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, 2013
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 ENERGY 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.)
1200 West 73rd Avenue, 11th Floor, Vancouver, BC, Canada V6P 6G5
(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 [ ] No [X]
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.
33,203,016 shares of common stock are issued and outstanding as of October 28,
2013 (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, 2013 and
May 31, 2013 3
CONSOLIDATED STATEMENTS OF OPERATIONS for the Three Months Ended
August 31, 2013 and 2012, and for the period since inception 4
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three Months Ended
August 31, 2013 and 2012, and for the period since inception 5
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 1A. Risk Factors 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Mine Safety Disclosures 17
Item 5. Other Information 17
Item 6. Exhibits 18
SIGNATURES 20
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Sky Harvest Energy Corp.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in US Dollars)
(Unaudited)
August 31, May 31,
2013 2013
---------- ----------
$ $
ASSETS
Current Assets
Cash and cash equivalents 43,124 103,439
Other receivables 7,530 5,742
Prepaid expenses 11,576 1,138
----------- -----------
Total Current Assets 62,230 110,319
Property and equipment, net (Note 4) 6,742 1,400
Intangible assets (Note 5) 193,730 --
----------- -----------
Total Assets 262,702 111,719
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable 193,019 183,485
Accrued liabilities 31,441 347
Due to related parties (Note 8) 195,517 155,381
Note payable (Note 6) 50,000 50,000
----------- -----------
Total Liabilities 469,976 389,213
----------- -----------
Stockholders' Deficit
Preferred Stock:
Authorized: 10,000,000 shares, $0.001 par value
Issued and outstanding: 1 share (May 31, 2013 - 1 share) -- --
Common Stock:
Authorized: 100,000,000 shares, $0.001 par value
Issued and outstanding: 33,203,016 shares
(May 31, 2013 - 32,553,016 shares) 33,203 32,553
Additional paid-in capital 6,973,627 6,707,278
Common stock subscribed (Note 12) 6,750 6,750
Accumulated other comprehensive loss 15,417 (6,098)
Deficit accumulated during the development stage (7,236,272) (7,017,977)
----------- -----------
Total Stockholders' Deficit (207,275) (277,494)
----------- -----------
Total Liabilities and Stockholders' Deficit 262,702 111,719
=========== ===========
Continuing operations (Note 1)
Commitments and contingencies (Note 12)
(The accompanying notes are an integral part of these
consolidated financial statements)
3
Sky Harvest Energy 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,
2013 2013 2012
------------ ------------ ------------
$ $ $
Expenses
Consulting fees 504,934 54,000 --
Engineering and development 613,397 1,167 15,605
Management fees (Note 8) 909,444 114,736 14,838
Professional fees 566,752 13,038 21,859
General and administrative 1,853,355 17,909 10,583
Acquired development costs 242,501 -- --
------------ ------------ ------------
Operating loss (4,690,383) (200,850) (62,885)
Other Income (Loss)
Impairment loss (2,618,271) -- --
Interest income 89,391 -- 9
Foreign exchange gain (loss) (5,022) (17,445) 50,571
Settlement of debt (11,987) -- --
------------ ------------ ------------
Net loss (7,236,272) (218,295) (12,305)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments 15,417 21,515 (55,434)
------------ ------------ ------------
Comprehensive loss (7,220,855) (196,780) (67,739)
============ ============ ============
Net loss per common share - basic and diluted (0.01) (0.00)
------------ ------------
Weighted average number of common stock outstanding 32,956,000 32,553,000
------------ ------------
(The accompanying notes are an integral part of these
consolidated financial statements)
4
Sky Harvest Energy 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,
2013 2013 2012
------------ ------------ ------------
$ $ $
Operating activities
Net loss for the period (7,236,272) (218,295) (12,305)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 24,892 187 215
Stock-based compensation 1,744,564 134,999 --
Impairment loss 2,618,271 -- --
Loss (gain) on settlement of debt 11,987 -- --
Acquired development costs 242,501 -- --
Changes in operating assets and liabilities:
Prepaid expenses 558 (10,438) --
Accrued interest 244 -- 774
Accounts payable and accrued liabilities 181,152 14,987 17,724
Account receivable (25,887) (1,788) 9,329
Note receivable (280,000) -- --
Due to related parties 134,039 40,593 19,240
------------ ------------ ------------
Net cash flows (used in) provided by operating activities (2,583,951) (39,755) 34,977
------------ ------------ ------------
Investing activities
Purchase of equipment (30,709) (5,545) (1,660)
Purchase of intangible assets (36,089) (36,089) --
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 used in investing activities (25,137) (41,634) (1,660)
------------ ------------ ------------
Financing activities
Proceeds from common stock issuances 2,415,249 -- 49,500
Proceeds from (repayment of) related party loans 62,854 -- --
Proceeds from (repayment of) note payable 50,000 -- --
Proceeds from swing sale disgorgement 118,900 -- --
------------ ------------ ------------
Net cash flows provided by financing activities 2,647,003 -- 49,500
------------ ------------ ------------
Effect of exchange rate changes on cash 5,209 21,074 (57,200)
------------ ------------ ------------
Increase (Decrease) in cash and cash equivalents 43,124 (60,315) 25,617
Cash and cash equivalents - beginning of period -- 103,439 144,686
------------ ------------ ------------
Cash and cash equivalents - end of period 43,124 43,124 170,303
============ ============ ============
Supplemental Cash Flow and Other Disclosures (Note 13)
(The accompanying notes are an integral part of these
consolidated financial statements)
5
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2013
(Expressed in US Dollars)
(Unaudited)
1. Organization and Description of Business
Sky Harvest Energy 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, development of its business plan for
the exploration and development of wind power projects in Canada and
manufacturing and selling wind turbines. On August 13, 2013, the Company changed
its name from "Sky Harvest Windpower Corp." to "Sky Harvest Energy Corp."
