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 September 30, 2020
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.) |
|
100
Petroleum Drive, Suite 200 |
|
|
|
Lafayette,
Louisiana |
|
70508 |
|
(Address
of principal executive offices) |
|
(Zip
Code) |
(337)
269-5933
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
Trading
Symbol(s) |
Name
of each exchange on which registered |
|
None |
N/A |
N/A |
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
every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer |
☐ |
|
Accelerated
filer |
☐ |
| |
|
|
|
|
|
Non-accelerated
filer |
☐ |
|
Smaller reporting company |
☒ |
|
|
|
|
|
|
|
|
|
|
Emerging
growth 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 December 18, 2020, 1,217,032,870 shares of common stock, par
value 0.001 per share, were outstanding.
REDHAWK
HOLDINGS CORP.
Form 10-Q
TABLE
OF CONTENTS
PART I - FINANCIAL
INFORMATION
Item 1. UNAUDITED Consolidated
Financial Statements.
REDHAWK HOLDINGS
CORP.
Consolidated
Balance Sheets
(unaudited)
| |
|
September
30, |
|
|
June
30, |
|
| |
|
2020 |
|
|
2020 |
|
| |
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
28,462 |
|
|
$ |
75,850 |
|
|
Receivables |
|
|
89,816 |
|
|
|
98,700 |
|
|
Inventory, net |
|
|
386,422 |
|
|
|
387,175 |
|
|
Prepaid expenses |
|
|
153,664 |
|
|
|
55,967 |
|
|
Total Current Assets |
|
|
658,364 |
|
|
|
617,692 |
|
| |
|
|
|
|
|
|
|
|
| Property and
Improvements: |
|
|
|
|
|
|
|
|
| Land |
|
|
110,000 |
|
|
|
110,000 |
|
|
Tooling and equipment |
|
|
5,600 |
|
|
|
5,600 |
|
|
Building and improvements |
|
|
670,000 |
|
|
|
670,000 |
|
| |
|
|
785,600 |
|
|
|
785,600 |
|
|
Less, accumulated depreciation |
|
|
(152,046 |
) |
|
|
(144,013 |
) |
| |
|
|
633,554 |
|
|
|
641,587 |
|
| |
|
|
|
|
|
|
|
|
| Other
Assets: |
|
|
|
|
|
|
|
|
|
Investment in real estate limited partnership |
|
|
127,173 |
|
|
|
127,173 |
|
|
Right of use asset, net |
|
|
57,384 |
|
|
|
62,363 |
|
|
Intangible asset, net of amortization of $457,946 and
$418,571, respectively |
|
|
391,140 |
|
|
|
389,762 |
|
|
Other assets |
|
|
131,101 |
|
|
|
129,962 |
|
| |
|
|
706,798 |
|
|
|
709,260 |
|
| |
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,998,716 |
|
|
$ |
1,968,539 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
510,819 |
|
|
$ |
425,884 |
|
|
Accrued Liabilities |
|
|
703,611 |
|
|
|
642,929 |
|
|
Settlement liability |
|
|
119,496 |
|
|
|
519,496 |
|
|
Current maturities of long-term debt |
|
|
428,963 |
|
|
|
402,082 |
|
|
Operating leases - current |
|
|
21,256 |
|
|
|
20,728 |
|
| Lines of
credit |
|
|
207,400 |
|
|
|
129,389 |
|
|
Insurance notes payable |
|
|
4,929 |
|
|
|
11,645 |
|
| |
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,996,474 |
|
|
|
2,152,153 |
|
| |
|
|
|
|
|
|
|
|
| Non-current
Liabilities |
|
|
|
|
|
|
|
|
|
Due to related parties |
|
|
246,500 |
|
|
|
242,000 |
|
|
Operating leases - non-current |
|
|
36,128 |
|
|
|
41,635 |
|
|
Convertible notes payable, net of $382,717 in deferred loan
costs and $175,000 of beneficial conversion at September 30, 2020
and $120,783 in deferred loan costs and $250,000 of beneficial
conversion at June 30, 2019 |
|
|
1,620,426 |
|
|
|
1,465,342 |
|
| |
|
|
1,903,054 |
|
|
|
1,748,977 |
|
|
Total Liabilities |
|
|
3,899,528 |
|
|
|
3,901,130 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and
Contingencies |
|
|
|
|
|
|
|
|
| |
|
|
— |
|
|
|
— |
|
| Stockholders'
Equity (Deficit): |
|
|
|
|
|
|
|
|
|
Preferred stock, 5,000 authorized shares and 1,277 and 3,750 issued
and outstanding at September 30, 2020 and June 30, 2020,
respectively, respectively |
|
|
|
|
|
|
|
|
|
5% Series A, 2,750 shares designated, $1,000 and $1,131 stated
value, and 1,277 and 2,750 issued and outstanding at September 30,
2020 and June 30, 2020, respectively |
|
|
1,277,000 |
|
|
|
3,110,325 |
|
|
5% Series B, 1,000 shares designated, $1,243 and $1,243 stated
value, and 0 and 1,000 issued and outstanding at September 30, 2020
and June 30, 2020, respectively |
|
|
— |
|
|
|
1,243,314 |
|
| Common
Stock, par value of $0.001 per share, 2,000,000,000 authorized
shares and 1,543,430,878 and 1,165,199,800 issued at September 30,
2020 and June 30, 2020, respectively |
|
|
1,543,431 |
|
|
|
1,165,199 |
|
|
Additional paid-in capital |
|
|
4,005,803 |
|
|
|
852,039 |
|
|
Accumulated other comprehensive loss |
|
|
(12,926 |
) |
|
|
(12,958 |
) |
|
Accumulated deficit |
|
|
(8,133,762 |
) |
|
|
(7,710,152 |
) |
| |
|
|
(1,320,454 |
) |
|
|
(1,352,233 |
) |
|
Less, Treasury stock 201,548,643 shares, at cost |
|
|
(580,358 |
) |
|
|
(580,358 |
) |
|
Total Stockholders' Equity |
|
|
(1,900,812 |
) |
|
|
(1,932,591 |
) |
| |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
1,998,716 |
|
|
$ |
1,968,539 |
|
| |
|
|
— |
|
|
|
— |
|
The
accompanying notes are an integral part of these financial
statements
REDHAWK
HOLDINGS CORP.
