Hawkeye Systems, Inc. - Annual Report: 2022 (Form 10-K)

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 10-K 

(Mark one) 

For the Year Ended June 30, 2022

or 

For the transition period from ____________ to __________

Commission File Number: 333-227029 

F

6605 Abercorn, Suite 204

Savannah, GA 31405

(Address of principal executive offices (Zip Code) 

(912) 253-0375 

Registrant’s telephone number, including area code 

Securities registered pursuant to Section 12(b) of the Act: None 

Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.0001 par value  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

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

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 Ex- change Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $423,037 on the closing sale price of the registrant’s common stock on June 30, 2022 of $0.028 per share.

The number of shares of registrant’s common stock outstanding as of December 14, 2022 was 42,270,815.

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This annual report on Form 10-K, the other reports, statements, and information that we have previously filed or that we may subsequently file with the Securities and Exchange Commission, or SEC, and public announcements that we have previously made or may subsequently make include, may include, incorporate by reference or may incorporate by reference certain statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy the benefits of that act. Unless the context is otherwise, the forward-looking statements included or incorporated by reference in this Form 10-K and those reports, statements, information and announcements address activities, events or developments that Hawkeye Systems, Inc. (hereinafter referred to as “we,” “us,” “our,” “our Company” or “Hawkeye”) expects or anticipates, will or may occur in the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions. Accordingly, these statements involve estimates, assumptions, and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, including our plans, objectives, expectations and intentions and other factors discussed elsewhere in this Report.

Certain risk factors could materially and adversely affect our business, financial conditions and results of operations and cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The risks and uncertainties we currently face are not the only ones we face. New factors emerge from time to time, and it is not possible for us to predict which will arise. There may be additional risks not presently known to us or that we currently believe are immaterial to our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, you may lose all or part of your investment.

The industry and market data contained in this report are based either on our management's own estimates or, where indicated, independent industry publications, reports by governmental agencies or market research firms or other published independent sources and, in each case, are believed by our management to be reasonable estimates. However, industry and market data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. We have not independently verified market and industry data from third-party sources. In addition, consumption patterns and customer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, may not be verifiable or reliable.

Item 1. Description of Business

General

We were incorporated on May 15, 2018 in the State of Nevada. We are a technology holding company, our previous focus was on pandemic management products and services. We are currently seeking other opportunities, while actively trying to liquidate mask inventory and wind-up existing deals. The Company looks to license and acquire technology that improves life and to work with partners to develop cutting edge, “smart” products for a variety of markets. From inception until the date of this filing our activities have primarily consisted of (i) the incorporation of our company, (ii) the development of our business plan and the evaluation of strategic investment and business development strategies, (iii), recruiting and adding additional consultants and employees, and (iv) liquidating our stock of personal protective equipment (“PPE”) products through numerous sources.

Our business office is located at 6605 Abercorn, Suite 204, Savannah, GA 31405. Our telephone number is 912-388-6720 and our website is www.hawkeyesystemsinc.com.

Business Description

In July 2021, the Company’s management determined to cease the Company’s operations as a seller of PPE, deeming that continuing operations in that sector was not a productive use of the Company’s resources.

Our current business plan is to serve as a vehicle for the acquisition of or merger or consolidation with another company (a “target business”). We intend to use capital stock, debt or a combination of these to effect a business combination with a target business which we believe has significant growth potential. The business combination may be with a financially stable, mature company or a company that is in its early stages of development or growth, which could include companies seeking to obtain capital and to improve their financial stability.

We will not restrict our search for target businesses to any particular industry. Rather, we may investigate businesses of essentially any kind or nature and participate in any type of industry that may, in our management’s opinion, meet our business objectives as described in this annual report. We emphasize that the description in this report of our business objectives is extremely general and is not meant to restrict the discretion of our management to search for and enter potential business opportunities. We have not chosen the industry or business in which we will engage and have not conducted any market studies with respect to any business or industry for you to evaluate the possible merits or risks of the target business or the industry in which we may ultimately operate. To the extent we enter into a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that we effect a business combination with an entity in an industry characterized by a high level of risk, we will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries that experience rapid growth. In addition, although we will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.

Sources of target businesses

We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including securities broker-dealers, investment bankers, venture capitalists, bankers, and other members of the financial community, who may present solicited or unsolicited proposals. Our officers and directors and their affiliates may also bring to our attention target business candidates. While we do not presently anticipate engaging the services of professional firms that specialize in business acquisitions on any formal basis, we may engage such firms in the future, in which event, we may pay a finder’s fee or other compensation for such introductions if they result in consummated transactions. These fees are customarily between 5% and 25% of the size of the overall transaction, based upon a sliding scale of the amount involved and a variety of other factors.

Selection of a target business and structuring of a business combination

Our management will have significant flexibility in identifying and selecting a prospective target business. In evaluating a prospective target business, our management will consider, among other factors, the following:

These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in connection with effecting a business combination consistent with our business objective. In connection with our evaluation of a prospective target business, we anticipate that we will conduct an extensive due diligence review that will encompass, among other things, meetings with incumbent management and inspection of facilities, as well as a review of financial or other information that will be made available to us.

