Notes to the Consolidated Financial Statements
June 30, 2016
1.
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NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
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RedHawk Holdings Corp.
(formerly Independence Energy Corp.) was incorporated in the State of Nevada on November 30, 2005 under the name “Oliver
Creek Resources Inc.” At inception, we were organized to acquire, explore and develop natural resource properties in
the United States. Effective August 12, 2008, we changed our name from “Oliver Creek Resources Inc.” to
“Independence Energy Corp.” and opened for trading with the Over-the Counter Bulletin Board under the symbol “IDNG.”
Effective October 13, 2015, by vote of a majority of the Company’s stockholders, the Company’s name was changed from
“Independence Energy Corp.” to “RedHawk Holdings Corp.”
On March 31, 2014,
the Company acquired the exclusive right to distribute certain medical devices and changed the focus of its operations to include
medical device distribution. We have expanded our operations to include specialized financial services, pharmaceutical sales, commercial
real estate leasing and investment, and a specialized security system.
Currently, we are a
diversified holding company which, through our subsidiaries, is engaged in sales and distribution of medical devices, sales of
branded generic pharmaceutical drugs, commercial real estate investment and leasing, sales of point of entry full-body security
systems, and specialized financial services. Through its medical products business unit, the Company sells WoundClot Surgical -
Advanced Bleeding Control, the Disintegrator™ Insulin Needle Destruction Unit, the Carotid Artery Digital Non-Contact Thermometer
and Zonis®. Its real estate leasing revenues are generated from a commercial property under a long-term lease. Additionally,
the Company’s real estate investment unit holds limited liability company interest in a commercial restoration project in
Hawaii. The Company’s financial service revenue is from brokerage services earned in connection with debt placement services.
RedHawk Energy Corp., LLC holds the exclusive U.S. manufacturing and distribution rights for the Centri Controlled Entry System,
a unique, closed cabinet, nominal dose transmission full body x-ray scanner.
In June 2014, the Company
decided to discontinue its oil and gas exploration and production operations.
Going Concern
These financial statements
have been prepared on a going concern basis, which implies that the Company will be able to continue as a going concern without
further financing. Currently, the Company must continue to realize its assets to discharge its liabilities in the normal course
of business. The Company has generated minimal revenues to date and has never paid any dividends on its common stock and is unlikely
to pay any common stock dividends or generate significant earnings in the immediate or foreseeable future.
For the year ended June 30, 2016, the Company had $29,450 in revenue, and a net loss of $1,267,960, and
cash of $1,172,960 used in operating activities. As of June 30, 2016, the Company had a working capital deficit of $174,721 and
an accumulated deficit of $2,646,026. The continuation of the Company as a going concern is dependent upon the continued financial
support from its stockholders, the ability to raise equity or debt financing, and the attainment of profitable operations from
the Company’s businesses in order to discharge its obligations. These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern.
2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
The consolidated financial
statements of the Company as of June 30, 2016 and 2015 and for the five month period ended June 30, 2015 included herein have been
prepared in accordance with accounting principles generally accepted in the United States of America (which we refer to as “GAAP”)
pursuant to the rules and regulations of the SEC. The Company’s fiscal year-end was January 31 but was been changed
to June 30 by vote of a majority of the Company’s board of directors on June 15, 2015.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries in which
we have a greater than 50% ownership. All material intercompany accounts have been eliminated upon consolidation. Certain prior
year amounts are sometimes reclassified to be consistent with the current year financial statement presentation. Equity investments,
which we have an ownership greater than 20% but less than 50% through which we exercise significant influence over but do not control
the investee and we are not the primary beneficiary of the investee’s activities, are accounted for using the equity method
of accounting. 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 long-lived assets, asset retirement obligations, fair value of share-based
payments, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely
from the Company’s estimates. To the extent there are material differences between the estimates and the actual results,
future results of operations will be affected.
Revenue Recognition
We derive revenue from
several types of activities – medical device sales, commercial real estate leasing and financial services. Our medical device
sales include the marketing and distribution of certain professional and consumer grade digital non-contact thermometers, needle
destruction unit and advanced bleeding control, non-compression hemostasis. Our real estate leasing revenues are from certain commercial
properties under long-term lease. The financial service revenue is from brokerage services earned in connection with debt placement
services.
