Attached files
file | filename |
---|---|
EX-32.2 - CERTIFICATION - Hawkeye Systems, Inc. | hwke_ex322.htm |
EX-32.1 - CERTIFICATION - Hawkeye Systems, Inc. | hwke_ex321.htm |
EX-31.2 - CERTIFICATION - Hawkeye Systems, Inc. | hwke_ex312.htm |
EX-31.1 - CERTIFICATION - Hawkeye Systems, Inc. | hwke_ex311.htm |
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: March 31, 2021
or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 333-227029
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) 388-6720
(Registrants telephone number, including area code)
N/A
(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. ☐
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 May 11, 2021 was 17,921,148 shares of common stock.
2 |
Table of Contents |
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| March 31, |
|
| June 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 101,474 |
|
| $ | 911,747 |
|
Accounts receivable |
|
| 80,600 |
|
|
| 47,656 |
|
Inventory, net |
|
| 396,978 |
|
|
| 509,517 |
|
Prepaid expenses |
|
| 8,333 |
|
|
| 6,667 |
|
Deposit |
|
| 1,000,000 |
|
|
| - |
|
Total current assets |
|
| 1,587,385 |
|
|
| 1,475,587 |
|
|
|
|
|
|
|
|
|
|
Equipment, net |
|
| - |
|
|
| 737 |
|
Note receivable - Radiant Images, Inc., net of allowance of $1,459,842 |
|
| - |
|
|
| - |
|
Total assets |
| $ | 1,587,385 |
|
| $ | 1,476,324 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 195,216 |
|
| $ | 332,327 |
|
Convertible note payable, net of discount |
|
| - |
|
|
| 137,625 |
|
Convertible note payable, net of discount - related party |
|
| 421,493 |
|
|
| 211,305 |
|
Note payable - related party |
|
| - |
|
|
| 200,000 |
|
Inventory financing payable - related party |
|
| 1,000,000 |
|
|
| - |
|
Common stock payable |
|
| 9,000 |
|
|
| 6,000 |
|
Common stock payable - related party |
|
| 477,000 |
|
|
| 430,000 |
|
Total current liabilities |
|
| 2,102,709 |
|
|
| 1,317,257 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
PPP loan |
|
| 16,983 |
|
|
| - |
|
Total liabilities |
|
| 2,119,692 |
|
|
| 1,317,257 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
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; 17,664,659 and 14,828,036 shares issued and outstanding, respectively |
|
| 1,766 |
|
|
| 1,483 |
|
Additional paid-in capital |
|
| 7,826,481 |
|
|
| 4,527,925 |
|
Common stock to be issued - 0 and 425,000 shares, respectively |
|
| - |
|
|
| 139,500 |
|
Accumulated deficit |
|
| (8,360,554 | ) |
|
| (4,509,841 | ) |
Total stockholders’ equity (deficit) |
|
| (532,307 | ) |
|
| 159,067 |
|
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,587,385 |
|
| $ | 1,476,324 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales |
| $ | 2,174,596 |
|
| $ | - |
|
| $ | 2,556,942 |
|
| $ | - |
|
Cost of sales |
|
| 2,264,880 |
|
|
| - |
|
|
| 2,585,259 |
|
|
| - |
|
Gross profit |
|
| (90,284 | ) |
|
| - |
|
|
| (28,317 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 46,188 |
|
|
| 7,206 |
|
|
| 68,467 |
|
|
| 30,294 |
|
Management compensation |
|
| 324,519 |
|
|
| 123,491 |
|
|
| 665,805 |
|
|
| 123,491 |
|
Professional fees |
|
| 65,738 |
|
|
| 170,889 |
|
|
| 121,142 |
|
|
| 469,304 |
|
Professional fees - related party |
|
| 101,085 |
|
|
| 45,000 |
|
|
| 311,265 |
|
|
| 291,390 |
|
Marketing |
|
| 11,520 |
|
|
| 37,000 |
|
|
| 94,809 |
|
|
| 44,470 |
|
Write-down of inventory |
|
| 446,331 |
|
|
| - |
|
|
| 486,495 |
|
|
| - |
|
Total operating expenses |
|
| 995,381 |
|
|
| 383,586 |
|
|
| 1,747,983 |
|
|
| 958,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,085,665 | ) |
|
| (383,586 | ) |
|
| (1,776,300 | ) |
|
| (958,949 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| - |
|
|
| 36,205 |
|
|
| - |
|
|
| 115,574 |
|
Interest expense |
|
| (238 | ) |
|
| (12,500 | ) |
|
| (14,571 | ) |
|
| (22,500 | ) |
Interest expense - related party |
|
| (62,962 | ) |
|
| - |
|
|
| (125,865 | ) |
|
| - |
|
Financing expense |
|
