UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020
¨ ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number: 333-180954
Hawkeye Systems, Inc. |
(Exact name of small business issuer as specified in its charter) |
Nevada | 83-0799093 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
6605 Abercorn, Suite 204
Savannah, GA 31405
(Address of principal executive offices)
(912) 253-0375
(Registrants telephone number, including area code)
2702 Media Center Drive____________________________________________________________
Los Angeles, CA 90065
(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. x☐ Yes ¨☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x☐ Yes ¨☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
☐ | Large accelerated filer | ☐ | Accelerated filer | |||
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| Smaller reporting company |
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| ☒ | Non-accelerated filer | ☒ | Emerging growth company |
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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 x☒ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares outstanding of each of the issuer'sissuer’s classes of common equity as of March 31, 2020February 23, 2021 was 13,768,85016,649,659 shares of common stock.
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Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial InformationStatements
HAWKEYE SYSTEMS, INC. March 31, 2020 June 30, 2019 (Unaudited) Assets Current assets: Cash Prepaid and other assets Interest receivable Note receivable Total current assets Investment in Radiant Equipment, Net Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued liabilities Convertible note payable Notes payable, related party Total current liabilities Total liabilities Contingencies (note 10 ) Stockholder’s Equity: Preferred stock, $0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding Common stock, $0.0001 par value, 400,000,000 shares authorized, 13,768,850 and 9,897,116 shares issued and outstanding as of March 31, 2020 and June 30, 2019 Additional paid-in capital Stock subscription received Accumulated deficit Total stockholders’ equity Total Liabilities and Stockholders’ Equity September 30, June 30, 2020 2020 ASSETS (Unaudited) Current assets: Cash Accounts receivable Inventory, net Prepaid expenses Total current assets Equipment, net Note receivable - Radiant Images, Inc., net of allowance of $1,459,842 Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities Convertible note payable, net of discount Convertible note payable, net of discount - related party Note payable - related parties Common stock payable Common stock payable - related parties Total current liabilities Total liabilities Stockholders’ equity: Preferred stock, $0.0001 par value, 50,000,000 shares authorized; no shares issued or outstanding Common stock, $0.0001 par value, 400,000,000 shares authorized; 15,837,659 and 14,828,036 shares issued and outstanding, respectively Additional paid-in capital Common stock to be issued - 60,000 and 425,000 shares, respectively Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity The accompanying notes THREE MONTHS ENDED MARCH 31 NINE MONTHS ENDED MARCH 31 2019 2019 Revenue Expenses: General and administrative expenses** Legal and professional expenses** Regulatory filing expenses and fees Consulting fees Marketing expenses Management compensation Escrow fees Total expenses Operating loss Non-operating income (expense): Interest income Interest expense Unrealized loss on joint venture Total non-operating income (expense) Net loss Net loss per share – basic and diluted Basic and diluted weighted average shares outstanding **Includes stock-based remuneration HAWKEYE SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Three Months Ended September 30, September 30, 2020 2019 Sales Cost of sales Gross profit Operating expenses: General and administrative Management compensation Professional fees Professional fees - related party Marketing Write-down of inventory Total operating expenses Loss from operations Other expense: Interest expense Interest expense - related party Financing expense Financing expense - related party Loss on settlement of debt Total other expense Net loss Net loss per common share - basic and diluted Weighted average common shares outstanding - basic and diluted The accompanying notes HAWKEYE SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Additional Stock Subscription Total Common Stock Paid-in Received/ Accumulated Stockholders’ Shares Amount Capital (Receivable) Deficit Equity Balance at July 1, 2018 Stock subscription receivable Net loss Balance – September 30, 2018 Stock subscription received Net loss Balance – December 31, 2018 Common stock issued for cash Common stock issued for compensation Warrants issued Stock options issued as compensation – vested Stock subscription receivable Net loss Balance – March 31, 2019 Common Additional Stock Common Stock Paid-in to be Accumulated Stockholders’ Shares Amount Capital Issued Deficit Equity Balance, June 30, 2020 Common shares issued for stock to be issued Warrants exercised for cash Common shares issued for conversion of debt Stock based compensation – options Stock based compensation – warrant Debt forgiveness Net loss Balance, September 30, 2020 For the Three Months Ended September 30, 2019 Common Additional Stock Common Stock Paid-in To Be Accumulated Stockholders’ Shares Amount Capital Issued Deficit Equity Balance, June 30, 2019 Common stock issued for cash Common stock issued as compensation Warrants issued Stock options Stock subscription received Stock subscription receivable Net loss Balance, September 30, 2019 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Balance at July 1, 2019 Common stock issued for cash Common stock issued as compensation Warrants issued for services Stock options for services Stock subscription received Stock subscription receivable Net loss Balance – September 30, 2019 Common stock issued for cash Common stock issued as compensation Common stock issued as financing Warrants issued for services Warrants exercised Stock subscription received Warrant subscription received Stock subscription receivable Net loss Balance – December 31, 2019 Common stock issued for cash Common stock issued as compensation Warrants exercised Stock subscription received Warrant subscription received Stock compensation expense Net loss Balance – March 31, 2020 HAWKEYE SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended Three Months Ended September 30, September 30, 2020 2019 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Write-down of inventory Loss on settlement of debt Amortization of debt discount Stock based compensation – options and warrant Common stock issued and warrants exercised for services Change in operating assets and liabilities: Accounts receivable Inventory Prepaid expense Accounts payable and accrued liabilities Common stock payable Net cash used in operating activities Cash flows from investing activities: Shares issued for Radiant Images, Inc. deposit Investment in Radiant Images, Inc. Net cash used in investing activities Cash flows from financing activities: Sales of common stock and warrants, net of issuance costs Proceeds from exercise of warrants Stock subscription receivable Stock subscriptions received Net cash provided by financing activities Net change in cash Cash beginning of period Cash end of period Supplemental cash flow information Cash paid for interest Cash paid for taxes Non-cash investing and financing activities: Common stock issued on conversion of note payable Reclassification from note payable related party to stock payable Reclassification from common stock to be issued to common stock Debt forgiveness The accompanying notes 2020 2019 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Unrealized gain on joint venture Stock based renumeration Shares and warrants issued for services Changes in operating assets and liabilities: Prepaid expenses Interest receivable Accounts payable and accrued liabilities Net cash used in operating activities Cash flows from investing activities: Note receivable Radiant Images, Inc. Investment in joint venture Net cash used in investing activities Cash flows from financing activities: Stock subscription received Shares and warrants issued for financing Common stock issued for exercise of warrants Issuance of common stock and receipt of paid-in capital Notes payable Stock option issuances Options in