HWKE 10-Q
Hawkeye Digital, Inc. (HWKE)
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) |
| ||
(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 | |
|
| 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).
The number of shares outstanding of each of the issuer’s classes of common equity as of May 16, 2022, was
Contents
| 1 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAWKEYE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| March 31, |
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| June 30, |
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| 2022 |
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| 2021 |
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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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| $ |
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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 - related party |
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Total current liabilities |
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Long-term liabilities: |
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PPP loan |
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Total liabilities |
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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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| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
| Table of Contents |
HAWKEYE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended |
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| Nine Months Ended |
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| March 31, |
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| March 31, |
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| 2022 |
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| 2021 |
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| 2021 |
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Sales |
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| $ |
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| $ | - |
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| $ |
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Cost of sales |
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| - |
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| - |
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Gross profit |
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| - |
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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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Marketing |
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Write-down of inventory |
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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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Financing expense |
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Financing expense - related party |
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PPP loan forgiveness |
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Loss on settlement of debt |
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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 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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.
| 3 |
| Table of Contents |
HAWKEYE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Three Months and Nine months ended March 31, 2022
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| Additional |
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| Common |
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| Common Stock |
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| Paid-in |
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| Stock |
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| Accumulated |
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| Total |
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| Shares |
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| Amount |
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| Capital |
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| to be Issued |
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| Deficit |
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Balance, June 30, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||
Cumulative-effect adjustment from adoption of ASU 2020-06 |
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| - |
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Common stock issued for settlement of debt |
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Stock based compensation – options |
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| - |
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Net loss |
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Balance, September 30, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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Common shares issued for stock payable |
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Stock based compensation – options |
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Stock option cashless exercised |
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Net loss |
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Balance, December 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
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Stock option cashless exercised |
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Stock based compensation – options |
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Net loss |
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Balance, March 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||
For the Three Months and Nine Months Ended March 31, 2021
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| Additional |
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| Common |
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| Common Stock |
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| Paid-in |
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| Stock to |
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| Accumulated |
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| Total |
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| Shares |
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| Amount |
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| Capital |
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| be Issued |
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| Deficit |
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Balance, June 30, 2020 |
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| $ |
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Common shares issued for stock to be issued |
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Warrants exercised for cash |
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Common shares issued for conversion of debt |
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Stock based compensation – options |
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Stock based compensation – warrant |
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Debt forgiveness |
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Net loss |
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Balance, September 30, 2020 |
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| $ |
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Common stock issued exchanged for common stock payable |
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Common stock and warrants issued for cash |
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Common shares issued for settlement of debt |
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Stock based compensation – options |
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Beneficial conversion feature |
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Net loss |
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Balance, December 31, 2020 |
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| $ |
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| $ |
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| $ | ( | ) |
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Common shares issued for stock to be issued |
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Common shares issued for service - related party |
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Stock based compensation – options |
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Net loss |
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Balance, March 31, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
HAWKEYE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| Nine Months Ended |
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| March 31, |
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| 2022 |
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| 2021 |
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Cash flows from operating activities: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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PPP loan forgiveness |
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Write-down of inventory |
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Loss on settlement of debt |
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Amortization of debt discount |
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Stock based compensation – options and warrant |
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Common stock issed and warrants exercised for services |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Deposit |
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Inventory |
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Prepaid expense |
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Accounts payable and accrued liabilities |
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Common stock payable |
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Net cash used in operating activities |
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Cash flows from financing activities: |
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Sales of common stock and warrants, net of issuance costs |
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Issuances of notes payable, net of financing costs |
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Net proceeds from notes payable - related party |
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Net proceeds from convertible note - related party |
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Proceeds from exercise of warrants |
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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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| $ |
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Cash paid for taxes |
| $ |
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| $ |
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Non-cash investing and financing activities: |
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Common stock issued on conversion of note payable |
| $ |
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| $ |
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Common stock issued for settlement of debt |
| $ |
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| $ |
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Common stock issued exchanged for common stock payable |
| $ |
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| $ |
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Replacement of Inventory financing payable to convertible note |
| $ |
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| $ |
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Reclassification from note payable related party to stock payable |
| $ |
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| $ |
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Reclassification from common stock to be issued to common stock |
| $ |
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| $ |
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Debt forgiveness |
| $ |
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| $ |
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Stock option cashless exercised |
| $ |
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| $ |
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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.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
Note 1 - Summary of Significant Accounting Policies
Business Overview
Hawkeye Systems, Inc. (“the Company”), a Nevada corporation incorporated on May 15, 2018, is a technology holding company evaluating strategic alternatives.
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, 2021, as filed with the SEC on October 13, 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.
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.
| 6 |
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Revenue recognition
Revenue is recorded in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Revenue is recognized from product sales when goods are shipped, title and risk of loss have transferred to the purchaser, there are no significant vendor obligations, the fees are fixed or determinable, and collection is reasonably assured. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. The Company recognizes sales on a gross basis when it is considered the primary obligor in the transaction and on a net basis when it is considered to be acting as an agent. We record estimates for cash discounts, product returns, and other discounts in the period of the sale. This provision is recorded as a reduction from gross sales and the reserves are shown as a reduction of accounts receivable.