Cash and Cash Equivalents
We consider highly
liquid investments with an original maturity of 90 days or less to be cash equivalents.
Marketable Securities
We determine the appropriate classification of our marketable securities at the time of purchase and reassess
the appropriateness of the classification at each reporting date. At June 30, 2016, all marketable securities held by the Company
have been classified as available-for-sale and, as a result, are stated at fair value with unrealized gains and losses included
as a component of accumulated other comprehensive income or loss. Realized gains and losses on the sale of marketable securities
are determined on a specific identification basis. Interest and dividend income is recorded when it is earned and deemed realizable
by the Company. At June 30, 2016, the fair value of the marketable securities on hand, which consisted entirely of widely recognized
publicly-traded securities, was $339,032. Gross unrealized loss on the fair market value of the marketable securities was $38,860
as of June 30, 2016. As of June 30, 2016, we had trade date receivables of $302,288 recorded which was related to a sale
of securities that had a trade date prior to June 30, 2016 and a settlement date after that date.
Accounts Receivable
Accounts
receivables are amounts due from customers of our medical device division and our financial services division. The amount is
reported at the billed amount, net of any expected allowance for bad debts. There was no allowance for doubtful accounts as
of June 30, 2016 and 2015.
Inventory
Inventory consist of
purchased thermometers and advanced bleeding control, non-compression hemostasis held for resale and are stated at the lower of
cost or net realizable value utilizing the first-in, first-out method.
Property and Improvements
Property and improvements
are stated at cost. We provide for depreciation expense on a straight line basis over each asset’s useful life depreciated
to their estimated salvage value. Buildings are depreciated over a useful life of 20 years. Building improvements are depreciated
over a useful life of 5 to 10 years.
Oil and Gas Property Costs
During the year ended
January 31, 2015, the Company decided to discontinue its oil and gas business and the relevant assets have been impaired. In June
2015, the Company assigned its working interest in the Quinlan wells to the operator of those wells in exchange for the cancellation
of all amounts due to the operator, including any future liabilities related to the Quinlan wells.
Income Taxes
Potential benefits
of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted Accounting
Standard Codification (which we refer to as “ASC”) 740,
Income Taxes,
as of its inception. Pursuant to ASC 740,
the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating
losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not
it will utilize the net operating losses carried forward in future years. The Company recognizes interest and penalties related
to uncertain tax positions in income tax expense in the period they are incurred. The Company does not believe that it has any
uncertain tax positions. The Company has not filed any corporate tax returns since its inception.
Basic and Diluted Net Loss Per Share
The Company
computes net loss per share in accordance with ASC 260,
Earnings Per Share,
which requires presentation of both basic
and diluted earnings per share (EPS) on the face of the statement 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. As of June 30, 2016, January 31, 2015 and June 30, 2015, the Company had 7,452,959 potentially dilutive
shares from our warrants issued in connection with the November 2014 private equity sale. At June 30, 2016, there were
23,002,083 shares issuable upon conversion of the notes but have been excluded from earnings per share calculations
because these shares are anti-dilutive. Also at June 30, 2016, there were potentially 82,666,666 shares issuable upon the
conversion of the Series A Preferred Stock. In addition, there were potentially 125,000,000 shares issuable upon the
conversion of the Series B preferred stock.
Comprehensive Income (Loss)
ASC 220,
Comprehensive
Income
, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
During the year ended June 30, 2016, the Company had $38,860 of other comprehensive loss resulting from the unrecognized loss on
marketable securities. During the five month transition period ended June 30, 2015 and the year ended January 31, 2015, the Company
had no items that represented other comprehensive income or loss.
Financial Instruments
Pursuant to ASC 820,
Fair Value Measurements and Disclosures
, an entity is required to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the
fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes
the inputs into the following three levels that may be used to measure fair value:
Level 1.
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2.
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3.
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
The Company has marketable
securities with a fair market value of $339,032 at June 30, 2016, which are all publicly traded securities with quoted prices in
active markets. The fair value is based on Level 1 assumptions.
