UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 2012
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 number: 000-52410
SKY HARVEST WINDPOWER CORP.
(Exact name of registrant as specified in its charter)
Nevada N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
890 West Pender Street, Suite 710, Vancouver, BC, Canada V6C 1J9
(Address of principal executive offices) (Zip Code)
(604) 267-3041
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (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 [ ]
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 (ss.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 [X] No [ ]
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.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] 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
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
32,553,016 shares of common stock are issued and outstanding as of October 22,
2012 (including 15,680,016 shares of common stock reserved for issuance in
exchange for certain outstanding exchangeable securities of the registrant).
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
CONSOLIDATED BALANCE SHEETS as of August 31, 2012 and
May 31, 2012 3
CONSOLIDATED STATEMENTS OF OPERATIONS for the Three
Months Ended August 31, 2012 and 2011, and for the
period since inception 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for
the period since inception 5
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three
Months Ended August 31, 2012 and 2011, and for the
period since inception 9
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3 Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4 Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 26
SIGNATURES 28
2
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in US Dollars)
(Unaudited)
August 31, May 31,
2012 2012
---------- ----------
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 170,303 144,686
Other receivables 2,228 11,557
Prepaid expenses 108 882
---------- ----------
TOTAL CURRENT ASSETS 172,639 157,125
Property and equipment, net (Note 4) 71,477 66,826
---------- ----------
TOTAL ASSETS 244,116 223,951
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable 170,085 159,070
Accrued liabilities 6,958 250
Due to related parties (Note 7) 106,684 86,003
Note payable (Note 5) 50,000 50,000
---------- ----------
TOTAL LIABILITIES 333,727 295,323
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock:
Authorized: 10,000,000 shares, $0.001 par value
Issued and outstanding: 1 share (May 31, 2012 - 1 share) -- --
Common Stock:
Authorized: 100,000,000 shares, $0.001 par value
Issued and outstanding: 32,553,016 shares
(May 31, 2012 - 32,553,016 shares) 32,553 32,553
Additional paid-in capital 6,707,278 6,707,278
Common stock subscribed (Note 11) 6,750 6,750
Stock subscriptions receivable -- (49,500)
Accumulated other comprehensive loss (72,351) (16,917)
Deficit accumulated during the development stage (6,763,841) (6,751,536)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (89,611) (71,372)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 244,116 223,951
========== ==========
Continuing operations (Note 1)
Commitments and contingencies (Note 11)
(The accompanying notes are an integral part of these
consolidated financial statements)
3
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Statements of Operations
(Expressed in US Dollars, except number of shares)
(Unaudited)
Accumulated from For the For the
February 25, 2005 Three Months Three Months
(Date of Inception) to Ended Ended
August 31, August 31, August 31,
2012 2012 2011
---------- ---------- ----------
$ $ $
EXPENSES
Consulting fees 450,934 -- 14,685
Engineering and development 568,528 15,605 73,293
Management fees (Note 7) 749,785 14,838 15,885
Professional fees 533,635 21,859 17,937
General and administrative 1,813,145 10,583 9,354
Acquired development costs 242,501 -- --
---------- ---------- ----------
Operating loss (4,358,528) (62,885) (131,154)
OTHER INCOME (LOSS)
Impairment loss (2,551,440) -- --
Interest income 89,391 9 --
Foreign exchange gain (loss) 68,723 50,571 (6,914)
Settlement of debt (11,987) -- 3,429
---------- ---------- ----------
Net loss (6,763,841) (12,305) (134,639)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments (72,351) (55,434) 10,273
---------- ---------- ----------
Comprehensive loss (6,836,192) (67,739) (124,366)
========== ========== ==========
Net loss per common share - basic and diluted (0.00) (0.00)
---------- ----------
Weighted average number of common stock outstanding 32,553,000 30,182,000
---------- ----------
(The accompanying notes are an integral part of these
consolidated financial statements)
4
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
(Expressed in US Dollars, except number of shares)
(Unaudited)
Deficit
Accumulated
Additional Common During the
Preferred Common Paid-in Stock Development
Stock Amount Shares Amount Capital Subscribed Stage Total
# $ # $ $ $ $ $
------ ------ ---------- -------- --------- ------- ---------- --------
Balance - February 25, 2005
(Date of Inception) -- -- -- -- -- -- -- --
Common stock issued on March 2,
2005 to founders for cash at
$0.00167 per share -- -- 6,000,000 6,000 4,000 -- -- 10,000
Common stock issued from
March 4, 2005 to March 20,
2005 for cash at $0.0033
per share -- -- 3,000,000 3,000 7,000 -- -- 10,000
Common stock issued on
March 31, 2005 for cash
at $0.0167 per share -- -- 300,000 300 4,700 -- -- 5,000
Common stock issued from
April 7, 2005 to April 28,
2005 for cash at $0.0167
per share -- -- 480,000 480 7,520 -- -- 8,000
Common stock issued from May 1,
2005 to May 25, 2005 for cash
at $0.0167 per share -- -- 690,000 690 10,810 -- -- 11,500
Common stock issued on May 29,
2005 for cash at $0.0167 per
share -- -- 60,000 60 9,940 -- -- 10,000
Net loss for the period -- -- -- -- -- -- (12,321) (12,321)
------ ------ ---------- -------- --------- ------- ---------- --------
Balance - May, 31 2005
carried forward -- -- 10,530,000 10,530 43,970 -- (12,321) 42,179
------ ------ ---------- -------- --------- ------- ---------- --------
(The accompanying notes are an integral part of these
consolidated financial statements)
5
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
(Expressed in US Dollars, except number of shares)
(Unaudited)
Deficit
Accumulated
Additional Common During the
Preferred Common Paid-in Stock Development
Stock Amount Shares Amount Capital Subscribed Stage Total
# $ # $ $ $ $ $
------ ------ ---------- -------- --------- ------- ---------- ---------
Balance - May, 31, 2005
brought forward -- -- 10,530,000 10,530 43,970 -- (12,321) 42,179
Net loss for the year -- -- -- -- -- -- (57,544) (57,544)
------ ------ ---------- -------- --------- ------- ---------- ---------
Balance - May 31, 2006 -- -- 10,530,000 10,530 43,970 -- (69,865) (15,365)
Common stock subscribed -- -- -- -- -- 500,500 -- 500,500
Stock-based compensation -- -- -- -- 365,508 -- -- 365,508
Net loss for the year -- -- -- -- -- -- (435,426) (435,426)
------ ------ ---------- -------- --------- ------- ---------- ---------
Balance - May 31, 2007
carried forward -- -- 10,530,000 10,530 409,478 500,500 (505,291) 415,217
------ ------ ---------- -------- --------- ------- ---------- ---------
Common stock issued on July
11, 2007 for cash at $0.70
per share -- -- 715,000 715 499,785 (500,500) -- --
Common stock issued on July
11, 2007 for finders' fees -- -- 71,500 71 49,979 -- -- 50,050
Common stock issued on July
27, 2007 for cash at $1.20
