UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
|
☒ |
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended March 31, 2020
or
|
☐ |
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
Commission File Number 000-54323
|
|
|
RedHawk
Holdings Corp. |
|
(Exact name of registrant as
specified in its charter) |
| Nevada |
|
20-3866475 |
(State
or other jurisdiction
of incorporation or
organization) |
|
(IRS
Employer
Identification No.) |
|
100 Petroleum Drive, Suite
200 |
|
|
|
Lafayette,
Louisiana |
|
70508 |
|
(Address of principal executive
offices) |
|
(Zip Code) |
(337) 269-5933
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which
registered |
|
None |
N/A |
N/A |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| Large
accelerated filer |
☐ |
|
Accelerated
filer |
☐ |
| |
|
|
|
|
| Non-accelerated filer |
☐ |
|
Smaller reporting company |
☒ |
| |
|
|
|
|
| |
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On June 15, 2020, 963,651,157 shares
of common stock, par value 0.001 per share, were
outstanding.
EXPLANATORY
NOTE
RedHawk
Holdings Corp. (the “Company”) is hereby relying on the
Securities and Exchange Commission’s Order under Section 36 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
Modifying Exemptions From the Reporting and Proxy Delivery
Requirements for Public Companies dated March 25, 2020 (Release No
34-88465) (the “Order”) in connection with this filing of its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020
(the “March 31, 2020 Form 10-Q”) due to the circumstances related
to COVID-19. In particular, COVID-19 has caused disruptions in our
normal interactions with our auditors. The Company has a minimal
accounting staff and historically provided its auditors with full
access to work papers and related information. Because the audit
personnel are now working remotely as much as possible, and relying
on our minimal staff to furnish work papers and other documents,
the Company’s ability to complete its review and file the March 31,
2020 Form 10-Q prior to its original due date without unreasonable
expense was delayed.
REDHAWK HOLDINGS CORP.
Form 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL
INFORMATION
Item 1.
UNAUDITED Consolidated Financial Statements.
REDHAWK HOLDINGS CORP.
Consolidated Balance Sheets
(unaudited)
| |
|
March
31, |
|
|
June
30, |
|
| |
|
2020 |
|
|
2019 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
99,246 |
|
|
$ |
1,648 |
|
|
Certificate
of deposit |
|
|
— |
|
|
|
100,374 |
|
|
Receivables |
|
|
196,192 |
|
|
|
— |
|
|
Inventory,
at cost |
|
|
181,604 |
|
|
|
181,227 |
|
|
Prepaid
expenses |
|
|
257,189 |
|
|
|
122,436 |
|
|
Total
Current Assets |
|
|
734,231 |
|
|
|
405,685 |
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Equipment and Improvements: |
|
|
|
|
|
|
|
|
|
Land |
|
|
110,000 |
|
|
|
110,000 |
|
|
Tooling
and equipment |
|
|
5,600 |
|
|
|
— |
|
|
Building
and improvements |
|
|
670,000 |
|
|
|
670,000 |
|
|
|
|
|
785,600 |
|
|
|
780,000 |
|
|
Less,
accumulated depreciation |
|
|
(135,980 |
) |
|
|
(112,479 |
) |
|
|
|
|
649,620 |
|
|
|
667,521 |
|
|
Other
Assets: |
|
|
|
|
|
|
|
|
|
Operating
lease right-of-use asset |
|
|
67,254 |
|
|
|
— |
|
|
Investment
in real estate limited partnership |
|
|
257,173 |
|
|
|
257,173 |
|
|
Intangible
asset, net of amortization of $444,820 and $404,946,
respectively |
|
|
816,713 |
|
|
|
848,992 |
|
|
Other
assets |
|
|
130,060 |
|
|
|
129,962 |
|
|
|
|
|
1,271,200 |
|
|
|
1,236,127 |
|
|
Total
Assets |
|
$ |
2,655,051 |
|
|
$ |
2,309,333 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
|
$ |
1,061,460 |
|
|
$ |
899,685 |
|
|
Deferred
revenue |
|
|
267,145 |
|
|
|
— |
|
|
Current
maturities of long-term debt |
|
|
190,439 |
|
|
|
184,585 |
|
|
Current
portion of operating lease right-of-use liabilities |
|
|
20,386 |
|
|
|
— |
|
|
Lines
of credit |
|
|
173,661 |
|
|
|
253,219 |
|
|
Insurance
notes payable |
|
|
12,537 |
|
|
|
136,859 |
|
|
Total
Current Liabilities |
|
|
1,725,628 |
|
|
|
1,474,348 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
Liabilities |
|
|
|
|
|
|
|
|
|
Due
to related parties |
|
|
242,000 |
|
|
|
230,250 |
|
|
Other
non-current liabilities |
|
|
503,750 |
|
|
|
703,750 |
|
|
Real
estate note payable, net of current maturities |
|
|
216,459 |
|
|
|
224,097 |
|
|
Operating
lease right-of-use liabilities, net of current portion |
|
|
46,868 |
|
|
|
— |
|
|
Convertible
notes payable, net of $94,865 and $49,241 in deferred loan
costs |
|
|
1,633,909 |
|
|
|
342,304 |
|
|
|
|
|
2,642,986 |
|
|
|
1,500,401 |
|
|
Total
Liabilities |
|
|
4,368,614 |
|
|
|
2,974,749 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit): |
|
|
|
|
|
|
|
|
|
Preferred
stock, 5,000 authorized shares and 3,750 and 4,000 issued and
outstanding at March 31, 2020 and June 30, 2019,
respectively |
|
|
|
|
|
|
|
|
|
5%
Series A, 2,750 shares designated, $1,123 and $1,099 stated
value, respectively, 2,750 issued and outstanding at March 31,
2020 and June 30, 2019 |
|
|
3,087,691 |
|
|
|
3,021,453 |
|
|
5%
Series B, 1,250 shares designated, $1,228 and $1,183 stated
value, respectively, and 1,000 issued and outstanding at March
31, 2020 and 1,250 issued and outstanding at June 30,
2019 |
|
|
1,227,964 |
|
|
|
1,479,039 |
|
|
Common
Stock, par value of $0.001 per share, 2,000,000,000 authorized
shares and 1,171,208,112 and 1,034,340,037 issued,
respectively |
|
|
1,171,208 |
|
|
|
1,034,340 |
|
|
Additional
paid-in capital |
|
|
445,940 |
|
|
|
51,811 |
|
|
Accumulated
other comprehensive gain (loss) |
|
|
(13,392 |
) |
|
|
2,735 |
|
|
Accumulated
deficit |
|
|
(7,052,616 |
) |
|
|
(5,674,436 |
) |
|
|
|
|
(1,133,205 |
) |
|
|
(85,058 |
) |
|
Less,
Treasury stock 201,548,643 shares, at cost |
|
|
(580,358 |
) |
|
|
(580,358 |
) |
|
Total
Stockholders’ Equity (Deficit) |
|
|
(1,713,563 |
) |
|
|
(665,416 |
) |
|
Total
Liabilities and Stockholders’ Equity (Deficit) |
|
$ |
2,655,051 |
|
|
$ |
2,309,333 |
|
The accompanying notes are an integral part of these financial
statements
REDHAWK HOLDINGS CORP.