We will endeavor to structure a business combination to achieve the most favorable tax treatment to us, the target business and both companies’ stockholders. We cannot assure you, however, that the Internal Revenue Service or appropriate state tax authority will agree with our tax treatment of the business combination.

Until we are presented with a specific opportunity for a business combination, we are unable to ascertain with any degree of certainty the time and costs required to select and evaluate a target business and to structure and complete the business combination. We have two full-time employees devoting their time to our affairs. Any costs incurred in connection with the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital otherwise available to complete a business combination.

Limited ability to evaluate the target business’ management

Although we intend to scrutinize the management of a prospective target business before effecting a business combination, we cannot assure you that our assessment of the target’s management will prove to be correct, especially considering the possible inexperience of our officers and directors in evaluating certain types of businesses. In addition, we cannot assure you that the target’s future management will have the necessary skills, qualifications, or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more of our officers and directors will remain associated in some capacity with us following a business combination, it is unlikely that any of them will devote their full efforts to our affairs after a business combination. Moreover, we cannot assure you that our officers and directors will have significant experience or knowledge relating to the operations of the target business.

We may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you, however, that we will be able to recruit additional managers who have the requisite skills, knowledge, or experience necessary to enhance the incumbent management.

Investment Company Act

The Investment Company Act of 1940 (the “Investment Company Act”) defines an “investment company” as any issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities. We may participate in a business or opportunity by purchasing, trading, or selling the securities of a business. However, as we do not intend to engage primarily in these activities, we believe that we do not fall under the Investment Company Act’s definition of investment company, and we do not intend to register the Company as an “investment company” under the Investment Company Act. We do not believe that registration under the Investment Company Act is required based upon our proposed activities. We intend to conduct our activities so as to avoid being classified as an “investment company” and avoid application of the costly and restrictive registration and other provisions of the Investment Company Act and its regulations.

The Investment Company Act may, however, also be deemed to be applicable to a company that does not intend to be characterized as an “investment company” but that, nevertheless, engages in activities that may be deemed to be within the definition and scope of certain provisions of the Investment Company Act. While we do not believe that our anticipated principal activities will subject us to regulation under the Investment Company Act, we cannot assure you that we will not be deemed to be an “investment company,” especially during the period prior to a business combination. In the event we are deemed to be an “investment company,” we may become subject to certain restrictions relating to our activities and regulatory burdens, including:

and have imposed upon us certain requirements, including:

In the event we are characterized as an “investment company,” we would be required to comply with these additional regulatory burdens, which would require additional expense.

Intellectual Property

The Company currently does not own any intellectual property, and directly acquiring the intellectual property of a third party is not part of our current strategy.

Regulation

In our current business we are subject to local, state, federal and foreign governmental laws and regulations.  Upon completion of an acquisition, we will have significant additional regulation based on the nature of the business.

Investment in HIE LLC

On July 17, 2020, the Company entered into a membership agreement with Eagle Equities LLC (“Eagle”) and Ikon Supplies (“Ikon”) for the purpose of procuring, funding the purchase of and sale of PPE (the “Membership Agreement”). To pursue this objective, the parties agreed to form a Nevada limited liability company, HIE, LLC (“HIE”). According to the terms and conditions of the Membership Agreement, HIE would be terminated and dissolved upon the earliest to occur of: (i) the sale of HIE’s interest in the procurement, financing, transportation, sale and disposition of PPE; (ii) the refusal or inability of any party to comply with the requirements, obligations or stipulations of the Membership Agreement; (iii) the unanimous agreement of the parties; or (iv) the order of a court of competent jurisdiction. Eagle, Ikon and the Company would participate each in 33% of any net profits generated by HIE. Eagle contributed to HIE by providing and arranging to procure a loan (the “Origination Loan”), sufficient to cover all capital needed for each PPE purchase (a “Deal”); and additional funds, as needed, to cover additional expenses towards the costs of goods (“Additional Contribution”). The Company contributed by assigning its agreement to purchase gloves and agreed to issue convertible promissory notes to Eagle to secure the Origination Loan and any Additional Contribution. The parties agreed to pay an equal portion of all administrative expenses incurred by HIE. In the event of a loss of capital, all parties shall contribute to repay the Origination Loan and Additional Contribution with each paying 33.3% of the loss.

The proceeds of each Deal shall be first distributed to Eagle, as repayment for any Additional Contribution. The next proceeds will be allocated to the repayment of the Origination Loan. After the Origination Loan is repaid, net proceeds will be distributed as follows: (i) Eagle shall receive the greater of $0.25 per box of gloves or 33.3% of the net proceeds. If net proceeds are more than $0.25, but less than $0.75 per box, once the first $0.25 is paid to Eagle, the Company and Ikon will share in the remaining profits equally. If the net profits are more than $0.75 per box, all the parties will receive 33.3% of the net profits. Net losses shall be allocated between the parties which each being allocated 33.3%.

HIE will be managed by a manager appointed by the parties in accordance with a policy established by the policy committee. Each of the Company and Ikon will have 25 votes in the policy committee and Eagle will have 50 votes.