| - |
|
|
| - |
|
|
| (55,497 | ) |
|
| - |
|
Financing expense - related party |
|
| - |
|
|
| - |
|
|
| (1,508,211 | ) |
|
| - |
|
Loss on settlement of debt |
|
| - |
|
|
| - |
|
|
| (370,269 | ) |
|
| - |
|
Total other expense |
|
| (63,200 | ) |
|
| 23,705 |
|
|
| (2,074,413 | ) |
|
| 93,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,148,865 | ) |
| $ | (359,881 | ) |
| $ | (3,850,713 | ) |
| $ | (865,875 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted |
| $ | (0.07 | ) |
| $ | (0.03 | ) |
| $ | (0.23 | ) |
| $ | (0.07 | ) |
Weighted average common shares outstanding - basic and diluted |
|
| 17,454,241 |
|
|
| 13,431,340 |
|
|
| 16,826,662 |
|
|
| 12,043,201 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Three and Nine Months Ended March 31, 2021
|
|
|
|
|
|
|
| Additional |
|
| Common |
|
|
|
|
| Stockholders’ |
| ||||||
|
| Common Stock |
|
| Paid-in |
|
| Stock to |
|
| Accumulated |
|
| Equity |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| be Issued |
|
| Deficit |
|
| (Deficit) |
| ||||||
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 |
|
Common stock issued exchanged for common stock payable |
|
| 612,000 |
|
|
| 61 |
|
|
| 152,939 |
|
|
| - |
|
|
| - |
|
|
| 153,000 |
|
Common stock and warrants issued for cash |
|
| 100,000 |
|
|
| 10 |
|
|
| 19,990 |
|
|
| - |
|
|
| - |
|
|
| 20,000 |
|
Common shares issued for settlement of debt |
|
| 515,000 |
|
|
| 51 |
|
|
| 179,949 |
|
|
| - |
|
|
| - |
|
|
| 180,000 |
|
Stock based compensation – options |
|
| - |
|
|
| - |
|
|
| 119,155 |
|
|
| - |
|
|
| - |
|
|
| 119,155 |
|
Beneficial conversion feature |
|
| - |
|
|
| - |
|
|
| 117,760 |
|
|
| - |
|
|
| - |
|
|
| 117,760 |
|
Net loss |
|
|
|
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| (356,701 | ) |
|
| (356,701 | ) |
Balance, December 31, 2020 |
|
| 17,064,659 |
|
| $ | 1,706 |
|
| $ | 7,524,390 |
|
| $ | 30,000 |
|
| $ | (7,211,689 | ) |
| $ | 344,407 |
|
Common shares issued for stock to be issued |
|
| 60,000 |
|
|
| 6 |
|
|
| 29,994 |
|
|
| (30,000 | ) |
|
| - |
|
|
| - |
|
Common shares issued for service - related party |
|
| 540,000 |
|
|
| 54 |
|
|
| 113,946 |
|
|
| - |
|
|
| - |
|
|
| 114,000 |
|
Stock based compensation – options |
|
|
|
|
|
| - |
|
|
| 158,151 |
|
|
| - |
|
|
| - |
|
|
| 158,151 |
|
Net loss |
|
|
|
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| (1,148,865 | ) |
|
| (1,148,865 | ) |
Balance, March 31, 2021 |
|
| 17,664,659 |
|
| $ | 1,766 |
|
| $ | 7,826,481 |
|
| $ | - |
|
| $ | (8,360,554 | ) |
| $ | (532,307 | ) |
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 CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Nine Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
| Stock |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| Additional | Subscription | Total |
| ||||||||||||||
|
| Common Stock |
|
| Paid-in |
|
| Received/ |
|
| Accumulated |
|
| Stockholders’ |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Receivable) |
|
| Deficit |
|
| Equity |
| ||||||
Balance at July 1, 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 |
|
|
| 122 |
|
|
| 540,872 |
|
|
| - |
|
|
| - |
|
|
| 540,994 |
|
Warrants issued for services |
|
| - |
|
|
| - |
|
|
| 7,511 |
|
|
| - |
|
|
| - |
|
|
| 7,511 |
|
Stock options for services |
|
| - |
|
|
| - |
|
|
| 1,918 |
|
|
| - |
|
|
| - |
|
|
| 1,918 |
|
Stock subscription received |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 43,000 |
|
|
| - |
|
|
| 43,000 |
|
Stock subscription receivable |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,787 | ) |
|
| - |
|
|
| (2,787 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (308,903 | ) |
|
| (308,903 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2019 |
|
| 11,568,449 |
|
| $ | 1,157 |
|
| $ | 2,789,730 |
|
|
| 210,213 |
|
| $ | (2,218,276 | ) |
| $ | 782,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash |
|
| 50,000 |
|
|
| 5 |
|
|
| 49,797 |
|
|
| - |
|
|
| - |
|
|
| 49,802 |
|
Common stock issued as compensation |
|
| 366,400 |
|
|
| 37 |
|
|
| 183,163 |
|
|
| - |
|
|
| - |
|
|
| 183,200 |
|
Common stock issued as financing |
|
| 100,000 |
|
|
| 10 |
|
|
| 49,990 |
|
|
| - |
|
|
| - |
|
|
| 50,000 |
|
Warrants issued for services |
|
| - |
|
|
| - |
|
|
| 198 |
|
|
| - |
|
|
| - |
|
|
| 198 |
|
Warrants exercised |
|
| 46,000 |
|
|
| 5 |
|
|
| 51,995 |
|
|
| - |
|
|
| - |
|
|
| 52,000 |
|
Stock subscription received |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (50,000 | ) |
|
| - |
|
|
| (50,000 | ) |
Warrant subscription received |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 154,000 |
|
|
| - |
|
|
| 154,000 |
|
Stock subscription receivable |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,787 |
|
|
| - |
|
|
| 2,787 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (197,097 | ) |
|
| (197,097 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2019 |
|
| 12,130,849 |
|
| $ | 1,214 |
|
| $ | 3,124,873 |
|
|
| 317,000 |
|
| $ | (2,415,373 | ) |
| $ | 1,027,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash |
|
| 1,098,001 |
|
|
| 110 |
|
|
| 271,890 |
|
|
| - |
|
|
| - |
|
|
| 272,000 |
|
Common stock issued as compensation |
|
| 16,667 |
|
|
| 2 |
|
|
| 5,873 |
|
|
| - |
|
|
| - |
|
|
| 5,875 |
|
Warrants exercised |
|
| 523,333 |
|
|
| 52 |
|
|
| 184,948 |
|
|
| - |
|
|
| - |
|
|
| 185,000 |
|
Stock subscription received |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (153,000 | ) |
|
| - |
|
|
| (153,000 | ) |
Warrant subscription received |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (154,000 | ) |
|
| - |
|
|
| (154,000 | ) |
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| 93,492 |
|
|
| - |
|
|
| - |
|
|
| 93,492 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (359,875 | ) |
|
| (359,875 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – March 31, 2020 |
|
| 13,768,850 |
|
| $ | 1,378 |
|
| $ | 3,681,076 |
|
|
| 10,000 |
|
| $ | (2,775,248 | ) |
| $ | 917,206 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (3,850,713 | ) |
| $ | (865,875 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 737 |
|
|
| 1,807 |
|
Write-down of inventory |
|
| 486,495 |
|
|
| - |
|
Loss on settlement of debt |
|
| (370,269 | ) |
|
| - |
|
Amortization of debt discount |
|
| 90,323 |
|
|
| - |
|
Stock based compensation – options and warrant |
|
| 1,960,169 |
|
|
| 472,983 |
|
Common stock issued and warrants exercised for services |
|
| 114,000 |
|
|
| - |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (32,944 | ) |
|
| - |
|
Deposit |
|
| (1,000,000 | ) |
|
| - |
|
Inventory |
|
| (373,956 | ) |
|
| - |
|
Prepaid expense |
|
| (1,666 | ) |
|
| 4,855 |
|
Interest receivable |
|
| - |
|
|
| (115,574 | ) |
Accounts payable and accrued liabilities |
|
| 69,530 |
|
|
| 79,923 |
|
Common stock payable |
|
| 3,000 |
|
|
| - |
|
Net cash used in operating activities |
|
| (2,164,756 | ) |
|
| (421,881 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Shares issued for Radiant Images, Inc. deposit |
|
| - |
|
|
| 90,000 |
|
Note receivable Radiant Images, Inc. |
|
| - |
|
|
| (1,188,000 | ) |
Investment in Radiant Images, Inc. |
|
| - |
|
|
| 920,000 |
|
Net cash used in investing activities |
|
| - |
|
|
| (178,000 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Sales of common stock and warrants, net of issuance costs |
|
| 20,000 |
|
|
| 150,000 |
|
Issuances of notes payable, net of financing costs |
|
| 16,983 |
|
|
| 150,000 |
|
Net proceeds from notes payable - related party |
|
| 1,000,000 |
|
|
| - |
|
Net proceeds from convertible note |
|
| - |
|
|
| - |
|
Net proceeds from convertible note - related party |
|
| 250,000 |
|
|
| - |
|
Proceeds from exercise of warrants |
|
| 67,500 |
|
|
| 237,000 |
|
Stock subscription receivable |
|
| - |
|
|
| (27,000 | ) |
Stock option issuance |
|
| - |
|
|
| 93,491 |
|
Net cash provided by financing activities |
