OUR GRADE = F DISASTER Q. TIME for the board to replace MGMT massive games - Boys & Girls will rip it apart for sweet Bull and Jelly . Lots of Toxic debt issued and Exchanged. No business Pump & Dump During the quarter ended March 31, 2021, we issued the following securities:
? In separate transactions, we issued a total of 76,733,153 shares of common stock to different holders of certain 2019 Variable Rate Convertible Notes upon the conversion of $181,000 of principal amount of such notes, plus accrued interest; and
? We issued 10,000,000 shares of common stock to holders of certain 2020 Fixed Rate Convertible Notes upon the conversion of $50,000 of principal amount of such notes, plus accrued interest; and
? We issued 55,916,667 shares of common stock to certain related party note holders of certain interest free advances upon the conversion of $142,000 of principal amount of such advances; and
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We issued 6,250,000 shares of common stock to certain members of our board of directors as compensation.
We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act for such issuances upon conversion of our convertible securities, as the securities were exchanged by us with our existing security holders in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.
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During the quarter ended March 31, 2021, we sold $175,500 in principal amount of new 2019 Variable Rate Convertible Notes. These notes have a variable conversion rate based on the price of the Company’s common stock.
? Subsequent to March 31, 2021, we sold $150,000 in principal amount of new 2019 Fixed Rate Convertible Notes (See Note 7 in the notes to the unaudited consolidated financial statements included above), and in connection therewith, warrants to purchase 3,750,000 shares of common stock at $0.01 per share. The proceeds were used to repay the principal balance outstanding, including accrued interest, on the remaining 2016 Fixed Rate Convertible Note. If the warrants to purchase 3,750,000 shares of common stock at $0.01 per share were exercised in full, the maximum number of shares of common stock issuable upon exercise thereof would be 3,750,000 shares of common stock.
The issuances described above were exempt from registration pursuant to Section 4(a)(2), Rule 506 of Regulation D and/or Regulation S of the Securities Act, since the foregoing issuances did not involve a public offering, the recipients took the securities for investment and not resale, we took take appropriate measures to restrict transfer, and the recipients were (a) “accredited investors”; (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act; (c) were non U.S. persons; and/or (d) were officers or directors of the Company. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
Prior Issuer Purchases of Securities
During the quarter ended March 31, 2021, the Company acquired 122,730,903 shares of the Company’s common stock from Beechwood in exchange for 1,473 shares of the Company’s 5% Series A Preferred Stock.In September 2018, the Company entered into an agreement to acquire the exclusive manufacturing and distribution rights to certain needle incineration intellectual properties for $450,000, plus a broker’s fee of $17,500. Under the terms of the license agreement, the Company has paid $25,000 plus the first of a total twenty scheduled quarterly payments of $21,250. Any remaining payments become immediately payable upon the receipt of final approval by the U.S. Food and Drug Administration (FDA) of devices related to the technology. Additionally, the Company agreed to pay a consulting fee of $1,000 per month for sixty months. The broker’s fee was paid through the issuance of 14 million shares of the Company’s common stock. In 2019, the quarterly payments and the consulting fee were suspended as the Company believes the seller breached the terms of the purchase agreement by, among other things: failing to provide RedHawk with exclusive rights to the intellectual properties and technology, all related inventions, patents, registrations, licenses, applications and contracts, trademarks, copyrights, designs, drawings, patterns, manuals and instructions, mask works, product certifications, computer programs and data, research and engineering work, critical tooling, design drawings, products, inventory, raw materials, molds, molding tools and dies. The prototypes provided were defective, unsafe and failed to work as represented. Further, the Seller misrepresented that it had exclusive rights to the intellectual property being purchased. We initiated and completed the reverse engineering of this needle incineration technology.
As a result of the seller’s misrepresentations, the Company has written off all intangible assets related to these rights ($428,125) and all remaining unpaid obligations ($403,750). As a result, an impairment of $24,375 was recorded as of June 30, 2020.
In the year ended June 30, 2020, we issued 20,000,000 shares of common stock under the terms of a 2015 consulting agreement as a result of reaching certain milestones related to the development of our needle destruction devices. Under the terms of this consulting agreement, an additional 40,000,000 shares of common stock may be issued in the future if other milestones are met.
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5. INSURANCE NOTE PAYABLE
We finance a portion of our insurance premiums. At March 31, 2021, there was a $39,983 outstanding balance due on our premium finance agreements. The agreements have effective interest rates of 9.42% to 10.15%. The policies related to these premiums expire between June 2021 and November 2021.
6. RELATED PARTY TRANSACTIONS
Effective December 1, 2016, the Company entered into a $250,000 Commercial Note Line of Credit (which we refer to as the “Line of Credit”) with a stockholder, Beechwood Properties, LLC (“Beechwood”) and the Company’s Chief Executive Officer, 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 matured on March 31, 2021. At maturity, or in connection with a pre-payment, subject to the conditions set forth in the Line of Credit, the stockholder has the right to convert the amount outstanding (or the amount of the prepayment) into the Company’s Series A Preferred Stock at the par value of $1,000 per share. At March 31, 2021, the outstanding principal balance totaled $0.
