UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to ____________

 

Commission file number: 333-180954

 

Hawkeye Systems, Inc.

(Exact name of small business issuer as specified in its charter)

  

Nevada

 

83-0799093

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

6605 Abercorn, Suite 204

Savannah, GA 31405

(Address of principal executive offices)

 

(912) 253-0375

(Registrants telephone number, including area code)

 

____________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act

 

Title of Each Class

 

Trading Symbol(s)

 

Name of each Exchange on which registered

N/A

 

N/A

 

N/A

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. ☐ Yes   ☒ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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). ☐ Yes   ☒ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Smaller reporting company

 

 

Non-accelerated filer

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Yes   ☒ No

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes   ☒ No

 

The number of shares outstanding of each of the issuer’s classes of common equity as of February 23, 2021 was 16,649,659 shares of common stock.

   

 

 

 

Contents

 

 

 

Page

 

Part 1

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1

Financial Statements (unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and June 30, 2019

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended September 30, 2020 and 2019 (unaudited)

4

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2020 and 2019 (unaudited)

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2020 and 2019 (unaudited)

6

 

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

 

 

 

Item 4.

Controls and Procedures

19

 

 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1

Legal Proceedings

20

 

 

 

 

 

Item 1A

Risk Factors

20

 

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

20

 

 

 

 

 

Item 3

Defaults Upon Senior Securities

20

 

 

 

 

 

Item 4

Mine Safety Disclosures

20

 

 

 

 

 

Item 5

Other Information

20

 

 

 

 

 

Item 6

Exhibits

21

 

 

 

 

 

 

SIGNATURES

22

 

 

 
2

Table of Contents

  

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

  

 

 

September 30,

 

 

June 30,

 

 

 

2020

 

 

2020

 

ASSETS

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 51,256

 

 

$ 911,747

 

Accounts receivable

 

 

49,471

 

 

 

47,656

 

Inventory, net

 

 

1,371,066

 

 

 

509,517

 

Prepaid expenses

 

 

19,879

 

 

 

6,667

 

Total current assets

 

 

1,491,672

 

 

 

1,475,587

 

 

 

 

 

 

 

 

 

 

Equipment, net

 

 

135

 

 

 

737

 

Note receivable - Radiant Images, Inc., net of allowance of $1,459,842

 

 

-

 

 

 

-

 

Total assets

 

$ 1,491,807

 

 

$ 1,476,324

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 517,410

 

 

$ 332,327

 

Convertible note payable, net of discount

 

 

-

 

 

 

137,625

 

Convertible note payable, net of discount - related party

 

 

224,204

 

 

 

211,305

 

Note payable - related parties

 

 

-

 

 

 

200,000

 

Common stock payable

 

 

9,000

 

 

 

6,000

 

Common stock payable - related parties

 

 

630,000

 

 

 

430,000

 

Total current liabilities

 

 

1,380,614

 

 

 

1,317,257

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,380,614

 

 

 

1,317,257

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 50,000,000 shares authorized; no shares issued or outstanding

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value, 400,000,000 shares authorized; 15,837,659 and 14,828,036 shares issued and outstanding, respectively

 

 

1,584

 

 

 

1,483

 

Additional paid-in capital

 

 

6,934,597

 

 

 

4,527,925

 

Common stock to be issued - 60,000 and 425,000 shares, respectively

 

 

30,000

 

 

 

139,500

 

Accumulated deficit

 

 

(6,854,988 )

 

 

(4,509,841 )

Total stockholders’ equity

 

 

111,193

 

 

 

159,067

 

Total liabilities and stockholders’ equity

 

$ 1,491,807

 

 

$ 1,476,324

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
3

Table of Contents

  

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Sales

 

$ 382,346

 

 

$ -

 

Cost of sales

 

 

320,379

 

 

 

-

 

Gross profit

 

 

61,967

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

13,797

 

 

 

18,412

 

Management compensation

 

 

153,662

 

 

 

-

 

Professional fees

 

 

38,024

 

 

 

290,485

 

Professional fees - related party

 

 

139,340

 

 

 

-

 

Marketing

 

 

48,418

 

 

 

-

 

Write-down of inventory

 

 

40,164

 

 

 

-

 

Total operating expenses

 

 

433,405

 

 

 

308,897

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(371,438 )

 

 

(308,897 )

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(26,833 )

 

 

-

 

Interest expense - related party

 

 

(12,899 )

 

 

-

 

Financing expense

 

 

(55,497 )

 

 

-

 

Financing expense - related party

 

 

(1,508,211 )

 

 

-

 

Loss on settlement of debt

 

 

(370,269 )

 

 

-

 

Total other expense

 

 

(1,973,709 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (2,345,147 )

 

$ (308,897 )

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$ (0.15 )

 

$ (0.03 )

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

15,562,663

 

 

 

11,164,921

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

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HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

For the Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Stock

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

to be

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Issued

 

 

Deficit

 

 

Equity

 

Balance, June 30, 2020

 

 

14,828,036

 

