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EXCEL - IDEA: XBRL DOCUMENT - Sealand Natural Resources Inc | Financial_Report.xls |
EX-31.2 - EXHIBIT 31.2 - Sealand Natural Resources Inc | v389016_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - Sealand Natural Resources Inc | v389016_ex32-1.htm |
EX-32.2 - EXHIBIT 32.2 - Sealand Natural Resources Inc | v389016_ex32-2.htm |
EX-31.1 - EXHIBIT 31.1 - Sealand Natural Resources Inc | v389016_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 2014
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: 000-55172
SEALAND NATURAL RESOURCES INC.
(Exact name of registrant as specified in its charter)
Nevada | 45-2416474 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
50 W. Liberty Street #880 Reno, Nevada |
89501 | |
(Address of principal executive offices) | (Zip Code) |
(702) 530-8665
(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 (§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 ¨ (do not check if smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of September 10, 2014, the registrant had 2,717,029 shares of common stock issued and outstanding.
EXPLANATORY NOTE
We are filing this Amendment No. 2 to Form 10-Q/A (the “Amended Filing”) to our Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2014 originally filed with the Securities and Exchange Commission (“Commission”) on April 21, 2014, as restated in an amended Quarterly Report on Form 10-Q/A for the period ended February 28, 2014, filed with the SEC on July 16, 2014 (the “Previous Filings”) to restate our financial statements for the period ended February 28, 2014 which did not properly account for discounted stock issuances, a prepaid rent contract, a fixed asset reporting error, an omitted foreign bank account and related transactions, and the inclusion of expenses related to a stock option grant and subsequent vesting.
Description of Restatement
There were inputting errors that were the result of data entry errors – incorrectly dated transactions entered into our reporting software that should have been, but were not, dated in the quarter period of the filing – in the Previously Issued Financial Statement that resulted in our not properly accounting for some expenses pertaining to legal and professional fees, product development costs, and other office and miscellaneous expenses.
In addition, our independent registered public accounting firm determined with regard to the treatment of stock issuances at a discount to current market price, that expensing was not necessary due to the fact that these shares were restricted and not freely tradable. Therefore, the line item for stock discount expense, which totaled in excess of $1,000,000 for the nine months ended February 28, 2014, has been removed.
In addition, an amount that had previously been categorized as pre-paid rent, for nearly $140,000, was discovered to have been an entry error and was re-categorized as a deposit.
In addition, a stock option grant that was issued on January 1, 2014, and not previously accounted for, resulted in an expense charge to stock based professional fees of approximately $200,000.
Finally, a foreign bank account funded in the last week of the February 28, 2014 quarter, that contained less than ten transactions, had not been previously included in the expense/deposit accounting. The gross amount involved summed to approximately $200,000.
As a result of the restatement, total operating expenses for the three months ended February 28, 2014 decreased from $2,152,304 to $1,155,437, net loss decreased from $(2,230,281) to $(1,238,213), and loss per share decreased from $(0.95) to $(0.53).
Items Amended in this Filing
This Amended Filing amends and restates the following items of our Previous Filings for the quarterly period ended February 28, 2014:
Part I – Item 1. Financial Statements including the Notes to Financial Statements
Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II – Item 6. Exhibits
In accordance with applicable Commission rules, this Amended Filing includes new certifications as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) from our Principal Executive Officer and Principal Financial Officer dated as of the date of filing this Amended Filing.
Except for the items noted above, no other information included in the Previous Filings is being amended or updated by this Amended Filing. This Amended Filing continues to describe the conditions as of the date of the Previous Filings, and, except as contained herein, we have not updated or modified the disclosures contained in the Previous Filings. Accordingly, this Amended Filing should be read in conjunction with our filings made with the Commission subsequent to the filing of the Previous Filings, including any amendment to those filings.
SEALAND NATURAL RESOURCES INC.
TABLE OF CONTENTS
FORM 10-Q /A REPORT
February 28, 2014
SEALAND NATURAL RESOURCES INC.
FORMELY VITAS GROUP, INC.
(An Development Stage Enterprise)
Table of Contents
(Restated)
Balance Sheets: | |
February 28, 2014 (restated) and May 31, 2013 | F-1 |
Statements of Operations: | |
For the three and nine months ended February 28, 2014 (restated) and 2013 | F-2 |
and for the period (inception) May 23, 2011 through February 28, 2014 (restated) | |
Statements of Cash Flows: | |
For the nine months ended February 28, 2014 (restated) and 2013 | F-3 |
and for the period (inception) May 23, 2011 through February 28, 2014 (Restated) | |
Notes to Financial Statements: | |
February 28, 2014 (restated) | F-4 |
SEALAND NATURAL RESOURCES INC.