Consolidated Statements of
Operations
(unaudited)
| |
|
Three
Months Ended |
|
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
Revenues |
|
$ |
447,339 |
|
|
$ |
50,558 |
|
| |
|
|
|
|
|
|
|
|
| Operating
Expenses: |
|
|
|
|
|
|
|
|
|
Costs of goods sold |
|
|
256,756 |
|
|
|
9,853 |
|
|
Sales and marketing expenses |
|
|
107,752 |
|
|
|
51,191 |
|
|
Professional fees |
|
|
46,942 |
|
|
|
70,219 |
|
|
Research and development costs |
|
|
13,041 |
|
|
|
23,842 |
|
|
Operating expenses |
|
|
72,944 |
|
|
|
36,914 |
|
|
Depreciation and amortization |
|
|
15,533 |
|
|
|
20,958 |
|
|
General and administrative |
|
|
41,516 |
|
|
|
29,479 |
|
| |
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
554,484 |
|
|
|
242,456 |
|
| |
|
|
|
|
|
|
|
|
|
Net Loss from Operations |
|
|
(107,145 |
) |
|
|
(191,898 |
) |
| |
|
|
|
|
|
|
|
|
| Other Income
(Expense): |
|
|
|
|
|
|
|
|
|
Gain (loss) on early extinguishment of debt |
|
|
— |
|
|
|
44,527 |
|
|
Amortization of discount on convertible debt |
|
|
(75,000 |
) |
|
|
— |
|
|
Settlement loss and other |
|
|
(28,491 |
) |
|
|
— |
|
|
Interest expense |
|
|
(191,835 |
) |
|
|
(90,659 |
) |
| |
|
|
(295,326 |
) |
|
|
(46,132 |
) |
| |
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
(402,471 |
) |
|
|
(238,030 |
) |
| |
|
|
|
|
|
|
|
|
| Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation |
|
|
32 |
|
|
|
(2,787 |
) |
| |
|
|
32 |
|
|
|
(2,787 |
) |
| |
|
|
|
|
|
|
|
|
| Comprehensive
Loss |
|
|
(402,439 |
) |
|
|
(240,817 |
) |
| |
|
|
|
|
|
|
|
|
|
Preferred Stock Dividends |
|
|
(21,139 |
) |
|
|
(61,577 |
) |
| |
|
|
|
|
|
|
|
|
|
Comprehensive Loss Available for Common Stockholders |
|
$ |
(423,578 |
) |
|
$ |
(302,394 |
) |
| |
|
|
|
|
|
|
|
|
| Net Loss Per Share |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
— |
|
|
$ |
— |
|
|
Diluted |
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
| Weighted Average Shares
Outstanding |
|
|
|
|
|
|
|
|
|
Basic |
|
|
1,165,802,735 |
|
|
|
877,715,710 |
|
|
Diluted |
|
|
1,165,802,735 |
|
|
|
877,715,710 |
|
The
accompanying notes are an integral part of these financial
statements
REDHAWK
HOLDINGS CORP.
Consolidated Statements of Cash
Flows
(unaudited)
| |
|
Three
Months Ended |
|
| |
|
September
30, |
|
| |
|
2020 |
|
|
2019 |
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(402,471 |
) |
|
$ |
(240,817 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
7,500 |
|
|
|
13,125 |
|
|
Amortization
of beneficial conversion |
|
|
75,000 |
|
|
|
— |
|
|
Amortization
of deferred loan costs |
|
|
73,372 |
|
|
|
17,319 |
|
|
Depreciation |
|
|
8,033 |
|
|
|
7,833 |
|
|
Non-cash
interest expense |
|
|
23,681 |
|
|
|
— |
|
|
Gain
on extinguishment of debt |
|
|
— |
|
|
|
(44,527 |
) |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
8,884 |
|
|
|
(2,645 |
) |
|
Inventory |
|
|
753 |
|
|
|
8,089 |
|
|
Prepaid
expense and other assets |
|
|
(97,697 |
) |
|
|
(89,994 |
) |
|
Accounts
payable and accrued liabilities |
|
|
130,425 |
|
|
|
98,129 |
|
|
Net
Cash Used in Operating Activities |
|
|
(172,520 |
) |
|
|
(233,488 |
) |
|
CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds
from (payments to) related parties, net |
|
|
4,500 |
|
|
|
12,000 |
|
|
Proceeds
from issuance of convertible debt |
|
|
490,412 |
|
|
|
880,125 |
|
|
Payments
on convertible debt |
|
|
(20,737 |
) |
|
|
(154,396 |
) |
|
Payments
on long-term debt |
|
|
(400,000 |
) |
|
|
— |
|
|
Deferred
loan costs, net |
|
|
(37,235 |
) |
|
|
(39,671 |
) |
|
Payments
on lines of credit, net |
|
|
78,011 |
|
|
|
(41,954 |
) |
|
Payments
on insurance notes payable |
|
|
(6,716 |
) |
|
|
(129,175 |
) |
|
Principal
payments (payments on) on long-term debt |
|
|
26,881 |
|
|
|
(2,481 |
) |
|
Net
Cash Provided by Financing Activities |
|
|
135,116 |
|
|
|
524,448 |
|
|
Effect
of exchange rate on cash |
|
|
(9,984 |
) |
|
|
(3,088 |
) |
|
Increase
in cash |
|
|
(47,388 |
) |
|
|
287,872 |
|
|
Cash,
Beginning of Period |
|
|
75,850 |
|
|
|
1,648 |
|
|
Cash,
End of Period |
|
$ |
28,462 |
|
|
$ |
289,520 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
Preferred
stock dividends paid-in-kind |
|
$ |
5,184 |
|
|
$ |
40,294 |
|
|
Conversion
of debt to common stock |
|
$ |
450,181 |
|
|
$ |
99,839 |
|
|
Cost
of intangible assets paid by issuance of common stock |
|
$ |
— |
|
|
$ |
44,000 |
|
|
Common
stock acquired in exchange for preferred stock |
|
$ |
3,089,454 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures: |
|
|
|
|
|
|
|
|
|
Interest
paid |
|
$ |
91,035 |
|
|
$ |
38,706 |
|
|
Income
taxes paid |
|
$ |
— |
|
|
$ |
— |
|
The
accompanying notes are an integral part of these financial
statements
REDHAWK
HOLDINGS CORP.
Consolidated Statements of
Stockholders’ Equity (Deficit)
(unaudited)
| |
|
SERIES A
PREFERRED STOCK |
|
|
SERIES B
PREFERRED STOCK |
|
|
COMMON STOCK |
|
|
ADDITIONAL
PAID-IN |
|
|
ACCUMULATED
OTHER
COMPREHENSIVE |
|
|
ACCUMULATED |
|
|
TREASURY STOCK |
|
|
|
|
| |
|
SHARES |
|
|
AMOUNT |
|
|
SHARES |
|
|
AMOUNT |
|
|
SHARES |
|
|
AMOUNT |
|
|
CAPITAL |
|
|
LOSS |
|
|
DEFICIT |
|
|
SHARES |
|
|
AMOUNT |
|
|
TOTAL |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2020 |
|
|
2,750 |
|
|
$ |
3,110,325 |
|
|
|
1,000 |
|
|
$ |
1,243,314 |
|
|
|
1,165,199,800 |
|
|
$ |
1,165,199 |
|
|
$ |
852,039 |
|
|
$ |
(12,958 |
) |
|
$ |
(7,710,152 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(1,932,591 |
) |
|
Preferred stock dividends
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,139 |
) |
|
|
|
|
|
|
|
|
|
|
(15,963 |
) |
|
Conversions |
|
|
(1,473 |
) |
|
|
(1,833,325 |
) |
|
|
(1,000 |
) |
|
|
(1,248,490 |
) |
|
|
378,231,078 |
|
|
|
378,232 |
|
|
|
3,153,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,181 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
(402,471 |
) |
|
|
|
|
|
|
|
|
|
|
(402,439 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30,
2020 |
|
|
1,277 |
|
|
$ |
1,277,000 |
|
|
|
— |
|
|
$ |
— |
|
|
|
1,543,430,878 |
|
|
$ |
1,543,431 |
|
|
$ |
4,005,803 |
|
|
$ |
(12,926 |
) |
|
$ |
(8,133,762 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(1,900,812 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2019 |
|
|
2,750 |
|
|
$ |
3,021,453 |
|
|
|
1,250 |
|
|
$ |
1,479,040 |
|
|
|
1,034,340,037 |
|
|
$ |
1,034,340 |
|
|
$ |
51,811 |
|
|
$ |
(52 |
) |
|
$ |
(5,671,649 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(665,415 |
) |
|
Preferred stock dividends
declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(61,577 |
) |
|
|
— |
|
|
|
— |
|
|
|
(61,577 |
) |
|
PIK dividends |
|
|
— |
|
|
|
21,806 |
|
|
|
— |
|
|
|
18,487 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,293 |
|
|
Conversions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,967,703 |
|
|
|
52,968 |
|
|
|
2,344 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55,312 |
|
|
Stock grants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,000,000 |
|
|
|
20,000 |
|
|
|
24,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,000 |
|
|
Shares acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(240,817 |
) |
|
|
— |
|
|
|
— |
|
|
|
(240,817 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30,
2019 |
|
|
2,750 |
|
|
$ |
3,043,259 |
|
|
|
1,250 |
|
|
$ |
1,497,527 |
|
|
|
1,107,307,740 |
|
|
$ |
1,107,308 |
|
|
$ |
78,155 |
|
|
$ |
(52 |
) |
|
$ |
(5,974,043 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(828,204 |
) |
The
accompanying notes are an integral part of these financial
statements
REDHAWK
HOLDINGS CORP.