The Company’s
financial instruments consist principally of cash, marketable securities, accounts payable and accrued liabilities, and amounts
due to related parties. Pursuant to ASC 820 and ASC 825, the fair value of our cash is determined based on “Level 1”
inputs, which consist of quoted prices in active markets for identical assets.
We believe that the
recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective
maturity dates or durations.
Recent Accounting Pronouncements
Development Stage
The Company has limited
operations and is considered to be in the development stage. During the year ended January 31, 2015, the Company elected to early
adopt Accounting Standards Update (which we refer to as “ASU”) No. 2014-10,
Development Stage Entities (Topic 915):
Elimination of Certain Financial Reporting Requirements
. The adoption of this ASU allows the Company to remove the inception
to date information and all references to development stage.
Revenue Recognition
In May 2014, the Financial
Accounting Standards Board (which we refer to as the “FASB”) issued new guidance intended to change the criteria for
recognition of revenue. The new guidance establishes a single revenue recognition model for all contracts with customers, eliminates
industry specific requirements and expands disclosure requirements. The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should
apply the following five steps: (1) identify contracts with customers, (2) identify the performance obligations in the contracts,
(3) determine the transaction price, (4) allocate the transaction price to the performance obligation in the contract, and (5)
recognize revenue as the entity satisfies performance obligations. In July 2015, the FASB permitted early adoption and deferred
the effective date of this guidance one year; therefore, it will be effective for the Company in the first quarter of fiscal 2019
and may be implemented retrospectively to all years presented or in the period of adoption through a cumulative adjustment. We
are currently evaluating what impact the adoption of this guidance would have on our financial position, results of operations,
cash flows and disclosures.
Going Concern
In August 2014, the
FASB issued guidance on disclosures of uncertainties about an entity’s ability to continue as a going concern. The guidance
requires management’s evaluation of whether there are conditions or events that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment
must be made in connection with preparing financial statements for each annual and interim reporting period. Management’s
evaluation should be based on the relevant conditions and events that are known and reasonably knowable at the date the financial
statements are issued. If conditions or events raise substantial doubt about the entity’s ability to continue as a going
concern, but this doubt is alleviated by management’s plans, the entity should disclose information that enables the reader
to understand what the conditions or events are, management’s evaluation of those conditions or events and management’s
plans that alleviate that substantial doubt. If conditions or events raise substantial doubt and the substantial doubt is not alleviated,
the entity must disclose this in the footnotes. The entity must also disclose information that enables the reader to understand
what the conditions or events are, management’s evaluation of those conditions or events and management’s plans that
are intended to alleviate that substantial doubt. The amendments are effective for annual periods and interim periods within those
annual periods beginning after December 15, 2016. We do not expect that adoption will have a material impact on our financial position,
results of operations, cash flows or disclosures.
Debt Issuance Costs
In April 2015, the
FASB issued new guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the
carrying value of the associated debt liability, consistent with the presentation of a debt discount. The new guidance does not
affect the recognition and measurement of debt issuance costs. Therefore, the amortization of such costs will continue to be calculated
using the interest method and be reported as interest expense. The new guidance does not specifically address, and therefore does
not affect, the balance sheet presentation of debt issuance costs for revolving debt arrangements. This new guidance is effective
for the Company in the first quarter of fiscal 2017, and will be applied on a retrospective basis. Early adoption is permitted
for financial statements that have not been previously issued. To date, our debt issuance cost of $34,791 as of June 30, 2016
has not been significant. As the Company continues to raise capital to execute its growth strategy, the use of debt in the future
may have additional issuance costs to be accounted for under this guidance.
Leases
In February 2016, the
FASB issued ASU 2016-02,
Leases
, 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 lease arrangements.
The new guidance is effective for the Company in the first quarter of fiscal year 2020 and will be applied on a modified retrospective
basis beginning with the earliest period presented. The Company is currently evaluating the impact of adopting this guidance on
our consolidated financial statements.