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.
On July 5, 2013, the Company entered into an asset purchase agreement whereby
the Company acquired all the property, assets and undertaking of the vertical
axis wind turbine manufacturing and sales business as a going concern, including
all intellectual property rights, leasehold interests in two manufacturing
facilities and related equipment, client and contact lists, and unfulfilled
purchase orders. In connection with the asset acquisition, the Company has
incorporated a wholly-owned subsidiary under the name "Sky Vertical Technologies
Inc." ("Sky Vertical") which holds the assets and will undertake operations.
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, 2013, the Company
has accumulated losses of $7,236,272 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., Sky Harvest -
Saskatchewan and Sky Vertical. All significant intercompany transactions and
balances have been eliminated. The Company has elected a May 31 year-end.
b. Interim Financial Statements
The interim unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Securities and Exchange
Commission ("SEC") Form 10-Q. They do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Therefore, these financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended May 31, 2013, included in the Company's Annual Report on Form
10-K filed on October 16, 2013 with the SEC.
6
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2013
(Expressed in US Dollars)
(Unaudited)
2. Significant Accounting Polices (continued)
b. Interim Financial Statements (continued)
The consolidated financial statements included herein are unaudited; however,
they contain all normal recurring accruals and adjustments that, in the option
of management, are necessary to present fairly the Company's financial position
at August 31, 2013, and the results of its operations and cash flows for the
three months ended August 31, 2013. The results of operations for the three
months ended August 31, 2013, are not necessarily indicative of the results to
be expected for future quarters or the full year.
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, 2013 May 31, 2013
Accumulated Net Carrying Net Carrying
Cost Depreciation Value Value
---- ------------ ----- -----
$ $ $ $
Computer equipment 7,314 (6,247) 1,067 1,205
Asset under construction 5,545 -- 5,545 --
Wind tower equipment 22,116 (21,986) 130 195
-------- -------- -------- --------
34,975 (28,233) 6,742 1,400
======== ======== ======== ========
5. Intangible Assets
On July 5, 2013, the Company entered into an asset purchase agreement whereby
the Company acquired various assets related to vertical axis wind turbine
manufacturing. In connection with the acquisition, the Company has incorporated
a wholly-owned subsidiary under the name Sky Vertical, which holds the assets
and will undertake operations.
In consideration of the transfer of these assets, the Company agreed to pay a
total of Cdn$65,000 (Cdn$38,000 paid as at August 31, 2013 with the balance
accrued at August 31, 2013 and paid subsequent to August 31, 2013), issue
650,000 shares (issued) of common stock of the Company, and grant incentive
stock options to acquire up to 550,000 shares (issued) of common stock of the
Company at a price of $0.10 per share for a period of five years. In addition,
the Vendors will receive 500,000 voting shares of Sky Vertical by the date that
Sky Harvest files a prospectus or registration statement in any jurisdiction
with a view to having its shares trade publicly on a recognized stock exchange
or quotation system. As well, the Vendors are entitled to a royalty from the
Company of $200 for every vertical axis wind turbine that the Company sells for
a period of ten years. The Company has recorded the assets at the cost of
acquiring the assets of $193,730.
6. 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, 2013, advances of $50,000 remain
outstanding. The amount is unsecured, non-interest bearing and due on demand.
