Hawkeye Systems Inc

SEPTEMBER 30, 2024

Note 1 - Summary of Significant Accounting Policies

Business Overview

Hawkeye Systems, Inc. (the “Company”), is a Nevada corporation incorporated on May 15, 2018. Our previous focus was on pandemic management products and services. From inception until July of 2021, we focused on selling personal protective equipment (“PPE”). In July 2021, our 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 our resources.

We are 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.

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, 2024, as filed with the SEC on September 30, 2024.

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.

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 September 30, 2024, and 2023, the Company had no revenue.

Cost of sales

As of September 30, 2024, and 2023, the Company had no cost of sales.

Basic and diluted earnings per share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including stock options, warrants to purchase the Company’s common stock, and convertible note payable with accrued interest. For the three months ended September 30, 2024 and 2023, potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share because they were anti-dilutive were as follows:

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 has early adopted this standard effective July 1, 2021 using the modified retrospective approach transition method.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company adopted the standard beginning in fiscal year 2023. Because the standard is still in the early stages of adoption, the Company assesses that the current adoption of the standard has not had a material impact on the Company’s consolidated financial statements and will continue to monitor it as it progresses through year-end close.

Note 2 - 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.

The Company’s unaudited condensed consolidated financial statements are prepared using GAAP, applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. During the three months ended September 30, 2024, the Company had a net loss of $156,720, and an accumulated deficit of $12,843,924.

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 – Loan payable due to Eagle - JV partner

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 Membership 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, 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.

HIE did not have any operating activities since July 2021. As a result, the Company’s investment balance in HIE as of September 30, 2024 was $0, and the loan balance payable to joint venture partner Eagle totaled $442,251, unchanged since year 2021.

Note 4 - Related Party Transactions

Related party transactions are described in detail in Note 5, Note 6, Note 7, Note 8, and Note 10.

Note 5 – Inventory Financing Payable – related party

On February 19, 2021, Steve Hall, a shareholder of the Company, 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 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 a restated and amended promissory note, to consolidate and restate the terms pursuant to which Steve Hall had provided funds to the Company (the “Consolidated Note”). The Consolidated Note consolidated and restated the terms of advances made on February 17, 2021, for $500,000 for inventory financing, February 18, 2021, for $500,000 for inventory financing, November 12, 2021, for $30,000 and December 13, 2021, for $75,000. In addition to consolidating the advances singled out above, the Consolidated Note included the extension of a line of credit of up to $1,000,000, from Steve Hall to the Company. The principal amount of the Consolidated Note, excluding the $1,000,000 line of credit, was $1,105,000, payable on demand at any time after October 1, 2022 (the “Due Date”), and accruing interest at a rate of 12% per year, if repaid within 90 days of the due date and 20% if repaid thereafter. Principal and interest due under the line of credit extended pursuant to the Consolidated Note would be added to the principal amount due under the Consolidated Note and be payable pursuant to the same terms. The line of credit was due and payable on the Due Date unless extended. At the option of holder, the Consolidated Note was convertible, at any time, into shares of common stock at a conversion price of $0.02 per share.

On April 1, 2024, the Company and Steve Hall entered into a debt consolidation agreement, which consolidated all amounts due by the Company to Steve Hall (the “Debt Consolidation Agreement”), including amounts due under the Consolidated Note, which amounted to accrued interest of $240,274 and the principal balance of $500,000. See note 11 – Debt Consolidation Agreement.

Note 6 – 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. All principal disbursed under the line of credit would accrue interest and be payable on the same terms as principal due under the Consolidated Note. The line of credit expired on October 1, 2022, and was renewed and extended with same terms and a new maturity date of October 1, 2023.

On April 1, 2024, the Company and Steve Hall entered into the Debt Consolidation Agreement, which consolidated all amounts due by the Company to Steve Hall under the line of credit. These amounted to accrued interest of $182,092 and the principal balance of $570,250. See note 11 – Debt Consolidation Agreement.

Note 7 – 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 a 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 would repay the outstanding principal balance of the Steve Hall Note to Steve Hall and transfer to him 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 9 - Note Receivable.

On April 1, 2024, the Company and Steve Hall entered into the Debt Consolidation Agreement, which consolidated all amounts due by the Company to Steve Hall under the Steve Hall Note. These amounts included accrued interest of $170,183 and the principal balance of 1,708,000.. See Note 11 – Debt Consolidation Agreement.

Note 8 – Accrued Expenses – related party

Between September 2021 to September 2022, the Company had accepted deposits in the total amount of $33,218 from Central National Gottesman, Inc., on a sale of face masks on behalf of Steve Hall, a shareholder of Hawkeye Systems, Inc.

On April 1, 2024, the accrued expenses of $33,218 owed to Mr. Hall were included in the Debt Consolidation Agreement. See Note 11 – Debt Consolidation Agreement.

Note 9 – Note Receivable

On February 27, 2023, the Company and CNTNR USA, Inc. (“CNTNR”) entered into a promissory note under which the Company disbursed $200,000 to CNTNR (the “CNTNR Note”). Subsequently, on April 6, 2023, the Company and CNTNR amended and restated the CNTNR Note (the “Amended CNTNR Note”). In the Amended CNTNR Note, the Company agreed to lend CNTNR the total principal amount of $1,000,000 (“Principal Amount”) 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 that would continue until the Principal Amount was repaid. The balance of the consulting fee was recorded as an accounts receivable. As of September 30, 2024, the accounts receivable has a zero balance.

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

Moreover, the Amended 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 rate to the current fair market price of the shares of CNTNR when exercised and will expire 36 months after April 6, 2023.

On April 1, 2024, the Company assigned and transferred this note receivable to Steve Hall as part of the Debt Consolidation Agreement. The total amounts assigned to Steve Hall were accrued interest of $143,994 and the principal balance of $1,563,000. See Note 11 – Debt Consolidation Agreement.

Note 10 – Consulting Agreement-Related Party

On January 30, 2023, Hawkeye entered into a consulting agreement with Steve Hall, a shareholder of the Company, 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 was 12 months with no option for renewal thereafter. The Company paid Steve Hall a one-time flat service fee of $250,000 on January 31, 2023 which was recorded in accounts payable. Compensation was without recourse and there was no requirement for performance of services during the term of the contract.

On April 1, 2024, the service fee of $250,000 was included in the amounts settled with the Debt Consolidation Agreement. For further discussion see Note 11 – Debt Consolidation Agreement.

Note 11 – Debt Consolidation Agreement

The Company and Steve Hall executed a Debt Consolidation Agreement that was effective as of April 1, 2024, that consolidated the Company’s various historic loans from Steve Hall to an amount of $1,770,713.10 (the “Steve Hall Indebtedness”) and the final consolidated amount was $1,708,000. The debt consolidation transaction included the assignment to and assumption by Steve Hall of all amounts due to the Company by CNTNR pursuant to the note receivable described in Note 9- Note Receivable. The amounts assigned to Steve Hall under the note receivable were subtracted from the amounts payable by the Company to Steve Hall. The resulting outstanding loan balance was documented by the execution the Company and Steve Hall of the New Consolidated Note described in Note 7 – Notes Payable Related Party.

Mr. Hall agrees that there are no rights of set-off, counterclaim or any defenses to the obligations of the amounts consolidated and/or assigned to Mr. Hall.

On April 1, 2024, the various historical loans and the CNTNR Note were consolidated amounting to $1,708,000 under the Debt Consolidation Agreement as follows:

Note 12 - Stockholders’ Equity

Common Stock

The Company issued 45,000 shares of common stock to former CFO Christopher Mulgrew on July 15, 2024 for cashless conversion of stock options.

Stock Options

Transactions in stock options for the three months ended September 30, 2024 are as follows:

During the three months ended September 30, 2024, the Company had not granted any stock options. And all stock options were vested at the fiscal year end June 30, 2023.

At September 30, 2024, the intrinsic value of the outstanding options was $0.

Note 13 – Commitments and Contingencies

On July 17, 2020, the Company entered into a Membership Agreement with Eagle and Ikon to form HIE. Under the terms and conditions of the Membership Agreement, in the event of a loss of capital of HIE, the Company shall contribute to repay 33.3% of the Origination Loan and Additional Contribution and of any losses of HIE. HIE did not have operating activities during the quarter ended September 30, 2024. Detailed discussions are included in Note 3 – Loan payable due to Eagle - JV partner.

On January 30, 2023, Hawkeye entered into a consulting agreement with Steve Hall, a shareholder of the Company, to provide real estate and development consulting services. Transactions are described in detail in Note 10 - Consulting Agreement - Related Party.

On February 27, 2023, the Company and CNTNR USA, Inc. (“CNTNR”) entered into a promissory note under which the Company disbursed $200,000 to CONTNR (the “CNTNR Note”). Subsequently, on April 6, 2023, the Company and CNTNR amended and restated the CNTNR Note (the “Amended CNTNR Note”) of which the Company agreed to lend CNTNR the total principal amount of $1,000,000 (“Principal Amount”) with a commitment fee equivalent to 5% of the Principal Amount. The CNTNR Note was assigned to Mr. Hall and settled with a Debt Consolidation Agreement on April 1, 2024. Detailed discussions are included in Note 9 - Note Receivable and Note 11 – Debt Consolidation Agreement.

On December 1, 2023, the Company entered into a consulting agreement with Corby Marshall, the Company’s President, Secretary, Chief Executive Officer and Chairman of the Board of Director, to restructure the compensation received by Mr. Marshall from the Company (the “Marshall Consulting Agreement”). Pursuant to the terms of the Marshall Consulting Agreement, Mr. Marshall shall receive $500 for his services rendered to the Company starting from December 1, 2023, and thereafter.

**Note 14 -**New Consolidated Note – related party

As we had mentioned on Note 11 – Debt Consolidation Agreement**,**the Company consolidated all amounts owed to Steve Hall in one instrument and assigned and transferred to Steve Hall all receivables by the Company from CNTNR USA, Inc., described in Note 9 - Note Receivable.

To document the outstanding loan balance (consolidated debt minus note receivable) the Company and Steve Hall entered into a new consolidated promissory note on April 1, 2024, for $1,770,713.10 (the “New Consolidated Note”). The New Consolidated Note accrued interest at a rate of 12% per year and its maturity date is December 31, 2025.

As of September 30, 2024, the outstanding loan balance of the New Consolidated Note was $2,050,223 with interest of $120,066 accrued from April 2024 to September 2024.

Note 15 - Subsequent Events

Management has evaluated subsequent events through the date of these financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure.