Hawkeye Systems, Inc. - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

For the quarterly period ended March 31, 2023

For the transition period from ____________ to ____________

Commission file number: 000-56332

6605 Abercorn, Suite 204

Savannah, GA 31405

(Address of principal executive offices)

(912) 253-0375

(Registrants telephone number, including area code)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

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

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

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

The number of shares outstanding of each of the issuer’s classes of common equity as of May 22, 2023, was  5,477,222 shares of common stock.

Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

For the nine months ended March 31, 2023

For the Nine Months ended March 31, 2022 (Restated)

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

HAWKEYE SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

HAWKEYE SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

Note 1 - Summary of Significant Accounting Policies

Business Overview

Hawkeye Systems, Inc. (the “Company”), a Nevada corporation incorporated on May 15, 2018. Our previous focus was on pandemic management products and services. We are currently seeking opportunities while actively trying to liquidate mask inventory and wind-up existing deals. The Company is currently looking for investment opportunities in diversified industries, such as affordable housing development, and technology applications to mitigate the effects of climate change. From inception until the date of this filing our activities have primarily consisted of (i) liquidating our stock of personal protective equipment (“PPE”) products, (ii) the development of our business plan and the evaluation of strategic investment and business development strategies, including the execution of letters of intent and the provision of funding to a few selected target companies, and (iii) recruiting and adding additional consultants and employees.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the unaudited condensed consolidated financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K, for the year ended June 30, 2022, as filed with the SEC on December 14, 2022.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. Significant estimates in the accompanying financial statements include useful lives of property and equipment, fair value assumptions used for stock-based compensation, valuation of beneficial conversion feature on convertible notes and the valuation allowance on deferred tax assets.

Accounts receivable and allowance for doubtful accounts

Accounts receivable consist of balances due from other income in the current quarter ended March 31, 2023, compared to no accounts receivable for the same period in 2022. As the historical trends in collectability is not available to derive an appropriate estimated allowance, the allowance for doubtful accounts was $0 as of March 31, 2023.

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.

Revenue recognition

As of March 31, 2023, the Company has generated revenues of $5,000 in consulting fees for an agreement with CNTNR. In the year ended June 30, 2022, the Company had no revenues. The revenue was recorded under other income. The consultant fees are payable on a monthly basis commencing March 1, 2023, pursuant to the agreement discussed in detail in Note 10 - Notes Receivable.  

The Company measures revenue within the scope of ASC 606 by applying the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of ASC 606, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied. The application of these five steps necessitates the development of assumptions that require judgment.

The Company records revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied.

Cost of sales

As of March 31, 2023, and 2022, the Company had no Cost of Sales.

Basic and diluted earnings per share 

Basic earnings per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including stock options, warrants to purchase the Company’s common stock, and convertible note payable with accrued interest. For the nine months ended March 31, 2023, and 2022, potentially dilutive common stock equivalents were excluded from the calculation of diluted earnings per share because they were anti-dilutive as follows:

The shares above have been adjusted to reflect a 1-for-10 reverse stock split that became effective on February 9, 2023. See further discussion on Note 13 – stock reverse split.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued and their potential effect on our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s unaudited condensed consolidated financial statements.

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

We early adopted this standard effective July 1, 2021 using the modified retrospective approach transition method. Therefore, the condensed financial statements for the nine months ended March 31, 2023 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 2 - Going Concern

The Company’s unaudited condensed consolidated financial statements are prepared using GAAP, applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. During the nine months ended March 31, 2023, the Company had a net loss of $909,099. As of March 31, 2023, the Company had an accumulated deficit of $11,791,275.

The Company has not established sufficient revenue to cover its operating costs and will require additional capital to continue its operating plan. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.

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

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

Note 3 – Restatement of Financial Statements for the Quarter End March 31, 2022

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 would be shared in a ratio of 33.3% among each member.  Upon the occurrence of any loss in some or all of the HIE’s capital, all members would 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 the fiscal year 2021 financial statements from HIE until October, 2022. For the fiscal year ended June 30, 2021, HIE had a loan balance of $2,122,963 secured by Eagle, of which the Company has recognized 1/3 amounting to $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 March 31, 2022, the balance of investment in HIE was $245,667 and the balance of loan payable to Eagle - JV partner was $707,654. Since there were no operating activities or financial movement between July 1, 2021 to March 31, 2022, the investment in HIE and the loan payable to Eagle - JV partner are the same as of June 30, 2021.

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

Since there were no operating activities between July 01, 2021 to March 31, 2022, the previously issued March 31, 2022 Statement of Operations has not changed.

Note 4 – Joint Venture Investment in HIE LLC

On July 17, 2020, the Company entered into a membership agreement with Eagle Equities LLC (“Eagle”) and Ikon Supplies (“Ikon”) to form a Nevada Limited Liability Company, HIE, LLC (“HIE”) for the purpose of procuring, funding the purchase of and sale of PPE (the “Membership Agreement”). Subject to the provision of the Agreement, the interest of any net profits would be shared 33.3% among each member.  If 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. 

The joint venture investment in HIE LLC is accounted for by the Company using the equity method in accordance with FASB ASC 323.  There were no operating activities in HIE during the quarter ended March 31, 2023.

As of March 31, 2023, and June 30, 2022, the balances of investment in HIE were $0 in both periods.

Note 5 – Loan payable due to Eagle - JV partner

On July 17, 2020, the Company entered into a Membership Agreement (See “Note 4 - Joint Venture Investment in HIE LLC ”). Under the terms and conditions of the Membership Agreement, in the event of a loss of capital of HIE, the Company is contingently liable to contribute to repay 33.3% of the Origination Loan and Additional Contribution and of any losses of HIE.

In addition, the Company is obliged to repay 1/3 of the loan contributed by Eagle or 1/3 of the capital paid by Eagle according to the membership agreement.  As of March 31, 2023, and December 31, 2022, the balances of loan payable to Eagle - JV partner totaled $442,251, and $707,654, respectively.

HIE had no operating activities for the nine months ended March 31, 2023. 

Note 6 – Convertible Notes Payable – related party     

On February 19, 2021, Steve Hall, an investor who holds approximately 72% of the Company’s common stock advanced $1 million to the Company. The purpose of the advance was to purchase inventory to satisfy customer orders. The advance would 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 creditor 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 of $500,000 with a convertible note with annual simple interest rate of 12% for the first 90 days and annual simple interest rate of 20% thereafter, with a due date on September 30, 2022. At the option of holder, this note is convertible, at any time, into shares of common stock at a conversion price of $0.02 per share.

The note’s maturity date was extended to September 30, 2023.

As of March 31, 2023, and June 30, 2022, the accrued interest under the note was $140,000, and $64,932, and the principal balance was $500,000 at the end of both quarters, respectively.

Note 7 – 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 with simple interest at a rate of 12% for the first 90 days, and simple interest at a rate of 20% per annum 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 lender and borrower.  Subsequently, the line of credit has been renewed and extended with same terms and an expiration date of October 1, 2023.

As of March 31, 2023 and June 30, 2022, the outstanding principal totaled $525,000, and $265,000 with accrued interest of $75,566, and $15,015, respectively. 

Note 8 – Promissory notes payable – related party

On March 29, 2023, Steve Hall provided the Company with a loan in the principal amount of $1,000,000, as evidenced by a promissory note with an annual interest rate of 12% per year (the “Steve Hall Note”). The purpose of the Steve Hall Note was to provide the Company with a funding source to make follow on investment in CNTNR USA Inc., a Delaware corporation (“CNTNR”). On May 31, 2023 (or upon the closing of a debt financing), the Company will repay the outstanding principal balance of the Steve Hall Note to the lender and transfer 90% of the shares of CNTNR, issued by CNTNR to the Company pursuant to the Company’s investment in CNTNR, plus 90% of the CNTNR Warrants as described below in Note 10 - Note Receivable.

As of March 31, 2023, the outstanding loan balance was $700,000 with accrued interest of $2,268.

 Note 9 – Accrued expenses – related party

Between September 2021 to September 2022, the Company had accepted deposits in the total of $30,218 from CNG. on a sale of face masks on behalf of Steve Hall, the CEO of Hawkeye Systems, Inc.  As of March 31, 2023, the deposits remain with the Company and has not been sent to Steve.  In addition, there are no fixed repayment terms or any repayment arrangement on this accrued liability.

Note 10 – Note receivable

On February 27, 2023, the Company entered into an initial promissory note with CNTNR and made an advanced payment of $200,000 to the borrower the following date.  Subsequently, on April 6, 2023, the Company restated the unsecured Promissory Note Agreement with CNTNR (the “CNTNR Note”) which superseded the prior agreement made in February 2023.  In the restated agreement, the Company agreed to lend CNTNR the total principal amount (“Principal Amount”) of $1,000,000 with a commitment fee equivalent to 5% of the Principal Amount.  CNTNR further agreed to pay the Company a monthly consulting fee of $5,000 beginning on March 1, 2023.  The balance of the consulting fee is recorded to the accounts receivable. 

The CNTNR Note has an annual interest rate of 12% and matures at the earlier of September 30, 2023, or the closing of a material debt or equity financing. Upon maturity of the note, CNTNR will pay to the Company all outstanding Principal Amount and interest plus outstanding consulting fee and issue the Company 10% of the issued and outstanding shares of CNTNR (equivalent to 6,170,879 shares).

Moreover, the CNTNR Note includes warrant coverage of one warrant for every share issued in repayment of the Principal Amount at the closing of an intended merger with CNTNR which is equal to 6,170,879 warrants. The warrants will have a 30% discount to the current fair market price when exercised and will expire 36 months after April 6, 2023. Both the shares and warrant shares have not been issued yet as of March 31, 2023 and will be recorded at fair value as financing income upon issuance at settlement.

As the interest is calculated on the total balance of $1,000,000 starting on the date of the first transfer on February 28, 2023, The CNTNR Note has accrued an interest of $10,521 with an outstanding principal of $200,000 as of quarter ended March 31, 2023.

Note 11 – Common stock payable – related party

On May 23, 2022, the board of directors granted Richard Cutler, former director who had resigned in August 2022, 50,000 shares (it was 500,000 shares prior to the reverse stock split described in Note 13) of restricted common stock valued at $20,000, with an exercise price of $0.4 per share.  The shares were granted as consideration for services granted.  All shares are restricted until an acquisition or reverse takeover of the Company.

On May 23, 2022, the board of directors granted Chris Mulgrew, Chief Financial Officer, 25,000 shares (it was 250,000 shares prior to the stock reverse split) of restricted common stock, valued at $10,000 with an exercise price of $0.04 per share.  The shares were granted as consideration for services granted.  All shares are restricted until an acquisition or reverse takeover of the Company.

As of March 31, 2023 and June 30, 2022, the Company reported common stock payable-related party of $30,000 and $624,343, which represents 75,000 (it was 750,000 shares prior to the stock reverse split), and 1,741,667 (it was 17,416,667 shares prior to the stock reverse split) shares of common stock to be issued, respectively. 

Note 12 - Stockholders’ Equity

Common Stock

During the nine months ended March 31, 2023, the Company had the following common stock transactions:

Stock Purchase Warrants

Transactions in stock purchase warrants for the nine months ended March 31, 2023 are as follows (the numbers set forth below have been adjusted to reflect the 1-for-10 reverse stock split of February 9, 2023):

The composition of the Company’s warrants outstanding at March 31, 2023 are as follows:

At March 31, 2023, the intrinsic value of the 239,401 outstanding warrant was $0.

Stock Options

Transactions in stock options for the nine months ended March 31, 2023 are as follows:

During the nine months ended March 31, 2023 $5,159 was expensed to unrelated parties, and $0 remains unamortized.

At March 31, 2023, the intrinsic value of the 425,600 outstanding options was $0.

Note 13 – Stock Reverse Split

Hawkeye filed a form of 8K/A on March 23, 2023 announcing the Company amended its Articles of Incorporation to effect a one-for-ten reverse stock split (the “Reverse Split”) of the Company’s common stock while par value of $0.0001 per share remind the same. The Reverse Split was approved by FINRA on February 8, 2023, and became effective on February 9, 2023. All fractional shares resulting from the Reverse Split were rounded up to the nearest whole share, which results in an additional 139 shares issued for rounding. As a result of the Reverse Split, the Company now has approximately 4,227,222 shares of common stock outstanding. In addition, at the effective time of the reverse stock splits, all common shares, warrants, and options and the related financial information in this Quarterly Report on Form 10-Q were retroactively restated to reflect the 1-for-10 reverse stock split for all periods presented.

Note 14 – Consulting Agreement - Related Party  

On January 30, 2023, Hawkeye entered into a consulting agreement with Steve Hall, the Company’s CEO to provide real estate and development consulting services, including the supervision of the company's senior management, staff and all personnel, whether employees or consultants, strategic planning, property acquisitions and annual budget review.

The contract period is 12 months with no option for renewal thereafter. The Company has paid Steve Hall a one-time flat service fee of $250,000. Compensation is without recourse and there is no requirement for performance of services during the term of the contract.

In addition, Steve agreed that the Company may defer payment until such time as there is sufficient liquidity in the Company. The Company agrees that should the company not have the ability to pay the amount due, Steve will be permitted to convert any unpaid balance into company stock at a conversion rate of the prevailing market rate minus 20%. In the event of a merger or acquisition, Steve will not be permitted to convert the outstanding balance until 90 days after the transaction has closed.

Note 15 - Subsequent Events 

Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation, that the following subsequent events would require disclosure in the financial statements:

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion relates to the historical operations and financial statements of Hawkeye Systems, Inc. for the nine months ended March 31, 2023.

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 quarterly 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 quarterly report.

The Company is currently looking for investment opportunities into target businesses in diversified industries, such as affordable housing development, and technology applications to mitigate the effects of climate change. From the date of our previous filing, we have executed a letter of intent with CNTNR for an investment and potential merger with such company, and committed to provide them with $1,000,000 in financing, as described in Notes 8 and 10 to the Financial Statements.

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 operations.

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

Nine months ended March 31, 2023 compared to nine months ended March 31, 2022

We had no operating revenues, and cost of sales, for the nine months ended March 31, 2023, and 2022.  However, we generated $5,000 for the quarter ended March 31, 2023 in other income from CNTNR for consulting fees due to the agreement entered in February 2023. See further discussion on Note 10 – Note receivable.

Total operating expenses in the nine months ended March 31, 2023 were $786,731 compared to $872,118 for the same period in 2022. The decrease in operating expenses is primarily a result of decreased professional fees - related party, management compensation, and general and administrative expenses. The Company’s net loss was $909,099 for the nine months ended March 31, 2023 compared to $962,666 for the nine months ended March 31, 2022. The net loss for this period is primarily a result of operating expenses, and interest expense.

Liquidity and Capital Resources

Our cash balance at March 31, 2023 was $499,690 compared to $325 at June 30, 2022. We do not believe these cash reserves are sufficient to cover our expenses for our operations for fiscal year ending March 31, 2024. We will require additional funding for our ongoing operations.

In addition, we intend to raise funds through the sale of equity and the exercise of warrants issued in private placements. Although to date we have had some warrant exercises for cash, there can be no assurance that we will be able to raise money through offerings or through the exercise of warrants. If we cannot raise any additional financing prior to the expiration of the first quarter of 2024, 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; however, we do have a convertible note (see Note 6 to the Financial Statements), a line a credit (see Note 7 to the Financial Statements), and a promissory note (see Note 8 to the Financial Statements), from a related party. Generally, we have financed operations to date through proceeds from the various loans as discussed on the Note 5 to Note 8 to the Financial Statements.

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, or the closing of a potential merger or business combination with a target company. 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 quarterly report, we have entered into various commitments on loan obligations.  For a discussion of the related items, please see Notes 5 to 10 to the Financial Statements.

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 quarterly 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 $11,791,275 at March 31, 2023 and net loss from operations of $786,731.

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 funds provided by operations are sufficient to cover working capital requirements.

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

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

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Item 2.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Annual Report on Internal Control over Financial Reporting. 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.  In our review, we sought to find potential for material weaknesses in our financial controls, which is defined as a deficiency, or combination of deficiencies, in our accounting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Because of its inherent limitations, which include a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures, internal control over financial reporting may not prevent or detect misstatement, whether unintentional errors or fraud. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our management, consisting of Corby Marshall as Chief Executive Officer and Christopher Mulgrew as Chief Financial Officer, reviewed and evaluated the effectiveness of the Company’s internal control over disclosure controls and procedures (as such term is defined in Rules 13a-15(3) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) and financial reporting as of March 31, 2023. In making this assessment, our management used the criteria described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as well as the guidance provided in SEC Release 33-8809. In such evaluation, Mr. Marshall and Mr. Mulgrew assessed daily interaction, self-assessment and other ongoing monitoring activities as evidence in the evaluation. Furthermore we sought to identify financial reporting risks, identify controls that adequately address financial reporting risks, considered entity level controls, reviewed the role of technology in our controls and reviewed the evidence available to support the assessment.

Based on this evaluation, our management concluded that, as of March 31, 2023, our disclosure controls and our internal controls over financial reporting were not effective in recording, processing, summarizing and reporting on a timely basis information required to be disclosed in the reports that we file or submit under the Exchange Act and were not effective in assuring that information required to be disclosed in the reports we file or submit under the Exchange Act due to material weaknesses including (i) the Company having only two officers handling all financial transactions, (ii) lack of appropriate operational controls and consistency in providing our accounting personnel with financial information, (iii) incomplete financial statements on a daily basis and resulting errors in our underlying accounting system, (iv) lack of proper documentation of our assessment and evaluation, and (v) our determination that internal controls were ineffective due to the limited segregation of duties because of the limited management structure.

In response to that assessment we have made a determination that all accounting and financial reporting services should be outsourced to a qualified consulting firm, and we immediately engaged a new financial services provider.  We subsequently replaced that provider with an internal accounting contractor.

We have also made the determination that we need to dedicate more of the Company’s current and future financial resources to this function and engaged a permanent Chief Financial Officer.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting. 

Other than engaging a new financial services firm to provide financial statements, there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

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 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, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.

Item 1A - Risk Factors

Not required for Smaller Reporting Companies.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

No disclosure required.

Item 3 - Defaults Upon Senior Securities

No disclosure required.

Item 4 - Mine Safety Disclosure

No disclosure required.

Item 5 - Other Information

No disclosure required.

Item 6 - Exhibits

Exhibits:

___________ 

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.