Cost of sales
Cost of sales includes inventory costs and shipping and freight expenses.
Basic and diluted earnings per share
Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including stock options, warrants to purchase the Company’s common stock, and convertible note payable. For the nine months ended March 31, 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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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 March 31, 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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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, 2022, the Company had a net loss of $
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 - Convertible Notes Payable
Convertible notes - related party
During the nine months ended March 31, 2022, the Company issued convertible note payable of $
During the nine months ended March 31, 2022 and 2021, amortization of $
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In connection with the adoption of ASU 2020-06, we reclassified $
Note 4 - Common stock payable - related party
As of March 31, 2022 and June 30, 2021, the Company reported common stock payable of $
Note 5 - Stockholders’ Equity
Common Stock
During the nine months ended March 31, 2022, the Company had the following common stock transactions:
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Stock Purchase Warrants
Transactions in stock purchase warrants for the nine months ended March 31, 2022 are as follows:
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The composition of the Company’s warrants outstanding at March 31, 2022 are as follows:
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At March 31, 2022, the intrinsic value of the
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Stock Options
Transactions in stock options for the nine months ended March 31, 2022 are as follows:
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During the nine months ended March 31, 2022, the Company granted
The fair value of the options was determined using the Black-Scholes option pricing model with the following assumptions:
During the nine months ended March 31, 2022, $
At March 31, 2022, the intrinsic value of the
Note 6 - Commitments and Contingencies
On June 11, 2020, the Company formalized an employment agreement with its chief executive officer which provides for annual salary of $
Note 7 - 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion relates to the historical operations and financial statements of Hawkeye Systems, Inc. for the nine months ended March 31, 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 March 31, 2022 compared to three months ended March 31, 2021
We had operating revenues of $0 and $2,174,596, respectively, for the three months ended March 31, 2022 and 2021. Cost of sales was $0 and $2,264,880 resulting in gross profit (loss) of $0 and ($90,284), respectively, for the three months ended March 31, 2022 and 2021.
Total operating expenses in the three months ended March 31, 2022 were $167,249 compared to $995,381 for the same period in 2021. The decrease in operating expenses is primarily a result of decreased management compensation and write-down of inventory. The Company’s net loss was $193,909 for the three months ended March 31, 2022 compared to $1,148,865 for the three months ended March 31, 2021. The net loss for this period is primarily a result of operating expenses, and interest expense.
Nine months Ended March 31, 2022 compared to nine months ended March 31, 2021
We had operating revenues of $0 and $2,556,942, respectively, for the nine months ended March 31, 2022 and 2021. Cost of sales was $0 and $2,585,259 resulting in gross profit (loss) of $0 and ($28,317), respectively, for the nine months ended March 31, 2022 and 2021.
Total operating expenses in the nine months ended March 31, 2022 were $872,118 compared to $1,747,983 for the same period in 2021. The decrease in operating expenses is primarily a result of decreased professional fees - related party and write-down of inventory. The Company’s net loss was $962,666 for the nine months ended March 31, 2022 compared to $3,850,713 for the nine months ended March 31, 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 March 31, 2022 was $18,717 compared to $282,131 at June 30, 2021. We do not believe these cash reserves are sufficient to cover our expenses for our operations for fiscal year ending June 30, 2022. 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 this offering 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 an emerging growth company and have limited revenue 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 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.
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.
Existing working capital, further advances, together with anticipated capital raises 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 relating to: (i) developmental expenses; and (ii) marketing expenses. 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 take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business 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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Going Concern
As reflected in the accompanying financial statements, the Company had an accumulated deficit of $10,094,053 at March 31, 2022 and net loss from operations of $872,118.
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 generated limited revenues 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 the growth of its current and expected future operations as well as to achieve its strategic objectives. 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. 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 March 31, 2022. 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.
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Based on this evaluation, our management concluded that, as of March 31, 2022, 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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On November 13, 2019, 5W Public Relations LLC filed a complaint against Hawkeye Systems, Inc. relating to payments allegedly due under a contract for public relations services. Hawkeye vigorously disputes the allegations in the complaint as 5W Public Relations provided virtually no services to Hawkeye during the term of this arrangement but was paid a substantial amount of funds. Hawkeye has engaged counsel to defend the litigation and also assert counterclaims for failure of consideration, fraud in the inducement, general fraud and other causes of action. Hawkeye anticipates that this litigation if pursued will be resolved favorably for the Company.
We are not aware of any other legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
Item 1A - Risk Factors
Not required for Smaller Reporting Companies.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
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.
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Item 6 - Exhibits
Exhibits:
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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. |
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* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Hawkeye Systems, Inc. |
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Date: May 17, 2022 | By: | /s/ Corby Marshall |
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| Corby Marshall, Chief Executive Officer |
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Date: May 17, 2022 | By: | /s/ Christopher Mulgrew |
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| Christopher Mulgrew, Chief Financial Officer |
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| Principal Financial Officer |
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