In October 2022, HIE provided the Company with its financial statements. HIE incurred a net gain of $59,208 between July 01, 2021 and June 30, 2022, and a net loss of 1,385,962 between July 01, 2020 to June 30, 2021, of which the Company has recorded a gain on investment of $19,736, and a loss on investment of $461,987, in fiscal year end of June 30, 2022, and 2021, respectively.

Company Policies

The Company has adopted the following policies: (i) code of conduct policy; (ii) information security policy; and (iii) public company communication policy.

Employees

The Company currently has two full time employees.

Legal Proceedings 

The Company is not currently a party to any material legal proceedings and is not aware of any material threatened litigation.

Offices

Our current executive offices are provided by management of the Company. We do not pay any rent, and there is no agreement to pay any rent in the future.

Item 1A. Risk Factors.

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 1B. Unresolved Staff Comments

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 2. Properties.

We own no properties related to our operations. We operate from business offices provided by our executive officers.

Item 3. Legal Proceedings.

On September 19, 2019, the Company entered into a Stock Purchase Agreement with Radiant Images, Inc., a California corporation (“Radiant”), as well as Radiant’s shareholder Gianna Wolfe (“Wolfe”) and key employee, Michael Mansouri (“Mansouri”), pursuant to which the Company would acquire 100% of the shares of common stock (the “Shares”) of Radiant from Wolfe, resulting in the acquisition of Radiant. In April 2020, the Company received notice from Radiant of their intent to terminate the Company’s acquisition agreement. Although the Company believes that the termination is not legally valid, the Company ceased further discussions with respect to the acquisition and engaged counsel to pursue litigation for repayment of amounts due by Radiant. The Company’s investment in Radiant was structured as a revolving note has been classified as a Note Receivable from Radiant due with accrued but unpaid interest. Pursuant to the terms of the revolving note, Radiant is required to repay the money already invested to Hawkeye with interest. The note receivable was issued on April 26, 2019, is due upon demand of the Company at any time commencing April 26, 2020. The interest rate on the note is 12% and accrues daily on the outstanding balance. At June 30, 2020 interest income of $154,042 had been accrued on the note. Under accounting treatment, this note and interest are impaired on our balance sheet while we resolve this dispute. We had filed a complaint against Radiant and its principals and intended to vigorously pursue this matter and litigation. The dispute was amicably resolved by the parties by means of a Settlement Agreement and Release of All Claims dated November 17, 2021, whereby the Company as “plaintiff” and “cross-defendant” released, and was in turned released, by Radiant, Gianna Wolfe and Michael Mansouri from any and all claims in connection with the stock purchase agreement and revolving note. No payment was due to or made by the Company in connection with the settlement and release of this action.

On November 13, 2019, 5W Public Relations LLC (“5W”) filed a complaint against Hawkeye Systems, Inc. relating to payments allegedly due under a contract for public relations services. Hawkeye vigorously disputed the allegations in the complaint as 5W Public Relations provided virtually no services to Hawkeye during the term of this arrangement but was paid a substantial amount of funds. Hawkeye engaged counsel to provide counterclaims for failure of consideration, fraud in the inducement, general fraud, and other causes of action. This proceeding was resolved by a Stipulation of Settlement dated May 19, 2022, filed with the Supreme Court of the State of New York. The Company settled all of 5W’s claims for the sum of $30,000. 

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

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

Item 4. Mine Safety Disclosures.

Not applicable

PART II 

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is quoted on the OTC Bulletin Board under the symbol “HWKE”. On June 12, 2019, the Company obtained clearance to trade on OTC Markets and on September 12, 2019 the Company’s stock began trading on the OTCQB market maintained by OTC Markets. Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The closing sale price of our common stock on December 14, 2022 was $0.018 per share.

Below is a table indicating the range of high and low closing price information for the common stock as reported by the OTC Markets Group for the periods listed. These prices do not necessarily reflect actual transactions.

Holders

As of December 14, 2022, there were approximately 983 record holders of our common stock. This does not include the holders of our common stock who held their shares in street name as of that date.

Dividends

We have never paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future but rather intend to retain future earnings, if any, for reinvestment in our future business. Any future determination to pay cash dividends will be in compliance with our contractual obligations and otherwise at the discretion of the board of directors and based upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.

Transfer Agent

Our registrar and transfer agent is VStock Transfer, LLC.

Recent Sales of Unregistered Securities

Convertible Promissory Note 1

On April 6, 2020, the Company and Steve Hall (the “Lender”), an investor who holds 75% of the Company’s shares of common stock, entered into a convertible promissory note agreement for the principal amount of $250,000 with simple interest accruing at 10% per annum, if repaid within 90 days, and simple interest accruing at 20% per annum if repaid thereafter. The convertible note was extended to April 6, 2022. At the option of holder, the note is convertible into shares of common stock of the Company at any time, during the six months following the date of issuance until the one-year anniversary of the date of issuance at a conversion price of $0.25 per share.

