Hawkeye Digital, Inc 10-Q for FY2023 Q1
Hawkeye Digital, Inc. (HWKE)
About this 10-Q
Hawkeye Digital, Inc filed this 10-Q on December 15, 2022, covering the quarter ended September 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $215.1K
- compared with a net loss of $311.36K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ____________ to ____________
Commission file number:
(Exact name of small business issuer as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices)
(
(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 ☒
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). ☐ Yes ☒
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 | |
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| 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).
The number of shares outstanding of each of the issuer’s classes of common equity as of December 15, 2022, was
Contents
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| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAWKEYE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| September 30, |
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| June 30, |
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ASSETS |
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Current assets: |
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Cash |
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Prepaid expenses |
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Total current assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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Convertible note payable - related party |
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Line of credit - related party |
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Common stock payable |
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Common stock payable - related party |
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Total current liabilities |
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Loan payable to Eagle - JV partner |
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Total liabilities |
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Commitments and contingencies (Notes 11) |
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Stockholders’ deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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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)
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| Three Months Ended |
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| 2021 |
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Operating expenses: |
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General and administrative |
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Management compensation |
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Professional fees |
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Professional fees - related party |
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Total operating expenses |
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Loss from operations |
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Other expense: |
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Interest expense |
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Interest expense - related party |
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Total other expense |
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Net loss |
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Net loss per common share - basic and diluted |
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Weighted average common shares outstanding - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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| Table of Contents |
HAWKEYE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Three Months ended September 30, 2022
Additional | Common | |||||||||||||||||||||||
Common Stock | Paid-in | Stock | Accumulated | |||||||||||||||||||||
Shares | Amount | Capital | to be Issued | Deficit | Total | |||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
Common stock issued for common stock payable | ||||||||||||||||||||||||
Stock based compensation – options | - | |||||||||||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
For the Three Months ended September 30, 2021 (Restated)
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Balance, June 30, 2021 |
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Common stock issued for settlement of debt |
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Stock based compensation – options |
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Net loss |
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Balance, September 30, 2021 |
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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)
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| Three Months Ended |
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| September 30, |
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Cash flows from operating activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization of debt discount |
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Stock based compensation – options and warrant |
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Change in operating assets and liabilities: |
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Prepaid expense |
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Accounts payable and accrued liabilities |
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Net cash used in operating activities |
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Cash flows from financing activities: |
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Net proceeds from line of credit |
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Net cash provided by financing activities |
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Net change in cash |
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Cash beginning of period |
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Cash end of period |
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Supplemental cash flow information |
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Cash paid for interest |
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Cash paid for taxes |
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Non-cash investing and financing activities: |
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Common stock issued exchanged for common stock payable – related party |
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Common stock issued for settlement of debt |
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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, 2022
Note 1 - Summary of Significant Accounting Policies
Business Overview
Hawkeye Systems, Inc. (the “Company”), a Nevada corporation incorporated in May 15, 2018. We are a technology holding company, our previous focus was on pandemic management products and services. We are currently seeking other opportunities, while actively trying to liquidate mask inventory and wind-up existing deals. The Company looks to license and acquire technology that improves life and to work 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 and the evaluation of strategic investment and business development strategies, (iii), recruiting and adding additional consultants and employees, and (iv) liquidating our stock of personal protective equipment (“PPE”) products through numerous sources.
Our business office is located at 6605 Abercorn, Suite 204, Savannah, GA 31405. Our telephone number is 912-388-6720 and our website is www.hawkeyesystemsinc.com.
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, 2022, as filed with the SEC on December 14, 2022.
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.
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.
| 7 |
| Table of Contents |
Revenue recognition
As of September 30, 2022, and 2021, the Company has no revenue.
Cost of sales
As of September 30, 2022, and 2021, the Company has no Cost of Sales.
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 with accrued interest. For the nine months ended September 30, 2022 and 2021, potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share because they were anti-dilutive are as follows:
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Warrants |
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Options |
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Convertible notes |
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Total possible dilutive shares |
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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.