|
| 1,354,483 |
|
|
| 603,491 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| (810,273 | ) |
|
| 3,610 |
|
Cash beginning of period |
|
| 911,747 |
|
|
| 18,372 |
|
Cash end of period |
| $ | 101,474 |
|
| $ | 21,982 |
|
|
|
|
|
|
|
|
|
|
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 |
| $ | 535,978 |
|
| $ | - |
|
Common stock issued for accrued salary |
| $ | 180,000 |
|
| $ | - |
|
Common stock issued exchanged for common stock payable |
| $ | 153,000 |
|
| $ | - |
|
Beneficial conversion feature |
| $ | 117,760 |
|
| $ | - |
|
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.
7 |
Table of Contents |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Note 1 – Summary of Significant Accounting Policies
Basis of presentation
The accompanying unaudited condensed consolidated 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 consolidated 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 consolidated 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 consolidated 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, valuation of beneficial conversion feature on convertible notes 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 March 31, 2021 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.
8 |
Table of Contents |
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 nine months ended March 31, 2021 and 2020, potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share because they were anti-dilutive are as follows:
|
| March 31, |
|
| March 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Warrants |
|
| 7,306,829 |
|
|
| 14,739,298 |
|
Options |
|
| 5,880,000 |
|
|
| 3,922,000 |
|
Convertible notes |
|
| 2,000,000 |
|
|
| 350,000 |
|
Total possible dilutive shares |
|
| 15,186,829 |
|
|
| 19,011,298 |
|
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation. The reclassification has 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 nine months ended March 31, 2021, the Company had a net loss of $3,850,713. As of March 31, 2021, the Company had an accumulated deficit of $8,360,554. 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.
9 |
Table of Contents |
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 March 31, 2021 and June 30, 2020 consists of the following:
|
| March 31, |
|
| June 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Finished goods |
| $ | 1,009,473 |
|
| $ | 545,112 |
|
Goods in transit |
|
| - |
|
|
| 90,405 |
|
Less: Obsolescence |
|
| (612,495 | ) |
|
| (126,000 | ) |
Inventory, net |
| $ | 396,978 |
|
| $ | 509,517 |
|
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 nine months ended March 31, 2021. Nevertheless, the Company intends to vigorously pursue the litigation and expects to fully collect these amounts from Radiant and/or its principals.
As of March 31, 2021 and June 30, 2020, note receivable and interest receivable are as follows:
|
| March 31, |
|
| June 30, |
| ||
|
| 2021 |
|
| 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 | ) |
|
| $ | - |
|
| $ | - |
|
10 |
Table of Contents |
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 – related party 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 nine months ended March 31, 2021, amortization of $12,375 was recognized as interest expense. As of March 31, 2021 and June 30, 2020, the balance of the note payable is $0 and $150,000 less unamortized debt discount of $0 and $12,375, to net $0 and $137,625, respectively. Interest expense of $1,958 was recognized on the convertible note during the nine months ended March 31, 2021.
Convertible notes – 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.
11 |
Table of Contents |
On December 15, 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 December 15, 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 $46,380 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 $117,760, which is being amortized over the term of the note.
