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EX-32.1 - SECTION 906 CERTIFICATION - Sky Harvest Energy Corp.ex32-1.txt
EX-31.1 - SECTION 302 CERTIFICATION - Sky Harvest Energy Corp.ex31-1.txt

                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, 2010
                                       or

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

             For the transition period from __________ to __________

                        Commission file number: 000-52410


                           SKY HARVEST WINDPOWER CORP.
             (Exact name of registrant as specified in its charter)

           Nevada                                            N/A
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

890 West Pender Street, Suite 710, Vancouver, BC, Canada         V6C 1J9
    (Address of principal executive offices)                    (Zip Code)

                                 (604) 267-3041
               Registrant's telephone number, including area code

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

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

Indicate by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files). Yes [ ] 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.

29,732,016  shares of common stock are issued and  outstanding as of January 13,
2011  (including  15,515,016  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, 2010 and May 31, 2010 3 CONSOLIDATED STATEMENTS OF OPERATIONS for the Three and Six Months Ended November 30, 2010 and 2009, and for the period since inception 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the period since inception 5 CONSOLIDATED STATEMENTS OF CASH FLOWS for the Six Months Ended November 30, 2010 and 2009, and for the period since inception 6 NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3 Quantitative and Qualitative Disclosures About Market Risk 26 Item 4. Controls and Procedures 26 PART II OTHER INFORMATION Item 1. Legal Proceedings 27 Item 1A. Risk Factors 27 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 3. Defaults Upon Senior Securities. 27 Item 4 (Removed and reserved) 27 Item 5. Other Information. 27 Item 6. Exhibits 28 SIGNATURES 30 2
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Balance Sheets (Expressed in US Dollars) (unaudited) November 30, May 31, 2010 2010 ---------- ---------- $ $ ASSETS Current Assets Cash and cash equivalents 6,670 234 Short term investment (Note 6) -- 22,871 Other Receivables 58,737 20,112 Prepaid expenses -- 21,585 Due from related party -- 10,541 ---------- ---------- Total Current Assets 65,407 75,343 Deposits 3,507 -- Property and equipment, net (Note 4) 69,633 70,961 Intangible assets (Note 5) 2,551,440 2,551,440 ---------- ---------- Total Assets 2,689,987 2,697,744 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable 192,079 97,612 Accrued liabilities 635 554 Due to related parties (Note 9) 100,109 -- Note payable (Note 7) 18,000 -- ---------- ---------- Total Liabilities 310,823 98,166 ---------- ---------- Stockholders' Equity Preferred Stock: Authorized: 10,000,000 shares, $0.001 par value Issued and outstanding: 1 share (May 31, 2010 - 1 share) -- -- Common Stock: Authorized: 100,000,000 shares, $0.001 par value Issued and outstanding: 29,732,016 shares (May 31, 2010 - 29,732,016 shares) 29,732 29,732 Additional paid-in capital 5,234,941 5,244,616 Common stock subscribed (Note 11) 6,750 6,750 Accumulated other comprehensive loss (39,007) (28,257) Deficit accumulated during the development stage (2,853,252) (2,653,263) ---------- ---------- Total Stockholders' Equity 2,379,164 2,599,578 ---------- ---------- Total Liabilities and Stockholders' Equity 2,689,987 2,697,744 ========== ========== Continuing operations (Note 1) Commitments and contingencies (Note 11) (The accompanying notes are an integral part of these consolidated financial statements) 3
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Statements of Operations (Expressed in US Dollars, except number of shares) (unaudited) Accumulated from For the For the For the For the February 25, 2005 Three Months Three Months Six Months Six Months (Date of Inception) to Ended Ended Ended Ended November 30, November 30, November 30, November 30, November 30, 2010 2010 2009 2010 2009 ---------- ---------- ---------- ---------- ---------- $ $ $ $ $ Expenses Consulting fees 358,048 25,890 12,662 46,077 42,217 Engineering and development 359,428 23,956 37,410 40,014 136,388 Management fees (Note 8) 568,506 15,740 59,113 62,070 93,552 Professional fees 330,417 29,053 40,312 31,409 107,559 General and administrative 1,128,593 50,041 568,898 30,486 590,797 Acquired development costs 242,501 -- -- -- 242,501 ---------- ---------- ---------- ---------- ---------- Operating loss 2,987,493 144,680 718,395 210,056 1,213,014 Other Income Interest income (89,382) 5 (159) (24) (1,824) Foreign exchange (gain) loss (44,859) (25,727) (15,479) (10,043) (29,538) ---------- ---------- ---------- ---------- ---------- Net loss 2,853,252 118,958 702,757 199,989 1,181,652 Other Comprehensive Loss Foreign currency translation adjustments 39,007 25,421 11,846 10,750 24,114 ---------- ---------- ---------- ---------- ---------- Comprehensive loss 2,892,259 144,379 714,603 210,739 1,205,766 ========== ========== ========== ========== ========== Net loss per common share - basic and diluted (0.00) (0.02) (0.01) (0.05) ---------- ---------- ---------- ---------- Weighted average number of common stock outstanding 29,732,000 29,732,016 29,732,000 25,657,000 ---------- ---------- ---------- ---------- (The accompanying notes are an integral part of these consolidated financial statements) 4