Properties and Improvements
On November 12,
2015, we acquired certain commercial rental property, consisting of $75,000 of land and $405,000 of buildings and
improvements, from a related party that is an entity controlled by a stockholder and officer of the Company,
for
$480,000. The purchase price was paid by the Company through the assumption of $265,000 of long-term bank indebtedness (see
Note 7) plus the issuance of 215 shares of the Company’s newly designated Series A Preferred Stock (see Note 8). The
purchase price of the property was determined by independent third-party appraisers commissioned by the financial institution
providing the long-term financing for the acquisition, which included the cost of specific security improvements requested by
the lessee. The property is under lease to an unrelated party through July 31, 2017 at a base rent of $3,250 per month.
On December 31, 2015,
we acquired certain commercial real estate from a related party, that is an entity controlled by a shareholder and officer of the
Company, to be used as our corporate office, for $300,000 consisting of $35,000 of land and $265,000 of buildings and improvements.
The purchase price was paid by the Company with the issuance of 300 shares of the Company’s Series A Preferred Stock. The
purchase price of the property was determined by independent third-party appraisal.
Oil and Gas Properties
Effective June 1, 2015,
we assigned 100% of our interest in the Quinlan wells to the operator of those wells in exchange for the cancellation of all current
and future liabilities on the Quinlan wells.
Tower Hotel Fund 2013, LLC
On December 31, 2015,
RedHawk Land & Hospitality, LLC acquired from Beechwood Properties, LLC 280,000 Class A Units (approximately a 2.0% membership
interest) of fully paid, non-assessable units of limited liability company interest in Tower Hotel Fund 2013, LLC, a real estate
development limited liability company formed in the state of Hawaii for acquisition, restoration and development of the Naniloa
Hilo Resort in Hilo, Hawaii. The $625,000 purchase price was paid by the issuance of 625 shares of the Company’s Series A
Preferred Stock. The purchase price was determined by an independent third-party valuation. Beechwood Properties, LLC is a real
estate limited liability company owned and controlled by G. Darcy Klug, a stockholder and Chief Financial Officer and Chairman
of the board of directors of the Company.
Intangible Assets
On March 31, 2014,
the Company entered into an asset purchase agreement (which we refer to as the “Agreement”) with American Medical Distributors,
LLC (which we refer to as “AMD”) pursuant to which the Company acquired a five-year license commencing on November
27, 2013 for the exclusive territorial distribution rights to the Thermofinder non-contact thermometer from AMD in exchange for
the issuance of 152,172,287 shares of the Company’s common stock with a fair value of $320,431 based on the fair value of
such shares on the date of issuance. As a part of this asset acquisition and share issuance, the Company also received a payment
of $60,000. The intangible asset is being amortized over the remaining life of the license agreement. Amortization expense is expected
to be approximately $69,000 per year for years 2017 and 2018 and approximately $33,000 in year 2019.
On December 31, 2015,
we acquired certain tangible and intangible high-quality medical device assets, including the Disintegrator™ Insulin Needle
Destruction Unit (which we refer to as “NDD”) and the Carotid Artery Non-Contact Thermometer. The purchase price was
paid by the issuance of 60,000,000 restricted shares of our common stock, which are subject to vesting based upon the completion
by the seller of certain performance milestones including, but not limited to, successful completion of NDD upgrades, submission
for worldwide patents for the NDD, completion of the first NDD production model, approval by the Company of the initial NDD production
run, attaining certain NDD unit sales and profitability milestones, and receipt of final worldwide patents for the NDD. At June
30, 2016, none of the restricted shares had vested.
On March 23, 2016,
RedHawk Pharma UK Ltd acquired a 25% equity interest in EcoGen Europe Ltd (which we refer to as “EcoGen”) from Scarlett
Pharma Ltd (which we refer to as “Scarlett”). The Company has agreed to issue to Scartlett up to 100 million restricted
shares of common stock of the Company. Under the terms of the purchase agreement, 10 million shares were issued to Scarlett at
closing with an additional 90 million shares (which we refer to as the “Earnout Shares”) to be issued and vested pro
rata as EcoGen reports audited EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The issuance and vesting
of the Earnout Shares will occur annually based upon audited results of EcoGen and will conclude with the earlier of EcoGen attaining
cumulative EBITDA of $100 million or seven years from the closing date.