 

$ 1,483

 

 

$ 4,527,925

 

 

$ 139,500

 

 

$ (4,509,841 )

 

$ 159,067

 

Common shares issued for stock to be issued

 

 

365,000

 

 

 

37

 

 

 

109,463

 

 

 

(109,500 )

 

 

-

 

 

 

-

 

Warrants exercised for cash

 

 

175,000

 

 

 

17

 

 

 

67,483

 

 

 

-

 

 

 

-

 

 

 

67,500

 

Common shares issued for conversion of debt

 

 

469,623

 

 

 

47

 

 

 

525,931

 

 

 

-

 

 

 

-

 

 

 

525,978

 

Stock based compensation – options

 

 

-

 

 

 

-

 

 

 

119,155

 

 

 

-

 

 

 

-

 

 

 

119,155

 

Stock based compensation – warrant

 

 

-

 

 

 

-

 

 

 

1,563,708

 

 

 

-

 

 

 

-

 

 

 

1,563,708

 

Debt forgiveness

 

 

-

 

 

 

-

 

 

 

20,932

 

 

 

-

 

 

 

-

 

 

 

20,932

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

(2,345,147 )

 

 

(2,345,147 )

Balance, September 30, 2020

 

 

15,837,659

 

 

$ 1,584

 

 

$ 6,934,597

 

 

$ 30,000

 

 

$ (6,854,988 )

 

$ 111,193

 

 

For the Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Stock

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

To Be

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Issued

 

 

Deficit

 

 

Equity

 

Balance, June 30, 2019

 

 

9,897,116

 

 

$ 990

 

 

$ 2,198,891

 

 

$ 170,000

 

 

$ (1,909,373 )

 

$ 460,508

 

Common stock issued for cash

 

 

449,333

 

 

 

45

 

 

 

40,538

 

 

 

-

 

 

 

-

 

 

 

40,583

 

Common stock issued as compensation

 

 

1,222,000

 

 

 

116

 

 

 

540,872

 

 

 

-

 

 

 

-

 

 

 

540,988

 

Warrants issued

 

 

617,333

 

 

 

-

 

 

 

7,511

 

 

 

-

 

 

 

-

 

 

 

7,511

 

Stock options

 

 

100,000

 

 

 

-

 

 

 

1,918

 

 

 

-

 

 

 

-

 

 

 

1,918

 

Stock subscription received

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43,000

 

 

 

-

 

 

 

43,000

 

Stock subscription receivable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,787 )

 

 

-

 

 

 

(2,787 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(308,897 )

 

 

(308,897 )

Balance, September 30, 2019

 

 

12,285,782

 

 

$ 1,151

 

 

$ 2,789,730

 

 

$ 210,213

 

 

$ (2,218,270 )

 

$ 782,824

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
5

Table of Contents

 

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$ (2,345,147 )

 

$ (308,897 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

602

 

 

 

603

 

Write-down of inventory

 

 

40,164

 

 

 

-

 

Loss on settlement of debt

 

 

370,269

 

 

 

-

 

Amortization of debt discount

 

 

25,274

 

 

 

-

 

Stock based compensation – options and warrant

 

 

1,682,863

 

 

 

-

 

Common stock issued and warrants exercised for services

 

 

-

 

 

 

260,000

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,815 )

 

 

-

 

Inventory

 

 

(901,713 )

 

 

-

 

Prepaid expense

 

 

(13,212 )

 

 

4,855

 

Accounts payable and accrued liabilities

 

 

211,724

 

 

 

(20,369 )

Common stock payable

 

 

3,000

 

 

 

-

 

Net cash used in operating activities

 

 

(927,991 )

 

 

(63,808 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Shares issued for Radiant Images, Inc. deposit

 

 

-

 

 

 

70,000

 

Investment in Radiant Images, Inc.

 

 

-

 

 

 

(114,000 )

Net cash used in investing activities

 

 

-

 

 

 

(44,000 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Sales of common stock and warrants, net of issuance costs

 

 

-

 

 

 

50,000

 

Proceeds from exercise of warrants

 

 

67,500

 

 

 

-

 

Stock subscription receivable

 

 

 

 

 

 

(2,787 )

Stock subscriptions received

 

 

-

 

 

 

43,000

 

Net cash provided by financing activities

 

 

67,500

 

 

 

90,213

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(860,491 )

 

 

(17,595 )

Cash beginning of period

 

 

911,747

 

 

 

18,372

 

Cash end of period

 

$ 51,256

 

 

$ 777

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Common stock issued on conversion of note payable

 

$ 525,978

 

 

$ -

 

Reclassification from note payable related party to stock payable

 

$ 200,000

 

 

$ -

 

Reclassification from common stock to be issued to common stock

 

$ 109,500

 

 

$ -

 

Debt forgiveness

 

$ 20,932

 

 

$ -

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
6

Table of Contents

 

HAWKEYE SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

 

Note 1 – Summary of Significant Accounting Policies

 

Basis of presentation

The accompanying unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the unaudited condensed interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the unaudited condensed interim financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year. The accompanying unaudited condensed interim financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K, for the year ended June 30, 2020, as filed with the SEC on February 1, 2021.

