Notes to the Unaudited Consolidated Financial
Statements
March 31, 2016
1.
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NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
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RedHawk Holdings Corp. (“we”
or the “Company”) (formerly Independence Energy Corp.) was incorporated in the State of Nevada on November 30, 2005
under the name “Oliver Creek Resources Inc.” At inception, we were organized to acquire, explore and develop natural
resource properties in the United States. Effective August 12, 2008, we changed our name from “Oliver Creek Resources
Inc.” to “Independence Energy Corp.” and opened for trading with the Over-the Counter Bulletin Board under the
symbol “IDNG.” Effective October 13, 2015, by vote of a majority of the Company’s stockholders, the Company’s
name was changed from “Independence Energy Corp.” to “RedHawk Holdings Corp.”
On March 31, 2014, the Company acquired
the exclusive right to distribute certain medical devices and changed the focus of its operations to include medical device distribution.
We have expanded our operations to include specialized financial services, pharmaceutical sales, commercial real estate leasing
and investment, and a specialized security system.
Currently, we are a
diversified holding company which, through our subsidiaries, is engaged in sales and distribution of medical devices, sales
of branded generic pharmaceutical drugs, commercial real estate investment and leasing, sales of point of entry full-body
security systems, and specialized financial services. Through its medical products business unit, the Company sells WoundClot
Surgical - Advanced Bleeding Control, the Disintegrator™ Insulin Needle Destruction Unit, the Carotid Artery Digital
Non-Contact Thermometer and Zonis®. Its real estate leasing revenues are generated from a commercial property under a
long-term lease. Additionally, the Company’s real estate investment unit holds limited liability company interest in a
commercial restoration project in Hawaii. The Company’s financial service revenue is from brokerage services earned in
connection with debt placement services. RedHawk Energy Corp., LLC holds the exclusive U.S. manufacturing and distribution
rights for the Centri Controlled Entry System, a unique, closed cabinet, nominal dose transmission full body x-ray
scanner.
In June 2014, the Company decided to discontinue
its oil and gas exploration and production operations.
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.
Currently, the Company must continue to realize its assets to discharge its liabilities in the normal course of business. The Company
has generated minimal revenues to date and has never paid any dividends on its common stock and is unlikely to pay any common stock
dividends or generate significant earnings in the immediate or foreseeable future.
As of March 31, 2016, the Company
had working capital of $214,830 but an accumulated deficit of $2,135,966. The continuation of the Company as a going
concern is dependent upon the continued financial support from its stockholders, the ability to raise equity or debt
financing, and the attainment of profitable operations from the Company’s businesses. 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.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
The unaudited interim condensed financial
statements of the Company as of March 31, 2016 and for the three and nine month periods ended March 31, 2016 and 2015 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, 2015 is also unaudited and is presented here as a basis for comparison
and reflective of our transition period balance sheet for our new year end which was changed on June 15, 2015. The Company’s
fiscal year-end was January 31 but has been changed to June 30 by vote of a majority of the Company’s board of directors.
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 January 31, 2015. 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. Certain prior year amounts are sometimes reclassified to be consistent with the current
year financial statement presentation. Equity investments, which we have an ownership greater than 20% but less than 50% through
which we exercise significant influence over but do not control the investee and we are not the primary beneficiary of the investee’s
activities, are accounted for using the equity method of accounting.
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 long-lived assets, asset retirement obligations, fair value of share-based payments, and deferred
income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
Revenue Recognition
We derive revenue from several types of
activities – medical device sales, commercial real estate leasing and financial services. Our medical device sales include
the marketing and distribution of certain professional and consumer grade digital non-contact thermometers, needle destruction
unit and advanced bleeding control, non-compression hemostasis. Our real estate leasing revenues are from certain commercial properties
under long-term lease. The financial service revenue is from brokerage services earned in connection with debt placement services.
Cash and Cash Equivalents
We consider highly liquid investments with
an original maturity of 90 days or less to be cash equivalents.
Marketable Securities
We determine the appropriate classification
of our marketable securities at the time of purchase and reassess the appropriateness of the classification at each reporting date.
At March 31, 2016, all marketable securities held by the Company have been classified as available-for-sale and, as a result, are
stated at fair value with unrealized gains and losses included as a component of accumulated other comprehensive income or loss.