lieu of interest payment Net cash provided by financing activities Net increase (decrease) in cash Cash, beginning of period Cash, end of period Supplemental disclosure of cash flow information Cash paid during the year for: Interest Income taxes Refer to Note 2 and 9 in the financial statements for disclosures over all non-cash investing and financing activities during the period. HAWKEYE SYSTEMS, INC. SEPTEMBER 30, 2020 Note 1 – Basis of presentationHawkeye Systems, Inc.Condensed Consolidated Balance Sheets$ 21,982 $ 18,372 - 4,855 115,574 - 1,257,800 - 1,395,356 23,227 - 920,800 1,338 3,145 $ 1,396,694 $ 947,172 $ 129,488 $ 86,664 150,000 - 200,000 400,000 479,488 486,664 479,488 $ 486,664 - - - - 1,378 990 3,681,076 2,198,891 10,000 170,000 (2,772,248 ) (1,909,373 ) 917,206 460,508 $ 1,396,694 $ 947,172 $ 51,256 $ 911,747 49,471 47,656 1,371,066 509,517 19,879 6,667 1,491,672 1,475,587 135 737 - - $ 1,491,807 $ 1,476,324 $ 517,410 $ 332,327 - 137,625 224,204 211,305 - 200,000 9,000 6,000 630,000 430,000 1,380,614 1,317,257 1,380,614 1,317,257 - - 1,584 1,483 6,934,597 4,527,925 30,000 139,500 (6,854,988 ) (4,509,841 ) 111,193 159,067 $ 1,491,807 $ 1,476,324 formare an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents Condensed Consolidated Statements of Operations(unaudited)2020 2020 $ - $ - $ - $ - 1,997 10,450 10,353 1,375 197,889 44,688 444,839 45,815 5,203 20,182 19,941 33,400 18,000 186,058 315,855 - 37,000 30,550 44,470 - 123,491 118,580 123,491 118,580 - - - 11,893 383,580 410,508 958,949 502,991 (383,580 ) (410,508 ) (958,949 ) (502,991 ) 36,205 - 115,574 - (12,500 ) (74,800 ) (22,500 ) (74,800 ) - (36,382 ) - (259,181 ) 23,705 (111,182 ) 93,074 (333,981 ) $ (359,875 ) $ (521,690 ) $ (865,875 ) $ (836,972 ) $ (0.03 ) $ (0.06 ) $ (0.07 ) $ (0.09 ) 13,431,340 9,402,483 12,043,201 9,055,927 $ 382,346 $ - 320,379 - 61,967 - 13,797 18,412 153,662 - 38,024 290,485 139,340 - 48,418 - 40,164 - 433,405 308,897 (371,438 ) (308,897 ) (26,833 ) - (12,899 ) - (55,497 ) - (1,508,211 ) - (370,269 ) - (1,973,709 ) - $ (2,345,147 ) $ (308,897 ) $ (0.15 ) $ (0.03 ) 15,562,663 11,164,921 formare an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents Condensed Consolidated Statements of Changes in Stockholders’ Equity(unaudited)For the Three Months Ended September 30, 20208,886,416 $ 889 $ 655,836 $ (142,500 ) $ (42,375 ) $ 471,850 - - - 142,500 - 142,500 - - - - (174,799 ) (174,799 ) 8,886,416 $ 889 $ 655,836 $ - $ (217,174 ) 439,551 - - - 340,000 - 340,000 - - - - (140,482 ) (140,482 ) 8,886,416 $ 889 $ 655,836 $ 340,000 $ (357,656 ) $ 639,069 715,000 72 135,700 - - 135,771 59,100 6 29,544 - - 29,550 - - 221,729 - - 221,729 - - 291,218 - - 291,218 - - - (340,000 ) - (340,000 ) - - - - (521,690 ) (521,690 ) 9,660,516 $ 966 $ 1,334,027 $ - $ (879,347 ) $ 455,646 14,828,036 $ 1,483 $ 4,527,925 $ 139,500 $ (4,509,841 ) $ 159,067 365,000 37 109,463 (109,500 ) - - 175,000 17 67,483 - - 67,500 469,623 47 525,931 - - 525,978 - - 119,155 - - 119,155 - - 1,563,708 - - 1,563,708 - - 20,932 - - 20,932 - - (2,345,147 ) (2,345,147 ) 15,837,659 $ 1,584 $ 6,934,597 $ 30,000 $ (6,854,988 ) $ 111,193 9,897,116 $ 990 $ 2,198,891 $ 170,000 $ (1,909,373 ) $ 460,508 449,333 45 40,538 - - 40,583 1,222,000 116 540,872 - - 540,988 617,333 - 7,511 - - 7,511 100,000 - 1,918 - - 1,918 - - - 43,000 - 43,000 - - - (2,787 ) - (2,787 ) - - - - (308,897 ) (308,897 ) 12,285,782 $ 1,151 $ 2,789,730 $ 210,213 $ (2,218,270 ) $ 782,824 5 Table of Contents 9,897,116 $ 990 2,198,891 $ 170,000 $ (1,909,373 ) $ 460,508 449,333 45 40,538 - - 40,583 1,222,000 122 540,872 - - 540,994 - - 7,511 - - 7,511 - - 1,918 - - 1,918 - - - 43,000 - 43,000 - - - (2,787 ) - (2,787 ) - - - - (308,903 ) (308,903 ) 11,568,449 $ 1,157 $ 2,789,730 210,213 $ (2,218,276 ) $ 782,824 50,000 5 49,797 - - 49,802 366,400 37 183,163 - - 183,200 100,000 10 49,990 - - 50,000 - - 198 - - 198 46,000 5 51,995 52,000 - - - (50,000 ) - (50,000 ) - - - 154,000 - 154,000 - - - 2,787 - 2,787 - - - - (197,097 ) (197,097 ) 12,130,849 $ 1,214 $ 3,124,873 317,000 $ (2,415,373 ) $ 1,027,714 1,098,001 110 271,890 272,000 16,667 2 5,873 5,875 523,333 52 184,948 185,000 - - - (153,000 ) (153,000 ) - - - (154,000 ) (154,000 ) - - 93,492 93,492 - - - (359,875 ) (359,875 ) 13,768,850 $ 1,378 $ 3,681,076 10,000 $ (2,775,248 ) $ 917,206 $ (2,345,147 ) $ (308,897 ) 602 603 40,164 - 370,269 - 25,274 - 1,682,863 - - 260,000 (1,815 ) - (901,713 ) - (13,212 ) 4,855 211,724 (20,369 ) 3,000 - (927,991 ) (63,808 ) - 70,000 - (114,000 ) - (44,000 ) - 50,000 67,500 - (2,787 ) - 43,000 67,500 90,213 (860,491 ) (17,595 ) 911,747 18,372 $ 51,256 $ 777 $ - $ - $ - $ - $ 525,978 $ - $ 200,000 $ - $ 109,500 $ - $ 20,932 $ - formare an integral part of these unaudited condensed consolidated financial statementsstatements. 6 Table of Contents Condensed Consolidated Statements of Cash FlowsNine months ended March 31, 2020 and 2019(unaudited)$ (865,875 ) $ (836,972 ) 1,807 - - 259,181 - 245,968 472,983 - 4,855 - (115,574 ) - 79,923 5,200 (421,881 ) (326,623 ) (178,000 ) - - (350,000 ) (178,000 ) (350,000 ) (27,000 ) - 50,000 - 237,000 - 100,000 300,000 150,000 - 93,491 - - 74,800 603,491 374,800 3,610 (301,823 ) 18,372 334,650 $ 21,982 $ 32,827 $ - $ - $ - $ - The accompanying notes form an integral part of these condensed consolidated financial statements7Table of ContentsNOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements(Unaudited) Organization and Basis of PresentationOrganization and BusinessHawkeye Systems, Inc., a Nevada corporation incorporated on May 15, 2018, is a technology holding company with a focus on pandemic management products and services. Led by a West Point, U.S. Military Academy graduate, the Company is committed to leveraging its extensive resources in support of its ongoing mission to help our government and medical infrastructure to keep civilians safe. Hawkeye Systems sources and distributes PPE (Personal Protective Equipment) and other Pandemic Management supplies to enterprise level customers and government agencies. The Company also looks to license & acquire technology that improves life and works with partners to develop cutting edge, “smart” products for a variety of markets.Note 2 - Summary of Significant Accounting Policies
The accompanying unaudited condensed interim financial statements werehave been prepared in conformityaccordance with generally accepted accounting principles generally accepted(“GAAP”) in the United States of America (“U.S. GAAP”).for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the unaudited condensed interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the unaudited condensed interim financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year. The accompanying unaudited condensed interim financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K, for the year ended June 30, 2020, as filed with the SEC on February 1, 2021.
Use of Estimatesestimates
The preparation of consolidated financial statements in conformity with U.S. 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, useful lives of intangible assets, debt discounts, valuation of derivatives, fair value assumptions used for stock basedstock-based compensation, arrangements, and the valuation allowance on deferred tax assets.
PrinciplesAccounts receivable and allowance for doubtful accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of Consolidationthe amount of probable credit losses in its existing accounts receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for services or goods. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged against the allowance when it is probable that the receivable will not be recovered. The Company had no allowance for doubtful accounts at September 30, 2020 or June 30, 2020.
These financials statements includeFair value measurements
When required to measure assets or liabilities at fair value, the resultsCompany 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 Company andtotal gains or losses for the results of the prior reported joint venture, Optical Flow. See Note 4 Investmentperiod are included in Joint Ventures and Acquisitions, for further discussion ofearnings that are attributable to the change in accounting forunrealized gains or losses relating to those assets and liabilities still held at the joint venture from the equity method in prior year and quartersreporting date. The Company has no assets or liabilities that are adjusted to being consideredfair value on a consolidated subsidiary as of June 30, 2019.recurring basis.