7
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2013
(Expressed in US Dollars)
(Unaudited)
7. 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, 2013, 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, 2013, there were 15,680,016 outstanding exchangeable shares (May
31, 2013 - 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.
8. Related Party Transactions
a) During the three months ended August 31, 2013, the Company incurred $14,459
(2012 - $14,838) to a company controlled by the President and principal
shareholder of the Company for management services. As at August 31, 2013,
the Company is indebted to that company and the Company's President for
$103,054 (May 31, 2013 - $86,520), 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, 2013, accrued interest of $12,982 was
recorded. During the year ended May 31, 2011, the Company received an
advance of $67,429 (CDN$71,000) from the same director. During the year
ended May 31, 2012, the Company repaid $37,988 (CDN$40,000). At August 31,
2013, $29,441 (CDN$31,000) is unsecured, non-interest bearing and has no
terms of repayment.
c) During the three months ended August 31, 2013, the Company incurred $19,278
(Cdn$20,000) (2012 - $nil) to the manager of operations of Sky Vertical for
management services. As at August 31, 2013, the Company is indebted to the
manager of operations for $18,519 (Cdn$19,500), which is non-interesting
bearing, unsecured and due on demand.
d) As at August 31, 2013, the Company is indebted to the President of Sky
Vertical for $4,520, which represents asset purchase cost and other general
and administration expense paid on behalf of the Company. The amount is
non-interest bearing, unsecured and due on demand.
e) On July 9, 2013, the Company issued 300,000 stock options to the President
of Sky Vertical at a fair value of $81,000.
These related party transactions are recorded at the exchange amount, being the
amount established and agreed to by the related parties.
9. Common Stock
On July 5, 2013, the Company issued 650,000 shares of common stock at a fair
value of $71,500 pursuant to the asset purchase agreement described in Note 12.
8
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2013
(Expressed in US Dollars)
(Unaudited)
10. 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 May 31, 2013, 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, 2013, the
Company had 360,000 shares of common stock available to be issued under the
Plan.
On July 5, 2013, pursuant to the asset purchase agreement as described in Note
12, the Company granted 550,000 options under the 2011 Plan with immediate
vesting to acquire 550,000 common shares at an exercise price of $0.10 per share
exercisable for 5 years and recorded stock-based compensation for the vested
options of $60,500, as cost of acquiring the intangible assets.
On July 9, 2013, the Company granted 200,000 stock options to an advisor of the
Company and 300,000 stock options to the President of Sky Vertical with an
exercise price of $0.10 per share and exercisable for a period of five years.
This grant is pursuant to the Company's 2011 Stock Option Plan. The Company
recorded stock-based compensation of $54,000 as consulting fees and $81,000 as
management fees.
The fair value for stock options vested during the three month period ended
August 31, 2013 and 2012 were estimated at the vesting and granting date using
the Black-Scholes option-pricing model. The weighted average assumptions used
are as follows:
Three Months Three Months
Ended Ended
August 31, August 31,
2013 2012
-------- --------
Expected dividend yield 0% --
Risk-free interest rate 1.55% --
Expected volatility 400% --
Expected option life (in years) 5.00 --
The following table summarizes the continuity of the Company's stock options:
Weighted-
Weighted Average Aggregate
Average Contractual Remaining
Number of Exercise Term Intrinsic
Options Price (years) Value
------- ----- ------- -----
$ $
Outstanding: May 31, 2013 4,173,334 0.20
Granted 1,050,000 0.10
--------- ----
Outstanding: August 31, 2013 5,223,334 0.18 3.30 534,750
========= ==== ==== =======
Exercisable: August 31, 2013 5,223,334 0.18 3.30 534,750
========= ==== ==== =======
At August 31, 2013, there was $nil of unrecognized compensation costs related to
non-vested share-based compensation arrangements granted under the 2009 Plan and
2011 Plan.
9
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2013
(Expressed in US Dollars)
(Unaudited)
11. 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, 2013, the Company and its joint venture partner have not
made any contribution to Levant and operations have not yet begun.