Realized gains and losses on the sale of marketable securities are determined on a specific identification basis. Interest and
dividend income is recorded when it is earned and deemed realizable by the Company. At March 31, 2016, the cost of the marketable
securities on hand, which consisted entirely of widely recognized publically-traded securities, was $1,322,062. Gross unrealized
gain on the fair market value of the marketable securities was $412 as of March 31, 2016 (see Note 8).
Accounts Receivable
Accounts receivables are amounts due from
customers of our medical device division and our financial services division. The amount is reported at the billed amount, net
of any expected allowance for bad debts.
Inventory
Inventory consist of purchased thermometers
and advanced bleeding control, non-compression hemostasis held for resale and are stated at the lower of cost or net realizable
value utilizing the first-in, first-out method.
Property and Improvements
Property and improvements are stated at
cost. We provide for depreciation expense on a straight line basis over each asset’s useful life depreciated to their estimated
salvage value. Buildings are depreciated over a useful life of 20 years. Building improvements are depreciated over a useful life
of 5 to 10 years.
Oil and Gas Property Costs
During the year ended January 31, 2015,
the Company decided to discontinue its oil and gas business and the relevant assets have been impaired. In June 2015, the Company
assigned its working interest in the Quinlan wells to the operator of those wells in exchange for the cancellation of all amounts
due to the operator, including any future liabilities related to the Quinlan wells.
Income Taxes
Potential benefits of income tax losses
are not recognized in the accounts until realization is more likely than not. The Company has adopted Accounting Standard Codification
(“ASC”) 740,
Income Taxes,
as of its inception. Pursuant to ASC 740, the Company is required to compute tax
asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized
in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating
losses carried forward in future years. The Company recognizes interest and penalties related to uncertain tax positions in income
tax expense in the period they are incurred. The Company does not believe that it has any uncertain tax positions. The Company
has not filed any corporate tax returns since its inception.
Basic and Diluted Net Loss Per Share
The Company computes net loss per share
in accordance with ASC 260,
Earnings Per Share,
which requires presentation of both basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator)
by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period using the treasury stock method and the convertible notes and the convertible
preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive. As of March 31, 2016 and 2015, the Company had 7,452,959 potentially dilutive
shares from our warrants issued in connection with the November 2014 private equity sale. There were 2,333,333 shares issuable
upon conversion of the notes but have been excluded from earnings per share calculations because these shares are anti-dilutive.
At March 31, 2016, there were potentially 82,666,666 shares issuable upon the conversion of the Series A Preferred Stock. In addition,
there were potentially 125,000,000 shares issuable upon the conversion of the Series B preferred stock.
Comprehensive
Income (Loss)
ASC 220,
Comprehensive Income
, establishes
standards for the reporting and display of comprehensive loss and its components in the financial statements. During the three
and nine month periods ended March 31, 2016, the Company had $12,019 and $412, respectively, of other comprehensive income resulting
from the unrecognized income on marketable securities. During the three and nine month periods ended March 31, 2015, the Company
had no items that represented other comprehensive income.
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 has marketable securities with
a fair market value of $1,322,474 at March 31, 2016, which are all publicly traded securities with quoted prices in active markets.
The fair value is based on Level 1 assumptions.
The Company’s financial instruments
consist principally of cash, marketable securities, accounts payable and accrued liabilities, and amounts due to related parties.
Pursuant to ASC 820 and ASC 825, the fair value of our cash is determined based on “Level 1” inputs, which consist
of quoted prices in active markets for identical assets.
We believe that the recorded values of
all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates
or durations.
Recent Accounting Pronouncements
Development Stage
The Company has limited operations and
is considered to be in the development stage. During the year ended January 31, 2015, the Company elected to early adopt Accounting
Standards Update (“ASU”) No. 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements
. The adoption of this ASU allows the Company to remove the inception to date information and all references to
development stage.
Revenue Recognition
In May 2014, the Financial Accounting Standards
Board (the “FASB”) issued new guidance intended to change the criteria for recognition of revenue. The new guidance
establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and
expands disclosure requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. To achieve this core principle, an entity should apply the following five steps: (1) identify
contracts with customers, (2) identify the performance obligations in the contracts, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligation in the contract, and (5) recognize revenue as the entity satisfies performance
obligations. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods
within that reporting period. Early application is permitted for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. We are currently evaluating what impact the adoption of this guidance would have
on our financial position, results of operations, cash flows and disclosures.
