UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | September 30, 2015 |
| or |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | to |
| Commission File Number | 000-54323 |
| REDHAWK HOLDINGS CORP. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 20-3866475 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 219 Chemin Metairie Road, Youngsville, Louisiana | 70592 | |
| (Address of principal executive offices) | (Zip Code) |
| (337) 269-5933 |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x YES ¨ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x YES ¨ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer ¨ | ||
| Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company x | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
¨ YES x NO
RedHawk Holdings Corp. had 365,094,082 shares of its common stock issued and outstanding as of November 15, 2015.
REDHAWK HOLDINGS CORP.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | 3 | |
| Item 1. | Consolidated Financial Statements | 3 |
| Item 2. | Management's Discussion and Analysis or Plan of Operation | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II - OTHER INFORMATION | 17 | |
| Item 1. | Legal Proceedings | 17 |
| Item 6. | Exhibits | 17 |
| SIGNATURES | 19 | |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
| 3 |
RedHawk Holdings Corp.
September 30, 2015
Index
| Consolidated Balance Sheets | 5 |
| Consolidated Statements of Operations | 6 |
| Consolidated Statements of Cash Flows | 7 |
| Notes to the Consolidated Financial Statements | 8 |
| 4 |
Consolidated Balance Sheets
(unaudited)
| September 30, | June 30, | |||||||
| 2015 | 2015 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 1,112 | $ | 900 | ||||
| Accounts receivable | 4,860 | 610 | ||||||
| Inventory, at cost | 9,756 | 9,756 | ||||||
| Prepaid expenses | 35,876 | - | ||||||
| Total Current Assets | 51,604 | 11,266 | ||||||
| Intangible asset, net of amortization of $103,246 and $86,080, respectively | 217,185 | 234,351 | ||||||
| Total Assets | $ | 268,789 | $ | 245,617 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 155,049 | $ | 87,980 | ||||
| Due to related party | 57,388 | 28,635 | ||||||
| Loans payable | 156,697 | 156,697 | ||||||
| Insurance notes payable | 25,754 | - | ||||||
| Total Liabilities | 394,888 | 273,312 | ||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders' Equity (Deficit): | ||||||||
| Common Stock, par value of $0.001 per share, 375,000,000 authorized shares and 360,094,082 issued and outstanding | 360,094 | 360,094 | ||||||
| Additional paid-in capital | 937,826 | 927,826 | ||||||
| Accumulated deficit | (1,424,019 | ) | (1,315,615 | ) | ||||
| Total Stockholders' Deficit | (126,099 | ) | (27,695 | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | 268,789 | $ | 245,617 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| 5 |
Consolidated Statements of Operations
(unaudited)
| Three Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Revenue | $ | 4,750 | $ | - | ||||
| Operating Expenses: | ||||||||
| Professional fees | 61,150 | - | ||||||
| Management fees | 21,500 | 42,500 | ||||||
| Amortization of intangibles | 17,166 | - | ||||||
| General and administrative | 13,338 | 4,115 | ||||||
| Total Operating Expenses | 113,154 | 46,615 | ||||||
| Net Loss from Continuing Operations | (108,404 | ) | (46,615 | ) | ||||
| Discontinued Operations | ||||||||
| Income from discontinued operations | - | 444 | ||||||
| Income on Discontinued Operations | - | 444 | ||||||
| Net Loss and Comprehensive Loss | $ | (108,404 | ) | $ | (46,171 | ) | ||
| Net Loss Per Share | ||||||||
| Basic | $ | - | $ | - | ||||
| Diluted | $ | - | $ | - | ||||
| Weighted Average Shares Outstanding | ||||||||
| Basic | 360,094,082 | 345,188,164 | ||||||
| Diluted | 360,094,082 | 345,188,164 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| 6 |
Consolidated Statements of Cash Flows
(unaudited)
| Three Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Operating Activities: | ||||||||
| Net loss from continuing operations | $ | (108,404 | ) | $ | (46,171 | ) | ||
| Adjustments to reconcile net loss to net cash used in continuing operations: | ||||||||
| Amortization of intangibles | 17,166 | - | ||||||
| Contributed services | 10,000 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (4,250 | ) | - | |||||
| Prepaid expense and deposits | (35,876 | ) | - | |||||
| Accounts payable and accrued liabilities | 67,069 | (2,354 | ) | |||||
| Due to related party | 28,753 | 45,850 | ||||||
| Net Cash Used in Operating Activities | (25,542 | ) | (2,675 | ) | ||||
| Financing Activities | ||||||||
| Proceeds from insurance note payable | 25,754 | - | ||||||
| Net Cash Provided by Financing Activities | 25,754 | - | ||||||
| Increase (Decrease) in cash | 212 | (2,675 | ) | |||||
| Cash, Beginning of Period | 900 | 7,203 | ||||||
| Cash, End of Period | $ | 1,112 | $ | 4,528 | ||||