Table of Contents |
Cash
The Company maintains a cash balance in a non-interest-bearing account. The Company considers short-term, highly liquid investments that are readily convertible to known amounts of cash and that are so near their maturity that they present insignificant risk of changes in value because of changes in interest rate to be cash equivalents. There were no cash equivalents as of March 31, 2020 and June 30, 2019.
Derivative Financial InstrumentsRevenue recognition
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain embedded features that qualify as derivatives. Certain debt agreements have warrants and conversion features that have been evaluated as derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrumentRevenue is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes option pricing model to value the derivative instruments at the grant date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the Company does not foresee generating taxable income in the near future and utilizing its deferred tax asset, therefore, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Revenue Recognition
The Company has not yet recorded revenue, however, revenue when recorded will be recorded in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). AsRevenue is recognized from product sales when goods are expectedshipped, title and risk of loss have transferred to be primarily from sales of equipment, installation of equipmentthe purchaser, there are no significant vendor obligations, the fees are fixed or determinable, and technical support services. The Company does not expect significant post-delivery obligations. Revenue from sales of equipment will be recorded upon shipment of the product and acceptance by the customer, assuming collection is reasonably assured. Revenue from installation servicesAmounts billed to customers for shipping and technical services willhandling 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 recorded overacting as an agent. We record estimates for cash discounts, product returns, and other discounts in the period earnedof the sale. This provision is recorded as a reduction from gross sales and the reserves are recognized under Topic 606 inshown as a manner that reasonably reflects the deliveryreduction of its services and products to customers in return for expected consideration and includes the following elements:accounts receivable.
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Cost of sales
Cost of sales includes inventory costs and shipping and freight expenses.
Basic and Diluted Earnings Per Sharediluted earnings per share
Basic earnings per share (“EPS”) 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. Diluted EPS includesoutstanding during the period plus the effect of all potentially dilutive securities as if such are converted. Dilution is computed by applying the treasurycommon stock method. Under this method,equivalents, including stock options, and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase the Company’s common stock, atand convertible note payable. For the average market price during the period. Due to the net loss incurredthree months ended September 30, 2020 and 2019, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share iscommon stock equivalents not included in the same as basic loss for all periods presented. The following potentially-dilutive shares were excluded from the shares used to calculatecalculation of diluted earnings per share because they were anti-dilutive are as their inclusion would be anti-dilutive.follows:
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| September 30, |
| September 30, |
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| March 31, 2020 |
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| June 30, 2019 |
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| 2020 |
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| 2019 |
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Warrants |
| 14,739,298 |
| 14,655,664 |
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| 8,939,131 |
| 15,272,997 |
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Options |
| 3,922,000 |
| 672,000 |
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| 5,255,000 |
| 772,000 |
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Convertible notes |
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| 350,000 |
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| 400,000 |
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| 1,000,000 |
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| 200,000 |
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Total |
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| 19,011,298 |
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| 15,727,664 |
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Total possible dilutive shares |
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| 15,194,131 |
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| 16,244,997 |
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Share-based Compensation
Stock-based compensationReclassification
Certain amounts from prior periods have been reclassified to employees consist of stock options grants and restricted shares that are recognized inconform to the statementcurrent period presentation. The reclassification have no effect on previously reported results of operations based on their fair values at the date of grant. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The resulting stock-based compensation expense for employee awards is generally recognized on a straight- line basis over the requisite service period of the award.or cash flows.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 505, subtopic 50, Equity-Based Payments to Non-Employees based upon the fair-value of the underlying instrument. The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received.
Recent Accounting Pronouncements
In June 2018, the FASBManagement has considered all recent accounting pronouncements issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidancetheir potential effect on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted.our financial statements. The adoption of this ASU didCompany’s management believes that these recent pronouncements will not have a material impacteffect on the Company’s unaudited condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements as the Company did not have any lease arrangements that were subject to this new pronouncement.
Note 3 -2 – Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of AmericaGAAP, applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. During the three month period ended September 30, 2020, the Company had a net loss of $2,345,147. As of September 30, 2020, the Company had an accumulated deficit of $6,854,988. The Company has not yet established an ongoing source of revenues sufficient revenue to cover its operating costs and allow itwill require additional capital to continue as a going concern. The Company had an accumulated deficit of $(2,775,248) as of March 31, 2020.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. The Company is currently seeking additional investment through equity financings and/or debt offerings, including without limitation the exercise of warrants previously issued to shareholders as part of the prior private placements. While the Company has received some financing subsequent to the period from such sources, there are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the CompanyThese 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.
8 |
Table of Contents |
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 43 – Joint Ventures and AcquisitionsInventory
OnInventory at September 30, 2020 and June 7, 2018, the Company entered into a joint-venture partnership with Insight Engineering, LLC (“Insight”). On August 1, 2018, the Company and Insight incorporated Optical Flow, LLC and entered into an operating agreement (the “Joint Venture” or “Optical Flow”) which superseded the previous joint-venture partnership. Pursuant to the Joint Venture, the Company and Insight will co-develop high resolution imaging systems. The Company and Insight each own fifty (50%) percent30, 2020 consists of the Joint Venture.following:
|
| September 30, |
|
| June 30, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Finished goods |
| $ | 1,537,230 |
|
| $ | 545,112 |
|
Goods in transit |
|
| - |
|
|
| 90,405 |
|
Less: Obsolescence |
|
| (166,164 | ) |
|
| (126,000 | ) |
Inventory, net |
| $ | 1,371,066 |
|
| $ | 509,517 |
|
The investment in the Joint Venture was accounted for by the Company using the equity method in 2018 in accordance with FASB ASC 323. The Company made a contribution of $150,000 as of June 30, 2018 to the Joint Venture. There was no operating activity of the Joint Venture during the period from inception to June 30, 2018.
During the year ended June 30, 2019,2020, the company invested an additional $1,225,000 in cash intoCompany purchased inventory of $153,000 for issuance of common stock. As at September 30, 2020 and June 30, 2020, the Joint venture. The Joint Venture advanced $920,800Company recorded $153,000 common stock payable.
Note 4 – Advances to Radiant Images, Inc.
On September 19, 2019, the Company entered into a Stock Purchase Agreement withNote Receivable – 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%Inc.
In contemplation of the shares of common stock (the “Shares”) of Radiant from Wolfe, resulting in acquisition of Radiant.
As a resultclosing of the Radiant acquisition agreement,Agreement, the Company and Insight agreedadvance balance of $920,800 was formalized in a secured revolving promissory note (“Radiant Note)” dated April 26, 2019. Further advances to contribute no further amountsRadiant prior to the Joint Venture, to cease operationsclosing of the Joint Ventureacquisition would increase the balance of the promissory note. The interest rate on the note was 12% and accrues daily on the $920,800 previously advancedoutstanding balance and is collateralized by all of the assets of Radiant pursuant to a Security Agreement. The purchase price would be offset by the Joint Venture to Radiant was considered a deposit onbalance of the purchase pricepromissory note and was reported on the balance sheet atinterest upon closing. Through June 30, 2019 as “Investment2020, additional cash advances under the note receivable totaled $385,000 in Radiant”. Management’s decision to cease operations of the Joint Venture, the Company’s risk of loss for all activities of the Joint Venture to date, and the executed purchase agreement for Radiant, led the Company to conclude the Joint venture should be consolidated as of June 30, 2019.
No additional funds were invested as of March 31, 2020. Optical Flow had activity during the nine months ended March 31, 2020 including the following operations activity:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Note 5 – Note Receivableequity-related transactions.
In April 2020, the Company received notice from Radiant Images of theirits intent to terminate the Radiant Agreement. As per terms of the agreement, the Radiant Note and related interest became due. The Company has ceased further discussions with respect to the acquisition agreement.and is pursuing litigation for repayment of amounts due by Radiant. The Company’s investment in Radiant was structured as a revolving note and as a consequence the company has reclassified the Investment in Radiantbeen classified as a Note Receivable from Radiant. As the Company issued shares in exchange for payments made on behalf of Radiant the balance of the note receivable increased.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.Hawkeye with interest. The note receivable was issued on April 26, 2019, is due upon demand of the Company at any time commencing April 26, 2020. The interest rate on the note is 12% and accrues daily on the outstanding balance. During the fiscal year ended June 30, 2020, total contributions of $337,000 were made to Radiant, bringing the balance of the note receivable to $1,257,800$1,305,800 at March 31, 2020. At March 31,June 30, 2020 interest income(not including interest). Because of $115,574 has been accrued on the note.