Going Concern
In August 2014, the FASB issued guidance
on disclosures of uncertainties about an entity’s ability to continue as a going concern. The guidance requires management’s
evaluation of whether there are conditions or events that raise substantial doubt about the entity’s ability to continue
as a going concern within one year after the date that the financial statements are issued. This assessment must be made in connection
with preparing financial statements for each annual and interim reporting period. Management’s evaluation should be based
on the relevant conditions and events that are known and reasonably knowable at the date the financial statements are issued. If
conditions or events raise substantial doubt about the entity’s ability to continue as a going concern, but this doubt is
alleviated by management’s plans, the entity should disclose information that enables the reader to understand what the conditions
or events are, management’s evaluation of those conditions or events and management’s plans that alleviate that substantial
doubt. If conditions or events raise substantial doubt and the substantial doubt is not alleviated, the entity must disclose this
in the footnotes. The entity must also disclose information that enables the reader to understand what the conditions or events
are, management’s evaluation of those conditions or events and management’s plans that are intended to alleviate that
substantial doubt. The amendments are effective for annual periods and interim periods within those annual periods beginning after
December 15, 2016. We do not expect that adoption will have a material impact on our financial position, results of operations,
cash flows or disclosures.
Debt Issuance Costs
In April 2015, the FASB issued new
guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying
value of the associated debt liability, consistent with the presentation of a debt discount. The new guidance does not affect
the recognition and measurement of debt issuance costs. Therefore, the amortization of such costs will continue to be
calculated using the interest method and be reported as interest expense. The new guidance does not specifically address, and
therefore does not affect, the balance sheet presentation of debt issuance costs for revolving debt arrangements. The new
guidance is effective for financial statements issued in fiscal years beginning after December 15, 2015, and will be
applied on a retrospective basis. Early adoption is permitted for financial statements that have not been previously
issued. To date, our debt issuance cost of $10,096 as of March 31, 2016 has not been significant. As the
Company continues to raise capital to execute its growth strategy, the use of debt in the future may have additional issuance
costs to be accounted for under this guidance.
New Accounting Pronouncements
The Company does not believe that there
are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial
statements.
Properties and Improvements
On November 13, 2015, we acquired certain
commercial rental property, consisting of $75,000 of land and $405,000 of buildings and improvements, from a related party that
is an entity controlled by a stockholder and officer of the Company,
for $480,000. The purchase price was paid by the Company
through the assumption of $265,000 of long-term bank indebtedness (see Note 7) plus the issuance of 215 shares of the Company’s
newly designated Series A Preferred Stock (see Note 8). The purchase price of the property was determined by independent third-party
appraisers commissioned by the financial institution providing the long-term financing for the acquisition, which included the
cost of specific security improvements requested by the lessee.
On December 31, 2015, we acquired certain
commercial real estate from a related party, that is an entity controlled by a shareholder and officer of the Company, to be used
as our corporate office, for $300,000 consisting of $35,000 of land and $265,000 of buildings and improvements. The purchase price
was paid by the Company with the issuance of 300 shares of the Company’s Series A Preferred Stock. The purchase price of
the property was determined by independent third-party appraisal.
Oil and Gas Properties
Effective June 1, 2015, we assigned 100%
of our interest in the Quinlan wells to the operator of those wells in exchange for the cancellation of all current and future
liabilities on the Quinlan wells.
Tower Hotel Fund 2013, LLC
On December 31, 2015, RedHawk Land &
Hospitality, LLC acquired from Beechwood Properties, LLC 280,000 Class A Units (approximately a 2.0% membership interest) of fully
paid, non-assessable units of limited liability company interest in Tower Hotel Fund 2013, LLC, a real estate development limited
liability company formed in the state of Hawaii for acquisition, restoration and development of the Naniloa Hilo Resort in Hilo,
Hawaii. The $625,000 purchase price was paid by the issuance of 625 shares of the Company’s Series A Preferred Stock. The
purchase price was determined by an independent third-party valuation. Beechwood Properties, LLC is a real estate limited liability
company owned and controlled by G. Darcy Klug, a stockholder and Chief Financial Officer of the Company.