| Supplemental Disclosures: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income tax paid | $ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
| 7 |
Notes to the Consolidated Financial Statements
1. Nature of Operations and Continuance of Business
RedHawk Holdings Corp. (“We” or "Company") (formerly Independence Energy Corp.) was incorporated in the State of Nevada on November 30, 2005 under the name “Oliver Creek Resources Inc.” At inception, we were organized to acquire, explore and develop natural resource properties in the United States. Effective August 12, 2008, we changed our name from Oliver Creek Resources Inc. to “Independence Energy Corp.” and opened for trading with the Over-the Counter Bulletin Board under the symbol “IDNG” and by vote of a majority of the Company’s shareholders, the Company’s name was changed again to RedHawk Holdings Corp. effective on October 13, 2015.
On March 31, 2014, the Company acquired the exclusive right to distribute certain medical products and changed the focus of its operations to include medical products distribution. Since then we have expanded our operations to include specialized financial services and commercial real estate. We may explore other lines of business in the future including, but not limited to, oil and gas services and technology.
In June 2014, the Company decided to discontinue its oil and gas 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 and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future.
As of September 30, 2015, the Company had a working capital deficit of $343,284 and an accumulated deficit of $1,424,019. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's businesses. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
| a) | Basis of Presentation |
The unaudited interim condensed financial statements of the Company as of September 30, 2015 and for the three month periods ended September 30, 2015 and 2014 included herein, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The year-end condensed balance sheet dated as of June 30, 2015 is also unaudited and is presented here as a basis for comparison and reflective of our transition period balance sheet for our new year end which was changed on June 15, 2015. The Company’s fiscal year-end was January 31 but has been changed to June 30 by vote of a majority of the Company’s board of directors. Although the financial statements and related information included herein have been prepared without audit, and certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, the Company believes that the note disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K as of January 31, 2015. In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results expected for the full year or any future period.
| b) | Use of Estimates |
The financial statements and related notes are prepared in conformity with GAAP which requires 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.
| 8 |
REDHAWK HOLDINGS CORP.
Notes to the Consolidated Financial Statements
| c) | Basic and Diluted Net Loss Per Share |
The Company computes net loss per share in accordance with Accounting Standard Codification (“ASC”) 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and 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 September 30, 2015, the Company had 7,452,959 potentially dilutive shares. There were no potentially dilutive shares outstanding at September 30, 2014.
| d) | 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 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.
| e) | Accounts Receivable |
Accounts receivables are amounts due from customers of our medical products division and our financial services division. The amount is reported at fair value, net of any expected allowance for bad debts.
| f) | Inventory |
Inventory consist of purchased thermometers held for resale and are stated at the lower of cost or market utilizing the first-in, first-out method.
| i) | 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 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.
| 9 |
REDHAWK HOLDINGS CORP.
Notes to the Consolidated Financial Statements
| j) | Comprehensive Loss |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. During the three month periods ended September 30, 2015 and 2014, the Company had no items that represented comprehensive income (loss) and, therefore, did not include a schedule of comprehensive income (loss) in the financial statements.
| k) | 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 three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts 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.
| l) | Reclassifications |
Certain financial statement items may have been reclassified to conform to current period financial reporting requirements. These reclassifications had no effect on total assets, liabilities, equity or net loss.
| m) | Recent Accounting Pronouncements |
| 10 |
REDHAWK HOLDINGS CORP.