Additionally, during
the seven-year period commencing on the closing date, the Company has the right, but not the obligation, to increase its ownership
position in EcoGen up to a maximum of 49% of the entire capital of EcoGen. Should the Company exercise its option to increase its
ownership position, the Company will issue to Scarlett, pro rata, up to an additional 100 million restricted shares of the common
stock of the Company.
Concurrent with the
execution of the purchase agreement, the Company entered into a consultancy agreement with Scarlett for the marketing and distribution
in the United Kingdom and, where available, other European and Middle East countries, certain medical device products offered by
RedHawk Medical Products UK Ltd.
5.
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LOAN AND INSURANCE NOTE PAYABLE
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We finance a portion
of our insurance premiums. At June 30, 2016, the outstanding balance due on our premium finance agreement was $14,178.
In December 2011, the
Company received a loan in the amount of $156,697 from an unrelated third party. The loan was non-interest bearing, unsecured and
due on demand. On December 11, 2015, the time frame to collect the loan by the third party had expired. Therefore, the loan was
written off and recorded within other income/expense as expiration of indebtedness.
Effective November
12, 2015, the Company entered into a $100,000 Commercial Note Line of Credit (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 October 31, 2016. At maturity, or in connection with a pre-payment, subject to
the conditions set forth in the Line of Credit, the stockholder has the right to convert the amount outstanding (or the amount
of the prepayment) into the Company’s Series A Preferred Stock at the par value of $1,000 per share.
At December 31, 2015,
the principal balance plus accrued interest totaled $100,000. At that date, the stockholder elected to convert the outstanding
principal and interest balance into 100 shares of our Series A Preferred Stock. At June 30, 2016, there is no outstanding balance
on the Line of Credit.
7.
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LONG-TERM DEBT, DEBENTURES AND LINE OF CREDIT
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On November 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 (see Note 3). The purchase
price was paid by through the assumption by the Company of $265,000 of long-term bank indebtedness (which we refer to as “Note”)
plus the issuance of 215 shares of the Company’s newly designated Series A Preferred Stock. The purchase price also included
the cost of specific security improvements requested by the lessee.
The Note is dated November
13, 2015 and has a principal amount of $265,000. Monthly payments under the Note are $1,962 including interest accruing at a rate
of 5.95% per annum. The Note matures in June 2021 and is secured by the commercial real estate, guarantees by the Company and its
real estate subsidiary and the personal guarantee of a stockholder who is also an officer of the Company.
We have authorized
the issuance of up to $1 million in principal amount of convertible promissory notes (which we refer to as the “Convertible
Notes”). The Convertible Notes are secured by certain Company real estate holdings and real estate holdings of a stockholder.
The Convertible Notes mature on the fifth anniversary of the date of issuance and are convertible into shares of our common stock
at a price of $0.015 per share. Interest accrues at a rate of 5% per annum and is payable semi-annually. Beginning 180 days after
issuance of the Convertible Notes, the Company has the option to issue a notice of its intent to redeem, for cash, an amount equal
to the sum of (a) 120% of the then outstanding principal balance, (b) accrued but unpaid interest and (c) all liquidated damages
and other amounts due in respect of the Convertible Notes. The Company may only issue the notice of its intent to redeem the Convertible
Notes if the trading average of the Company’s common stock equals or exceeds 300% of the conversion price during each of
the five business days immediately preceding the date of the notice of intent to redeem. The holder of the Convertible Notes has
the right to convert all or any portion of the Convertible Notes at the conversion price at any time prior to redemption. At June
30, 2016, there were $340,000 ($242,117 net of deferred financing costs and beneficial conversion option) of Convertible Notes
outstanding which are convertible into our common stock at a conversion rate of $0.015 per share or 23,002,083 shares. Subsequent
to year end, we completed the funding of an additional $210,000 in Convertible Notes.
Our line of credit
with a bank totals $1,000,000 of which the entire amount was outstanding as of June 30, 2016. The line of credit is due upon demand
and is secured by marketable securities, a corporate guarantee and the guarantee of a stockholder who is also an officer of the
Company. Interest accrues at the rate of one-month LIBOR plus 2.75% and is paid monthly. The interest rate at June 30, 2016 was
3.47%.