 

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. 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. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. Significant estimates in the accompanying financial statements include useful lives of property and equipment, fair value assumptions used for stock-based compensation, and the valuation allowance on deferred tax assets.

 

Accounts receivable and allowance for doubtful accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for services or goods. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged against the allowance when it is probable that the receivable will not be recovered. The Company had no allowance for doubtful accounts at September 30, 2020 or June 30, 2020.

 

Fair value measurements

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. The Company has no assets or liabilities that are adjusted to fair value on a recurring basis.

 

 
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Revenue recognition

Revenue is recorded in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Revenue is recognized from product sales when goods are shipped, title and risk of loss have transferred to the purchaser, there are no significant vendor obligations, the fees are fixed or determinable, and collection is reasonably assured. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. The Company recognizes sales on a gross basis when it is considered the primary obligor in the transaction and on a net basis when it is considered to be acting as an agent. We record estimates for cash discounts, product returns, and other discounts in the period of the sale. This provision is recorded as a reduction from gross sales and the reserves are shown as a reduction of accounts receivable.

 

Cost of sales

Cost of sales includes inventory costs and shipping and freight expenses.

 

Basic and diluted earnings per share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including stock options, warrants to purchase the Company’s common stock, and convertible note payable. For the three months ended September 30, 2020 and 2019, potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share because they were anti-dilutive are as follows:

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

Warrants

 

 

8,939,131

 

 

 

15,272,997

 

Options

 

 

5,255,000

 

 

 

772,000

 

Convertible notes

 

 

1,000,000

 

 

 

200,000

 

Total possible dilutive shares

 

 

15,194,131

 

 

 

16,244,997

 

 

Reclassification

Certain amounts from prior periods have been reclassified to conform to the current period presentation. The reclassification have no effect on previously reported results of operations or cash flows.

 

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued and their potential effect on our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

Note 2 – Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using GAAP, applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. During the three month period ended September 30, 2020, the Company had a net loss of $2,345,147. As of September 30, 2020, the Company had an accumulated deficit of $6,854,988. The Company has not established sufficient revenue to cover its operating costs and will require additional capital to continue its operating plan. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company includes: sales of equity instruments; traditional financing, such as loans; and obtaining capital from management and significant stockholders sufficient to meet its minimum operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing this plan.

 

 
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There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Note 3 – Inventory

 

Inventory at September 30, 2020 and June 30, 2020 consists of the following:

 

 

 

September 30,

 

 

June 30,

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

Finished goods

 

$ 1,537,230

 

 

$ 545,112

 

Goods in transit

 

 

-

 

 

 

90,405

 

Less: Obsolescence

 

 

(166,164 )

 

 

(126,000 )

Inventory, net

 

$ 1,371,066

 

 

$ 509,517

 

 

During the year ended June 30, 2020, the Company purchased inventory of $153,000 for issuance of common stock. As at September 30, 2020 and June 30, 2020, the Company recorded $153,000 common stock payable.

 

Note 4 – Advances to Radiant Images, Inc.

 

Note Receivable – Radiant Images, Inc.

 

In contemplation of the closing of the Radiant Agreement, the advance balance of $920,800 was formalized in a secured revolving promissory note (“Radiant Note)” dated April 26, 2019. Further advances to Radiant prior to the closing of the acquisition would increase the balance of the promissory note. The interest rate on the note was 12% and accrues daily on the outstanding balance and is collateralized by all of the assets of Radiant pursuant to a Security Agreement. The purchase price would be offset by the balance of the promissory note and interest upon closing. Through June 30, 2020, additional cash advances under the note receivable totaled $385,000 in equity-related transactions.

 

In April 2020, the Company received notice from Radiant of its intent to terminate the Radiant Agreement. As per terms of the agreement, the Radiant Note and related interest became due. The Company has ceased further discussions with respect to the acquisition and is pursuing litigation for repayment of amounts due by Radiant. The Company’s investment in Radiant was structured as a revolving note and has been classified as a Note Receivable from Radiant due with accrued but unpaid interest. Pursuant to the terms of the revolving note, Radiant is required to repay the money already invested to Hawkeye with interest. The note receivable was issued on April 26, 2019, is due upon demand of the Company at any time commencing April 26, 2020. The interest rate on the note is 12% and accrues daily on the outstanding balance. During the fiscal year ended June 30, 2020, total contributions of $337,000 were made to Radiant, bringing the balance of the note receivable to $1,305,800 at June 30, 2020 (not including interest). Because of the ongoing litigation with Radiant, the Company recorded an allowance for note receivable of $1,305,800 and interest receivable of $154,042, during the year ended June 30, 2020. The Company has not calculated any additional interest or allowance for the three months ended September 30, 2020. Nevertheless, the Company intends to vigorously pursue the litigation and expects to fully collect these amounts from Radiant and/or its principals.