Consolidated Statements of
Operations
(unaudited)
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
March
31, |
|
|
March
31, |
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
148,674 |
|
|
$ |
73,556 |
|
|
$ |
217,989 |
|
|
$ |
169,076 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Costs
of goods sold |
|
|
38,467 |
|
|
|
17,986 |
|
|
|
55,388 |
|
|
|
49,016 |
|
| Sales
and marketing expenses |
|
|
90,830 |
|
|
|
1,746 |
|
|
|
208,701 |
|
|
|
5,772 |
|
| Professional
fees |
|
|
62,525 |
|
|
|
43,462 |
|
|
|
229,885 |
|
|
|
210,229 |
|
| Research
and development costs |
|
|
25,420 |
|
|
|
— |
|
|
|
83,901 |
|
|
|
— |
|
| Operating
expenses |
|
|
76,796 |
|
|
|
97,384 |
|
|
|
212,893 |
|
|
|
106,795 |
|
| Depreciation
and amortization |
|
|
21,458 |
|
|
|
19,208 |
|
|
|
63,375 |
|
|
|
80,359 |
|
|
General
and administrative |
|
|
47,624 |
|
|
|
27,973 |
|
|
|
182,157 |
|
|
|
171,936 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses |
|
|
363,120 |
|
|
|
207,759 |
|
|
|
1,036,300 |
|
|
|
624,107 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss from Operations |
|
|
(214,446 |
) |
|
|
(134,203 |
) |
|
|
(818,311 |
) |
|
|
(455,031 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss
on extinguishment of debt, net |
|
|
(129,338 |
) |
|
|
— |
|
|
|
(84,811 |
) |
|
|
— |
|
| Settlement
gain (loss), net |
|
|
(27,752 |
) |
|
|
10,000 |
|
|
|
(27,752 |
) |
|
|
(386,500 |
) |
|
Interest
(expense) income, net |
|
|
(67,723 |
) |
|
|
25,504 |
|
|
|
(279,238 |
) |
|
|
(155,714 |
) |
|
|
|
|
(224,813 |
) |
|
|
35,504 |
|
|
|
(391,801 |
) |
|
|
(542,214 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss |
|
|
(439,259 |
) |
|
|
(98,699 |
) |
|
|
(1,210,112 |
) |
|
|
(997,245 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on foreign currency translation |
|
|
(11,898 |
) |
|
|
(52 |
) |
|
|
(16,127 |
) |
|
|
2,735 |
|
|
|
|
|
(11,898 |
) |
|
|
(52 |
) |
|
|
(16,127 |
) |
|
|
2,735 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive
Loss |
|
|
(451,157 |
) |
|
|
(98,751 |
) |
|
|
(1,226,239 |
) |
|
|
(994,510 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Dividends |
|
|
(53,477 |
) |
|
|
(39,305 |
) |
|
|
(168,068 |
) |
|
|
(116,466 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss Available for Common Stockholders |
|
$ |
(504,634 |
) |
|
$ |
(138,056 |
) |
|
$ |
(1,394,307 |
) |
|
$ |
(1,110,976 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
Loss Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Diluted |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted
Average Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
969,280,348 |
|
|
|
557,460,616 |
|
|
|
924,946,538 |
|
|
|
487,312,611 |
|
|
Diluted |
|
|
969,280,348 |
|
|
|
557,460,616 |
|
|
|
924,946,538 |
|
|
|
487,312,611 |
|
The accompanying notes are an integral part of these financial
statements
REDHAWK HOLDINGS CORP.
Consolidated Statements of Cash
Flows
(unaudited)
| |
|
Nine
Months Ended |
|
| |
|
March
31, |
|
| |
|
2020 |
|
|
2019 |
|
| CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,210,112 |
) |
|
$ |
(997,245 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
39,874 |
|
|
|
56,859 |
|
|
Amortization
of discount on convertible debentures |
|
|
— |
|
|
|
16,350 |
|
|
Amortization
of deferred loan costs |
|
|
115,928 |
|
|
|
50,083 |
|
|
Depreciation |
|
|
23,501 |
|
|
|
23,500 |
|
|
Non-cash
expenses |
|
|
246,279 |
|
|
|
95,242 |
|
|
Non-cash
settlement loss |
|
|
— |
|
|
|
224,976 |
|
|
Loss
on extinguishment of debt |
|
|
18,449 |
) |
|
|
— |
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(196,192 |
) |
|
|
(32,327) |
|
|
Inventory |
|
|
(3,594 |
) |
|
|
30,547 |
|
|
Prepaid
expense and other assets |
|
|
(326,184 |
) |
|
|
(2,903) |
|
|
Accounts
payable and accrued liabilities |
|
|
(181,044 |
) |
|
|
14,626 |
|
|
Deferred
Revenue |
|
|
267,145 |
|
|
|
— |
|
|
Net
Cash Used in Operating Activities |
|
|
(1,205,950 |
) |
|
|
(520,292 |
) |
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds
from sale of investments |
|
|
100,374 |
|
|
|
— |
|
|
Purchase
of equipment |
|
|
(5,600 |
) |
|
|
— |
|
|
Proceeds
from distribution from limited liability partnership |
|
|
— |
|
|
|
367,827 |
|
|
Purchase
of license |
|
|
— |
|
|
|
(46,250 |
) |
|
Net
Cash Provided by Investing Activities |
|
|
94,774 |
|
|
|
321,577 |
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds
from related parties, net |
|
|
11,750 |
|
|
|
64,326 |
|
|
Proceeds
from issuance of convertible debt |
|
|
1,910,862 |
|
|
|
181,000 |
|
|
Payments
on convertible debt |
|
|
(458,375 |
) |
|
|
(132,726 |
) |
|
Purchase
of treasury stock |
|
|
— |
|
|
|
(78,566) |
|
|
Costs
related to debt for equity conversions |
|
|
— |
|
|
|
(10,300 |
) |
|
Deferred
loan costs |
|
|
(159,566 |
) |
|
|
(33,110 |
) |
|
Proceeds
from long-term debt |
|
|
— |
|
|
|
180,000 |
|
|
Proceeds
from short-term debt |
|
|
110,914 |
|
|
|
71,314 |
|
|
Payments
on short-term debt |
|
|
(190,472 |
) |
|
|
— |
|
|
Net
proceeds from (payments on) insurance notes payable |
|
|
21,561 |
|
|
|
(2,071 |
) |
|
Principal
payments on long-term debt |
|
|
(7,202 |
) |
|
|
(6,818 |
) |
|
Net
Cash Provided by Financing Activities |
|
|
1,239,472 |
|
|
|
233,049 |
|
|
Effect
of exchange rate on cash |
|
|
(30,698 |
) |
|
|
(22,491 |
) |
| Net
change in cash |
|
|
97,598 |
|
|
|
11,843 |
|
|
Cash,
Beginning of Period |
|
|
1,648 |
|
|
|
19,034 |
|
|
Cash,
End of Period |
|
$ |
99,246 |
|
|
$ |
30,877 |
|
| |
|
|
|
|
|
|
|
|
| Non-Cash
Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
Preferred
stock dividends paid-in-kind |
|
$ |
114,859 |
|
|
$ |
116,466 |
|
|
Conversion
of debt to common stock |
|
$ |
117,318 |
|
|
$ |
184,635 |
|
|
Common
stock issued in lieu of cash for services and assets |
|
$ |
97,810 |
|
|
$ |
17,500 |
|
|
Conversion
of preferred stock to common stock |
|
$ |
299,696 |
|
|
$ |
— |
|
|
Increase
in liabilities related to license agreement acquisition |
|
$ |
— |
|
|
$ |
403,750 |
|
| Operating
lease assets obtained for operating lease
liabilities |
|
$ |
67,254 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
Disclosures: |
|
|
|
|
|
|
|
|
|
Interest
paid |
|
$ |
229,867 |
|
|
$ |
12,526 |
|
|
Income
taxes paid |
|
$ |
— |
|
|
$ |
— |
|
The accompanying notes are an integral part of these financial
statements
REDHAWK HOLDINGS CORP.