Effective on October
13, 2015, we amended and restated our articles of incorporation as previously adopted by a majority vote of our stockholders. The
amended and restated articles of incorporation, among other things, changed our name to RedHawk Holdings Corp., authorized 5,000
shares of Preferred Stock, and increased the number of authorized shares of common stock from 375,000,000 to 450,000,000.
Common Stock
On October 15, 2015,
we entered into a securities purchase agreement with an accredited investor for the sale of 5,000,000 shares of our common stock
in exchange for $50,000.
On February 9, 2016,
we entered into a settlement agreement with a former officer and director in partial settlement of certain litigation. At the time
of the settlement, the officer owned 18,021,535 shares of our common stock. In exchange for a payment of $42,500 and other consideration
provided in the settlement, the Company purchased the shares owned by the former officer and returned those shares into the Company
treasury. The Company incurred transaction costs of $33,602 in completing this equity transaction.
On March 23, 2016,
we issued 10,000,000 shares of our common stock, having a fair market value of $260,000, in connection with entering into a purchase
agreement with Scatlett to acquire a 25% ownership interest in EcoGen (See Note 4).
Preferred Stock
Pursuant to a certificate
of designation filed with the Secretary of State of the State of Nevada, effective November 12, 2015, 2,750 shares of our authorized
Preferred Stock have been designated as Series A 5% Convertible Preferred Stock, 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 nine months from issuance, each share of Series A Preferred
Stock is convertible, at the option of the holder, into the number of shares of common stock equal to the quotient of the stated
value, as adjusted for PIK dividends, by $0.015, as adjusted for stock splits and dividends.
On November 12, 2015,
we issued 215 shares of our Series A Preferred Stock in connection with the acquisition of certain commercial real estate from
a related party, which is an entity controlled by a stockholder and officer of the Company. On December 31, 2015, in exchange for
300 shares of our Series A Preferred Stock, we acquired from a related party, which is an entity controlled by a stockholder and
officer of the Company, certain real estate to be used as our corporate offices (see Note 3).
On December 31, 2015,
we issued 625 shares of Series A Preferred Stock to acquire certain limited liability company membership interest in a real estate
development located in Hawaii (See Note 4).
On December 31, 2015,
a stockholder and officer of the Company
converted $100,000 of the outstanding principal and interest balance due to the
stockholder in exchange for 100 shares of the Company’s Series A Preferred Stock (see Note 6).
Pursuant to a certificate
of designation filed with the Secretary of State of the State of Nevada, effective February 16, 2016, 1,250 shares of our authorized
Preferred Stock have been designated as Series B 5% Convertible Preferred Stock, 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 nine months from issuance, each share of Series B Preferred
Stock is convertible, at the option of the holder, into the number of shares of common stock equal to the quotient of the stated
value, as adjusted for PIK dividends, by $0.01, as adjusted for stock splits and dividends.
On December 30, 2015,
we received, from a stockholder and officer of the Company, $1,862,458 of cash and marketable securities, net of a $980,000 line
of credit balance, in exchange for 1,000 shares of our Series B Preferred Stock.
On February 1, 2016,
we received from an officer of the Company, $250,000 of cash in exchange for 250 shares of our Series B Preferred Stock.
Warrants
During November 2014,
we completed a private equity sale of 14,905,918 shares of common stock generating proceeds of $49,900. As a component of this
private equity sale, 7,452,959 warrants to acquire common stock of the Company were also issued with an exercise price of $0.005
per share. During the year ended June 30, 2016, no warrants were exercised and 7,452,959 warrants remain outstanding.
The warrants expire upon the close of business on November 7, 2016.
9.
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DISCONTINUED OPERATIONS
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On June 23, 2014, the
Company impaired its remaining oil and natural gas properties and changed its focus to medical device distribution and other businesses.
The Company’s oil and gas properties were fully impaired in the year ended January 31, 2015 and the Company assigned its
working interest in the oil and gas properties to the operator of those wells in exchange for the cancellation of all amounts due
to the operator, including any future liabilities. As a result of the Company’s impairment of its oil and gas properties
and change in direction for the Company’s business, all expenses related to the oil and natural gas operations have been
classified as discontinued operations.