Notes to the Consolidated Financial Statements
Development Stage
The Company has limited operations and is considered to be in the development stage. During the year ended January 31, 2015, the Company elected to early adopt Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued new guidance intended to change the criteria for recognition of revenue. The new guidance establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following five steps: (1) identify contracts with customers, (2) identify the performance obligations in the contracts, (3) determine the transaction price, (4) allocate the transaction price to the performance obligation in the contract, and (5) recognize revenue as the entity satisfies performance obligations. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently evaluating what impact adoption of this guidance would have on our financial position, results of operations, cash flows and disclosures.
Going Concern
In August 2014, the FASB issued guidance on disclosures of uncertainties about an entity's ability to continue as a going concern. The guidance requires management's evaluation of whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment must be made in connection with preparing financial statements for each annual and interim reporting period. Management's evaluation should be based on the relevant conditions and events that are known and reasonably knowable at the date the financial statements are issued. If conditions or events raise substantial doubt about the entity's ability to continue as a going concern, but this doubt is alleviated by management's plans, the entity should disclose information that enables the reader to understand what the conditions or events are, management's evaluation of those conditions or events and management's plans that alleviate that substantial doubt. If conditions or events raise substantial doubt and the substantial doubt is not alleviated, the entity must disclose this in the footnotes. The entity must also disclose information that enables the reader to understand what the conditions or events are, management's evaluation of those conditions or events and management's plans that are intended to alleviate that substantial doubt. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We do not expect that adoption will have a material impact on our financial position, results of operations, cash flows or disclosures.
Debt Issuance Costs
In April 2015, the FASB issued new guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The new guidance does not affect the recognition and measurement of debt issuance costs. Therefore, the amortization of such costs will continue to be calculated using the interest method and be reported as interest expense. The new guidance does not specifically address, and therefore does not affect, the balance sheet presentation of debt issuance costs for revolving debt arrangements. The new guidance is effective for financial statements issued in fiscal years beginning after December 15, 2015, and will be applied on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued.
| n) | New Accounting Pronouncements |
The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements.
| 3. | Fixed Assets |
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.
| 11 |
REDHAWK HOLDINGS CORP.
Notes to the Consolidated Financial Statements
| 4. | Intangible Asset |
On March 31, 2014, the Company entered into an asset purchase agreement (the “Agreement”) with American Medical Distributors, LLC (“AMD”) pursuant to which the Company acquired a five year license dated November 27, 2013 for the exclusive territorial distribution rights to the Thermofinder non-contact thermometer from AMD in exchange for the issuance of 152,172,287 shares of the Company’s common stock with a fair value of $320,431 based on the fair value of such shares on the date of issuance. As a part of this asset acquisition and share issuance, the Company also received a payment of $60,000. The intangible asset is being amortized over the remaining life of the license agreement. Amortization expense is expected to be approximately $68,664 per year for the years ending 2016 through 2018 and approximately $57,219 in year 2019.
| 5. | Loan Payable |
In December 2011, the Company received a loan in the amount of $156,697 from an unrelated third party. The loan is non-interest bearing, unsecured and due on demand.
| 6. | Due to Related Party |
From time to time, advances are received from a related party, who is a shareholder and officer of the Company, that are used to fund operations. The total amount outstanding at September 30, 2015 and June 30, 2015 was $57,388 and $28,635, respectively (See Note 9).
| 12 |
REDHAWK HOLDINGS CORP.
Notes to the Consolidated Financial Statements
| 7. | Discontinued Operations |
On June 23, 2014, the Company impaired its remaining oil and natural gas properties and changed its focus to medical products distribution and other businesses. The Company’s oil and gas properties have been classified as held for sale and are reflected at the estimated fair value expected to be realized by the Company. As a result of the Company’s impairment of its oil and gas properties and change in direction for the Company’s business, all expenses related to the oil and natural gas operations have been classified as discontinued operations.
The results of discontinued operations are summarized as follows:
| For the
Three Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Operating Income | $ | - | $ | 444 | ||||
| Net Income from Discontinued Operations | $ | - | $ | 444 | ||||
| 8. | Income Taxes |
As of January 31, 2015, the Company has $986,035 of net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2026 and run through 2035. The Company has increased those available net operating losses to offset future taxable income by $105,615 for the five month period ended June 30, 2015 and an additional $98,404 for the three month period ended September 30, 2015. The income tax benefit differs from the amount computed by applying the US federal income tax rate of 34% due to a valuation allowance established for the fair value of the tax benefit generated which is discussed in more detail below to net loss before income taxes. At September 30, 2015, the Company had no uncertain tax positions.