Note 6 - Accounts Payable
During Q1 2019,ongoing litigation with Radiant, the Company entered intorecorded an agreementallowance for investor relations consulting.note receivable of $1,305,800 and interest receivable of $154,042, during the year ended June 30, 2020. The Company will issue $3,000 of shares and pay $3,000 each month. Shares will be issued quarterly. Number of shares earned each month will behas not calculated based onany additional interest or allowance for the closing price on the last day of the preceding month. At March 31, 2020three months ended September 30, 2020. Nevertheless, the Company has recorded a liability $27,000 forintends to vigorously pursue the incurred serviceslitigation and expects to date.
Note 7 - Notes Payable – Related Party
Related party notes payable to shareholders are comprised of the following:
|
| March 31, 2020 |
|
| June 30, 2019 |
| ||
Related Party Note 1 |
| $ | - |
|
| $ | 200,000 |
|
Related Party Note 2 |
|
| 200,000 |
|
|
| 200,000 |
|
Total |
| $ | 200,000 |
|
| $ | 400,000 |
|
Related Party Note 1
On January 22, 2019, the Company obtained a $200,000 notefully collect these amounts from a shareholder of the Company that was used to fund the Joint Venture. The note terms provide the note was due on demand after 60 days at which point the lender could request repayment at any time. The Company had the ability to repay the note (in full Radiant and/or in instalments) at any time without notice or penalty. In lieu of interest payments, the Company granted stock options to purchase 150,000 shares of common stock as discussed below.
At the option of the lender, the note was convertible at any time from the date of issuance for one year subsequent at a conversion price of $0.50 per share. Upon conversion the lender will also be issued (i) two times the number of shares converted in Series A warrants each exercisable for one year for one share of the Company’s common stock at an exercise price of $1.00 per share, and (ii) two times the number of shares converted in Series B warrants each exercisable for one year for one share of the Company’s common stock at an exercise price of $2.00 per share.
The conversion feature with additional warrants to be issued was recorded as a debt discount up to the face amount of the note and was amortized to interest expense over the 60 day term of the note.its principals.
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The fair value of the warrants was approximately $200,000 and was determined using the Black-Scholes option pricing model with the following assumptions:
|
| |||
| ||||
|
|
| ||
|
|
|
_________
* The volatility is based on the average volatility rate of similar publicly traded companies
** The Company has no history or expectation of paying cash dividends on its common stock
*** The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
On August 2, 2019 thisAs of September 30, 2020 and June 30, 2020, note was converted into 400,000 shares of common stock.receivable and interest receivable are as follows:
|
| September 30, |
|
| June 30, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Note receivable |
| $ | 1,305,800 |
|
| $ | 1,305,800 |
|
Interest receivable |
|
| 154,042 |
|
|
| 154,042 |
|
|
|
| 1,459,842 |
|
|
| 1,459,842 |
|
|
|
|
|
|
|
|
|
|
Allowance for note receivable |
|
| (1,305,800 | ) |
|
| (1,305,800 | ) |
Allowance for interest receivable |
|
| (154,042 | ) |
|
| (154,042 | ) |
|
| $ | - |
|
| $ | - |
|
The fair value of the stock options issued in lieu of interest payments on the note was determined using the Black-Scholes option pricing model with the following assumptions:Note 5 – Note Payable – Related Party
|
| |||
| ||||
|
|
| ||
|
|
|
__________
* The volatility is based on the average volatility rate of similar publicly traded companies
** The Company has no history or expectation of paying cash dividends on its common stock
*** The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
Related Party Note 2
On June 13, 2019, the Company entered into a Securities Purchase Agreement with a shareholder pursuant to which it issued a Promissory Note for $200,000 due on the second anniversary of issuance that was used to fund the joint venture.issuance. The note bears interest at 10%. In connection with the Securities Purchase Agreement, the Company issued 100,000 origination shares of its common stock and a warrant to purchase 400,000 shares at $1.50 per share exercisable for two years from issuance.
The originationOn June 13, 2020, the note matured, became due on demand and as a condition of maturity became convertible with a 40% discount to market price, but not lower than $1.00 per share.
On July 1, 2020, the Company and note holder agreed to convert the note of $200,000 into 800,000 shares were valued at $0.50 per shareof common stock and accrued interest of $20,932 was forgiven. As a result, the $50,000 was recordedCompany reclassed note payable – related party of $200,000 to interest expense. The 400,000 warrants were valued at $184,926common stock payable and recorded to interest expense.
The fair valuedebt forgiveness of the warrants was determined using the Black-Scholes option pricing model with the following assumptions:
|
| |||
| ||||
|
|
| ||
|
|
|
__________
* The volatility is based on the average volatility rate of similar publicly traded companies
** The Company has no history or expectation of paying cash dividends on its common stock
*** The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards$20,932 as additional paid in effect at the time of grant.capital.
Note 86 – Convertible NoteNotes Payable
Convertible note
On March 17, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities LLC pursuant to which the Company issued a 10% Convertible Redeemable Note (“Convertible Note”) for the original principal amount of $150,000. After payment of fees to counsel and a finders fee the Company obtained $133,500 in proceeds from that sale were received on March 30, 2020. The Convertible Note is due on March 17, 2021 and on the sixth month anniversary of the Note may be converted into shares of Common Stock of the Company at a 40% discount to the lowest Volume Weighted Average Price for the Company’s common stock for the 15 days preceding the conversion. The Convertible Note may be prepaid prior to the six-month anniversary at 115% of the face if paid within 30 days, and an additional 5% every 30 days thereafter with a cap of 140%. Interest accrual and debt amortization will beginwould have begun in April 2020.
Note 9 - Stockholders’ EquityFinancing fees associated with the note totaled $16,500 resulting in net proceeds to the Company of $133,500. The financing fees were recognized as a discount on debt is being amortized over the term of the note.
Common Stock Issued for cash
Effective July 3, 2019On August 4, 2020, the Company issued 333,333 shares to an accredited investor for $50,000. As partnote of the investment, the investor was also issued 333,333 warrants to purchase$150,000 and accrued interest of $5,708 were converted into 469,623 shares of common stock for two years at $.50 per share and 100,000 options to purchase sharesresulting in a loss of common stock for two years at $.25 per sharesettlement of debt totaling $370,269.
Effective July 9, 2019 an investor subscribed to purchase: (i) 60,000 shares of common stock, and (ii) 60,000 Series C Warrants that are exercisable for 2 years from this date for an exercise price of $.50 per share. The purchase is at a price of $.25 per unit, for a total purchase price of $15,000, of which $2,787 was receivable atDuring the three months ended September 30, 2019. The 60,000 shares were issued on January 23, 2020.
On July 19, 20192020, amortization of $12,375 was recognized as interest expense. As of September 30, 2020 and June 30, 2020, the Company issued 260,000 shares to Michael Mansouri and 260,000 shares to Gianna Wolfe as consulting expense in connection with the acquisition of Radiant Images, Inc. The Company has demanded return of such shares and considers such shares as not issued subsequent to terminationbalance of the Radiant Images transaction.
Onnote payable is $0 and $150,000 less unamortized debt discount of $0 and $12,375, respectively. Interest expense of $1,958 was recognized on the convertible note during the three months ended September 10, 2019 the Company sold 20,000 shares to an accredited investor for $10,000. Included in the purchase was warrants to 40,000 shares at $1.00 per share for one year and warrants to purchase 40,000 at $2.00 per share for two years. The shares were issued on January 23,30, 2020.
On September 13, 2019 the Company sold 20,000 shares to an accredited investor for $10,000. Included in the purchase was warrants to 40,000 shares at $1.00 per share for one year and warrants to purchase 40,000 at $2.00 per share for two years. The shares were issued on January 23, 2020.
