Friday, December 04, 2020 6:36:33 PM
Disaster- Branded Generic Pharmaceuticals
Under the terms of the EcoGen Agreement, Scarlett and its affiliate agreed to surrender to the Company 10 million shares of RedHawk’s then outstanding common stock, transfer to RedHawk Pharma approximately $300,000 of EcoGen’s preferred stock plus, other consideration in exchange for RedHawk Pharma assuming approximately $370,000 of obligations due to EcoGen.
A generic drug is a pharmaceutical drug that is substantially equivalent to a brand name product in dosage, strength, route of administration, quality, performance and intended use. Although they may not be associated with a particular company, generic drugs are subject to government regulations in the countries where they are dispensed. A generic drug must contain the same active ingredients as the original brand name formulation. In most cases, generic drugs become available after the patent afforded to a drug’s original developer expires. Once generic drugs enter the market, competition often leads to substantially lower prices for both the brand name drug and its generic equivalents. Clinicians in the United Kingdom are encouraged to write prescriptions for patent protected drugs by their generic name in preparation for such drugs losing their patent protected status, with the prescribed drug being dispensed to the patient by a community pharmacy. Pharmacists are obligated by law to dispense the brand that is written, should the clinician not use the generic name when prescribing a particular treatment, with all drugs being dispensed against a set tariff pricing structure. The pharmacist therefore procures the generic drug at the lowest available price from the wholesale supply chain, who in turn procures the lowest priced drug from any available manufacturer, ensuring that the generic drug market in the United Kingdom is purely driven by cost. The legal obligation on United Kingdom pharmacists to dispense a branded product if that is so prescribed presents the opportunity for the branded generic strategy of EcoGen. With a portfolio of widely prescribed generic drugs listed as trademarked branded generics, EcoGen can offer significant budgetary savings when compared to standard generics by offering these branded generics for sale at a price below the listed generic tariff. With UK Commissioning Groups (“CCG’s) being driven to find savings across their budgets where possible, we believe EcoGen’s branded generic strategy has been met favorably. Currently, we hold licenses to manufacture and sell Paracetamol, Glipizide and Omeprazole.
Paracetamol – Paracetamol is a pain reliever and a fever reducer used to treat many conditions such as headache, muscle aches, arthritis, backache, toothaches, colds, and fever.
Glipizide – Glipizide is an oral diabetes medicine that helps control blood sugar levels by helping the pancreas produce insulin. Glipizide is used together with diet and exercise to improve blood sugar control in adults with Type 2 diabetes mellitus.
Omeprazole – Omeprazole is used to reduce the amount of acid in the stomach in order to treat gastric or duodenal ulcers, gastroesophageal reflux disease (GERD), erosive esophagitis and hypersecretory conditions. Omeprazole is used to treat stomach infections caused by Helicobacter pylori bacteria.
We have sold our branded generic drugs to approximately five of the approximately 225 CCG’s through an exclusive distribution agreement with Alliance Healthcare. As we continue to develop our marketing strategy, expand our team of sales representatives and increase the line of pharmaceutical and medical device products offered to the CCG’s, we expect to capitalize on our distribution agreement with Alliance Healthcare.
Specialized Security System Manufacturing and Distribution
Centri Controlled Entry System. On April 11, 2016, the Company acquired the exclusive United States manufacturing and distribution rights for the Centri Controlled Entry System (“Centri”), a nominal dose transmission x-ray full body scanner that is designed to be capable of finding weapons, drugs and other metallic and non-metallic contraband concealed on and within the human body. The Company acquired these exclusive rights from Basic Technologies, Inc. who holds the exclusive worldwide license to manufacture and sell Centri. In June 2016, the Company received approval from the FDA for the importation, assembly and demonstrations of Centri. Phase I radiation testing was successfully completed. Approval for human testing and the sale of Centri units was received from the Louisiana Department of Environmental Quality during the quarter ending September 30, 2016.
The Company is continuing to test the safe operation of Centri and is currently working with the Louisiana State University Innovation Park to develop our marketing strategy to offer Centri for sale and/or lease as an alternative security system in various commercial applications.
We have a history of significant losses and expect losses to continue for the foreseeable future.
We have a history of losses from operations – we incurred net losses of $1,853,077 and $1,215,884 for the fiscal years ended June 30, 2020 and 2019, respectively. As a result, at June 30, 2020, including accrued but unpaid preferred stock dividends, we had an accumulated deficit of $7,749,527. We have sustained significant costs in connection with the acquisition and development of certain assets, technologies and businesses combined with significant legal fees incurred in connection with certain litigation matters. To date, we have not generated significant revenues. Our future projected profitability if any, will require successful commercialization of our medical device technology, branded pharmaceuticals, security systems or future products for which we may acquire a distribution license and reduction of our operating costs. We may not, however, be able to successfully exploit any distribution rights which we currently have or acquire in the future and may never become profitable.
There is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient cash resources to meet our business objectives, all of which means that we may not be able to continue operations.
We have generated operating losses since inception, and our cash resources are insufficient to meet our planned business objectives. We expect to continue to incur development costs and operating costs, losses and negative cash flows until our products gain market acceptance sufficient to generate a commercially viable and sustainable level of sales, and/or additional products are developed and commercially released, and sales of such products made so that we are operating in a profitable manner. The continuation of the Company as a going concern is still dependent upon the continued financial support from its stockholders, the ability to raise equity or debt financing, cash proceeds from the sale of assets and the attainment of profitable operations from the Company’s businesses in order to discharge its obligations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Our independent auditors included an explanatory paragraph to their audit opinion issued in connection with our 2020 financial statements that states there is substantial doubt about our ability to continue as a going concern.
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We have had negative cash flows from operations since inception. We will require significant additional financing, the availability of which cannot be assured, and if we are unable to obtain such financing, our business may fail.
To date, we have had negative cash flows from operations and have depended on sales of our equity securities, debt financing and stockholder loans to meet our cash requirements. We may continue to have negative cash flows. There is no assurance that actual cash requirements will not exceed our estimates. We may require additional funds to finance working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow.
Our ability to market and sell our medical devices will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise additional funds to:
? support our planned growth and carry out our business plan;
? hire quality personnel for all areas of our business; and
? address competing technological and market developments.
At June 30, 2020, we had a total of 2,000,000,000 authorized shares of common stock, of which 963,651,157 shares of our common stock were outstanding as of June 30, 2020 in addition to certain warrants and convertible promissory notes that may be exercised to acquire, or convertible into, shares of our common stock. In the future, we may not be able to obtain adequate additional equity or debt financing on acceptable terms as required. In order to raise adequate levels of capital necessary to meet the Company’s future needs, the board of directors may need to consider completing a reverse stock split, amending our articles of incorporation to increase the number of authorized shares or authorize the possible issuance of preferred stock. Certain of these considerations may require regulatory approval.
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Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements. Any additional equity financing may involve substantial dilution to our then existing shareholders. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results and compete effectively. More importantly, if we are unable to raise further financing when required, we may be forced to scale down our operations or sell significant assets, and our ability to generate revenues may be negatively affected.
If we fail to effectively manage the growth of the Company and the commercialization of our medical devices, our future business results could be harmed, and our managerial and operational resources may be strained.
As we proceed with the commercialization of our medical devices and the expansion of our marketing and commercialization efforts, we expect to experience significant growth in the scope and complexity of our business. We will need to add staff to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We anticipate that we will be required to hire a broad range of personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our business, or the failure to manage growth effectively, could have a material adverse effect on our business and financial condition.
The effect of competition in the medical device distribution industry could adversely impact our ability to generate revenues.
The medical device distribution industry is highly competitive. We are a development stage company without significant established operations in our industry and have a relatively weak competitive position. We aim to compete with junior and senior medical device manufacturers or distributors who are actively seeking to develop or acquire and sell devices competitive with our own. Competition for the medical device assets is intense and we may lack the technological information, human resources, infrastructure, expertise, and financial resources available to our competitors. Such competition could adversely impact our ability to attain the financing necessary for us to develop our current assets, generate revenues, or obtain and develop future assets.
We may not realize the full benefits of the transaction whereby our subsidiary RedHawk Medical Products, LLC acquired certain intellectual property rights and assets related to its SANDD Pro products.
On September 22, 2018, RedHawk Medical Products, LLC, a wholly-owned subsidiary of the Company, entered an agreement to acquire the world-wide exclusive manufacturing and distribution rights to certain needle incineration intellectual properties. The Company believes the seller of these intellectual properties breached the terms of the purchase agreement and, accordingly, the Company completed a reverse engineering of the needle incineration technology as the Company believed necessary to bring the SANDD Pro™ and the SANDD Pro Portable™ products to market. This may result in the Company being subject to disputes regarding its intellectual property rights and its products, and, additionally, the Company may not realize the full benefits of the transaction, and its SANDD Pro™ and the SANDD Pro Portable™ products ultimately may not function and perform as intended or designed if the Company’s reverse engineering was not completed properly. Should any of these, or other adverse issues, arise resulting from the transaction and the Company’s actions to address these matters, it would likely impose burdens on the Company and have an adverse effect on the Company and its results of operations
Real estate, and the Company’s interests in real estate assets, are illiquid.
The ownership of real property assets is subject to varying degrees of risk incident to the ownership of real property. Real property assets are relatively illiquid. No assurances can be given that the fair market value of the real property assets the Company owns, or in which it has an interest, will not decrease in the future. The Company may not be able to sell its real property assets when and if it desires to do so.
The Company’s ownership and lease of its real property assets subject to all the risks inherent in an investment in real estate, such as:
? The risk that a property may not perform in accordance with expectations, including projected occupancy and rental rates;
? The risk that the Company may have underestimated certain costs of its properties or the cost of improvements required to bring a property up to standards established for its intended use or its intended market position;
? The risk that a property may have unforeseen environmental or other hazards resulting in unexpected costs; and
? Risks inherent in real estate ownership and improvement, including increased costs of materials and labor, delays due to weather, labor shortages or other unanticipated factors, delays in, or inability to obtain, governmental entitlements to further develop or improve a property, and general site ownership difficulties.