FORMELY VITAS GROUP, INC.
(A Development Stage Enterprise)
Balance Sheets
(Restated) | ||||||||
February 28, | May 31, | |||||||
2014 | 2013 | |||||||
Unaudited | Audited | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 739,143 | $ | 34,297 | ||||
Accounts receivable | 441,470 | 246,817 | ||||||
Inventory | 112,602 | 113,345 | ||||||
Prepaids | 6,500 | 2,500 | ||||||
Total current assets | 1,299,715 | 396,959 | ||||||
Fixed assets | ||||||||
Furniture and Equipment, net | 74,794 | 62,394 | ||||||
Other assets | ||||||||
Deposits | 292,435 | 40,000 | ||||||
Total assets | $ | 1,666,944 | $ | 499,353 | ||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued taxes | $ | 103,686 | $ | 395,959 | ||||
Related party loans | - | 20,000 | ||||||
Notes Payable | 216,000 | 235,000 | ||||||
Accounts receivable holdback liability | 250,000 | |||||||
Total current liabilities | 569,686 | 650,959 | ||||||
Total liabilities | 569,686 | 650,959 | ||||||
STOCKHOLDERS' DEFICIT | ||||||||
Common stock, $0.001 par value, 75,000,000 authorized, | ||||||||
2,589,625 and 2,105,000 shares issued and outstanding | 2,590 | 2,105 | ||||||
Capital in excess of par value | 3,311,606 | 404,969 | ||||||
Stock subscription | 521,635 | 378,800 | ||||||
Deficit accumulated during the development stage | (2,738,573 | ) | (937,480 | ) | ||||
Total stockholders' deficit | 1,097,258 | (151,606 | ) | |||||
Total liabilities and stockholders' deficit | $ | 1,666,944 | $ | 499,353 |
F-1 |
SEALAND NATURAL RESOURCES INC.
FORMELY VITAS GROUP, INC.
(A Development Stage Enterprise)
Statement of Operations
Unaudited
Cumulative, | ||||||||||||||||||||
Inception, | ||||||||||||||||||||
Three months | Three months | Nine months | Nine months | May 23, | ||||||||||||||||
ended | ended | ended | ended | 2011 through | ||||||||||||||||
February 28, | February 28, | February 28, | February 28, | February 28, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | ||||||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||||||||
Sales | $ | 156,234 | $ | 244,765 | $ | 419,669 | $ | 245,317 | $ | 723,863 | ||||||||||
Cost of Sales | 158,442 | 125,851 | 353,415 | 134,868 | 482,021 | |||||||||||||||
Gross Profit | (2,208 | ) | 118,914 | 66,254 | 110,449 | 241,842 | ||||||||||||||
General and administrative expenses: | ||||||||||||||||||||
Wages and salaries | 85,073 | 52,350 | 375,813 | 89,530 | 792,643 | |||||||||||||||
Advertising and marketing | 11,841 | 12,332 | 52,267 | 32,697 | 168,617 | |||||||||||||||
Legal and professional | 659,251 | 12,121 | 792,373 | 20,595 | 1,164,321 | |||||||||||||||
Stock based professional fees | 199,100 | - | 199,100 | - | 199,100 | |||||||||||||||
Computer and internet | 1,791 | 3,456 | 9,506 | 6,944 | 15,499 | |||||||||||||||
Travel and entertainment | 39,823 | 4,283 | 83,793 | 14,368 | 127,957 | |||||||||||||||
Product development costs | 23,273 | 30,000 | 49,274 | 30,000 | 142,727 | |||||||||||||||
Bank charges | 3,072 | 361 | 7,729 | 1,558 | 12,317 | |||||||||||||||
Rent | 34,331 | 9,000 | 72,323 | 18,000 | 127,321 | |||||||||||||||
Depreciation and amortization | 2,591 | 150 | 5,799 | 300 | 8,760 | |||||||||||||||
Stock discount expense | - | - | - | |||||||||||||||||
Other office and miscellaneous | 95,291 | 4,969 | 106,854 | 78,469 | 127,021 | |||||||||||||||
Total operating expenses | 1,155,437 | 129,022 | 1,754,831 | 292,461 | 2,886,283 | |||||||||||||||
(Loss) from operations | (1,157,645 | ) | (10,108 | ) | (1,688,577 | ) | (182,012 | ) | (2,644,441 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||||
Interest (expense) | (80,568 | ) | (6,759 | ) | (112,516 | ) | (6,759 | ) | (124,019 | ) | ||||||||||
Income/(Loss) before taxes | (1,238,213 | ) | (16,867 | ) | (1,801,093 | ) | (188,771 | ) | (2,768,460 | ) | ||||||||||
Provision/(credit) for taxes on income | - | - | - | - | - | |||||||||||||||
Net Income/(loss) | $ | (1,238,213 | ) | $ | (16,867 | ) | $ | (1,801,093 | ) | $ | (188,771 | ) | $ | (2,768,460 | ) | |||||
Basic earnings/(loss) per common share | $ | (0.53 | ) | $ | (0.00 | ) | $ | (0.77 | ) | $ | (0.06 | ) | ||||||||
Weighted average number of shares outstanding | 2,347,313 | 3,405,000 | 2,347,313 | 3,405,000 |
F-2 |
SEALAND NATURAL RESOURCES INC.