Consolidated Statements of
Stockholders’ Equity (Deficit)
(unaudited)
|
|
|
SERIES
A
PREFERRED STOCK |
|
|
SERIES
B
PREFERRED STOCK |
|
|
COMMON
STOCK |
|
|
ADDITIONAL
PAID-IN |
|
|
ACCUMULATED
OTHER
COMPREHENSIVE |
|
|
ACCUMULATED |
|
|
TREASURY
STOCK |
|
|
|
|
|
|
|
SHARES |
|
|
AMOUNT |
|
|
SHARES |
|
|
AMOUNT |
|
|
SHARES |
|
|
AMOUNT |
|
|
CAPITAL |
|
|
GAIN
(LOSS) |
|
|
DEFICIT |
|
|
SHARES |
|
|
AMOUNT |
|
|
TOTAL |
|
|
BALANCE,
JUNE 30, 2019 |
|
|
2,750 |
|
|
$ |
3,021,453 |
|
|
|
1,250 |
|
|
$ |
1,479,039 |
|
|
|
1,034,340,037 |
|
|
$ |
1,034,340 |
|
|
$ |
51,811 |
|
|
$ |
2,735 |
|
|
$ |
(5,674,436 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(665,416 |
) |
|
Preferred
stock dividends declared |
|
|
— |
|
|
|
66,238 |
|
|
|
— |
|
|
|
48,621 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(168,068 |
) |
|
|
— |
|
|
|
— |
|
|
|
(53,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversions |
|
|
— |
|
|
|
— |
|
|
|
(250 |
) |
|
|
(299,696 |
) |
|
|
86,933,293 |
|
|
|
86,933 |
|
|
|
288,754 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
72,791 |
|
|
Stock
grants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49,934,782 |
|
|
|
49,936 |
|
|
|
105,375 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
158,511 |
|
|
Shares
acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,127) |
|
|
|
(1,210,112 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,226,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2020 |
|
|
2,750 |
|
|
$ |
3,087,691 |
|
|
|
1,000 |
|
|
$ |
1,227,964 |
|
|
|
1,171,208,112 |
|
|
$ |
1,171,208 |
|
|
$ |
445,940 |
|
|
$ |
(13,392) |
|
|
$ |
(7,052,616 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(1,713,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JUNE 30, 2018 |
|
|
1,473 |
|
|
$ |
1,659,889 |
|
|
|
1,250 |
|
|
$ |
1,407,342 |
|
|
|
398,410,762 |
|
|
$ |
398,411 |
|
|
$ |
1,311,076 |
|
|
$ |
— |
|
|
$ |
(4,302,291 |
) |
|
|
35,471,535 |
|
|
$ |
(365,352 |
) |
|
$ |
109,075 |
|
|
PIK
dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116,465 |
) |
|
|
|
|
|
|
|
|
|
|
(116,465 |
) |
|
Preferred
stock dividends declared |
|
|
— |
|
|
|
63,028 |
|
|
|
— |
|
|
|
53,438 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
116,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
293,453,979 |
|
|
|
293,454( |
|
|
|
(22,339 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
271,115 |
|
|
Stock
grants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
48,400,0004 |
|
|
|
48,400 |
|
|
|
40,808 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
89,208 |
|
|
Shares
acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,377,108 |
|
|
|
(78,566 |
) |
|
|
(78,566 |
) |
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,735 |
|
|
|
(997,245 |
) |
|
|
— |
|
|
|
— |
|
|
|
(994,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2019 |
|
|
1,473 |
|
|
$ |
1,722,917 |
|
|
|
1,250 |
|
|
$ |
1,460,780 |
|
|
|
740,264,741 |
|
|
$ |
740,265 |
|
|
$ |
1,329,545 |
|
|
$ |
2,735 |
|
|
$ |
(5,416,001 |
) |
|
|
87,848,643 |
|
|
$ |
(443,918 |
) |
|
$ |
(603,677 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
SERIES
A
PREFERRED STOCK |
|
|
SERIES
B
PREFERRED STOCK |
|
|
COMMON
STOCK |
|
|
ADDITIONAL
PAID-IN |
|
|
ACCUMULATED
OTHER
COMPREHENSIVE |
|
|
ACCUMULATED |
|
|
TREASURY
STOCK |
|
|
|
|
| |
|
SHARES |
|
|
AMOUNT |
|
|
SHARES |
|
|
AMOUNT |
|
|
SHARES |
|
|
AMOUNT |
|
|
CAPITAL |
|
|
GAIN
(LOSS) |
|
|
DEFICIT |
|
|
SHARES |
|
|
AMOUNT |
|
|
TOTAL |
|
|
BALANCE,
DECEMBER 31, 2019 |
|
|
2,750 |
|
|
$ |
3,065,337 |
|
|
|
1,000 |
|
|
$ |
1,212,803 |
|
|
|
1,170,708,112 |
|
|
$ |
1,170,708 |
|
|
$ |
443,240 |
|
|
$ |
(1,494 |
) |
|
$ |
(6,559,880 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(1,249,644 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred
stock dividends declared |
|
|
— |
|
|
|
22,354 |
|
|
|
— |
|
|
|
15,161 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(53,477 |
) |
|
|
— |
|
|
|
— |
|
|
|
(15,964 |
) |
| |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conversions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
|
|
500 |
|
|
|
2,700 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,200 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares
acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,898) |
|
|
|
(439,259 |
) |
|
|
— |
|
|
|
— |
|
|
|
(451,157 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE,
MARCH 31, 2020 |
|
|
2,750 |
|
|
$ |
3,087,691 |
|
|
|
1,000 |
|
|
$ |
1,227,964 |
|
|
|
1,171,208,112 |
|
|
$ |
1,171,208 |
|
|
$ |
445,940 |
|
|
$ |
(13,392) |
|
|
$ |
(7,052,616 |
) |
|
|
201,548,643 |
|
|
$ |
(580,358 |
) |
|
$ |
(1,713,563 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE,
DECEMBER 31, 2018 |
|
|
1,473 |
|
|
$ |
1,701,646 |
|
|
|
1,250 |
|
|
$ |
1,442,745 |
|
|
|
560,465,402 |
|
|
$ |
514,066 |
|
|
$ |
1,341,961 |
|
|
$ |
2,787 |
|
|
$ |
(5,277,997 |
) |
|
|
35,471,535 |
|
|
$ |
(365,352 |
) |
|
$ |
(593,744 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred
stock dividends declared |
|
|
— |
|
|
|
21,271 |
|
|
|
— |
|
|
|
18,034 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(39,305) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Conversions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160,799,339 |
|
|
|
160,799 |
|
|
|
(21,916) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
138,883 |
|
| Stock
grants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,400,000 |
|
|
|
29,400 |
|
|
|
9,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28,500 |
|
| Shares
acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,377,108 |
|
|
|
(78,566) |
|
|
|
(78,566 |
) |
| Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(52 |
) |
|
|
(98,699 |
) |
|
|
— |
|
|
|
— |
|
|
|
(98,751 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE,
MARCH 31, 2019 |
|
|
1,473 |
|
|
$ |
1,722,917 |
|
|
|
1,250 |
|
|
$ |
1,460,708 |
|
|
|
740,264,741 |
|
|
$ |
740,265 |
|
|
$ |
1,329,545 |
|
|
$ |
2,735 |
|
|
$ |
(5,416,001 |
) |
|
|
87,848,643 |
|
|
$ |
(443,918 |
) |
|
$ |
(603,677)
|
|
The accompanying notes are an integral part of these financial
statements
REDHAWK HOLDINGS CORP.
Notes to the Unaudited Consolidated Financial Statements
March 31, 2020
|
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, the Company is a diversified holding company which,
through our subsidiaries, is engaged in sales and distribution of
medical devices, sales of branded generic pharmaceutical drugs,
commercial real estate investment and leasing, sales of point of
entry full-body security systems, and specialized financial
services. Through its medical products business unit, the Company
sells the SANDD™ Insulin Needle Destruction Unit (formerly known as
the Disintegrator™), non-contact thermometers, face masks, surgical
masks, UV lights, WoundClot Surgical - Advanced Bleeding Control,
the Carotid Artery Digital Non-Contact Thermometer and
Zonis®. Through our United Kingdom based subsidiary, we
manufacture and market branded generic pharmaceuticals, certain
other generic pharmaceuticals known as “specials” and certain
pharmaceuticals outside of the United Kingdom’s National Health
Service drug tariff referred to as NP8’s. Centri Security Systems
LLC, a wholly-owned subsidiary of the Company, holds the exclusive
U.S. manufacturing and distribution rights for the Centri
Controlled Entry System, a unique, closed cabinet, nominal dose
transmission full body x-ray scanner. Our real estate leasing
revenues are generated from commercial 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 three month period ended March 31, 2020, the Company had
revenues of $148,674, a consolidated net loss of $439,259. For the
nine month period ended March 31, 2020, the Company had revenues of
$217,989, a consolidated net loss of $1,210,112 and cash of
$1,205,950 used in operating activities. As of March 31, 2020, the
Company had cash of $99,246, a working capital deficit of $991,397
and an accumulated deficit of $7,052,616. The continuation of the
Company as a going concern is still dependent upon the continued
financial support from its stockholders, the ability to raise
equity or debt financing, cash proceeds from the sale of assets and
the attainment of profitable operations from the Company’s
businesses in order to discharge its obligations. We cannot
predict, with certainty, the outcome of our efforts to generate
liquidity and profitability, or whether such actions would generate
the expected proceeds to the Company. These factors raise
substantial doubt regarding the Company’s ability to continue as a
going concern. These financial statements do not include any
adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The unaudited interim condensed financial statements of the Company
as of March 31, 2020 and for the three and nine month periods ended
March 31, 2020 and 2019 included herein have been prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial information
and pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”). The year-end condensed balance
sheet dated as of June 30, 2019 is audited and is presented here as
a basis for comparison. Although the financial statements and
related information included herein have been prepared without
audit, and certain information and disclosures normally included in
financial statements prepared in accordance with GAAP have been
condensed or omitted, the Company believes that the note
disclosures are adequate to make the information presented not
misleading. These unaudited condensed financial statements should
be read in conjunction with the Company’s audited consolidated
financial statements and the notes thereto included in the
Company’s Annual Report on Form 10-K as of and for the year ended
June 30, 2019. In the opinion of our management, the unaudited
interim financial statements included herein reflect all
adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation of the Company’s financial
position, results of operations, and cash flows for the periods
presented. The results of operations for interim periods are not
necessarily indicative of the results expected for the full year or
any future period.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries in which we have a greater than 50%
ownership. All material intercompany accounts have been eliminated
upon consolidation. Equity investments, which we have an ownership
greater than 20% but less than 50% through which we exercise
significant influence over but do not control the investee and we
are not the primary beneficiary of the investee’s activities, are
accounted for using the equity method of accounting. Equity
investments, which we have an ownership less than 20%, are recorded
at cost.
