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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2017

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________

 

Commission File No. 000-55383

 

FAIRWIND ENERGY INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

46-2876282

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

32932 Pacific Coast Highway, #14-254

Dana Point, California 92629

(Address of principal executive offices, zip code)

 

(949) 933-5411 

(Registrant’s telephone number, including area code)

 

_____________________________________________________________

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

 

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

 

Large accelerated filer

o

Accelerated filer 

o

Non-accelerated filer

o

Smaller reporting company

x

(Do not check if a smaller reporting company)

 

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of July 24, 2017, there were 6,017,406 shares of common stock, $0.001 par value per share, outstanding.

 

 
 
 
 

FAIRWIND ENERGY INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MAY 31, 2017

 

INDEX

 

Index

 

Page

 

Part I. Financial Information

 

Item 1.

Financial Statements

 

F-1

 

Balance sheets at May 31, 2017 (Unaudited) and August 31, 2016.

 

F-2

 

Statements of operations for the nine and three months ended May 31, 2017 and 2016 (unaudited).

 

F-3

 

Statements of cash flows for the nine months ended May 31, 2017 and 2016 (unaudited).

 

F-4

 

Notes to Financial Statements (unaudited).

 

F-5

 

Item 2.

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

 

4

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

6

 

Item 4.

Controls and Procedures.

 

6

 

Part II. Other Information

 

Item 1.

Legal Proceedings.

 

7

 

Item 1A.

Risk Factors

 

7

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

7

 

Item 3.

Defaults Upon Senior Securities.

 

7

 

Item 4.

Mine Safety Disclosures.

 

7

 

Item 5.

Other Information.

 

7

 

Item 6.

Exhibits.

 

8

 

Signatures

 

9

 

 
2
 
Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q of FairWind Energy Inc., a Nevada corporation (the “Company”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: the volatility of oil and gas prices, the possibility that equipment development efforts will not produces equipment that prospective customers want to purchase, the Company’s need for and ability to obtain additional financing, other factors over which we have little or no control; and other factors discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”).

 

Our management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

 
3
 
Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

FairWind Energy, Inc. 

 

May 31, 2017

 

Index to the Financial Statements

 

Contents

 

Page(s)

 

 

 

 

 

 

Balance sheets at May 31, 2017 (Unaudited) and August 31, 2016

 

 

F-2

 

 

 

 

 

 

Statements of operations for the three and nine months ended May 31, 2017 and May 31, 2016 (Unaudited)

 

F-3

 

 

 

 

 

Statements of cash flows for the nine months ended May 31, 2017 and May 31, 2016 (Unaudited)

 

F-4

 

 

 

 

 

Notes to the financial statements (Unaudited)

 

F-5

 

 

 
F-1
 
Table of Contents

 

FairWind Energy, Inc.

 

Balance Sheets

 

 

 

May 31,
2017

 

 

August 31,
2016

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 1,063

 

 

$ 619

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

1,063

 

 

 

619

 

 

 

 

 

 

 

 

 

 

Note Receivable

 

 

 

 

 

 

 

 

Note receivable

 

 

9,709

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Computer Equipment

 

 

 

 

 

 

 

 

Computer equipment

 

 

1,328

 

 

 

1,328

 

Accumulated depreciation

 

 

(858 )

 

 

(660 )

Computer equipment, net

 

 

470

 

 

 

668

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 11,242

 

 

$ 1,287

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' (Deficit)

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ -

 

 

$ 2,798

 

Accrued expenses

 

 

1,420

 

 

 

891

 

Total current liabilities

 

 

1,420

 

 

 

3,689

 

 

 

 

 

 

 

 

 

 

Long Term Liabilities

 

 

 

 

 

 

 

 

Convertible note payable, net of discount of $14,876 (Note 6)

 

 

10,124

 

 

 

-

 

Convertible note payable, related-party, net of discount of $11,909 (Note 4)

 

 

38,091

 

 

 

-

 

Total long term liabilities

 

 

48,215

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

49,635

 

 

 

3,689

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

 

 

Preferred stock par value $0.001: 25,000,000 shares authorized; 0 issued or outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.001: 50,000,000 shares authorized; 6,017,406 and 6,017,406 shares issued and outstanding, respectively

 

 

6,017

 

 

 

6,017

 

Additional paid-in capital

 

 

1,007,725

 

 

 

719,468

 

Accumulated deficit

 

 

(1,052,135 )

 

 

(727,887 )

 

 

 

 

 

 

 

 

 

Total stockholders' deficit

 

 

(38,393 )

 

 

(2,402 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$ 11,242

 

 

$ 1,287

 

 

See accompanying notes to the unaudited financial statements.