The economic performance and value of the Company’s real property assets will be affected by many factors beyond our control, including:
? Changes in general or local conditions;
? Changes in supply of or demand for similar or competing properties in the area;
? Volatility in the capital markets, including changes in interest rates and availability of capital (including permanent mortgage funds) which may render the sale a property difficult or unattractive;
? Changes in tax, real estate, environmental or zoning laws;
? Periods of high interest rates and tight money supply which may make the sale of the Property more difficult;
? Natural disasters, acts of war and terrorism, and similar events;
? Political or social instability or uncertainty;
? Tenant turnover; and
? General overbuilding or excess supply in a property’s geographic market.
As of June 30, 2020, we had $3,901,130 million of total debt outstanding including promissory notes and obligations under a line of credit. Our level of indebtedness relative to stockholders’ equity could have important consequences to stockholders, including with respect to our ability to declare and pay a dividend, and significant effects on our business, including the following:
? we must use a substantial portion of our cash flow from operations to pay interest on our debt obligations, which will reduce the funds available to use for operations and other purposes including our other financial obligations;
? certain of our debt obligations are secured by Company assets;
? our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions or general corporate purposes may be impaired;
? we could be at a competitive disadvantage compared to our competitors that may have proportionately less debt;
? our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited;
? our ability to fund a change of control offer may be limited; and
? we may be more vulnerable to economic downturns and adverse developments in our business.
Our ability to meet our expenses and make payments due to our creditors depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flow from operations in the future, and any anticipated growth in sales and cash flow may not be realized, either or both of which could result in our being unable to repay indebtedness, including outstanding promissory notes, or to fund other liquidity needs. If we do not have enough funds, we may be in breach our debt covenants and/or be required to refinance all or part of our then existing debt, sell assets or borrow more funds, which we may not be able to accomplish on terms favorable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from pursuing any of these alternatives
On June 20, 2019, Company entered into a Stock Exchange Agreement (“Exchange Agreement”) with Beechwood. G. Darcy Klug, the Company’s Chairman of the Board and Chief Financial Officer, is the sole member and manager of Beechwood. Under the Exchange Agreement, the Company purchased from Beechwood 113,700,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), in exchange for 1,277 shares of the Company’s 5% Series A Preferred Stock (“Series A Preferred Stock”) and a Stock Purchase Warrant (“Warrant”) to acquire 113,508,450 shares of Company common stock at an exercise price of $0.005 per share. The Warrant expires on June 20, 2029. Concurrent with the execution of the Exchange Agreement, holders of $574,250 aggregate principal amount of the convertible promissory notes, including accrued interest, converted their convertible promissory notes into 114,849,929 shares of Common Stock.
During the fiscal year ended June 30, 2019, certain stockholders of the Company made $110,000 in interest free advances to the Company.
In August 2019, the Company’s board of directors approved the sale of $1.25 million in aggregate principal amount of convertible notes (the “2019 Notes”) in a private offering. As of June 30, 2020, $842,000 in principal amount of the 2019 Notes have been sold. The Company used the net proceeds of the offering of the 2019 Notes, after payment of related fees and expenses, to retire then existing debt and to provide working capital. At closing, the Company has issued to the 2019 Note purchasers a number of warrants exercisable ten years from the date of issuance for the purchase of an aggregate of 21,050,000 shares of the Company’s common stock (the “Warrant Shares”) at an exercise price of $0.01 per Warrant Share.
Subsequent to June 30, 2020, effective October 6, 2020, the Company agreed to purchase from Beechwood 124,849,365 shares of the Company’s common stock in exchange for 1,000 shares of the Company’s 5% Series B Preferred Stock (“Series B Preferred Stock”) stated value of $1,248.49 per share. The Company determined that the acquisition of the shares of common stock from Beechwood, and having them available for potential future issuance, better positions the Company to execute on its business plan for growth opportunities. This stock purchase is expected to be completed during the quarter ending December 31, 2020.
Subsequent to June 30, 2020, effective November 4, 2020, the Company agreed to purchase from Beechwood 122,730,903 shares of the Company’s common stock in exchange for 1,473 shares of the Company’s 5% Series A Preferred Stock, stated value of $1,133.81 per share. The Company determined the acquisition of the shares of common stock from Beechwood, and having them available for potential future issuance, better positions the Company to execute on its business plan for growth opportunities. This stock purchase is expected to be completed during the quarter ending December 31, 2020.
Working Capital
June 30,
2020 2019
Current Assets $ 617,692 $ 405,685
Current Liabilities $ 2,152,153 $ 1,474,348
Working Capital (Deficit) $ (1,534,461 ) $ (1,068,663 )
RELATED PARTY TRANSACTIONS
Effective December 1, 2016, the Company entered into a $250,000 Commercial Note Line of Credit (which we refer to as the “Line of Credit”) with a stockholder and officer of the Company to evidence prior indebtedness and provide for future borrowings. The advances are used to fund our operations. The Line of Credit accrues interest at 5% per annum and matures on March 31, 2021. At maturity, or in connection with a pre-payment, subject to the conditions set forth in the Line of Credit, the stockholder has the right to convert the amount outstanding (or the amount of the prepayment) into the Company’s Series A Preferred Stock at the par value of $1,000 per share. At June 30, 2020, the outstanding principal balance totaled $0.