 

 
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As of September 30, 2020 and June 30, 2020, note receivable and interest receivable are as follows:

 

 

 

September 30,

 

 

June 30,

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

Note receivable

 

$ 1,305,800

 

 

$ 1,305,800

 

Interest receivable

 

 

154,042

 

 

 

154,042

 

 

 

 

1,459,842

 

 

 

1,459,842

 

 

 

 

 

 

 

 

 

 

Allowance for note receivable

 

 

(1,305,800 )

 

 

(1,305,800 )

Allowance for interest receivable

 

 

(154,042 )

 

 

(154,042 )

 

 

$ -

 

 

$ -

 

 

Note 5 – Note Payable – Related Party

 

On June 13, 2019, the Company entered into a Securities Purchase Agreement with a shareholder pursuant to which it issued a Promissory Note for $200,000 due on the second anniversary of issuance. The note bears interest at 10%. In connection with the Securities Purchase Agreement, the Company issued 100,000 shares of its common stock and a warrant to purchase 400,000 shares at $1.50 per share exercisable for two years from issuance.

 

On June 13, 2020, the note matured, became due on demand and as a condition of maturity became convertible with a 40% discount to market price, but not lower than $1.00 per share.

 

On July 1, 2020, the Company and note holder agreed to convert the note of $200,000 into 800,000 shares of common stock and accrued interest of $20,932 was forgiven. As a result, the Company reclassed note payable – related party of $200,000 to common stock payable and recorded debt forgiveness of $20,932 as additional paid in capital.

 

Note 6 – Convertible Notes Payable

 

Convertible note

 

On March 17, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities LLC pursuant to which the Company issued a 10% Convertible Redeemable Note (“Convertible Note”) for the original principal amount of $150,000. The Convertible Note is due on March 17, 2021 and on the sixth month anniversary of the Note may be converted into shares of Common Stock of the Company at a 40% discount to the lowest Volume Weighted Average Price for the Company’s common stock for the 15 days preceding the conversion. The Convertible Note may be prepaid prior to the six-month anniversary at 115% of the face if paid within 30 days, and an additional 5% every 30 days thereafter with a cap of 140%. Interest accrual and debt amortization would have begun in April 2020.

 

Financing fees associated with the note totaled $16,500 resulting in net proceeds to the Company of $133,500. The financing fees were recognized as a discount on debt is being amortized over the term of the note.

 

On August 4, 2020, the note of $150,000 and accrued interest of $5,708 were converted into 469,623 shares of common stock resulting in a loss of settlement of debt totaling $370,269.

 

During the three months ended September 30, 2020, amortization of $12,375 was recognized as interest expense. As of September 30, 2020 and June 30, 2020, the balance of the note payable is $0 and $150,000 less unamortized debt discount of $0 and $12,375, respectively. Interest expense of $1,958 was recognized on the convertible note during the three months ended September 30, 2020.

  

 
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Convertible note – related party

 

On April 6, 2020, the Company issued convertible note payable of $250,000 with simple interest at 10% per annum if repaid within 90 days, and simple interest at 20% per annum thereafter. The convertible note is due on April 6, 2021. At the option of holder, this note is convertible at any time which is six months from the date of issuance through that date which is one year from the date of issuance at a conversion price of $0.25 per share. In consideration for the loan of $250,000, the Borrower also granted to the Lender 100,000 stock options exercisable at $0.25 for a two-year term. The options vested upon issuance. The fair value of the options was $13,297 and was recognized as debt discount as a part of beneficial conversion feature in the year ended June 30, 2020. The Company recorded a discount on the convertible note due to a beneficial conversion feature of $51,594, which is being amortized over the term of the note.

 

During the three months ended September 30, 2020, amortization of $12,899 was recognized as interest expense. As of September 30, 2020 and June 30, 2020, the balance of the note payable is $250,000 less unamortized debt discount of $25,796 and $38,695 or $224,204 and $211,305, respectively. Interest expense of $12,500 was recognized on the convertible notes during the three months ended September 30, 2020.

 

Note 7 – Common stock payable

 

As of September 30, 2020 and June 30, 2020, common stock payable are as follows:

 

 

 

September 30,

 

 

June 30,

 

 

 

2020

 

 

2020

 

Purchase of inventory – related party

 

$ 153,000

 

 

$ 153,000

 

Related parties

 

 

477,000

 

 

 

277,000

 

Commitments

 

 

9,000

 

 

 

6,000

 

 

 

$ 639,000

 

 

$ 436,000

 

 

Note 8 – Stockholders’ Equity

 

Common Stock

 

During the three months ended September 30, 2020, the Company had the following common stock transactions:

 

 

Issued 469,623 shares of its common stock in exchange for conversion of debt and accrued interest of $525,978.

 

Issued 175,000 shares of its common stock associated with the exercise of warrants for $67,500.

 

Issued 365,000 shares of common stock for stock subscriptions of $109,500 received prior to June 30, 2020.