Intangible Assets
On March 31, 2014, the Company entered
into an asset purchase agreement (the “Agreement”) with American Medical Distributors, LLC (“AMD”) pursuant
to which the Company acquired a five-year license commencing on November 27, 2013 for the exclusive territorial distribution rights
to the Thermofinder non-contact thermometer from AMD in exchange for the issuance of 152,172,287 shares of the Company’s
common stock with a fair value of $320,431 based on the fair value of such shares on the date of issuance. As a part of this asset
acquisition and share issuance, the Company also received a payment of $60,000. The intangible asset is being amortized over the
remaining life of the license agreement. Amortization expense is expected to be approximately $68,664 per year for years 2016,
2017 and 2018 and approximately $57,219 in year 2019.
On December 31, 2015, we acquired certain
tangible and intangible high-quality medical device assets, including the Disintegrator™ Insulin Needle Destruction Unit
(“NDD”) and the Carotid Artery Non-Contact Thermometer. The purchase price was paid by the issuance of 60,000,000 restricted
shares of our common stock, which are subject to vesting based upon the completion by the seller of certain performance milestones
including, but not limited to, successful completion of NDD upgrades, submission for worldwide patents for the NDD, completion
of the first NDD production model, approval by the Company of the initial NDD production run, attaining certain NDD unit sales
and profitability milestones, and receipt of final worldwide patents for the NDD. At March 31, 2016, none of the restricted shares
had vested.
On March 23, 2016, RedHawk Pharma UK Ltd
acquired a 25% equity interest in EcoGen Europe Ltd (“EcoGen”) from Scarlett Pharma Ltd (“Scarlett”).
The Company has agreed to issue to Scartlett up to 100 million restricted shares of common stock of the Company. Under the terms
of the purchase agreement, 10 million shares were issued to Scarlett at closing with an additional 90 million shares (the “Earnout
Shares”) to be issued and vested pro rata as EcoGen reports audited EBITDA (Earnings Before Interest, Taxes, Depreciation
and Amortization). The issuance and vesting of the Earnout Shares will occur annually based upon audited results of EcoGen and
will conclude with the earlier of EcoGen attaining cumulative EBITDA of $100 million or seven years from the closing date.
Additionally, during the seven-year period
commencing on the closing date, the Company has the right, but not the obligation, to increase its ownership position in EcoGen
up to a maximum of 49% of the entire capital of EcoGen. Should the Company exercise its option to increase its ownership position,
the Company will issue to Scarlett, pro rata, up to an additional 100 million restricted shares of the common stock of the Company.
Concurrent with the execution of the purchase
agreement, the Company entered into a consultancy agreement with Scarlett for the marketing and distribution in the United Kingdom
and, where available, other European and Middle East countries, certain medical device products offered by RedHawk Medical Products
UK Ltd.
5.
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LOAN AND INSURANCE NOTE PAYABLE
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During August 2015, we financed
a portion of our insurance premiums totaling $29,250. At March 31, 2016, the outstanding balance due on our premium finance
agreement was $6,623. The note matures on May 14, 2016 with interest accruing at 6.5% per annum.
In December 2011, the Company received
a loan in the amount of $156,697 from an unrelated third party. The loan was non-interest bearing, unsecured and due on demand.
On December 11, 2015, the time frame to collect the loan by the third party had expired. Therefore, the loan was written off and
recorded within other income/expense as expiration of indebtedness.
Effective November 12, 2015, the
Company entered into a $100,000 Commercial Note Line of Credit (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 October 31, 2016. 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 December 31, 2015, the principal balance
plus accrued interest totaled $100,000. At that date, the stockholder elected to convert the outstanding principal and interest
balance into 100 shares of our Series A Preferred Stock. At March 31, 2016, there is no outstanding balance on the Line of Credit.
7.
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LONG-TERM DEBT, DEBENTURES AND LINE OF CREDIT
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On November 13, 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 (see Note 3). The purchase price was paid
by through the assumption by the Company of $265,000 of long-term bank indebtedness (“Note”) plus the issuance of 215
shares of the Company’s newly designated Series A Preferred Stock. The purchase price also included the cost of specific
security improvements requested by the lessee.