Notes to the Unaudited
Consolidated Financial Statements
September
30, 2020
| 1. |
NATURE
OF OPERATIONS AND CONTINUANCE OF BUSINESS |
RedHawk
Holdings Corp.(“RedHawk” or the “Company”) was incorporated in the
State of Nevada on November 30, 2005 under the name “Oliver Creek
Resources Inc.” Effective August 12, 2008, we changed our name from
“Oliver Creek Resources Inc.” to “Independence Energy Corp.”
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.”
Currently, the Company is 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 the SANDD™ Insulin Needle Destruction Unit (formerly known as
the Disintegrator™), Personal Protection Equipment, WoundClot
Surgical - Advanced Bleeding Control and the Carotid Artery Digital
Non-Contact Thermometer. Through our United Kingdom based
subsidiary, we manufacture and market branded generic
pharmaceuticals. 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 two
properties. Additionally, the Company’s real estate investment unit
holds limited liability company interests 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 quarter ended September 30, 2020, the Company had revenues
of $477,339, a consolidated net loss of $402,439 and cash of
$172,520 used in operating activities. For the year ended June 30,
2020, the Company had $1,134,192 in revenues, a consolidated net
loss of $1,813,702 and cash of $1,264,675 used in operating
activities. As of September 30, 2020, the Company had cash of
$28,462, a working capital deficit of $1,338,110 and an accumulated
deficit of $8,133,762. 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.
| 2. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES |
Basis
of Presentation
The
unaudited interim condensed financial statements of the Company as
of September 30, 2020 and for the quarters ended September 30, 2020
and 2019 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, 2020 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, 2020. In the opinion of our
management, the unaudited interim financial statements included
herein reflect all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of the
Company’s financial position, results of operations, and cash flows
for the periods presented. The results of operations for interim
periods are not necessarily indicative of the results expected for
the full year or any future period.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the
Company and its subsidiaries in which we have a greater than 50%
ownership. All material intercompany accounts have been eliminated
upon consolidation. 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, intangible assets, 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
In
May 2014, the Financial Accounting Standards Board (which we refer
to as the “FASB”) issued ASU 2014-19, Revenue from Contracts with
Customers (ASU 2014-19). ASU 2014-19 established a single revenue
recognition model for all contracts with customers, eliminates
industry specific requirements and expands disclosure requirements.
The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. To achieve this core principle, an entity should
apply the following five steps: (1) identify contracts with
customers, (2) identify the performance obligations in the
contracts, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligation in the contract,
and (5) recognize revenue as the entity satisfies performance
obligations. Effective July 1, 2018, we adopted ASU 2014-19 using
the modified retrospective method. The adoption of ASU 2014-19 did
not have an impact on our consolidated financial statements but
required enhanced footnote disclosures. See Note 3, Revenue
Recognition, for additional information.
We derive revenue from several types of activities – medical device
sales, branded generic pharmaceutical sales, and commercial real
estate leasing. Our medical device sales include the marketing and
distribution of certain professional and consumer grade digital
non-contact thermometers, our needle destruction unit, personal
protection equipment, and advanced bleeding control. Through our
United Kingdom based subsidiary, we manufacture, and market,
branded generic pharmaceuticals. 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 revenues are reduced for such
discounts at the time of the sale. Shipping and handling costs are
included in revenue and costs of goods sold.
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 September 30, 2020 or June 30,
2020.
Accounts
Receivable
Accounts receivables are amounts due from customers of our medical
device, pharmaceutical, and financial services divisions. We do not
require collateral from our customers. The amount is reported at
the billed amount, net of any expected allowance for bad debts.
There was no allowance for doubtful accounts as of September 30,
2020 or June 30, 2020.
Inventory
Inventory consist of needle destruction devices and its components,
purchased thermometers, UV sanitation lights, face masks, an
advanced bleeding control, and certain branded generic
pharmaceuticals held for resale. All inventories are stated at the
lower of cost or net realizable value utilizing the first-in,
first-out method. A portion of our inventory is located in the
United Kingdom, which due to the COVID-19 pandemic has been in a
lockdown environment for most of the period since March 31, 2020.
As a result, sales efforts related to this inventory has
temporarily ceased. The Company still expects to be able to sell
this inventory but may incur additional costs in order to do so.
Accordingly, an inventory reserve of approximately $60,000 has been
recorded as of September 30, 2020 to reduce the inventory to net
realizable value.
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.
Tooling and equipment are depreciated over a useful life of ten
years.
Our
Louisiana real estate holdings include our former corporate
headquarters on Chemin Metairie Road in Youngsville, Louisiana and
a property on Jefferson Street in Lafayette, Louisiana. As of
September 30, 2020, we are leasing both properties to third
parties. The Company is also continuing to use a portion of the
Chemin Metairie Road property for equipment storage for our real
estate management unit.
Effective
August 1, 2017, the lease for the Jefferson Street property was
through December 31, 2022 at a rent of $3,250 per month. Beginning
September 1, 2020, the Chemin Metairie Road property is leased
through February 28, 2021 at a rental rate of $2,000 per
month.
Income
Taxes
Potential
benefits of income tax losses are not recognized in the accounts
until realization is more likely than not. The Company follows
Accounting Standard Codification (which we refer to as “ASC”) 740,
Income Taxes, which requires the Company 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
consolidated 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. There were
139,558,450 outstanding warrants as of September 30, 2020 of which
113,508,450 have an exercise price of $0.005 per share and
26,050,000 have an exercise price of $0.01 per
share.
At
September 30, 2020, including accrued but unpaid interest, there
was one remaining 2016 Fixed Rate Convertible Note outstanding
which totals $62,544 and is convertible into 4,169,620 shares of
common stock upon conversion.
During
the three month period ended September 30, 2020, we issued in
private offerings exempt from registration debt securities in the
form of new 2019 Variable Rate Convertible Notes (See Note 7) in
the aggregate principal amount of $106,000. The proceeds were used
to pay certain amounts due under certain litigation (See Note 8)
and for working capital. The 2019 Variable Rate Convertible Notes
are convertible into shares of common stock at a variable
conversion rate.
During the three month period ended September 30, 2020, we issued
in private offerings exempt from registration debt securities in
the form of 2019 Fixed Rate Convertible Notes (See Note 7) in the
aggregate principal amount of $200,000. The proceeds were used to
pay certain amounts due under certain litigation (See Note 8), for
working capital and to pay off certain variable rate convertible
notes outstanding in the amount of approximately $21,000, plus
accrued interest and prepayment penalties. The 2019 Fixed Rate
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 and include 25% warrant coverage at $0.01
per share.
At
September 30, 2020, including accrued but unpaid dividends, there
were potentially 86,151,847 shares of common stock issuable upon
the conversion of our outstanding Series A Preferred Stock and,
including accrued but unpaid dividends, there were potentially
518,413 shares of common stock issuable upon the conversion of our
outstanding Series B Preferred Stock (See Note 9).
