Notes to the Consolidated Financial Statements
June 30, 2019
1.
|
NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
|
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 the Company’s stockholders, the Company’s name was changed from
“Independence Energy Corp.” to “RedHawk Holdings Corp.”
Currently, we are a diversified
holding company which, through our subsidiaries, is engaged in sales and distribution of medical devices and personal protective
equipment, sales of branded generic pharmaceutical drugs, commercial real estate investment and leasing, sales of point of entry
full-body security systems, specialized financial services, and personal protection equipment. Through its medical products business
unit, the Company sells the SANDD™ Insulin Needle Destruction Unit (formerly known as the Disintegrator™), certain
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, 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 properties under lease. 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 year ended June
30, 2020, the Company had revenues of $1,134,192, a consolidated net loss of $1,813,702 and cash used in operating activities of
$1,264,675. For the year ended June 30, 2019, the Company had $129,006 in revenue, a consolidated net loss of $1,215,884 and cash
of $943,662 used in operating activities. As of June 30, 2020, the Company had cash of $75,850, a working capital deficit of $1,534,461
and an accumulated deficit of $7,710,152. The continuation of the Company as a going concern is still dependent upon the continued
financial support from its stockholders, the ability to raise equity or debt financing, cash proceeds from the sale of assets and
the attainment of profitable operations from the Company’s businesses in order to discharge its obligations. These factors
raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not
include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The consolidated financial
statements of the Company as of June 30, 2020 and 2019 included herein have been prepared in accordance with accounting principles
generally accepted in the United States of America (which we refer to as “GAAP”) pursuant to the rules and regulations
of the SEC.
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, 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, advanced bleeding control, non-compression
hemostasis, and personal protection equipment. 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 financial service revenue is from brokerage services. 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 June 30, 2020 or June 30, 2019.
Accounts Receivable
Accounts receivables
are amounts due from customers of our pharmaceutical, medical device 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 June 30, 2020 or June 30, 2019.
Inventory
Inventory consist of needle
destruction devices and its components, purchased thermometers, UV sanitation lights, face masks, an advanced bleeding control,
non-compression hemostasis, 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 June 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 June 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 tenant that leases the Jefferson Street property renewed that lease through December 31, 2022 at a rent of $3,250 per month.
Beginning September 1, 2020, the Chemin Metairie 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 134,558,450 outstanding
warrants as of June 30, 2020 of which 113,508,450 have an exercise price of $0.005 per share and 21,050,000 have an exercise price
of $0.01 per share.
At June 30, 2020, including
accrued but unpaid interest, there was one remaining 2016 Fixed Rate Convertible Note outstanding which totals $61,772 and is
convertible into 4,118,143 shares of common stock upon conversion of the remaining 2016 Fixed Rate Convertible Note.
During the year ended June 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 $1,078,862. The proceeds
were used for working capital. The majority of these 2019 Variable Rate Convertible Notes are convertible into shares of common
stock at a variable conversion rate.
During the year ended June 30, 2020, we issued in private offerings exempt from registration debt securities
in the form of new 2019 Fixed Rate Convertible Notes (See Note 7) in the aggregate principal amount of $1,192,000. With the proceeds
we paid off certain variable rate convertible notes outstanding in the amount of approximately $701,500, plus accrued interest.
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 June 30, 2020, including
accrued but unpaid dividends, there were potentially 207,354,980 shares of common stock issuable upon the conversion of our outstanding
Series A Preferred Stock and, including accrued but unpaid dividends, there were potentially 124,331,318 shares of common stock
issuable upon the conversion of our outstanding Series B Preferred Stock.
The shares of common stock
that could be issued upon conversion of the warrants discussed above and the shares issuable from the conversion of the promissory
notes and the Series A Preferred Stock and 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 June 30, 2020 and June 30, 2019 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 was required to adopt ASU 2016-02 as of July 1, 2019. The Company has elected to
use the short-term lease exception allowed in ASU 2016-02. The adoption, therefore, did not have any effect on the Company’s
consolidated financial statements as we did not have any leases with non-cancellable terms in excess of one year as of the adoption
date. 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 June 30, 2020. Also 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 pharmaceuticals and medical devices are recognized generally at the point in time when delivery
occurs and title transfers to the buyer. Sales of pharmaceuticals and medical devices 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 June 30, 2020 and June 30, 2019, there were 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 years ended June 30, 2020 and 2019,
a summary of our revenue on a disaggregated basis is as follows:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Sales of medical devices
|
|
$
|
1,077,890
|
|
|
$
|
12,705
|
|
Sales of pharmaceuticals
|
|
|
—
|
|
|
|
71,792
|
|
Rental revenue from operating lease payments
|
|
|
56,302
|
|
|
|
44,509
|
|
|
|
$
|
1,134,192
|
|
|
$
|
129,006
|
|
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 year ended June 30, 2020 and 2019, our revenues were reduced by $143,675 and $0, respectively,
for such discounts. Shipping and handling costs included in revenue was $1,305 for the year ended June 30, 2020.
The investment in Tower
Hotel Fund 2013, LLC (“Hotel Fund”) is recorded at cost, less any impairment. 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.
During the year ended
June 30, 2019, based on the stability of operations of the underlying real estate property at that time, and recent valuations,
the partnership refinanced the property. We received a distribution of approximately $370,000 from the real estate limited partnership
following this refinancing. This distribution was recorded as a reduction of our investment in the limited partnership, which is
recorded at cost.
We are continuing to pursue the sale of our
remaining investment in the Hotel Fund.
As of June 30, 2020,
we have approximately $373,920 ($275,780 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 seller defaulted under
the terms of the purchase agreement in the following, non-exclusive particulars: by 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 have initiated and completed the reverse engineering
of this needle incineration technology.
As a result of the seller’s
defaults, the Company has written off all intangible assets related to these rights ($428,125) and all remaining unpaid obligations
($403,750). As a result, an impairment of $24,375 was recorded as of June 30, 2020.
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 June 30, 2020, there was an $11,645 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 October 2020 and July 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 June 30, 2020, the outstanding principal balance totaled $0.
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
or 75,916,667 shares of common stock. During the quarter ended December 31, 2019, the Company received notice from the holders
of $142,000 of these related parties 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 year ending June 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 June 30, 2020 and June 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 year ended June 30, 2020, the ROU asset
and liability has been reduced by $4,891 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 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 remaining principal amount of $213,862 as of June 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 “Fixed Rate Convertible Notes”).
The 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 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. Holders of Fixed Rate Convertible Notes have the right to
convert all or any portion of the Fixed Rate Convertible Notes at the conversion price at any time prior to redemption.
During the years ended June 30, 2020 and June 30, 2019, concurrent with the execution of the Exchange
Agreement more fully described in Note 9, holders of $17,480 and $515,247, respectively, aggregate principal amount of the Company’s
5% convertible promissory notes (“5% Notes”), including accrued interest, converted their 5% Notes into 1,165,314 and
103,132,226, respectively, shares of Common Stock. At June 30, 2020, there was one remaining Fixed Rate Convertible Note outstanding
with principal and accrued interest of approximately $62,000. This one remaining Fixed Rate Convertible Note (plus accrued interest)
is convertible into our common stock at a conversion rate of $0.015 per share or 4,118,143 shares. During the year ended June 30,
2020 and 2019, we paid-in-kind approximately $3,000 and $30,000, respectively, of interest on these convertible notes.
In August 2019, we issued
$487,000 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 June 30, 2020, $842,000 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.
In May 2020, we issued
$350,000 in principal amount of new convertible notes (which we refer to as the “2020 Fixed Rate Convertible Notes”).
As of June 30, 2020, $350,000 (approximately $55,000 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 $285,000 of Variable Rate Convertible
Notes more fully described below. When issued in May 2020, 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 $300,000. The debt discount is being amortized over the one-year term of the note.
As of June 30, 2020, we had $0 of previously issued variable rate convertible notes outstanding (“Variable
Rate Convertible Notes”). During the year ended June 30, 2020, we issued $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, $960,000 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 issued to third parties have a variable conversion rate based on the price of the Company’s common
stock. None of the 2019 Variable Rate Convertible Notes
have been converted into shares of common stock.
The
2020 Fixed Rate Convertible Notes issued in May 2020 had an initial conversion rate
below the trading price of the Company’s common stock at the date of issuance 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 $300,000. The debt discount is being amortized over the one-year term of the note.
During the year ended June
30, 2020, we repaid approximately $790,000 of Variable Rate Convertible Notes and 2019 Variable Rate Convertible Notes. Upon the
retirement 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 $137,364 for the year ended June 30, 2020 and have been recorded as a loss
on extinguishment of debt in the accompanying consolidated statements of operations. $56,775 of these payments occurred during
the six months ended December 31, 2019 and was previously recorded as interest expense; such amounts were reclassified to loss
on extinguishment of debt in the quarter ended March 31, 2020. In the quarter ended September 30, 2019, we recognized a gain of
$44,527 on the extinguishment of certain fixed rate convertible notes.
Subsequent to June 30,
2020, $485,737 of the 2019 Variable Rate Convertible Notes were convertible into common stock beginning in the quarter ending
September 30, 2020. Subsequent to June 30, 2020, the principal amount of $426,500, plus accrued interest, of the 2019 Variable
Rate Convertible Notes were converted into 130,650,810 shares of common stock. Additionally, subsequent to June 30, 2020,
the principal amount of $20,737, plus accrued interest and prepayment penalties, of the 2019 Variable Rate Convertible Notes were
repaid.