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Statement of Stockholders' Equity (Expressed in US Dollars, except number of shares) Deficit Accumulated Additional Common During the Preferred Common Paid-in Stock Development Stock Amount Shares Amount Capital Subscribed Stage Total ----- ------ ------ ------ ------- ---------- ----- ----- # $ # $ $ $ $ $ Balance - February 25,2005 -- -- -- -- -- -- -- -- (Date of Inception) Common stock issued on March 2, 2005 to founders for cash at $0.00167 per share -- -- 6,000,000 6,000 4,000 -- -- 10,000 Common stock issued from March 4, 2005 to March 20, 2005 for cash at $0.0033 per share -- -- 3,000,000 3,000 7,000 -- -- 10,000 Common stock issued on March 31, 2005 for cash at $0.0167 per share -- -- 300,000 300 4,700 -- -- 5,000 Common stock issued from April 7, 2005 to April 28, 2005 for cash at$0.0167 per share -- -- 480,000 480 7,520 -- -- 8,000 Common stock issued from May 1, 2005 to May25, 2005 for cash at$0.0167 per share -- -- 690,000 690 10,810 -- -- 11,500 Common stock issued on May 29, 2005 for cash at$0.0167 per share -- -- 60,000 60 9,940 -- -- 10,000 Net loss for the period -- -- -- -- -- -- (12,321) (12,321) ----- ----- ---------- ------- ---------- ----- -------- ------- Balance - May, 31 2005 carried forward -- -- 10,530,000 10,530 43,970 -- (12,321) 42,179 ----- ----- ---------- ------- ---------- ----- -------- ------- (The accompanying notes are an integral part of these consolidated financial statements) 5
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Statement of Stockholders' Equity (Expressed in US Dollars, except number of shares) Deficit Accumulated Additional Common During the Preferred Common Paid-in Stock Development Stock Amount Shares Amount Capital Subscribed Stage Total ----- ------ ------ ------ ------- ---------- ----- ----- # $ # $ $ $ $ $ Balance - May, 31, 2005 -- -- 10,530,000 10,530 43,970 -- (12,321) 42,179 brought forward Net loss for the year -- -- -- -- -- -- (57,544) (57,544) ----- ----- ---------- ------- -------- -------- -------- -------- Balance - May 31, 2006 -- -- 10,530,000 10,530 43,970 -- (69,865) (15,365) Common stock subscribed -- -- -- -- -- 500,500 -- 500,500 Stock-based compensation -- -- -- -- 365,508 -- -- 365,508 Net loss for the year -- -- -- -- -- -- (435,426) (435,426) ----- ----- ---------- ------- -------- -------- -------- -------- Balance - May 31, 2007 carried forward -- -- 10,530,000 10,530 409,478 500,500 (505,291) 415,217 ----- ----- ---------- ------- -------- -------- -------- -------- (The accompanying notes are an integral part of these consolidated financial statements) 6
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Statement of Stockholders' Equity (Expressed in US Dollars, except number of shares) Deficit Accumulated Additional Common During the Preferred Common Paid-in Stock Development Stock Amount Shares Amount Capital Subscribed Stage Total ----- ------ ------ ------ ------- ---------- ----- ----- # $ # $ $ $ $ $ Balance - May 31, 2007 -- -- 10,530,000 10,530 409,478 500,500 (505,291) 415,217 carried forward Common stock issued on July 11, 2007 for cash at$0.70 per share -- -- 715,000 715 499,785 (500,500) -- -- Common stock issued on July 11, 2007 for finders' fees -- -- 71,500 71 49,979 -- -- 50,050 Common stock issued on July 27, 2007 for cash at $1.20 per share -- -- 1,075,000 1,075 1,288,925 -- -- 1,290,000 One million share purchase warrants issued for finders' fee -- -- -- -- 321,279 -- -- 321,279 Finders' fees -- -- -- -- (498,080) -- -- (498,080) Net loss for the year -- -- -- -- -- -- (256,830) (256,830) ----- ----- ---------- ------- --------- -------- ---------- --------- Balance - May 31, 2008 -- -- 12,391,500 12,391 2,071,366 -- (762,121) 1,321,636 Common stock subscribed -- -- -- -- -- 6,750 -- 6,750 Net loss for the year -- -- -- -- -- -- (341,733) (341,733) ----- ----- ---------- ------- --------- -------- ---------- --------- Balance - May 31, 2009 carried forward -- -- 12,391,500 12,391 2,071,366 6,750 (1,103,854) 986,653 ----- ----- ---------- ------- --------- -------- ---------- --------- (The accompanying notes are an integral part of these consolidated financial statements) 7
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Statement of Stockholders' Equity (Expressed in US Dollars, except number of shares) Deficit Accumulated Accumulated Additional Common Other During the Preferred Common Paid-in Stock Comprehensive Development Stock Amount Shares Amount Capital Subscribed Loss Stage Total ----- ------ ------ ------ ------- ---------- ---- ----- ----- # $ # $ $ $ $ $ $ Balance - May 31, 2009 -- -- 12,391,500 12,391 2,071,366 6,750 -- (1,103,854) 986,653 carried forward Common stock issued pursuant to business acquisition -- -- 17,340,516 17,341 2,583,736 -- -- -- 2,601,077 Preferred stock issued pursuant to business acquisition 1 -- -- -- -- -- -- -- -- Stock-based compensation -- -- -- -- 589,514 -- -- -- 589,514 Accumulated other comprehensive loss -- -- -- -- -- -- (28,257) -- (28,257) Net loss for year -- -- -- -- -- -- -- (1,549,409) (1,549,409) ----- ---------- ------- --------- ----- ------- ---------- ---------- Balance - May 31, 2010 1 -- 29,732,016 29,732 5,244,616 6,750 (28,257) (2,653,263) 2,599,578 Stock-based compensation -- -- -- -- (9,675) -- -- -- (9,675) Accumulated other comprehensive loss -- -- -- -- -- -- (10,750) -- (10,750) Net loss for the period -- -- -- -- -- -- -- (199,989) (199,989) ----- ----- ---------- ------- --------- ----- ------- ---------- ---------- Balance - November 30, 2010 (unaudited) 1 -- 29,732,016 29,732 5,234,941 6,750 (39,007) (2,853,252) 2,379,164 ===== ===== ========== ======= ========= ===== ======= ========== ========== (The accompanying notes are an integral part of these consolidated financial statements) 8
Sky Harvest Windpower Corp. (A Development Stage Company) Consolidated Statements of Cash Flows (Expressed in US Dollars) (unaudited) Accumulated from For the For the February 25, 2005 Six Months Six Months (Date of Inception) to Ended Ended November 30, November 30, November 30, 2010 2010 2009 ---------- ---------- ---------- $ $ $ Operating activities Net loss for the period (2,853,252) (199,989) (1,181,652) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 21,291 2,424 2,832 Stock-based compensation 950,307 (9,675) 528,620 Acquired development costs 242,501 -- 242,501 Changes in operating assets and liabilities: Prepaid expenses 8,627 18,078 (26,832) Accrued interest 244 31 7,382 Accounts payable and accrued liabilities 154,550 105,089 (32,708) Accountreceivable (44,609) (38,625) -- Note receivable (280,000) -- -- Due to related parties 39,896 41,081 9,357 ---------- ---------- ---------- Net cash flows used in operating activities (1,760,445) (81,586) (450,500) ---------- ---------- ---------- Investing activities Purchase of equipment (23,504) -- (1,436) Purchase of short-term investments (2,472,839) -- (311,675) Redemption of short-term investments 2,493,484 22,840 760,660 Cash acquired from acquisition 21,016 -- 21,016 ---------- ---------- ---------- Net cash flows provided