FORMELY VITAS GROUP, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
Unaudited
Cumulative, | ||||||||||||
Inception, | ||||||||||||
Nine months | Nine months | May 23, | ||||||||||
ended | ended | 2011 through | ||||||||||
February 28, | February 28, | February 28, | ||||||||||
2014 | 2013 | 2014 | ||||||||||
(Restated) | (Restated) | |||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | (1,801,093 | ) | $ | (188,771 | ) | $ | (2,768,460 | ) | |||
Adjustments to reconcile net (loss) to cash | ||||||||||||
provided (used) by developmental stage activities: | ||||||||||||
Effects of reverse merger | 14,477 | |||||||||||
Forgiveness of debt | 29,887 | |||||||||||
Stock options for professional services | 199,100 | 199,100 | ||||||||||
Common stock issued for services | 176,340 | 176,340 | ||||||||||
Depreciation and amortization | 5,799 | 300 | 8,760 | |||||||||
Change in current assets and liabilities: | ||||||||||||
Accounts receivable | (194,653 | ) | (244,410 | ) | (441,470 | ) | ||||||
Inventory | 743 | (161,034 | ) | (112,602 | ) | |||||||
Prepaids | (4,000 | ) | - | (6,500 | ) | |||||||
Accounts receivable holdback liability | 250,000 | 250,000 | ||||||||||
Accounts payable and accrued expenses | (292,273 | ) | 16,307 | 103,686 | ||||||||
Net cash flows from operating activities | (1,660,037 | ) | (563,131 | ) | (2,561,259 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Purchase of fixed assets | (18,199 | ) | (574 | ) | (83,554 | ) | ||||||
- | ||||||||||||
Net cash flows from investing activities | (18,199 | ) | (574 | ) | (83,554 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from sale of common stock | 2,531,682 | 126,070 | 2,938,756 | |||||||||
Deposits paid | (252,435 | ) | (292,435 | ) | ||||||||
Notes Payable | (19,000 | ) | 235,000 | 216,000 | ||||||||
Stock subscription receivable | 142,835 | (63,698 | ) | 521,635 | ||||||||
Related party transaction | (20,000 | ) | 265,791 | - | ||||||||
Net cash flows from financing activities | 2,383,082 | 563,163 | 3,383,956 | |||||||||
Net cash flows | 704,846 | (542 | ) | 739,143 | ||||||||
Cash and equivalents, beginning of period | 34,297 | 781 | - | |||||||||
Cash and equivalents, end of period | $ | 739,143 | $ | 239 | $ | 739,143 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR: | ||||||||||||
Interest | $ | - | $ | - | $ | - | ||||||
Income taxes | $ | - | $ | - | $ | - |
F-3 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
Note 1 - Summary of Significant Accounting Policies
General Organization and Business
Sealand Natural Resources Inc. (“Sealand” or the “Company”) is a Nevada corporation in the development stage. The Company was incorporated under the laws of the State of Nevada on May 23, 2011. The Company engages in the manufacture, distribution, sales and marketing of all natural functional beverages, nutriceuticals, health supplements and the harvesting of organic raw materials. The Company integrates critical scientific, environmental and medical competencies in three core areas: exploration/discovery, characterization of health benefits, and the ability to scale up new and natural consumer products for commercial use.
The Company is in the development stage as defined under Statement on Financial Accounting Standards Accounting Standards Codification FASB ASC 915-205 "Development-Stage Entities.”