The shares of common stock that could be issued upon exercise of
the warrants discussed above and the shares issuable from the
conversion of the promissory notes, the Series A Preferred Stock,
and the Series B Preferred Stock discussed above have been excluded
from earnings per share calculations because these shares are
anti-dilutive.
Comprehensive
Income (Loss)
ASC 220, Comprehensive Income, establishes standards for the
reporting and display of comprehensive loss and its components in
the financial statements. All of our accumulated other
comprehensive loss as of September 30, 2020 and June 30, 2020
relate to foreign currency translation.
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, and stated interest
rates.
Leases
In
February 2016, the FASB issued ASU 2016-02, Leases (ASU
2016-02), which amended guidance for lease arrangements in order to
increase transparency and comparability by providing additional
information to users of financial statements regarding an entity’s
leasing activities. The revised guidance requires reporting
entities to recognize lease assets and lease liabilities on the
balance sheet for substantially all long-term lease arrangements.
The Company has elected to use the short-term lease exception
allowed in ASU 2016-02. We did enter into a long-term lease in the
quarter ended March 31, 2020 for new office space and have recorded
a right-of-use asset and the related lease obligation as of
September 30, 2020 (See Note 6).
Reclassification
Certain
amounts in prior periods have been reclassified to conform to the
current period presentation.
| 3. |
REVENUE
FROM CONTRACTS WITH CUSTOMERS |
Revenue Recognition
Sales of medical devices and pharmaceuticals are recognized
generally at the point in time when delivery occurs and title
transfers to the buyer. Sales of medical devices and
pharmaceuticals are usually collected within 90 days of the date of
sale. In certain cases, the customers make advance payments on
orders of medical devices. Such advance payments are recorded as
deferred revenue in the accompanying consolidated balance sheets.
As of September 30, 2020 and September 30, 2019, there was no
deferred revenue recorded.
We
have distributorship and sales representative agreements in place
with third parties who do not take ownership of products. Any costs
incurred related to these agreements are considered to be sales and
marketing expenses. In the year ended June 30, 2020, we entered
into a one-year distribution agreement with a distributor, which
requires the distributor to order and purchase a minimum number of
medical devices in each quarter of the agreement. The Company has
invoiced and recorded net revenue of approximately $50,000 and accrued the related
cost of goods sold in the year ended June 30, 2020 for the required
minimum purchase. The minimum purchase inventory not yet shipped is
segregated and held by the Company.
We
also earn rental income from operating leases which is recognized
over the rental period as the tenant occupies the space and pays
the rental amount. Rentals are paid at the beginning of the month
covered by the lease.
Disaggregation of Revenue
For
the three month periods ended September 30, 2020 and 2019, a
summary of our revenue on a disaggregated basis is as
follows:
| |
|
Three
Months |
|
| |
|
September
30, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Sales
of medical devices |
|
$ |
430,276 |
|
|
$ |
40,808 |
|
| Sales
of pharmaceuticals |
|
|
— |
|
|
|
— |
|
| Rental
revenue from operating lease payments |
|
|
17,063 |
|
|
|
9,750 |
|
| |
|
$ |
447,339 |
|
|
$ |
50,558 |
|
Transaction Prices
In some cases, we may offer introductory discounts to customers. In
such cases, we reduce the recorded revenue for such discounts. For
the three month periods ended September 30, 2020 and 2019, our
revenues were reduced by $16,894 and $14,540, respectively, for
such discounts. Shipping and handling costs included in revenue was
approximately $6,100 for the three month period ended September 30,
2020.
The
investment in Tower Hotel Fund 2013, LLC (“Hotel Fund”) is recorded
at cost. The Hotel Fund owns a resort property in Hawaii. Due to
the COVID-19 pandemic, the tourism industry in Hawaii was adversely
affected and the resort was temporarily closed from March 2020 to
November 2020. The return to previous operating performance of this
property and the timing, if it should occur, cannot be estimated at
this time. Based on the expected reduction in cash flows and
uncertainties related to the Hawaii tourism industry, the Company
has recorded as of June 30, 2020, an impairment of $130,000 or
approximately 50% of our remaining carrying value in this
investment. The ultimate amount, if any, we recover from this
investment cannot be estimated at this time and is expected to
differ from our recorded investment.
We
are continuing to pursue the sale of our remaining investment in
the Hotel Fund.
As of September 30, 2020, we have approximately $367,546 ($262,406
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 entered into an agreement to acquire
the exclusive manufacturing and distribution rights to certain
needle incineration intellectual properties 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
scheduled quarterly payments of $21,250. Any remaining payments
become immediately payable upon the receipt of final approval by
the FDA of devices related to the technology. Additionally, the
Company agreed to 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. The quarterly
payments and the consulting fee were suspended as the Company
believes the seller breached the terms of the purchase agreement
by, among other things: failing to provide RedHawk with exclusive
rights to the intellectual properties and technology, all related
inventions, patents, registrations, licenses, applications and
contracts, trademarks, copyrights, designs, drawings, patterns,
manuals and instructions, mask works, product certifications,
computer programs and data, research and engineering work, critical
tooling, design drawings, products, inventory, raw materials,
molds, molding tools and dies. The prototypes provided were
defective, unsafe and failed to work as represented. Further, the
Seller misrepresented that it had exclusive rights to the
intellectual property being purchased. We initiated and completed
the reverse engineering of this needle incineration
technology.
In
the year ended June 30, 2020, we issued 20,000,000 shares of Common
Stock under the terms of a 2015 consulting agreement as a result of
reaching certain milestones related to the development of our
needle destruction devices. Under the terms of this consulting
agreement, an additional 40,000,000 shares of Common Stock may be
issued in the future if other milestones are met.
| 5. |
INSURANCE
NOTE PAYABLE |
We
finance a portion of our insurance premiums. At September 30, 2020,
there was a $4,929 outstanding balance due on our premium finance
agreements. The agreements have effective interest rates of 6.2% to
10.9%. The policies related to these premiums expire between July
2021 and October 2021.
| 6. |
RELATED
PARTY TRANSACTIONS |
Effective December 1, 2016,
the Company entered into a $250,000 Commercial Note Line of Credit
(which we refer to as the “Line of Credit”) with a stockholder and
officer of the Company to evidence prior indebtedness and provide
for future borrowings. The advances are used to fund our
operations. The Line of Credit accrues interest at 5% per annum and
matures on March 31, 2021. At maturity, or in connection with a
pre-payment, subject to the conditions set forth in the Line of
Credit, the stockholder has the right to convert the amount
outstanding (or the amount of the prepayment) into the Company’s
Series A Preferred Stock at the par value of $1,000 per share. At
September 30, 2020, the outstanding principal balance totaled
$4,500.
During
the fiscal year ended June 30, 2019, certain members of the board
of directors and stockholders of the Company made $242,000 in
interest free advances to the Company. The advances are convertible
into shares of the Company’s common stock at rates ranging from
$0.0024 to $0.0050 per share or 75,916,667 total shares of common
stock. During the quarter ended December 31, 2019, the Company
received notice from the holders of $142,000 of these advances of
their intent to exercise their right to convert their advances into
55,916,667 shares of common stock. The conversion is expected to be
completed subsequent to the three month period ended September 30,
2020.
Beginning
in the quarter ended March 31, 2017, certain members of management
agreed to forgo 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 September 30, 2020 and
September 30, 2019, $50,000 in such fees remain unpaid and are
recorded in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets.
We
entered into an office space lease in January 2020 with a company
owned by a member of our Board of Directors. The lease is for a
three-year term beginning April 1, 2020. The base annual rent is
$25,830. In addition to the base rent, the Company will also pay a
proportionate share of common area operating expenses. The Company
initially recorded operating right-of-use (ROU) assets and
liabilities in the amount of $62,363 upon entering into this lease.