On October 22, 2019 the Company sold 50,000 shares to an accredited investor for $50,000. Included with the purchase was warrants to purchase 50,000 shares at $2.00 per share for two years.
On January 6, 2020 the Company issued 333,333 shares to an accredited investor for $50,000. Included with the purchase was a warrant to purchase 151,151 shares at $1.00 per share and a warrant to purchase 151,151 shares at $2.50 per share.
Table of Contents |
Convertible note – related party
On January 23,April 6, 2020, the Company issued 60,000 sharesconvertible note payable of $250,000 with simple interest at 10% per annum if repaid within 90 days, and simple interest at 20% per annum thereafter. The convertible note is due on April 6, 2021. At the option of holder, this note is convertible at any time which is six months from the date of issuance through that date which is one year from the date of issuance at a conversion price of $0.25 per share. In consideration for the loan of $250,000, the Borrower also granted to an accredited investorthe Lender 100,000 stock options exercisable at $0.25 for $15,000. Included witha two-year term. The options vested upon issuance. The fair value of the purchaseoptions was $13,297 and was recognized as debt discount as a warrantpart of beneficial conversion feature in the year ended June 30, 2020. The Company recorded a discount on the convertible note due to purchase 60,000 shares at $0.50 per share for two years.a beneficial conversion feature of $51,594, which is being amortized over the term of the note.
On February 12,During the three months ended September 30, 2020, amortization of $12,899 was recognized as interest expense. As of September 30, 2020 and June 30, 2020, the balance of the note payable is $250,000 less unamortized debt discount of $25,796 and $38,695 or $224,204 and $211,305, respectively. Interest expense of $12,500 was recognized on the convertible notes during the three months ended September 30, 2020.
Note 7 – Common stock payable
As of September 30, 2020 and June 30, 2020, common stock payable are as follows:
|
| September 30, |
|
| June 30, |
| ||
|
| 2020 |
|
| 2020 |
| ||
Purchase of inventory – related party |
| $ | 153,000 |
|
| $ | 153,000 |
|
Related parties |
|
| 477,000 |
|
|
| 277,000 |
|
Commitments |
|
| 9,000 |
|
|
| 6,000 |
|
|
| $ | 639,000 |
|
| $ | 436,000 |
|
Note 8 – Stockholders’ Equity
Common Stock
During the three months ended September 30, 2020, the Company issued 248,000 shares to an accredited investor for $62,000. Included in that purchase was a warrant to purchase 100,000 shares at $.30 per share.had the following common stock transactions:
• | Issued 469,623 shares of its common stock in exchange for conversion of debt and accrued interest of $525,978. | |
• | Issued 175,000 shares of its common stock associated with the exercise of warrants for $67,500. | |
• | Issued 365,000 shares of common stock for stock subscriptions of $109,500 received prior to June 30, 2020. |
Common Stock issued as compensation for services
Effective July 28,During the three months ended September 30, 2019 the Company issued 200,000 shares to a related party in consideration forhad the payment of $50,000 to the Joint Venture, 80,000 shares to an accredited investor in consideration for $20,000 paid on behalf of the Joint Venture, and 22,000 shares to a related party for legal services valued at $11,000.following common stock transactions:
• | Effective July 3, 2019 the Company issued 333,333 shares to an accredited investor for $50,000. As part of the investment, the investor was also issued 333,333 warrants to purchase shares of common stock for two years at $.50 per share and 100,000 options to purchase shares of common stock for two years at $.25 per share | |
• | On July 19, 2019 the Company issued 260,000 shares to Michael Mansouri and 260,000 shares to Gianna Wolfe as consulting expense in connection with the acquisition of Radiant Images, Inc. | |
• | Effective July 28, 2019 the Company issued 200,000 shares to a related party in consideration for the payment of $50,000 to the Joint Venture, 80,000 shares to an accredited investor in consideration for $20,000 paid on behalf of the Joint Venture, and 22,000 shares to a related party for legal services valued at $11,000. | |
• | On August 2, 2019 the investor who acquired a note on January 22, 2019 converted that note to 400,000 shares of common stock. | |
• | Effective July 9, 2019 an investor subscribed to purchase: (i) 60,000 shares of common stock, and (ii) 60,000 Series C Warrants that are exercisable for 2 years from this date for an exercise price of $.50 per share. The purchase is at a price of $.25 per unit, for a total purchase price of $15,000, of which $2,787 was receivable at September 30, 2019. | |
• | On September 10, 2019 the Company sold 56,000 shares to an accredited investor for $28,000. Included with the purchase was warrants to 112,000 shares at $1.00 per year for two years and warrants to purchase 112,000 shares at $2.00 per year for two years. |
On October 9, 2019 the Company issued 18,400 shares for accounting services, 18,000 shares for corporate development, investment advisory and investor relations services and 330,000 shares to a related party for legal services and services as a director of the Company. The shares were valued at $183,200.
On January 23, 2020 the Company issued 16,667 shares to an accredited investor for accounting services.
Common stock for financing
On August 2, 2019 the investor who acquired a note on January 22, 2019 converted that note to 400,000 shares of common stock.
On October 17, 2019 the Company issued 100,000 shares as additional consideration for a convertible note issued to an accredited investor.
Stock Subscription Received
On September 10, 2019 the Company sold 56,000 shares to an accredited investor for $28,000. Included with the purchase was warrants to 112,000 shares at $1.00 per year for two years and warrants to purchase 112,000 shares at $2.00 per year for two years.
On October 1, 2019 the Company sold 20,000 shares to an accredited investor for $10,000. Included with the purchase was warrants to 20,000 shares at $1.50 per year for two years and warrants to purchase 20,000 shares at $2.50 per year for one year.
On October 9, 2019 the Company issued 380,000 shares upon exercise of warrants to an accredited investor.
On October 17, 2019 the Company sold 40,000 shares to an accredited investor for $20,000. Included with the purchase was warrants to purchase 40,000 shares at $1.00 per share for one year.
Table of Contents |
Warrant exercisesCommon Stock to be Issued
On October 11, 2019As of September 30, 2020 and June 30, 2020, the Company received payment for unissued capital stock resulting in 60,000 and 425,000 share of common stock to be issued 6,000 shares upon exercisefor payments of warrants to an accredited investor.$30,000 and $139,500, respectively.
Balance at June 30, 2020 |
|
| 139,500 |
|
Received on subscription |
|
| - |
|
Common stock certificates issued |
|
| (109,500 | ) |
Balance at September 30, 2020 |
| $ | 30,000 |
|
On October 22nd, 2019 the Company issued 40,000 shares upon exercise of warrants to an accredited investor.Stock Purchase Warrants
On November 21, 2019Transactions in stock purchase warrants for the Company issued 40,000 shares upon exercise of warrants to an accredited investor.three months ended September 30, 2020 are as follows:
|
| Number of |
|
| Weighted Average |
| ||
|
| Warrants |
|
| Exercise Price |
| ||
Balance at June 30, 2020 |
|
| 7,047,135 |
|
| $ | 1.52 |
|
Granted |
|
| 2,178,996 |
|
| $ | 1.10 |
|
Exercised – shares issued |
|
| (175,000 | ) |
| $ | 0.39 |
|
Expired |
|
| (112,000 | ) |
| $ | 1.00 |
|
Balance at September 30, 2020 |
|
| 8,939,131 |
|
| $ | 1.57 |
|
On January 20,The composition of the Company’s warrants outstanding at September 30, 2020 are as follows:
Exercise Price |
|
| Number of Warrants |
|
| Weighted Average Remaining Life (in years) |
| |||
$ | 0.30 |
|
|
| 349,998 |
|
|
| 3,58 |
|
$ | 0.50 |
|
|
| 1,059,999 |
|
|
| 2.53 |
|
$ | 1.00 |
|
|
| 3,097,317 |
|
|
| 1.25 |
|
$ | 1.50 |
|
|
| 20,000 |
|
|
| 1.00 |
|
$ | 2.00 |
|
|
| 4,260,666 |
|
|
| 1.44 |
|
$ | 2.50 |
|
|
| 151,151 |
|
|
| 0.27 |
|
|
|
|
|
| 8,939,131 |
|
|
| 1.57 |
|
During the three months ended September 30, 2020, the Company issued 40,000 shares upon exercise of2,178,996 warrants to an accredited investor.