Basis of presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of February 28, 2014 and May 31, 2013 and for the three and nine months ended February 28, 2014 and 2013 and for the period (inception) from May 23, 2011 through February 28, 2014.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company maintains a cash balance in an interest and non-interest-bearing accounts that can exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of February 28, 2014 and May 31, 2013.
Property and Equipment
The Company values its investment in property and equipment at cost less accumulated depreciation. Depreciation is computed primarily by the straight line method over the estimated useful lives of the assets ranging from three to five years. As of February 28, 2014 and May 31, 2013 the company had recognized total depreciation expense of $5,799 and $2,887, respectively.
Inventory
Inventory is recorded at lower of cost or market; cost is computed on a first-in first-out basis. The inventory consists of imported flavoring, bottle caps, and labels used to produce the Company’s all natural, organic birch tree beverage.
Accounts receivable
Trade receivables are carried at original invoice amount. Management has determined that no allowance for uncollectible accounts is necessary. The allowance for doubtful accounts is based on management estimates of accounts that will not be collected in the future. Receivables past due for more than 90 days are considered delinquent. Management determines uncollectible accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions and by using historical experience applied to an aging of accounts. Recoveries of trade receivables previously written off are recorded when received. Accounts receivables represents a significant portion of sales as we experienced a delay in receiving payments that was longer than anticipated due to travel time delays and modifications that were made to the terms because of these delays.
F-4 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
On February 20, 2014, The Company entered into a factoring agreement and received $250,000 for certain accounts listed on their accounts receivable. The Company has an obligation to repurchase these shares if the receivable is never collected. Due to this obligation the Company has recorded an accounts receivable holdback liability. The balance of this liability as of February 28, 2014 was $250,000.
Revenue Recognition Policy
Revenue from the sale of goods is recognized when the following conditions are satisfied:
- | The Company has transferred to the buyer the significant risks and rewards of ownership of the goods; |
- | The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; |
- | The amount of revenue can be measured reliably; |
- | It is probable that the economic benefits associated with the transaction will flow to the entity; and |
- | The costs incurred or to be incurred in respect to the transaction can be measured reliably |
The time that all of the conditions listed above are satisfied varies with each vendor depending on the specific terms to which the Company and each vendor agree. The range of terms varies from pre-paid sales to 120 day payment.
Fair value of financial instruments and derivative financial instruments
We have adopted Accounting Standards Codification regarding Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments. The carrying amounts of cash, accounts payable, accrued expenses, and other current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of foreign exchange, commodity price or interest rate market risks.
Federal income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with Accounting Standards Codification regarding Accounting for Income Taxes, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred taxes are provided for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not.
Net Income Per Share of Common Stock
We have adopted Accounting Standards Codification regarding Earnings per Share, which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. We do not have a complex capital structure requiring the computation of diluted earnings per share.
F-5 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
Internal Website Development Costs
Under ASC350-50, Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's website are expensed as incurred. Under ASC 350-50, costs incurred in the website application and infrastructure development stages are capitalized by the Company and amortized to expense over the website's estimated useful life or period of benefit.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.
Deferred Offering and Acquisition Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.
Common Stock Registration Expenses
The Company considers incremental costs and expenses related to the registration of equity securities with the SEC, whether by contractual arrangement as of a certain date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.
Development Stage Enterprise
The Company’s financial statements are prepared pursuant to the provisions of Topic 26, “Accounting for Development Stage Enterprises,” as it devotes substantially all of its efforts to acquiring and developing functional beverages that will eventually provide sufficient net profits to sustain the Company’s existence. Until such interests are engaged in major commercial production, the Company will continue to prepare its financial statements and related disclosures in accordance with entities in the development stage.
Stock Based Compensation
The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
F-6 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
For non-employee stock-based compensation, we have adopted ASC Topic 505 “Equity-Based Payments to Non-Employees”, which requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC Topic 718.
Concentration of Credit Risk and Significant Vendor
The Company has no significant off-balance sheet risks related to foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company does maintain its supplier relationship with one vendor. The Company, by policy, routinely assesses the financial strength of this vendor.
Recently Issued Accounting Pronouncements
As of and February 28, 2014 and May 31, 2013, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
Note 2 - Uncertainty, going concern:
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs to allow it to continue as a going concern. As of February 28, 2014, the Company had an accumulated deficit of $2,738,573. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is contemplating conducting an offering of its debt or equity securities to obtain additional operating capital. The Company is dependent upon its ability, and will continue to attempt, to secure equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Note 3 – Restatement:
Quarter Ended August 31, 2013 Restatement:
The financial statements have been revised to correct an error in accounting for the Company’s cash, accounts receivable, inventory, accounts payable and accrued expenses, sales, cost of sales, general and administrative expenses and earnings per share. In accordance with applicable Generally Accepted Accounting Principles (GAAP), the Company calculated and recognized adjustments accordingly.
On October 15, 2013, the Company filed with the SEC its reviewed financial statements for the quarter ended August 31, 2013. Following the discovery of various material errors the Company informed the SEC on January 10, 2014, that these financial statements could not be relied upon, and on January 21, 2014 filed its restated unaudited financial statements for the above mentioned period.
F-7 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
The following table represents the effects of the restated statements as of August 31, 2013.
Restated | Original | |||||||
8/31/2013 | 8/31/2013 | |||||||
Cash | $ | 131,310 | $ | 104,481 | ||||
Accounts Receivable | $ | 142,016 | $ | 219,027 | ||||
Inventory | $ | 127,776 | $ | 137,237 | ||||
Deposits | $ | 55,214 | $ | 57,189 | ||||
Accounts Payable and accrued expenses | $ | 118,668 | $ | 135,302 | ||||
Sales | $ | 42,067 | $ | 12,753 | ||||
Cost of Sales | $ | 48,605 | $ | 30,481 | ||||
General and Administrative | $ | 236,454 | $ | 180,330 | ||||
Accumulated deficit | $ | (1,185,172 | ) | $ | (1,140,188 | ) | ||
Earnings per share | $ | (0.12 | ) | $ | 0.09 |
Quarter Ended February 28, 2014 Restatements:
The financial statements have been revised to correct an error for incorrect accounting on discounted stock issuances, prepaid rent contract, fixed asset reporting error and an omitted foreign bank account and related transactions. The effects of these errors are listed throughout the footnotes to the financial statements and reflected in total below. In accordance with applicable Generally Accepted Accounting Principles (GAAP), the Company calculated and recognized adjustments accordingly.
On April 21, 2014, the Company filed with the SEC its reviewed financial statements for the quarter ended February 28, 2014. Following the discovery of various material errors the Company informed the SEC on July 14, 2014, that these financial statements could not be relied upon, and on July 16, 2014 filed its restated unaudited financial statements for the above mentioned period.
Following the discovery of various material errors the Company informed the SEC on August 11, 2014, that the financial statements for the quarter ended February 28, 2014, as restated, could not be relied upon, and the Company plans on filing its second restated unaudited financial statements for the above mentioned period before September 30, 2014.
F-8 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
The following table represents the effects of the first and second restated statements for the three months ended February 28, 2014.
Second Restatement | First Restatement | Original Filing | ||||||||||||||||||||||
Period | Year to date | Period | Year to date | Period | Year to date | |||||||||||||||||||
Cash | $ | 739,143 | $ | 582,695 | $ | 582,695 | ||||||||||||||||||
Fixed Assets | $ | 74,794 | $ | 132,795 | $ | 132,795 | ||||||||||||||||||
Deposits | $ | 292,435 | $ | 142,435 | $ | 142,435 | ||||||||||||||||||
Prepaid Rent | $ | - | $ | 138,833 | $ | 138,833 | ||||||||||||||||||
Accounts Payable | $ | 103,686 | $ | 104,623 | $ | 104,623 | ||||||||||||||||||
Accounts Receivable Holdback Liability | $ | 250,000 | $ | - | $ | - | ||||||||||||||||||
Additional Paid in Capital | $ | 3,311,606 | $ | 4,110,627 | $ | 4,110,627 | ||||||||||||||||||
Stock Subscription | $ | 521,635 | $ | 854,131 | $ | 854,131 | ||||||||||||||||||
Retained Deficit | $ | (2,738,573 | ) | $ | (3,730,641 | ) | $ | (3,730,641 | ) | |||||||||||||||
Total Assets | $ | 1,666,944 | $ | 1,557,330 | $ | 1,557,330 | ||||||||||||||||||
Total Liabilities | $ | 569,686 | $ | 320,623 | $ | 320,623 | ||||||||||||||||||
Total Equity | $ | 1,097,258 | $ | 1,236,707 | $ | 1,236,707 | ||||||||||||||||||
Cost of Sales | $ | 158,442 | $ | 353,415 | $ | 153,643 | $ | 348,616 | $ | 153,643 | $ | 348,616 | ||||||||||||
General and Administrative | $ | 1,155,437 | $ | 1,754,831 | $ | 2,152,304 | $ | 2,751,698 | $ | 1,745,179 | $ | 2,751,698 | ||||||||||||
Net Loss | $ | (1,238,213 | ) | $ | (1,801,093 | ) | $ | (2,230,281 | ) | $ | (2,793,161 | ) | $ | (1,823,156 | ) | $ | (2,793,161 | ) | ||||||
Earnings per share | $ | (0.53 | ) | $ | (0.77 | ) | $ | (0.95 | ) | $ | (1.19 | ) | $ | (0.78 | ) | $ | (1.19 | ) |
Note 4 - Related Party Transactions
The Company also incurred period expenses of $43,187 for product development costs for the year ending May 31, 2012. For the year ending May 31, 2013, the Company paid down this related party payable by $23,187. The Company was forgiven this payable and recorded the forgiveness as other income in the period ending August 31, 2013.