F-13
During the fiscal year ended June 30, 2019, certain members of the board of directors and stockholders of the Company made $242,000 in interest free advances to the Company. The advances are convertible into shares of the Company’s common stock at rates ranging from $0.0024 to $0.0050 or 75,916,667 shares of common stock. During the quarter ended December 31, 2019, the Company received notice from the holders of $142,000 of these related parties of their intent to exercise their right to convert their advances into 55,916,667 shares of common stock. The conversion is expected to be completed subsequent to the year ending June 30, 2020.
F-14
Beginning in the quarter ended March 31, 2017, certain members of management agreed to forgo management fees in consideration of the operating cash flow needs of the Company. There is not a set timeline to reinstitute such management fees. As of June 30, 2020 and June 30, 2019, $50,000 in such fees remain unpaid and are recorded in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.On July 19, 2019 (the “Effective Date”), RedHawk and its wholly-owned subsidiary, RedHawk Medical Products & Services, along with other affiliated entities, entered into a Consultant Agreement (“Agreement”) with Drew Pinsky, Inc (“DPI”) f/s/o Dr. Drew Pinsky (“Consultant”), for Consultant to be the exclusive spokesperson for the Company’s Sharps Needle and Destruction Device (“SANDD”) mini™, SANDD Pro™ and any related products and/or accessories (“Products”) for an initial period of two (2) years (“Initial Period”), under the terms and conditions described in the Agreement. At the end of the Initial Period, there shall be an automatic, immediately consecutive two (2) year extension period unless DPI, within 60 days of the expiration of the Initial Period, provides written notice of its intention not to extend the Agreement.
Under the Agreement, the Company will pay DPI a royalty equal to 3% of the “Net Sales”, as defined in the Agreement, of the Products but in no event will the royalty be less than $3.50 per SANDD mini™ unit sold and $13.50 per SANDD Pro™ unit sold.
Pursuant to the Agreement, the Company agreed to issue to the Consultant 68,700,000 shares of the Company’s common stock, which is equal to approximately 5% of the Company’s outstanding common stock on a fully diluted basis as of the Effective Date. Further, the Company has agreed to issue to the Consultant, one year after the Effective Date, an additional 68,700,000 shares of the Company’s common stock, unless DPI has provided the Company with written notice of its intention not to extend the Initial Period. As of the date of this Annual Report on Form 10-K, the Company has not yet issued any of the shares pursuant to the Agreement.SUBSEQUENT EVENTS
The Company evaluates subsequent events through the time of our filing on the date we issue our consolidated financial statements, which was on November 18, 2020. The following are significant matters which occurred subsequent to June 30, 2020 and are not described fully in the notes to the financial statements:
? Subsequent to June 30, 2020, the principal amount of $426,500, plus accrued interest of $23,681, of the 2019 Variable Rate Convertible Notes were converted into 130,650,810 shares of common stock;
? Subsequent to June 30, 2020, the principal amount of $20,737, plus accrued interest and prepayment penalties, of the 2019 Variable Rate Convertible Notes was repaid;
? Subsequent to June 30, 2020, to assist with liquidity needs, the Company issued $200,000 in fixed rate convertible debt and accessed additional short term credit lines totaling approximately $200,000;
?
Subsequent to June 30, 2020, the Louisiana Court granted the Defendant’s Motion ordering the Company to pay to the Defendants $519,495.78 (“Judgment”) representing (i) the principal amount due on Note 1 ($200,000.00); (ii) the principal amount due on Note 2 ($200,000.00); (iii) 18% simple interest on certain outstanding debt charged back to the date of the Settlement Agreement; (iv) $40,000.00 of attorneys’ fees (10% of the amounts due, which to date remains greater than the amount of actual reasonable fees); and (v) interest from the date of the Judgment and costs. The Company has appealed the Louisiana Court’s ruling to the United States 5th Circuit Court of Appeals (the “Court of Appeals”) and intends to vigorously defend against the ruling. Payment of the principal amount of Note 1 was tendered by the Company to the Defendants on August 13, 2020. Notwithstanding the appeal to the Court of Appeals, the Company tendered the early repayment of the principal amount of Note 2 to the Defendants on August 24, 2020. To date, $119,495.78 of the Judgment remains outstanding.
On November 12, 2020, the Court of Appeals ruled the Louisiana Court abused its discretion by granting the Defendant’s motion to enforce the settlement agreement based solely on arguments and evidence presented for the first time in the Defendant’s reply brief without allowing RedHawk to file a surreply. Accordingly, the Court of Appeals vacated the order and remanded the matter back to the Louisiana Court.
? On August 4, 2020, Mr. Klug and Beechwood converted the 1,000 shares of Series B Preferred Company Stock and the 1,473 shares of Series A Preferred Company Stock into 124,849,365 and 122,730,903, respectively, of the Company’s Common Stock in connection with the Schreiber Litigation and the shares were placed in the related Escrow Account;
? On September 28, 2020, the Escrow Account in the Schreiber Litigation was dissolved. Thus, on October 6, 2020, the Company agreed to re-purchase from Beechwood 124,849,365 shares of the Company’s common stock in exchange for 1,000 shares of the Company’s 5% Series B Preferred Stock (“Series B Preferred Stock”) stated value of $1,248.49 per share; and on November 4, 2020, the Company agreed to re-purchase from Beechwood 122,730,903 shares of the Company’s common stock in exchange for 1,473 shares of the Company’s 5% Series A Preferred Stock, stated value of $1,133.81 per share. The November 4, 2020 exchange has not yet been completed.