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt-Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging-Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
We early adopted this standard effective July 1, 2021 using the modified retrospective approach transition method. Therefore, the condensed financial statements for the nine months ended September 30, 2022 are presented under the new standard, while the comparative period presented is not adjusted and continues to be reported in accordance with the Company’s historical accounting policy.
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| Table of Contents |
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 months ended September 30, 2022, the Company had a net loss of $
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.
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 – Restatement of Financial Statements for the Year End September 30, 2021
On July 17, 2020, the Company entered into a membership agreement with Eagle Equities LLC (“Eagle”) and Ikon Supplies (“Ikon”) to form a Nevada Limited Liability Company, HIE, LLC (“HIE”) for the purpose of procuring, funding the purchase of and sale of PPE (the “Membership Agreement”). Subject to the provision of the Agreement, the interest of any net profits shall be shares 33.3% among each member. In an event that there is a loss in some or all of the capital, all members of HIE shall be responsible to contribute capital to repay the loan, and additional contribution, with each party being responsible for 33.3% of the loss.
Restatement Effect on Financial Statements
The Company did not receive any updates of fiscal year 2021 financial statements from
As of June 30, 2021, the balance of investment in HIE was $
| 9 |
| Table of Contents |
Effects on the previously issued year 2021 balance sheet referencing the restatement of asset, liability and equity are as follows:
Balance Sheet at September 30, 2021: |
| Originally Reported |
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ASSETS |
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Current assets: |
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Cash |
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Prepaid expenses |
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Total current assets |
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Investment in HIE |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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Convertible note payable, net of discount - related party |
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Inventory financing payable - related party |
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Common stock payable |
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Common stock payable - related party |
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Total current liabilities |
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Long-term liabilities: |
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Loan payable due to Eagle - JV partner |
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PPP loan |
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Total liabilities |
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Stockholders’ deficit: |
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Preferred stock, $0.0001 par value, 50,000,000 shares authorized; no shares issued or outstanding |
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Common stock, $0.0001 par value, 400,000,000 shares authorized; 18,221,148 and 17,921,148 shares issued and outstanding, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity deficit |
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Total liabilities and stockholders’ deficit |
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Since there were no operating activities between July 01, 2021 to September 30, 2021, the previously issued September 30, 2021 Statement of Operations has no changed.
Note 4 – Joint Venture Investment in HIE LLC
On July 17, 2020, the Company entered into a membership agreement with Eagle Equities LLC (“Eagle”) and Ikon Supplies (“Ikon”) to form a Nevada Limited Liability Company, HIE, LLC (“HIE”) for the purpose of procuring, funding the purchase of and sale of PPE (the “Membership Agreement”). Subject to the provision of the Agreement, the interest of any net profits shall be shares
The joint venture investment in HIE LLC is accounted for by the Company using the equity method in accordance with FASB ASC 323. There were no operating activities during the quarter ended September 30, 2022.
As of September 30, 2022, and 2021, the balances of investment in HIE were $
Note 5 – Inventory Financing Payable – related party
On February 19, 2021, Steve Hall, an investor who holds approximately 72% of the Company’s common stock advanced $1 million to the Company.
In June 2021 the company cancelled the contemplated purchase of inventory and returned $
On October 1, 2021, the Company and Steve Hall entered into an agreement to replace the inventory financing payable with a convertible note. Further discussion on Note 6 – Convertible Notes Payable – related party, convertible promissory note 6.3.
The balances of the convertible note as of September 30, 2022, and 2021 are $
| 10 |
| Table of Contents |
Note 6 – Convertible Notes Payable – related party
Convertible Promissory Note 6.1
On April 6, 2020, the Company and Steve Hall, entered into a convertible promissory note agreement for the principal amount of $
The Company recorded a discount on the convertible note due to a beneficial conversion feature of $
In consideration for the loan of $
The outstanding principal amount, and the related interest were converted into common stock on September 01, 2021.