per share -- -- 1,075,000 1,075 1,288,925 -- -- 1,290,000
One million share purchase
warrants issued for finders'
fee -- -- -- -- 321,279 -- -- 321,279
Finders' fees -- -- -- -- (498,080) -- -- (498,080)
Net loss for the year -- -- -- -- -- -- (256,830) (256,830)
------ ------ ---------- -------- --------- ------- ---------- ---------
Balance - May 31, 2008 -- -- 12,391,500 12,391 2,071,366 -- (762,121) 1,321,636
Common stock subscribed -- -- -- -- -- 6,750 -- 6,750
Net loss for the year -- -- -- -- -- -- (341,733) (341,733)
------ ------ ---------- -------- --------- ------- ---------- ---------
Balance - May 31, 2009
carried forward -- -- 12,391,500 12,391 2,071,366 6,750 (1,103,854) 986,653
------ ------ ---------- -------- --------- ------- ---------- ---------
(The accompanying notes are an integral part of these
consolidated financial statements)
6
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
(Expressed in US Dollars, except number of shares)
(Unaudited)
Deficit
Accumulated
Additional Common Stock Accumulated During the
Preferred Common Paid-in Stock Subscriptions Other Development
Stock Amount Shares Amount Capital Subscribed Receivable Comprehensive Stage Total
# $ # $ $ $ $ Loss $ $
---- ----- ---------- -------- --------- ------- ------ ---------- ---------- ---------
Balance -
May 31, 2009
carried forward -- -- 12,391,500 12,391 2,071,366 6,750 -- -- (1,103,854) 986,653
Common stock
issued pursuant
to business
acquisition -- -- 17,340,516 17,341 2,583,736 -- -- -- -- 2,601,077
Preferred stock
issued pursuant
to business
acquisition 1 -- -- -- -- -- -- -- -- --
Stock-based
compensation -- -- -- -- 589,514 -- -- -- -- 589,514
Accumulated
other
comprehensive
loss -- -- -- -- -- -- -- (28,257) -- (28,257)
Net loss
for year -- -- -- -- -- -- -- -- (1,549,409) (1,549,409)
---- ----- ---------- -------- --------- ------- ------ ---------- ---------- ----------
Balance -
May 31, 2010 1 -- 29,732,016 29,732 5,244,616 6,750 -- (28,257) (2,653,263) 2,599,578
Stock-based
compensation -- -- -- -- 585,180 -- -- -- -- 585,180
Accumulated
other
comprehensive
loss -- -- -- -- -- -- -- (54,188) -- (54,213)
Net loss for
the year -- -- -- -- -- -- -- -- (3,484,264) (917,550)
---- ----- ---------- -------- --------- ------- ------- ---------- ---------- ----------
Balance -
May 31, 2011 1 -- 29,732,016 29,732 5,829,796 6,750 -- (82,445) (6,137,527) (353,694)
Stock-based
compensation -- -- -- -- 64,403 -- -- -- -- 64,403
Accumulated
other
comprehensive
loss -- -- -- -- -- -- -- 65,528 -- 65,528
Common stock
issued on
June 21, 2011
for cash at
$0.25 per share -- -- 1,970,000 1,970 490,530 -- -- -- -- 492,500
Common stock
issued on
May 29, 2012
for cash at
$0.25 per share -- -- 818,000 818 203,682 -- (49,500) -- -- 155,000
Common stock
issued on
May 29, 2012
for finders
fees at $0.25
per share -- -- 33,000 33 (33) -- -- -- -- --
Disgorgement of
swing trading
profits -- -- -- -- 118,900 -- -- -- -- 118,900
Net loss for
the year -- -- -- -- -- -- -- -- (614,009) (614,009)
---- ----- ---------- -------- --------- ------- ------- ---------- ---------- ----------
Balance -
May 31, 2012 1 -- 32,553,016 32,553 6,707,278 6,750 (49,500) (16,917) (6,751,536) (71,372)
==== ===== ========== ======== ========= ======= ======= ========== ========== ==========
(The accompanying notes are an integral part of these
consolidated financial statements)
7
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
(Expressed in US Dollars, except number of shares)
(Unaudited)
Deficit
Accumulated
Additional Common Stock Accumulated During the
Preferred Common Paid-in Stock Subscriptions Other Development
Stock Amount Shares Amount Capital Subscribed Receivable Comprehensive Stage Total
# $ # $ $ $ $ Loss $ $
---- ------ ---------- -------- --------- ------- ------ ---------- ---------- ---------
Balance -
May 31, 2012
carried forward 1 -- 32,553,016 32,553 6,707,278 6,750 (49,500) (16,917) (6,751,536) (71,372)
Accumulated
other
comprehensive
loss -- -- -- -- -- -- -- (55,434) -- (55,434)
Net loss
for the period -- -- -- -- -- -- -- -- (12,305) (12,305)
---- ----- ---------- -------- --------- ------- ------- ---------- ---------- ---------
Balance -
August 31, 2012 1 -- 32,553,016 32,553 6,707,278 6,750 (49,500) (72,351) (6,763,841) (139,111)
==== ===== ========== ======== ========= ======= ======= ========== ========== =========
(The accompanying notes are an integral part of these
consolidated financial statements)
8
Sky Harvest Windpower Corp.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
(Unaudited)
Accumulated from For the For the
February 25, 2005 Three Months Three Months
(Date of Inception) to Ended Ended
August 31, August 31, August 31,
2012 2012 2011
---------- ---------- ----------
$ $ $
OPERATING ACTIVITIES
Net loss for the period (6,763,841) (12,305) (134,639)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 23,923 215 178
Stock-based compensation 1,609,565 -- (502)
Impairment loss 2,551,440 -- --
Loss (gain) on settlement of debt 11,987 -- (3,334)
Acquired development costs 242,501 -- --
Changes in operating assets and liabilities:
Prepaid expenses 12,026 774 49,068
Accrued interest 244 -- 1,050
Accounts payable and accrued liabilities 159,378 17,724 (44,459)
Account receivable (20,585) 9,329 5,688
Note receivable (280,000) -- --
Due to related parties 43,198 19,240 (69,916)
---------- ---------- ----------
NET CASH FLOWS USED IN (PROVIDED BY) OPERATING ACTIVITIES (2,410,164) 34,977 (196,866)
---------- ---------- ----------
INVESTING ACTIVITIES
Purchase of equipment (25,164) (1,660) --
Purchase of short-term investments (2,472,839) -- --
Redemption of short-term investments 2,493,484 -- --
Cash acquired from acquisition 21,016 -- --
---------- ---------- ----------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 16,497 (1,660) --
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from common stock issuances 2,415,249 49,500 492,500
Proceeds from (repayment of) related party loans 62,854 -- (142,940)
Proceeds from (repayment of) note payable 50,000 -- (10,324)
Proceeds from swing sale disgorgement 118,900 -- 59,450
---------- ---------- ----------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 2,647,003 49,500 398,686
---------- ---------- ----------
Effect of exchange rate changes on cash (83,033) (57,200) 10,716
---------- ---------- ----------
Increase in cash and cash equivalents 170,303 25,617 212,536
Cash and cash equivalents - beginning of period -- 144,686 23,465
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD 170,303 170,303 236,001
========== ========== ==========
Supplementary disclosures:
Interest paid -- -- --
Income taxes paid -- -- --
---------- ---------- ----------
Significant non-cash investing and financing activities:
Stock issuance for acquisition 2,601,077 -- --
Increase intangible asset due to acquisition 2,551,400 -- --
Accounts payable increased due to acquisition 30,986 -- --
Stock issuance for finders fee 8,250 -- --
---------- ---------- ----------
(The accompanying notes are an integral part of these
consolidated financial statements)
9
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Sky Harvest Windpower Corp. (the "Company") was incorporated in the State of
Nevada on February 25, 2005. The Company is a Development Stage Company, as
defined by Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 915, DEVELOPMENT STAGE ENTITIES. Its activities to date
have been limited to capital formation, organization, and development of its
business plan for the exploration and development of wind power projects in
Canada.
Effective July 13, 2009, the Company acquired all the outstanding common stock
of Sky Harvest Windpower (Saskatchewan) Corp. ("Sky Harvest - Saskatchewan"), a
private company incorporated under the laws of Canada.
On September 1, 2009, the Company completed a merger with its wholly-owned
inactive subsidiary, Sky Harvest Windpower Corp., a Nevada corporation, which
was incorporated solely to effect a change in the Company's name. As a result,
the Company changed its name from Keewatin Windpower Corp. to Sky Harvest
Windpower Corp.
These consolidated financial statements have been prepared on a going concern
basis, which implies the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. The Company has
never generated revenues since inception and has never paid any dividends and is
unlikely to pay dividends or generate earnings in the immediate or foreseeable
future. The continuation of the Company as a going concern is dependent upon the
continued financial support from its shareholders, the ability of the Company to
obtain necessary equity financing to continue operations, the successful
exploitation of economically recoverable electricity in its wind power projects,
and the attainment of profitable operations. As at August 31, 2012, the Company
has accumulated losses of $6,763,841 since inception. These factors raise
substantial doubt regarding the Company's ability to continue as a going
concern. These consolidated financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management plans to raise additional funds through debt and equity offerings.
Management has yet to decide what type of offering the Company will use or how
much capital the Company will attempt to raise and on what terms. There is
however no assurance that the Company will be able to raise any additional
capital through any type of offering on terms acceptable to the Company.
2. SIGNIFICANT ACCOUNTING POLICES
a. Basis of Accounting
The Company's consolidated financial statements are prepared using the accrual
method of accounting. These consolidated statements include the accounts of the
Company and its wholly-owned subsidiaries Keewatin Windpower Inc. and Sky
Harvest - Saskatchewan. All significant intercompany transactions and balances
have been eliminated. The Company has elected a May 31 year-end.
b. Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
c. Fair Value Measurements
ASC 820, FAIR VALUE MEASUREMENTS AND DISCLOSURES, defines fair value as the
price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. In determining fair value for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal
or most advantageous market in which it would transact and it considers
assumptions that market participants would use when pricing the asset or
liability.
10
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
c. Fair Value Measurements (continued)
FAIR VALUE HIERARCHY
ASC 820 establishes a fair value hierarchy that requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. A financial instrument's categorization within the fair
value hierarchy is based upon the lowest level of input that is significant to
the fair value measurement. ASC 820 establishes three levels of inputs that may
be used to measure fair value:
LEVEL 1
Level 1 applies to assets and liabilities for which there are quoted prices in
active markets for identical assets or liabilities. Valuations are based on
quoted prices that are readily and regularly available in an active market and
do not entail a significant degree of judgment.
LEVEL 2
Level 2 applies to assets and liabilities for which there are other than Level 1
observable inputs such as quoted prices for similar assets or liabilities in
active markets, quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets), or
model-derived valuations in which significant inputs are observable or can be
derived principally from, or corroborated by, observable market data. Level 2
instruments require more management judgment and subjectivity as compared to
Level 1 instruments. For instance: o Determining which instruments are most
similar to the instrument being priced requires management to identify a sample
of similar securities based on the coupon rates, maturity, issuer, credit rating
and instrument type, and subjectively select an individual security or multiple
securities that are deemed most similar to the security being priced; and o
Determining whether a market is considered active requires management judgment.
LEVEL 3
Level 3 applies to assets and liabilities for which there are unobservable
inputs to the valuation methodology that are significant to the measurement of
the fair value of the assets or liabilities. The determination of fair value for
Level 3 instruments requires the most management judgment and subjectivity.
The Company believes the fair value of its financial instruments consisting of
cash and cash equivalents, other receivables, accounts payable, amounts due to
related parties and notes payable approximate their carrying values due to the
relatively short maturity of these instruments.
d. Equipment
(i) Amortization Methods and Rates
Equipment is carried at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the depreciable
property, which range from 3 to 5 years. Management evaluates useful lives
regularly in order to determine recoverability taking into consideration
current technological conditions. Maintenance and repairs are charged to
expenses as incurred; additions and betterments are capitalized. Upon
retirement or disposal of any item of equipment, the cost and related
accumulated depreciation of the disposed assets is removed, and any
resulting gain or loss is credited or charged to operations. Costs included
in wind equipment are under construction and will be amortized over their
useful life on a straight-line basis once they are put into use.
11
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
d. Equipment (continued)
(ii) Asset Impairment
The Company performs impairment tests on its property and equipment when
events or changes in circumstances occur that indicate the carrying value
of an asset may not be recoverable. Estimated future cash flows are
calculated using estimated future prices and operating and capital costs on
an undiscounted basis. When the carrying value of the property and
equipment exceeds estimated future cash flows, the asset is impaired. An
impairment loss is recorded to the extent the carrying value exceeds the
discounted value of the estimated future cash flows.
(iii)Repairs and Maintenance
Repairs and maintenance costs are charged to expense as incurred, except
when these repairs significantly extend the life of an asset or result in
an operating improvement. In these instances, the portion of these repairs
relating to the betterment is capitalized as part of property and
equipment.
e. Long Lived Assets
INTANGIBLE ASSETS
In accordance with ASC 350, INTANGIBLES - GOODWILL AND OTHER, goodwill is
required to be tested for impairment on an annual basis, or more frequently if
certain indicators arise, using the guidance specifically provided, and
purchased intangible assets other than goodwill are required to be amortized
over their useful lives unless there lives are determined to be indefinite.
Management reviews intangible assets at least annually, and on an interim basis
when conditions require, evaluates events or changes in circumstances that may
indicate impairment in the carrying amount of such assets. An impairment loss is
recognized in the statement of operations in the period that the related asset
is deemed to be impaired.
In accordance with ASC 360, PROPERTY, PLANT AND EQUIPMENT, the Company tests
long-lived assets or asset groups for recoverability when events or changes in
circumstances indicate that their carrying amount may not be recoverable.
Circumstances which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset; significant adverse
changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed significantly before the end of its estimated useful
life.
Recoverability is assessed based on the carrying amount of the asset and its
fair value which is generally determined based on the sum of the undiscounted
cash flows expected to result from the use and the eventual disposal of the
asset, as well as specific appraisal in certain instances. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair value.
f. Income Taxes
Income taxes are provided in accordance with ASC 740, INCOME TAXES. A deferred
tax asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carry forwards. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
12
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
g. Foreign Currency Translation
The functional currency of the Company's Canadian subsidiaries is the applicable
local currency. The functional currency is translated into U.S. dollars for
balance sheet accounts using current exchange rates in effect as of the balance
sheet date and for revenue and expense accounts and cash flow items using a
weighted-average exchange rate during the reporting period. Adjustments
resulting from translation are included in accumulated comprehensive income
(loss), a separate component of shareholders' equity (deficit).
Monetary assets and liabilities denominated in foreign currencies are translated
using the exchange rate prevailing at the balance sheet date. Gains and losses
arising on translation or settlement of foreign currency denominated
transactions or balances are included in the determination of income. Foreign
currency transactions are primarily undertaken in Canadian dollars. The Company
has not, to the date of these consolidated financial statements, entered into
derivative instruments to offset the impact of foreign currency fluctuations.
h. Basic Earnings (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260,
EARNINGS PER SHARE. ASC 260 specifies the computation, presentation and
disclosure requirements for earnings (loss) per share for entities with publicly
held common stock. Basic net earnings (loss) per share amounts are computed by
dividing the net earnings (loss) by the weighted average number of common shares
outstanding. Diluted earnings (loss) per share are the same as basic earnings
(loss) per share due to the lack of dilutive items in the Company.
i. Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the periods presented. Actual
results could differ from those estimates.
Significant estimates made by management are, among others, realizability of
long-lived assets, deferred taxes and stock option valuation. Management reviews
its estimates on a quarterly basis and, where necessary, makes adjustments
prospectively.
j. Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718,
COMPENSATION - STOCK BASED COMPENSATION, and ASC 505-50, EQUITY BASED PAYMENTS
TO NON-EMPLOYEES, using the fair value method. All transactions in which goods
or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measurable. Equity instruments issued to employees and the cost of the
services received as consideration are measured and recognized based on the fair
value of the equity instruments issued.
k. Website Development Costs
The Company capitalizes website development costs in accordance with ASC 350,
INTANGIBLES - GOODWILL AND OTHER, whereby costs related to the preliminary
project stage of development are expensed and costs related to the application
development stage are capitalized. Any additional costs for upgrades and
enhancements which result in additional functionality will be capitalized.
Capitalized costs will be amortized based on their estimated useful life over
three years. Internal costs related to the development of website content are
charged to operations as incurred.
13
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
l. Comprehensive Income
ASC 220, COMPREHENSIVE INCOME, establishes standards for the reporting and
display of comprehensive income and its components in the consolidated financial
statements. As at August 31, 2012 and August 31, 2011, the Company`s only
component of comprehensive income (loss) was foreign currency translation
adjustments.
3. Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect
and that may impact its financial statements and does not believe that there are
any other new accounting pronouncements that have been issued that might have a
material impact on its financial position or results of operations.
4. Property and equipment
August 31, 2012 May 31, 2012
Accumulated Net Carrying Net Carrying
Cost Depreciation Value Value
---- ------------ ----- -----
$ $ $ $
Computer equipment 7,812 (5,952) 1,860 310
Asset under construction 69,226 -- 69,226 66,060
Wind tower equipment 22,116 (21,725) 391 456
------- ------- ------- -------
99,154 (27,677) 71,477 66,826
====== ======= ====== ======
5. Note Payable
During the year ended May 31, 2011, the Company received advances from third
parties in the amount of $60,324. During the year ended May 31, 2012, the
Company repaid $10,324. At August 31, 2012, advances of $50,000 remain
outstanding. The amount is unsecured, non-interest bearing and due on demand.
6. Preferred Stock
On July 11, 2009, the Company entered into a voting and exchange trust agreement
among its subsidiary, Keewatin Wind Power Corp., and Valiant Trust Company
(Valiant Trust) whereby the Company issued and deposited with Valiant Trust one
special preferred voting share of the Company in order to enable Valiant Trust
to execute certain voting and exchange rights as trustee from time to time for
and on behalf of the registered holders of the preferred shares of Keewatin Wind
Power Corp. Each preferred share of Keewatin Wind Power Corp. is exchangeable
into one share of common stock of the Company at the election of the
shareholder, or, in certain circumstances, of the Company.
As of August 31, 2012, the Company had issued 885,000 shares of common stock to
holders of 885,000 shares of exchangeable preferred shares of its subsidiary
Keewatin Wind Power Corp., pursuant to them exercising their exchange rights. As
of August 31, 2012, there were 15,680,016 outstanding exchangeable shares (May
31, 2012 - 15,680,016 shares).
As the exchangeable shares have already been recognized in connection with the
acquisition of Sky Harvest - Saskatchewan, the value ascribed to these shares on
exchange is $Nil.
14
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
7. Related Party Transactions
a) During the three months ended August 31, 2012, the Company incurred $14,838
(2011 - $15,885) to a company controlled by the President and principal
shareholder of the Company for management services. As at August 31, 2012, the
Company is indebted to that company and the Company's President for $39,302 (May
31, 2012 - $21,080), which is non-interest bearing, unsecured and due on demand.
b) On June 18, 2010, the Company entered into a loan agreement with a director
for $27,000 which is payable within three months a written demand is received
from the note holder. The amount is unsecured and bears interest at 15% per
annum. As at August 31, 2012, accrued interest of $8,932 was recorded. During
the year ended May 31, 2011, the Company received an advance of $72,030
(CDN$71,000) from the same director. During the year ended May 31, 2012, the
Company repaid $40,580 (CDN$40,000). At August 31, 2012, $31,450 (CDN$31,000) is
unsecured, non-interest bearing and has no terms of repayment.
These related party transactions are recorded at the exchange amount, being the
amount established and agreed to by the related parties.
8. Common Stock
During the three months ended August 31, 2012, the Company received stock
subscriptions of $49,500 for 198,000 shares of common stock issued on May 29,
2012.
9. Stock Based Compensation
On September 11, 2009, the Company's board of directors adopted the 2009 Stock
Option Plan ("2009 Plan") which provides for the granting of stock options to
acquire up to 2,900,000 common shares of the Company to eligible employees,
officers, directors and consultants of the Company. At August 31, 2012, the
Company had 1,650,000 shares of common stock available to be issued under the
Plan.
On March 10, 2011, the Company's board of directors adopted the 2011 Stock
Option Plan ("2011 Plan") which provides for the granting of stock options to
acquire up to 5,000,000 common shares of the Company to eligible employees,
officers, directors and consultants of the Company. At August 31, 2012, the
Company had 1,410,000 shares of common stock available to be issued under the
Plan.
The following table summarizes the continuity of the Company's stock options:
Weighted
Average
Weighted Remaining
Average Contractual Aggregate
Number of Exercise Term Intrinsic
Options Price (years) Value
------- ----- ------- -----
$ $
Outstanding: May 31, 2011 3,183,334 0.23
Granted 990,000 0.10
--------- ----
Outstanding: May 31, 2012
August 31, 2012 4,173,334 0.20 3.59 --
--------- ---- ---- ----
Exercisable: August 31, 2012 4,173,334 0.20 3.59 --
--------- ---- ---- ----
At August 31, 2012, there was $nil of unrecognized compensation costs related to
non-vested share-based compensation arrangements granted under the 2009 Plan and
2011 Plan.
15
Sky Harvest Windpower Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2012
(Expressed in US Dollars)
(Unaudited)
10. Joint Venture
On February 3, 2012, the Company and its joint venture partner incorporated a
British Columbia corporation under the name Levant Energy Inc. ("Levant") for
the purposes of developing underground natural gas storage plants in the
Republic of Turkey. The Company will initially hold a 65% interest in Levant by
investing $500,000. The investment is subject to certain conditions, including
completion of further equity or debt funding in order to finance acquisition.
The Company's joint venture partner will hold the remaining 35% interest in
Levant. At August 31, 2012, the Company and its joint venture partner have not
made any contribution to Levant and operations have not yet begun.
11. Commitments and Contingencies
a) On February 23, 2009, the Company entered into a consulting agreement with a
consultant (the "Consultant"). Pursuant to the agreement, the Consultant
provided investor relations services for the Company from February 24, 2009 to
July 5, 2009. In consideration for the investor relations services, the Company
agreed to pay the Consultant $5,000 per month and to issue 15,000 shares of the
Company's common stock. At August 31, 2012, the fair value of the 15,000 shares
issuable was $6,750 and is included in common stock subscribed.
b) On February 3, 2012, the Company entered into a consulting agreement with a
consultant. Pursuant to the agreement, the consultant will introduce the Company
potential acquisition and investment opportunities in the energy sector, as well
as any related sectors. If the Company completes an acquisition of any interest
in any company or assets as a result of the consultant's introduction to
investment opportunity, the Company shall pay the consultant a success fee equal
to 10% of the value of the transaction in shares of the Company's common stock.
The Company may also pay such success fees in cash, or a combination of shares
and cash. If the Company completes transactions as a result of the consultant's
introductions with an aggregate value of at least $3,000,000, including any
concurrent financings, the consultant shall have the option to cause the Company
to enter into an employment agreement with him, join the Company's Board of
Directors, and be appointed as the Company's President and Chief Executive
Officer. The term of the agreement is three years.
12. Subsequent Events
In accordance with ASC 855, SUBSEQUENT EVENTS, the Company has evaluated
subsequent events through the date of issuance of the audited consolidated
financial statements. Subsequent to the fiscal period ended August 31, 2012, the
Company did not have any material recognizable subsequent events.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read together with our
Consolidated Financial Statements and the Notes to those statements included
elsewhere in this quarterly report on Form 10-Q and the Consolidated Financial
Statements and the Notes to those statements included in our Form 10-K for the
year ended May 31, 2012. Certain statements contained herein constitute
"forward-looking statements" as defined in the U.S. Private Securities
Litigation Reform Act of 1995. In some cases forward-looking statements can be
identified by terminology, such as "believes," "anticipates," "expects,"
"estimates," "plans," "may," "intends," or similar terms. These statements
appear in a number of places in this Form 10-Q and include statements regarding
the intent, belief or current expectations of our company, its directors or its
officers with respect to, among other things: (i) trends affecting our financial
condition or results of operations, (ii) our business and growth strategies and
(iii) our financing plans. Investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled "Risk Factors", that may
cause our company's or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements.
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. Except as required by applicable law,
including the securities laws of the United States, we undertake no obligation
to update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur.
Our consolidated financial statements are stated in United States dollars and
are prepared in accordance with United States generally accepted accounting
principles. In this quarterly report, unless otherwise specified, all references
to "common shares" refer to the common shares in our capital stock and the terms
"we", "us" and "our", "the Company" and "Sky Harvest" mean Sky Harvest Windpower
Corp., a Nevada Corporation and its subsidiaries.
CORPORATE OVERVIEW
We were incorporated in the State of Nevada on February 25, 2005. We are a
development stage company in the business of electrical power generation through
the use of wind energy. We have not generated any revenue from operations since
our incorporation. We do not anticipate earning any revenue until the completion
of an environmental assessment on our properties, securing a power purchase
agreement and erecting and commissioning wind turbines on our properties, of
which there is no guarantee.
RECENT CORPORATE DEVELOPMENTS
1. ADOPTION OF THE 2011 STOCK OPTION PLAN
Effective March 10, 2011, our board of directors adopted the 2011
Stock Option Plan. The purpose of the 2011 Stock Option Plan is to
enhance the long-term stockholder value of our company by offering
opportunities to directors, officers, employees and eligible
consultants of our company to acquire and maintain stock ownership in
our company in order to give these persons the opportunity to
participate in our company's growth and success, and to encourage them
to remain in the service of our company. A total of 5,000,000 shares
of common stock are available for issuance under the 2011 Stock Option
Plan. As at August 31, 2012, we have granted stock options pursuant to
the 2011 Stock Option Plan, and all prior stock option plans, on a
total of 4,173,334 shares of our common stock.
The 2011 Stock Option Plan provides for the grant of incentive stock
options and non-qualified stock options. Incentive stock options
granted under the 2011 Stock Option Plan are those intended to qualify
17
as "incentive stock options" as defined under Section 422 of the
Internal Revenue Code. However, in order to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code, the
2011 Stock Option Plan must be approved by the stockholders of our
company within 12 months of its adoption. The 2011 Stock Option Plan
has not been approved by our stockholders. Non-qualified stock options
granted under the 2011 Stock Option Plan are option grants that do not
qualify as incentive stock options under Section 422 of the Internal
Revenue Code.
2. NATURAL GAS STORAGE JOINT VENTURE
On February 6, 2012, we announced our formation of a British Columbia
joint venture corporation under the name Levant Energy Inc. for the
purposes of developing underground natural gas storage plants in the
Republic of Turkey. We will initially hold a 65% interest in the joint
venture by investing $500,000 in the newly formed subsidiary. The
investment is subject to certain conditions, including Sky Harvest's
completion of further equity or debt funding in order to finance the
acquisition. The joint venture intends to use these proceeds to
identify and commence securing proposed natural gas storage sites, as
well as starting associated permitting processes. To date, we have not
raised any of the required $500,000 investment. It is anticipated that
Sky Harvest's interest in Levant Energy Inc. will be diluted as
additional funds are raised.
3. AGREEMENT WITH MR. BERTAN ATALAY
On February 6, 2012, we entered into an agreement with Mr. Bertan
Atalay of The Hague, Netherlands whereby he will act as President and
CEO of Levant Energy Inc. In addition, Mr. Atalay agreed to act as a
consultant to Sky Harvest for the purpose of introducing us to
additional acquisition opportunities in renewable energy and related
sectors, including wind power development opportunities in North
America, Turkey, and other regions of Europe. We have agreed to
compensate Mr. Atalay based on the successful completion of such
transactions with a success fee equal to 10% of the transaction's
value.
RESULTS OF OPERATIONS
The following summary of our results of operations should be read in conjunction
with our unaudited interim consolidated financial statements for the fiscal
quarter ended August 31, 2011, which are included herein.
Three months ended August 31,
2012 2011 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Revenue 0 0 0 N/A
Expenses 62,885 131,154 (68,269) (32.1%)
Foreign exchange (gain) loss (50,571) 6,914 (57,485) (831.4%)
Settlement of Debt 0 (3,429) 3,429 N/A
Interest income (9) 0 (9) N/A
-------- -------- -------- --------
Net Loss 12,305 134,639 (122,334) (90.9%)
======== ======== ======== ========
REVENUES
We recorded a net operating loss of $12,305 for the fiscal quarter ended August
31, 2012 and have an accumulated deficit of $6,763,841 since inception. We have
had no operating revenue since our inception on February 25, 2005 through to the
fiscal quarter ended August 31, 2012. We anticipate that we will not generate
any revenue while we are a development stage company.
18
EXPENSES
Our expenses for the three months ended August 31, 2012 and 2011 are outlined
below:
Three months ended August 31,
2012 2011 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Consulting fees 0 14,685 (14,685) (100%)
Engineering and development 15,605 73,293 (57,688) (78.7%)
Management fees 14,838 15,885 (1,047) (6.6%)
Professional fees 21,859 17,937 3,922 21.9%
General and administrative 10,583 9,354 1,229 13.1%
------- ------- ------- --------
Net Operating Loss 62,885 131,154 (68,269) (52.1%)
======= ======= ======= ========
Consulting expenses decreased by $14,685 in the three month period ended August
31, 2012 compared to the three month period ended August 31, 2011. We did not
pay any consulting fees during the most recent fiscal quarter.
Engineering and development expenses decreased by $57,688 in the three month
period ended August 31, 2012 compared to the three month period ended August 31,
2012. This decrease is a result of a decline in development and maintenance work
on our wind power projects.
Management fees decreased by $1,047 in the three month period ended August 31,
2012 compared to the three month period ended August 31, 2011. William Iny, our
president and sole director, has provided us with management services for
remuneration of $5,000 per month, which has been accrued.
Professional fees, consisting primarily of legal and accounting costs, increased
by $3,922 in the three month period ended August 31, 2012 compared to the three
month period ended August 31, 2011. This increase is due to slightly higher
accounting and legal costs that we incurred in the current fiscal year.
General and administrative expenses increased by $1,229 in the three month
period ended August 31, 2012 compared to the three month period ended August 31,
2011.
FOREIGN EXCHANGE (GAIN) LOSS
Foreign currency transactions are primarily undertaken in Canadian dollars.
Foreign exchange gains and losses arise from the translation of transactions in
Canadian dollars into US dollars. Foreign currency exchange rates fluctuate, and
gains and losses resulting from these fluctuations recognized as they occur.
Company has not, to the date of this report, utilized derivative instruments to
offset the impact of foreign currency fluctuations.
INTEREST INCOME
We did not generate any significant interest in the three month period ended
August 31, 2012.
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition as at August 31, 2012, and May 31, 2012, our fiscal year
end, and the changes for on those dates are summarized as follows:
19
WORKING CAPITAL
August 31, May 31,
2012 2011 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Current Assets 172,639 157,125 15,514 9.9%
Current Liabilities 333,727 295,323 38,404 13.0%
-------- -------- -------- --------
Working Capital (161,088) (138,198) (22,890) N/A
======== ======== ======== ========
The decrease in our working capital position of $22,890 from May 31, 2012, the
date of our most recently fiscal year end, to August 31, 2012 was primarily due
to accounts payable and accrued liabilities that we incurred during the period.
CASH FLOWS
Three months ended August 31,
2012 2011 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Cash Flows provided by (used in) Operating Activities 34,977 (196,866) 231,843 N/A
Cash Flows provided by (used in) Investing Activities (1,660) -- (1,660) N/A
Cash Flows provided by Financing Activities 49,500 398,686 (349,186) (87.6%)
Effect of exchange rate changes on cash (57,200) 10,716 (67,916) (633.8%)
-------- -------- -------- --------
Net increase (decrease) in cash during period 25,617 212,536 (186,919) (87.9%)
======== ======== ======== ========
During the three months ended August 31, 2012, the $34,977 in cash flows were
provided by operating activities, which primarily consisted of increase in
accounts payable and due to related parties.
We used net cash in operating activities in the amount of $(34,977). This cash
outflow primarily consisted of payments for general and administrative expenses,
audit fees, and wind property lease payments.
The $398,686 in cash flows provided by financing activities during the three
months ended August 31, 2011 primarily consisted of private placement proceeds
and proceeds from a short-swing sale disgorgement from one of our directors.
DISCLOSURE OF OUTSTANDING SHARE DATA
WARRANTS
None
SHARE OPTIONS
We have granted stock options to directors, officers and key advisors to acquire
up to 4,173,334 shares of common stock exercisable at various prices.
20
A summary of our stock option activity is as follows:
Weighted
Average
Number of Exercise
Options Price
------- -----
$
Balance as at May 31, 2011 3,183,334 0.23
Granted 990,000 0.10
Outstanding: August 31, 2012 and May 31, 2012 4,173,334 0.20
--------- ----
Exercisable: August 31, 2012 4,173,334 0.20
========= ====
FUTURE FINANCINGS
We recorded a net loss of $12,305 for the three month period ended August 31,
2012 and have an accumulated deficit of $6,763,841 since inception. As of August
31, 2012 we had cash and cash equivalents totaling $170,303 (May 31, 2012 -
$144,686).
As of the date of this report, management anticipates that we will require at
least $750,000 to fund our corporate operations and proposed natural gas storage
project costs for the next 12 months. As well, we will require approximately an
additional $350,000 to cover our current outstanding liabilities. Accordingly,
we do not have sufficient funds to meet our planned expenditures over the next
12 months. In addition, we will require further financing in order to fund our
anticipated expenses for the construction of the proposed wind turbine project.
We have begun sourcing additional debt or equity financing to cover the balance
of the anticipated costs for the next 12 months. However, there is no assurance
that we will successfully complete this financing. We have not had any specific
communications with any representative of a debt financing institution regarding
our proposed wind power project. We will only be able to secure debt financing
for wind turbines if we are able to prove that an economic wind resource exists
on a site over which we have acquired the rights to erect turbines and that we
have negotiated a power purchase agreement with a credit-worthy counter-party.
We anticipate continuing to rely on equity sales of our common shares in order
to continue to fund our business operations. Issuances of additional shares will
result in dilution to our existing shareholders. We may also seek to raise
additional cash by the issuance of debt instruments. As of the date of this
report, there is no assurance that we will achieve any additional sales of our
equity securities or arrange for debt or other financing to fund our exploration
and development activities during the next 12 month period.
OFF BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to stockholders.
RISKS RELATED TO OUR BUSINESS
IF WE DO NOT OBTAIN ADDITIONAL FINANCING OUR BUSINESS WILL FAIL.
Over the next 12 months, we expect to spend approximately $250,000 on
administrative costs, including management fees payable to our President,
professional fees and general business expenses, including costs related to
complying with our filing obligations as a reporting company. As our operations
become more complex, it is anticipated that these costs will increase.
As of the date of this report, we do not have sufficient cash on hand to fund
these expenditures. We will need to raise additional debt or equity financing in
order to cover remaining business costs.
21
BECAUSE WE HAVE NOT COMMENCED BUSINESS OPERATIONS, WE FACE A HIGH RISK OF
BUSINESS FAILURE.
We have not yet commenced business operations as an independent power producer;
accordingly, we have no way to evaluate the likelihood that our business will be
successful. We were incorporated on February 25, 2005 and to date have been
involved in conducting land assessments, acquiring leasehold interests in
properties having the potential for wind power development, raising financing
and completing wind, environmental and community assessments.
Potential investors should be aware of the difficulties normally encountered by
development stage companies and the high rate of failure of such enterprises.
Prior to earning revenue, of which there is no assurance, we will likely incur
significant costs and expect to incur significant losses in the foreseeable
future. If we are unable to acquire a property interest and erect a wind farm on
our property, we will not earn profits nor be able to continue operations.
BECAUSE OUR CONTINUATION AS A GOING CONCERN IS IN DOUBT, WE WILL BE FORCED TO
CEASE BUSINESS OPERATIONS UNLESS WE CAN GENERATE PROFITABLE OPERATIONS IN THE
FUTURE.
We have incurred losses since our inception. Further losses are anticipated in
the development of our business. As a result, there is substantial doubt about
our ability to continue as a going concern. Our ability to continue as a going
concern is dependent in the short to medium term on our ability to obtain the
necessary financing to meet our obligations and repay our liabilities arising
from normal business operations when they come due, and in the longer term, on
upon our ability to generate profitable operations in the future. If we cannot
raise financing to meet our obligations, we will be insolvent and will cease
business operations.
IF WE ARE NOT ABLE TO OBTAIN AN INTEREST IN A SUITABLE PROPERTY WITH A POTENTIAL
WIND RESOURCE, OUR BUSINESS WILL FAIL.
Third parties own the lands on which we will seek to construct wind projects. We
have entered into land lease agreements covering approximately 15,520 acres that
relate to our primary project, which is located in southwestern Saskatchewan,
which we refer to as the Sky Harvest Project. These agreements allow us to erect
wind turbines and install ancillary equipment, subject, in certain
circumstances, to the payment of lease payments prior to construction of the
project. Even though we own leasehold interests in these properties, we may not
be able to obtain the financing necessary to complete lease obligations. If we
are unable to maintain our property interests, our business will fail.
We will need to enter into land leases or other appropriate agreements in order
to erect wind turbines and install ancillary equipment on the Keewatin Project
and Matador Project sites, which are also located in southwestern Saskatchewan.
We have entered into agreements to operate meteorological towers on the
properties comprising the Keewatin and Matador Projects in southwestern
Saskatchewan. However, we do not yet have an arrangement whereby we may erect
turbines on the properties.
FUTURE CHANGES IN WEATHER PATTERNS COULD NEGATIVELY IMPACT OUR BUSINESS,
REDUCING POTENTIAL PROFITABILITY OR CAUSING OUR BUSINESS TO FAIL.
Changes in weather patterns may affect our ability to operate a wind power
project on any property we acquire. Wind data that we collect from a
meteorological tower may vary from results actually achieved when a wind turbine
is installed. Changing global environmental and weather conditions may also
affect the reliability of the data relating to a property.
Any wind farm that we develop, no matter where it is located, would be subject
to variations in wind and changes in worldwide climatic conditions. Sudden or
unexpected changes in environmental and meteorological conditions could reduce
the productivity of any wind farm we construct. Climatic weather patterns,
whether seasonal or for an extended period of time, resulting in lower,
inadequate and/or inconsistent wind speed to propel the wind turbines may render
our wind parks incapable of generating adequate, or any, electrical energy.
22
OUR ABILITY TO ERECT TURBINES ON A PROPERTY IN SASKATCHEWAN WILL BE CONTINGENT
UPON IT OBTAINING ENVIRONMENTAL AND MUNICIPAL PERMITS. IF IT CANNOT ACQUIRE
THESE PERMITS, OUR BUSINESS WILL FAIL.
In order to erect turbines on the Saskatchewan property, we must excavate
portions of the land and install concrete platforms below surface. Before we
commence this, we will need to obtain environmental and municipal permits from
the Saskatchewan provincial government and the town responsible for the property
interest it acquires. Depending on environmental impact, our proposed land
disturbance may be unacceptable to these government bodies. In addition, the
turbines themselves may be seen to have a negative impact on the aesthetics of
the region. These factors may prevent us from obtaining necessary permits. In
such circumstances, we would be forced to abandon our business plan.
IF WE CANNOT REACH AN AGREEMENT WITH A JOINT VENTURE DEVELOPER AND OPERATOR OUR
BUSINESS WILL FAIL.
As presently constituted, we do not have the skills and expertise necessary to
build and operate a wind farm. Our management has never been involved in the
construction or operation of a wind power project and does not have any
technical background in the sector.
IF WE CANNOT FIND A JOINT VENTURE PARTNER FOR OUR PROJECTS OR A PARTY WHICH WILL
PURCHASE OUR ELECTRICITY ON ACCEPTABLE TERMS, WE WILL NOT BE ABLE TO ESTABLISH A
WIND POWER PROJECT AND OUR BUSINESS WILL FAIL.
Even if we demonstrate a significant wind resource on a property that we
acquire, we may not be able to secure a joint venture partner to further develop
a project or a purchaser for any electricity that we produce on acceptable
terms. Without a purchaser for electricity from a property, we will not be able
to proceed with our business plan.
BECAUSE ALL OF OUR ASSETS, AND OUR DIRECTORS AND OFFICERS ARE LOCATED IN CANADA,
U.S. RESIDENTS' ENFORCEMENT OF LEGAL PROCESS MAY BE DIFFICULT.
All of our assets are located in Canada. In addition, our sole officer and half
of our directors reside in Canada. Accordingly, service of process upon our
company, or upon individuals related to Sky Harvest, may be difficult or
impossible to obtain within the United States. As well, any judgment obtained in
the United States against us may not be collectible within the United States.
RISKS RELATED TO OUR COMMON STOCK
A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE
FURTHER WORKING CAPITAL, IT MAY ADVERSELY IMPACT OUR ABILITY TO CONTINUE
OPERATIONS AND WE MAY GO OUT OF BUSINESS.
A prolonged decline in the price of our common stock could result in a reduction
in the liquidity of our common stock and a reduction in our ability to raise
capital. Because we may attempt to acquire a significant portion of the funds we
need in order to conduct our planned operations through the sale of equity
securities, a decline in the price of our common stock could be detrimental to
our liquidity and our operations because the decline may cause investors not to
choose to invest in our stock. If we are unable to raise the funds we require
for all of our planned operations, we may force us to reallocate funds from
other planned uses which may have a significant negative effect on our business
plan and operations, including our ability to develop new products and continue
our current operations. As a result, our business may suffer and not be
successful and we may go out of business. We also might not be able to meet our
financial obligations if we cannot raise enough funds through the sale of our
common stock and we may be forced to go out of business.
IF WE ISSUE ADDITIONAL SHARES IN THE FUTURE, IT WILL RESULT IN THE DILUTION OF
OUR EXISTING SHAREHOLDERS.
Our certificate of incorporation authorizes the issuance of up to 100,000,000
shares of common stock with a par value of $0.001. Our board of directors may
choose to issue some or all of such shares to acquire one or more businesses or
to provide additional financing in the future. The issuance of any such shares
will result in a reduction of the book value and market price of the outstanding
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shares of our common stock. If we issue any such additional shares, such
issuance will cause a reduction in the proportionate ownership and voting power
of all current shareholders. Further, such issuance may result in a change of
control of our corporation.
TRADING ON THE OTC MARKETS MAY BE VOLATILE AND SPORADIC, WHICH COULD DEPRESS THE
MARKET PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR OUR STOCKHOLDERS TO
RESELL THEIR SHARES.
Our common stock is quoted on OTC Markets. Trading in stock quoted on the OTC
Markets is often thin and characterized by wide fluctuations in trading prices
due to many factors that may have little to do with our operations or business
prospects. This volatility could depress the market price of our common stock
for reasons unrelated to operating performance. Moreover, the OTC Markets is not
a stock exchange, and trading of securities on the OTC Markets is often more
sporadic than the trading of securities listed on a quotation system like NASDAQ
or a stock exchange like the American Stock Exchange. Accordingly, our
shareholders may have difficulty reselling any of their shares.
OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S
PENNY STOCK REGULATIONS AND FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT
A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
Our stock is a penny stock. The Securities and Exchange Commission has adopted
Rule 15g-9 which generally defines "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. Our securities are
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and "accredited investors". The term "accredited investor" refers
generally to institutions with assets in excess of $5,000,000 or individuals
with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in, and limit the marketability of, our common stock.
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY
AND SELL OUR STOCK.
In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission (see above for a discussion of penny stock rules), FINRA
rules require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures at August 31, 2012, which is the end of the period covered by this
report. This evaluation was carried out by our principal executive officer and
principal financial officer. Based on this evaluation, our principal executive
officer and principal financial officer has concluded that the design and
operation of our disclosure controls and procedures were effective as at the end
of the period covered by this report.
Based on his evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our internal controls over financial reporting were not effective
as of August 31, 2012 and were subject to material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company's annual or interim
financial statements will not be prevented or detected on a timely basis. We
have identified the following material weaknesses in our internal control over
financial reporting using the criteria established in the COSO, namely:
1. Failing to have an audit committee or other independent committee that
is independent of management to assess internal control over financial
reporting; and
2. Failing to have a director that qualifies as an audit committee
financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by our company in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by our company in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
During the three months ended August 31, 2012, our internal control over
financial reporting was not subject to any changes.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings that have been
commenced or are pending.
ITEM 1A. RISK FACTORS
Not applicable
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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
ITEM 6. EXHIBITS
Filed
Exhibit with this
Description No. Form Filing date Form 10-Q
----------- --- ---- ----------- ---------
ARTICLES OF INCORPORATION AND BYLAWS
Articles of Incorporation 3.1 SB-2 July 14, 2005
Bylaws 3.2 SB-2 July 14, 2005
Certificate of designation 3.3 8-K July 13, 2009
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Form of Warrant Certificate for July 13, 2007 Private 4.1 10-QSB January 14, 2008
Placement
MATERIAL CONTRACTS--FINANCING AGREEMENTS
Form of Subscription Agreement for July 13, 2007 10.2 10-QSB January 14, 2008
Private Placement for US Subscribers
Form of Subscription Agreement for July 13, 2007 10.3 10-QSB January 14, 2008
Private Placement for Non-US Subscribers
MATERIAL CONTRACTS--OTHER
Consent to Entry/Right of Access Agreement between 10.4 SB-2 September 29, 2005
Keewatin Windpower Corp. and Edward and Charlotte
Bothner, dated August 23, 2005
Letter of Intent between Keewatin Windpower Corp. and 10.5 10-QSB January 14, 2008
Sky Harvest Windpower Corp. dated March 27, 2007
Loan Agreement between Sky Harvest Windpower Corp. 10.6 10-QSB January 14, 2009
and Keewatin Windpower Corp. dated September 23,
2008
Promissory Note of Sky Harvest Windpower Corp. dated 10.7 10-QSB January 14, 2009
September 23, 2008
Financial Communications and Strategic Consulting 10.8 8-K March 3, 2009
Agreement with Aspire Clean Tech Communications, Inc.
dated February 23, 2009
Promissory Note of Sky Harvest Windpower Corp. dated 10.9 10-Q August 31, 2009
September 23, 2008
26
Loan Agreement between Sky Harvest Windpower Corp. 10.10 10-Q August 31, 2009
and Keewatin Windpower Corp. dated January 28, 2009
Share exchange agreement between Keewatin Windpower 10.11 8-K July 10, 2009
Corp. and Sky Harvest Windpower Corp. dated May 11,
2009
Exchangeable share support agreement between Keewatin 10.12 8-K July 10, 2009
Windpower Corp. and Keewatin Windpower Inc. dated May
11, 2009
Voting and exchange trust agreement between Keewatin 10.13 8-K July 10, 2009
Windpower Corp., Keewatin Windpower Inc. and Valiant
Trust Company dated May 11, 2009
Articles of Merger filed between Keewatin Windpower 10.14 8-K September 17, 2009
Corp. and Sky Harvest Windpower Corp. filed September
1, 2009
Adoption of 2009 Stock Option Plan dated September 10.15 8-K September 23, 2009
11, 2009
CODE OF ETHICS
Code of Ethics 14.1 10-K August 31, 2009
Certification Statement of the Chief Executive 31.1 *
Officer and Chief Financial Officer pursuant to
Section 302 of the Sarbanes- Oxley Act of 2002
Certification Statement of the Chief Executive 32.1 *
Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act Of 2002
Interactive Data Files pursuant to Rule 405 of 101 *
Regulation S-T.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SKYHARVEST WINDPOWER CORP.
/s/ William Iny
-------------------------------------------
William Iny
Chief Executive Officer and Chief Financial
Officer, Principal Executive Officer,
Principal Accounting Officer and Principal
Financial Officer
Date: October 22, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ William Iny
-------------------------------------------
William Iny
Chief Executive Officer, Chief Financial
Officer, President, Treasurer, Secretary,
and Director, Principal Executive Officer,
Principal Accounting Officer and Principal
Financial Officer
Date: October 22, 2012
28