Under the terms of the EcoGen Agreement, Scarlett and its affiliate agreed to surrender to the Company 10 million shares of RedHawk’s then outstanding common stock, transfer to RedHawk Pharma approximately $300,000 of EcoGen’s preferred stock plus, other consideration in exchange for RedHawk Pharma assuming approximately $370,000 of obligations due to EcoGen.
A generic drug is a pharmaceutical drug that is substantially equivalent to a brand name product in dosage, strength, route of administration, quality, performance and intended use. Although they may not be associated with a particular company, generic drugs are subject to government regulations in the countries where they are dispensed. A generic drug must contain the same active ingredients as the original brand name formulation. In most cases, generic drugs become available after the patent afforded to a drug’s original developer expires. Once generic drugs enter the market, competition often leads to substantially lower prices for both the brand name drug and its generic equivalents. Clinicians in the United Kingdom are encouraged to write prescriptions for patent protected drugs by their generic name in preparation for such drugs losing their patent protected status, with the prescribed drug being dispensed to the patient by a community pharmacy. Pharmacists are obligated by law to dispense the brand that is written, should the clinician not use the generic name when prescribing a particular treatment, with all drugs being dispensed against a set tariff pricing structure. The pharmacist therefore procures the generic drug at the lowest available price from the wholesale supply chain, who in turn procures the lowest priced drug from any available manufacturer, ensuring that the generic drug market in the United Kingdom is purely driven by cost. The legal obligation on United Kingdom pharmacists to dispense a branded product if that is so prescribed presents the opportunity for the branded generic strategy of EcoGen. With a portfolio of widely prescribed generic drugs listed as trademarked branded generics, EcoGen can offer significant budgetary savings when compared to standard generics by offering these branded generics for sale at a price below the listed generic tariff. With UK Commissioning Groups (“CCG’s) being driven to find savings across their budgets where possible, we believe EcoGen’s branded generic strategy has been met favorably. Currently, we hold licenses to manufacture and sell Paracetamol, Glipizide and Omeprazole.
Paracetamol – Paracetamol is a pain reliever and a fever reducer used to treat many conditions such as headache, muscle aches, arthritis, backache, toothaches, colds, and fever.
Glipizide – Glipizide is an oral diabetes medicine that helps control blood sugar levels by helping the pancreas produce insulin. Glipizide is used together with diet and exercise to improve blood sugar control in adults with Type 2 diabetes mellitus.
Omeprazole – Omeprazole is used to reduce the amount of acid in the stomach in order to treat gastric or duodenal ulcers, gastroesophageal reflux disease (GERD), erosive esophagitis and hypersecretory conditions. Omeprazole is used to treat stomach infections caused by Helicobacter pylori bacteria.
We have sold our branded generic drugs to approximately five of the approximately 225 CCG’s through an exclusive distribution agreement with Alliance Healthcare. As we continue to develop our marketing strategy, expand our team of sales representatives and increase the line of pharmaceutical and medical device products offered to the CCG’s, we expect to capitalize on our distribution agreement with Alliance Healthcare.
Specialized Security System Manufacturing and Distribution
Centri Controlled Entry System. On April 11, 2016, the Company acquired the exclusive United States manufacturing and distribution rights for the Centri Controlled Entry System (“Centri”), a nominal dose transmission x-ray full body scanner that is designed to be capable of finding weapons, drugs and other metallic and non-metallic contraband concealed on and within the human body. The Company acquired these exclusive rights from Basic Technologies, Inc. who holds the exclusive worldwide license to manufacture and sell Centri. In June 2016, the Company received approval from the FDA for the importation, assembly and demonstrations of Centri. Phase I radiation testing was successfully completed. Approval for human testing and the sale of Centri units was received from the Louisiana Department of Environmental Quality during the quarter ending September 30, 2016.
The Company is continuing to test the safe operation of Centri and is currently working with the Louisiana State University Innovation Park to develop our marketing strategy to offer Centri for sale and/or lease as an alternative security system in various commercial applications.
We have a history of significant losses and expect losses to continue for the foreseeable future.
We have a history of losses from operations – we incurred net losses of $1,853,077 and $1,215,884 for the fiscal years ended June 30, 2020 and 2019, respectively. As a result, at June 30, 2020, including accrued but unpaid preferred stock dividends, we had an accumulated deficit of $7,749,527. We have sustained significant costs in connection with the acquisition and development of certain assets, technologies and businesses combined with significant legal fees incurred in connection with certain litigation matters. To date, we have not generated significant revenues. Our future projected profitability if any, will require successful commercialization of our medical device technology, branded pharmaceuticals, security systems or future products for which we may acquire a distribution license and reduction of our operating costs. We may not, however, be able to successfully exploit any distribution rights which we currently have or acquire in the future and may never become profitable.
There is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient cash resources to meet our business objectives, all of which means that we may not be able to continue operations.
We have generated operating losses since inception, and our cash resources are insufficient to meet our planned business objectives. We expect to continue to incur development costs and operating costs, losses and negative cash flows until our products gain market acceptance sufficient to generate a commercially viable and sustainable level of sales, and/or additional products are developed and commercially released, and sales of such products made so that we are operating in a profitable manner. The continuation of the Company as a going concern is still dependent upon the continued financial support from its stockholders, the ability to raise equity or debt financing, cash proceeds from the sale of assets and the attainment of profitable operations from the Company’s businesses in order to discharge its obligations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Our independent auditors included an explanatory paragraph to their audit opinion issued in connection with our 2020 financial statements that states there is substantial doubt about our ability to continue as a going concern.
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We have had negative cash flows from operations since inception. We will require significant additional financing, the availability of which cannot be assured, and if we are unable to obtain such financing, our business may fail.
To date, we have had negative cash flows from operations and have depended on sales of our equity securities, debt financing and stockholder loans to meet our cash requirements. We may continue to have negative cash flows. There is no assurance that actual cash requirements will not exceed our estimates. We may require additional funds to finance working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow.
Our ability to market and sell our medical devices will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise additional funds to:
? support our planned growth and carry out our business plan;
? hire quality personnel for all areas of our business; and
? address competing technological and market developments.
At June 30, 2020, we had a total of 2,000,000,000 authorized shares of common stock, of which 963,651,157 shares of our common stock were outstanding as of June 30, 2020 in addition to certain warrants and convertible promissory notes that may be exercised to acquire, or convertible into, shares of our common stock. In the future, we may not be able to obtain adequate additional equity or debt financing on acceptable terms as required. In order to raise adequate levels of capital necessary to meet the Company’s future needs, the board of directors may need to consider completing a reverse stock split, amending our articles of incorporation to increase the number of authorized shares or authorize the possible issuance of preferred stock. Certain of these considerations may require regulatory approval.
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Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements. Any additional equity financing may involve substantial dilution to our then existing shareholders. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results and compete effectively. More importantly, if we are unable to raise further financing when required, we may be forced to scale down our operations or sell significant assets, and our ability to generate revenues may be negatively affected.
If we fail to effectively manage the growth of the Company and the commercialization of our medical devices, our future business results could be harmed, and our managerial and operational resources may be strained.
As we proceed with the commercialization of our medical devices and the expansion of our marketing and commercialization efforts, we expect to experience significant growth in the scope and complexity of our business. We will need to add staff to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We anticipate that we will be required to hire a broad range of personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our business, or the failure to manage growth effectively, could have a material adverse effect on our business and financial condition.
The effect of competition in the medical device distribution industry could adversely impact our ability to generate revenues.
The medical device distribution industry is highly competitive. We are a development stage company without significant established operations in our industry and have a relatively weak competitive position. We aim to compete with junior and senior medical device manufacturers or distributors who are actively seeking to develop or acquire and sell devices competitive with our own. Competition for the medical device assets is intense and we may lack the technological information, human resources, infrastructure, expertise, and financial resources available to our competitors. Such competition could adversely impact our ability to attain the financing necessary for us to develop our current assets, generate revenues, or obtain and develop future assets.
We may not realize the full benefits of the transaction whereby our subsidiary RedHawk Medical Products, LLC acquired certain intellectual property rights and assets related to its SANDD Pro products.
On September 22, 2018, RedHawk Medical Products, LLC, a wholly-owned subsidiary of the Company, entered an agreement to acquire the world-wide exclusive manufacturing and distribution rights to certain needle incineration intellectual properties. The Company believes the seller of these intellectual properties breached the terms of the purchase agreement and, accordingly, the Company completed a reverse engineering of the needle incineration technology as the Company believed necessary to bring the SANDD Pro™ and the SANDD Pro Portable™ products to market. This may result in the Company being subject to disputes regarding its intellectual property rights and its products, and, additionally, the Company may not realize the full benefits of the transaction, and its SANDD Pro™ and the SANDD Pro Portable™ products ultimately may not function and perform as intended or designed if the Company’s reverse engineering was not completed properly. Should any of these, or other adverse issues, arise resulting from the transaction and the Company’s actions to address these matters, it would likely impose burdens on the Company and have an adverse effect on the Company and its results of operations
Real estate, and the Company’s interests in real estate assets, are illiquid.
The ownership of real property assets is subject to varying degrees of risk incident to the ownership of real property. Real property assets are relatively illiquid. No assurances can be given that the fair market value of the real property assets the Company owns, or in which it has an interest, will not decrease in the future. The Company may not be able to sell its real property assets when and if it desires to do so.
The Company’s ownership and lease of its real property assets subject to all the risks inherent in an investment in real estate, such as:
? The risk that a property may not perform in accordance with expectations, including projected occupancy and rental rates;
? The risk that the Company may have underestimated certain costs of its properties or the cost of improvements required to bring a property up to standards established for its intended use or its intended market position;
? The risk that a property may have unforeseen environmental or other hazards resulting in unexpected costs; and
? Risks inherent in real estate ownership and improvement, including increased costs of materials and labor, delays due to weather, labor shortages or other unanticipated factors, delays in, or inability to obtain, governmental entitlements to further develop or improve a property, and general site ownership difficulties.
The economic performance and value of the Company’s real property assets will be affected by many factors beyond our control, including:
? Changes in general or local conditions;
? Changes in supply of or demand for similar or competing properties in the area;
? Volatility in the capital markets, including changes in interest rates and availability of capital (including permanent mortgage funds) which may render the sale a property difficult or unattractive;
? Changes in tax, real estate, environmental or zoning laws;
? Periods of high interest rates and tight money supply which may make the sale of the Property more difficult;
? Natural disasters, acts of war and terrorism, and similar events;
? Political or social instability or uncertainty;
? Tenant turnover; and
? General overbuilding or excess supply in a property’s geographic market.
As of June 30, 2020, we had $3,901,130 million of total debt outstanding including promissory notes and obligations under a line of credit. Our level of indebtedness relative to stockholders’ equity could have important consequences to stockholders, including with respect to our ability to declare and pay a dividend, and significant effects on our business, including the following:
? we must use a substantial portion of our cash flow from operations to pay interest on our debt obligations, which will reduce the funds available to use for operations and other purposes including our other financial obligations;
? certain of our debt obligations are secured by Company assets;
? our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions or general corporate purposes may be impaired;
? we could be at a competitive disadvantage compared to our competitors that may have proportionately less debt;
? our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited;
? our ability to fund a change of control offer may be limited; and
? we may be more vulnerable to economic downturns and adverse developments in our business.
Our ability to meet our expenses and make payments due to our creditors depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flow from operations in the future, and any anticipated growth in sales and cash flow may not be realized, either or both of which could result in our being unable to repay indebtedness, including outstanding promissory notes, or to fund other liquidity needs. If we do not have enough funds, we may be in breach our debt covenants and/or be required to refinance all or part of our then existing debt, sell assets or borrow more funds, which we may not be able to accomplish on terms favorable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from pursuing any of these alternatives
On June 20, 2019, Company entered into a Stock Exchange Agreement (“Exchange Agreement”) with Beechwood. G. Darcy Klug, the Company’s Chairman of the Board and Chief Financial Officer, is the sole member and manager of Beechwood. Under the Exchange Agreement, the Company purchased from Beechwood 113,700,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), in exchange for 1,277 shares of the Company’s 5% Series A Preferred Stock (“Series A Preferred Stock”) and a Stock Purchase Warrant (“Warrant”) to acquire 113,508,450 shares of Company common stock at an exercise price of $0.005 per share. The Warrant expires on June 20, 2029. Concurrent with the execution of the Exchange Agreement, holders of $574,250 aggregate principal amount of the convertible promissory notes, including accrued interest, converted their convertible promissory notes into 114,849,929 shares of Common Stock.
During the fiscal year ended June 30, 2019, certain stockholders of the Company made $110,000 in interest free advances to the Company.
In August 2019, the Company’s board of directors approved the sale of $1.25 million in aggregate principal amount of convertible notes (the “2019 Notes”) in a private offering. As of June 30, 2020, $842,000 in principal amount of the 2019 Notes have been sold. The Company used the net proceeds of the offering of the 2019 Notes, after payment of related fees and expenses, to retire then existing debt and to provide working capital. At closing, the Company has issued to the 2019 Note purchasers a number of warrants exercisable ten years from the date of issuance for the purchase of an aggregate of 21,050,000 shares of the Company’s common stock (the “Warrant Shares”) at an exercise price of $0.01 per Warrant Share.
Subsequent to June 30, 2020, effective October 6, 2020, the Company agreed to purchase from Beechwood 124,849,365 shares of the Company’s common stock in exchange for 1,000 shares of the Company’s 5% Series B Preferred Stock (“Series B Preferred Stock”) stated value of $1,248.49 per share. The Company determined that the acquisition of the shares of common stock from Beechwood, and having them available for potential future issuance, better positions the Company to execute on its business plan for growth opportunities. This stock purchase is expected to be completed during the quarter ending December 31, 2020.
Subsequent to June 30, 2020, effective November 4, 2020, the Company agreed to purchase from Beechwood 122,730,903 shares of the Company’s common stock in exchange for 1,473 shares of the Company’s 5% Series A Preferred Stock, stated value of $1,133.81 per share. The Company determined the acquisition of the shares of common stock from Beechwood, and having them available for potential future issuance, better positions the Company to execute on its business plan for growth opportunities. This stock purchase is expected to be completed during the quarter ending December 31, 2020.
Working Capital
June 30,
2020 2019
Current Assets $ 617,692 $ 405,685
Current Liabilities $ 2,152,153 $ 1,474,348
Working Capital (Deficit) $ (1,534,461 ) $ (1,068,663 )
RELATED PARTY TRANSACTIONS
Effective December 1, 2016, the Company entered into a $250,000 Commercial Note Line of Credit (which we refer to as the “Line of Credit”) with a stockholder and officer of the Company to evidence prior indebtedness and provide for future borrowings. The advances are used to fund our operations. The Line of Credit accrues interest at 5% per annum and matures on March 31, 2021. At maturity, or in connection with a pre-payment, subject to the conditions set forth in the Line of Credit, the stockholder has the right to convert the amount outstanding (or the amount of the prepayment) into the Company’s Series A Preferred Stock at the par value of $1,000 per share. At June 30, 2020, the outstanding principal balance totaled $0.
F-13
During the fiscal year ended June 30, 2019, certain members of the board of directors and stockholders of the Company made $242,000 in interest free advances to the Company. The advances are convertible into shares of the Company’s common stock at rates ranging from $0.0024 to $0.0050 or 75,916,667 shares of common stock. During the quarter ended December 31, 2019, the Company received notice from the holders of $142,000 of these related parties of their intent to exercise their right to convert their advances into 55,916,667 shares of common stock. The conversion is expected to be completed subsequent to the year ending June 30, 2020.