Convertible Promissory Note 6.2
The Company recorded a discount on the convertible note due to a beneficial conversion feature of $
In consideration for the loan of $
The outstanding principal amount, and the related interest were converted into common stock on September 01, 2021.
Adoption of ASU 2020-06 for Convertible Promissory Note 6.1, and Convertible Promissory Note 6.2
In connection with the adoption of ASU 2020-06, the Company reclassified the aggregate amount of $169,354, previously allocated to the conversion feature of the Convertible Promissory Note 6.1, and Convertible Promissory Note 6.2 of $51,594, and $117,760 from additional paid-in capital to convertible notes on our balance sheet as of September 1, 2021, respectively. The reclassification was recorded to combine the two legacy units of account into a single instrument classified as a liability. The Company also recognized an aggregate cumulative effect adjustment of $120,287 to the Convertible Promissory Note 6.1, and Convertible Promissory Note 6.2 of $51,594, and $68,693 to accumulated deficit on our balance sheet as of September 1, 2021, respectively. The cumulative effect adjustment was primarily driven by the derecognition of interest expense related to the accretion of the Debt Discount as required under the legacy accounting guidance. Under ASU 2020-06, we would no longer incur non-cash interest expense related to the accretion of the debt discount associated with the embedded conversion option.
| 11 |
| Table of Contents |
Conversion of Convertible Promissory Note 6.1 and Convertible Promissory Note 6.2
On September 1, 2021, the Company had converted the convertible promissory note 6.1 and convertible promissory note 6.2 in the aggregate total of $500,000 and the related accrued interest of $94,344 into 16,666,667 shares of common stock with conversion value of $0.035661 per share. As of September 30, 2022, the entire amount of $594,344 is recorded as common stock payable. Subsequently, the shares are registered on July 28, 2022. On November 2, 2021, the Company issued 160,000 shares of common stock for cashless exercise in exchanged for the related 200,000 shares of stock options.
Exercised of the stock options on Convertible Promissory Note 6.1 and Convertible Promissory Note 6.2
On November 2, 2021, the Company issued 160,000 shares of common stock for cashless exercise in exchange for the related 200,000 shares for the exercise of the stock options as mentioned on the convertible promissory note 6.1 and convertible promissory note 6.2.
Convertible Promissory Note 6.3
The note was extended to September 30, 2023.
As of September 30, 2022, the accrued interest was $
Note 7 – Line of Credit – related party
On October 1, 2021, Steve Hall
During the three months ended of September 30, 2022, in multiple transactions dates, the Company has withdrawn total of $
As of September 30, 2022, the outstanding principal totaled $
Note 8 – Common stock payable
On May 23, 2022, the board of directors granted Richard Cutler, former director who had resigned in August 2022, restricted common stock of
As of September 30, 2022 and 2021, the Company reported common stock payable of $
Note 9 – Common stock payable – related party
On May 23, 2022, the board of directors granted Chris Mulgrew, Chief Financial Officer,
As of September 30, 2022 and 2021, the Company reported common stock payable-related party of $
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| Table of Contents |
Note 10 - Stockholders’ Equity
Common Stock
During the three months ended September 30, 2022, the Company had the following common stock transactions:
| · |
Stock Purchase Warrants
Transactions in stock purchase warrants for the three months ended September 30, 2022 are as follows:
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| Number of |
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| Weighted Average |
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| Warrants |
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| Exercise Price |
| ||
Balance at June 30, 2021 |
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Granted |
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Exercised – shares issued |
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Expired |
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Balance at September 30, 2022 |
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| $ |
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The composition of the Company’s warrants outstanding at September 30, 2022 are as follows:
Exercise Price |
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| Number of Warrants |
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| Weighted Average Remaining Life (in years) |
| |||
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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At September 30, 2022, the intrinsic value of the
| 13 |
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Stock Options
Transactions in stock options for the three months ended September 30, 2022 are as follows:
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| Weighted average |
| |||||
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| Number of |
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| Weighted average |
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| remaining life |
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| options |
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| exercise price |
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| (in years) |
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Outstanding, June 30, 2022 |
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Granted |
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| - |
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| - |
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Cancelled |
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| - |
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| - |
| |
Exercised |
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| - |
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| - |
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Outstanding, September 30, 2022 |
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Exercisable, September 30, 2022 |
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| $ |
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During the three months ended September 30, 2022, $
At September 30, 2022, the intrinsic value of the
Note 11 - Commitments and Contingencies
On July 17, 2020, the Company entered into a Membership Agreement (See “Note 4 - Joint Venture Investment in HIE LLC ”). Under the terms and conditions of the Membership Agreement, in the event of a loss of capital of HIE, the Company shall contribute to repay
In addition, the Company is obliged to repay 1/3 of the loan contributed by Eagle or 1/3 of the capital paid by Eagle according to the membership agreement. As of September 30, 2022, and 2021, the balances of loan payable to Eagle - JV partner totaled $
HIE had no operating activities for the quarter ended September 30, 2022.
Note 12 - Subsequent Events
Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure.
| 14 |
| Table of Contents |
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, 2022.
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, 2022 compared to three months ended September 30, 2021
We had no operating revenues, and cost of sales, for the three months ended September 30, 2022 and 2021, respectively.
Total operating expenses in the three months ended September 30, 2022 were $174,481 compared to $258,956 for the same period in 2021. The decrease in operating expenses is primarily a result of decreased professional fees - related party, and management compensation. The Company’s net loss was $215,096 for the three months ended September 30, 2022 compared to $311,355 for the three months ended September 30, 2021. The net loss for this period is primarily a result of operating expenses, and interest expense.
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Liquidity and Capital Resources
Our cash balance at September 30, 2022 was $26,561 compared to $325 at September 30, 2021. We do not believe these cash reserves are sufficient to cover our expenses for our operations for fiscal year ending June 30, 2023. We will require additional funding for our ongoing operations.
In addition, we intend to raise funds through the sale of equity 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 offerings or through the exercise of warrants. If we cannot raise any additional financing prior to the expiration of the first quarter of 2023, we believe we will be able to obtain loans from management in the future, if necessary, but have no agreement in writing.
We are a smaller reporting company and have accumulated losses to date. Under a limited operations scenario to maintain our corporate existence, we believe we will require additional funds over the next 12 months to complete our regulatory reporting and filings. However, we will require maximum participation through private placements, warrant exercises or alternative financings to implement our 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.
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 future. We have no guarantees or firm commitments that the related party advances will continue in the near future.
Existing working capital, further advances, together with anticipated capital raises are expected to be adequate to fund our operations over the next twelve months, but there is no guarantee that we will be successful in raising enough capital, or that we will receive the cash flow required to fund our operations. We have no lines of credit with banking institutions or other bank financing arrangements, we do have a line a credit form a related party (see Note 7 to the Financial Statements). 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 relating to: (i) developmental expenses; and (ii) legal and accounting fees, required to complete our filings with the SEC. We intend to finance these expenses with issuances of securities 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 continue our operations.
Material Commitments
As of the date of this Current Report, we do not have any material commitments.
Purchase of Significant Equipment
We do not intend to purchase any significant equipment during the next twelve months.
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.
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| Table of Contents |
Going Concern
As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $11,097,272 at September 30, 2022 and net loss from operations of $174,481.
The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of equity securities and related party advances. In addition, the Company is in the development stage and has accumulated losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue operations is dependent on the success of Management’s plans and raising of capital through the issuance of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements.
The Company will require additional funding to finance its operations as well as to identify, negotiate and materialize a business combination with a target business. The Company believes its current available cash may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Critical Accounting Policies and Estimates
For a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Item 2.