The Company accounts for interest and penalties relating to uncertain tax provisions in the current period statement of income, as necessary. The Company has never filed a tax return. In order to utilize the available net operating loss carryforwards, the Company will need to prepare and file all tax returns since its inception. The Company’s tax years from inception are subject to examination.
Due to the uncertainty surrounding the realization of the deferred tax assets in future years, management has determined that it is more than likely than not that the deferred tax assets will be not realized in future periods. Accordingly, the Company has recorded a valuation allowance against its net deferred tax assets. As of September 30, 2015, the cumulative net operating loss carried forward is $1,190,054 or a net tax asset of $404,618, which has been fully allowed for and increased by $33,457 due to the tax loss generated during for the three month period ended September 30, 2015.
| 9. | Subsequent Events |
Effective on October 13, 2015, we amended and restated our articles of incorporation as previously adopted by a majority vote of our shareholders. The amended and restated articles of incorporation changed our name to RedHawk Holdings Corp., authorized 5,000 shares of Preferred Stock, and increased authorized shares of common stock from 375,000,000 to 450,000,000, among other things.
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 cash.
Pursuant to a certificate of designation filed with the Nevada Secretary of State effective November 12, 2015, 2,000 shares of our authorized Preferred Stock have been designated as Series A 5% Convertible Preferred Stock, with a $1,000 stated value (“Series A Preferred”). The holders of the Series A Preferred 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 (“PIK”). Holders of the Series A Preferred 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 may be converted. After six months from issue, each share of Series A Preferred is convertible, at the option of the holder, into the number of shares of common stock equal to the quotient of the stated value, as adjusted for PIK dividends, by $0.015, as adjusted for stock splits and dividends.
On November 13, 2015, we acquired certain commercial real estate from a related party for $480,000 consisting of $75,000 in land costs and $405,000 in buildings and improvements. The purchase price was paid by the Company assuming $265,000 of long-term bank indebtedness (“Note”) plus the issuance of 215 shares of the Company’s newly designated Series A Preferred Stock. The purchase price of the property was determined by independent third party appraisers commissioned by the financial institution providing the long-term financing for the acquisition, plus the cost of specific security improvements requested by the lessee.
The Note is dated November 13, 2015, in the 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 shareholder.
Effective November 12, 2015, the Company entered into a $100,000 Commercial Note Line of Credit (“Line of Credit”) with a shareholder to evidence prior indebtedness and provide for future borrowings. 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 shareholder 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. The amount due to related party at November 12, 2015 was converted to the line of credit (See Note 6).
| 13 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. Forward-looking statements are all statements other than statements of historical facts. The words “may,” “can,” “will” “should,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “potential,” “proposed,” and any similar expressions are intended to identify those assertions as forward-looking statements. Investors are cautioned that forward-looking statements are predictions and are inherently uncertain. Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties. In evaluating forward-looking statements, you should consider the various factors which may cause actual results to differ materially from any forward-looking statements including the risks below and those listed in the “Risk Factors” section of our latest 10-K report:
| · | Changes in the effects of the significant level of competition that exists in the medical device distribution industry, or our inability to attract customers for other reasons. |
| · | The unexpected cost of regulation applicable to our industry, and the possibility of future additional regulation. |
| · | Our lack of insurance coverage in the event we incur an unexpected liability. |
| · | Our lack of a proven operating history and the possibility of future losses that are greater than we currently anticipate. |
| · | The possibility that we may not be able to generate revenues or access other financing sources necessary to operate our business. |
| · | Our inability to attract necessary personnel to run and market our business. |
| · | The volatility of our stock price. |
| · | Changes in the market prices for our products, or our failure to perform or renew the distribution agreement for our products. |
| · | Our failure to execute our growth strategy or enter into other lines of business that we may identify as potentially profitable for our company. |
| · | Changes in economic and business conditions. |
| · | Changes in accounting policies and practices we may voluntarily adopt or that we may be required to adopt under generally accepted accounting principles in the United States. |
Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to revise or update any forward-looking statements.