The ROU asset represents our right to use the asset for the lease
term and the ROU liability represents our obligation to make lease
payments arising from the lease. Operating lease ROU assets and
liabilities are recognized based on the present value of lease
payments utilizing an interest rate based on a collateralized loan
with the same term as the related lease. During the three month
period ended September 30, 2020, the ROU asset and liability has
been reduced by $4,979 for rental payments, which are included in
general and administrative expenses in the accompanying combined
statements of operations.
| 7. |
LONG-TERM
DEBT, DEBENTURES AND LINES OF CREDIT |
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 through the assumption by the Company of $265,000 of
long-term bank indebtedness (which we refer to below as “Note”)
plus the issuance of 215 shares of the Company’s 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 remaining principal
amount of $221,963 as of September 30, 2020. 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.
In
March 2016, we issued $545,000 in principal amount of convertible
promissory notes (which we refer to as the “2016 Fixed Rate
Convertible Notes”). The 2016 Fixed Rate Convertible Notes are
secured by certain Company real estate holdings.
The
2016 Fixed Rate Convertible Notes 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
2016 Fixed Rate Convertible Notes. The Company may only issue the
notice of its intent to redeem the 2016 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. Holders of 2016 Fixed Rate Convertible Notes
have the right to convert all or any portion of the 2016 Fixed
Rate Convertible Notes at the conversion price at any time prior to
redemption.
As further disclosed in Note 9, Exchange Agreement, at September
30, 2020, and June 30, 2020 there was one remaining 2016 Fixed Rate
Convertible Note outstanding with principal and accrued interest of
approximately $63,000 and $62,000, respectively. This remaining
2016 Fixed Rate Convertible Note (plus accrued interest) is
convertible into our common stock at a conversion rate of $0.015
per share or 4,169,620 total shares. During the three month period
ended September 30, 2020 and 2019, we paid-in-kind approximately
$770 and $735, respectively, of interest on these convertible
notes.
During
the three month period ended September 30, 2020 and the year ended
June 30, 2020, we issued $200,000 and $842,000, respectively, in
principal amount of new convertible promissory notes (which we
refer to as the “2019 Fixed Rate Convertible Notes”). The 2019
Fixed Rate Convertible Notes are secured by certain Company real
estate holdings. As of September 30, 2020, $1,042,000 of 2019 Fixed
Rate Convertible Notes were outstanding.
The
2019 Fixed Rate 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 and include 25% warrant
coverage at $0.01 per share. Interest accrues at a rate of 7% 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 2019 Fixed Rate Convertible
Notes. The Company may only issue the notice of its intent to
redeem the 2019 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 2019 Fixed Rate Convertible Notes has the right to convert all
or any portion of the 2019 Fixed Rate Convertible Notes at the
conversion price at any time prior to redemption.
During
the three month period ended September 30, 2020 and the year ended
June 30, 2020, we issued $184,412 and $350,000, respectively, in
principal amount of new convertible notes (which we refer to as the
“2020 Fixed Rate Convertible Notes”). As of September 30, 2020,
$546,387 (approximately $168,812 net of unamortized deferred loan
costs and unamortized beneficial conversion) of 2020 Fixed Rate
Convertible Notes were outstanding.
The
2020 Fixed Rate Convertible Notes accrue interest at 10% per annum,
are convertible into shares of our common stock at a price of
$0.005 per share, mature twelve months after issuance and are
unsecured. The proceeds from the 2020 Fixed Rate Convertible Notes
were used to repay approximately $21,000 of 2019 Variable Rate
Convertible Notes in the principal amount including accrued
interest and prepayment penalties. When issued, the 2020 Fixed Rate
Convertible Notes had an initial conversion rate below the trading
price of the Company’s common stock creating a beneficial
conversion feature (“BCF”), which exceeded the total cash proceeds
received from its issuance. Accordingly, the BCF was recorded as a
debt discount and additional paid-in capital of $85,000. The debt
discount is being amortized over the one-year term of the
note.
During
the three month period ended September 30, 2020 and the year ended
June 30, 2020, we issued $106,000 and $1,078,862 of convertible
notes to third parties with variable conversion rates (“2019
Variable Rate Convertible Notes”). The 2019 Variable Rate
Convertible Notes mature at various dates between September 2020
and June 2021. We received approximately, net of financing costs
incurred, $100,000 and $960,000, respectively, in cash from the
issuance of these notes. These 2019 Variable Rate Convertible Notes
have interest accruing at rates ranging between 10% - 12%. These
notes have a variable conversion rate based on the price of the
Company’s common stock.
During
the three month period ended September 30, 2020, $426,500, plus
accrued interest, of the 2019 Variable Rate Convertible Notes were
converted into 130,650,810 shares of common
stock. Additionally, $20,737, including accrued interest and
prepayment penalties, of the 2019 Variable Rate Convertible Notes
were repaid.
Upon
the repayment of these notes, the Company may, in certain cases,
pay a prepayment amount in excess of the outstanding balance of
principal and accrued interest. Such prepayment amounts totaled
$20,737 for the three month period ended September 30, 2020 and
have been recorded as a loss on extinguishment of debt in the
accompanying consolidated statements of operations.
Certain
of the 2019 Variable Rate Convertible Notes have maturity dates
prior to June 30, 2021 and could be classified as a current
liability. However, it is the Company’s expectation that such notes
will be converted into shares, re-financed to longer terms, or paid
off with the proceeds of long-term financing. Therefore, we have
classified these notes as noncurrent. If we do not re-finance these
convertible notes to longer terms, however, the holders of the
convertible notes have the option to convert these notes into
equity or hold the convertible notes to maturity.
On
March 12, 2019, we obtained a $180,000 real estate loan from a
financial institution. The note matured on April 1, 2020 and was extended to October 1, 2020.
The Company is working on an additional extension of this loan.
This real estate note is secured by certain real estate
property and the personal guarantee of an officer and director of
the Company. Interest only is payable monthly and accrues at an
interest rate of 12%.
Beginning in the quarter ended June 30, 2019, we entered into a
series of credit financing arrangements from financing institutions
by pledging various Company assets and the personal guarantee of an
officer and director of the Company. The proceeds from these credit
agreements were used to pay the amounts due under the Schreiber
settlement agreement more fully described in Note 8. As of
September 30, 2020 and June 30, 2020, we had $207,400 and $129,389,
respectively, outstanding on these loans.
| 8. |
COMMITMENTS
AND CONTINGENCIES |
Schreiber
Litigation
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 (the “Louisiana Court”) under Civil
Action No. 2:2017cv819-B(3) (the “Litigation”).
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”), an
officer and director of RedHawk and sole owner of Beechwood, in the
Louisiana Lawsuit.
On March 22, 2019, the parties to the Litigation 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
would transfer all Company stock they then owned (52,377,108 common
shares) to the Company and (ii) the Company would (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 was due
and payable on or before September 6, 2020 (“Note 1”) and the other
was due and payable on or before September 5, 2021 (“Note 2”). As a
result of this Settlement Agreement, we recorded a loss of $471,880
in the year ended June 30, 2019.
Each
Promissory Note was non-interest bearing, however each (i) included
a $15,000 late penalty if the principal amount was not repaid by
the due date and (ii) would bear interest at a rate of 18% per
annum, from the issue date, if the principal was not repaid by the
30th date after the due date.