On October 4, 2019 an investor exercised warrants at $.30 per share for 83,334 shares for $25,000. The same shareholder exercised warrants on November 22 and December 28, 2019 for $50,000 at $0.30 for 166,667 shares on each date.
On February 12, 2020 the Company issued 53,333 shares upon exercise of warrants to an accredited investor.
On March 18, 2020 the Company issued 50,000 shares upon exercise of warrants to an accredited investor.
Stock Purchase Warrants
During the year the company issued warrants in connection with the sales of shares as referenced above. Warrants outstanding are as follows:
|
| Warrant Shares |
|
| Weighted Average Exercise Price |
| ||
Balance at June 30, 2018 |
|
| 11,645,654 |
|
| $ | 1.04 |
|
Granted |
|
| 3,010,000 |
|
| $ | 1.51 |
|
Exercised |
|
| - |
|
|
| - |
|
Forfeit or cancelled |
|
| - |
|
|
| - |
|
Balance at June 30, 2019 |
|
| 14,655,664 |
|
| $ | 1.14 |
|
Granted |
|
| 1,069,635 |
|
| $ | 0.93 |
|
Exercised |
|
| (986,001 | ) |
|
| 0.84 |
|
Forfeit or cancelled |
|
| - |
|
|
| - |
|
Balance at March 31, 2020 |
|
| 14,739,298 |
|
| $ | 1.16 |
|
purchase common stock. The fair value of the warrants was determined using the Black-Scholes option pricing model with the following assumptions:
|
| Three months ended September 30, 2020 |
|
| Year ended June 30, 2020 |
|
| Year ended June 30, 2019 |
| |||
Exercise price |
| $ | 0.30 to 2.00 |
|
| $ | 1.00 |
|
| $ | 1.00 to $2.00 |
|
Expected term (in years) |
| 0.04 – 2.00 years |
|
| 1.00 years |
|
| 0.75 years |
| |||
Risk-free rate |
| 0.12 – 0.17 | % |
| 0.13 to 0.18 | % |
|
| 2.00 | % | ||
Volatility |
| 440 - 660 | % |
| 111 to 190 | % |
|
| 233 | % | ||
Dividend yield |
|
| - |
|
|
| - |
|
|
| - |
|
During the three months ended September 30, 2020, $1,563,708 was expensed for the extension of warrants that had expired, of which $1,508,211 was to a related party.
Stock Options
During the three months ended September 30, 2020 and year ended June 30, 2020, 0 and 3,800,000 options were granted, respectively.
12 |
Table of Contents |
The fair value of the options was determined using the Black-Scholes option pricing model with the following assumptions:
June 30, | ||||
2020 | ||||
Trading price | $ | 0.06-$0.47 | ||
Exercise price | $ | 0.10-$0.50 | ||
Expected | 1.0 to 5.0 | |||
Risk-free rate | 0.19%-2.46 | |||
Volatility | 97%-174 | |||
Dividend yield |
|
|
|
|
|
|
| ||
|
|
| ||
|
|
|
__________
* The volatility is based on the average volatility rate of three similar publicly traded companies
** The Company has no history or expectation of paying cash dividends on its common stock
***
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant
8,661,498 of the warrants issued during the year ended June 30, 2018 had a 1 year to maturity and were due to expire on June 30, 2019. On June 28, 2019, a board resolution was passed to extend the expiry of the warrants for one year and these warrants are set to expire on June 30, 2020.
Stock Options
During the year, pursuant to the Company’s 2019 Directors, Officers, Employees and Consultants Stock Option Plan the Company granted stock options as remuneration for work performed. The holders of the options rights to acquire shares shall vest 20% immediately upon issuance of this option, and an additional 20% every three months thereafter.
Refer to tables below for summary of options issued and vested during the year:
Options Granted |
| # of Options |
|
| Weighted Average strike price |
|
| Weighted Average Grant date fair value |
|
| Weighted Average remaining life (in years) |
| ||||
Outstanding as of 7/1/2019 |
|
| 1,455,000 |
|
|
| 0.52 |
|
|
| 725,000 |
|
|
| 4.59 |
|
Granted |
|
| 3,250,000 |
|
|
| 0.10 |
|
|
| 649,000 |
|
|
| 0.74 |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding as of 3/31/2020 |
|
| 4,705,000 |
|
|
| 0.23 |
|
|
| 1,374,000 |
|
|
| 4.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested as of 3/31/2020 |
|
| 2,145,000 |
|
|
| 0.39 |
|
|
| 831,000 |
|
|
| 5.00 |
|
During the year the fair value of the options granted was $1,374,201, of which $831,750 has vested. The fair value of the options was determined using the Black-Scholes option pricing model with the following assumptions:
|
| |||
|
|
| ||
|
|
| ||
|
|
|
__________
* The volatility is based on the average volatility rate of three similar publicly traded companies
**grant. The Company has no history or expectation of paying cash dividends on its common stockstock.
*** The risk-free interest rate
Transactions in stock options for the three months ended September 30, 2020 are as follows:
|
| Number of options |
|
| Weighted average exercise price |
|
| Weighted average remaining life (in years) |
| |||
Outstanding, June 30, 2020 |
|
| 5,255,000 |
|
| $ | 0.25 |
|
|
| 4.28 |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
Expired or Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding, September 30, 2020 |
|
| 5,255,000 |
|
|
| 0.25 |
|
|
| 4.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested, September 30, 2020 |
|
| 3,815,000 |
|
| $ | 0.29 |
|
|
| 3.86 |
|
During the three months ended September 30, 2020, $119,155 was expensed, of which $85,100 was to related parties, and as of September 30, 2020, $238,307 remains unamortized, of which $170,198 is based onwith related parties.
At September 30, 2020, the U.S. Treasury yield for a term consistent with the expected lifeintrinsic value of the awards in effect at the time of grant5,255,000 outstanding options was $1,424,127.
Note 10 -9 – Related Party Transactions
During the fiscal year endedAs of September 30, 2020 and June 30, 2019 and through the nine months ended March 31, 2020, the Company issued shares and warrantsrecorded $277,000 in common stock payable to an investor with direct control over Insight in exchange for $200,000 which was used to fund the Joint Venture. The shares were issued at the prevailing share price and conditions on warrants available to arms-length investors. The Company also received an additional $50,000 that was used to fund the Joint Venture from the same investor for which shares and warrants will be issued, but have not been issued as of the date of this filing.
Effective September 11, 2019 the Company elected M. Richard Cutler as a member of its board of directors. As part of such appointment, the Company issued to Mr. Cutler 250,000 shares of common stock. Mr. Cutler has been corporate and securities counsel for the Company. In October, the 250,000 shares were issued as well as an additional 80,000 shares were issued to Mr. Cutler for legal services.related party investor.
Note 11 - Subsequent Events
Management has evaluated events that occurred subsequent to the end of the reporting period shown herein:
On April 23, 2020 the Company issued 1,000,000 shares to an accredited investor for $250,000. As part of the investment, the investor was also issued 2,000,000 warrants to purchase shares of common stock for one year at $1.00 per share and 2,000,000 warrants to purchase shares of common stock for one years at $2.00 per share.
In December 2019 coronavirus (COVID-19) emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally.
Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations.
The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.
Note 1210 – Commitments and Contingencies
In connection withOn August 1, 2019, the Company entered into an agreement with StratcoStratcon Advisory and Tysadco Partners,Partners. Pursuant to the agreement, the Company has agreed towill pay $6,000 per month for twelve months for corporate development, investment advisory, and investor relations services, payable $3,000 in restricted common stock and $3,000 in cash. Total expense recognized under this agreement during the three months ended September 30, 2020 and 2019 was $6,000 and $12,000, respectively. As part of that agreement,September 30, 2020 and June 30, 2020, the Company issued 18,000 shares during the third quarter for services valued at $9,000.
The Company is subject to various legalhad a balance of $30,000 and governmental claims or proceedings, many involving routine litigation incidental to the business including product liability or employment related matters. While litigation$27,000 in accounts payable and $9,000 and $6,000 worth of any type contains an element of uncertainty, the Company believes that its defense and ultimate resolution of pending and reasonably anticipated claims will continue to occur within the ordinary course of the Company’s business and that resolution of these claims will not have a material effect on the Company’s business, results of operations or financial condition.
Purchase orders or contracts for the purchase of inventory and other goods and services are not included in our estimates. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current distribution needs and are fulfilled by our vendors within short time horizons. The Company does not have significant agreements for the purchase of inventory or other goods specifying minimum quantities or set prices that exceed our expected requirements.
Management of the Company is not aware any other commitments or contingencies that would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.common stock payable, respectively.
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On June 11, 2020, the Company formalized an employment agreement with its chief executive officer which provides for annual salary of $250,000 beginning with the calendar year 2020. The agreement also specified that the CEO would receive $180,000 of salary that was earned during the calendar year 2019. During the three months ended September 30, 2020, compensation expense of $30,000 was recognized under this agreement. As of September 30, 2020 and June 30, 2020, the Company has a payable due to its CEO of $30,000 and $150,000, respectively. The agreement contained provisions for severance, health benefits, and a car allowance.
Note 11 – Subsequent Events
Effective November 25, 2020, the Company’s chief executive officer converted $180,000 of unpaid salary into 515,000 shares of common stock.
Effective December 3, 2020, the Company issued 100,000 shares of common stock to an accredited investor for $20,000. Included with the purchase were 100,000 options to purchase common stock at $0.20 per share exercisable for two years.
Effective December 15, 2020, the Company issued 612,000 shares of common stock to an accredited investor upon conversion of $153,000 in debt.
Effective December 15, 2020, the Company issued a 1 year convertible promissory note for $250,000. The promissory note incurs interest at 10%, if repaid within 90 days, and simple interest at 20% per annum thereafter. At the option of the holder this note is convertible at any time which is six months from the date of the issuance through the date which is one year from the date of issuance at a conversion price of $0.25 per share. Included with the convertible promissory note were 100,000 options to purchase common stock at $0.25 per share exercisable for two years.
On February 19, 2021, a related party advanced $1 million to the Company. The purpose of the advance is to purchase inventory to satisfy a customer order. The advance will be repaid upon cash being received from the end customer. In addition to the principal amount of the advance, the related party will be entitled to 1/3 of the gross profit earned on the transaction.
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The following discussion relates to the historical operations and financial statements of Hawkeye Systems, Inc. for the fiscal year ended June 30, 2019 and the three and nine months ended March 31, 2020.September 30, 2020 and 2019.
Forward-Looking Statements
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading "Risks Factors"“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
NineThree Months Ended March 31,September 30, 2020 compared to ninethree months ended March 31,September 30, 2019
We have had no operating revenues since our inception on May 15, 2018 through March 31, 2020. Subsequent to that date we have hadof $382,346 for the three months ended September 30, 2020 compared with no revenues of $12,011,101 with a net profit of $690,585 throughfor the date of this report.comparable period in 2019. Our activities have been financed by the proceeds of share subscriptions, exercises of warrants and loans. From our inception to March 31,During the three months ended September 30, 2020, we raised a totalapproximately $67,500 from the exercise of $1,795,225 from private offerings of our common stock. We raised an additional $533,500 in connection with promissory notes issued to accredited investors.warrants.
Total operating expenses in the ninethree month period ended March 31,September 30, 2020 were $865,875 (which is also the Company’s operating loss),$433,405 compared to $502,991$308,897 in the comparable period in 2019. The increase in operating loss for this periodthe three months ended September 30, 2020, is principally the result of consulting feesmanagement compensation paid in connection with the Company’s operations, together with legal and professional fees (the majorityand marking expenses. For the three months ended September 30, 2019, operating losses were primarily from professional fees of which was stock-based remuneration) and regulatory filing expenses and fees.$290,485.
Our financial statements reflect a net loss of $865,875$2,345,147 for the ninethree month period ended March 31,September 30, 2020 compared to a net loss of $836,972$308,897 for the comparable period in 2019. This net loss again reflects consulting feesmanagement compensation and legal and professional expenses during the periods.periods and a non-operating expense of $1.5 million, which related to the issuance of warrants in the three months ended September 30, 2020.
Liquidity and Capital Resources
The following table provides selected financial data about our company as of September 30, 2020 and June 30, 2020, respectively.
15 |
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|
| September 30, |
|
| June 30, |
|
|
|
| |||
|
| 2020 |
|
| 2020 |
|
| Change |
| |||
Cash |
| $ | 51,256 |
|
| $ | 911,747 |
|
| $ | (860,491 | ) |
Current assets |
| $ | 1,491,672 |
|
| $ | 1,475,587 |
|
| $ | 16,085 |
|
Current liabilities |
| $ | 1,380,614 |
|
| $ | 1,317,257 |
|
| $ | 63,357 |
|
Working Capital |
| $ | 111,058 |
|
| $ | 158,330 |
|
| $ | (47,272 | ) |
Our cash balance at March 31,September 30, 2020 was $21,982.$51,256. We continue to raise funds from the sale of equity securities to investors, exercises of warrants and through issuance of notes. We haveBeginning in early 2020, we also commenced the receipt of revenues from sales of our PPE products. We do not believe the cash reserves are sufficient to cover our expenses for our operations for fiscal year ending June 30, 2020.2021. We will require additional funding for our ongoing operations. We continued to make significant and substantial investments in the operations of Radiant Images prior to termination of our relationship with them. We have an investment in Radiant Images of $1,257,800 at March 31, 2020 which is now characterized as a note receivable. Accrued interest due and receivable on that note as of March 31, 2020 was $115,574.
On February 11, 2018 our Registration Statement on Form S-1 became effective. We intend to raise funds through private placements and the exercise of warrants issued in private placements with underlying shares registered in the Registration Statement.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 offeringprivate offerings or through the exercise of warrants. If we cannot raise any additional financing prior to the expiration of the fiscal year ending June 30, 2020,2021, we believe we will be able to obtain loansfunding from management in the future,private investment firms and/or lenders, if necessary, but have no agreement in writing.
We are an emerging growth company and have generated nolimited revenue to date. Under a limited operations scenario to maintain our corporate existence, we will require additional funds over the next 12 months to complete our regulatory reporting and filings. However, we will require maximum participation in the public offeringprivate offerings or through alternative financings to implement our complete business plan.
There are no assurances that we will be able to obtain further funds required for our continued operations. Even if additional financing is available, it may not be available on terms we find favorable. Failure to secure the needed additional financing will have an adverse effect on our ability to remain in business.
Cash Flows
|
| Three months ended |
|
|
|
| ||||||
|
| September 30, |
|
| Change |
| ||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
| |||
Cash flows (used in) operating activities |
| $ | (927,991 | ) |
| $ | (63,808 | ) |
| $ | (864,183 | ) |
Cash flows (used in) investing activities |
|
| - |
|
|
| (44,000 | ) |
|
| 44,000 |
|
Cash flows provided by financing activities |
|
| 67,500 |
|
|
| 90,213 |
|
|
| (22,713 | ) |
Net change in cash during period |
| $ | (860,491 | ) |
| $ | (17,595 | ) |
| $ | (842,896 | ) |
Cash Flow from Operating Activities
As of September 30, 2020, we had not generated positive cash flow from operating activities. For the three months ended September 30, 2020, net cash flows used by operating activities was $928,000 compared to $64,000 used during the three months ended September 30, 2019. Cash flows used by operating activities for the three months ended September 30, 2020, comprised of a net loss of $2.4 million, which was reduced by non-cash expenses of $2.1 million, primarily from $1.7 million for stock based compensation for depreciation, and was increased by a net change in working capital of $662,000.
Cash flows used in operating activities for the three months ended September 30, 2019, comprised of a net loss of $309,000, which was reduced by non-cash expenses of $261,000, for $603 depreciation and $260,000 for stock-based compensation and a net change in working capital of $15,000.
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Cash Flows from Investing Activities
During the three months ended September 30, 2020, we did not use cash for investing activities. During the three months ended September 30, 2019, we used $44,000 for the investment in Radiant Images, Inc.
Cash Flows from Financing Activities
We have financed our operations primarily from the issuance of equity instruments. For the three months ended September 30, 2020, net cash provided by financing activities was $67,500, consisting of the proceeds from the exercise of warrants. For the three months ended September 30, 2019, net cash provided by financing activities was $90,000, consisting mostly of proceeds from the sale of shares of our common stock $50,000 and stock subscriptions received of $43,000.
Plan of Operation and Funding
We expect that working capital requirements will continue to be funded through equity offerings, warrant exercises, and related party advances in the near term. We have no guarantees or firm commitments that the related party advances will continue in the near term. Our working capital requirements are expected to increase with the growth of our business.
Existing working capital, further advances, together with anticipated capital raises, warrant exercises and anticipated cash flow are expected to be adequate to fund our operations over the next twelve months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through proceeds from the sale of our common stock, warrant exercises and convertible loans.
Management anticipates additional increases in operating expenses and capital expenditures relating to: (i) funding our PPE purchases and sales; (ii) developmental expenses; and (iii) marketing expenses. We intend to finance these expenses with issuances of securities, funding agreements with third parties for PPE products, and through the exercise of outstanding warrants.
Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
Effective April 2, 2020 the Company’s agreement with Radiant Images was terminated. The Company has engaged counsel and will be bringing legal action against Radiant for numerous causes of action, including breach of contract and fraud. The investment was structured as a revolving note and as a consequence the company has reclassified the Investment in Radiant as a Note Receivable from Radiant. Pursuant to the terms of the revolving note, Radiant is required to repay the money we have already invested to Hawkeye. The note receivable is due upon demand of the Company at any time commencing April 26, 2020 and is payable with 12% interest.
In December 2019 coronavirus (COVID-19) emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally.
Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations.
17 |
Table of Contents |
The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.
In response to the COVID-19 pandemic the Company entered into an LOI to create a “smart mask” which is intended to augment its bio-surveillance strategy and give better information for first responders and other officials monitoring and managing the COVID-19 crisis. The smart mask will integrate with Hawkeye’s “In-Depth Camera”. In order to provide better information which provides better decision support during pandemics, bio-terrorist attacks and other potential bio outbreaks, pursuant to the proposed joint venture Hawkeye will be working to add smart functionality to current best in breed masks (N95 or better). The technology will work with existing masks as well but Hawkeye believes that close integration with the existing manufacture may bring more rapid innovation to the mask.
Further becauseBecause of the COVID-19 pandemic, the Company has focused on pandemic management products and services, and fulfilled its first $1.25M purchase order from the City of Memphis to support its critical need for 3-ply respirator masks. In that regard 225,000 masks were delivered to Memphis on April 9, 2020.
During April and May 2020 the Company completed additional sales of PPE products to numerous purchasers with gross revenues to the Company of $12,011,101 during that period and net profit of $690,585.services.
The Company has continued its focus on sourcing and delivering other PPE products, including without limitation masks, nitrile gloves, gowns, sanitizer and ventilators.sanitizer. The Company has numerous transactions in progress and anticipates significant additional sales of PPE products during the fourth quarter of 2020.2021.
Material Commitments
As of the date of this Current Report, we do not have any material commitments.
Purchase of Significant Equipment
WeWhile we maintain some inventory of PPE products, we do not intend to purchase any significant equipment during the next twelve months.
Application of Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. GAAP. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The material estimates for our company are that of the stock-based compensation recorded for options and financing expenses for warrants. The fair values of options and warrants are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model. The specific quantitative variables are included in the notes to the consolidated financial statements.
We prepare our financial statements in conformity with U.S. GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
18 |
Table of Contents |
For our critical accounting policies and estimates for “Revenue Recognition” see Note 1, Summary of Significant Accounting Policies, to the unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report. Other than the policy changes disclosed in Note 1, Summary of Significant Accounting Policies, to the unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report, there have been no material changes to our critical accounting policies and estimates during the three months ended September 30, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2020.
Off-Balance Sheet Arrangements
As of the date of this Current Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Going Concern
The independent auditors' report accompanying our June 30, 2019 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $(2,775,248) at March 31, 2020 and net loss from operations of $865,875 for the nine months ended March 31, 2020.
The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of equity securities, exercises of warrants, sales of convertible notes and related party advances. In addition, the Company is in the development stage and has generated no revenues since inception through March 31, 2020. The Company has subsequently begun the receipt of revenues from the sale of its PPE products. 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, which include the 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management evaluated the effectiveness of the Company’s internal control over financial reporting as of March 31,September 30, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, consisting of a sole officer and two directors at that time, concluded that, as of March 31,September 30, 2020, our internal control over financial reporting were not effective.
In response to that assessment we made a determination that all accounting and financial reporting services have not beenwhich were outsourced to a qualified consulting firm andwere insufficient. As a consequence, we have engaged a new provider. That provider assisted with preparation of the financial statements accompanying this report.
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 intend to engagein January 2021 we engaged a Chief Financial Officer in the near term.
This 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.Officer.
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On November 13, 2019, 5W Public Relations LLC filed a complaint against Hawkeye Systems, Inc. relating to payments allegedly due under a contract for public relations services. Hawkeye vigorously disputes the allegations in the complaint as 5W Public Relations provided virtually no services to Hawkeye during the term of this arrangement but was paid a substantial amount of funds. Hawkeye has engaged counsel to defend the litigation and also assert counterclaims for failure of consideration, fraud in the inducement, general fraud and other causes of action. Hawkeye anticipates that this litigation if pursued will be resolved favorably for the Company.
Hawkeye has engaged counsel and intends to bring legal action against Radiant Images, Inc. as well as its two principals, Michael Mansouri and Gianna Wolfe, for numerous causes of action including fraud, fraudulent inducement, unjust enrichment and numerous other matters in connection with our agreement with them. We are currently working to replevin shares of stock issued to them and to recover funds payable pursuant to a promissory note due to us from Radiant.
We are not aware of any other legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
Not required for Smaller Reporting Companies.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
On January 6,Effective July 1, 2020, the Company agreed to change the conversion price and issue 800,000 shares of common stock to an accredited investor upon conversion of a $200,000 convertible note at $0.25 per share.
Effective July 7, 2020, the Company issued 333,333100,000 shares of common stock to an accredited investor upon the exercise of warrants at $0.30 per share.
Effective July 21, 2020, the Company issued 100,000 shares of common stock to an accredited investor upon the exercise of warrants at $0.30 per share.
On September 23, 2020 Eagle Equities LLC converted in full its outstanding convertible note with an original principal amount of $150,000, together with accrued and unpaid interest, into 469,623 shares of common stock.
Effective November 25, 2020, the Company’s chief executive officer converted $180,000 of unpaid salary into 515,000 shares of common stock.
Effective December 3, 2020, the Company issued 100,000 shares of common stock to an accredited investor for $50,000.$20,000. Included with the purchase was a warrantwere 100,000 warrants to purchase 151,151 sharescommon stock at $1.00$.20 per share and a warrant to purchase 151,151 shares at $2.50 per share.exercisable for two years.
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On January 23,Effective December 15, 2020, the Company issued 16,667612,000 shares of common stock to an accredited investor for accounting services.upon conversion of $153,000 in debt.
On February 12, 2020 the Company issued 53,333 shares upon exerciseThe proceeds of warrants to an accredited investor.
On February 12, 2020 the Company issued 248,000 shares to an accredited investorthese sales were utilized in operations and for $62,000. Included in that purchase was a warrant to purchase 100,000 shares at $.30 per share.
On April 28, 2020 the Company issued 1,000,000 shares to an accredited investor for $250,000. Included with the purchase was a warrant to purchase 2,000,000 shares of common stock at $1.00 per sharePPE purchases and a warrant to purchase 2,000,000 shares of common stock at $2.00 per share.sales.
Item 3 – Defaults Upon Senior Securities
No disclosure required.
Item 4 – Mine Safety Disclosure
No disclosure required.
No disclosure required.
Table of Contents |
Exhibits:
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101.INS |
| XBRL Instance Document |
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
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101. DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
Table of Contents |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Hawkeye Systems, Inc. |
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Date: | By: | /s/ Corby Marshall |
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| Corby Marshall, Chief Executive Officer |
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Date: February 26, 2021 | By: | /s/ Christopher Mulgrew | |
Christopher Mulgrew, Chief Financial Officer |
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| Principal |
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