On September 1, 2021, the Company authorized the issuance of 8,829,910 shares of common stock at $0.036 per share to convert the principal balance of the convertible notes equivalent to $250,000, plus accrued interest of $64,880.  The aggregate total of $314,880 was recorded as stock payable as of June 30, 2022.  The shares were issued on July 28, 2022. 

In consideration for the loan of $250,000, the Company also granted to the Lender 100,000 stock options exercisable at $0.25 for a two-year term. The options vested upon issuance of the note, and eventually exercised into 80,000 shares of common stock at purchase price of $0.04 per share on November 02, 2021.

Convertible Promissory Note 2

On December 15, 2020, the Company and Steve Hall (the “Lender”), an investor who holds 75% of the Company’s shares of common stock, entered into a convertible promissory note agreement for the principal amount of $250,000 with simple interest accruing at 10% per annum, if repaid within 90 days, and simple interest accruing at 20% per annum if repaid thereafter. The convertible note was due on December 15, 2021. At the option of holder, this note is convertible to shares of the Company’s common stock, at any time during the six months following the date of issuance until the one-year anniversary of issuance date at a conversion price of $0.25 per share.

In consideration for the $250,000 loan, the company also granted the lender 100,000 stock options, exercisable at $0.25, for a period of two years. These options vested upon the issuance of the notes and eventually exercised for 80,000 common shares at a purchase price of $0.04 each on November 2, 2021.

Effective September 1, 2021, the company authorized the issuance of 7,836,757 common shares to be converted into the principal amount of the convertible note, equivalent to $250,000, plus accrued interest of $29,644. The aggregate total of $279,464 was recorded as stock payable as of June 30, 2022.  The shares were issued on July 28, 2022. 

Restricted Common Stocks - Richard Cutler

On May 23, 2022, the Company granted 500,000 shares of restricted common stock as compensation to Richard Cutler, a director. The shares where appraised at $20,000 and were granted in lieu of cash compensation, contingent upon completion of an acquisition or reverse takeover. The shares are still in the process of issuing.

Restricted Common Stocks - Christopher Mulgrew

On May 23, 2022, the Company granted 250,000 shares of restricted common stock as compensation to Christopher Mulgrew, the Company’s Chief Finance Officer. The shares where appraised at $10,000 and were granted in lieu of cash compensation, contingent upon completion of an acquisition or reverse takeover.  The stocks are still in the process of issuing.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion relates to the historical operations and financial statements of Hawkeye Systems, Inc. for the fiscal year ended June 30, 2022.

Forward-Looking Statements

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

Financial Condition and Results of Operations

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

We expect we will require additional capital to develop our business plan. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

Results of Operations

Fiscal Years Ended June 30, 2022 and 2021

the Company had $0 operating revenues during fiscal year 2022 as the Company ceased operations of its PPE business since July 2021.  In our fiscal year ended June 30, 2021, we had operating revenues of $2,556,942.  Cost of sales was $2,576,875 resulting in gross loss of $19,933, or (0.8%). These revenues are from the sale of PPE products.

Total operating expenses in the year ended June 30, 2022 were $1,230,468 compared to $2,583,100 for the same period in 2021. The decrease in operating expenses is primarily a result of company downsizing.  The Company’s net loss was $1,288,802 for the fiscal year ended June 30, 2022 compared to $5,203,820 for the fiscal year ended June 30, 2021. The net loss for the fiscal year 2022 is primarily a result of operating expenses, and interest expense.

During our fiscal year 2021, total operating expenses were $2,583,100 compared to $2,217,981 for the same period in 2020. The increase in operating expenses is primarily a result of increased write down of inventory.  The Company’s net loss was $5,203,820 for the fiscal year ended June 30, 2021 compared to $2,600,468 for the fiscal year ended June 30, 2020. The net loss for the fiscal 2021 is primarily a result of operating expenses, financing expense, loss on settlement of debt and, loss on investment in HIE.

Liquidity and Capital Resources

Our cash balance at June 30, 2022 was $325 compared to $282,131 at June 30, 2021. We do not believe these cash reserves are sufficient to cover our expenses for our operations for fiscal year ending June 30, 2022.  We will require additional funding for our ongoing operations. 

During our fiscal year ended June 30, 2022, the Company issued common stock valued at $30,000 in connection with a settlement of accounts payable. In addition, the Company issued common stock valued $477,000 associated with stock payables settlements by related parties. 

As of our fiscal year ended June 30, 2021, we raised approximately $20,000 from private offerings of our common stock and an additional $67,500 from exercise of warrants. We raised additional funds of $500,000, net from a related party, which is included in inventory financing payable and $250,000 from convertible notes related party.

In addition, we intend to raise funds through the sale of equity and the exercise of warrants issued in private placements. Although to date we have had some warrant exercises for cash, there can be no assurance that we will be able to raise money through offerings or through the exercise of warrants. If we cannot raise any additional financing prior to the expiration of the first quarter of 2023, we believe we will be able to obtain loans from management in the future, if necessary, but have no agreement in writing.

We are a smaller reporting company and have accumulated losses to date. Under a limited operations scenario to maintain our corporate existence, we believe we will require additional funds over the next 12 months to complete our regulatory reporting and filings. However, we will require maximum participation through private placements, warrant exercises or alternative financings to implement our business plan.