Use of Estimates
The financial statements and related notes are prepared in
conformity with GAAP which requires our management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. The Company regularly evaluates estimates and assumptions
related to valuation and impairment of investments, intangible
assets, and long-lived assets, and deferred income tax asset
valuation allowances. The Company bases its estimates and
assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company
may differ materially and adversely from the Company’s estimates.
To the extent there are material differences between the estimates
and the actual results, future results of operations will be
affected.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (which we
refer to as the “FASB”) issued ASU 2014-19, Revenue from Contracts
with Customers (ASU 2014-19). ASU 2014-19 established a single
revenue recognition model for all contracts with customers,
eliminates industry specific requirements and expands disclosure
requirements. The core principle of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. To achieve this core
principle, an entity should apply the following five steps: (1)
identify contracts with customers, (2) identify the performance
obligations in the contracts, (3) determine the transaction price,
(4) allocate the transaction price to the performance obligation in
the contract, and (5) recognize revenue as the entity satisfies
performance obligations. Effective July 1, 2018, we adopted ASU
2014-19 using the modified retrospective method. The adoption of
ASU 2014-19 did not have an impact on our consolidated financial
statements but required enhanced footnote disclosures. See Note 3,
Revenue Recognition, for additional information.
We
derive revenue from several types of activities – medical device
sales, branded generic pharmaceutical sales, commercial real estate
leasing and financial services. Our medical device sales include
the marketing and distribution of certain professional and consumer
grade digital non-contact thermometers, needle destruction unit and
advanced bleeding control, non-compression hemostasis. Through our
United Kingdom based subsidiary, we manufacture, and market,
branded generic pharmaceuticals, and certain other generic
pharmaceuticals known as “specials”. Our real estate leasing
revenues are from certain commercial properties under lease. The
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 March 31, 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 March 31, 2020 or June 30,
2019.
Inventory
Inventory consist of purchased thermometers, an advanced bleeding
control, non-compression hemostasis, a patented antimicrobial ionic
silver calcium catheter dressing, needle destruction devices 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.
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 March
31, 2020, we are leasing both properties to third parties. The
Company is also currently using 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 December 1, 2019, the Chemin
Metairie is leased through December 31, 2020 at a rental rate of
$1,700 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
113,508,450 outstanding warrants as of March 31, 2020 with an
exercise price of $0.005 per share. Such warrants are anti-dilutive
to EPS and are excluded from the calculation of EPS.
At March 31, 2020, including accrued but unpaid interest, there was
one remaining 2016 Fixed Rate Convertible Note outstanding which
totaling $61,037 and is convertible into 4,069,118 shares of common
stock upon conversion of the remaining 2016 Fixed Rate Convertible
Note.
During the nine months ended March 31, 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 amount
of $1,078,862. The proceeds were used for working capital. The 2019
Variable Rate Convertible Notes are convertible into shares of
common stock at a variable conversion rate.
During the nine months ended March 31, 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 amount of
$832,000. With the proceeds we paid off certain variable rate
convertible notes outstanding in the amount of approximately
$458,000, 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 (which we refer to as the “2019 Warrants”).
At March 31, 2020, including accrued but unpaid dividends, there
were potentially 205,846,071 shares of common stock issuable upon
the conversion of our outstanding Series A Preferred Stock and,
including accrued but unpaid dividends, there were potentially
122,796,364 shares of common stock issuable upon the conversion of
our outstanding Series B Preferred Stock. The shares of common
stock to be issued upon conversion of the warrants and the shares
issuable from the conversion of the notes and the Series A and
Series B Preferred stock have been excluded from earnings per share
calculations because these shares are anti-dilutive.
Comprehensive 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 March 31, 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.
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 March 31, 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
March 31, 2020 and June 30, 2019, we had $267,145 and $0,
respectively, of 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 quarter ended March 31, 2020, we entered
into a one-year distribution agreement with Dolphin Medical LLC
(the “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 revenue of
approximately $87,500 and the related cost of goods sold in the
quarter ended March 31, 2020 for the required minimum purchase.
We also earn rental income from operating leases which is
recognized over the rental period as the tenant occupies the space
and pays the rental amount. Rentals are paid at the beginning of
the month covered by the lease.
Disaggregation of Revenue
For the three and nine month periods ended March 31, 2020 and 2019,
a summary of our revenue on a disaggregated basis is as
follows:
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
March
31, |
|
|
March
31, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Sales
of pharmaceuticals |
|
$ |
— |
|
|
$ |
1,457 |
|
|
$ |
— |
|
|
$ |
71,792 |
|
| Sales
of medical devices |
|
|
133,824 |
|
|
|
61,849 |
|
|
|
176,537 |
|
|
|
62,525 |
|
| Rental
revenue from operating lease payments |
|
|
14,850 |
|
|
|
10,250 |
|
|
|
41,452 |
|
|
|
34,759 |
|
| |
|
$ |
148,674 |
|
|
$ |
73,556 |
|
|
$ |
217,989 |
|
|
$ |
169,076 |
|
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 nine month periods ended March 31, 2020 and 2019, our revenues
were reduced by $95,508 and $39,995, respectively, for such
discounts. For the three month periods March 31, 2020 and 2019, our
revenues were reduced by $52,859 and $39,995, respectively, for
such discounts. Shipping and handling costs included in revenue was
$805 and $1,305 for the three and nine month periods ended March
31, 2020, respectively.
The investment in Tower Hotel Fund 2013, LLC is recorded at cost
and the Company is not aware of any indicator of impairment as of
March 31, 2020. It is not practicable for the Company to estimate
fair value of this investment.
We are pursuing the sale of our remaining investment in the real
estate limited partnership investment. During the year ended June
30, 2019, based on stability of operations of the underlying real
estate property 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 currently in negotiations to sell our interest in the
partnership, but we are uncertain if such a transaction will close
during the next twelve months. Thus, our investment is shown as a
non-current asset as of March 31, 2020 in the accompanying
consolidated balance sheet.
As of March 31, 2020, we have approximately $387,111 ($304,471 net
of accumulated amortization) in intangible assets related to
licenses held by EcoGen. Such intangible assets are being amortized
over an estimated useful life of 20 years.
In September 2018, the Company acquired the exclusive license
rights to certain medical device technology for $450,000, plus a
broker’s fee of $17,500. Under the terms of the license agreement,
the Company has paid $25,000 plus the first of a total twenty
quarterly payments of $21,250. 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 have been suspended at the present
time as the Company and the seller negotiate certain disputes
related to representations made by the seller at the time the
Company acquired the rights. The ultimate date and resolution of
this negotiation cannot be estimated at this time. As a result, the
Company has included all of the future payments under the original
agreement as noncurrent in the accompanying March 31, 2020 and June
30, 2019 consolidated balance sheets.
In the nine months ended March 31, 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 if other milestones are met.
|
5.
|
INSURANCE NOTE PAYABLE
|
We finance a portion of our insurance premiums. At March 31, 2020,
there was a $12,537 outstanding balance due on our premium finance
agreements. The agreements have effective interest rates of 6.2% to
10.9%. The policies related to these premiums expire between July
and October 2020.
|
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 March 31, 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 should 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 March 31, 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 has recorded operating right-of-use (ROU) assets and
liabilities in the amount of $67,254 as of March 31, 2020 related
to the 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.
|
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 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.
In March 2016, we authorized the issuance of up to $1 million in
principal amount of convertible promissory notes (which we refer to
as the “Fixed Rate Convertible Notes”). The Fixed Rate Convertible
Notes are secured by certain Company real estate holdings.
The 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 year ended June 30, 2019, concurrent with the execution
of the Exchange Agreement more fully described in Note 9, holders
of $515,247 aggregate principal amount of the Company’s 5%
convertible promissory notes (“Notes”), including accrued interest,
converted their Notes into 103,132,226 shares of Common Stock.
During the nine month period ended March 31, 2020, $17,480 of Notes
were converted by the holders into 1,165,314 shares of Common
Stock. At March 31, 2020, there was one remaining 2016 Fixed Rate
Convertible Note outstanding with principal and accrued interest of
$61,037. This one remaining 2016 Fixed Rate Convertible Note (plus
accrued interest) is convertible into our common stock at a
conversion rate of $0.015 per share or 4,069,118 shares. During the
nine month period ended March 31, 2020 and 2019, we paid-in-kind
approximately $2,000 and $23,000, respectively, of interest on
these convertible notes.
In August 2019, we authorized the issuance of up to $1.25 million
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 March 31, 2020, $832,000 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 (which we refer to as the “2019
Warrants”). 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.
As of June 30, 2019, we had $256,500 of previously issued variable
rate convertible notes outstanding (“Variable Rate Convertible
Notes”). During the nine months ended March 31, 2020, we also
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.
During the nine months ended March 31, 2020, we repaid $458,375 of
Variable Rate Convertible Notes and 2019 Variable Rate Convertible
Notes. Upon the retirement of these notes, the Company may also
have to pay a prepayment amount in excess of the outstanding
balance of principal and accrued interest. Such prepayment amounts
totaled $129,338 for the nine months ended March 31, 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.
At March 31, 2020, $835,737 of the 2019 Variable Rate Convertible
Notes were convertible into common stock beginning in the quarter
ending June 30, 2020. Subsequent to March 31, 2020, we repaid
outstanding principal amount of $335,000, plus accrued interest and
prepayment penalties, under these 2019 Variable Rate Convertible
Notes.
Certain of the 2019 Variable Rate Convertible Notes have maturity
dates prior to March 31, 2021 and could be classified as a current
liability. However, it is the Company’s expectation that we will
either re-finance these convertible notes to longer terms, pay off
such amounts with the proceeds of long-term financing, or permit a
limited amount of conversions. 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 quarter ended March 31,
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 August 1, 2020. 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 future accounts receivable. The proceeds from these
credit agreements were used to pay the initial amount due under the
Schreiber settlement agreement. As of June 30, 2019, we had drawn
approximately $153,000 under these agreements. During the nine
month period ended March 31, 2020, additional draws of
approximately $116,000 occurred and payments of approximately
$76,000 were made. As of March 31, 2020, approximately $174,000
remained 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
shall transfer all Company stock they presently own (52,377,108
common shares) to the Company and (ii) the Company shall (a) make
to Mr. Schreiber and the Schreiber Trust a cash payment of Two
Hundred Fifty Thousand and 00/100 Dollars (US$250,000.00) and (b)
issue two Promissory Notes, each in the principal amount of Two
Hundred Thousand and 00/100 Dollars (US$200,000.00), one of which
shall be due and payable on or before September 6, 2020 and the
other shall be due and payable on or before September 5, 2021. As a
result of this Settlement Agreement, we have recorded a loss of
$471,880 in the year ended June 30, 2019.
Each Promissory Note shall be non-interest bearing, however each
(i) shall bear a $15,000 late penalty if the principal amount is
not repaid by the due date and (ii) shall bear interest at a rate
of 18% per annum, from the issue date, if the principal is not
repaid by the 30th date after the due date.
Pursuant to a Security Agreement between the parties, Mr. Klug and
Beechwood secured the Company’s obligations to the Schreiber Trust
under the Settlement Agreement by granting first-priority security
interests in (i) 1,000 shares of Mr. Klug’s Series B Preferred
Company Stock; and 1,473 shares of Mr. Klug’s Series A Preferred
Company Stock, and (ii) Beechwood’s interest in the Tower Hotels
Fund 2014, LLC.
On October 11, 2019, Mr. Schreiber and the Schreiber Trust filed a
Motion to Enforce Settlement Agreement (the “Motion”) with the
Louisiana Court alleging that 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 seeks to accelerate the amounts owed to Mr.
Schreiber and the Schreiber Trust under the Settlement Agreement as
well as attorneys’ fees. The Company believes the Motion is without
merit and intends to vigorously defend against the Motion.
Consultant Agreement
On July 19, 2019 (the “Effective Date”), RedHawk Holdings Corp.
(the “Company”) 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 Quarterly Report on Form 10-Q, the Company
has not yet issued any of the shares pursuant to the Agreement.
On August 20, 2018, by a vote of the majority of our stockholders,
we increased the number of our authorized common shares from
1,000,000,000 to 2,000,000,000.
Preferred Stock
Pursuant to a certificate of designation filed with the Secretary
of State of the State of Nevada, effective November 12, 2015, 2,750
shares of our authorized Preferred Stock have been designated as
Series A 5% Convertible Preferred Stock, originally with a $1,000
stated value (which we refer to as “Series A Preferred Stock”). The
holders of the Series A Preferred Stock are entitled to receive
cumulative dividends at a rate of 5% per annum, payable quarterly
in cash, or at the Company’s option, such dividends shall be
accreted to, and increase, the stated value of the issued Series A
Preferred Stock (which we refer to as “PIK”). Holders of the Series
A Preferred Stock are entitled to votes on all matters submitted to
stockholders at a rate of ten votes for each share of common stock
into which the Series A Preferred Stock may be converted. After six
months from issuance, each share of Series A Preferred Stock is
convertible, at the option of the holder, into the number of shares
of common stock equal to the quotient of the stated value, as
adjusted for PIK dividends, by $0.015, as adjusted for stock splits
and dividends.
Pursuant to a certificate of designation filed with the Secretary
of State of the State of Nevada, effective February 16, 2016, 1,250
shares of our authorized Preferred Stock have been designated as
Series B 5% Convertible Preferred Stock, originally with a $1,000
stated value (which we refer to as “Series B Preferred Stock”). The
holders of the Series B Preferred Stock are entitled to receive
cumulative dividends at a rate of 5% per annum, payable quarterly
in cash, or at the Company’s option, such dividends shall be
accreted to, and increase, the stated value of the issued Series B
Preferred Stock (which we refer to as “PIK”). Holders of the Series
B Preferred Stock are entitled to votes on all matters submitted to
stockholders at a rate of ten votes for each share of common stock
into which the Series B Preferred Stock may be converted. After six
months from issuance, each share of Series B Preferred Stock is
convertible, at the option of the holder, into the number of shares
of common stock equal to the quotient of the stated value, as
adjusted for PIK dividends, by $0.01, as adjusted for stock splits
and dividends.
During the nine months ended March 31, 2020 and 2019, we
paid-in-kind $114,859 and $116,466, 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, Interim Chief Executive
Officer 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,
$0.001 par value per share (“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 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.
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 dividends”). 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.
Warrants
In conjunction with the Exchange Agreement, Beechwood was issued
113,508,450 warrants to purchase the Company’s common stock at a
price of $0.005 per share. The warrants expire in June 2029 and are
assignable.
In conjunction with the 2019 Fixed Rate Convertible Notes, the
holders of the 2019 Fixed Rate Convertible Notes were issued
20,800,000 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.
The
Company has not filed its tax returns for the years ended June 30,
2019 and 2018. As of June 30, 2019, the Company had approximately
$5 million of U.S. net operating losses (NOLs) carried forward to
offset taxable income in future years. Approximately $4 million of
this NOL will expire commencing in fiscal 2026 and run through
2038. The NOLs of approximately $1 million from the year ended June
30, 2019 has 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 $750,000 as of June 30, 2019. As a
result of the enactment of the Tax Cuts and Jobs Act (The Act) in
December 31, 2017, the estimated deferred income tax asset related
to U.S. NOL carry forwards is based on the reduced 21% corporate
income tax rate. Due to our history of operating losses and the
uncertainty surrounding the realization of the deferred tax assets
in future years, our management has determined that it is more
likely than not that the deferred tax assets will not be realized
in future periods. Accordingly, the Company has recorded a 100%
valuation allowance against its net deferred tax assets. Thus,
there is no net tax asset recorded as of March 31, 2020 or June 30,
2019. Similarly, there is no income tax benefit recorded on the net
loss of the Company for the periods ended March 31, 2020 and
2019.
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 & Hospitality and Other Services business units
operate in the United States. Our Medical Device and Pharmaceutical
business unit currently operates primarily in the United States and
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 March 31,
2020 and 2019 and for the nine months and three months then
ended.
|
|
|
|
|
|
MEDICAL |
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended |
|
LAND
& |
|
|
DEVICE
& |
|
|
OTHER |
|
|
|
|
|
|
|
|
March
31, 2020 |
|
HOSPITALITY |
|
|
PHARMA |
|
|
SERVICES |
|
|
CORPORATE |
|
|
TOTAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues |
|
$ |
41,452 |
|
|
$ |
176,537 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
217,989 |
|
| Operating
loss |
|
$ |
(15,145 |
) |
|
$ |
(248,760 |
) |
|
$ |
(160 |
) |
|
$ |
(554,246 |
) |
|
$ |
(818,311 |
) |
| Interest
expense |
|
$ |
35,452 |
|
|
$ |
627 |
|
|
$ |
— |
|
|
$ |
243,159 |
|
|
$ |
279,238 |
|
| Depreciation
and amortization |
|
$ |
23,500 |
|
|
$ |
39,875 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
63,375 |
|
| Identifiable
assets |
|
$ |
903,403 |
|
|
$ |
607,928 |
|
|
$ |
77,814 |
|
|
$ |
1,090,906 |
|
|
$ |
2,680,051 |
|
| |
|
|
|
|
MEDICAL |
|
|
|
|
|
|
|
|
|
|
| Nine months ended |
|
LAND & |
|
|
DEVICE & |
|
|
OTHER |
|
|
|
|
|
|
|
|
March 31, 2019 |
|
HOSPITALITY |
|
|
PHARMA |
|
|
SERVICES |
|
|
CORPORATE |
|
|
TOTAL |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
revenues |
|
$ |
34,759 |
|
|
$ |
134,317 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
169,076 |
|
| Operating income
(loss) |
|
$ |
(11,097 |
) |
|
$ |
(100,660 |
) |
|
$ |
(201 |
) |
|
$ |
(343,073 |
) |
|
$ |
(455,031 |
) |
| Interest expense |
|
$ |
12,526 |
|
|
$ |
10 |
|
|
$ |
— |
|
|
$ |
143,178 |
|
|
$ |
155,714 |
|
| Depreciation and
amortization |
|
$ |
23,500 |
|
|
$ |
56,859 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
80,359 |
|
| Identifiable assets |
|
$ |
937,294 |
|
|
$ |
693,185 |
|
|
$ |
— |
|
|
$ |
630,977 |
|
|
$ |
2,261,456 |
|
|
|
|
|
|
|
MEDICAL |
|
|
|
|
|
|
|
|
|
|
|
Three
months ended |
|
LAND
& |
|
|
DEVICE
& |
|
|
OTHER |
|
|
|
|
|
|
|
|
March
31, 2020 |
|
HOSPITALITY |
|
|
PHARMA |
|
|
SERVICES |
|
|
CORPORATE |
|
|
TOTAL |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues |
|
$ |
14,849 |
|
|
$ |
133,825 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
148,674 |
|
| Operating
income (loss) |
|
$ |
831 |
|
|
$ |
(51,151 |
) |
|
$ |
(85 |
) |
|
$ |
(164,041 |
) |
|
$ |
(214,446 |
) |
| Interest
expense |
|
$ |
8,883 |
|
|
$ |
310 |
|
|
$ |
— |
|
|
$ |
58,530 |
|
|
$ |
67,723 |
|
| Depreciation
and amortization |
|
$ |
7,833 |
|
|
$ |
13,625 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
21,458 |
|
| |
|
|
|
|
MEDICAL |
|
|
|
|
|
|
|
|
|
|
| Three months ended |
|
LAND & |
|
|
DEVICE & |
|
|
OTHER |
|
|
|
|
|
|
|
|
March 31, 2019 |
|
HOSPITALITY |
|
|
PHARMA |
|
|
SERVICES |
|
|
CORPORATE |
|
|
TOTAL |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
revenues |
|
$ |
10,250 |
|
|
$ |
63,306 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
73,556 |
|
| Operating income
(loss) |
|
$ |
(8,894) |
|
|
$ |
(15,899 |
) |
|
$ |
— |
|
|
$ |
(109,410 |
) |
|
$ |
(134,203 |
) |
| Interest expense
(income) |
|
$ |
4,789 |
|
|
$ |
10 |
|
|
$ |
— |
|
|
$ |
(20,705 |
) |
|
$ |
(25,504 |
) |
| Depreciation and
amortization |
|
$ |
7,833 |
|
|
$ |
11,375 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,208 |
|
The
Company evaluated events occurring after March 31, 2020, and
through the date the consolidated financial statements were issued,
June 29, 2020 and concluded there were no events or transactions
that would require recognition or disclosure in these financial
statements, except for the following:
| |
● |
In December 2019, a
novel strain of coronavirus was reported to have surfaced in Wuhan,
China, which has and is continuing to spread throughout the world,
including the United States. On March 11, 2020 the World Health
Organization characterized the spread of the coronavirus disease
(“COVID-19”) as a “pandemic”. The significant reach of COVID-19 has
resulted in a widespread public health issue that has and will
likely continue to affect the economies worldwide, and could
adversely affect our business, results of operations and financial
condition, including a decrease in demand for our medical devices.
Specifically, demand for our newly released SANDD Pro™ may
be delayed, postponed or cancelled until hospitals, clinics and
physicians resume normal operations. In addition, the operations of
our real estate investment in Hawaii has also been adversely
affected. As a result of the pandemic, we expanded our medical
sales efforts to include personal protective equipment (PPE) in the
quarter ending June 30, 2020. The ultimate extent of the impact of
COVID-19 on our business and future financial condition, results of
operations and cash flows will depend on future developments, which
are highly uncertain and cannot be predicted at this
time.
|
| |
|
|
|
|
● |
Subsequent
to March 31, 2020, we repaid in full two 2019 Variable Rate
Convertible Notes in the principal amount of $335,000 plus accrued
interest. There was a prepayment penalty paid with the repayment in
the amount of approximately $19,500. Also, as a result of the full
payment, 20,434,782 shares of common stock previously issued as
collateral for one of these notes were returned to the
Company.
|
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
This
Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements.
Forward-looking statements are all statements other than statements
of historical facts. The words “may,” “can,” “will,” “should,”
“plans,” “believes,” “estimates,” “expects,” “projects,” “targets,”
“intends,” “potential,” “proposed,” and any similar expressions are
intended to identify those assertions as forward-looking
statements. Investors are cautioned that forward-looking statements
are predictions and are inherently uncertain. Actual performance
and results may differ materially from that projected or suggested
herein due to certain risks and uncertainties. In evaluating
forward-looking statements, you should consider the various factors
which may cause actual results to differ materially from any
forward-looking statements, including the risks below and those
listed in the “Risk Factors” section of our latest 10-K
report:
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The
ultimate extent of the impact of COVID-19 on our business and
future financial condition, results of operations and cash flows
will depend on future developments, which are highly uncertain and
cannot be predicted at this time. |
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Changes
in the effects of the significant level of competition that exists
in the medical device distribution industry, or our inability to
attract customers for other reasons. |
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The
unexpected cost of regulation applicable to our industry, and the
possibility of future additional regulation. |
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Our
lack of adequate insurance coverage in the event we incur an
unexpected liability. |
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Our
lack of a proven operating history and the possibility of future
losses that are greater than we currently anticipate. |
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The
possibility that we may not be able to generate revenues or access
other financing sources necessary to operate our
business. |
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Our
inability to attract necessary personnel to run and market our
business. |
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The
volatility of our stock price. |
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Changes
in the market prices for our products, or our failure to perform or
renew the distribution agreement for our products. |
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Our
failure to execute our growth strategy or enter into other lines of
business that we may identify as potentially profitable for our
company. |
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Changes
in economic and business conditions. |
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The
outcome of pending or future litigation. |
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Changes
in accounting policies and practices we may voluntarily adopt or
that we may be required to adopt under generally accepted
accounting principles in the United States. |
Although
we believe that the exceptions reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. New risks and
uncertainties arise over time, and it is not possible for us to
predict the occurrence of those matters or the manner in which they
may affect us. Except as required by law, we are not obligated to,
and do not intend to, update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise. Therefore, you should not rely on these
forward-looking statements as of any date subsequent to the date of
this Quarterly Report on Form 10-Q.
Overview
RedHawk
Holdings Corp. was incorporated in the State of Nevada on November
30, 2005 under the name “Oliver Creek Resources Inc.” Effective
August 12, 2008, we changed our name from “Oliver Creek Resources
Inc.” to “Independence Energy Corp.” Effective October 13, 2015, by
vote of a majority of our stockholders, our name was changed from
“Independence Energy Corp.” to “RedHawk Holdings Corp.”
We are a diversified holding company which, through our
subsidiaries, is engaged in sales and distribution of medical
devices, sales of branded generic pharmaceutical drugs, commercial
real estate investment and leasing, sales of point of entry
full-body security systems, and specialized financial services.
Through our medical products business unit, we sell WoundClot
Surgical - Advanced Bleeding Control, the SANDD™ Insulin Needle
Destruction Unit (formerly known as the Disintegrator™), 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 commercial
properties under lease. Additionally, the Company’s real estate
investment unit holds limited liability company interests in a
commercial restoration project in Hawaii.
Recent Developments
In
December 2019, a novel strain of coronavirus was reported to have
surfaced in Wuhan, China, which has and is continuing to spread
throughout the world, including the United States. On March 11,
2020 the World Health Organization characterized the spread of
COVID-19 as a “pandemic”. The significant reach of COVID-19 has
resulted in a widespread public health issue that has and will
likely continue to affect the economies worldwide, and could
adversely affect our business, results of operations and financial
condition, including a decrease in demand for our medical devices.
Specifically, demand for our newly released SANDD Pro™ may
be delayed, postponed or cancelled until hospitals, clinics and
physicians resume normal operations. In addition, the operations of
our real estate investment in Hawaii has also been adversely
affected. As a result of the pandemic, we expanded our medical
sales efforts to include personal protective equipment (PPE) in the
quarter ending June 30, 2020. The ultimate extent of the impact of
COVID-19 on our business and future financial condition, results of
operations and cash flows will depend on future developments, which
are highly uncertain and cannot be predicted at this
time.
Working Capital
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March
31,
2020 |
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June
30,
2019 |
|
| Current
Assets |
|
$ |
734,231 |
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$ |
405,685 |
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| Current
Liabilities |
|
$ |
1,725,628 |
|
|
$ |
1,474,348 |
|
| Working
Capital (Deficit) |
|
$ |
(991,397 |
) |
|
$ |
(1,068,663 |
) |
RESULTS
OF OPERATIONS
Operating Revenues
We
commenced operations in our commercial real estate leasing business
units in 2015. On December 31, 2015, our medical device business
unit completed the acquisition of certain specialized tangible and
intangible medical devices. On March 23, 2016, RedHawk Pharma UK
Ltd acquired a 25% equity interest in EcoGen Europe Ltd, a United
Kingdom based distributor of branded generic pharmaceuticals.
During the quarter ended December 31, 2017, we increased our
ownership in EcoGen to 100%. Sales efforts for our medical devices
and branded generic pharmaceuticals commenced during the quarter
ending September 30, 2016. We changed our revenue focus from
branded generic pharmaceutical sales in the United Kingdom to more
profitable medical device sales in the United States. The Company
sells its smaller needle incineration device (SANDD mini) primarily
to consumers, school nurses and law enforcement agencies. During
the quarter ended March 31, 2020, the Company expanded its
portfolio of medical products offered to consumers including
digital non-contact thermometers, protective face masks, surgical
masks and UV lights.
For the nine month period ended March
31, 2020, revenues from sales of our medical devices, branded
generic pharmaceutical products and rentals of our commercial
properties totaled $217,989 (net of introductory and distributor
discounts totaling $95,508) as compared to revenues of $169,076
(net of introductory discounts of $39,995) for the comparable nine
month period ended March 31, 2019.
During the three and nine month periods ended March 31, 2020, the
Company’s revenues were principally from sale of the Company’s
needle incineration devices and certain newly offered PPE whereas
revenues for the comparable three and nine month periods ended
March 31, 2019 were principally from the Company’s branded generic
pharmaceuticals in the United Kingdom. During the 2019 fiscal year,
the Company announced that it would shift its revenue focus away
from the lower profit margin branded generic pharmaceuticals to its
more profitable needle incineration medical devices. For the nine
month period ended March 31, 2020 and 2019, our branded generic
pharmaceutical sales totaled $0 and $71,792,
respectively.
Gross profit margin from the sale of the Company’s needle
incineration devices approximates 69%; excluding introductory and
distributor discounts the gross profit margin approximates 80%, as
compared to approximately 27% from sales of the Company’s branded
generic pharmaceuticals. The gross profit margin in the three and
nine month periods ended March 31, 2020 were affected by the
introductory discounts provided to two new customers. The lower
gross profit margins from the sale of the Company’s branded
generics pharmaceuticals resulted from lowering of posted drug
tariff prices by the United Kingdom National Health Service. The
change in the Company’s revenue focus away from branded generic
pharmaceuticals is expected to be temporary but will remain our
revenue focus until tariff prices improve.
Revenues
in the pharmaceutical business unit are expected to return as
tariff prices improve, market acceptance of our products increases,
and we continue to execute our business plan to expand marketing of
our SANDD™ medical devices. Additionally, net profits are expected
to improve as the Company’s sales increase in our more profitable
medical device sales and pharmaceutical sales become more weighted
to its branded generics which have lower operating costs and
require lower sales discounts than the discounts offered by the
Company for its highly competitive “special”
pharmaceuticals.
Operating
Expenses and Loss from Continuing Operations
For the nine month period ended March
31, 2020, we reported a consolidated net loss of $1,210,112 on
revenues of $217,989 as compared to a consolidated net loss of
$997,245 on revenues of $169,076 for the comparable nine month
period ended March 31, 2019. For the three month period ended March
31, 2020, we reported a consolidated net loss of $439,259 on
revenues of $148,674 as compared to a consolidated net loss of
$98,699 on revenues of $73,556 for the comparable three month
period ended March 31, 2019. There were introductory and
distributor discounts of $95,508 and $52,859 in the nine month and
three month periods ended March 31, 2020, respectively.
Introductory discounts for the nine and three month periods ended
March 31, 2019 were $39,995 and $39,995,
respectively.
The
net loss for the nine month period ended March 31, 2020
includes approximately $118,004 of non-recurring professional
services principally resulting from certain regulatory matters and
contract preparation in connection with the Company’s consulting
agreement with Drew Pinsky, Inc. (“DPI”) f/s/o Dr. Drew Pinsky
(“Consultant”), regulatory filings in connection with the Company’s
obligation to issue equity to the Consultant under the consulting
agreement and preparation of contractual documents in connection
with the 2019 Fixed Rate Convertible Notes. Additionally, the nine
and three month periods ended March 31, 2020 also includes
approximately $113,768 and $40,153, respectively of marketing
consulting fees incurred in connection with the consulting
agreement with DPI, $70,389 and $18,014, respectively, of
consulting fees principally related to the Company’s new investor
and public relations advisors, $65,710 and $12,500, respectively of
auditor fees, $83,901 and $25,420, respectively, of non-recurring
research and development costs incurred in connection with the
re-design of the SANDD Pro™, approximately $11,436 and
$8,810, respectively, of higher costs associated with website and
social media development, and $20,094 of additional marketing
start-up costs associated with the launch of sales for the
Company’s needle incineration devices.