During the nine months ended March 31, 2021, amortization of $77,948 was recognized as interest expense. As of March 31, 2021 and June 30, 2020, the balance of the notes payable is $500,000 and $250,000 less unamortized debt discount of $78,507 and $38,695, to net $421,493 and $211,305, respectively. Interest expense of $47,917 was recognized on the convertible notes during the nine months ended March 31, 2021.
Note 7 – Common stock payable
As of March 31, 2021 and June 30, 2020, common stock payable are as follows:
|
| March 31, |
|
| June 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Purchase of inventory – related party |
| $ | - |
|
| $ | 153,000 |
|
Related parties |
|
| 477,000 |
|
|
| 277,000 |
|
Commitments |
|
| 9,000 |
|
|
| 6,000 |
|
|
| $ | 486,000 |
|
| $ | 436,000 |
|
Note 8 – Stockholders’ Equity
Common Stock
During the nine months ended March 31, 2021, the Company had the following common stock transactions:
| • | Issued 469,623 shares of common stock in exchange for conversion of debt and accrued interest of $525,978. |
| • | Issued 175,000 shares of common stock associated with the exercise of warrants for $67,500. |
| • | Issued 425,000 shares of common stock for stock subscriptions of $139,500 received prior to June 30, 2020. |
| • | Issued 515,000 shares of common stock in exchange for settlement of $180,000 in accrued salary to our CEO. |
| • | Issued 100,000 units consisting of: (i) 100,000 shares of common stock, and (ii) 100,000 options that are exercisable for 2 years for an exercise price of $0.25 per share. The purchase was at $0.20 per unit, for a total purchase price of $20,000. |
| • | Issued 612,000 shares of common stock for common stock payable of $153,000 |
| • | Issued 540,000 shares of common stock for service of $114,000 to related parties |
Common Stock to be Issued
As of March 31, 2021 and June 30, 2020, the Company received payment for unissued capital stock resulting in 0 and 425,000 shares of common stock to be issued for payments of $0 and $139,500, respectively.
Balance at June 30, 2020 |
| $ | 139,500 |
|
Received on subscription |
|
| - |
|
Common stock certificates issued |
|
| (139,500 | ) |
Balance at March 31, 2021 |
| $ | - |
|
12 |
Table of Contents |
Stock Purchase Warrants
Transactions in stock purchase warrants for the nine months ended March 31, 2021 are as follows:
|
| Number of |
|
| Weighted Average |
| ||
|
| Warrants |
|
| Exercise Price |
| ||
Balance at June 30, 2020 |
|
| 7,047,135 |
|
| $ | 1.52 |
|
Granted |
|
| 2,278,996 |
|
| $ | 1.06 |
|
Exercised – shares issued |
|
| (175,000 | ) |
| $ | 0.39 |
|
Expired |
|
| (1,844,302 | ) |
| $ | 1.84 |
|
Balance at March 31, 2021 |
|
| 7,306,829 |
|
| $ | 1.38 |
|
The composition of the Company’s warrants outstanding at March 31, 2021 are as follows:
Exercise Price |
|
| Number of Warrants |
|
| Weighted Average Remaining Life (in years) |
| |||
$ | 0.20 |
|
|
| 100,000 |
|
|
| 1.68 |
|
$ | 0.30 |
|
|
| 349,998 |
|
|
| 3.08 |
|
$ | 0.50 |
|
|
| 1,059,999 |
|
|
| 2.04 |
|
$ | 1.00 |
|
|
| 2,946,166 |
|
|
| 0.80 |
|
$ | 1.50 |
|
|
| 20,000 |
|
|
| 0.50 |
|
$ | 2.00 |
|
|
| 2,830,666 |
|
|
| 1.51 |
|
|
|
|
|
| 7,306,829 |
|
|
| 1.38 |
|
During the nine months ended March 31, 2021, the Company issued 2,278,996 warrants to purchase common stock. The fair value of the warrants was determined using the Black-Scholes option pricing model with the following assumptions:
|
| Nine months ended March 31, 2020 |
|
| Year ended June 30, 2020 |
| ||
Exercise price |
| $ | 0.30 to 2.00 |
|
| $ | 1.00 |
|
Expected term (in years) |
| 0.04 – 2.00 years |
|
| 1.00 years |
| ||
Risk-free rate |
| 0.12–0.17 | % |
| 0.13 to 0.18 | % | ||
Volatility |
| 440-660 | % |
| 111 to 190 | % | ||
Dividend yield |
|
| - |
|
|
| - |
|
During the nine months ended March 31, 2021, $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 nine months ended March 31, 2021 and year ended June 30, 2020, 625,000 and 3,800,000 options were granted, respectively.
