by reference to Exhibit 3.02 to our Current Report on Form 8-K filed on August 14, 2008)
     
3.04   Certificate of Change filed on July 23, 2008 (incorporated by reference to Exhibit 3.01 to our Current Report on Form 8-K filed on August 14, 2008)
     
3.05   Certificate of Change filed on June 14, 2012 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June 15, 2012)
     
3.06   Amended and Restated Articles of Incorporation of RedHawk Holdings Corp. filed October 12, 2015 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 16, 2015).
     
3.07   Certificate of Designation filed on November 12, 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 19, 2015).
     
3.08   Certificate of Designation filed on February 16, 2016 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 5, 2016).
     
(10)   Material Contracts
     
10.1   Assignment dated June 1, 2015 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 19, 2015).
     
(31)   Rule 13a-14(a) / 15d-14(a) Certifications
     
31.1*   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
(32)   Section 1350 Certifications
     
32.1*   Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101   Interactive Data File
     
101*   Interactive Data File (Form 10-Q for the quarter ended December 31, 2016 furnished in XBRL).
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

  26

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  REDHAWK HOLDINGS CORP.
  (Registrant)
   
Dated: May 20, 2019 /s/ G. Darcy Klug
  G. Darcy Klug
  Interim Chief Executive Officer, Chief Financial Officer and Director
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

  27

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