The Company had a related party payable of $29,887. This note was cancelled and recorded as forgiveness of debt for the year ended May 31, 2013.
Note 5 – Service Agreements
On June 1, 2011, the Company entered into a Service Agreement with Greg May. The agreement requires the Company to pay Mr. May a sum of $9,800 monthly fee plus de-minimus fringe benefits. The agreement is cancellable by either party with written notice of termination. In May of 2013, the Company modified this Service Agreement to include the issuance of 1,500 shares of the Company’s common stock paid out quarterly basis (on an annual basis). The modified agreement was effective January 1, 2013 and the 1,500 shares to be issued on March 31, 2013, June 30, 2013, September 30, 2013, and December 31, 2013 have not been issued but have been accounted for as a stock subscription payable.
On June 1, 2011, the Company entered into a Service Agreement with Lars Poulsen. The agreement requires the Company to pay Mr. Poulsen a sum of $7,500 monthly fee plus de-minimus fringe benefits. The agreement is cancellable by either party with written notice of termination. In May of 2013, the Company modified this Service Agreement to include the issuance of 1,500 shares of the Company’s common stock paid out quarterly basis (on an annual basis). The modified agreement was effective January 1, 2013 and the 1,500 shares to be issued on March 31, 2013, June 30, 2013, September 30, 2013, and December 31, 2013 have not been issued but have been accounted for as a stock subscription payable.
F-9 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
On January 1, 2013, the Company entered into a Service Agreement with Steven Matteson. The agreement requires the Company to pay Mr. Matteson a sum of $2,500 monthly fee plus de-minimus fringe benefits. The agreement is cancellable by either party with written notice of termination. Additionally, the contract requires 1,500 shares of common stock paid out quarterly (on an annual basis). The 1,500 shares to be issued on March 31, 2013, June 30, 2013 and September 30, 2013 were issued in October 2013. On October 1, 2013, the Company modified this contract. The modified contract now requires the issuance of 3,000 shares of stock a quarter (on an annual basis) and the Company will pay all related taxes on these shares through a payroll deduction. On December 31, 2013, the Company issued 1,500 shares of the 3,000 shares to be issued. The remaining 1,500 shares have been accounted for as a stock subscription payable.
On July 2, 2013, the Company entered into a Service Agreement with one of its Officers. The agreement is cancellable by either party with written notice of termination. The Contract requires 1,500 shares of common stock paid out quarterly (on an annual basis). Additionally, this officer can earn an additional 5,000 shares when the Company achieves $2.0 million in net sales and an additional 5,000 shares with the Company achieves $3.0 million in net sales. The Shares earned on September 30, 2013 were issued in October 2013 and the 1,500 shares were issued on December 31, 2013.
Note 6 - Common Stock
In 2011, the Company authorized the issuance of 7,048 founder shares at par value. The Company formally issued these shares in 2012.
In 2012, the Company issued 704,796 shares of founder shares at par value. The Company has also recorded a stock subscription receivable of $63,698 for the remaining outstanding balance.
In 2012, the Company issued 466,357 shares at an average value of $0.314 per share.
On February 13, 2013, The Company consummated a revised merger agreement with Vitas Group, Inc. The majority shareholders purchased 2,500,000 shares of Vitas Group Inc. (a Shell Company), which equates to 83.19% of its outstanding shares. These owners agreed to cancel 1,300,000 shares rather than the original 800,000 of the Vitas Group shares. The shareholders of Sealand Natural Resources received 1 share of Vitas for every 50.00 shares of Sealand stock rather than 28.377 shares based on a cancellation of 800,000 shares per the original agreement. The shareholders of Sealand received 1,200,000 shares of Vitas Group Inc. and the total outstanding shares were 2,105,000.
During the year ended May 31, 2013, The Company received $350,000 for 87,500 shares of common stock. These shares were issued during the 1st fiscal quarter.