Pursuant to Schreiber Trust a Security Agreement between the
parties, Mr. Klug and Beechwood secured the Company’s obligations
to the under the Settlement Agreement by granting first-priority
security interests in (i) 1,000 shares of Mr. Klug’s Series B
Preferred Stock; and 1,473 shares of Mr. Klug’s Series A Preferred
Stock, and (ii) Beechwood’s interest in the Tower Hotels Fund 2014,
LLC (collectively “the Escrow Account”). During the three month
period ended September 30, 2020, Mr. Klug and Beechwood converted
the 1,000 shares of Series B Preferred Stock and the 1,473 shares
of Series A Preferred Stock into 124,849,365 and 122,730,903,
respectively, of the Company’s Common Stock (collectively “the
Escrow Shares”) and replaced the 1,000 shares of Series B Preferred
Stock and 1,473 shares of Series A Preferred Stock held in the
Escrow Account with the Escrow Shares as security pursuant to the
Security Agreement.
On October 11, 2019, Mr. Schreiber and the Schreiber Trust filed a
Motion to Enforce Settlement Agreement with the Court alleging the
Company failed to comply with its obligations under the Settlement
Agreement by selling stock for cash subsequent to the parties
entering into the Settlement Agreement.
On July 16, 2020, the Louisiana Court granted the Defendant’s
Motion ordering the Company to pay to the Defendants $519,495.78
(“Judgment”) representing (i) the principal amount due on Note 1
($200,000.00), which the Company has since paid; (ii) the principal
amount due on Note 2 ($200,000.00), which the Company has since
paid; (iii) 18% simple interest on certain outstanding debt charged
back to the date of the Settlement Agreement; (iv) $40,000.00 of
attorneys’ fees (10% of the amounts due, which to date remains
greater than the amount of actual reasonable fees); and (v)
interest from the date of the Louisiana Court’s judgment and costs.
The Company appealed the Louisiana Court’s ruling to the Court of
Appeal.
As previously disclosed, payment of the principal amount of Note 1
was tendered by the Company to the Defendants on August 13, 2020.
Notwithstanding the appeal to the Court of Appeal, the Company
tendered the early repayment of the principal amount of Note 2 to
the Defendants on August 24, 2020. To date, $119,496 of the
Judgment remains outstanding.
On November 12, 2020, the Court of Appeal issued a decision
vacating the Judgment and remanded the case back to the Louisiana
Court.
The 14 day period to seek rehearing from the Court of Appeal passed
on November 26, 2020 with no petition filed by Schreiber;
thereupon, the decision and Judgment became final. By applicable
rule, the mandate of the Court of Appeal issues eight calendar days
thereafter, on December 4, 2020.
As previously disclosed, on September 4, 2020, the Company filed a
Consent Motion to Approve Supersedeas Bond and Stay of Execution of
Judgment Pending Appeal (“Motion to Approve”), and on September 8,
2020, the Louisiana Court granted the Company’s Motion to Approve
and the posting of a supersedeas bond (“Bond”) by the Company in
the amount of $143,491 representing (i) the remaining, unsatisfied
amount of the Judgment; plus (ii) post-Judgment interest of $80.27;
plus, (iii) 20% of the combined amount ($23,915).
As
the Judgment is now vacated, the Bond will be released and the full
amount of the funds returned to the Company.
The
Company is currently evaluating its rights on remand. These include
its contractual right under the Settlement Agreement to recover its
reasonable attorneys’ fees, expenses, and costs incurred in
connection with the litigation of Schreiber’s Motion, should it
prevail at the district court. Regardless, as previously disclosed,
the Company believes the Motion is without merit and intends to
vigorously defend against it on remand.
Consultant
Agreement
On July 19, 2019 (the “Effective Date”), RedHawk and its
wholly-owned subsidiary, RedHawk Medical Products & Services,
along with other affiliated entities, entered into a Consultant
Agreement (“Agreement”) with Drew Pinsky, Inc. f/s/o Dr. Drew
Pinsky (“Consultant”), for Consultant to be the exclusive
spokesperson for the Company’s Sharps Needle and Destruction Device
(“SANDD”) mini™, SANDD Pro™ and any related products
and/or accessories (“Products”) for an initial period of two (2)
years (“Initial Period”), under the terms and conditions described
in the Agreement. At the end of the Initial Period, there shall be
an automatic, immediately consecutive two (2) year extension period
unless DPI, within 60 days of the expiration of the Initial Period,
provides written notice of its intention not to extend the
Agreement.
Under the Agreement, the Company will pay Consultant a royalty
equal to 3% of the “Net Sales”, as defined in the Agreement, of the
Products but in no event will the royalty be less than $3.50 per
SANDD mini™ unit sold and $13.50 per SANDD Pro™ unit
sold.
Pursuant to the Agreement, the Company agreed to issue to the
Consultant 68,700,000 shares of the Company’s common stock, which
is equal to approximately 5% of the Company’s outstanding common
stock on a fully diluted basis as of the Effective Date. Further,
the Company has agreed to issue to the Consultant, the later of one
year after the Effective Date or upon Consultant’s request, an
additional 68,700,000 shares of the Company’s common stock, unless
Consultant has provided the Company with written notice of its
intention not to extend the Initial Period. As of the date of this
Quarterly Report on Form 10-Q, the Company has not yet issued any
of the shares pursuant to the Agreement.
On
August 20, 2018, by a vote of the majority of our stockholders, we
increased the number of our authorized common 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.
On August 4, 2020, Mr. Klug and Beechwood converted the 1,000
shares of Series B Preferred Stock and the 1,473 shares of Series A
Preferred Stock into 124,849,365 and 122,730,903, respectively, of
the Company’s Common Stock. On September 28, 2020, the Escrow
Account in the Schreiber Litigation was dissolved. As a result, on
October 6, 2020, the Company’s Board of Directors, Mr. Klug and
Beechwood, agreed to exchange 124,849,365 and 122,730,903 of the
Company’s Common Stock into 1,000 shares of Series B Preferred
Stock and the 1,473 shares of Series A Preferred Stock,
respectively. On November 4, 2020, the Company agreed to purchase
from Beechwood 122,730,903 shares of the Company’s common stock in
exchange for 1,473 shares of Series A Preferred Stock, stated value
of $1,133.81 per share.
During
the three month period ended September 30, 2020 and 2019, we
paid-in-kind $21,139 and $56,256, respectively, of related
preferred stock dividends.
2019
Exchange Agreement
On
June 20, 2019, RedHawk entered into a Stock Exchange Agreement
(“Exchange Agreement”) with Beechwood. G. Darcy Klug, the Company’s
Chairman of the Board and Chief Financial Officer, is the sole
member and manager of Beechwood. Under the Exchange Agreement, the
Company purchased from Beechwood 113,700,000 shares of the
Company’s common stock, in exchange for 1,277 shares of the
Company’s 5% Series A Preferred Stock and a Stock Purchase
Warrant (“Warrant”) to acquire 113,508,450 shares of common stock
at an exercise price of $0.005 per share (collectively, the
“Transactions”). The Warrant expires June 20, 2029.
Concurrent
with the execution of the Exchange Agreement, holders of $580,108
aggregate principal amount of the Company’s 5% convertible
promissory notes (“Notes”), including accrued interest, were
offered and converted their Notes into 116,021,700 shares of
Company common stock at a conversion price of $0.005 per share. The
extinguishment of the notes and the related accrued interest for
the shares of common stock resulted in a gain on extinguishment of
approximately $419,000 based on the closing price of the common
stock as of the exchange date.
Warrants
In
conjunction with the Exchange Agreement, Beechwood was issued the
Warrant, as described above.
In
conjunction with the 2019 Fixed Rate Convertible Notes, the holders
of the 2019 Fixed Rate Convertible Notes were issued 26,050,000
warrants to purchase the Company’s common stock at a price of $0.01
per share. The warrants expire ten years from the date of
issuance.