The Note is dated November 13, 2015 and
has a principal amount of $265,000. Monthly payments under the Note are $1,962 including interest accruing at a rate of 5.95% per
annum. The Note matures in June 2021 and is secured by the commercial real estate, guarantees by the Company and its real estate
subsidiary and the personal guarantee of a stockholder who is also an officer of the Company.
We have authorized the issuance of
up to $10 million in principal amount of convertible promissory notes (the “Convertible Notes”). The Convertible
Notes are secured by certain Company real estate holdings and real estate holdings of a stockholder. The Convertible Notes
mature on the fifth anniversary of the date of issuance and are convertible into shares of our common stock at a price of
$0.015 per share. Interest accrues at a rate of 5% per annum and is payable semi-annually. Beginning 180 days after issuance
of the Convertible Notes, the Company has the option to issue a notice of its intent to redeem, for cash, an amount equal to
the sum of (a) 120% of the then outstanding principal balance, (b) accrued but unpaid interest and (c) all liquidated damages
and other amounts due in respect of the Convertible Notes. The Company may only issue the notice of its intent to redeem the
Convertible Notes if the trading average of the Company’s common stock equals or exceeds 300% of the conversion price
during each of the five business days immediately preceding the date of the notice of intent to redeem. The holder of the
Convertible Notes has the right to convert all or any portion of the Convertible Notes at the conversion price at any time
prior to redemption. At March 31, 2016, there were $35,000 of Convertible Notes outstanding which are convertible into our
common stock at a conversion rate of $0.015 per share or 2,333,333 shares.
Our line of credit with a bank totals $1,000,000
of which $952,241 is outstanding as of March 31, 2016 (See Note 8). The line of credit is due upon demand and is secured by marketable
securities, a corporate guarantee and the guarantee of a stockholder who is also an officer of the Company. Interest accrues at
the rate of one-month LIBOR plus 2.75% and is paid monthly. The interest rate at March 31, 2016 was 3.18%.
Effective on October 13, 2015, we amended
and restated our articles of incorporation as previously adopted by a majority vote of our stockholders. The amended and restated
articles of incorporation, among other things, changed our name to RedHawk Holdings Corp., authorized 5,000 shares of Preferred
Stock, and increased the number of authorized shares of common stock from 375,000,000 to 450,000,000.
Common Stock
On October 15, 2015, we entered into a
securities purchase agreement with an accredited investor for the sale of 5,000,000 shares of our common stock in exchange for
$50,000.
On February 22, 2016, we entered
into a settlement agreement with a former officer and director in partial settlement of certain litigation. At the time of
the settlement, the officer owned 18,021,535 shares of our common stock. In exchange for a payment of $42,500 and
other consideration provided in the settlement, the Company purchased the shares owned by the former officer and returned
those shares into the Company treasury. The Company incurred transaction costs of $33,602 in
completing this equity transaction.
On March 23, 2016, we issued 10,000,000
shares of our common stock, having a fair market value of $260,000, in connection with entering into a purchase agreement with
Scatlett to acquire a 25% ownership interest in EcoGen (See Note 4).
Preferred Stock
Pursuant to a certificate of designation
filed with the Secretary of State of the State of Nevada, effective November 12, 2015, 2,000 shares of our authorized Preferred
Stock have been designated as Series A 5% Convertible Preferred Stock, with a $1,000 stated value (“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 (“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
nine 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.
On November 13, 2015, we issued 215 shares
of our Series A Preferred Stock in connection with the acquisition of certain commercial real estate from a related party, which
is an entity controlled by a stockholder and officer of the Company. On December 31, 2015, in exchange for 300 shares of our Series
A Preferred Stock, we acquired from a related party, which is an entity controlled by a stockholder and officer of the Company,
certain real estate to be used as our corporate offices (see Note 3).
On December 31, 2015, we issued 625
shares of Series A Preferred Stock to acquire certain limited liability company membership interest in a real estate
development located in Hawaii (See Note 4).
On December 31, 2015, a stockholder and
officer of the Company
converted $100,000 of the outstanding principal and interest balance due to the stockholder in exchange
for 100 shares of the Company’s Series A Preferred Stock (see Note 6).