The Company has recorded a stock subscription payable on March 31, 2013 for 4,500 shares that are required to be issued per the service agreements listed above. The amount of this subscription is $28,800.
During the period March 1, 2013 through May 31, 2013, the Company issued 60,000 shares for cash at a price of $4.00 per share. The Company received $240,000.
On June 3, 2013, the Company issued 52,625 shares to Northstar to settle an open accounts payable. The value of these shares is $272,598.
On September 9, 2013, the Company received $20,000 cash for 5,000 shares issued.
On September 23, 2013, the Company issued 125,000 shares and received $300,000 in cash. Additionally, the Company will receive an additional $200,000 in the form of a $100,000 line of credit for the Orskov Foods A/S Denmark unit and an additional $100,000 on June 15, 2014 if the Company reports total income in excess of $2,000,000 on their year-end financials. This $200,000 has been recorded as a stock subscription until enacted and collected.
F-10 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
As of November 30, 2013, the Company has not issued the shares applicable to the Service Agreements for two individuals. The Company has recorded a stock subscription of $68,760 for the 9,000 shares that have not been issued.
On December 1, 2013 the Company issued 51,000 shares of stock to Michael Larkin for consultancy services and recognized $539,000 in expense.
On December 31, 2013, the Company issued 3,000 shares of stock as part of their service agreements with two key individuals. The Company recognized $35,250 in stock based compensation expense.
The Company received $550,000 in cash but has not issued the shares of stock. This amount has been recorded as a stock subscription as of February 28, 2014.
During the period ending February 28, 2014, the Company issued 94,500 shares of stock for $567,000 in cash.
During the period ending February 28, 2014, the Company issued stock at below fair market value. The Company issued shares at an average price of $6 per share when the going market rate was approximately $10 to $11 per share. The Company recognized $1,222,619 as stock discount expense. Upon further review of these transactions it was determined that these shares were restricted in issuance. The Company has determined that they do not need to record this discount and have restated the financials to eliminate this expense and properly show the accounting for these transactions.
Note 7 - Income Taxes
The provision (benefit) for income taxes for the years ended May 31, 2013, and 2012, were as follows:
Year Ended May 31, | ||||||||
2013 | 2012 | |||||||
Current Tax Provision: | ||||||||
Federal- | ||||||||
Taxable income | $ | - | $ | - | ||||
Total current tax provision | $ | - | $ | - | ||||
Deferred Tax Provision: | ||||||||
Federal- | ||||||||
Loss carryforwards | $ | 209,906 | $ | 318,743 | ||||
Change in valuation allowance | (209,906 | ) | (318,743 | ) | ||||
Total deferred tax provision | $ | - | $ | - |
The Company had deferred income tax assets as of May 31, 2013, and 2012, as follows:
May 31, | ||||||||
2013 | 2012 | |||||||
Loss carryforwards | $ | 209,906 | $ | 318,743 | ||||
Less - Valuation allowance | (209,906 | ) | (318,743 | ) | ||||
Total net deferred tax assets | $ | - | $ | - |
F-11 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
The Company provided a valuation allowance equal to the deferred income tax assets for the years ended May 31, 2012, and 2013, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
As of May 31, 2013, and 2012, the Company had approximately $937,480 and $320,109, respectively, in tax loss carryforwards that can be utilized in future periods to reduce taxable income, and will begin to expire in the year 2037.
Note 8 – Convertible Notes Payable
In July 2012, the Company received a convertible notes payable in the amount of $10,000. The note carries an 8% rate of interest and can be converted into common stock at a strike price of $10.00 per share (adjusted for post-merger value).
In September 2012, the Company received a convertible notes payable in the amount of $125,000. The note carries an 8% rate of interest and can be converted into common stock at a strike price of $10.00 per share (adjusted for post-merger value).
On November 22, 2013, the Company paid off $25,000 of these notes payable and paid an additional $3,500 of accrued interest.
In December 2012, the Company received a convertible notes payable in the amount of $100,000. The note carries an 8% rate of interest and can be converted into common stock at a strike price of $12.50 per share (adjusted for post-merger value). On December 1, 2013, the Company re-negotiated this convertible note. The Company renewed the note at $108, 000, which includes accrued interest of $8,000. There is also a conversion factor that allows the holder to convert these shares at $3 per share. The Company has recorded a beneficial conversion feature of $258,840. The balance of this beneficial conversion feature at February 28, 2014 was $205,508.