13 |
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The fair value of the options was determined using the Black-Scholes option pricing model with the following assumptions:
|
| March 31, |
|
| June 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Trading price |
| $ | 0.20 - 0.55 |
|
| $ | 0.06-$0.47 |
|
Exercise price |
| $ | 0.22 – 0.30 |
|
| $ | 0.10-$0.50 |
|
Expected term (in years) |
|
| 1.0 – 2.5 |
|
|
| 1.0 - 5.0 |
|
Risk-free rate |
|
| 0.09%–0.27 | % |
|
| 0.19%-2.46 | % |
Volatility |
|
| 235%–539 | % |
|
| 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 nine months ended March 31, 2021 are as follows:
|
|
|
|
|
|
|
| Weighted average |
| |||
|
| Number of |
|
| Weighted average |
|
| remaining life |
| |||
|
| options |
|
| exercise price |
|
| (in years) |
| |||
Outstanding, June 30, 2020 |
|
| 5,255,000 |
|
| $ | 0.25 |
|
|
| 4.28 |
|
Granted |
|
| 625,000 |
|
|
| 0.29 |
|
|
| 4.52 |
|
Expired or Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding, March 31, 2021 |
|
| 5,880,000 |
|
|
| 0.26 |
|
|
| 3.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2021 |
|
| 5,460,000 |
|
| $ | 0.25 |
|
|
| 3.53 |
|
During the nine months ended March 31, 2021, $396,461 was expensed, of which $255,298 was to related parties, and as of March 31, 2021, $105,997 remains unamortized, of which $0 is with related parties.
At March 31, 2021, the intrinsic value of the 5,880,000 outstanding options was $256,000.
Note 9 – 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 nine months ended March 31, 2021 and 2020 was $6,000 and $12,000, respectively. As of March 31, 2021 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.
Note 10 – Inventory Financing Payable – Related Party
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. The terms of the agreement are non-interest bearing. The investor is 100% at risk as this is a non-recourse funding vehicle.
As of March 31, 2020, the Company recorded $1,000,000 for purchase deposit for inventory due to a cancellation of purchase. Subsequent to March 31, 2021, the $1,000,000 was returned to the Company.
Note 11 – Subsequent Events
The Company issued 256,489 shares of common stock, 200,000 shares for consulting services and 56,489 shares for stock payable, respectively.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
General
We were incorporated on May 15, 2018 in the State of Nevada. We are a technology holding company with a focus on pandemic management products and services. Led by a veteran, the Company is committed to leveraging its extensive resources in support of its ongoing mission to help our government and medical infrastructure to keep civilians safe. Hawkeye Systems sources and distributes PPE (Personal Protective Equipment) and other Pandemic Management supplies to enterprise level customers and government agencies. The Company also looks to license & acquire technology that improves life and works with partners to develop cutting edge, “smart” products for a variety of markets. From inception until the date of this filing our activities have primarily consisted of (i) the incorporation of our company, (ii) the development of our business plan, (iii) development of our products, (iv) recruiting and adding additional consultants and employees, (v) signing contracts for the business, (vi) advancing the sale of PPE products through numerous sources and (vi) development of our relationship with DemeTECH Corporation and other potential business partners.
Hawkeye’s mission for the next fiscal year and beyond is to, through acquisition and organic growth, become one of the largest US providers of PPE in the categories we compete in. We intend to do this through organic sales, acquisition and partnership. We have not abandoned our technology origins and in fact with financial strength we will reveal and roll out innovations closely aligned with the categories we are competing in.
Our business office is located at 6605 Abercorn, Suite 204, Savannah, GA 31405. Our telephone number is 800-531-8799 and our website is www.hawkeyesystemsinc.com.
The following discussion relates to the historical operations and financial statements of Hawkeye Systems, Inc. for the three and nine months ended March 31, 2021 and 2020.
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 March 31, 2021 compared to three months ended March 31, 2020
We had operating revenues of $2,174,596 for the three months ended March 31, 2021 compared with no revenues for the comparable period in 2020. Cost of sales was $2,264,880 during the three months ended March 31, 2021. Our activities have been financed by the proceeds of share subscriptions and loans.