As of
June 30, 2020, the Company has approximately $6.8 million of U.S.
net operating losses (NOLs) carried forward to offset taxable
income in future years. Approximately $3.7 million of this NOL will
expire commencing in fiscal 2026 through 2038. The NOLs of
approximately $3.1 million from years ended subsequent to June 30,
2018 have an indefinite carryforward period. 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 $1.4 million as of June 30, 2020. 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 100% valuation allowance
against its net deferred tax assets. Thus, there is no net tax
asset recorded as of June 30, 2020 or June 30, 2019. Similarly,
there is no income tax benefit recorded on the net loss of the
Company for the years ended June 30, 2020 and 2019.
In
the year ended June 30, 2020, we recognized several asset
impairments totaling $214,675. This impairment was comprised of the
following:
| |
● |
The
resort property owned by the real estate limited partnership, in
which we have an ownership interest in, is located in Hawaii. As a
result of the COVID-19 pandemic, the tourism industry in Hawaii has
been adversely affect and the resort was temporarily closed for an
extended period.
|
| |
|
|
| |
● |
We
have certain inventory located in the United Kingdom. As a result
of the COVID-19 pandemic, the United Kingdom has been in partial or
complete lockdown for an extended period and we have been unable to
market the inventory. The inventory is still salable but additional
costs and/or price reductions may be necessary.
|
| |
|
|
| |
● |
A
third party from which we had agreed to acquire the exclusive
manufacturing and distribution rights to certain needle
incineration intellectual properties defaulted on that
agreement. |
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, 2020 and 2019 and
for the three months then ended.
| |
|
|
|
|
MEDICAL |
|
|
|
|
|
|
|
|
|
|
| Three
months ended |
|
LAND
& |
|
|
DEVICE
& |
|
|
OTHER |
|
|
|
|
|
|
|
|
September
30, 2020 |
|
HOSPITALITY |
|
|
PHARMA |
|
|
SERVICES |
|
|
CORPORATE |
|
|
TOTAL |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
revenues |
|
$ |
17,063 |
|
|
$ |
430,276 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
447,339 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
income (loss) |
|
$ |
122 |
|
|
$ |
44,732 |
|
|
$ |
(57 |
) |
|
$ |
(151,943 |
) |
|
$ |
(107,146 |
) |
| Interest
expense |
|
$ |
11,317 |
|
|
$ |
46,594 |
|
|
$ |
— |
|
|
$ |
133,924 |
|
|
$ |
191,835 |
|
| Depreciation
and amortization |
|
$ |
7,833 |
|
|
$ |
7,700 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,533 |
|
| Identifiable
assets |
|
$ |
762,329 |
|
|
$ |
918,380 |
|
|
$ |
77,887 |
|
|
$ |
240,120 |
|
|
$ |
1,998,716 |
|
| |
|
|
|
|
MEDICAL |
|
|
|
|
|
|
|
|
|
|
| Three
months ended |
|
LAND
& |
|
|
DEVICE
& |
|
|
OTHER |
|
|
|
|
|
|
|
|
September
30, 2019 |
|
HOSPITALITY |
|
|
PHARMA |
|
|
SERVICES |
|
|
CORPORATE |
|
|
TOTAL |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
revenues |
|
$ |
9,750 |
|
|
$ |
40,808 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
50,558 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
loss |
|
$ |
(5,475 |
) |
|
$ |
(67,297) |
|
|
$ |
— |
|
|
$ |
(121,912 |
) |
|
$ |
(194,684 |
) |
| Interest
expense |
|
$ |
13,678 |
|
|
$ |
105 |
|
|
$ |
— |
|
|
$ |
76,876 |
|
|
$ |
90,659 |
|
| Depreciation
and amortization |
|
$ |
7,833 |
|
|
$ |
13,125 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
20,958 |
|
| Identifiable
assets |
|
$ |
927,601 |
|
|
$ |
1,097,558 |
|
|
$ |
78,324 |
|
|
$ |
553,192 |
|
|
$ |
2,656,675 |
|
The
Company evaluated events occurring after September 30, 2020, and
through the date the financial statements were issued, December 18,
2020 and concluded the events or transactions below would require
recognition or disclosure in these financial statements:
| |
● |
As
described in Note 8 above, in the on-going Litigation involving the
Company, Beechwood, Mr. Schreiber and the Schreiber Trust, on
November 12, 2020, the United States Fifth Circuit Court of Appeal
ruled that the United States District Court for the Eastern
District of Louisiana (the “Louisiana Court”) erred by granting the
defendant’s motion to enforce the Settlement Agreement based solely
on arguments and evidence presented for the first time in the
defendant’s reply brief without allowing RedHawk to file a
surreply. Accordingly, the Court of Appeals vacated a prior order
of the Louisiana Court and remanded the matter back to the
Louisiana Court.
|
| |
|
|
| |
● |
On
August 4, 2020, Mr. Klug and Beechwood converted the 1,000 shares
of Series B Preferred Stock and the 1,473 shares of Series A
Preferred Stock into 124,849,365 and 122,730,903, respectively, of
the Company’s Common Stock in connection with the Litigation and
the shares were placed in the related Escrow Account.
On
September 28, 2020, the Escrow Account in the Litigation was
dissolved. Thus, on October 6, 2020, the Company agreed to
re-purchase from Beechwood 124,849,365 shares of the Company’s
common stock in exchange for 1,000 shares of the Company’s 5%
Series B Preferred Stock; and on November 4, 2020, the Company
agreed to re-purchase from Beechwood 122,730,903 shares of the
Company’s common stock in exchange for 1,473 shares of the
Company’s 5% Series A Preferred Stock. The November 4, 2020 agreed
upon exchange has not yet been completed.
|
|
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:
| |
● |
The
ultimate extent of the impact of COVID-19 on our business and
future financial condition, results of operations and cash flows
will depend on future developments, which are highly uncertain and
cannot be predicted at this time. |
| |
|
|
| |
● |
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 industries, 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. |
| |
|
|
| |
● |
The
outcome of pending or future litigation. |
| |
|
|
| |
● |
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.
Overview
RedHawk
Holdings Corp. was incorporated in the State of Nevada on November
30, 2005 under the name “Oliver Creek Resources Inc.” Effective
August 12, 2008, we changed our name from “Oliver Creek Resources
Inc.” to “Independence Energy Corp.” Effective October 13, 2015, by
vote of a majority of our stockholders, our name was changed from
“Independence Energy Corp.” to “RedHawk Holdings Corp.”
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 our medical products business unit, we sell the SANDD™
Insulin Needle Destruction Unit (formerly known as the
Disintegrator™), WoundClot Surgical - Advanced Bleeding Control,
the Carotid Artery Digital Non-Contact Thermometer. Through our
United Kingdom based subsidiary, we manufacture and market branded
generic pharmaceuticals. 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 interests in a commercial restoration project in
Hawaii.
Working Capital
| |
|
September 30,
2020 |
|
|
June 30,
2020 |
|
| Current Assets |
|
$ |
658,364 |
|
|
$ |
617,692 |
|
| Current Liabilities |
|
$ |
1,996,474 |
|
|
$ |
2,152,153 |
|
| Working Capital (Deficit) |
|
$ |
(1,338,110 |
) |
|
$ |
(1,534,461) |
|
RESULTS
OF OPERATIONS
Operating Revenues
We commenced operations in our commercial real estate leasing
business unit in 2015. 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 quarter 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. During the fiscal
year ended June 30, 2019, we changed our revenue focus from branded
generic pharmaceutical sales in the United Kingdom to more
profitable medical device sales in the United States.