 

During the three months ended September 30, 2019 the Company had the following common stock transactions:

 

 

Effective July 3, 2019 the Company issued 333,333 shares to an accredited investor for $50,000. As part of the investment, the investor was also issued 333,333 warrants to purchase shares of common stock for two years at $.50 per share and 100,000 options to purchase shares of common stock for two years at $.25 per share

 

On July 19, 2019 the Company issued 260,000 shares to Michael Mansouri and 260,000 shares to Gianna Wolfe as consulting expense in connection with the acquisition of Radiant Images, Inc.

 

Effective July 28, 2019 the Company issued 200,000 shares to a related party in consideration for the payment of $50,000 to the Joint Venture, 80,000 shares to an accredited investor in consideration for $20,000 paid on behalf of the Joint Venture, and 22,000 shares to a related party for legal services valued at $11,000.

 

On August 2, 2019 the investor who acquired a note on January 22, 2019 converted that note to 400,000 shares of common stock.

 

Effective July 9, 2019 an investor subscribed to purchase: (i) 60,000 shares of common stock, and (ii) 60,000 Series C Warrants that are exercisable for 2 years from this date for an exercise price of $.50 per share. The purchase is at a price of $.25 per unit, for a total purchase price of $15,000, of which $2,787 was receivable at September 30, 2019.

 

On September 10, 2019 the Company sold 56,000 shares to an accredited investor for $28,000. Included with the purchase was warrants to 112,000 shares at $1.00 per year for two years and warrants to purchase 112,000 shares at $2.00 per year for two years.

  

 
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Common Stock to be Issued

 

As of September 30, 2020 and June 30, 2020, the Company received payment for unissued capital stock resulting in 60,000 and 425,000 share of common stock to be issued for payments of $30,000 and $139,500, respectively.

 

Balance at June 30, 2020

 

 

139,500

 

Received on subscription

 

 

-

 

Common stock certificates issued

 

 

(109,500 )

Balance at September 30, 2020

 

$ 30,000

 

 

Stock Purchase Warrants

 

Transactions in stock purchase warrants for the three months ended September 30, 2020 are as follows:

 

 

 

Number of

 

 

Weighted Average

 

 

 

Warrants

 

 

Exercise Price

 

Balance at June 30, 2020

 

 

7,047,135

 

 

$ 1.52

 

Granted

 

 

2,178,996

 

 

$ 1.10

 

Exercised – shares issued

 

 

(175,000 )

 

$ 0.39

 

Expired

 

 

(112,000 )

 

$ 1.00

 

Balance at September 30, 2020

 

 

8,939,131

 

 

$ 1.57

 

 

The composition of the Company’s warrants outstanding at September 30, 2020 are as follows:

 

Exercise Price

 

 

Number of Warrants

 

 

Weighted Average Remaining Life (in years)

 

$

0.30

 

 

 

349,998

 

 

 

3,58

 

$

0.50

 

 

 

1,059,999

 

 

 

2.53

 

$

1.00

 

 

 

3,097,317

 

 

 

1.25

 

$

1.50

 

 

 

20,000

 

 

 

1.00

 

$

2.00

 

 

 

4,260,666

 

 

 

1.44

 

$

2.50

 

 

 

151,151

 

 

 

0.27

 

 

 

 

 

 

8,939,131

 

 

 

1.57

 

 

During the three months ended September 30, 2020, the Company issued 2,178,996 warrants to purchase common stock. The fair value of the warrants was determined using the Black-Scholes option pricing model with the following assumptions:

 

 

 

Three months ended

September 30,

2020

 

 

Year ended June 30,

2020

 

 

Year ended June 30,

2019

 

Exercise price

 

$

0.30 to 2.00

 

 

$ 1.00

 

 

$

1.00 to $2.00

 

Expected term (in years)

 

0.04 – 2.00 years

 

 

1.00 years

 

 

0.75 years

 

Risk-free rate

 

0.12 – 0.17

%

 

0.13 to 0.18

%

 

 

2.00 %

Volatility

 

440 - 660

%

 

111 to 190

 

 

233 %

Dividend yield

 

 

-

 

 

 

-

 

 

 

-

 

 

During the three months ended September 30, 2020, $1,563,708 was expensed for the extension of warrants that had expired, of which $1,508,211 was to a related party.

 

Stock Options

 

During the three months ended September 30, 2020 and year ended June 30, 2020, 0 and 3,800,000 options were granted, respectively.

 

 
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The fair value of the options was determined using the Black-Scholes option pricing model with the following assumptions:

 

 

 

June 30,

 

 

 

2020

 

Trading price

 

$

0.06-$0.47

 

Exercise price

 

$

0.10-$0.50

 

Expected term (in years)

 

1.0 to 5.0

 

Risk-free rate

 

0.19%-2.46

 

Volatility

 

97%-174

 

Dividend yield

 

 

-

 

 

The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant. The Company has no history or expectation of paying cash dividends on its common stock.