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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 which are shown as “Due to related parties” on the consolidated balance sheets. The advances are convertible into shares of the Company’s common stock at rates ranging from $0.0024 to $0.0050 per share or 75,916,667 shares of common stock in aggregate. During the quarter ended March 31, 2021, $142,000 was converted into 55,916,667 shares of common stock.
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Beginning in the quarter ended March 31, 2017, certain members of management agreed to forgo management fees in consideration of the operating cash flow needs of the Company. There is not a set timeline to reinstitute such management fees. As of March 31, 2021 and June 30, 2020, $50,000 in such fees remain unpaid and are recorded in accounts payable and accrued liabilities in the consolidated balance sheets.
We entered into an office space lease in January 2020 with a company owned in part by a member of our Board of Directors and Chairman of our Audit Committee. The lease is for a three-year term beginning April 1, 2020. The base annual rent is $25,830. In addition to the base rent, the Company will also pay a proportionate share of common area operating expenses. The Company initially recorded operating right-of-use (ROU) assets and liabilities in the amount of $62,363 upon entering into this lease. The ROU asset represents our right to use the asset for the lease term and the ROU liability represents our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments utilizing an interest rate based on a collateralized loan with the same term as the related lease. During the nine month period ended March 31, 2021, the ROU asset and liability has been reduced by $15,347 for rental payments, which are included in general and administrative expenses in the accompanying combined statements of operations.
7. LONG-TERM DEBT, DEBENTURES AND LINES OF CREDIT
On November 12, 2015, we acquired certain commercial real estate from a related party that is an entity controlled by Beechwood and our Chief Executive Officer for $480,000, consisting of $75,000 of land costs and $405,000 of buildings and improvements. The purchase price was paid through the assumption by the Company of $265,000 of long-term bank indebtedness (which we refer to below as the “Note”) plus the issuance of 215 shares of the Company’s Series A Preferred Stock. The purchase price also included the cost of specific security improvements requested by the lessee.
The Note is dated November 13, 2015 and has a remaining principal amount of $216,766 as of March 31, 2021. 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 wholly-owned real estate subsidiary, RedHawk Land & Hospitality, LLC, and the personal guarantee of Beechwood and the Company’s Chief Executive Officer. At the maturity of this loan, the Company expects the loan to be re-financed.
In March 2016, we issued $545,000 in principal amount of convertible promissory notes (which we refer to as the “2016 Fixed Rate Convertible Notes”). The 2016 Fixed Rate Convertible Notes are secured by certain Company real estate holdings.
The 2016 Fixed Rate Convertible Notes matured on March 15, 2021, the fifth anniversary of the date of grant and are convertible into shares of our common stock at a price of $0.015 per share. Interest accrues at a rate of 5% per annum and is payable semi-annually. The Company has the option to issue a notice of its intent to redeem, for cash, an amount equal to the sum of (a) 120% of the then outstanding principal balance, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the 2016 Fixed Rate Convertible Notes. The Company may only issue the notice of its intent to redeem the 2016 Fixed Rate Convertible Notes if the trading average of the Company’s common stock equals or exceeds 300% of the conversion price during each of the five business days immediately preceding the date of the notice of intent to redeem. Holders of 2016 Fixed Rate Convertible Notes have the right to convert all or any portion of the 2016 Fixed Rate Convertible Notes at the conversion price at any time prior to redemption.
At March 31, 2021, and June 30, 2020 there was one remaining 2016 Fixed Rate Convertible Note outstanding with principal and accrued interest of approximately $64,000 and $62,000, respectively. This remaining 2016 Fixed Rate Convertible Note (plus accrued interest) is convertible into our common stock at a conversion rate of $0.015 per share or 4,274,512 total shares. During the nine month periods ended March 31, 2021 and 2020, we recognized approximately $2,340 and $2,000, respectively, of interest on this convertible note. Subsequent to March 31, 2021, we paid the remaining principal balance outstanding plus accrued interest.
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During the nine month periods ended March 31, 2021 and 2020, we issued $200,000 and $832,000, respectively, in principal amount of new convertible promissory notes (which we refer to as the “2019 Fixed Rate Convertible Notes”). The 2019 Fixed Rate Convertible Notes are secured by certain Company real estate holdings. As of March 31, 2021, $1,042,000 of 2019 Fixed Rate Convertible Notes were outstanding. Subsequent to March 31, 2021, we issued an additional $150,000 in principal amount of new 2019 Fixed Rate Convertible Notes.