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

Plan of Operation and Funding

We expect that working capital requirements will continue to be funded through equity offerings, warrant exercises, and related party advances in the near future. We have no guarantees or firm commitments that the related party advances will continue in the near future.

Existing working capital, further advances, together with anticipated capital raises are expected to be adequate to fund our operations over the next twelve months, but there is no guarantee that we will be successful in raising enough capital, or that we will receive the cash flow required to fund our operations. We have no lines of credit with banking institutions or other bank financing arrangements, we do have a line a credit form a related party (see Note 7 to the Financial Statements). Generally, we have financed operations to date through proceeds from the sale of our common stock, warrant exercises and convertible loans.

Management anticipates additional increases in operating expenses relating to: (i) developmental expenses; and (ii) legal and accounting fees, required to complete our filings with the SEC. We intend to finance these expenses with issuances of securities and through the exercise of outstanding warrants.

Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences, or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to continue our operations.

Material Commitments

As of the date of this annual report, we do not have any material commitments.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment during the next twelve months. 

Off-Balance Sheet Arrangements

As of the date of this annual 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

As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $10,882,176 at June 30, 2022 and net loss from operations of $1,288,802.

The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of equity securities and related party advances. In addition, the Company is in the development stage and has accumulated losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue operations is dependent on the success of Management’s plans and raising of capital through the issuance of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements.

The Company will require additional funding to finance its operations as well as to identify, negotiate and materialize a business combination with a target business. The Company believes its current available cash may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Item 8.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Contents

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of Hawkeye Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hawkeye Systems, Inc. (the "Company") as of June 30, 2022 and 2021, the related statement of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Restatement of June 30, 2021 Financial Statements

As discussed in Note 4 to the financial statements, the financial statements have been restated to correct certain misstatements.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ BF Borgers CPA PC

BF Borgers CPA PC

Served as Auditor since 2018

Lakewood, CO

December 14, 2022

HAWKEYE SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

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

HAWKEYE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

HAWKEYE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

HAWKEYE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

HAWKEYE SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended June 30, 2022 and 2021

Note 1 - Organization

Hawkeye Systems, Inc. (the “Company”), a Nevada corporation incorporated in May 15, 2018, is a technology holding company until 2022 we focused on pandemic management products and services. We have decided to wind down our PPE business and we are currently looking for opportunities to license and/or acquire interests in a target business with significant growth potential. We will not restrict our search for target businesses to any particular industry. Rather, we may investigate businesses of essentially any kind or nature and participate in any type of industry that may, in our management’s opinion, meet the business objectives determined by our management team.

Note 2 - Summary of Significant Accounting Policies

Basis of presentation

The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Use of estimates

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, fair value assumptions used for stock-based compensation, and the valuation allowance on deferred tax assets.

Cash

The Company considers cash in banks and other deposits with an original maturity of three months or less when purchased to be cash and cash equivalents. There were no cash equivalents as of June 30, 2022 and 2021.

Financial instruments

For certain of the Company’s financial instruments, including cash, and convertible note payable, related party, the carrying amounts approximate their fair values due to their short maturities. 

Accounts receivable and allowance for doubtful accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for services or goods. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged against the allowance when it is probable that the receivable will not be recovered.

The Company had no balance on accounts receivable and allowance for doubtful accounts at June 30, 2022 or 2021.

Inventory

Inventories, consisting of finished goods and goods in transit, are primarily accounted for using the first-in-first-out (“FIFO”) method of accounting. Inventories are measured at the lower of cost and net realizable value. The Company estimates the net realizable value of inventories based on an assessment of expected sales prices. 

The Company has no inventory as of June 30, 2022, and 2021, respectively.

Fair value measurements

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

Convertible financial instruments

The Company bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP.

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument.

Common stock purchase warrants and derivative financial instruments

Common stock purchase warrants and other derivative financial instruments are classified as equity if the contracts (1) require physical settlement or net-share settlement, or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). Contracts which (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) that contain reset provisions that do not qualify for the scope exception; are classified as liabilities. The Company assesses classification of its common stock purchase warrants and other derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

Beneficial conversion feature

The issuance of the convertible debt generated a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt (recorded as a component of additional paid-in capital). The discount is amortized to interest expense over the term of the convertible debt.

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

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

Cost of sales

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

Related parties

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.

Commitments and contingencies

The Company follows ASC 450-20, “Loss Contingencies,” to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Basic and diluted earnings per share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including stock options, warrants to purchase the Company's common stock, and convertible note payable. For the years ended June 30, 2022 and 2021, potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share because they were anti-dilutive are as follows:

Stock-based compensation

Stock-based compensation to employees and non-employees consist of stock options grants, warrants to purchase common stock, and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The fair value of share of common stock is based on the trading price of the Company’s share.

The Company calculates the fair value of option and warrant grants utilizing the Black-Scholes pricing model. Assumptions used by the Company in using the Black-Scholes pricing model include:

During the year ending June 30, 2022, volatility was based on average rates for trading price of the Company’s share, while at the year ending June 30, 2021, volatility was based on average rates for similar publicly traded companies.

