COMMITMENTS AND CONTINGENCIES

6 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

7. COMMITMENTS AND CONTINGENCIES

On January 31, 2017, the Company and a stockholder filed a complaint (the “Complaint”) in the United States District Court for the Eastern District of Louisiana (RedHawk Holdings Corp. and Beechwood Properties, LLC Case No. 2:17-cv-819). The Complaint names Daniel J. Schreiber (“Schreiber”) and the Schreiber Living Trust – DTD 2/08/96 (the “Schreiber Trust”) as defendants. Schreiber is the former Chief Executive Officer and director of RedHawk. The Schreiber Trust, of which Schreiber is the Trustee, is a shareholder of the Company. The Complaint lodged claims on behalf of RedHawk for securities fraud, fraud, and Schreiber’s breach of fiduciary duties.

On April 24, 2017, RedHawk and its shareholder filed an amended complaint (“Amended Complaint”) naming Schreiber as the only proper defendant in the suit, individually and as Trustee of the Schreiber Trust.

On May 22, 2017, Schreiber filed a motion to dismiss, or in the alternative to transfer, the suit on the grounds of lack of personal jurisdiction and improper venue. After the parties filed an opposition and reply, on August 16, 2017 the court denied Schreiber’s motion to dismiss.

On September 13, 2017, Schreiber filed an answer to the Amended Complaint, as well as counterclaims against RedHawk, Beechwood, and a director of RedHawk for actions allegedly taken in the course of his duty as a director. The counterclaims against RedHawk and its director are for alleged violation of UCC § 8-401, breach of fiduciary duty, negligence, and unfair trade practices. 

The legal remedies sought in these counterclaims were the subject of a lawsuit filed previously by Schreiber in the United States District Court for the Southern District of California on April 24, 2017 (Case No. 3:17-cv-8824). At the time of the answer of the Louisiana lawsuit, the California action was still pending, and the answer asked that the counterclaim filed in Louisiana be stayed until the California case was adjudicated. On September 26, 2017, the court in the California action granted RedHawk’s motion to dismiss that suit.

October 24, 2017, a scheduling conference was held. The parties agreed to, among other matters, to exchange documents and conduct other discovery, and to schedule a bench trial to originally start June 11, 2018. On March 12, 2018, the parties agreed to extend the discovery period to September 7, 2018. 

On February 6, 2019, we agreed to settle this matter. The settlement is subject to final documentation and other terms and conditions. The settlement provides that approximately 52.4 million shares of the Company’s common stock currently held by the Schreiber Trust will be returned to the Company in exchange for a payment of $250,000 at closing, a $200,000 promissory note payable 18 months after closing, and a $200,000 promissory note payable 30 months after closing, and the dismissal of all claims and counter-claims against the parties in the suit. The promissory notes are secured with certain assets of an officer and director of the Company. At any time within 180 days of closing, the promissory notes can be paid in their entirety for $300,000. The amount by which the fair value of these settlement payments exceeds the current market price of the repurchased common stock at closing is considered to be related to the settlement of the claims and counter-claims. Accordingly, we have accrued an additional $396,500 as of December 31, 2018.

While we are insured for our legal defense costs in this matter, we have a $250,000 self-insured retention. During the year ended June 30, 2018, we recorded a charge of $250,000 for costs that may be uninsured that were incurred in connection with this matter. As of December 31, 2018, the remaining accrued liability related to the possible uninsured costs related to this matter is approximately $165,000.