Working Capital
| September 30, | June 30, | |||||||
| 2015 | 2015 | |||||||
| Current Assets | $ | 51,604 | $ | 11,266 | ||||
| Current Liabilities | $ | 394,888 | $ | 273,312 | ||||
| Working Capital (Deficit) | $ | (343,284 | ) | $ | (262,046 | ) | ||
| 14 |
Operating Revenues
For the period from November 30, 2005 (date of inception) to September 30, 2015, our company has earned only minimal operating revenues.
Operating Expenses and Loss from Continuing Operations
For the three months ended September 30, 2015, we incurred a $108,404 loss from continuing operations or $nil per share compared with a loss from continuing operations of $46,615 or $nil per share for the three months ended September 30, 2014.
Operating expenses for the three months ended September 30, 2015 were $113,154 compared with $46,615 for the three months ended September 30, 2014. The increase of $66,539 was due principally to a $17,166 increase in amortization, a $61,150 increase in professional fees and a $9,223 increase in general and administrative expenses. These increase were partially offset by a $21,000 reduction in management fees. The increase in amortization expense related to the intangible asset acquired from AMD. The higher professional fees resulted primarily from higher legal costs associated with various transactional costs and regulatory filing. The higher general and administrative costs were related to increase costs associated with regulatory filing and additional insurance expense. These increase were partially offset with a decrease in management fees resulting primarily from the resignation and dismissal of certain of our prior executives.
Liquidity and Capital Resources
As of September 30, 2015, we had cash of $1,112 compared with $900 at June 30, 2015. During the three month period ended September 30, 2015 we focused on reducing cash outlays for operating costs including management and consulting and fees. These reductions were offset by higher professional fees associated with transactional costs and regulatory filings.
We had total assets at September 30, 2015 of $268,789 compared with $245,617 at June 30, 2015. The increase in overall assets was due to the increase in prepaid expenses.
At September 30, 2015, we had total liabilities of $394,888 compared with $273,312 at June 30, 2015. The increase in total liabilities was due a $67,069 increase in our accounts payable and accrued liablities, a $28,753 increases in advances from a stockholder and a $25,754 increase in increase in insurance notes payable. These increases were partially offset with the decrease in liabilities related to certain discontinued operations.
Cash Flows
| Three months ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Cash Flows used in Operating Activities | $ | (25,542 | ) | $ | (2,675 | ) | ||
| Cash provided by Financing Activities | $ | 25,754 | $ | - | ||||
| Net Increase (decrease) in Cash During Period | $ | 212 | $ | (2,675 | ) | |||
Cash Flow from Operating Activities
During the three months ended September 30, 2015, cash of $25,542 was used in operating activities compared with $2,675 used during the same three month period ended September 30, 2014. For the 2015 three month period, a $67,069 increase in accounts payable, a $28,753 increase in amounts due to a related party, a $10,000 non-cash compensation expense, and a $17,166 non-cash intangible amortization charge partially offset the $108,404 net loss for the period and increases of $4,250 and $35,876 in accounts receivable and prepaid expenses, respectively.
| 15 |
The decrease in cash used for operating activities during the three month period ended September 30, 2014, was attributed a significant reduction in day-to-day general and administrative expenses for our Company which was partially offset by our payables and amounts due to a related party.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our Independent Registered Public Accounting firm stated in their report on our audited financial statements as of January 31, 2015 that they have substantial doubt that we will be able to continue as a going concern without further financing.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Future Financings
We will continue to rely on financial support from our stockholders and our ability to raise equity capital or debt financing in order to continue to fund our business operations. Issuances of additional shares and debt instruments convertible into shares of our stock will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Use of Estimates and Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
We have implemented all new accounting pronouncements that are in effect and applicable to us. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
| 16 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
As a smaller reporting company, we are not required to provide the information under this item.
| Item 4. | Controls and Procedures |
Management's Report on Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure.
As of the end of the quarter covered by this report, we carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the chief executive officer and chief financial officer concluded in light of material weaknesses in our internal controls that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.
Changes in Internal Control Over Financial Reporting
During the period covered by this report there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Item | 1. | Legal Proceedings |
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is a party adverse to us or has a material interest adverse to our interest.
On August 5, 2015, the Company made application with the Financial Industry Regulatory Authority (FINRA) for permission to change the Company's name and our ticker symbol from IDNG to HAWC. On October 13, 2015, we amended our articles of incorporation with the Nevada Secretary of State to change the Company's name from Independence Energy Corp. to RedHawk Holdings Corp.