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 vesting period of the award.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current year presentation.

Recent accounting pronouncements

Management has considered all recent accounting pronouncements issued and their potential effect on our financial statements.

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt-Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging-Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company early adopted this standard effective July 1, 2021 using the modified retrospective approach transition method. Therefore, the condensed financial statements for the year ended June 30, 2022 are presented under the new standard, while the comparative period presented is not adjusted and continues to be reported in accordance with the Company’s historical accounting policy.

Note 3 - Going Concern

The Company’s financial statements are prepared using U.S. GAAP, applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. During the year ended June 30, 2022, the Company had a net loss of $1,288,802. As of June 30, 2022, the Company had an accumulated deficit of $10,882,176. The Company has not established sufficient revenue to cover its operating costs and will require additional capital to continue its operating plan. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.

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

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

Note 4 – Restatement of Financial Statements for the Year End June 30, 2021

On July 17, 2020, the Company entered into a membership agreement with Eagle Equities LLC (“Eagle”) and Ikon Supplies (“Ikon”) to form a Nevada Limited Liability Company, HIE, LLC (“HIE”) for the purpose of procuring, funding the purchase of and sale of PPE (the “Membership Agreement”). Subject to the provision of the Agreement, the interest of any net profits shall be shares 33.3% among each member.  In an event that there is a loss in some or all of the capital, all members of HIE shall be responsible to contribute capital to repay the loan, and additional contribution, with each party being responsible for 33.3% of the loss.

Restatement Effect on Financial Statements

The Company did not receive any updates of fiscal year 2021 financial statements from HIE until October 2022.  For the fiscal year ended June 30, 2021, HIE has obtained a loan of $2,122,963 secured by Eagle as initial funding, of which the Company has recognized 1/3 of its portion of $707,654 as a guarantee of loan payable to Eagle - JV partner, the same amount as investment in HIE, as stipulated in the Membership Agreement. In addition, HIE incurred an operating loss of $1,385,962, which resulted in the Company recording 1/3 of its loss of $461,987 under other expenses on the statement of income to offset the investment in HIE as under equity method in accordance with FASB ASC 323.

As of June 30, 2021, the balance of investment in HIE was $245,667 and the balance of loan due to Eagle - JV partner was $707,654.

Effects on the previously issued year 2021 balance sheet referencing the restatement of liability and equity are as follows:

Effects on the previously issued year 2021 Statement of Operations referencing the restatement of other expenses and net loss are as follows:  

Note 5 – Accounts Payable Converted to Common Stock

On August 1, 2019, the Company entered into an agreement with Stratcon Advisory and Tysadco Partners. Pursuant to the agreement, the Company will pay $6,000 per month for twelve months for corporate development, investment advisory, and investor relations services, payable $3,000 in restricted common stock and $3,000 in cash. 

On September 24, 2021, the Company issued 300,000 shares of common stock at $0.10 per share to settle accounts payable of $30,000.

As of June 30, 2022 and 2021, the Company had a balance of $0 and $30,000 in accounts payable, respectively.

Note 6 – Inventory Financing Payable – related party

On February 19, 2021, Steve Hall, an investor who holds approximately 53% of the Company’s common stock advanced $1 million to the Company. The purpose of the advance was to purchase inventory to satisfy customer orders. The advance will be repaid upon cash being received from the end customer. In addition to the principal amount of the advance, the related party will be entitled to 1/3 of the gross profit earned on the transaction. The terms of the agreement are non-interest bearing. The investor is 100% at risk as this is a non-recourse funding vehicle.

In June 2021 the company cancelled the contemplated purchase of inventory and returned $500,000 to Mr. Hall. Mr. Hall has agreed to allow the Company to retain the balance to fund future purchases and general operating expenses.

On October 1 2021, the Company and Steve Hall entered into an agreement to replace the inventory financing payable with a convertible note.  Further discussion on Note 7 – Convertible Notes Payable – related party, convertible promissory notes 7.3.

Note 7 – Convertible Notes Payable – related party     

Convertible Promissory Note 7.1

On April 6, 2020, the Company and Steve Hall, entered into a convertible promissory note agreement for the principal amount of $250,000, accruing simple interest at a rate of 10% per annum if repaid within 90 days, and 20% per annum if repaid thereafter. The convertible note was due on April 6, 2021. At the option of the noteholder, the note would convert, at any time, starting six months from the date of issuance through to the one-year anniversary of the date of issuance at a conversion price of $0.25 per share.

The Company recorded a discount on the convertible note due to a beneficial conversion feature of $51,594, which was being amortized over the term of the note. 

In consideration for the loan of $250,000, the Company also granted to Mr. Hall 100,000 stock options exercisable at $0.25 for a two-year term. The options vested upon issuance of the note. The fair value of the options was $13,297 and was recognized as debt discount as a part of beneficial conversion feature in the year ended June 30, 2020.

As of June 30, 2022, and 2021, the outstanding principal amount is $0, and 250,000, respectively.

