ITEM 8. FINANCIAL STATEMENTS
Agentix, Inc.
August 31, 2019 and August 31, 2018
Index to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Agentix Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Agentix Corp. (“the Company”) as of August 31, 2019, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year 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 August 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
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 has an accumulated deficit, net losses, and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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.
We have served as the Company’s auditor since 2018.
Spokane, Washington
November 22, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
FairWind Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of FairWind Energy, Inc. (the “Company”) as of August 31, 2018, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year 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 August 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
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 has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
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/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor from 2015 through 2018.
Houston, Texas
November 13, 2018
|
|
August 31,
2019
|
|
|
August 31,
2018
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
93
|
|
|
$
|
2,125
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
93
|
|
|
|
2,125
|
|
|
|
|
|
|
|
|
|
|
Computer Equipment
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
1,328
|
|
|
|
1,328
|
|
Accumulated depreciation
|
|
|
(1,328
|
)
|
|
|
(1,188
|
)
|
|
|
|
|
|
|
|
|
|
Computer equipment, net
|
|
|
-
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
93
|
|
|
$
|
2,265
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,245
|
|
|
$
|
-
|
|
Accounts payable - related party
|
|
|
5,250
|
|
|
|
7,711
|
|
Accrued expenses
|
|
|
3,712
|
|
|
|
1,940
|
|
Convertible note payable, related party, net of unamortized discount
|
|
|
24,671
|
|
|
|
-
|
|
Total current liabilities
|
|
|
40,878
|
|
|
|
9,651
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
Convertible note payable, related-party
|
|
|
85,000
|
|
|
|
25,000
|
|
Convertible note payable, related party, net of unamortized discount
|
|
|
-
|
|
|
|
20,747
|
|
Convertible note payable, shareholder (Note 4)
|
|
|
-
|
|
|
|
-
|
|
Total long term liabilities
|
|
|
85,000
|
|
|
|
45,747
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
125,878
|
|
|
|
55,398
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred stock par value $0.001: 25,000,000 shares authorized; 0 shares issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock par value $0.001: 50,000,000 shares authorized; 20,570 shares issued and outstanding as of August 31, 2019 and 2018
|
|
|
21
|
|
|
|
21
|
|
Additional paid-in capital
|
|
|
43,904,787
|
|
|
|
43,844,787
|
|
Accumulated deficit
|
|
|
(44,030,593
|
)
|
|
|
(43,897,941
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(125,785
|
)
|
|
|
(53,133
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
93
|
|
|
$
|
2,265
|
|
See accompanying notes to the audited financial statements.
Agentix Corp.
|
(fka FairWind Energy, Inc.)
|
Statements of Operations
|
|
|
For the Year
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
August 31, 2019
|
|
|
August 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
Professional fees
|
|
$
|
57,322
|
|
|
$
|
45,593
|
|
Salary and wages - officers
|
|
|
60,000
|
|
|
|
80,000
|
|
General and administrative expenses
|
|
|
3,995
|
|
|
|
8,783
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
121,317
|
|
|
|
134,376
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(121,317
|
)
|
|
|
(134,376
|
)
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
11,335
|
|
|
|
24,824
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
42,629,753
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
11,335
|
|
|
|
42,654,577
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Tax Provision
|
|
|
(132,652
|
)
|
|
|
(42,788,953
|
)
|
|
|
|
|
|
|
|
|
|
Income Tax Provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(132,652
|
)
|
|
$
|
(42,788,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
- Basic and Diluted
|
|
$
|
(6.45
|
)
|
|
$
|
(3,875.40
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
- Basic and Diluted
|
|
|
20,570
|
|
|
|
11,041
|
|
See accompanying notes to the audited financial statements.
Agentix Corp.
|
(fka FairWind Energy, Inc.)
|
Statements of Changes in Stockholders' Equity (Deficit)
|
For the years ended August 31, 2019 and 2018
|
|
|
Common Stock per value $0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Total Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2017
|
|
|
6,017
|
|
|
$
|
6
|
|
|
$
|
1,043,901
|
|
|
$
|
(1,108,988
|
)
|
|
$
|
(65,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt
|
|
|
14,553
|
|
|
|
15
|
|
|
|
42,720,886
|
|
|
|
|
|
|
|
42,720,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to capital
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,788,953
|
)
|
|
|
(42,788,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2018
|
|
|
20,570
|
|
|
$
|
21
|
|
|
$
|
43,844,787
|
|
|
$
|
(43,897,941
|
)
|
|
$
|
(53,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to capital
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,652
|
)
|
|
|
(132,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2019
|
|
|
20,570
|
|
|
$
|
21
|
|
|
$
|
43,904,787
|
|
|
$
|
(44,030,593
|
)
|
|
$
|
(125,785
|
)
|
See accompanying notes to the audited financial statements.
Agentix Corp.
|
(fka FairWind Energy, Inc.)
|
Statements of Cash Flows
|
|
|
For the Year
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
August 31, 2019
|
|
|
August 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(132,652
|
)
|
|
$
|
(42,788,953
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
140
|
|
|
|
264
|
|
Bad debt expense
|
|
|
-
|
|
|
|
3,000
|
|
Amortization of discount on derivative liabilities
|
|
|
3,924
|
|
|
|
17,317
|
|
Loss on extinguishment of debt - related party
|
|
|
-
|
|
|
|
42,629,753
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accounts payable - related party
|
|
|
4,784
|
|
|
|
4,574
|
|
Accrued expenses
|
|
|
61,772
|
|
|
|
82,482
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(62,032
|
)
|
|
|
(51,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable, related parties
|
|
|
60,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
60,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
(2,032
|
)
|
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
Cash - beginning of reporting period
|
|
|
2,125
|
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
Cash - end of reporting period
|
|
$
|
93
|
|
|
$
|
2,125
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,798
|
|
|
$
|
5,024
|
|
|
|
|
|
|
|
|
|
|
Non Cash Financing and Investing Activities
|
|
|
|
|
|
|
|
|
Exercise of conversion of debt and accrued interest - related party
|
|
$
|
-
|
|
|
$
|
91,148
|
|
Capital contribution related to salaries waived
|
|
$
|
60,000
|
|
|
$
|
80,000
|
|
See accompanying notes to the audited financial statements.
Agentix Corp.
(fka FairWind Energy, Inc.)
August 31, 2019 and 2018
Notes to the Financial Statements
Note 1 - Organization and Operations
Agentix Corp.
FairWind Energy, Inc. (the “Company”, “Fairwind Energy”) was incorporated on April 18, 2013 under the laws of the State of Nevada. The Company engages in composite design, engineering and manufacturing to be used in solar/wind hybrid power systems, oil and gas industry pumping and civil engineering and infrastructure products. Effective June 17, 2019, the Company changed its name to Agentix Corp.
Note 2 - Significant and Critical Accounting Policies and Practices
The management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation
The accompanying financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-K and Article 8 of Regulation S-X. These financial statements should be read in conjunction with the notes herein.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), aimed at making leasing activities more transparent and comparable. Topic 842 requires substantially all leases, including leases currently classified as operating leases, to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability. This update is effective for financial statements issued for annual periods beginning after December 15, 2018, with transition requiring lessees to recognize and measure leases existing at, or entered into after, the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its financial statements and related disclosures.
Fiscal Year-End
The Company elected August 31st as its fiscal year ending date.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
|
(i)
|
Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
|
|
|
|
|
(ii)
|
Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
|
|
|
|
|
(iii)
|
Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
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These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1
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Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level 2
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Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
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Level 3
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Pricing inputs that are generally unobservable inputs and not corroborated by market data.
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Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses, and payroll liabilities approximate their fair values because of the short maturity of these instruments. The long-term borrowings approximate fair value since the related rates of interest approximate current market rates.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted Section 360-10-35 of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-45-4 and 360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Computer Equipment
Computer equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of five (5) years.
Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Patents
The Company follows the guidelines as set out in paragraph 350-30-25-3 and paragraph 350-30-35-6 of the FASB Accounting Standards Codification for patents. For acquired patents the Company records the costs to acquire patents as patents and amortizes the patent acquisition costs over their remaining legal lives, or estimated useful lives, or the term of the contracts, whichever is shorter. For internally developed patents, all costs incurred to the point when a patent application is to be filed are expended as incurred as research and development expense; patent application costs, generally legal costs, thereafter incurred are capitalized, which are to be amortized once the patents are granted or expensed if the patent application is rejected. The Company amortizes the internally developed patents over the shorter of the expected useful lives or the legal lives of the patents, which are generally 17 to 20 years for domestic patents and 5 to 20 years for foreign patents from the date when the patents are granted. The costs of defending and maintaining patents are expended as incurred.
Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act) of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard was originally effective for reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. ASU No. 2015-14 simply defers the effective date of ASU No. 2014-09 to reporting periods beginning after December 15, 2018, with early adoption permitted for reporting periods after December 15, 2016. Prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue Recognition. The adoption had no material impact on the Company’s financial statements and there were no adjustments to revenue as a result of the adoption.
Under ASC 606, revenue is recognized when control of the promised goods and services is transferred to the Company’s customers, in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods and services, net of value-added tax. The Company determines revenue recognition through the following steps:
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Identify the contract with a customer;
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Identify the performance obligations in the contract;
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Determine the transaction price;
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Allocate the transaction price to the performance obligations in the contract; and
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Recognize revenue when (or as) the entity satisfies a performance obligation.
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Research and Development
The Company follows paragraph 730-10-25-1 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 2 “Accounting for Research and Development Costs”) and paragraph 730-20-25-11 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 68 “Research and Development Arrangements”) for research and development costs. Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for material and testing costs for research and development.
Deferred Tax Assets and Income Tax Provision
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (6) creating a base erosion anti-abuse tax, a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The Act reduces the corporate tax rate to 21 percent, effective January 1, 2018.
Reclassification
Certain amounts have been reclassified to conform to the current year’s presentation.
Earnings per Share
Earnings per share (“EPS”) are the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.
There were no dilutive common shares for the years ended August 31, 2019 and 2018. The convertible notes payable were excluded from the EPS calculation as they would have been anti-dilutive. As of August 31, 2019, the aggregate shares excluded from the EPS calculation, as they would have been anti-dilutive, was 1.1 million shares.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
Stock-Based Payments
The Company recognizes all employee stock-based payments as a cost in the financial statements. Equity classified awards are measured at the grant date fair value of the award. The Company estimates grant date fair value for stock options using the Black-Scholes option-pricing model.
No warrants were issued or outstanding for the years ended August 31, 2019 and 2018.
Derivative Liabilities
The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked- to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.
From time to time, certain of the Company’s embedded conversion features on debt and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to fully settle conversion features of the instruments if exercised. These contracts were recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled.
These derivative instruments did not trade in an active securities market. The Company used Black Scholes option pricing model to value derivative liabilities. This model used Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.
Note 3 – Going Concern
The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the financial statements, the Company had an accumulated deficit at August 31, 2019, a net loss, and net cash used in operating activities for the year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Related Party Transactions and Balances
Accounts Payable
The Company has a balance of $5,250 and $7,711 as of August 31, 2019 and 2018, respectively. The $5,250 payable is due to Gray’s Peak Ventures (one of the new principal’s companies) for expenses paid on behalf of the Company. The $7,711 payable is due to Michael Winterhalter, former Chief Executive Officer, for expenses paid on behalf of the Company.
Free Office Space
The Company has been provided office space by Michael Winterhalter, former Chief Executive Officer, at no cost. Management determined that such cost is nominal and did not recognize the rent expense in its financial statements.
Convertible Notes Payable
The Company issued a convertible promissory note on September 23, 2016 to William C. Winterhalter, Michael Winterhalter’s father, in the amount of $20,000. The interest rate is 8% and the maturity date is September 23, 2019 in which all outstanding principal together with interest on this note shall be due. The outstanding note and accrued interest convert at the option of the holder or the Company at the volume weighted average price of the common stock for the preceding 10 days (10-day VWAP). On March 1, 2017 this note was amended to introduce a conversion floor of $100 on the 10-day VWAP. This amendment extinguished the conditions that generated derivative liabilities related to this note. The debt under this agreement remains as the agreement did not qualify for debt extinguishment.
A derivative liability related to the embedded conversion option of $13,932 was recognized as a debt discount at the date of issuance of the note. As discussed in the preceding paragraph and in Note 6, the conditions that generated the derivative liability related to the related party note was extinguished on March 1, 2017 and $12,160 was transferred to “Loss on fair value of derivative instruments”. Amortization of the discount on related party convertible note payable was $3,924 and $9,581 for the years ended August 31, 2019 and August 31, 2018, respectively, and is included in “interest expense” in the accompanying statements of operations.
The Company issued a convertible promissory note on November 1, 2017 for $10,000 to Michael Winterhalter. The note matures on its third anniversary with interest payable at 8% per annum. The outstanding note and accrued interest convert at the option of the holder or the Company at the volume weighted average price of the common stock for the preceding 10 days, with a conversion floor of $100 on the 10-day Volume Weighted Average Price (“VWAP”). The Company evaluated the conversion option of the convertible promissory note for embedded derivatives and beneficial conversion features determining the conversion option to contain neither.
The Company issued a convertible promissory note on February 13, 2018 for $15,000 to Michael Winterhalter. The note matures on its third anniversary with interest payable at 8% per annum. The outstanding note and accrued interest convert at the option of the holder or the Company at the volume weighted average price of the common stock for the preceding 10 days, with a conversion floor of $100 on the 10-day Volume Weighted Average Price (“VWAP”). The Company evaluated the conversion option of the convertible promissory note for embedded derivatives and beneficial conversion features determining the conversion option to contain neither.
The Company also issued convertible promissory notes on September 12, 2018, December 1, 2018, February 25, 2019 and April 30, 2019 in amounts of $20,000, $20,000, $10,000 and $10,000 respectively, to Michael Winterhalter. All four notes mature on their third anniversary with interest payable at 8% per annum. The outstanding notes and accrued interest convert at the option of the holder or the Company at the volume weighted average price of the common stock for the preceding 10 days, with a conversion floor of $100 on the 10-day VWAP. The Company evaluated the conversion options of the convertible promissory notes for embedded derivatives and beneficial conversion features determining the conversion options to contain neither.
Effective April 27, 2018, the Company converted all of Michael Winterhalter’s and William Winterhalter’s outstanding debt, which was an aggregate amount of $89,000. Prior to the conversion, all debt was assigned to Michael Winterhalter. Accrued interest expense through the date of conversion amounted to $2,148 and the unamortized discount amounted to $4,925. The debt was converted into 14,553 shares at approximately $6.00 per share. Per the agreement, the shares should have been converted at the floor price of $100 per share. Excess shares received amounted to 13,642. The NASDAQ price per share as of the conversion date was $3,125 and therefore, the related expense amounted to $42,629,753, which is included in the financial statements as a loss on extinguishment of debt.
The Company issued a convertible promissory note on June 12, 2018 for $25,000 to Michael Winterhalter. The note matures on its third anniversary with interest payable at 8% per annum. The outstanding note and accrued interest convert at the option of the holder or the Company at the volume weighted average price of the common stock for the preceding 10 days, with a conversion floor of $100 on the 10-day Volume Weighted Average Price (“VWAP”). The Company evaluated the conversion option of the convertible promissory note for embedded derivatives and beneficial conversion features determining the conversion option to contain neither.
Note 5 – Equity
Reverse Stock Split
Effective June 17, 2019, the Company issued a one for one thousand reverse stock split. One share of common stock, par value $0.001 per share, was issued in exchange for one thousand issued shares of common stock, par value $0.001 per share. The amount reallocated to additional paid-in capital from common stock was $20,549. The financial statements were retroactively restated to reflect the reverse stock split.
Shares Authorized
Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is Seventy-Five Million (75,000,000) shares of which Twenty Five Million (25,000,000) shares shall be Preferred Stock, par value $0.001 per share, and Fifty Million (50,000,000) shares shall be Common Stock, par value $0.001 per share.
Stock Options Plan
In February 2016, the Board of Directors approved the 2016 Stock Options Plan ("Plan") that provides for the granting of stock options to certain key employees. The Plan reserves 2,000,000 shares of common stock for this purpose. There is no provision for shares to be specifically granted to the CEO under his employment arrangement, either in the stock option plan or the employment agreement.
Options under the Plan are to be granted at no less than fair market value of the shares at the date of grant. As of August 31, 2019 and 2018 no options under this plan have been granted.
Consulting Agreement
On March 14, 2016, the Company entered into a consulting agreement with Steve Moore for consulting services related to develop business and advise management of technology, products and services used in the oil and gas exploration and production. This agreement combines commissions payable on gross profit, as well as a warrant of company stock. The cost of these benefits is estimated at $250,000 over 2 years. As of August 31, 2018, there were no warrants of company stock outstanding under this agreement. Costs associated with the warrant issuances are included in “Professional fees” in the accompanying statements of operations in the amount of $0 for the years ended August 31, 2019 and 2018.
Effective February 15, 2018, the Company and consultant mutually agreed to cancel all warrants related to this consulting agreement as a result of unsatisfactory performance. There was no cost to the Company associated with the warrant cancellation due to the nonperformance. The weighted average exercise price of the warrants at cancellation was $0.001.
Following is a summary of warrant activity during 2018:
Options Outstanding
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Options
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Weighted average exercise price
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Weighted average remaining contractual life (in years)
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Balance, August 31, 2017
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125
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$
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1.00
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2.30
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Granted
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-
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-
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-
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Exercised
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-
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-
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-
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Cancelled
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(125
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)
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1.00
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-
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Balance, August 31, 2018
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-
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$
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-
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-
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The fair market value of stock warrants is determined using the Black-Scholes valuation model, and the company uses the following methods to determine its underlying assumptions: expected volatilities are based on the historical volatility of the Company’s common stock; the expected term of warrants granted are based on the simplified method; and the risk-free interest rate is based on the U.S. Treasury implied yield on zero-coupon issues (with a remaining term equal to the expected term of the warrant).
As of August 31, 2019, there was no unrecognized stock warrant cost related to unvested stock warrant awards as all awards have fully vested.
There were no warrants outstanding as of August 31, 2019.
Waived Compensation
The Company and Michael Winterhalter collectively waived payment in the amount of $45,000 and $60,000 for the years ended August 31, 2019 and 2018, respectively. Waived compensation expense is included in payroll expense in the accompanying Statements of Operations.
The Company and Eric Krogius collectively waived payment in the amount of $15,000 and $20,000 for the years ended August 31, 2019 and 2018, respectively. Waived compensation expense is included in payroll expense in the accompanying Statements of Operations. These amounts are treated as capital contributions in the accompanying consolidated Statements of Cash Flow.
Note 6 – Notes Receivable and Convertible Notes Payable
The Company issued a note receivable on September 28, 2016 in the amount of $10,000 to Black Diamond Bits, LLC. The interest rate is 8% and the principal and interest will be due in its entirety on January 1, 2017 for a total amount of $10,710. As of August 31, 2017 Black Diamond has not consummated the sale of their business, which had been the trigger for Black Diamond Bits, LLC to fully pay their obligation. Two interest payments have been made to date of $291 and $193 in April and June 2017, respectively. During the year ended August 31, 2017, Fairwind Energy has sent this note to collections and has reserved against credit losses on the note in the amount of $7,226. This is based on the collection agency’s historically collects rate, average of 85% collections, weighted against management’s estimate. During the year ended August 31, 2018, FairWind Energy considers the note uncollectible and the note of $3,000 has been written off to bad debt expense.
The Company issued a convertible promissory note on October 1, 2016 to Julie Cameron Down Revocable Trust in the amount of $25,000. The interest rate is 8% and the maturity date is September 30, 2019 in which all outstanding principal together with interest on this note shall be due. The outstanding note and accrued interest convert at the option of the holder or the Company at the volume weighted average price of the common stock for the preceding 10 days (10-day VWAP). On March 1, 2017 this note was amended to introduce a conversion floor of $100 on the 10-day VWAP. This amendment extinguished the conditions that generated derivative liabilities related to this note. Effective April 30, 2019, Michael Winterhalter purchased Julie Cameron Down Revocable Trust’s convertible promissory note in the principal amount of $25,000.
A derivative liability related to the embedded conversion option of $17,258 was recognized as a debt discount at the date of issuance of the note. As discussed in the preceding paragraph and in Note 4, the conditions that generated the derivative liability related to the related party note were extinguished on March 1, 2017. Amortization of the discount on convertible note payable was $3,925 and $7,736 for the years ended August 31, 2019 and 2018, respectively, and is included in “interest expense” in the accompanying statements of operations. The debt under this agreement remains as the agreement did not qualify for debt extinguishment.
Convertible Notes Payable consist of the following as of August 31, 2019 and 2018:
|
|
August 31,
2019
|
|
Related Party Notes:
|
|
|
|
Mike Winterhalter
|
|
|
25,000
|
|
Mike Winterhalter
|
|
|
25,000
|
|
Mike Winterhalter
|
|
|
20,000
|
|
Mike Winterhalter
|
|
|
20,000
|
|
Mike Winterhalter
|
|
|
10,000
|
|
Mike Winterhalter
|
|
|
10,000
|
|
Less current maturities
|
|
|
(25,000
|
)
|
Long-term maturities
|
|
|
85,000
|
|
Unamortized Discount
|
|
|
(329
|
)
|
|
|
$
|
84,671
|
|
|
|
August 31,
2018
|
|
Julie Cameron Down Revocable Trust
|
|
$
|
25,000
|
|
Related Party Notes: Mike Winterhalter
|
|
|
25,000
|
|
Less current maturities
|
|
|
-
|
|
Long-term maturities
|
|
|
50,000
|
|
Unamortized Discount
|
|
|
(4,253
|
)
|
|
|
$
|
45,747
|
|
The Company’s amortization expense related to the unamortized discount for years ended August 31, 2019 and 2018 was $3,925 and $17,317, respectively.
Maturities of convertible notes payable for each of the fiscal years subsequent to August 31, 2019 are as follows:
2020
|
|
$
|
25,000
|
|
2021
|
|
|
25,000
|
|
2022
|
|
|
60,000
|
|
|
|
$
|
110,000
|
|
Note 7 – Commitments and contingent liabilities
Employment Agreements
Employment Agreement – Michael Winterhalter, CEO
On April 30, 2014, the Company entered into an employment agreement with Michael Winterhalter (“the Employee”). Key terms of the agreement are as follows:
Term
The employment of the Employee shall commence on and continue for an indefinite term until terminated in accordance with the provisions of the agreement.
Compensation
In consideration of the services to be provided, the Employee, during the term of his employment, shall be paid a base salary of $60,000 per year in equal monthly installments, in arrears, less applicable statutory deductions. In addition, the Employee is entitled to receive benefits in accordance with the Employer’s standard benefit package, as amended from time to time. During the fiscal year ended August 31, 2019, no payments have been made. The Company and the Employee collectively waived payment above in the amount of $45,000 and 60,000 for the years ended August 31, 2019 and 2018, respectively. Waived compensation expense (see Note 5) is included in payroll expense in the accompanying Statement of Operations.
Termination
|
Subsequent to completion of the probationary term of employment, the Employer may terminate the employment of the Employee at any time:
|
|
|
|
|
a.
|
for just cause at common law, in which case the Employee is not entitled to any advance notice of termination or compensation in lieu of notice;
|
|
|
|
|
b.
|
without just cause, in which case the Employer shall provide the Employee with advance notice of termination or compensation in lieu of notice equal to: 1 month plus 2 weeks per year of completed service with the Employer, to a maximum of fifteen (15) months.
|
Effective June 10, 2019, Michael Winterhalter resigned as a director
Employment Agreement – Eric Krogius, Director
On April 30, 2014, the Company entered into an employment agreement with Eric Krogius (“the Director”) with the same terms and conditions of the Employment Agreement with Michael Winterhalter except the following:
Compensation
|
|
In consideration of the services to be provided, the Director, during the term of his employment, shall be paid a base salary of $20,000 per year in equal monthly installments, in arrears, less applicable statutory deductions. In addition, the Director is entitled to receive benefits in accordance with the Employer’s standard benefit package, as amended from time to time. During the fiscal year ended August 31, 2019, no payments have been made. The Company and the Director collectively waived payment above in the amount of $15,000 and $20,000 for the years ended August 31, 2019 and 2018, respectively. Waived compensation expense (see Note 5) is included in payroll expense in the accompanying Statement of Operations.
|
Effective June 10, 2019, Eric Krogius and Michael Winterhalter have resigned. Scott Stevens has been elected as the President and Director and Robert Whalen has been elected as the Secretary, Treasurer, and Director.
Note 8 – Concentrations and Credit Risk
Customers and Credit Concentrations
There was no revenue for the years ended August 31, 2019 and 2018.
Note 9 – Deferred Tax Assets and Income Tax Provision
Deferred Tax Assets
At August 31, 2019, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes of $640,523 that may be offset against future taxable income through 2039. No tax benefit has been recorded with respect to these net operating loss carry-forwards in the accompanying financial statements as the management of the Company believes that the realization of the Company’s net deferred tax assets of approximately $134,500 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by the full valuation allowance.
Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realization. The valuation allowance decreased by $4,500 and $77,200 for the years ended August 31, 2019 and 2018, respectively.
Components of deferred tax assets are as follows:
|
|
August 31,
2019
|
|
|
August 31,
2018
|
|
Net deferred tax assets – Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax benefit from NOL carry-forwards
|
|
$
|
134,500
|
|
|
$
|
139,000
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(134,500
|
)
|
|
|
(139,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
Income Tax Provision in the Statements of Operations
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of loss before income taxes is as follows:
|
|
For the year ended August 31,
2019
|
|
|
For the year endedAugust 31,
2018
|
|
|
|
|
|
|
|
|
Blended federal statutory income tax rate
|
|
|
21.00
|
%
|
|
|
25.33
|
%
|
|
|
|
|
|
|
|
|
|
Increase (reduction) in income tax provision resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss (“NOL”) carry-forwards
|
|
|
(21.00
|
)
|
|
|
(25.33
|
)
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The Company’s income tax filings are subject to audit by various taxing authorities. The Company’s open audit periods are August 31, 2018 to the current tax year.
Note 10 – Subsequent Events
On October 24, 2019, we issued 4,712 shares of common stock to Grays Peak Ventures LLC, an entity controlled by Scott Stevens, our President and a Director, pursuant to a Notice of Conversion dated October 24, 2019, of $110,000 of Convertible Promissory Notes and $7,808.22 of accrued interest thereon. The conversion rate under the Convertible Promissory Notes was the 10-day VWAP of shares of common stock on the OTC Markets, which was $25.00 per share on the date of conversion.