Note 1 - Organization and Basis of Presentation
Description of the Company
FairWind Energy, Inc. (the “Company”) was incorporated on April 18, 2013 under the laws of the State of Nevada. Effective June 17, 2019, the Company changed its name to Agentix Corp.
On May 28, 2020, the Company, entered into a Share Exchange Agreement with GSL Healthcare, Inc., a Nevada corporation (“GSL Healthcare”), and the holders of the common stock of GSL Healthcare, which consisted of two stockholders. The closing date occurred on June 1, 2020. The merger between the Company and GSL Healthcare was treated as a reverse capitalization for financial statement reporting purposes with GSL Healthcare deemed the accounting acquirer and the Company deemed the accounting acquiree. Accordingly, GSL Healthcare’ assets, liabilities and results of operations became the historical financial statements of the Company.
The Company is a clinical-stage biotechnology company developing therapeutic agents for the treatment of metabolic disease like Type 2 diabetes mellitus, obesity, non-alcoholic fatty liver disease (NAFLD) and non-alcoholic steatohepatitis (NASH).
Merger with Applied Biopharma
In July 2021, the Company entered into and completed an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, AB Merger LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (“AB Merger”), and Applied Biopharma, pursuant to which Applied BioPharma merged into AB Merger and the effect of which is that, upon and assuming consummation of the Merger Agreement, Applied Biopharma became a wholly-owned subsidiary of the Company.
The acquisition of Applied Biopharma was considered immaterial, as Applied Biopharma had minimal activity and had no assets or liabilities as of the date of merger. As such, the Company has included the activity of Applied Biopharma for the period following the completion of the Merger Agreement.
Going Concern
The Company’s unaudited consolidated 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 unaudited consolidated financial statements, the Company had an accumulated deficit on February 28, 2022, a net loss, and net cash used in operating activities. 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 is not 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 unaudited consolidated 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.
Principles of Consolidation
The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, GSL Healthcare, Inc., AB Merger LLC, and Applied Biopharma, all 100% owned entities. Intercompany transactions and balances have been eliminated in consolidation.
Note 2 - Significant and Critical Accounting Policies and Practices
Basis of Presentation
The accompanying unaudited consolidated 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-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read in conjunction with the audited financial statements of the Company for the reporting period ended August 31, 2021 and notes thereto contained in the Company’s Annual Report on Form 10-K.
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 | | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
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Level 2 | | 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 | | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
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 and accrued expenses approximate their fair values because of the short maturity of these instruments. The Company’s equity investments are considered Level 3, as pricing inputs are generally unobservable and not corroborated by market data.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventories consist of finished goods held for sale. Management regularly reviews inventory quantities on-hand and records an inventory provision for excess or obsolete inventory based on the future expected demand for products. Inventory write-downs are measured as the difference between the cost of the inventory and market value, based upon assumptions about future demand that are inherently difficult to assess. During the six months ended February 28, 2022 and 2021, the Company did not record a provision for excess or obsolete inventory.
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.
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.
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.
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 six months ended February 28, 2022.
Stock-Based Payments
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
For non-employees, the Company follows ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under the ASU No. 2017-07, most of the guidance on stock payments to nonemployees is aligned with the requirements for share-based payments granted to employees. As such, most of the guidance in ASC 718 associated with employee share-based payments, including most requirements related to classification and measurement, applies to nonemployee share-based payment arrangements.
No stock options or warrants were issued or outstanding as of February 28, 2022.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for the Company beginning in fiscal 2022. Adoption of ASU 2019-12 did not have an impact on the Company’s financial statements.
On August 5, 2020 the FASB issued the ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)”. The amendments in this update address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, accounting models for specific features are removed and amendments to the disclosure requirements are included. For contracts in an entity’s own equity, simplifies the settlement assessment by removing some requirements. Additionally, the amendments in this update affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is assessing the effects, if any, that the adoption of this accounting pronouncement may have on its financial statements.
Note 3 – Related Parties
During the six months ended February 28, 2022, the Company incurred $326,000 of management fees of which $250,000 related to non-cash stock compensation for the issuance of 500,000 shares of the Company’s common stock issued at a fair market value on the date of issuance of $0.50 per share; $30,000 for reimbursement of rent; and $8,530 of advances to the Company to cover certain operating expenses and accounts payable from SBS Management LLC, a company controlled by Mr. Scott Stevens who is a shareholder of the Company. The fair market value of the common stock issued was determined based on the historical market price of the Company’s common stock as of the date of issuance. As of February 28, 2022, $261,359 was included in Accounts payable – related party on the accompanying unaudited balance sheet. During the six months ended February 28, 2021, the Company incurred $75,000 of management fees; $30,000 for reimbursement of rent; and $8,487 of advances to the Company to cover certain operating expenses and accounts payable from SBS Management LLC. As of August 31, 2021, $127,233 was owed to SBS Management LLC and was included in Accounts payable – related party on the accompanying unaudited balance sheet. The advances are unsecured, non-interest bearing, with no formal terms of repayment.
During the six months ended February 28, 2022, Gray’s Peak Capital, a company founded by a shareholder of the Company, made advances to the Company to cover certain operating expenses. These advances are unsecured, non-interest bearing, with no formal terms of repayment. As of February 28, 2022 and August 31, 2021, the amounts due Gray’s Peak Capital for these advances was $201,120 and $120,870, respectively, and was included in accounts payable – related party on the accompanying balance sheet.
During the six months ended February 28, 2022, the Company incurred $461,000 of consulting fees of which $375,000 related to non-cash stock compensation for the issuance of 750,000 shares of the Company’s common stock issued at a fair value on the date of issuance of $0.50 per share, from a consulting agreement with the Company’s SVP Portfolio & Business Development. The fair market value of the common stock issued was determined based on the historical market price of the Company’s common stock as of the date of issuance. As of February 28, 2022 and August 31, 2021 $193,500 and $107,500, respectively, was included in accounts payable – related party on the accompanying balance sheet.
During the six months ended February 28, 2022, the Company incurred $465,000 of consulting fees of which $375,000 related to the non-cash issuance of the 750,000 shares of the Company’s common stock issued at a fair value on the date of issuance of $0.50 per share, from a consulting and employment agreement with its CEO. The fair market value of the common stock issued was determined based on the historical market price of the Company’s common stock as of the date of issuance. As of February 28, 2022 and August 31, 2021, $220,000 and $130,000, respectively, was included in accounts payable – related party on the accompanying balance sheet.
During the six months ended February 28, 2022, the Company incurred $750,000 of consulting fees related to the non-cash issuance of 1,500,000 shares of the Company’s common stock at a fair market value of $0.50 per share on the date of issuance to Emmes Group Consulting LLC (“Emmes”), which the Company’s Chief Scientific Officer is the managing director of Emmes. The fair market value of the common stock issued was determined based on the historical market price of the Company’s common stock as of the date of issuance.
Note 4 – Equity
As of February 28, 2022 and August 31, 2021, the Company has authorized 50,000,000 shares of common stock at a par value of $0.001 per share and had issued and outstanding shares of common stock of 38,916,951 and 34,874,605, respectively.
Shares issued
During the six months ended February 28, 2022, the Company issued 22,346 shares of the Company’s common stock in exchange for a one year software subscription, which totaled $20,000. The fair value of the common stock issued was $0.89, which was determined based on the historical market price of the Company’s common stock as of the date of issuance. The fair value determined is being amortized ratably over the one year subscription period to general and administrative expenses.
As of August 31, 2021, the Company had not issued 520,000 shares previously sold and as such $180,000 was reflected in the accompanying consolidated balance sheet as common stock to be issued. During the six months ended February 28, 2022, all shares had been issued.
During the six months ended February 28, 2022, the Company issued 3,500,000 shares of its common stock to related parties. See Note 3.
During the six months ended February 28, 2022, the Company issued 200,000 shares of its common stock sold at a price of $0.50 per share which was previously sold and reflected as common stock to be issued as of August 31, 2021.
Note 5 – Subsequent Events
In accordance with ASC 855, the Company has analyzed its operations subsequent to February 28, 2022 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