Convertible Promissory Note 7.2

On December 15, 2020, the Company and Steve Hall, entered into a convertible promissory note agreement for the principal amount of $250,000, accruing simple interest at a rate of 10% per annum, if repaid within 90 days, and 20% per annum if repaid thereafter. The convertible note was due on December 15, 2021. At the option of the noteholder, the note would convert at any time beginning six months after the date of issuance and ending on the date, which is one year from the date of issuance, at a conversion price of $0.25 per share.

The Company recorded a discount on the convertible note due to a beneficial conversion feature of $117,760, which is being amortized over the term of the note. 

In consideration for the loan of $250,000, the Company also granted to Mr. Hall 100,000 stock options exercisable at $0.25 for a two-year term. The options vested upon issuance of the note. The fair value of the options was $46,380 and was recognized as debt discount as a part of beneficial conversion feature in the year ended June 30, 2021.

As of June 30, 2022, and 2021, the outstanding principal amount is $0, and 200,933 of which included amortization on debt discount of $0, and $49,067, respectively. 

Adoption of ASU 2020-06 for Convertible Promissory Note 7.1, and Convertible Promissory Note 7.2

In connection with the adoption of ASU 2020-06, the Company reclassified the aggregate amount of $169,354, previously allocated to the conversion feature of the Convertible Promissory Note 7.1, and Convertible Promissory Note 7.2 of $51,594, and $117,760 from additional paid-in capital to convertible notes on our balance sheet as of September 1, 2021, respectively. The reclassification was recorded to combine the two legacy units of account into a single instrument classified as a liability. The Company also recognized an aggregate cumulative effect adjustment of $120,287 to the Convertible Promissory Note 7.1, and Convertible Promissory Note 7.2 of $51,594, and $68,693 to accumulated deficit on our balance sheet as of September 1, 2021, respectively.  The cumulative effect adjustment was primarily driven by the derecognition of interest expense related to the accretion of the Debt Discount as required under the legacy accounting guidance. Under ASU 2020-06, we would no longer incur non-cash interest expense related to the accretion of the debt discount associated with the embedded conversion option.

As a result of the adoption of ASU 2020-06, at the years ended June 30, 2022 and 2021, amortization of $0 and $119,763 of debt discount feature was recognized as interest expense for the above two notes, respectively. 

Conversion of Convertible Promissory Note 7.1 and Convertible Promissory Note 7.2

On September 1, 2021, the Company had converted the convertible promissory note 7.1 and convertible promissory note 7.2 in the aggregate total of $500,000 and the related accrued interest of $94,344 into 16,666,667 shares of common stock with conversion value of $0.035661 per share.  As of June 30, 2022, the entire amount of $594,344 is recorded as common stock payable.  Subsequently, the shares are registered on July 28, 2022.  On November 2, 2021, the Company issued 160,000 shares of common stock for cashless exercise in exchanged for the related 200,000 shares of stock options. 

As of June 30, 2022 and 2021, the aggregate balance of the two notes is $0 and $500,000 less unamortized debt discount of $0 and $49,067 or $0 and $450,933, respectively. Interest expense of $21,427 and $72,917 was recognized during the years ended June 30, 2022 and 2021, respectively. 

Exercised of the stock options on Convertible Promissory Note 7.1 and Convertible Promissory Note 7.2

On November 2, 2021, the Company issued 160,000 shares of common stock for cashless exercise in exchange for the related 200,000 shares for the exercise of the stock options as mentioned on the convertible promissory note 7.1 and convertible promissory note 7.2. 

Convertible Promissory Note 7.3

On October 1, 2021, the inventory financing payable of $500,000 with Steve Hall as mentioned on Note 6 – Inventory Financing Payable – related party, was converted into a convertible promissory note accruing simple interest at a rate of 12% for the first 90 days and simple interest rate of 20% thereafter, with a due date on September 30, 2022. At the option of the noteholder, this note is convertible at any time into shares of common stock at a conversion price of $0.02 per share.

The maturity date of this note was extended to September 30, 2023.

As of June 30, 2022, the accrued interest was $64,932, and the principal balance was $500,000.

Note 8 – Line of Credit – related party

On October 1, 2021, Steve Hall agreed to provide a line of credit of up to $1,000,000 to the Company accruing simple interest at 12% for the first 90 days, and 20% thereafter. The principal and interest payable shall be added to the principal amount of the agreement and payable pursuant to the same terms. The line of credit shall expire on October 1, 2022 unless renewed and/or extended by the parties. Over the fiscal year 2022 in multiple transactions dates, the Company has withdrawn a total of $265,000.  In connection with the line of credit, the Company has accrued interest of $15,015 in year ended June 30, 2022.

The line of credit has renewed and has been extended with same term and an expiration date of October 1, 2023.

Note 9 – Common stock payable

As a result of reclassification of $200,000 to Common stock payable – related party during fiscal year 2022, the ending balances of Common stock payable are $0, and $200,000 as of June 30, 2022, and 2021, respectively.

Note 10 – Common stock payable – related party

On June 1, 2020, Steve Hall provided $477,000 for the purchase of PPE, with an agreement of converting such amount into 1,108,000 shares of common stock at $0.25 per share.  The stocks were issued in fiscal year 2022.

As of June 30, 2022 and 2021, the Company reported common stock payable-related party of $624,344 and $477,000, which represents 17,416,667 and 1,108,000 shares of common stock to be issued, respectively.  See further discussion on Note 11- Stockholders’ Equity.

Note 11 - Stockholders’ Equity

Common Stock

2022 Stock Issuances

2022 Stocks to be issued

2021 Stock Issuances

During the year ended June 30, 2021, the Company had the following common stock transactions:

Stock Purchase Warrants

Transactions in stock purchase warrants for the years ended June 30, 2022 and 2021 are as follows:

As of the years ended June 30, 2022 and 2021, the Company issued 0, and 2,278,996 warrants to purchase common stock, respectively.

The composition of the Company’s warrants outstanding at June 30, 2022 are as follows:

The intrinsic value of the warrants as of June 30, 2022 and 2021 was $0.

Stock Options

During 2019, the Company’s board of directors approved the 2019 Directors, Officers, Employees and Consultants Stock Option Plan (“Option Plan”) which authorized the issuance of options to purchase up to 2,500,000 shares of common stock to its employees, directors, and consultants.

Fiscal Year 2022

On October 1, 2021, pursuant the Company’s Option Plan, the Company granted 1,876,000 stock options with exercise prices of a range from $0.10 to $0.50 and a term of five years. All of 20 20 . The fair value of these shares was $132,210 of which $127,051 was recognized in the fiscal year ended June 30, 2022. 

On May 23, 2022, the Company had granted 3,250,000 stock options, of which 2,000,000 were to related parties.  These options vested immediately upon issuance with exercise prices of a range from $0.05 to $0.075 and a term of five years with a fair value of $113,163. 

As of the date of this annual report, the Company has issued 2,500,000 stock options under the 2019 Option Plan of which all are fully vested and exercised before the fiscal yearend of 2022. There are 4,182,800 shares of stock option exercisable, of which all are granted as non-statutory stock options, outside of the Option Plan.

On June 30, 2022, compensation cost for non-vested options of $5,159 will be recognized over the next year. 

Additionally, the Company also granted two related parties 500,000 and 250,000 shares of restricted common stock for service with conversion value of $0.04 per share on May 23, 2022, respectively.  All shares are restricted until an acquisition or reverse takeover of the Company.

Fiscal Year 2021

During the year ended June 30, 2021, pursuant the Company’s Option Plan, the Company granted 2,125,000 stock options with exercise prices ranging from $0.10 to $0.30 and a term of two or five years. These options vested immediately or 20% immediately upon issuance of this option and an additional 20% every three months thereafter. The fair value of these shares was $369,979 of which $127,993 was recognized in the year ended June 30, 2021. 

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

For options issued in the year ended June 30, 2022 and 2021, the volatility rate is based on the Company’s volatility. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant. The Company has no history or expectation of paying cash dividends on its common stock.

Transactions in stock options for the years ended June 30, 2022 and 2021 are as follows:

During fiscal year 2022, the Company amortized expenses of $482,200, of which $372,008 was with related parties.  As of June 30, 2022, the expenses of $5,159 remains unamortized.

On November 2, 2021, the Company issued 6,275,000 shares of common stock for cashless exercise of 7,900,000 shares of stock option.

At the fiscal years ended of June 30, 2022, and 2021, the intrinsic value of the outstanding options was $0, and 60,500, respectively.

Note 12 – Paycheck Protection Program Loan

On February 02, 2021, the Company received a Paycheck Protection Program Loan (PPP) of $16,983 from Small Business Administration (SBA). Given the purpose and the underlying conditions of the loan, the Company has recorded the amount received under PPP loan as liability and accrued interest as incurred under FASB ASC 470, Debt. On October 05, 2021, the Company has received a letter from SBA notifying us the entire loan and the interest have been forgiven. Accordingly, the Company has recorded a PPP loan forgiveness in the amount of $16,983, and the accrued interest of $310 as other income on the Statement of income.

Note 13 – Joint Venture Investment in HIE LLC

In connection with the discussion in note 4, – Restatement of Financial Statements for the Year End June 30, 2021, the joint venture investment in HIE LLC is accounted for by the Company using the equity method in accordance with FASB ASC 323. HIE has generated a gain of $59,208 and a loss of $1,385,962 during fiscal year 2022, and 2021, respectively, of which the Company recorded 33.33% of such gain and loss in the amounts of $19,736 and ($461,987), respectively.  

Note 14 – Income Taxes

The Company did not recognize a provision (benefit) for income taxes for the years ended June 30, 2022 and 2021.

At December 31, 2021 and 2020, the Company had net deferred tax assets principally arising from the net operating loss carryforward for income tax purposes multiplied by an expected federal rate of 21%.

As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax assets, a valuation allowance equal to 100% of the net deferred tax asset existed at June 30, 2022 and 2021.

A reconciliation of the federal statutory income tax to our effective income tax is depicted below: