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 November 30, 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 [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.
33,203,016 shares of common stock are issued and outstanding as of January 14,
2014 (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 November 30, 2013 and
May 31, 2013 3
CONSOLIDATED STATEMENTS OF OPERATIONS for the Three Months
and Six Months Ended November 30, 2013 and 2012, and for
the period since inception 4
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Six Months
Ended November 30, 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 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Mine Safety Disclosures 18
Item 5. Other Information 18
Item 6. Exhibits 19
SIGNATURES 21
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in US Dollars)
(Unaudited)
November 30, May 31,
2013 2013
------------ ------------
$ $
ASSETS
Current Assets
Cash and cash equivalents 47,614 103,439
Other receivables 9,951 5,742
Prepaid expenses 3,632 1,138
------------ ------------
Total Current Assets 61,197 110,319
Property and equipment, net (Note 4) 37,057 1,400
Intangible assets (Note 5) 193,204 --
------------ ------------
Total Assets 291,458 111,719
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable 198,022 183,485
Accrued liabilities 260 347
Due to related parties (Note 8) 253,936 155,381
Note payable (Note 6) 50,000 50,000
------------ ------------
Total Liabilities 502,218 389,213
------------ ------------
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 (Notes 9 and 12) 111,796 6,750
Accumulated other comprehensive income (loss) 22,727 (6,098)
Deficit accumulated during the development stage (7,352,113) (7,017,977)
------------ ------------
Total Stockholders' Deficit (210,760) (277,494)
------------ ------------
Total Liabilities and Stockholders' Deficit 291,458 111,719
============ ============
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
February 25, 2005 For the For the For the For the
(Date of Three months Three months Six months Six months
Inception) to Ended Ended Ended Ended
November 30, November 30, November 30, November 30, November 30,
2013 2013 2012 2013 2012
------------ ------------ ------------ ------------ ------------
$ $ $ $ $
Expenses
Consulting fees 514,545 9,611 -- 63,611 --
Engineering and development 615,067 1,670 17,086 2,837 32,691
Management fees (Note 8) 944,265 34,821 15,184 149,557 30,022
Professional fees 583,354 16,602 8,084 29,640 29,943
General and administrative 1,891,621 38,266 9,588 56,175 20,171
Acquired development costs 242,501 -- -- -- --
------------ ------------ ------------ ------------ ------------
Operating loss (4,791,353) (100,970) (49,942) (301,820) (112,827)
Other Income (Loss)
Impairment loss (2,618,271) -- -- -- --
Interest income 89,391 -- -- -- 9
Foreign exchange (loss) gain (19,893) (14,871) (8,633) (32,316) 41,938
Settlement of debt (11,987) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss (7,352,113) (115,841) (58,575) (334,136) (70,880)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments 22,727 7,310 9,902 28,825 (45,532)
------------ ------------ ------------ ------------ ------------
Comprehensive loss (7,329,386) (108,531) (48,673) (305,311) (116,412)
============ ============ ============ ============ ============
Net loss per common share -
basic and diluted (0.01) (0.00) (0.01) (0.00)
------------ ------------ ------------ ------------
Weighted average number of
common stock outstanding 33,203,000 32,553,000 33,079,000 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
February 25, 2005 For the For the
(Date of Six months Six months
Inception) to Ended Ended
November 30, November 30, November 30,
2013 2013 2012
------------ ------------ ------------
$ $ $
Operating activities
Net loss for the period (7,352,113) (334,136) (70,880)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 25,076 371 516
Stock-based compensation 1,744,564 134,999 --
Impairment loss 2,618,271 -- --
Loss on settlement of debt 11,987 -- --
Acquired development costs 242,501 -- --
Changes in operating assets and liabilities:
Prepaid expenses 8,503 (2,493) (6,627)
Accrued interest 244 -- --
Accounts payable and accrued liabilities 154,973 (11,192) 32,115
Account receivable (28,308) (4,209) 9,329
Note receivable (280,000) -- --
Due to related parties 188,004 94,558 41,072
------------ ------------ ------------
Net cash flows (used in) provided by operating activities (2,666,298) (122,102) 5,575
------------ ------------ ------------
Investing activities
Purchase of equipment (61,216) (36,052) (1,660)
Purchase of intangible assets (35,562) (35,562) --
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 (55,117) (71,614) (1,660)
------------ ------------ ------------
Financing activities
Proceeds from common stock issuances 2,415,249 -- 49,500
Proceeds from common stock subscribed 105,046 105,046 --
Proceeds from related party loans 62,854 -- --
Proceeds from note payable 50,000 -- --
Proceeds from swing sale disgorgement 118,900 -- --
------------ ------------ ------------
Net cash flows provided by financing activities 2,752,049 105,046 49,500
------------ ------------ ------------
Effect of exchange rate changes on cash 16,980 32,845 (46,983)
------------ ------------ ------------
Increase (Decrease) in cash and cash equivalents 47,614 (55,825) 6,432
Cash and cash equivalents - beginning of period -- 103,439 144,686
------------ ------------ ------------
Cash and cash equivalents - end of period 47,614 47,614 151,118
============ ============ ============
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
November 30, 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 November 30, 2013, the
Company has accumulated losses of $7,352,113 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
November 30, 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 November 30, 2013, and the results of its operations
and cash flows for the six months ended November 30, 2013. The results of
operations for the six months ended November 30, 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
November 30, May 31,
2013 2013
Accumulated Net Carrying Net Carrying
Cost Depreciation Value Value
------- ------- ------- -------
$ $ $ $
Computer equipment 7,251 (6,311) 940 1,205
Asset under construction 36,052 -- 36,052 --
Wind tower equipment 22,116 (22,051) 65 195
------- ------- ------- -------
65,419 (28,362) 37,057 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 (paid), 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 $193,204.
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 November 30, 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
November 30, 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 November 30, 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 November 30, 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 six months ended November 30, 2013, the Company incurred $28,875
(2012 - $30,023) to a company controlled by the President and principal
shareholder of the Company for management services. As at November 30,
2013, the Company is indebted to that company and the Company's President
for $117,528 (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 six months a written demand is received
from the note holder. The amount is unsecured and bears interest at 15% per
annum. As at November 30, 2013, accrued interest of $13,992 was recorded.
During the year ended May 31, 2011, the Company received an advance of
$66,854 (CDN$71,000) from the same director. During the year ended May 31,
2012, the Company repaid $37,664 (CDN$40,000). During the six months ended
November 30, 2013, the Company received an additional advance of $9,708
(CDN$10,310). At November 30, 2013, $38,898 (CDN$41,310) is unsecured,
non-interest bearing and has no terms of repayment.
c) During the six months ended November 30, 2013, the Company incurred $38,444
(Cdn$40,000) (2012 - $nil) to the former manager of operations of Sky
Vertical for management services. As at November 30, 2013, the Company is
indebted to the former manager of operations for $24,011 (Cdn$25,500),
which is non-interesting bearing, unsecured and due on demand.
d) As at November 30, 2013, the Company is indebted to the President of Sky
Vertical for $8,982, 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) As at November 30, 2013, the Company is indebted to a Director of Sky
Vertical for an advance of $23,527 (CDN$25,000), which is non-interest
bearing, unsecured and due on demand.
f) 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
a) 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 5.
b) During the six months ended November 30, 2013, the Company received
$105,046 in subscriptions for 420,184 shares of common stock at $0.25 per
share. At November 30, 2013, the shares have not been issued and the amount
is included in common stock subscribed.
8
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
November 30, 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 November 30, 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
5, 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
November 30, 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:
Six months Six months
Ended Ended
November 30, November 30,
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: November 30, 2013 5,223,334 0.18 2.80 249,550
========= ==== ==== =======
Outstanding: November 30, 2013 5,223,334 0.18 2.80 249,550
========= ==== ==== =======
At November 30, 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
November 30, 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 November 30, 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 and will not be accrued until
the Commencement Date. 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 November 30, 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. 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 November 30, 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 November 30, 2013, and 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
November 30, 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. The employment agreement was
terminated effective November 4, 2013.
f) On November 12, 2013, the Company commenced legal action against the
vendors of the asset purchase agreement, as described in Note 5, seeking a
declaration that it owns the assets described in the agreement and that the
vendors have breached the agreement, as well as seeking general damages. At
November 30, 2013, the vendors have assigned one of the four patent
applications to the Company in accordance with the terms of the agreement,
but have failed to assign the second, third and fourth patents and have not
delivered all equipment related to the vendors' vertical axis turbine
business that was sold to the Company pursuant to the agreement.
g) On October 31, 2013, the Company entered into a sale agreement, whereby the
Company agreed to sell its interest in assets relating to its wind power
project located in Southwestern Saskatchewan, including its leasehold
interests in approximately 15,000 acres of land, accumulated wind power
data, environmental assessment studies, and meteorological tower. In
consideration for the assets, the purchaser has agreed to pay a purchase
price in three instalments comprised of $672,000, representing third party
development costs incurred, payable within 30 days following execution of a
power purchase agreement ("PPA"), a first success fee of $25,000 per
megawatt of contracted capacity under the PPA and payable upon financial
close, and a second success fee of $25,000 per megawatt of contracted
capacity under the PPA and payable within 30 days of the commencement of
commercial operations. If the purchaser is unable to execute a PPA by
December 19, 2019, it will return the assets to the Company for nominal
consideration.
13. Supplemental Cash Flow and Other Disclosures
Accumulated from For the For the
February 25, 2005 Six months Six months
(Date of Inception) Ended Ended
to November 30, November 30, November 30,
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 --
------------ ------------ ------------
11
Sky Harvest Energy Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
November 30, 2013
(Expressed in US Dollars)
(Unaudited)
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
November 30, 2013, the Company did not have any material recognizable subsequent
events.
12
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 November 30, 2013, which are included herein.
Three months ended November 30,
2013 2012 Increase/(Decrease)
-------- -------- -------------------
$ $ $ %
Revenue 0 0 0 N/A
Expenses 100,970 49,942 51,028 102.2%
Foreign exchange (gain) loss 14,871 8,633 6,238 72.3%
Interest income 0 0 0 N/A
-------- -------- -------- ------
Net Loss 115,841 58,575 57,266 97.8%
======== ======== ======== ======
13
Six months ended November 30,
2013 2012 Increase/(Decrease)
-------- -------- -------------------
$ $ $ %
Revenue 0 0 0 N/A
Expenses 301,820 112,827 188,993 167.5%
Foreign exchange (gain) loss 32,316 (41,938) 74,254 N/A
Interest income 0 (9) 9 N/A
-------- -------- -------- ------
Net Loss 334,136 70,880 263,256 371.4%
======== ======== ======== ======
REVENUES
We recorded a net operating loss of $115,841 for the fiscal quarter ended
November 30, 2013 and have a comprehensive loss of $7,329,386 since inception.
We have had no operating revenue since our inception on February 25, 2005
through to the fiscal quarter ended November 30, 2013. We anticipate that we
will not generate any revenue while we are a development stage company.
EXPENSES
Our expenses for the three and six months ended November 30, 2013 and 2012 are
outlined below:
Three months ended November 30,
2013 2012 Increase/(Decrease)
-------- -------- -------------------
$ $ $ %
Consulting fees 9,611 0 9,611 N/A
Engineering and development 1,670 17,086 (15,416) (90.2%)
Management fees 34,821 15,184 19,637 129.3%
Professional fees 16,602 8,084 8,518 105.4%
General and administrative 38,266 9,588 28,678 299.1%
-------- -------- -------- -----
Net Operating Loss 100,970 49,942 51,028 102.2%
======== ======== ======== =====
Six months ended November 30,
2013 2012 Increase/(Decrease)
-------- -------- -------------------
$ $ $ %
Consulting fees 63,611 0 63,611 N/A
Engineering and development 2,837 32,691 (29,854) (91.3%)
Management fees 149,557 30,022 119,535 398.2%
Professional fees 29,640 29,943 (303) (1.0%)
General and administrative 56,175 20,171 36,004 178.5%
-------- -------- -------- -----
Net Operating Loss 301,820 112,827 188,993 167.5%
======== ======== ======== =====
Consulting expenses increased by $9,611 in the three month period ended November
30, 2013 compared to the three month period ended November 30, 2012, and by
$63,611 in the six month period ended November 30, 2013 compared to the six
month period ended November 30, 2011. The increase in consulting fees relates to
the commencement of our vertical axis wind turbine manufacturing business.
Engineering and development expenses decreased by $15,416 in the three month
period ended November 30, 2013 compared to the three month period ended November
30, 2012, and by $29,854 in the six month period ended November 30, 2013
compared to the six month period ended November 30, 2012. This increase is a
result of a decline in development and maintenance work on our Saskatchewan wind
power projects.
14
Management fees increased by $19,637 in the three month period ended November
30, 2013 compared to the three month period ended November 30, 2012, and by
$119,535 in the six month period ended November 30, 2013 compared to the six
month period ended November 30, 2012. This increase relates to the commencement
of our vertical axis wind turbine manufacturing business.
Professional fees, consisting primarily of legal and accounting costs, increased
by $8,518 in the three month period ended November 30, 2013 compared to the
three month period ended November 30, 2012, and decreased by $303 in the six
month period ended November 30, 2013 compared to the six month period ended
November 30, 2012. Thus, for the six month period, our professional fees have
remained virtually unchanged from the comparable period in the prior fiscal
year.
General and administrative expenses increased by $28,678 in the three month
period ended November 30, 2013 compared to the three month period ended November
30, 2012, and by $36,004 in the six month period ended November 30, 2013
compared to the six month period ended November 30, 2012. The increase in
general and administrative expenses relates to the commencement of our vertical
axis wind turbine manufacturing business.
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 generated nominal interest of $9 in the six month period ended November 30,
2012. The Company has redeemed funds previously held in term deposits in order
to fund development of its wind power projects and continued corporate
operations.
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition as at November 30, 2013, and May 31, 2012, our fiscal
year end, and the changes for on those dates are summarized as follows:
WORKING CAPITAL
November 30, May 31,
2013 2013 Increase/(Decrease)
-------- -------- -------------------
$ $ $ %
Current Assets 61,197 110,319 (49,122) (44.5%)
Current Liabilities 502,218 389,213 113,005 29.0%
-------- -------- -------- ------
Working Capital (441,021) (278,894) (162,127) N/A
======== ======== ======== ======
The $162,127 decrease in our working capital position from May 31, 2013, the
date of our most recently fiscal year end, to November 30, 2013 was primarily
due to a decrease in our cash position and an increase in amounts due to our
directors and officers.
15
CASH FLOWS
Six months ended November 30,
2013 2012 Increase/(Decrease)
-------- -------- -------------------
$ $ $ %
Cash Flows from (used in) Operating Activities (122,102) 5,575 (127,677) N/A
Cash Flows provided by (used in) Investing Activities (71,614) (1,660) (69,954) N/A
Cash Flows provided by Financing Activities 105,046 49,500 55,546 112.2%
Effect of exchange rate changes on cash 32,845 (46,983) 79,828 N/A
-------- -------- -------- -----
Net increase (decrease) in cash during period (55,825) 6,432 62,257 N/A
======== ======== ======== =====
During the six months ended November 30, 2013, we used net cash flows from
operating activities in the amount of $122,102.
The $105,046 in cash flows provided by financing activities during the six
months ended November 30, 2013 consisted of private placement subscription funds
advanced to us.
DISCLOSURE OF OUTSTANDING SHARE DATA
WARRANTS
None
SHARE OPTIONS
From time to time, we have granted stock options to directors, officers and key
advisors to acquire shares of our common stock.
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: November 30, 2013 5,233,334 0.18
--------- ------
Exercisable: November 30, 2013 5,233,334 0.18
========= ======
FUTURE FINANCINGS
We recorded a comprehensive loss of $108,531 for the three month period ended
November 30, 2013 and have an accumulated deficit of $7,329,386 since inception.
As of November 30, 2013 we had cash and cash equivalents totaling $47,614 (May
31, 2014 - $103,439).
As of the date of this report, management anticipates that we will require
approximately $750,000 to fund our corporate operations and wind power property
development program for the next 12 months. As well, we will require
approximately an additional $500,000 to cover our current outstanding
liabilities. Accordingly, we do not have sufficient funds to meet our planned
expenditures over the next 12 months.
16
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.
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 November 30, 2013, 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 November 30, 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
17
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 November 30, 2013, our internal control over
financial reporting was not subject to any changes.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the quarter, the Company commenced a legal action in the Supreme Court of
British Columbia against the vendors of the vertical axis wind turbine business
that it acquired seeking a declaration that it owns the assets described in the
asset purchase agreement and that the vendors have breached the agreement. The
Company also seeks general damages.
The vendors have assigned one of the four patent applications to the Company in
accordance with the terms of the Asset Purchase Agreement, but have failed to
assign the three other patents and have not delivered all equipment related to
the vendors' vertical axis wind turbine business that was sold to us pursuant to
the asset purchase agreement.
One of the vendors, Barry Ireland, has terminated his employment agreement with
the Company and takes the position that the Company breached the asset purchase
agreement by failing to provide the required consideration. The Company's
position is that all consideration due to the vendors pursuant to the asset
purchase agreement has been paid.
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
18
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
19
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.
20
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: January 14, 2014
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
21