On November 5, 2015, we received notice from FINRA that they declined our request as being "deficient and…necessary for the protection of investors." The FINRA decision was based on previously resolved allegations against Daniel J. Schreiber, the Company's Chief Executive Officer.
In March 2009, The Securities and Exchange Commission had filed a complaint against Mr. Schreiber alleging, among other things, violations of Sections 17(a)(3) of the Securities Act of 1933. Mr. Schreiber vehemently denied such allegations. In order to avoid protracted and expensive litigation, Mr. Schreiber, without admitting or denying the allegations in the complaint, consented in January 2010 to the entry of a final consent judgment that, among other things, enjoins Mr. Schreiber from any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Mr. Schreiber and his legal counsel adamantly reject FINRA's determination as a basis for denying the Company's request for a name change and intend to challenge this determination. Until we reach a final resolution of this matter with FINRA, we will continue trading, for SEC purposes, under the name Independence Energy Corp. with the ticker symbol IDNG.
| Item | 6. | Exhibits |
| Exhibit Number |
Description of Exhibit | |
| (3) | Articles of Incorporation and Bylaws | |
| 3.01 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form SB-2 filed on March 7, 2006) | |
| 3.02 | Bylaws (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form SB-2 filed on March 7, 2006) | |
| 3.03 | Certificate of Amendment filed on July 23, 2008 (incorporated by reference to Exhibit 3.02 to our Current Report on Form 8-K filed on August 14, 2008) | |
| 3.04 | Certificate of Change filed on July 23, 2008 (incorporated by reference to Exhibit 3.01 to our Current Report on Form 8-K filed on August 14, 2008) | |
| 3.05 | Certificate of Change filed on June 14, 2012 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June 15, 2012) | |
| 3.06 | Amended and Restated Articles of Incorporation of RedHawk Holdings Corp. filed October 12, 2015 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 16, 2015). | |
| 3.07 | Certificate of Designation filed on November 12, 2015. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 19, 2015). |
| 17 |
| Exhibit Number |
Description of Exhibit | |
| (10) | Material Events | |
| 10.1 | Assignment dated June 1, 2015 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 19, 2015). | |
| (31) | Rule 13a-14(a) / 15d-14(a) Certifications | |
| 31.1* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer | |
| 31.2* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer. | |
| (32) | Section 1350 Certifications | |
| 32.1* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer | |
| 32.2* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer. | |
| 101 | Interactive Data File | |
| 101* | Interactive Data File (Form 10-Q for the quarter ended September 30, 2015 furnished in XBRL). | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Filed herewith. |
| 18 |
In accordance with Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| REDHAWK HOLDINGS CORP. | |
| (Registrant) | |
| Dated: November 23, 2015 | /s/ Daniel J. Schreiber |
| Daniel J. Schreiber | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Dated: November 23, 2015 | /s/ G. Darcy Klug |
| G. Darcy Klug | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
| 19 |
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel J. Schreiber, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Redhawk Holding Corp; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Date: November 23, 2015 | |
| /s/ Daniel J. Schreiber | |
| Daniel J. Schreiber | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, G. Darcy Klug, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Redhawk Holding Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 23, 2015
| /s/ G. Darcy Klug | |
| G. Darcy Klug | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel J. Schreiber, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Redhawk Holding Corp. for the quarter ended September 30, 2015 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Redhawk Holding Corp. |
| Dated: November 23, 2015 | ||
| /s/ Daniel J. Schreiber | ||
| Daniel J. Schreiber | ||
| Chief Executive Officer and Director | ||
| (Principal Executive Officer) | ||
| Redhawk Holding Corp. | ||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to RedHawk Holdings Corp. and will be retained by RedHawk Holdings Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, G. Darcy Klug, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Redhawk Holding Corp. for the quarter ended September 30, 2015 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Redhawk Holding Corp. |
| Dated: November 23, 2015 | ||
| /s/ G. Darcy Klug | ||
| G. Darcy Klug | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Redhawk Holding Corp. | ||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to RedHawk Holdings Corp. and will be retained by RedHawk Holdings Corp. and furnished to the Securities and Exchange Commission or its staff upon request.