Liquidity and Capital Resources
As of March 31, 2020, we had cash of $99,246 compared with cash of
$1,648 as of June 30, 2019. During the three month period ended
March 31, 2020, we redeemed our certificate of deposit of $100,374
at June 30, 2019 and used the proceeds to repay the balance due on
our line of credit.
During the nine months ended March
31, 2020, we issued in private offerings exempt from registration
$1,078,862 of variable convertible notes (proceeds of approximately
$960,000, net of financing costs). We also issued $832,000 of new
fixed rate convertible notes (proceeds of approximately $797,000,
net of financing costs). The proceeds from these debt financings
were used to pay approximately $458,375, plus accrued interest and
prepayment penalties, of variable interest convertible notes and
provide working capital.
The Company is continuing to pursue the sale of its real estate
holdings. Also refer to the Going Concern section of Note 1
to our unaudited consolidated financial statements.
Cash Flows
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Nine
months ended
March 31, |
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| |
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2020 |
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|
2019 |
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| Cash
Flows (used in) Operating Activities |
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$ |
(1,205,950 |
) |
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$ |
(520,292 |
) |
| Cash
Flows provided by Investing Activities |
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$ |
94,774 |
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$ |
321,577 |
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| Cash
Flows provided by Financing Activities |
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$ |
1,239,472 |
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$ |
233,049 |
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| Net
Change in Cash During Period |
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$ |
97,598 |
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$ |
11,843 |
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Cash Flow from Operating Activities
During the nine month period ended March 31, 2020, $1,205,950 of
cash was used by our operating activities as compared to $520,292
used in our operating activities for the comparable nine month
period ended March 31, 2019. Changes to our operating activities
are sporadic and result from the early stage of implementation of
our business strategies that are supported by capital raising
activities. During the nine month period ended March 31, 2020, as
we moved forward with the development and sales efforts of our
needle incineration devices and expanded the portfolio of medical
device products offered for sale, we expended cash on inventory and
made prepayments for additional inventory, and had increase cash
outlays on sales and marketing, research and development,
professional fees, operating costs (including insurance), and
administrative costs. We also paid interest of $229,867 in the nine
month period. These added cash outlays increased our cash used in
operating activities.
Cash Flows from Investing Activities
During the nine month period ended March 31, 2019, we received
approximately $370,000 in distributions from our limited liability
real estate investment in Hawaii. This was partially offset by the
deposit made in connection with the acquisition of a license. In
the nine months ended March 31, 2020, we cashed in our certificate
of deposit and used the proceeds to pay the related line of
credit.
Cash Flows from Financing Activities
During the nine month period ended
March 31, 2020, we received net proceeds, after financing costs
incurred, of approximately $960,000 from
the issuance of 2019 Variable Rate Convertible Notes and
approximately $797,000 from the issuance and sale of the 2019 Fixed
Rate Convertible Notes. The proceeds received were used to pay
certain variable interest notes and provide working
capital.
Going Concern
We continue to incur operating losses and use cash in our operating
activities and are dependent upon asset sales, obtaining third
party financing or shareholder loans to pursue any acquisitions and
continue our operating activities. For these reasons, there is
substantial doubt that we will be able to continue as a going
concern without further financing. Also refer to the Going
Concern section of Note 1 to our unaudited consolidated
financial statements.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to stockholders.
Future Financings
We will continue to rely on financial support from our stockholders
and our ability to raise equity capital or debt financing in order
to continue to fund our business operations. Issuances of
additional shares and debt instruments convertible into shares of
our stock will result in dilution to existing stockholders.
Additional funding may not be available to us on a timely basis or
at acceptable terms, if at all. There is no assurance that we will
achieve any additional sales of the equity securities or arrange
for debt or other financing to fund our operations and other
activities.
Use of Estimates and Critical Accounting
Policies
Our consolidated financial statements and accompanying notes have
been prepared in accordance with GAAP applied on a consistent
basis. The preparation of financial statements in conformity with
GAAP requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we
use to prepare our financial statements. A summary of these
policies is included in the notes to our financial statements. In
general, our management’s estimates are based on historical
experience, information from third party professionals, and various
other assumptions that are believed to be reasonable under the
facts and circumstances. Actual results could differ from those
estimates made by management.
Recently Issued Accounting Pronouncements
We have implemented all new accounting pronouncements that are in
effect and applicable to us. These pronouncements did not have any
material impact on the financial statements unless otherwise
disclosed, and we do not believe that there are any other new
accounting pronouncements that have been issued that might have a
material impact on our financial position or results of
operations
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide the
information under this item.
ITEM 4. CONTROLS AND
PROCEDURES.
Management’s Report on Disclosure Controls and
Procedures
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company’s reports filed under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer
to allow for timely decisions regarding required disclosure.
As of the end of the quarter covered by this Quarterly Report on
Form 10-Q, we carried out an evaluation of the effectiveness of the
design and operation of the Company’s disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded, in light of material weaknesses
in our internal controls, that the Company’s disclosure controls
and procedures were not effective as of the end of the period
covered by this Quarterly Report on Form 10-Q. The Company has a
limited number of employees and, as such, segregation of duties
surrounding certain processes are not adequately maintained,
including over cash receipts and disbursements. This also means
there is limited review of accounting and financial reporting
conclusions made by the Company’s chief financial officer.
Changes in Internal Control Over Financial
Reporting
During the nine month period ended March 31, 2020, our board of
directors established the following remediation measures to address
certain material weaknesses disclosed in our Annual Report on Form
10-K for the fiscal year ended June 30, 2019:
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We engaged additional personnel to assist with the preparation and
review of the Company’s monthly financial reporting, and to
appropriately segregate duties, including those related to cash
transactions.
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Except as indicated above, during the period covered by this
Quarterly Report on Form 10-Q, there were no other changes in the
Company’s internal control over financial reporting that materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS.
Please see Note 8 to the unaudited consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q
for a summary of legal proceedings and developments during the
quarter ended March 31, 2020, including a summary of the Motion to
Enforce Settlement Agreement that was filed against the Company by
Daniel J. Schreiber and the Daniel J. Schreiber Living Trust – Dtd
2/08/95 in the United States District Court for the Eastern
District of Louisiana on October 11, 2019.
ITEM 1A. RISK FACTORS.
As a smaller reporting company, we are not required to provide the
information under this item.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.
None.
ITEM 4. MINE SAFETY
DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are either filed herewith or incorporated
herein by reference:
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Exhibit Number
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Description of Exhibit
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3.01
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Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K filed on
July 26, 2019)
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3.02
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Bylaws (incorporated by reference to Exhibit 3.2 to our
Registration Statement on Form SB-2 filed on March 7, 2006)
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3.03
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Certificate of Designation filed on November 12, 2015 (Incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed on November 19, 2015).
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3.04
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Certificate of Designation filed on February 16, 2016 (Incorporated
by reference to Exhibit 3.1 to our Current Report on Form 8-K filed
on January 5, 2016).
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10.1*
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Office
Lease, dated January 13, 2020, by and between the Company and 100
Petroleum Drive, LLC.
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31.1*
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Certification of the Principal
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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31.2*
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Certification of the Principal
Financial Officer and Principal Accounting Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1**
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Certification of the Principal
Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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32.2**
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Certification of the Principal
Financial Officer and Principal Accounting Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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*
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Filed herewith.
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**
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The Certifications attached as Exhibits 32.1 and 32.2 that
accompany this Quarterly Report on Form 10-Q are not deemed filed
with the Securities and Exchange Commission and are not to be
incorporated by reference into any filing of RedHawk Holdings
Corp., irrespective of any general incorporation language contained
in such filing.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
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REDHAWK HOLDINGS CORP.
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(Registrant)
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Dated: June 29, 2020
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/s/ G. Darcy Klug
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G. Darcy Klug
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Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting Officer)
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