The 2019 Fixed Rate Convertible Notes mature on the fifth anniversary of the date of issuance and are convertible into shares of our common stock at a price of $0.015 per share and include 25% warrant coverage at $0.01 per share. The warrants expire ten years from the date of issuance. Interest accrues at a rate of 7% per annum and is payable semi-annually. The Company has the option to issue a notice of its intent to redeem, for cash, an amount equal to the sum of (a) 120% of the then outstanding principal balance, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the 2019 Fixed Rate Convertible Notes. The Company may only issue the notice of its intent to redeem the 2019 Fixed Rate Convertible Notes if the trading average of the Company’s common stock equals or exceeds 300% of the conversion price during each of the five business days immediately preceding the date of the notice of intent to redeem. The holder of the 2019 Fixed Rate Convertible Notes has the right to convert all or any portion of the 2019 Fixed Rate Convertible Notes at the conversion price at any time prior to redemption.
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During the nine month periods ended March 31, 2021 and 2020, we issued $268,236 and $0, respectively, in principal amount of new convertible notes (which we refer to as the “2020 Fixed Rate Convertible Notes”). As of March 31, 2021, a total of $568,235 (approximately $517,195 net of unamortized deferred loan costs of approximately $26,040 and unamortized beneficial conversion of $25,000) of 2020 Fixed Rate Convertible Notes were outstanding.
During the nine month period ended March 31, 2021, $50,000, plus accrued interest, of the 2020 Fixed Rate Convertible Notes were converted into 10,000,000 shares of common stock.
The 2020 Fixed Rate Convertible Notes accrue interest at 10% per annum, are convertible into shares of our common stock at a price of $0.005 per share, mature twelve months after issuance and are unsecured. The proceeds from the 2020 Fixed Rate Convertible Notes issued during the nine month period ended March 31, 2021 were used to repay approximately $21,000 of obligations owed on the 2019 Variable Rate Convertible Notes (including principal amount, accrued interest and prepayment penalties) and for working capital purposes. When issued, the 2020 Fixed Rate Convertible Notes had an initial conversion rate below the trading price of the Company’s common stock creating a beneficial conversion feature (“BCF”), which exceeded the total cash proceeds received from its issuance. Accordingly, at June 30, 2020, we recorded the BCF as a debt discount and additional paid-in capital of $85,000. The debt discount is being amortized over the one-year term of the note.
During the nine month periods ended March 31, 2021 and 2020, we issued $281,500 and $1,078,862, respectively, of convertible notes to third parties with variable conversion rates (“2019 Variable Rate Convertible Notes”). The 2019 Variable Rate Convertible Notes mature at various dates between April 2022 and June 2022. During the nine month periods ended March 31, 2021 and 2020, we received approximately, net of financing costs incurred, $265,000 and $960,000, respectively, in cash from the issuance of these notes. The remaining outstanding 2019 Variable Rate Convertible Notes as of March 31, 2021 have interest accruing at 12%. These notes have a variable conversion rate based on the price of the Company’s common stock.
During the nine month period ended March 31, 2021, $764,000, plus accrued interest, of the 2019 Variable Rate Convertible Notes were converted into 281,124,078 shares of common stock. Additionally, $20,737, including accrued interest and prepayment penalties, of the 2019 Variable Rate Convertible Notes were repaid.
Certain of the 2020 Fixed Rate Convertible Notes and 2019 Variable Rate Convertible Notes have maturity dates within twelve months from the balance sheet date and could be classified as a current liability. However, it is the Company’s expectation that such notes will be converted into shares, re-financed to longer terms, or paid off with the proceeds of long-term financing. Therefore, we have classified these notes as noncurrent. If we do not re-finance these convertible notes to longer terms, however, the holders of the convertible notes have the option to convert these notes into equity or hold the convertible notes to maturity.
On March 12, 2019, we obtained a $180,000 real estate loan from a financial institution. The note matured on April 1, 2020 and was extended to October 1, 2020. The Company is working on an additional extension of this loan. This real estate note is secured by certain real estate property and the personal guarantee of the Company’s Chief Executive Officer. Interest only is payable monthly and accrues at an interest rate of 12%.
Beginning in the quarter ended June 30, 2019, we entered into a series of credit financing arrangements from financing institutions by pledging various Company assets and the personal guarantee of the Company’s Chief Executive Officer. The proceeds from these credit agreements were used to pay the amounts due under the Schreiber settlement agreement more fully described in Note 8. As of March 31, 2021 and June 30, 2020, we had $137,727 and $129,389, respectively, outstanding on these loans.Pursuant to the Agreement, the Company agreed to issue to the Consultant 68,700,000 shares of the Company’s common stock, which was 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, the later of one year after the Effective Date or upon Consultant’s request, an additional 68,700,000 shares of the Company’s common stock, unless Consultant has provided the Company with written notice of its intention not to extend the Initial Period. As of the date of this Quarterly Report on Form 10-Q, the Company has not yet received notice from the Consultant requesting issuance of any of the shares pursuant to the Agreement.