 

Transactions in stock options for the three months ended September 30, 2020 are as follows:

 

 

 

Number of options

 

 

Weighted average exercise price

 

 

Weighted average remaining life

(in years)

 

Outstanding, June 30, 2020

 

 

5,255,000

 

 

$ 0.25

 

 

 

4.28

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Expired or Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding, September 30, 2020

 

 

5,255,000

 

 

 

0.25

 

 

 

4.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested, September 30, 2020

 

 

3,815,000

 

 

$ 0.29

 

 

 

3.86

 

 

During the three months ended September 30, 2020, $119,155 was expensed, of which $85,100 was to related parties, and as of September 30, 2020, $238,307 remains unamortized, of which $170,198 is with related parties.

 

At September 30, 2020, the intrinsic value of the 5,255,000 outstanding options was $1,424,127.

 

Note 9 – Related Party Transactions

 

As of September 30, 2020 and June 30, 2020, the Company recorded $277,000 in common stock payable to a related party investor.

 

Note 10 – Commitments and Contingencies

 

On August 1, 2019, the Company entered into an agreement with Stratcon Advisory and Tysadco Partners. Pursuant to the agreement, the Company will pay $6,000 per month for twelve months for corporate development, investment advisory, and investor relations services, payable $3,000 in restricted common stock and $3,000 in cash. Total expense recognized under this agreement during the three months ended September 30, 2020 and 2019 was $6,000 and $12,000, respectively. As of September 30, 2020 and June 30, 2020, the Company had a balance of $30,000 and $27,000 in accounts payable and $9,000 and $6,000 worth of common stock payable, respectively.

 

 
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On June 11, 2020, the Company formalized an employment agreement with its chief executive officer which provides for annual salary of $250,000 beginning with the calendar year 2020. The agreement also specified that the CEO would receive $180,000 of salary that was earned during the calendar year 2019. During the three months ended September 30, 2020, compensation expense of $30,000 was recognized under this agreement. As of September 30, 2020 and June 30, 2020, the Company has a payable due to its CEO of $30,000 and $150,000, respectively. The agreement contained provisions for severance, health benefits, and a car allowance.

  

Note 11 – Subsequent Events

 

Effective November 25, 2020, the Company’s chief executive officer converted $180,000 of unpaid salary into 515,000 shares of common stock.

 

Effective December 3, 2020, the Company issued 100,000 shares of common stock to an accredited investor for $20,000. Included with the purchase were 100,000 options to purchase common stock at $0.20 per share exercisable for two years.

 

Effective December 15, 2020, the Company issued 612,000 shares of common stock to an accredited investor upon conversion of $153,000 in debt.

 

Effective December 15, 2020, the Company issued a 1 year convertible promissory note for $250,000. The promissory note incurs interest at 10%, if repaid within 90 days, and simple interest at 20% per annum thereafter. At the option of the holder this note is convertible at any time which is six months from the date of the issuance through the date which is one year from the date of issuance at a conversion price of $0.25 per share. Included with the convertible promissory note were 100,000 options to purchase common stock at $0.25 per share exercisable for two years.

 

On February 19, 2021, a related party advanced $1 million to the Company. The purpose of the advance is to purchase inventory to satisfy a customer order. The advance will be repaid upon cash being received from the end customer. In addition to the principal amount of the advance, the related party will be entitled to 1/3 of the gross profit earned on the transaction.

 

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion relates to the historical operations and financial statements of Hawkeye Systems, Inc. for the three months ended September 30, 2020 and 2019.

 

Forward-Looking Statements

 

The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

 

Financial Condition and Results of Operations

 

We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

 

We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

 

Results of Operations

 

Three Months Ended September 30, 2020 compared to three months ended September 30, 2019

 

We had operating revenues of $382,346 for the three months ended September 30, 2020 compared with no revenues for the comparable period in 2019. Our activities have been financed by the proceeds of share subscriptions, exercises of warrants and loans. During the three months ended September 30, 2020, we raised approximately $67,500 from the exercise of warrants.

 

Total operating expenses in the three month period ended September 30, 2020 were $433,405 compared to $308,897 in the comparable period in 2019. The operating loss for the three months ended September 30, 2020, is principally the result of management compensation paid in connection with the Company’s operations, together with legal and professional fees and marking expenses. For the three months ended September 30, 2019, operating losses were primarily from professional fees of $290,485.

 

Our financial statements reflect a net loss of $2,345,147 for the three month period ended September 30, 2020 compared to a net loss of $308,897 for the comparable period in 2019. This net loss again reflects management compensation and legal and professional expenses during the periods and a non-operating expense of $1.5 million, which related to the issuance of warrants in the three months ended September 30, 2020.

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our company as of September 30, 2020 and June 30, 2020, respectively.

 

 
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September 30,

 

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

Change

 

Cash

 

$ 51,256

 

 

$ 911,747

 

 

$ (860,491 )

Current assets

 

$ 1,491,672

 

 

$ 1,475,587

 

 

$ 16,085

 

Current liabilities

 

$ 1,380,614

 

 

$ 1,317,257

 

 

$ 63,357

 

Working Capital

 

$ 111,058

 

 

$ 158,330

 

 

$ (47,272 )

 

Our cash balance at September 30, 2020 was $51,256. We continue to raise funds from the sale of equity securities to investors, exercises of warrants and through issuance of notes. Beginning in early 2020, we also commenced the receipt of revenues from sales of our PPE products. We do not believe the cash reserves are sufficient to cover our expenses for our operations for fiscal year ending June 30, 2021. We will require additional funding for our ongoing operations.

 

We intend to raise funds through private placements and the exercise of warrants issued in private placements. Although to date we have had some warrant exercises for cash, there can be no assurance that we will be able to raise money through private offerings or through the exercise of warrants. If we cannot raise any additional financing prior to the expiration of the fiscal year ending June 30, 2021, we believe we will be able to obtain funding from private investment firms and/or lenders, if necessary, but have no agreement in writing.

 

We are an emerging growth company and have generated limited revenue to date. Under a limited operations scenario to maintain our corporate existence, we will require additional funds over the next 12 months to complete our regulatory reporting and filings. However, we will require maximum participation in private offerings or through alternative financings to implement our complete business plan.

 

There are no assurances that we will be able to obtain further funds required for our continued operations. Even if additional financing is available, it may not be available on terms we find favorable. Failure to secure the needed additional financing will have an adverse effect on our ability to remain in business.

 

Cash Flows

 

 

 

Three months ended

 

 

 

 

 

 

September 30,

 

 

Change

 

 

 

2020

 

 

2019

 

 

Amount

 

Cash flows (used in) operating activities

 

$ (927,991 )

 

$ (63,808 )

 

$ (864,183 )

Cash flows (used in) investing activities

 

 

-

 

 

 

(44,000 )

 

 

44,000

 

Cash flows provided by financing activities

 

 

67,500

 

 

 

90,213

 

 

 

(22,713 )

Net change in cash during period

 

$ (860,491 )

 

$ (17,595 )

 

$ (842,896 )

 

Cash Flow from Operating Activities

 

As of September 30, 2020, we had not generated positive cash flow from operating activities. For the three months ended September 30, 2020, net cash flows used by operating activities was $928,000 compared to $64,000 used during the three months ended September 30, 2019. Cash flows used by operating activities for the three months ended September 30, 2020, comprised of a net loss of $2.4 million, which was reduced by non-cash expenses of $2.1 million, primarily from $1.7 million for stock based compensation for depreciation, and was increased by a net change in working capital of $662,000.

 

Cash flows used in operating activities for the three months ended September 30, 2019, comprised of a net loss of $309,000, which was reduced by non-cash expenses of $261,000, for $603 depreciation and $260,000 for stock-based compensation and a net change in working capital of $15,000.

 

 
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Cash Flows from Investing Activities

 

During the three months ended September 30, 2020, we did not use cash for investing activities. During the three months ended September 30, 2019, we used $44,000 for the investment in Radiant Images, Inc.

 

Cash Flows from Financing Activities

 

We have financed our operations primarily from the issuance of equity instruments. For the three months ended September 30, 2020, net cash provided by financing activities was $67,500, consisting of the proceeds from the exercise of warrants. For the three months ended September 30, 2019, net cash provided by financing activities was $90,000, consisting mostly of proceeds from the sale of shares of our common stock $50,000 and stock subscriptions received of $43,000.

 

Plan of Operation and Funding

 

We expect that working capital requirements will continue to be funded through equity offerings, warrant exercises, and related party advances in the near term. We have no guarantees or firm commitments that the related party advances will continue in the near term. Our working capital requirements are expected to increase with the growth of our business.

 

Existing working capital, further advances, together with anticipated capital raises, warrant exercises and anticipated cash flow are expected to be adequate to fund our operations over the next twelve months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through proceeds from the sale of our common stock, warrant exercises and convertible loans.

 

Management anticipates additional increases in operating expenses and capital expenditures relating to: (i) funding our PPE purchases and sales; (ii) developmental expenses; and (iii) marketing expenses. We intend to finance these expenses with issuances of securities, funding agreements with third parties for PPE products, and through the exercise of outstanding warrants.

 

Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

 

Effective April 2, 2020 the Company’s agreement with Radiant Images was terminated. The Company has engaged counsel and will be bringing legal action against Radiant for numerous causes of action, including breach of contract and fraud. The investment was structured as a revolving note and as a consequence the company has reclassified the Investment in Radiant as a Note Receivable from Radiant. Pursuant to the terms of the revolving note, Radiant is required to repay the money we have already invested to Hawkeye. The note receivable is due upon demand of the Company at any time commencing April 26, 2020 and is payable with 12% interest.

 

In December 2019 coronavirus (COVID-19) emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally.

 

Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations.

 

 
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The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

Because of the COVID-19 pandemic, the Company has focused on pandemic management products and services.

 

The Company has continued its focus on sourcing and delivering other PPE products, including without limitation masks, nitrile gloves, gowns, and sanitizer. The Company has numerous transactions in progress and anticipates significant additional sales of PPE products during 2021.

  

Material Commitments

 

As of the date of this Current Report, we do not have any material commitments.

 

Purchase of Significant Equipment

 

While we maintain some inventory of PPE products, we do not intend to purchase any significant equipment during the next twelve months.

 

Application of Critical Accounting Policies

 

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.

 

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. GAAP. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

The material estimates for our company are that of the stock-based compensation recorded for options and financing expenses for warrants. The fair values of options and warrants are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model. The specific quantitative variables are included in the notes to the consolidated financial statements.

 

We prepare our financial statements in conformity with U.S. GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.

 

While we believe that the historical experience, current trends and other factors considered support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

 

 
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For our critical accounting policies and estimates for “Revenue Recognition” see Note 1, Summary of Significant Accounting Policies, to the unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report. Other than the policy changes disclosed in Note 1, Summary of Significant Accounting Policies, to the unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report, there have been no material changes to our critical accounting policies and estimates during the three months ended September 30, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2020.

 

Off-Balance Sheet Arrangements

 

As of the date of this Current Report, we do not have any 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 investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

Our management evaluated the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, consisting of a sole officer and two directors at that time, concluded that, as of September 30, 2020, our internal control over financial reporting were not effective.

 

In response to that assessment we made a determination that accounting and financial reporting services which were outsourced to a consulting firm were insufficient. As a consequence, we made the determination that we need to dedicate more of the company’s current and future financial resources to this function and in January 2021 we engaged a Chief Financial Officer.

 

 
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PART II – OTHER INFORMATION

 

Item 1 – Legal Proceedings

  

On November 13, 2019, 5W Public Relations LLC filed a complaint against Hawkeye Systems, Inc. relating to payments allegedly due under a contract for public relations services. Hawkeye vigorously disputes the allegations in the complaint as 5W Public Relations provided virtually no services to Hawkeye during the term of this arrangement but was paid a substantial amount of funds. Hawkeye has engaged counsel to defend the litigation and also assert counterclaims for failure of consideration, fraud in the inducement, general fraud and other causes of action. Hawkeye anticipates that this litigation if pursued will be resolved favorably for the Company. 

 

Hawkeye has engaged counsel and intends to bring legal action against Radiant Images, Inc. as well as its two principals, Michael Mansouri and Gianna Wolfe, for numerous causes of action including fraud, fraudulent inducement, unjust enrichment and numerous other matters in connection with our agreement with them. We are currently working to replevin shares of stock issued to them and to recover funds payable pursuant to a promissory note due to us from Radiant.

 

We are not aware of any other legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.

 

Item 1A – Risk Factors

 

Not required for Smaller Reporting Companies.

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

Effective July 1, 2020, the Company agreed to change the conversion price and issue 800,000 shares of common stock to an accredited investor upon conversion of a $200,000 convertible note at $0.25 per share.

 

Effective July 7, 2020, the Company issued 100,000 shares of common stock to an accredited investor upon the exercise of warrants at $0.30 per share.

 

Effective July 21, 2020, the Company issued 100,000 shares of common stock to an accredited investor upon the exercise of warrants at $0.30 per share.

 

On September 23, 2020 Eagle Equities LLC converted in full its outstanding convertible note with an original principal amount of $150,000, together with accrued and unpaid interest, into 469,623 shares of common stock.

 

Effective November 25, 2020, the Company’s chief executive officer converted $180,000 of unpaid salary into 515,000 shares of common stock.

 

Effective December 3, 2020, the Company issued 100,000 shares of common stock to an accredited investor for $20,000. Included with the purchase were 100,000 warrants to purchase common stock at $.20 per share exercisable for two years.

 

Effective December 15, 2020, the Company issued 612,000 shares of common stock to an accredited investor upon conversion of $153,000 in debt.

 

The proceeds of these sales were utilized in operations and for PPE purchases and sales.

 

Item 3 – Defaults Upon Senior Securities

 

No disclosure required.

 

Item 4 – Mine Safety Disclosure

 

No disclosure required.

 

Item 5 – Other Information

 

No disclosure required.

 

 
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Item 6. EXHIBITS

 

Exhibits:

 

Number

 

Description

 

 

 

31.1

 

Certification of Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant Section 302 of the Sarbanes Oxley Act of 2002

 

 

 

31.2

 

Certification of Chief Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant Section 302 of the Sarbanes Oxley Act of 2002

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

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

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Hawkeye Systems, Inc.

 

 

 

 

 

Date: February 26, 2021

By:

/s/ Corby Marshall

 

 

 

Corby Marshall, Chief Executive Officer

 

 

 

Principal Executive Officer

 

 

 

 

 

Date: February 26, 2021

By:

/s/ Christopher Mulgrew

 

 

 

Christopher Mulgrew, Chief Financial Officer

 

 

 

Principal Financial Officer

 

   

 
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