Pursuant to a certificate of designation
filed with the Secretary of State of the State of Nevada, effective December 29, 2015, 1,000 shares of our authorized Preferred
Stock have been designated as Series B 5% Convertible Preferred Stock, with a $1,000 stated value (“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 (“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
nine 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 December 30, 2015, we received, from
a stockholder and officer of the Company, $1,862,458 of cash and marketable securities, net of a $980,000 line of credit balance,
in exchange for 1,000 shares of our Series B Preferred Stock.
On February 1, 2016, we received from an
officer of the Company, $250,000 of cash in exchange for 250 shares of our Series B Preferred Stock.
Warrants
During November 2014, we completed a private equity sale of 14,905,918 shares of common stock generating
proceeds of $49,900. As a component of this private equity sale, 7,7452,959 warrants to acquire common stock of the Company were
also issued with an exercise price of $0.005 per share. During the nine month period ended March 31, 2016, no warrants were exercised
and 7,452,959 warrants remain outstanding. The warrants expire upon the close of business on November 7, 2016.
9.
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DISCONTINUED OPERATIONS
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On June 23, 2014, the Company impaired
its remaining oil and natural gas properties and changed its focus to medical device distribution and other businesses. The Company’s
oil and gas properties have been classified as held for sale and are reflected at the estimated fair value expected to be realized
by the Company. As a result of the Company’s impairment of its oil and gas properties and change in direction for the Company’s
business, all expenses related to the oil and natural gas operations have been classified as discontinued operations.
The results of discontinued operations
are summarized as follows:
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For the Nine months
Ended March 31,
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|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
-
|
|
|
$
|
444
|
|
|
|
|
|
|
|
|
|
|
Net Income from Discontinued Operations
|
|
$
|
-
|
|
|
$
|
444
|
|
As of January 31, 2015, the Company
had $986,035 of net operating losses carried forward to offset taxable income in future years which expire commencing in
fiscal 2026 and run through 2035. Since January 31, 2015, the Company has increased those available net operating losses to
offset future taxable income by $905,966 through the period ended March 31, 2016. The income tax benefit differs from the
amount computed by applying the U.S. federal income tax rate of 34% due to a valuation allowance established for the fair
value of the tax benefit generated which is discussed in more detail below to net loss before income taxes. At March 31,
2016, the Company had no uncertain tax positions.
The Company accounts for interest and penalties
relating to uncertain tax provisions in the current period statement of income, as necessary. The Company has never filed a tax
return. In order to utilize the available net operating loss carryforwards, the Company will need to prepare and file all tax returns
since its inception. The Company’s tax years from inception are subject to examination.
Due to the uncertainty surrounding the
realization of the deferred tax assets in future years, our management has determined that it is more likely than not that the
deferred tax assets will not be realized in future periods. Accordingly, the Company has recorded a valuation allowance against
its net deferred tax assets. As of March 31, 2016, the cumulative net operating loss carried forward is $1,892,001 or a net tax
asset of $643,280, which has been fully allowed for.
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.
|
|
|
|
|
MEDICAL
|
|
|
|
|
|
|
|
|
|
|
|
|
LAND &
|
|
|
DEVICE &
|
|
|
OTHER
|
|
|
|
|
|
|
|
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
14,950
|
|
|
$
|
-
|
|
|
$
|
4,750
|
|
|
$
|
-
|
|
|
$
|
19,700
|
|
Operating income (loss)
|
|
$
|
(2,768
|
)
|
|
$
|
(276,283
|
)
|
|
$
|
(17,098
|
)
|
|
$
|
(666,764
|
)
|
|
$
|
(962,913
|
)
|
Interest expense
|
|
$
|
5,995
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,567
|
|
|
$
|
12,562
|
|
Depreciation and amortization
|
|
$
|
10,646
|
|
|
$
|
51,498
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,144
|
|
Identifiable assets
|
|
$
|
1,395,344
|
|
|
$
|
674,776
|
|
|
$
|
4,602
|
|
|
$
|
1,670,664
|
|
|
$
|
3,745,386
|
|
Subsequent to March 31, 2016, the Company issued an additional
$300,000 of Convertible Notes to be used for acquisition investment and working capital.