In
December 2019, a novel strain of coronavirus surfaced in Wuhan,
China, and spread throughout the world, including the United
States. On March 11, 2020 the World Health Organization
characterized the spread of COVID-19 as a “pandemic”. The
significant reach of COVID-19 has resulted in a widespread public
health issue that has and will likely continue to affect the
economies worldwide, and could adversely affect our business,
results of operations and financial condition, including a decrease
in demand for our medical devices. Specifically, demand for our
newly released SANDD Pro™ may be delayed, postponed or
cancelled until hospitals, clinics and physicians resume normal
operations. In addition, the operations of our real estate
investment in Hawaii has also been adversely affected. As a result
of the pandemic, we expanded our medical sales efforts to include
personal protective equipment (“PPE”) in the quarter ending June
30, 2020. The ultimate extent of the impact of COVID-19 on our
business and future financial condition, results of operations and
cash flows will depend on future developments, which are highly
uncertain and cannot be predicted at this time.
During the quarter ended September 30, 2020, the Company’s revenues
were principally from sale of the Company’s medical devices. During
the 2019 fiscal year, the Company announced that it would shift its
focus away from the lower profit margin branded generic
pharmaceuticals to its more profitable needle incineration medical
devices.
For the quarter ended September 30, 2020, revenues from sales of
our medical devices, branded generic pharmaceutical products and
rentals of our leased properties totaled $464,233 ($447,339 net of
introductory discounts) as compared to revenues of $65,098 ($50,558
net of introductory discounts) for the comparable period ended
September 30, 2019.
Gross
profit margin from the sale of the Company’s medical devices
approximated 40.3% during the quarter ended September 30, 2020 as
compared to 80% from sales in the comparable quarter ended
September 30, 2019. The lower gross profit margins for the quarter
ended September 30, 2020 resulted from sales of lower margin PPE
versus higher margin needle incineration devices. There were $0
sales of PPE in the three month period ended September 30,
2019.
Revenues in the pharmaceutical business unit are expected to return
as tariff prices improve, market acceptance of our products
increases, and we continue to execute our business plan to expand
marketing of our SANDD™ medical devices. Additionally, net
profits are expected to improve as the Company transitions away
from PPE products and sales increase in our more profitable medical
device sales and pharmaceutical sales become more weighted to its
branded generics.
Operating Expenses and Loss from Continuing
Operations
For
the quarter ended September 30, 2020, we reported a consolidated
net loss from operations of $107,145 on net revenues of $447,339 as
compared to a consolidated net loss from operations of $197,898 on
revenues of $50,558 for the comparable quarter ended September 30,
2019.
The consolidated net loss from operations for the quarter ended
September 30, 2020 resulted
primarily from increased general and administrative expense from
the addition of the Company’s new Chief Executive Officer, lower
sales margins on certain of the Company’s PPE products and
continued research and development cost on the re-designed SANDD
Pro™.
The consolidated net loss from operations for the quarter ended
September 30, 2019 includes approximately $32,000 of non-recurring
professional services resulting from contract preparation in
connection with the Company’s consulting agreement with Drew
Pinsky, Inc. f/s/o Dr. Drew Pinsky (“Consultant”) and regulatory
filings in connection with the Company’s obligation to issue equity
to the Consultant under the consulting agreement. Additionally, the
2019 quarter also includes approximately $33,000 of marketing
consulting fees incurred in connection with the consulting
agreement, $6,000 related to the Company’s new investor relations
advisor, $24,000 of audit fees, $24,000 of non-recurring research
and development costs, $8,500 of higher costs for website
development, and $20,000 of additional start-up costs associated
with the launch of sales for the Company’s needle incineration
devices.
Liquidity and Capital Resources
As of
September 30, 2020, we had cash of $28,462 compared with cash of
$75,850 at June 30, 2020.
During
the quarter ended September 30, 2020, we issued in private
offerings exempt from registration $200,000 of new fixed rate
convertible notes and $106,000 of variable rate convertible notes
(proceeds of $100,000, net of financing costs). The proceeds from
these debt financings were used to pay the amount due under the
Schreiber settlement agreement, pay approximately $20,000, plus
accrued interest, of variable rate convertible notes and provide
working capital.
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
| |
|
Three
months ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash
Flows (used in) Operating Activities |
|
$ |
(172,520 |
) |
|
$ |
(233,488 |
) |
| Cash
Flows provided by (used in) Investing Activities |
|
$ |
— |
|
|
$ |
— |
|
| Cash
Flows provided by Financing Activities |
|
$ |
135,116 |
|
|
$ |
524,448 |
|
| Net
Change in Cash During Period |
|
$ |
(47,388 |
) |
|
$ |
287,872 |
|
Cash Flow from Operating Activities
During
the quarter ended September 30, 2020, $172,520 of cash was used by
our operating activities as compared to $233,488 used in our
operating activities for the comparable quarter ended September 30,
2019. 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.
Cash Flows from Financing Activities
During
the quarter ended September 30, 2020, we received net proceeds,
after financing costs incurred, of approximately $100,000 from the
issuance and sale of 2019 Variable Rate Convertible Notes and a
total of $359,000 from the issuance and sale of the 2019 Fixed Rate
Convertible Notes and the 2020 Fixed Rate Convertible Notes. The
proceeds received were used to pay certain variable interest notes
and provide working capital.
During
the quarter ended September 30, 2019, we received net proceeds,
after financing costs incurred, of approximately $226,000 from the
issuance and sale of 2019 Variable Rate Convertible Notes and
$616,000 from the issuance and sale of the 2019 Fixed Rate
Convertible Notes. The proceeds received were used to pay certain
variable interest notes and provide working capital.
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.
Additional funding may not be available to us on a timely basis or
at acceptable terms, if at all. 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.
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
| 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 control over financial reporting as disclosed in
our Annual Report for the Year Ended June 30, 2020, 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 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.
Changes in Internal Control Over Financial
Reporting
Other
than as described above, during the period covered by this
Quarterly Report on Form 10-Q, there were no other 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.
PART II - OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS.
Please see Note 8 to the consolidated financial statements included
in Item 1 of this Quarterly Report on Form 10-Q for a summary of
legal proceedings and developments during the quarter ended
September 30, 2020.
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.
During the quarter ended September 30, 2020, we issued the
following securities in transactions that were exempt from
registration pursuant to Section 4(a)(2) under the Securities Act
of 1933, as amended, and Rule 506(b) thereunder:
| |
● |
We
issued 130,650,810 shares of common stock to holders of certain
2019 Variable Rate Convertible Notes sold to accredited investors
in January 2019 upon the conversion of $426,500 of notes, plus
accrued interest; |
| |
|
|
| |
● |
We
issued $184,412 in principal amount of 2020 Fixed Rate Convertible
Notes to accredited investors. The notes are convertible at $0.005
per share; and
|
| |
|
|
| |
● |
We
issued $106,000 in principal amount of 2019 Variable Rate
Convertible Notes to accredited investors.
|
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.
None.
ITEM 4. MINE SAFETY
DISCLOSURES.
Not
applicable.
ITEM 5. OTHER
INFORMATION.
None.
ITEM 6. EXHIBITS.
The
following exhibits are either filed herewith or incorporated herein
by reference:
| * |
Filed
herewith. |
| ** |
The
Certifications attached as Exhibits 32.1 and 32.2 that accompany
this Quarterly Report on Form 10-Q are not deemed filed with the
Securities and Exchange Commission and are not to be incorporated
by reference into any filing of RedHawk Holdings Corp.,
irrespective of any general incorporation language contained in
such filing. |
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:
December 18, 2020 |
/s/
Philip C. Spizale |
| |
Philip
C. Spizale |
| |
Chief
Executive Officer and Director
(Principal Executive Officer) |
| |
|
| Dated:
December 18, 2020 |
/s/
G. Darcy Klug |
| |
G.
Darcy Klug |
| |
Chief
Financial Officer and Director
(Principal Financial Officer and Principal Accounting
Officer) |
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