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.
During the year ended
June 30, 2019, we issued $29,250 of convertible notes to our majority stockholder in exchange for 7,450,000 shares of our common
stock.
In February 2018, we
obtained a $100,000 line of credit from a bank. The line of credit was collateralized by a $100,000 certificate of deposit at the
bank. The interest rate on the line of credit was 7.0% per annum. During the year ended June 30, 2020, proceeds from the certificate
of deposit were used to repay the outstanding balance under the line of credit plus accrued interest.
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. The proceeds from these credit agreements were used to pay the initial amount due under the Schreiber settlement
agreement. As of June 30, 2020 and 2019, we had $129,389 and $253,219, 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 “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”).
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 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 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 (collectively “the Escrow Account”). Subsequent
to June 30, 2020, Mr. Klug and Beechwood converted the 1,000 shares of Series B Preferred Company Stock and the 1,473 shares of
Series A Preferred Company 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 Company Stock and 1,473 shares of Series A
Preferred Company 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 Louisiana Court alleging the Company
has failed to comply with its obligations under the Settlement Agreement by selling stock for cash subsequent to the parties entering
into the Settlement Agreement. The Motion to Enforce sought to accelerate the amounts owed to Mr. Schreiber and the Schreiber Trust
under the Settlement Agreement, as well as attorneys’ fees.
On March 3, 2020 the Louisiana
Court issued a ruling and order denying the Motion to Enforce on its principle claim but granting it on alternative grounds. The
Company promptly filed a Notice of Appeal, on March 6, 2020.
On March 20, 2020 Mr. Schreiber
and the Schreiber Trust filed a Motion for Entry of Money Judgment in the Louisiana Court. On April 22, 2020, the Company filed
an Opposition, arguing the Louisiana Court did not have jurisdiction to enter the requested judgment, and even if it did it should
not do so. The district court is yet to rule on this motion.
On April 29, 2020, the
Company filed its Original Brief as Appellant with the United States Fifth Circuit Court of Appeal (“Court of Appeal”).
It argued that the Louisiana Court’s ruling and order should be reversed and that the appeals court has either mandatory
or discretionary jurisdiction to resolve the appeal, and if the latter should exercise that discretion to do so.
On May 27, 2020, Mr. Schreiber
and the Schreiber Trust filed their Original Brief as Appellees, arguing that the Louisiana Court’s ruling should be sustained,
and that the appeals court does not have jurisdiction over this appeal at this time.
On June 17, 2020, the Company
filed its Reply Brief in support of its appeal.
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); (ii) the principal amount due on Note 2 ($200,000.00); (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 has appealed the Louisiana Court’s ruling to the Court of Appeal
and intends to vigorously defend against the ruling.
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, $119,495.78 of the Judgment remains outstanding (“Remaining Unsatisfied Judgment”).
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”).
On September 8, 2020 the Louisiana Court granted the Company’s Motion to Approve and the posting of a supersedeas bond by
the Company in the whole amount of $143,491.26 representing (i) the Remaining Unsatisfied Judgment; plus (ii) Federal Post-Judgment
Interest of $80.27; plus, (iii) 20% of the combined amount ($23,915.21).
On November 12, 2020, the
Court of Appeals ruled “The district court abused its discretion by granting Schreiber’s motion to enforce the settlement
agreement based solely on arguments and evidence presented for the first time in Schreiber’s reply brief without allowing
RedHawk to file a surreply. Accordingly, we vacate the order and remand to the district court…….After rejecting the
argument Schreiber made in his opening brief on the motion, the district court based its decision granting his motion exclusively
on the arguments and evidence presented for the first time in his reply brief. It never gave RedHawk a full opportunity to counter
Schreiber’s new arguments and then faulted RedHawk for its failure to do so.” The matter will now be remanded back
to the Louisiana Court and the Judgment vacated after expiration of statutory delays.
As of June 30, 2020, the
Company has recorded additional settlement loss so that the recorded liability is equal to the $519,496 Judgement. In the years
ended June 30, 2020 and 2019, the total settlement loss related to the Schreiber litigation, including all legal fees, was $262,119
and $599,740, respectively.
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 (“DPI”) 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 DPI 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, one year after the Effective Date, an additional 68,700,000 shares of the Company’s common
stock, unless DPI has provided the Company with written notice of its intention not to extend the Initial Period. As of the date
of this Annual Report on Form 10-K, 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 Company Stock and the 1,473 shares of Series A Preferred Company
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, 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 Company
Stock and the 1,473 shares of Series A Preferred Company 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 the Company’s 5% Series
A Preferred Stock, stated value of $1,133.81 per share.