The results of discontinued
operations are summarized as follows:
|
|
Twelve Months Ended
|
|
|
Five Months
Ended
|
|
|
|
June 30, 2016
|
|
|
January 31, 2015
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
$
|
-
|
|
|
$
|
147,739
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Discontinued Operations
|
|
$
|
-
|
|
|
$
|
147,739
|
|
|
$
|
-
|
|
As of June 30, 2016 and 2015, the Company had approximately $2,400,000 and $1,100,000, respectively, of
net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2026 and run through
2036. The related deferred income tax asset of these net operating losses is estimated to be $800,000 and $400,000 as of June 30,
2016 and 2015, respectively, based on statutory federal income tax rates in effect. However, there is no net tax asset recorded
as a 100% valuation allowance has been established for the tax benefit generated. At June 30, 2016, the Company had no uncertain
tax positions.
The Company accounts
for interest and penalties relating to uncertain tax provisions in the current period statement of income, as necessary. The Company
has never filed a tax return. In order to utilize the available net operating loss carryforwards, the Company will need to prepare
and file all tax returns since its inception. The Company’s tax years from inception are subject to examination.
Due to our history of operating losses and the uncertainty surrounding the realization of the deferred
tax assets in future years, our management has determined that it is more likely than not that the deferred tax assets will not
be realized in future periods. Accordingly, the Company has recorded a valuation allowance against its net deferred tax assets.
SFAS No. 131,
“Disclosures
About Segments of an Enterprise and Related Information,”
requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and measuring their performance. Currently, we conduct our businesses
in three operating segments – Land & Hospitality, Medical Device and Pharmaceutical, and Other Services. Our Land &
Hospital and Other Services business units operate in the United States. Our Medical Device and Pharmaceutical business unit currently
operates primarily in the United Kingdom. All remaining assets, primarily our corporate offices and investment portfolio, are located
in the United States. The segment classified as Corporate includes corporate operating activities that support the executive offices,
capital structure and costs of being a public registrant. These costs are not allocated to the operating segments when determining
profit or loss. The following table reflects our segments as of June 30, 2016 and for the year then ended. For periods
prior to the year ended June 30, 2016, we did not have separately identifiable segments.
|
|
|
|
|
MEDICAL
|
|
|
|
|
|
|
|
|
|
|
|
|
LAND &
|
|
|
DEVICE &
|
|
|
OTHER
|
|
|
|
|
|
|
|
|
|
HOSPITALITY
|
|
|
PHARMA
|
|
|
SERVICES
|
|
|
CORPORATE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
24,700
|
|
|
$
|
-
|
|
|
$
|
4,750
|
|
|
$
|
-
|
|
|
$
|
29,450
|
|
Operating income (loss)
|
|
$
|
(5,364
|
)
|
|
$
|
(521,025
|
)
|
|
$
|
(22,881
|
)
|
|
$
|
(864,952
|
)
|
|
$
|
(1,414,222
|
)
|
Interest expense
|
|
$
|
9,843
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,346
|
|
|
$
|
35,189
|
|
Depreciation and amortization
|
|
$
|
18,479
|
|
|
$
|
68,664
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
87,143
|
|
Identifiable assets
|
|
$
|
1,396,780
|
|
|
$
|
917,902
|
|
|
$
|
5,529
|
|
|
$
|
1,318,605
|
|
|
$
|
3,638,816
|
|
The Company evaluates
subsequent events through the time of our filing on the date we issue our financial statements, which was on October 28, 2016.
The following are matters which occurred subsequent to June 30, 2016.
Subsequent to June
30, 2016, the Company issued an additional $210,000 of Convertible Notes to be used for acquisition investment and working capital.
On September 26, 2016, the Company announced it had agreed to acquire up to a 25% interest in Marlin USA
Energy Partners, LLC, the minority owner of Tigress Energy Partners, LLC. As of the date of this report, the Company has made a
$70,000 cash investment related to this agreement.
On October 25, 2016, the Company announced that it had received pre-market clearance from the U.S. Food and
Drug Administration for the sale of its Sharps and Needle Destruction Device in the United States.