12. Commitments and Contingencies
a) On April 5, 2006, the Company's wholly-owned subsidiary, Sky Harvest -
Saskatchewan, entered into a Saskatchewan Wind Energy Lease agreement,
whereby the lessor granted to Sky Harvest - Saskatchewan the right to use
certain lands for development and operation of a wind powered electrical
generating facility for the conversion of wind energy into electrical
energy. The Company agreed to pay the lessors $2,500 per turbine installed
on the land and a 1% royalty on all revenue generated from wind energy on
the leased lands. Pursuant to the agreement, the term of the lease shall
commence on that date (the "Commencement Date") upon which the Company
commences generating and selling electricity through the operation of
turbines on the leased lands, and shall end on the 25th anniversary of the
Commence Date. The agreement was amended on November 1, 2011. Pursuant to
the amendment, in the event that the Commencement Date has not occurred by
September 30, 2008, then the Company shall either abandon the lease or pay
the sum of Cdn$5,000 per month as a delay rental to keep the lease in good
standing up to and including the month in which the Commencement date
occurs. The Cdn$5,000 monthly delay rental is only payable when the Company
commences generating and selling electricity. The Company has not accrued
since March 2013. All payments due and owing as of November 1, 2011 shall
accrue and be paid in full within 30 days of the Commencement Date. If the
Commencement Date has not occurred by December 31, 2016, then the lessors
have the right to terminate the agreement upon notice in writing to the
Company. At August 31, 2013, the Company has accrued $110,085 (May 31, 2013
- $110,085) of lease payments.
b) On April 15, 2009, the Company's wholly-owned subsidiary, Sky Harvest -
Saskatchewan, entered into a Saskatchewan Wind Energy Lease agreement,
whereby the lessor granted to Sky Harvest - Saskatchewan the right to use
certain lands for development and operation of a wind powered electrical
generating facility for the conversion of wind energy into electrical
energy. The Company agreed to pay the lessors a 1% royalty on all revenue
generated from wind energy on the leased lands. Pursuant to the agreement,
the term of the lease shall commence on that date (the "Commencement Date")
upon which the Company commences generating and selling electricity through
the operation of turbines on the leased lands, and shall end on the 25th
anniversary of the Commence Date. The agreement was amended on November 1,
2011. In the event that the Commencement Date has not occurred by September
30, 2010, the Company shall either abandon the lease or pay the sum of
Cdn$5,000 per month as a delay rental to keep the lease in good standing up
to the and including the month in which the Commencement Date occurs. The
Cdn$5,000 monthly delay rental is only payable when the Company commences
generating and selling electricity. The Company has not accrued since March
2013. All payments due and owing as of November 1, 2011 shall accrue and be
paid in full within 30 days of the Commencement Date. If the Commencement
Date has not occurred by December 31, 2016, then the lessors have the right
to terminate the agreement upon notice in writing to the Company. At August
31, 2013, the Company has accrued $40,000 (May 31, 2013 - $40,000) of lease
payments.
c) 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 May 31, 2013, the fair value of
the 15,000 shares issuable was $6,750 and is included in common stock
subscribed.
10
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
August 31, 2013
(Expressed in US Dollars)
(Unaudited)
12. Commitments and Contingencies (continued)
d) 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.
e) On July 5, 2013, the Company's wholly-owned subsidiary, Sky Vertical,
entered into an employment agreement with its manager of operations whereby
Sky Vertical agreed to pay a monthly salary of Cdn$10,000. The base salary
will increase effective on each anniversary of the effective date of this
agreement by at least 2% of the base salary in effect at the time. The
manager of operations shall be entitled to participate in Sky Vertical's
incentive stock option plan when adopted and be entitled to be granted 20%
of the total stock options available.
13. Supplemental Cash Flow and Other Disclosures
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,
2013 2013 2012
------------ ------------ ------------
$ $ $
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 -- --
Stock issuance for intangible assets 71,500 71,500 --
Stock options issued for intangible assets 60,500 60,500 --
--------- --------- ---------
14. Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company has evaluated
subsequent events through the date of issuance of the unaudited interim
consolidated financial statements. Subsequent to the fiscal period ended August
31, 2013, the Company did not have any material recognizable subsequent events
except the following:
a) Subsequent to August 31, 2013, the Company paid the balance of Cdn$27,000
to Barry Ireland pursuant to the asset purchase agreement as described in
Note 12 in consideration of the transfer of the assets.
b) On September 4, 2013, a director of Sky Vertical provided a loan in the
amount of $24,986 to the Company. The loan is non-interest bearing,
unsecured and due on demand.
11
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, 2013. 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 Energy
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 manufacturing and selling vertical
axis wind turbines, as well as acquiring interests in land for the purpose 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 we commence selling vertical axis wind
turbines, which will require additional funding.
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, 2013, which are included herein.
12
Three months ended August 31,
2013 2012 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Revenue 0 0 0 N/A
Expenses 200,850 62,885 137,965 219.4%
Foreign exchange (gain) loss 17,445 (50,571) 68,016 N/A
Interest income 0 (9) 9 N/A
-------- -------- -------- -------
Net Loss 218,295 12,305 205,990 1674.0%
======== ======== ======== =======
REVENUES
We recorded a net operating loss of $218,295 for the fiscal quarter ended August
31, 2013 and have an accumulated deficit of $7,220,855 since inception. We have
had no operating revenue since our inception on February 25, 2005 through to the
fiscal quarter ended August 31, 2013. We anticipate that we will not generate
any revenue while we are a development stage company.