During the year ended June 30, 2020 and 2019, we paid-in-kind $152,842 and $156,261, respectively, of
related preferred stock dividends.
Exchange Agreement
On June 20, 2019, RedHawk
Holdings Corp. 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 21,050,000 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. As a result, we have recorded an impairment of $130,000. (See Note 4.)
|
|
|
|
|
●
|
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. As a result, we have recorded a $60,300 impairment to reduce the inventory to estimated net realizable value. (See Note 1.)
|
|
|
|
|
●
|
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. As a result of that default, we have recorded an impairment of intangible assets of $24,375. (See Note 4.)
|
|
|
|
.
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 June 30, 2020 and 2019 and for the years then ended.
|
|
|
|
|
MEDICAL
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
LAND &
|
|
|
DEVICE &
|
|
|
OTHER
|
|
|
|
|
|
|
|
June 30, 2020
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
56,302
|
|
|
$
|
1,077,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,134,192
|
|
Operating loss
|
|
$
|
(13,928
|
)
|
|
$
|
(61,998
|
)
|
|
$
|
(216
|
)
|
|
$
|
(703,635
|
)
|
|
$
|
(779,777
|
)
|
Interest expense
|
|
$
|
46,986
|
|
|
$
|
936
|
|
|
$
|
—
|
|
|
$
|
416,372
|
|
|
$
|
464,294
|
|
Depreciation and amortization
|
|
$
|
31,333
|
|
|
$
|
53,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
84,533
|
|
Identifiable assets
|
|
$
|
772,165
|
|
|
$
|
94,791
|
|
|
$
|
77,944
|
|
|
$
|
1,023,639
|
|
|
$
|
1,968,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
June 30, 2019
|
|
LAND &
HOSPITALITY
|
|
|
MEDICAL
DEVICE &
PHARMA
|
|
|
OTHER
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
44,509
|
|
|
$
|
84,497
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
129,006
|
|
Operating loss
|
|
$
|
(16,920
|
)
|
|
$
|
(75,375
|
)
|
|
$
|
(201
|
)
|
|
$
|
(569,447
|
)
|
|
$
|
(661,943
|
)
|
Interest expense
|
|
$
|
24,036
|
|
|
$
|
527
|
|
|
$
|
—
|
|
|
$
|
283,125
|
|
|
$
|
307,688
|
|
Depreciation and amortization
|
|
$
|
31,333
|
|
|
$
|
69,984
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
101,317
|
|
Identifiable assets
|
|
$
|
932,520
|
|
|
$
|
163,857
|
|
|
$
|
18,500
|
|
|
$
|
1,194,456
|
|
|
$
|
2,309,333
|
|
The Company evaluates subsequent
events through the time of our filing on the date we issue our consolidated financial statements, which was on November 18, 2020.
The following are significant matters which occurred subsequent to June 30, 2020 and are not described fully in the notes to the
financial statements:
|
●
|
Subsequent to June
30, 2020, the principal amount of $426,500, plus accrued interest of $23,681, of the 2019 Variable Rate Convertible Notes
were converted into 130,650,810 shares of common stock;
|
|
|
|
|
●
|
Subsequent to June
30, 2020, the principal amount of $20,737, plus accrued interest and prepayment penalties, of the 2019 Variable Rate Convertible
Notes was repaid;
|
|
|
|
|
●
|
Subsequent to June 30, 2020, to assist with liquidity needs, the Company issued $200,000 in fixed rate
convertible debt and accessed additional short term credit lines totaling approximately $200,000;
|
|
|
|
|
●
|
Subsequent
to June 30, 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); (ii) the principal amount due on Note
2 ($200,000.00); (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 Judgment and costs. The Company has appealed the Louisiana Court’s ruling to
the United States 5th Circuit Court of Appeals (the “Court of Appeals”) and intends to vigorously defend against the
ruling. 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 Appeals, the Company tendered the early repayment of the principal amount of Note 2 to the Defendants
on August 24, 2020. To date, $119,495.78 of the Judgment remains outstanding.
On November 12, 2020, the Court
of Appeals ruled the Louisiana Court abused its discretion 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 the order 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 Company Stock
and the 1,473 shares of Series A Preferred Company Stock into 124,849,365 and 122,730,903, respectively, of the Company’s
Common Stock in connection with the Schreiber Litigation and the shares were placed in the related Escrow Account;
|
|
|
|
|
●
|
On September 28, 2020, the Escrow Account in the Schreiber 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 (“Series B Preferred Stock”) stated value of $1,248.49
per share; 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, stated value of $1,133.81 per share.
The November 4, 2020 exchange has not yet been completed.
|
|
|
|