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. 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 Christopher Mulgrew as 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)) and financial reporting as of June 30, 2021. 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 and Mr. Mulgrew 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.
| 17 |
| Table of Contents |
Based on this evaluation, our management concluded that, as of June 30, 2022, our disclosure controls and our internal controls over financial reporting were not effective in recording, processing, summarizing and report on a timely 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 only two officers 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 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 September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 18 |
| Table of Contents |
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On September 19, 2019, the Company entered into a Stock Purchase Agreement with Radiant Images, Inc., a California corporation (“Radiant”), as well as Radiant’s shareholder Gianna Wolfe (“Wolfe”) and key employee, Michael Mansouri (“Mansouri”), pursuant to which the Company would acquire 100% of the shares of common stock (the “Shares”) of Radiant from Wolfe, resulting in the acquisition of Radiant. In April 2020, the Company received notice from Radiant of their intent to terminate the Company’s acquisition agreement. Although the Company believes that the termination is not legally valid, the Company ceased further discussions with respect to the acquisition and engaged counsel to pursue litigation for repayment of amounts due by Radiant. The Company’s investment in Radiant was structured as a revolving note 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. At June 30, 2020 interest income of $154,042 had been accrued on the note. Under accounting treatment, this note, and interest are impaired on our balance sheet while we resolve this dispute. We had filed a complaint against Radiant and its principals and intended to vigorously pursue this matter and litigation. The dispute was amicably resolved by the parties by means of a Settlement Agreement and Release of All Claims dated November 17, 2021, whereby the Company as “plaintiff” and “cross-defendant” released, and was in turned released, by Radiant, Gianna Wolfe and Michael Mansouri from any and all claims in connection with the stock purchase agreement and revolving note. No payment was due to or made by the Company in connection with the settlement and release of this action.
On November 13, 2019, 5W Public Relations LLC (“5W”) filed a complaint against Hawkeye Systems, Inc. relating to payments allegedly due under a contract for public relations services. Hawkeye vigorously disputed 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 engaged counsel to provide counterclaims for failure of consideration, fraud in the inducement, general fraud, and other causes of action. This proceeding was resolved by a Stipulation of Settlement dated May 19, 2022, filed with the Supreme Court of the State of New York. The Company settled all of 5W’s claims for the sum of $30,000.
Other than the foregoing, we are not aware of any 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
No disclosure required.
Item 3 - Defaults Upon Senior Securities
No disclosure required.
Item 4 - Mine Safety Disclosure
No disclosure required.
Item 5 - Other Information
No disclosure required.
| 19 |
| Table of Contents |
Item 6 - Exhibits
Exhibits:
Number |
| Description |
|
|
|
| ||
| ||
| ||
| ||
101* |
| Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
104* |
| Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
___________
* Filed herewith.
** Furnished herewith.
| 20 |
| Table of Contents |
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. |
| |
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Date: December 15, 2022 | By: | /s/ Corby Marshall |
|
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| Corby Marshall, Chief Executive Officer |
|
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| Principal Executive Officer |
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Date: December 15, 2022 | By: | /s/ Christopher Mulgrew |
|
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| Christopher Mulgrew, Chief Financial Officer |
|
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| Principal Financial Officer |
|
| 21 |
EXHIBIT 31.1
CERTIFICATION
I, Corby Marshall, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Hawkeye Systems, Inc. (the “Registrant”); |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
|
|
|
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
|
|
|
|
|
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial; and |
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| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: December 15, 2022 |
| /s/ Corby Marshall | |
|
|
| Corby Marshall |
|
|
|
| Chief Executive Officer |
|
|
|
| (Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION
I, Christopher Mulgrew, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Hawkeye Systems, Inc. (the “Registrant”); |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
|
|
|
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
|
|
|
|
|
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial; and |
|
|
|
|
|
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: December 15, 2022 |
| /s/ Christopher Mulgrew | |
|
|
| Christopher Mulgrew |
|
|
|
| Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hawkeye Systems, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Corby Marshall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
|
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company |
| Date: December 15, 2022 |
| /s/ Corby Marshall | |
|
|
| Corby Marshall |
|
|
|
| Chief Executive Officer |
|
|
|
| (Principal Executive Officer) |
|
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hawkeye Systems, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher Mulgrew, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
|
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company |
| Date: December 15, 2022 |
| /s/ Christopher Mulgrew | |
|
|
| Christopher Mulgrew |
|
|
|
| Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|