EXPENSES
Our expenses for the three months ended August 31, 2013 and 2012 are outlined
below:
Three months ended August 31,
2013 2012 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Consulting fees 54,000 0 54,000 N/A
Engineering and development 1,167 15,605 (14,438) (92.5%)
Management fees 114,736 14,838 99,898 673.3%
Professional fees 13,038 21,859 (8,821) (40.4%)
General and administrative 17,909 10,583 7,326 69.2%
-------- -------- -------- -----
Net Operating Loss 200,850 62,885 137,965 219.4%
======== ======== ======== =====
Consulting expenses decreased by $54,000 in the three month period ended August
31, 2013 compared to the three month period ended August 31, 2012. The increase
is a result of the grant of incentive stock options to consultants.
Engineering and development expenses decreased by $14,438 in the three month
period ended August 31, 2013 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 increased by $99,898 in the three month period ended August 31,
2013 compared to the three month period ended August 31, 2012. This was a result
of an incentive stock option grant to the president of our wholly-owned
subsidiary, Sky Vertical Technologies Inc. William Iny, our president and sole
director, has provided us with management services for remuneration of $5,000
per month, all of which has been accrued for the quarter.
Professional fees, consisting primarily of legal and accounting costs, decreased
by $8,821 in the three month period ended August 31, 2013 compared to the three
month period ended August 31, 2012. This decrease is due to slightly lower legal
costs incurred in the current fiscal year.
13
General and administrative expenses increased by $7,326 in the three month
period ended August 31, 2013 compared to the three month period ended August 31,
2012.
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 interest in the three month period ended August 31,
2013.
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition as at August 31, 2013, and May 31, 2013, our fiscal year
end, and the changes for on those dates are summarized as follows:
WORKING CAPITAL
August 31, May 31,
2013 2013 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Current Assets 62,230 110,319 (48,089) (43.6%)
Current Liabilities 469,976 389,213 80,763 20.8%
-------- -------- -------- ------
Working Capital (407,746) (278,894) (128,852) N/A
======== ======== ======== ======
The decrease in our working capital position of $128,852 from May 31, 2013, the
date of our most recently fiscal year end, to August 31, 2013 was primarily due
to a decrease in our cash position and an increase in accrued liabilities and
amounts due to related parties.
CASH FLOWS
Three months ended August 31,
2013 2012 Increase/(Decrease)
-------- -------- ---------------------
$ $ $ %
Cash Flows provided by (used in) Operating Activities (39,755) 34,977 (74,732) N/A
Cash Flows provided by (used in) Investing Activities (41,634) (1,660) (39,974) N/A
Cash Flows provided by Financing Activities 0 49,500 (49,500) (100.0%)
Effect of exchange rate changes on cash 21,074 (57,200) (78,274) N/A
------- ------- ------- ------
Net increase (decrease) in cash during period (60,315) 25,617 (85,932) N/A
======= ======= ======= ======
During the three months ended August 31, 2013, $39,974 in cash outflows were the
result of general operating activities, which primarily consisted of payments
for general and administrative expenses and audit fees.
14
The $41,634 in cash outflows from investing activities primarily related to our
acquisition of intellectual property concerning vertical axis wind turbines.
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.
A summary of our stock option activity is as follows:
Weighted
Average
Number of Exercise
Options Price
------- -----
$
Balance as at May 31, 2013 4,173,334 0.20
Granted 1,050,000 0.10
--------- ------
Outstanding: August 31, 2013 5,223,334 0.18
--------- ------
Exercisable: August 31, 2013 5,223,334 0.18
========= ======
FUTURE FINANCINGS
We recorded a net loss of $218,295 for the three month period ended August 31,
2013 and have an accumulated deficit of $7,220,855 since inception. As of August
31, 2013 we had cash and cash equivalents totaling $43,124 (May 31, 2013 -
$103,439).
As of the date of this report, management anticipates that we will require at
least $750,000 to fund our corporate operations for the next 12 months. As well,
we will require approximately an additional $470,000 to cover our current
outstanding liabilities. Accordingly, we do not have sufficient funds to meet
our planned expenditures over the next 12 months.
We have begun sourcing additional debt and 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.
15
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.
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, 2013 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, 2013, our internal control over
financial reporting was not subject to any changes.
16
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
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
17
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
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
18
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.
19
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 ENERGY 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 28, 2013
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 28, 2013
20