Total operating expenses in the three months ended March 31, 2021 were $995,381 compared to $383,586 in the comparable period in 2020. The operating loss for the three months ended March 31, 2021, is principally the result of management compensation paid in connection with the Company’s operations, together with legal and professional fees and write-down of inventory. For the three months ended March 31, 2020, operating losses were primarily from management compensation and professional fees.
Our financial statements reflect a net loss of $1,148,865 for the three months ended March 31, 2021 compared to a net loss of $359,881 for the comparable period in 2020. This net loss again reflects management compensation, legal and professional expenses and write-down of inventory during the periods and a non-operating expense of $63,200, which related to interest expense in the three months ended March 31, 2021.
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Nine Months Ended March 31, 2021 compared to nine months ended March 31, 2020
We had operating revenues of $2,556,942 for the nine months ended March 31, 2021 compared with no revenues for the comparable period in 2020. Cost of sales was $2,585,259 during the nine months ended March 31, 2021. Our activities have been financed by the proceeds of share subscriptions, exercises of warrants and loans.
Total operating expenses in the nine months ended March 31, 2021 were $1,747,983 compared to $958,949 in the comparable period in 2020. The operating loss for the nine months ended March 31, 2021, is principally the result of management compensation paid in connection with the Company’s operations, together with legal and professional fees, write-down of inventory and marketing expenses. For the nine months ended March 31, 2020, operating losses were primarily from professional fees (primarily from warrants and commons shares issued for services) and management compensation.
Our financial statements reflect a net loss of $3,850,713 for the nine months ended March 31, 2021 compared to a net loss of $865,875 for the comparable period in 2020. This net loss again reflects management compensation, legal and professional expenses and write-down of inventory during the periods and a non-operating expenses of $2,074,413, which related primarily to financing expenses for the issuances of common stock warrants and loss on settlement of debt in the nine months ended March 31, 2021.
Liquidity and Capital Resources
The following table provides selected financial data about our company as of March 31, 2021 and June 30, 2020, respectively.
|
| March 31, |
|
| June 30, |
|
|
|
|
|
|
| ||||
|
| 2020 |
|
| 2020 |
|
| Change |
|
| % |
| ||||
Cash |
| $ | 101,474 |
|
| $ | 911,747 |
|
| $ | (810,273 | ) |
| (88.9 | )% | |
Current assets |
| $ | 1,587,385 |
|
| $ | 1,475,587 |
|
| $ | 111,798 |
|
|
| 7.6 | % |
Current liabilities |
| $ | 2,102,709 |
|
| $ | 1,317,257 |
|
| $ | 785,452 |
|
|
| 59.6 | % |
Working Capital |
| $ | (515,324 | ) |
| $ | 158,330 |
|
| $ | (673,654 | ) |
| (425.5 | )% |
Our cash balance at March 31, 2021 was $101,474. 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
|
| Nine months ended |
|
|
|
| ||||||
|
| March 31, |
|
| Change |
| ||||||
|
| 2021 |
|
| 2020 |
|
| Amount |
| |||
Cash flows (used in) operating activities |
| $ | (2,164,756 | ) |
| $ | (421,881 | ) |
| $ | (1,742,875 | ) |
Cash flows (used in) investing activities |
|
| - |
|
|
| (178,000 | ) |
|
| 178,000 |
|
Cash flows provided by financing activities |
|
| 1,354,483 |
|
|
| 603,491 |
|
|
| 750,992 |
|
Net change in cash during period |
| $ | (810,273 | ) |
| $ | 3,610 |
|
| $ | (813,883 | ) |
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Cash Flow from Operating Activities
As of March 31, 2021, we had not generated positive cash flow from operating activities. For the nine months ended March 31, 2021, net cash flows used by operating activities was $2,164,756 compared to $421,881 used during the nine months ended March 31, 2020. Cash flows used by operating activities for the nine months ended March 31, 2021, comprised of a net loss of $3.9 million, which was reduced by non-cash expenses of $3.0 million, primarily from $2.0 million for stock based compensation, $486,000 for write-down of inventory and $370,000 for loss on settlement of debt, and was increased by a net change in working capital of $1,336,000.
Cash flows used in operating activities for the nine months ended March 31, 2020, comprised of a net loss of $866,000, which was reduced by non-cash expenses of $475,000, for $1,800 for depreciation and $473,000 for stock-based compensation and was increase by a net change in working capital of $31,000.
Cash Flows from Investing Activities
During the nine months ended March 31, 2021, we did not use cash for investing activities. During the nine months ended March 31, 2020, we used $178,000 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 nine months ended March 31, 2021, net cash provided by financing activities was $1,4 million, consisting of the proceeds from note payable – related party of $1 million, proceeds from the exercise of warrants of $67,500, proceeds from convertible note $250,000, proceed from note payable of $17,000 and $20,000 from the sale of common stock units. For the nine months ended March 31, 2020, net cash provided by financing activities was $603,000, consisting mostly of proceeds from the sale of shares of our common stock unites $150,000, proceeds from the exercise of common stock warrants of $237,000, proceed from note payable of $150,000, proceed from stock option of $93,000 and stock subscription received of $27,000.
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.
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Effective April 2, 2020 the Company’s agreement with Radiant Images was terminated. The Company has engaged counsel and has brought 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.
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.
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.
18 |
Table of Contents |
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.
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 nine months ended March 31, 2021, 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
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. In our review, we sought to find potential for material weaknesses in our financial controls, which is defined as a deficiency, or combination of deficiencies, in our accounting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Because of its inherent limitations, which include a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures, internal control over financial reporting may not prevent or detect misstatement, whether unintentional errors or fraud. s. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, consisting of Corby Marshall as Chief Executive Officer and Acting Chief Financial Officer, reviewed and evaluated the effectiveness of the Company’s internal control over disclosure controls and procedures (as such term is defined in Rules 13a-15(3) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of September 30, 2020. In making this assessment, our management used the criteria described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as well as the guidance provided in SEC Release 33-8809. In such evaluation, Mr. Marshall assessed daily interaction, self-assessment and other on going monitoring activities as evidence in the evaluation. Furthermore we sought to identify financial reporting risks, identify controls that adequately address financial reporting risks, considered entity level controls, reviewed the role of technology in our controls and reviewed the evidence available to support the assessment.
19 |
Table of Contents |
Based on this evaluation, our management concluded that, as of September 30, 2020, our disclosure controls and our internal controls over financial reporting were not effective in recording, processing, summarizing and report on a time basis information required to be disclosed in the reports that we file or submit under the Exchange Act and were not effective in assuring that information required to be disclosed in the reports we file or submit under the Exchange Act due to material weaknesses including (i) the Company having a sole officer and director handling all financial transactions, (ii) lack of appropriate operational controls and consistency in providing our accounting personnel with financial information, (iii) incomplete financial statements on a daily basis and resulting errors in our underlying accounting system, (iv) lack of proper documentation of our assessment and evaluation, and (v) our determination that internal controls were ineffective due to the limited segregation of duties because of the limited management structure.
In response to that assessment we have made a determination that all accounting and financial reporting services should be outsourced to a qualified consulting firm and we immediately engaged a new financial services provider. We subsequently replaced that provider with an internal accounting contractor.
We have also made the determination that we need to dedicate more of the company’s current and future financial resources to this function and have recently engaged a permanent Chief Financial Officer.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
Other than engaging a new financial services firm to provide financial statements, there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
20 |
Table of Contents |
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 has brought 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.
Not required for Smaller Reporting Companies.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Effective January 13, 2021, the Company issued 20,000 shares of common stock to an accredited investor for stock payable of $10,000.
Effective February 1, 2021 the Company issued 500,000 shares of common stock to its Chief Executive Officer as a compensation bonus valued at $100,000.
Effective February 10, 2021, the Company issued 40,000 shares of common stock to an accredited investor for stock payable of $20,000.
Effective February 10, 2021, the Company issued 40,000 shares of common stock for services valued at $14,000.
Item 3 – Defaults Upon Senior Securities
No disclosure required.
Item 4 – Mine Safety Disclosure
No disclosure required.
No disclosure required.
21 |
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Exhibits:
Number |
| Description |
|
|
|
| ||
| ||
| ||
| ||
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 |
22 |
Table of Contents |
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: May 13, 2021 | By: | /s/ Corby Marshall |
|
|
| Corby Marshall, Chief Executive Officer |
|
|
| Principal Executive Officer |
|
|
|
|
|
Date: May 13, 2021 | By: | /s/ Christopher Mulgrew |
|
|
| Christopher Mulgrew, Chief Financial Officer |
|
|
| Principal Financial Officer |
|
23 |
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