 

 
F-2
 
Table of Contents

 

FairWind Energy, Inc.

 

Statements of Operations

 

 

 For the Three Months

 

For the Three Months

 

For the Nine

Months

 

For the Nine

Months

 

 Ended

 

Ended

 

Ended

 

Ended

 

 May 31, 2017

 

May 31, 2016

 

May 31, 2017

 

May 31, 2016

 

 (Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Revenue

 

Consulting services

 

$

-

 

$

12,250

 

$

-

 

$

42,250

 

Material sales

 

-

 

-

 

2,250

 

-

 

Total revenue

 

-

 

12,250

 

2,250

 

42,250

 

Costs of Goods Sold

 

-

 

1,357

 

1,357

 

1,357

 

Gross Margin

 

-

 

10,893

 

893

 

40,893

 

Operating Expenses

 

Professional fees

 

41,683

 

120,315

 

213,054

 

132,939

 

Research and development

 

-

 

1,694

 

-

 

3,692

 

Salary and wages - officers

 

20,000

 

48,564

 

60,000

 

57,681

 

General and administrative expenses

 

2,862

 

16,545

 

11,226

 

22,811

 

Total operating expenses

 

64,545

 

187,118

 

284,280

 

217,123

 

Loss from Operations

 

(64,545

)

 

(176,225

)

 

(283,387

)

 

(176,230

)

 

Other (Income) Expense

 

(Gain) loss on fair value of derivative instruments

 

(27,869

)

 

-

 

33,769

 

-

 

Interest expense

 

1,816

 

-

 

7,092

 

-

 

Loss on sale of interest in joint venture

 

-

 

3,205

 

-

 

3,205

 

Other (income) expense, net

 

(26,053

)

 

3,205

 

40,861

 

3,205

 

Loss before Income Tax Provision

 

(38,492

)

 

(179,430

)

 

(324,248

)

 

(179,435

)

 

Income Tax Provision

 

-

 

-

 

-

 

-

 

Net Loss

 

$

(38,492

)

 

$

(179,430

)

 

$

(324,248

)

 

$

(179,435

)

 

Loss per share

 

-Basic and Diluted

 

$

(0.01

)

 

$

(0.03

)

 

$

(0.05

)

 

$

(0.03

)

 

Weighted average common shares outstanding

 

-Basic and Diluted

 

6,017,406

 

6,013,835

 

6,017,406

 

5,999,549

 

 See accompanying notes to the unaudited financial statements.

 

 
F-3
 
Table of Contents

 

FairWind Energy, Inc.

 

Statements of Cash Flows

 

 

 

For the Nine
Months

 

 

For the Nine
Months

 

 

 

Ended

 

 

Ended

 

 

 

May 31, 2017

 

 

May 31, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$ (324,248 )

 

$ (179,435 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Change in fair value of derivative liabilties

 

 

33,769

 

 

 

-

 

Depreciation expense

 

 

198

 

 

 

198

 

Amortization expense

 

 

-

 

 

 

189

 

Amortization of debt discount

 

 

4,405

 

 

 

-

 

Capital contribution

 

 

60,000

 

 

 

-

 

Warrant expense and common shares issued for compensation and services

 

 

163,298

 

 

 

170,430

 

Loss on sale of interest in joint venture

 

 

-

 

 

 

3,205

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(2,798 )

 

 

-

 

Accrued expenses

 

 

529

 

 

 

(6,488 )

 

 

 

 

 

 

 

 

 

Net Cash Used in Operating Activities

 

 

(64,847 )

 

 

(11,901 )

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Note receivable

 

 

(10,000 )

 

 

-

 

Collection of note receivable

 

 

291

 

 

 

-

 

Net Cash Used in Investing Activities

 

 

(9,709 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

25,000

 

 

 

-

 

Proceeds from notes payable, related party

 

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

 

75,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Change in Cash

 

 

444

 

 

 

(11,901 )

 

 

 

 

 

 

 

 

 

Cash - beginning of reporting period

 

 

619

 

 

 

13,195

 

 

 

 

 

 

 

 

 

 

Cash - end of reporting period

 

$ 1,063

 

 

$ 1,294

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$ 1,800

 

 

$ -

 

Income tax paid

 

$ -

 

 

$ -

 

Non Cash Financing and Investing Activities

 

 

 

 

 

 

 

 

Reclassification of tainted warrants to derivative liability

 

$ 163,719

 

$ -

 

Resolution of warrant derivative liability

 

$ 228,678

 

 

$ -

 

Recognition of derivative discount

 

$ 31,190

 

 

$ -

 

 

See accompanying notes to the unaudited financial statements.

 

 
F-4
 
Table of Contents

 

FairWind Energy, Inc.

May 31, 2017

Notes to the Financial Statements

(Unaudited)

 

Note 1 - Organization and Operations

 

FairWind Energy, Inc.

 

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.

 

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-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim 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, 2016 and notes thereto contained in the Company’s Annual Report on Form 10-K.

 

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.

 

 
F-5
 
Table of Contents

 

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 May 31, 2017, a net loss, and net cash used in operating activities for the nine months 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

 

Free Office Space

 

The Company has been provided office space by Michael Winterhalter, Chief Executive Officer, at no cost. Management determined that such cost is nominal and did not recognize the rent expense in its financial statement.

 

Convertible Note 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 $0.10 on the 10-day VWAP. This amendment extinguished the conditions that generated derivative liabilities related to this note. The amendment of the note 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 liabilities related to the related party note were extinguished on March 1, 2017 and $(12,160) was transferred to “(Gain) loss on fair value of derivative instruments”. The decrease in fair value of the derivative liability of the related party convertible note payable for the nine months ended May 31, 2017 was $(1,772) and is included in “(Gain) loss on fair value of derivative instruments” on the accompanying statements of operations. Amortization of the discount on related party convertible note payable was $2,023 for the nine months ended May 31, 2017 and is included in “interest expense” in the accompanying statements of operations.

 

The Company also issued convertible promissory notes on March 3, 2017 and April 28, 2017 in amounts of $20,000 and $10,000, respectively, to Michael Winterhalter. Both 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 $0.10 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.

  

Note 5 – Equity

 

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 May 31, 2017, 125,000 warrants of company stock are 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 $163,298 for the nine months ended May 31, 2017.

 

 
F-6
 
Table of Contents

 

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 original contractual term; 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 May 31, 2017, total unrecognized stock warrant cost related to unvested stock warrant awards remaining outstanding was $10,163 and is expected to be recognized through June 2017. As of May 31, 2017, 75,000 warrants were exercisable with the remaining 50,000 expected to vest during June 2017.

 

During the nine months ended May 31, 2017, $163,719 of previously recognized expense was reclassified from equity to a derivative liability related to outstanding fully-vested common stock warrants. As discussed in Notes 4 and 6, the conditions that generated the derivative liabilities related to the warrants were extinguished on March 1, 2017 and $228,678 was transferred to paid-in capital. The increase in the fair value of the derivative liabilities generated by tainted warrants for the nine months ended May 31, 2017 was $64,959 and is included in “(Gain) loss on fair value of derivative instruments” in the accompanying statements of operations.

 

Waived Compensation

 

The Company and Michael Winterhalter collectively waived payment in the amount of $45,000 for the nine months ended May 31, 2017. 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 for the nine months ended May 31, 2017. Waived compensation expense is included in payroll expense in the accompanying Statements of Operations.

 

Note 6 – Notes Receivable and Convertible Note 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 $10,200. As of May 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 payments have been made to date of $291 and $193 in April and June 2017, respectively. Communications with Black Diamond management indicate repayment of the note may come from sales revenue. While FairWind Energy considers the note late, it is not considered uncollectible and payment is expected in the future.

 

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 $0.10 on the 10-day VWAP. This amendment extinguished the conditions that generated derivative liabilities related to this note.

 

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 liabilities related to the related party note were extinguished on March 1, 2017 and $(15,245) was transferred to “(Gain) loss on fair value of derivative instruments”. The decrease in fair value of the derivative liability of the convertible note payable for the nine months ended May 31, 2017 was $(2,013) and is included in “(Gain) loss on fair value of derivative instruments” on the accompanying statements of operations. Amortization of the discount on convertible note payable was $2,382 for the nine months ended May 31, 2017 and is included in “interest expense” in the accompanying statements of operations.

 

 
F-7
 
Table of Contents

 

Note 7 – Derivative Liabilities

 

Derivative liabilities consist of derivative convertible notes and tainted warrants. When initially valued, using a Black Scholes valuation method, the derivative convertible notes were valued at $31,190, and tainted warrants valued at $163,719.

 

To determine the fair value of stock options granted during each year under the Black Scholes model using the following range of assumptions:

 

Risk-free interest rate

0.90% – 1.49%

Expected dividend yield

-%

Expected lives (years)

2.04 – 3.0 years

Volatility

105% - 118%

 

As discussed in Notes 4 and 6, the conditions generating the derivative liabilities were extinguished as of May 31, 2017, therefore there were no derivative liabilities as of May 31, 2017.

 

Level 3 Gains and Losses

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 derivative liabilities for the nine months ended May 31, 2017:

 

Balance, beginning of period

 

$ -

 

Realized gains (losses)

 

 

-

 

Unrealized (gains) losses relating to derivative liabilities

 

 

33,769

 

Reclassification of warrant expense from equity

 

 

163,719

 

Derivative liability incurred on related party convertible note payable issuance

 

 

13,932

 

Derivative liability incurred on convertible note issuance

 

 

17,258

 

Extinguishment of derivative liabilities

 

 

(228,678 )

Balance, end of period

 

$ -

 

  

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

 

The following information should be read in conjunction with (i) the financial statements of FairWind Energy Inc., a Nevada corporation (the “Company”), and the notes thereto appearing elsewhere in this Form 10-Q together with (ii) the more detailed business information and the August 31, 2016 audited financial statements and related notes included in the Company’s Form 10-K, as amended (File No. 000-55383; the “Form 10-K”), as filed with the Securities and Exchange Commission on December 12, 2016. Statements in this section and elsewhere in this Form 10-Q that are not statements of historical or current fact constitute “forward-looking” statements

 

OVERVIEW

 

The Company was incorporated in the State of Nevada on April 18, 2013 and established a fiscal year end of August 31.

 

Going Concern

 

To date the Company has little operations or revenues and consequently has incurred recurring losses from operations. No revenues are anticipated until we complete the financing we endeavor to obtain, as described in the Form 10-K, and implement our initial business plan. The ability of the Company to continue as a going concern is dependent on raising capital to fund our business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.

 

Our activities have been financed from the proceeds of share subscriptions. From our inception to May 31, 2017, we raised a total of $442,301 from private and public offerings of our common stock, and $55,000 from private offerings of debt in the form of convertible promissory notes.

 

The Company plans to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be able to raise any capital through this or any other offerings.

 

CRITICAL ACCOUNTING POLICIES

 

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable 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. Actual results may differ from these estimates under different assumptions or conditions. We have identified the policies below as critical to our business operations and to the understanding of our financial results:

 

Basis of Accounting

 

The Company’s financial statements are prepared using the accrual method of accounting and are presented in United States Dollars.

 

 
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Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with maturities of three months or less to be cash equivalents.

 

Property and Equipment

 

Property and equipment are stated at cost. Major repairs and betterments are capitalized and normal maintenance and repairs are charged to expense as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets. Upon retirement or sale of an asset, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

 

Fair Value of Financial Instruments

 

The fair value of cash and cash equivalents, note receivable and accounts payable approximates their carrying amount.

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.

 

PLAN OF OPERATION

 

We have not yet generated or realized meaningful revenues from our business. We are involved in the design, engineering and manufacturing of composite products. The initial thrust of our business will be to supply products to the oil and gas industry. These products will include upstream production products such as sucker rods, fracking plugs, casings and other products where high temperature resistance, chemical resistance and a low weight to strength ratio products offer advantages to traditional materials (e.g., steel). If we are able to supply products to the oil and gas industry, then we plan to continue the development and sales of wind and solar hybrid energy systems. These systems also benefit from the use of higher performance materials (composites) and we will intend to incorporate them in product design and development.

 

Results of Operations

 

Nine- and Three-Month Periods Ended May 31, 2017 and May 31, 2016

 

We recorded revenues of $2,250 for the nine months, and $0 revenues for the three months, ended May 31, 2017. Such revenues were derived from materials sales costed at $1,357 for the nine and three months ended May 31, 2017. We recorded revenues of $42,250 and $12,250 for the nine and three months ended May 31, 2016, respectively, all of which were derived from consulting services.

 

For the nine months ended May 31, 2017, we incurred total operating expenses of $284,280, consisting of professional fees of $213,054, salaries and wages to officers of the Company of $60,000, and general and administrative expenses of $11,226.

 

For the three months ended May 31, 2017, we incurred total operating expenses of $64,545, consisting of professional fees of $41,683, salaries and wages to officers of the Company of $20,000, and general and administrative expenses of $2,862.

 

 
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For the nine months ended May 31, 2016, we incurred total operating expenses of $217,123, consisting of professional fees of $132,939, research and development costs of $3,692, salaries and wages to officers of the Company of $57,681, and general and administrative expenses of $22,811.

 

For the three months ended May 31, 2016, we incurred total operating expenses of $187,118, consisting of professional fees of $120,315, research and development costs of $1,694, salaries and wages to officers of the Company of $48,564, and general and administrative expenses of $16,545.

 

Liquidity and Capital Resources

 

At May 31, 2017, we had a cash balance of $1,063, and our working capital deficit is $(357). We do not have sufficient cash on hand to complete our plan of operation for the next 12 months. We will need to raise funds to complete our plan of operation and fund our ongoing operational expenses for the next 12 months. Additional funding will likely come from equity financing from the sale of our common stock currently being offered under the Form 10-K. If we are successful in completing an equity financing, existing shareholders will experience dilution of their interest in our Company. We do not have any financing arranged and we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our development activities and ongoing operational expenses. In the absence of such financing, our business will likely fail. There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue our development to complete our plan of operation and our business will fail.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 3.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

DISCLOSURE CONTROLS AND PROCEDURES

 

Under the supervision and with the participation of our management, our principal executive officer and our principal financial officer are responsible for conducting an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of May 31, 2017.

 

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 
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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The Company is not currently subject to any legal proceedings. From time to time, the Company may become subject to litigation or proceedings in connection with its business, as either a plaintiff or defendant. There are no such pending legal proceedings to which the Company is a party that, in the opinion of management, is likely to have a material adverse effect on the Company’s business, financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

 
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ITEM 6. EXHIBITS.

 

(a) Exhibits required by Item 601 of Regulation SK.:

 

Number

Description

 

3.1.1

Articles of Incorporation (1)

3.1.2

Articles of Association for Xingcheng SK Composite Co., Ltd. (1)

3.2

Bylaws (1)

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS *

 

XBRL Instance Document

101.SCH *

 

XBRL Taxonomy Extension Schema Document

101.CAL *

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF *

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB *

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE *

 

XBRL Taxonomy Extension Presentation Linkbase Document

_____________

(1) Incorporated by reference to the Registrant’s Form S-1 (File No. 333-194975), filed with the SEC on April 1, 2014.

 

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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SIGNATURES

 

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

 

 

FAIRWIND ENERGY INC.

 

(Name of Registrant)

 

Date: July 24, 2017

By:

/s/ Michael Winterhalter

Name:

Michael Winterhalter

Title:

President and Chief Executive Officer, Chief Financial Officer, and Treasurer (principal executive officer, principal accounting officer and principal financial officer)

 

 

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