by investing activities 18,157 22,840 468,565 ---------- ---------- ---------- Financing activities Proceeds from common stock issuances 1,718,249 -- -- Proceeds from related party loans 59,028 59,028 -- Proceeds from note payable 18,000 18,000 -- ---------- ---------- ---------- Net cash flows provided by financing activities 1,795,277 77,028 -- ---------- ---------- ---------- Effect of exchange rate changes on cash (46,319) (11,846) (30,485) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents 6,670 6,436 (12,420) Cash and cash equivalents - beginning of period -- 234 36,589 ---------- ---------- ---------- Cash and cash equivalents - end of period 6,670 6,670 24,169 ========== ========== ========== Supplementary disclosures: Interest paid -- -- -- Income taxes paid -- -- -- ---------- ---------- ---------- Significant non-cash investing and financing activities: Stock issuance for acquisition 2,601,077 -- 2,601,077 Increase intangible asset due to acquisition 2,551,400 -- 2,551,400 Accounts payable increased due to acquisition 30,986 -- 30,986 ---------- ---------- ---------- (The accompanying notes are an integral part of these consolidated financial statements) 9
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 1. Organization and Description of Business Sky Harvest Windpower Corp. (the "Company") was incorporated in the State of Nevada on February 25, 2005. The Company is a Development Stage Company, as defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 915, DEVELOPMENT STAGE ENTITIES. Its activities to date have been limited to capital formation, organization, and development of its business plan for the exploration and development of wind power projects in Canada. Effective July 13, 2009, the Company acquired all the outstanding common stock of Sky Harvest Windpower (Saskatchewan) Corp. ("Sky Harvest - Saskatchewan"), a private company incorporated under the laws of Canada. On September 1, 2009, the Company completed a merger with its wholly-owned inactive subsidiary, Sky Harvest Windpower Corp., a Nevada corporation, which was incorporated solely to effect a change in the Company's name. As a result, the Company changed its name from Keewatin Windpower Corp. to Sky Harvest Windpower Corp. These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, the successful exploitation of economically recoverable electricity in its wind power projects, and the attainment of profitable operations. As at November 30, 2010, the Company has accumulated losses of $2,853,252 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 subsidiariesKeewatin Windpower Inc. and Sky Harvest - Saskatchewan. All significant inter-company transactions and balances have been eliminated. The Company has elected a May 31 year-end. b. Interim Financial Statements These interim unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. c. Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. 10
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 2. Significant Accounting Polices (continued) d. Marketable Securities The Company defines marketable securities as income yielding securities that can be readily converted into cash. Examples of marketable securities include Treasury and agency obligations, commercial paper, corporate notes and bonds, time deposits with an original maturity greater than 3 months, foreign notes and certificates of deposit. The Company accounts for investments in debt and equity instruments under ASC 320, INVESTMENTS - DEBT AND EQUITY. The Company follows the guidance provided by ASC 320 to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense). Management determines the appropriate classification of such securities at the time of purchase and re-evaluates such classification as of each balance sheet date. e. Fair Value Measurements ASC 820, FAIR VALUE MEASUREMENTS AND DISCLOSURES, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. FAIR VALUE HIERARCHY ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value: LEVEL 1 Level 1 applies to assets and liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment. LEVEL 2 Level 2 applies to assets and liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: * Determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and * Determining whether a market is considered active requires management judgment. LEVEL 3 Level 3 applies to assets and liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity. The Company believes the fair value of its financial instruments consisting of cash, short term investment, accounts payable, and notes payable approximate their carrying values due to the relatively short maturity of these instruments. 11
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 2. Significant Accounting Polices (continued) f. Equipment (i) Amortization Methods and Rates Equipment is carried at cost. Depreciation is computed using a straight-line method over the estimated useful lives of the depreciable property, which range from 3 to 5 years. Management evaluates useful lives regularly in order to determine recoverability taking into consideration current technological conditions. Maintenance and repairs are charged to expenses as incurred; additions and betterments are capitalized. Upon retirement or disposal of any item of equipment, the cost and related accumulated depreciation of the disposed assets is removed, and any resulting gain or loss is credited or charged to operations. Costs included in wind equipment are under construction and will be amortized over their useful life on a straight-line basis once they are put into use. (ii) Asset Impairment The Company performs impairment tests on its property and equipment when events or changes in circumstances occur that indicate the carrying value of an asset may not be recoverable. Estimated future cash flows are calculated using estimated future prices and operating and capital costs on an undiscounted basis. When the carrying value of the property and equipment exceeds estimated future cash flows, the asset is impaired. An impairment loss is recorded to the extent the carrying value exceeds the discounted value of the estimated future cash flows. (iii) Repairs and Maintenance Repairs and maintenance costs are charged to expense as incurred, except when these repairs significantly extend the life of an asset or result in an operating improvement. In these instances, the portion of these repairs relating to the betterment is capitalized as part of property and equipment. g. Long Lived Assets INTANGIBLE ASSETS In accordance with ASC 350, INTANGIBLES - GOODWILL AND OTHER, goodwill is required to be tested for impairment on an annual basis, or more frequently if certain indicators arise, using the guidance specifically provided, and purchased intangible assets other than goodwill are required to be amortized over their useful lives unless there lives are determined to be indefinite. Management reviews intangible assets at least annually, and on an interim basis when conditions require, evaluates events or changes in circumstances that may indicate impairment in the carrying amount of such assets. An impairment loss is recognized in the statement of operations in the period that the related asset is deemed to be impaired. In accordance with ASC 360, PROPERTY, PLANT AND EQUIPMENT, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. 12
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 2. Significant Accounting Polices (continued) h. Income Taxes Income taxes are provided in accordance with ASC740, INCOME TAXES. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. i. Foreign Currency Translation The functional currency of the Company's Canadian subsidiaries is the applicable local currency. The functional currency is translated into U.S. dollars for balance sheet accounts using current exchange rates in effect as of the balance sheet date and for revenue and expense accounts and cash flow items using a weighted-average exchange rate during the reporting period. Adjustments resulting from translation are included in accumulated comprehensive income (loss), a separate component of shareholders' equity (deficit). Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. j. Basic Earnings (Loss) per Share The Company computes net income (loss) per share in accordance with ASC 260, EARNINGS PER SHARE. ASC 260 specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. Basic net earnings (loss) per share amounts are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company. k. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could differ from those estimates. Significant estimates made by management are, among others, realizability of long-lived assets, deferred taxes and stock option valuation. Management reviews its estimates on a quarterly basis and, where necessary, makes adjustments prospectively. l. Stock-Based Compensation The Company records stock-based compensation in accordance with ASC 718, COMPENSATION - STOCK BASED COMPENSATION, and ASC 505-50, EQUITY BASED PAYMENTS TO NON-EMPLOYEES, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. 13
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 2. Significant Accounting Polices (continued) m. Website Development Costs The Company capitalizes website development costs in accordance with ASC 350, INTANGIBLES - GOODWILL AND OTHER, whereby costs related to the preliminary project stage of development are expensed and costs related to the application development stage are capitalized. Any additional costs for upgrades and enhancements which result in additional functionality will be capitalized. Capitalized costs will be amortized based on their estimated useful life over three years. Internal costs related to the development of website content are charged to operations as incurred. n. Comprehensive Income ASC 220, COMPREHENSIVE INCOME, establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. As at November 30, 2010 and May 31, 2010, the Company`s only component of comprehensive income (loss) was foreign currency translation adjustments. 3. Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. 4. Property and equipment November 30, May 31, 2010 2010 Accumulated Net Carrying Net Carrying Cost Depreciation Value Value ---- ------------ ----- ----- $ $ $ $ Computer equipment 5,880 (4,932) 948 1,141 Asset under construction 66,469 -- 66,469 65,391 Wind tower equipment 22,116 (19,900) 2,216 4,429 ------- -------- -------- -------- 94,465 (24,832) 69,633 70,961 ======= ======== ======== ======== 5. Intangible Assets November 30, May 31, 2010 2010 Accumulated Net Carrying Net Carrying Cost Depreciation Value Value ---- ------------ ----- ----- $ $ $ $ Website development 2,311 (2,311) -- -- Wind farm assets 2,551,440 -- 2,551,440 2,551,440 --------- ------ --------- --------- 2,553,751 (2,311) 2,551,440 2,551,440 ========= ====== ========= ========= 14
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 6. Short-term Investments a) On July 28, 2010, the Company purchased a term deposit in the amount of CDN $11,500, bearing floating interest rate of 0.50%, maturing on September 1, 2010. During the six months ended November 30, 2010, the Company redeemed the short term deposit. b) On October 30, 2009, the Company purchased a term deposit in the amount of CDN $12,334, bearing floating interest rate of prime rate less 1.85%, maturing on October 29, 2010. During the six months ended November 30, 2010, the Company redeemed the short term deposit. 7. Note Payable On October 28, 2010, the Company received an advance from a third party in the amount of $18,000. The amount is unsecured, non-interest bearing and due on demand. Refer to Note 12. 8. 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, 2010, 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, 2010, there were 15,515,016 outstanding exchangeable shares (May 31, 2009 -15,515,016 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. 9. Related Party Transactions a) During the six months ended November 30, 2010, the Company incurred $30,903 (2009 - $48,564) for management services provided by a former director and a principal shareholder of the Company. As at November 30, 2010, the Company has recognized prepaid management fees of $nil (May 31, 2010 - $4,791) and the former director is indebted to the Company for $14,128, which is included in other receivables at November 30, 2010. As at May 31, 2010, the former director is indebted to the Company for $10,650. b) During the six months ended November 30, 2010, the Company incurred $31,167 (2009 - $25,496) to a company controlled by a director and principal shareholder of the Company for management services. As at November 30, 2010, the Company is indebted to that company and the Company's director for $41,081 (May 31, 2010 - $109), which is non-interest bearing, unsecured and due on demand. c) On June 18, 2010, the Company entered into a loan agreement with a shareholder 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 November 30, 2010, accrued interest of $1,831 was recorded.During the six months ended November 30, 2010, the Company received an advance of $30,197 (CDN$31,000) from the same shareholder. The amount is unsecured, non-interest bearing and has no terms of repayment. These related party transactions are recorded at the exchange amount, being the amount established and agreed to by the related parties. 10. Stock Based Compensation On September 11, 2009, the Company's board of directors adopted the 2009 Stock Option Plan (the "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 November 30, 2010, the Company had 1,650,000 shares of common stock available to be issued under the Plan. 15
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 10. Stock Based Compensation (continued) On September 11, 2009, pursuant to the Plan, the Company granted 1,000,000 options with immediate vesting to directors, officers, and employees to acquire 1,000,000 common shares at an exercise price of $0.51 per share exercisable for 5 years and recorded stock-based compensation for the vested options of $493,939, as general and administrative expense. On September 11, 2009, pursuant to the Plan, the Company granted 250,000 options to consultants to acquire 250,000 common shares at an exercise price of $0.51 per share exercisable for 5 years. The options granted vest at the rate of 12.5% every 90 days from the date of grant. The Company recorded stock based compensation of $85,900, as general and administrative expense. The fair value for stock options vested during the six month period ended November 30, 2010 was estimated at the vesting date using the Black-Scholes option-pricing model and the weighted average fair value of stock options vested was $0.53 per share. The weighted average assumptions used are as follows: Six months Ended November 30, 2010 ------------ Expected dividend yield 0% Risk-free interest rate 1.81% Expected volatility 333% Expected option life (in years) 4.13 The following table summarizes the continuity of the Company's stock options: Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Options Price Term (years) Value ------- ----- ------------ ----- $ $ Outstanding: May 31, 2010 1,250,000 0.51 Granted -- -- Expired (333,333) 0.51 --------- ---- Outstanding: November 30, 2010 916,667 0.51 3.78 -- ========= ==== ==== ==== Exercisable: November 30, 2010 791,667 0.51 3.78 -- ========= ==== ==== ==== 16
Sky Harvest Windpower Corp. (A Development Stage Company) Notes to the Unaudited Interim Consolidated Financial Statements November 30, 2010 (Expressed in US Dollars) 10. Stock Based Compensation (continued) A summary of the status of the Company's non-vested stock options as of November 30, 2010, and changes during the year ended November 30, 2010, is presented below: Weighted Average Number of Grant Date Non-vested options options Fair Value ------------------ ------- ---------- $ Non-vested at May 31, 2010 187,500 0.55 Granted - - Forfeited/Cancelled - - Vested (62,500) 0.53 ------- ---- Non-vested at November 30, 2010 125,000 0.17 ======= ==== At November 30, 2010, there was $4,957 of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over a weighted average period of 0.78 years. 11. Commitments and Contingencies 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, 2010, the fair value of the 15,000 shares issuable was $6,750 and is included in common stock subscribed. In addition, if the Company receives equity or debt funding of at least $3,000,000 from a source introduced to the Company by the Consultant then the parties agree to extend the agreement by an additional year. In consideration for the additional year of investor relations services, the Company must pay $8,500 per month and issue 50,000 shares of the Company's common stock or pay $7,500 per month and issue 80,000 shares of the Company's common stock. 12. 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. During this period, the Company did not have any material recognizable subsequent events except the following: The Company received $18,000 on October 28, 2010 (refer to Note 7) and $32,000 on December 17, 2010 from a third party and issued a promissory note in the amount of $50,000 on December 17, 2010. The amount is unsecured, non-interest bearing and due on demand. 17
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, 2010. Certain statements contained herein constitute "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. In some cases forward-looking statements can be identified by terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "intends," or similar terms. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of our company, its directors or its officers with respect to, among other things: (i) trends affecting our financial condition or results of operations, (ii) our business and growth strategies and (iii) our financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur. Our consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. In this quarterly report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock and the terms "we", "us" and "our" ", "the Company" and "Sky Harvest" mean Sky Harvest Windpower Corp., a Nevada Corporation and its subsidiaries. CORPORATE OVERVIEW We were incorporated in the State of Nevada on February 25, 2005. We are a development stage company in the business of electrical power generation through the use of wind energy. We have not generated any revenue from operations since our incorporation. We do not anticipate earning any revenue until the completion of an environmental assessment on our properties, securing a power purchase agreement and erecting and commissioning wind turbines on our properties, of which there is no guarantee. RECENT CORPORATE DEVELOPMENTS On September 1, 2010, the Company appointed William Iny as its President, CEO, CFO, Secretary and Treasurer in place of Chris Craddock, who resigned from these positions on the same date. Mr. Craddock also resigned as a director on September 1, 2010. Mr. Iny also replaced Mr. Craddock as the sole director and officer of the Company's subsidiaries on the same date. 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 31, 2010, which are included herein. 18
Three months ended November 30, 2010 2009 Increase/(Decrease) ---- ---- ------------------- $ $ $ % Revenue 0 0 0 N/A Expenses 144,680 718,395 (573,715) (79.9%) Foreign exchange (gain) loss (25,727) (15,479) 10,248 (66.2%) Interest income 5 (159) 164 N/A ------- --------- ---------- ------ Net Loss 118,958 702,757 (583,799) (83.1%) ======= ========= ========== ====== Six months ended November 30, 2010 2009 Increase/(Decrease) ---- ---- ------------------- $ $ $ % Revenue 0 0 0 N/A Expenses 210,056 1,213,014 (1,002,958) (82.7%) Foreign exchange (gain) loss (10,043) (29,538) (19,495) (66.0%) Interest income (24) (1,824) (1,800) (98.7%) ------- --------- ---------- ------ Net Loss 199,989 1,181,652 (981,663) (83.1%) ======= ========= ========== ====== REVENUES We recorded a net operating loss of $118,958 for the fiscal quarter ended November 30, 2010 and have an accumulated deficit of $2,853,252 since inception. We have had no operating revenues since our inception on February 25, 2005 through to the fiscal quarter ended November 30, 2010. We anticipate that we will not generate any revenues while we are a development stage company. EXPENSES Our expenses for the three and six months ended November 30, 2010 and 2009 are outlined below: Three months ended November 30, 2010 2009 Increase/(Decrease) ---- ---- ------------------- $ $ $ % Consulting fees 25,890 12,662 13,228 104.5% Engineering and development 23,956 37,410 (13,454) (36.0%) Management fees 15,740 59,113 (43,373) (73.4%) Professional fees 29,053 40,312 (11,259) (27.9%) General and administrative 50,041 568,898 (518,857) (91.2%) ------- ------- -------- ------ Net Loss 144,680 718,395 (573,715) (79.9%) ======= ======= ======== ====== 19
Six months ended November 30, 2010 2009 Increase/(Decrease) ---- ---- ------------------- $ $ $ % Consulting fees 46,077 42,217 3,860 9.1% Engineering and development 40,014 136,388 (96,374) (70.7%) Management fees 62,070 93,552 (31,482) (33.7%) Professional fees 31,409 107,559 (76,150) (70.8%) General and administrative 30,486 590,797 (560,311) (94.8%) Acquired development costs -- 242,501 (242,501) (100.0%) ------- --------- ---------- ------- Net Loss 210,056 1,213,014 (1,002,958) (82.7%) ======= ========= ========== ======= Consulting expenses increased by $13,228 in the three month period ended November 30, 2010 compared to the three month period ended November 30, 2009, and by $3,860 in the six month period ended November 30, 2010 compared to the six month period ended November 30, 2009. These increases primarily related to fees for investor relations services. Engineering and development expenses decreased by $13,454 in the three month period ended November 30, 2010 compared to the three month period ended November 30, 2009, and by $96,374 in the six month period ended November 30, 2010 compared to the six month period ended November 30, 2009. This decrease is a result of reduced development work on our wind power projects. Management fees decreased by $43,373 in the three month period ended November 30, 2010 compared to the three month period ended November 30, 2009, and by $31,482 in the six month period ended November 30, 2010 compared to the six month period ended November 30, 2009. These decreases in management fees are a result of termination of our management contract with Chris Craddock, who ceased providing us with management services on September 1, 2010. Since that date, William Iny, our president and sole director, has provided us with management services for remuneration of $5,000 per month. Professional fees, consisting primarily of legal and accounting costs, decreased by $11,259 in the three month period ended November 30, 2010 compared to the three month period ended November 30, 2009, and by $76,150 in the six month period ended November 30, 2010 compared to the six month period ended November 30, 2009. These decreases are due to the fact that we incurred higher than usual professional fees in fiscal 2009 in connection with our acquisition of Sky Harvest - Saskatchewan and the creation of a stock option plan. General and administrative expenses decreased by $518,857 in the three month period ended November 30, 2010 compared to the three month period ended November 30, 2009, and by $560,311 in the six month period ended November 30, 2010 compared to the six month period ended November 30, 2009. The decrease in this category of expenses resulted chiefly from an adjustment to the fair value of unvested options awarded under the Company's 2009 Stock Option plan. Acquired development costs amounting to $242,501 expensed during the three months ended August 31, 2009, represent development costs incurred by Sky Harvest - Saskatchewan prior to acquisition by the Company on July 11, 2009. 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 20
INTEREST INCOME We received negligible interest in the three month period ended November 30, 2010. 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, 2010, and May 31, 2010, our fiscal year end, and the changes for on those dates are summarized as follows: WORKING CAPITAL November 30, May 31, 2010 2010 Increase/Decrease ---- ---- ----------------- $ $ $ % Current Assets 65,407 75,343 (9,936) (13%) Current Liabilities 310,823 98,116 212,707 217% -------- -------- -------- ------ Working Capital (245,416) (22,773) (222,643) N/A ======== ======== ======== ====== The decrease of $222,643 in our working capital was primarily due to a decrease in prepaid expenses and amounts due from related parties coupled with increases in accounts payable, amounts due to related parties and notes payable in connection with loans we have received since our fiscal year end. CASH FLOWS Six months ended August 31, 2010 2009 Increase/Decrease ---- ---- ----------------- $ $ $ % Cash Flows from (used in) Operating Activities (81,586) (450,500) (368,914) (81.9%) Cash Flows provided by (used in) Investing Activities 22,840 468,565 (445,725) (95.1%) Cash Flows provided by Financing Activities 77,028 -- 77,028 N/A Effect of exchange rate changes on cash (11,846) (30,485) (18,639) (61.1%) -------- -------- -------- ------ Net increase (decrease) in cash during period 6,436 (12,420) 18,856 N/A ======== ======== ======== ====== During the six months ended November 30, 2010, we used net cash in operating activities in the amount of $81,586. This cash outflow primarily consisted of payments for general and administrative expenses, audit fees, and wind property lease payments. The $22,840 in cash flows provided by investing activities during the six months ended November 30, 2010 represents funds we received by redeeming short-term investments in the form of term deposits. The $77,028 in cash flows provided by financing activities during the six months ended November 30, 2010 represents third party loans and related party loans that we received during the period. 21
DISCLOSURE OF OUTSTANDING SHARE DATA WARRANTS None SHARE OPTIONS On September 11, 2009, we granted stock options to directors, officers and key advisors to acquire up to 1,250,000 shares of common stock exercisable at $0.51 per share on or before September 11, 2014. A summary of our stock option activity is as follows: Weighted Average Number of Exercise Options Price ------- ----- $ Balance as at May 31, 2010 1,250,000 0.51 Granted -- -- Cancelled -- -- Expired (333,333) 0.51 Exercised -- -- ---------- ------ Balance, as at November 20, 2010 916,667 0.51 ========== ====== FUTURE FINANCINGS We recorded a net loss of $199,989 for the six month period ended November 30, 2010 and have an accumulated deficit of $2,892,259 since inception. As of November 30, 2010 we had cash and cash equivalents totaling $6,670 (May 31, 2010 - $234). As of the date of this report, management anticipates that we will require at least $350,000 to fund our corporate operations and proposed exploration and development program for the next 12 months. As well, we will require approximately an additional $300,000 to cover our current outstanding liabilities. Accordingly, we do not have sufficient funds to meet our planned expenditures over the next 12 months. In addition, we will require further financing in order to fund our anticipated expenses for the construction of the proposed wind turbine project. We have begun sourcing additional debt or equity financing to cover the balance of the anticipated costs for the next 12 months. During the six month period ended November 30, 2010, we received $77,028 in loans from third parties. As of the date of this report, we do not have any arrangements in place for debt financing nor for the sale of our securities, and there is no assurance that we will be able to raise the required funds through equity and debt 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. 22
OFF BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. RISKS RELATED TO OUR BUSINESS IF WE DO NOT OBTAIN ADDITIONAL FINANCING OUR BUSINESS WILL FAIL. Over the next 12 months, we expect to spend approximately $250,000 on administrative costs, including management fees payable to our President, professional fees and general business expenses, including costs related to complying with our filing obligations as a reporting company. As our operations become more complex, it is anticipated that these costs will increase. We also expect incur a further $100,000 in pre-development costs related to our wind power projects. As of the date of this report, we do not have sufficient cash on hand to fund these expenditures. We will need to raise additional debt or equity financing in order to cover remaining business costs. We do not currently have any arrangements for financing and may not be able to find such financing if required. BECAUSE WE HAVE NOT COMMENCED BUSINESS OPERATIONS, WE FACE A HIGH RISK OF BUSINESS FAILURE. We have not yet commenced business operations as an independent power producer; accordingly, we have no way to evaluate the likelihood that our business will be successful. We were incorporated on February 25, 2005 and to date have been involved in conducting land assessments, acquiring leasehold interests in properties having the potential for wind power development, raising financing and completing wind, environmental and community assessments. Potential investors should be aware of the difficulties normally encountered by development stage companies and the high rate of failure of such enterprises. Prior to earning revenue, of which there is no assurance, we will likely incur significant costs and expect to incur significant losses in the foreseeable future. If we are unable to acquire a property interest and erect a wind farm on our property, we will not earn profits nor be able to continue operations. BECAUSE OUR CONTINUATION AS A GOING CONCERN IS IN DOUBT, WE WILL BE FORCED TO CEASE BUSINESS OPERATIONS UNLESS WE CAN GENERATE PROFITABLE OPERATIONS IN THE FUTURE. We have incurred losses since our inception. Further losses are anticipated in the development of our business. As a result, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent in the short to medium term on our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, and in the longer term, on upon our ability to generate profitable operations in the future. If we cannot raise financing to meet our obligations, we will be insolvent and will cease business operations. IF WE ARE NOT ABLE TO OBTAIN AN INTEREST IN A SUITABLE PROPERTY WITH A POTENTIAL WIND RESOURCE, OUR BUSINESS WILL FAIL. Third parties own the lands on which we will seek to construct wind projects. We have entered into land lease agreements covering approximately 15,520 acres that relate to our primary project, which is located in southwestern Saskatchewan, which we refer to as the Birsay Project. These agreements allow us to erect wind turbines and install ancillary equipment, subject, in certain circumstances, to the payment of lease payments prior to construction of the project. Even though we own leasehold interests in these properties, we may not be able to obtain the financing necessary to complete lease obligations. If we are unable to maintain our property interests, our business will fail. 23
We will need to enter into land leases or other appropriate agreements in order to erect wind turbines and install ancillary equipment on the Keewatin Project site, which is also located in southwestern Saskatchewan. We have entered into an agreement to operate a meteorological tower on a property comprising the Keewatin Project in southwestern Saskatchewan. However, we do not yet have an arrangement whereby we may erect turbines on the property. FUTURE CHANGES IN WEATHER PATTERNS COULD NEGATIVELY IMPACT OUR BUSINESS, REDUCING POTENTIAL PROFITABILITY OR CAUSING OUR BUSINESS TO FAIL. Changes in weather patterns may affect our ability to operate a wind power project on any property we acquire. Wind data that we collect from a meteorological tower may vary from results actually achieved when a wind turbine is installed. Changing global environmental and weather conditions may also affect the reliability of the data relating to a property. Any wind farm that we develop, no matter where it is located, would be subject to variations in wind and changes in worldwide climatic conditions. Sudden or unexpected changes in environmental and meteorological conditions could reduce the productivity of any wind farm we construct. Climatic weather patterns, whether seasonal or for an extended period of time, resulting in lower, inadequate and/or inconsistent wind speed to propel the wind turbines may render our wind parks incapable of generating adequate, or any, electrical energy. OUR ABILITY TO ERECT TURBINES ON A PROPERTY IN SASKATCHEWAN WILL BE CONTINGENT UPON IT OBTAINING ENVIRONMENTAL AND MUNICIPAL PERMITS. IF IT CANNOT ACQUIRE THESE PERMITS, OUR BUSINESS WILL FAIL. In order to erect turbines on the Saskatchewan property, we must excavate portions of the land and install concrete platforms below surface. Before we commence this, we will need to obtain environmental and municipal permits from the Saskatchewan provincial government and the town responsible for the property interest it acquires. Depending on environmental impact, our proposed land disturbance may be unacceptable to these government bodies. In addition, the turbines themselves may be seen to have a negative impact on the aesthetics of the region. These factors may prevent us from obtaining necessary permits. In such circumstances, we would be forced to abandon our business plan. IF WE CANNOT REACH AN AGREEMENT WITH A JOINT VENTURE DEVELOPER AND OPERATOR OUR BUSINESS WILL FAIL. As presently constituted, we do not have the skills and expertise necessary to build and operate a wind farm. Our management has never been involved in the construction or operation of a wind power project and does not have any technical background in the sector. IF WE CANNOT FIND A JOINT VENTURE PARTNER FOR OUR PROJECTS OR A PARTY WHICH WILL PURCHASE OUR ELECTRICITY ON ACCEPTABLE TERMS, WE WILL NOT BE ABLE TO ESTABLISH A WIND POWER PROJECT AND OUR BUSINESS WILL FAIL. Even if we demonstrate a significant wind resource on a property that we acquire, we may not be able to secure a joint venture partner to further develop a project or a purchaser for any electricity that we produce on acceptable terms. Without a purchaser for electricity from a property, we will not be able to proceed with our business plan. BECAUSE ALL OF OUR ASSETS, AND OUR DIRECTORS AND OFFICERS ARE LOCATED IN CANADA, U.S. RESIDENTS' ENFORCEMENT OF LEGAL PROCESS MAY BE DIFFICULT. All of our assets are located in Canada. In addition, our sole director and officer resides in Canada. Accordingly, service of process upon our company, or upon individuals related to Sky Harvest, may be difficult or impossible to obtain within the United States. As well, any judgment obtained in the United States against us may not be collectible within the United States. 24
RISKS RELATED TO OUR COMMON STOCK A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE FURTHER WORKING CAPITAL, IT MAY ADVERSELY IMPACT OUR ABILITY TO CONTINUE OPERATIONS AND WE MAY GO OUT OF BUSINESS. A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. If we are unable to raise the funds we require for all of our planned operations, we may force us to reallocate funds from other planned uses which may have a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business. IF WE ISSUE ADDITIONAL SHARES IN THE FUTURE, IT WILL RESULT IN THE DILUTION OF OUR EXISTING SHAREHOLDERS. Our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common stock with a par value of $0.001. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation. TRADING ON THE OTC BULLETIN BOARD MAY BE VOLATILE AND SPORADIC, WHICH COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR OUR STOCKHOLDERS TO RESELL THEIR SHARES. Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority ("FINRA"). Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares. OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS AND FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and 25
salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock. FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. 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, 2010, 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, 2010 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, 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. In addition, we currently only have one member of management, William Iny, who also acts as our sole director. Accordingly, we do not have any independent directors or committee members that can evaluate management's conduct or the operation of our business affairs. As well, there is no independent monitoring or controls related to our financial transactions. 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 26
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 November 30, 2010, our internal control over financial reporting was subject to changes relating to the implementation of financial recording and disclosure timelines necessary to ensure that the Company is able to meet regulatory deadlines for financial disclosure. 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. REMOVED AND RESERVED ITEM 5. OTHER INFORMATION None 27
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--MANAGEMENT CONTRACTS AND COMPENSATORY PLANS Management Agreement between Keewatin Windpower Corp. 10.1 SB-2 July 14, 2005 and Christopher Craddock, dated March 1, 2005 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 February 28, 2009 September 23, 2008 Loan Agreement between Sky Harvest Windpower Corp. 10.10 10-Q February 28, 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 28
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 29
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SKYHARVEST WINDPOWER CORP. /s/ William Iny --------------------------------------------------- William Iny Chief Executive Officer and Chief Financial Officer Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer Date: January 13, 2011 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: January 13, 2011 3