F-14
Beginning in the quarter ended March 31, 2017, certain members of management agreed to forgo management fees in consideration of the operating cash flow needs of the Company. There is not a set timeline to reinstitute such management fees. As of June 30, 2020 and June 30, 2019, $50,000 in such fees remain unpaid and are recorded in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.On July 19, 2019 (the “Effective Date”), RedHawk and its wholly-owned subsidiary, RedHawk Medical Products & Services, along with other affiliated entities, entered into a Consultant Agreement (“Agreement”) with Drew Pinsky, Inc (“DPI”) f/s/o Dr. Drew Pinsky (“Consultant”), for Consultant to be the exclusive spokesperson for the Company’s Sharps Needle and Destruction Device (“SANDD”) mini™, SANDD Pro™ and any related products and/or accessories (“Products”) for an initial period of two (2) years (“Initial Period”), under the terms and conditions described in the Agreement. At the end of the Initial Period, there shall be an automatic, immediately consecutive two (2) year extension period unless DPI, within 60 days of the expiration of the Initial Period, provides written notice of its intention not to extend the Agreement.
Under the Agreement, the Company will pay DPI a royalty equal to 3% of the “Net Sales”, as defined in the Agreement, of the Products but in no event will the royalty be less than $3.50 per SANDD mini™ unit sold and $13.50 per SANDD Pro™ unit sold.
Pursuant to the Agreement, the Company agreed to issue to the Consultant 68,700,000 shares of the Company’s common stock, which is equal to approximately 5% of the Company’s outstanding common stock on a fully diluted basis as of the Effective Date. Further, the Company has agreed to issue to the Consultant, one year after the Effective Date, an additional 68,700,000 shares of the Company’s common stock, unless DPI has provided the Company with written notice of its intention not to extend the Initial Period. As of the date of this Annual Report on Form 10-K, the Company has not yet issued any of the shares pursuant to the Agreement.SUBSEQUENT EVENTS
The Company evaluates subsequent events through the time of our filing on the date we issue our consolidated financial statements, which was on November 18, 2020. The following are significant matters which occurred subsequent to June 30, 2020 and are not described fully in the notes to the financial statements:
? Subsequent to June 30, 2020, the principal amount of $426,500, plus accrued interest of $23,681, of the 2019 Variable Rate Convertible Notes were converted into 130,650,810 shares of common stock;
? Subsequent to June 30, 2020, the principal amount of $20,737, plus accrued interest and prepayment penalties, of the 2019 Variable Rate Convertible Notes was repaid;
? Subsequent to June 30, 2020, to assist with liquidity needs, the Company issued $200,000 in fixed rate convertible debt and accessed additional short term credit lines totaling approximately $200,000;
?
Subsequent to June 30, 2020, the Louisiana Court granted the Defendant’s Motion ordering the Company to pay to the Defendants $519,495.78 (“Judgment”) representing (i) the principal amount due on Note 1 ($200,000.00); (ii) the principal amount due on Note 2 ($200,000.00); (iii) 18% simple interest on certain outstanding debt charged back to the date of the Settlement Agreement; (iv) $40,000.00 of attorneys’ fees (10% of the amounts due, which to date remains greater than the amount of actual reasonable fees); and (v) interest from the date of the Judgment and costs. The Company has appealed the Louisiana Court’s ruling to the United States 5th Circuit Court of Appeals (the “Court of Appeals”) and intends to vigorously defend against the ruling. Payment of the principal amount of Note 1 was tendered by the Company to the Defendants on August 13, 2020. Notwithstanding the appeal to the Court of Appeals, the Company tendered the early repayment of the principal amount of Note 2 to the Defendants on August 24, 2020. To date, $119,495.78 of the Judgment remains outstanding.
On November 12, 2020, the Court of Appeals ruled the Louisiana Court abused its discretion by granting the Defendant’s motion to enforce the settlement agreement based solely on arguments and evidence presented for the first time in the Defendant’s reply brief without allowing RedHawk to file a surreply. Accordingly, the Court of Appeals vacated the order and remanded the matter back to the Louisiana Court.
? On August 4, 2020, Mr. Klug and Beechwood converted the 1,000 shares of Series B Preferred Company Stock and the 1,473 shares of Series A Preferred Company Stock into 124,849,365 and 122,730,903, respectively, of the Company’s Common Stock in connection with the Schreiber Litigation and the shares were placed in the related Escrow Account;
? On September 28, 2020, the Escrow Account in the Schreiber Litigation was dissolved. Thus, on October 6, 2020, the Company agreed to re-purchase from Beechwood 124,849,365 shares of the Company’s common stock in exchange for 1,000 shares of the Company’s 5% Series B Preferred Stock (“Series B Preferred Stock”) stated value of $1,248.49 per share; and on November 4, 2020, the Company agreed to re-purchase from Beechwood 122,730,903 shares of the Company’s common stock in exchange for 1,473 shares of the Company’s 5% Series A Preferred Stock, stated value of $1,133.81 per share. The November 4, 2020 exchange has not yet been completed.
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