On September 7, 2013, the Company entered into an agreement with Amalfi Coast Capital, whereby Amalfi will loan the Company the aggregate principal amount up to $108,000, with interest at the rate of eight percent (8%) per annum, until the maturity date of one year.
If the Note is not paid in full with interest on the maturity date, Amalfi has the right to convert this Note into restricted common shares of the Company. The Company at its option may elect to convert all or part of the principal and any accrued unpaid interest on these notes at any time or times on or before the maturity based on a conversion price. The conversion price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower) shall equal to $3.00 per share. The Company has recorded a beneficial conversion feature of $70,601. As of February 28, 2014, the Company has recorded $44,886 as interest expense. The balance of the beneficial conversion feature at February 28, 2014 was $25,715.
F-12 |
SEALAND NATURAL RESOURCES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
February 28, 2014
(Restated)
Note 9 – Consulting Agreement
The Company has entered into an agreement with DASH Advisors, LLC to provide strategic direction and marketing strategy. The Company will pay a monthly retainer of $3,000 per month and grant 51,532 stock options to DASH, exercisable at $6.00 per share until January 1, 2024. The options vest over time at the rate of 4,294 per month, until fully vested.
Note 10 – Service Condition Stock Options
The Company has initiated a stock option agreement with one of its vendors (See Note 9). Compensation costs are recognized on a graded basis.
The fair market value of the stock options is estimated using the Black-Scholes-Merton valuation model and the Company uses the following methods to determine its underlying assumptions: expected volatilities are based on implied volatilities of the monthly closing price of the Company’s common stock; the expected term of options granted is based on the SAB 107 simplified method of using the mid-pint between the vesting term and the original contractual term; the risk-free interest rate is based on the U.S. Treasury bonds issued with similar life terms to the expected life of the grant; and the expected dividend yield is based on dividend trends. Forfeitures are estimated at the time of the grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience.
The following key assumptions were used in the valuation model to value stock option grants for the respective period.
Quarter ended | ||||
February 28, | ||||
2014 | ||||
Expected volatility | 93.01 | % | ||
Weighted-average volatility | 93.01 | % | ||
Expected dividends | - | |||
Expected term (in years) | 10.00 | |||
Weighted-average risk-free interest rate | 2.66 | % | ||
Expected Forfeiture rate | - |
Stock option transactions under the Company’s plans for the period ending February 28, 2014 are summarized as follows:
Weighted- | ||||||||||||
Weighted- | Average | |||||||||||
Average | Remaining | |||||||||||
Exercise | Contractual | |||||||||||
Options | Shares | Price | Term (years) | |||||||||
Balance, beginning of period | - | $ | - | - | ||||||||
Granted | 51,532 | 6.00 | 9.83 | |||||||||
Exercised | - | |||||||||||
Forfeited | - | |||||||||||
Outstanding at February 28, 2014 | 51,532 | 6.00 | 9.83 | |||||||||
Exercisable at February 28, 2014 | 8,588 | $ | 6.00 | 9.83 |
During the three and nine months ended February 28, 2014, the company recorded stock based professional fees of $199,100.
Note 11 – Subsequent Events
Management has reviewed events between February 28, 2014 and the date the financials were issued, April 19, 2014, and there were no significant events identified for disclosure.
F-13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Overview
Sealand Natural Resources Inc. (the “Company”, “We”, or “Us”) is a research and new product development company that manufactures, markets and sells “new age functional beverages”, organic nutriceuticals, health supplements, organic raw materials and health food worldwide with the goal of delivering beneficial health effects to those who enjoy our 100% natural and organic products. Our mission is to become a leader in this category and we see the future as a growing market segment which fits our mission.
The Company’s initial focus is the “alternative” beverage category, which combines non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports drinks, and single-serve still water (flavored, unflavored and enhanced) with “new age” beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages. Additionally, the Company has other products in development to add to the Company’s product sales pipeline. We believe that one of the keys to success in the beverage industry is differentiation, making our brands research proven and visually distinctive from other beverages on the shelves of retailers.
Plan of Operations
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
Over the next 12 months, our aim to drive sales growth of our flagship product, BIRK, focuses on three targets: 1) ongoing brand awareness via tradeshows, in store promotion, and other marketing campaigns; 2) additional consumer education on health information and the differentiation of our product vs. traditional soda and sports juices, and; 3) increasing our distribution network – being available in more retail outlets and increasing our presence online. It may be necessary to obtain additional working capital, via additional private placement proceeds or debt instruments in order to accomplish those goals, if working cash flow is not sufficient to sustain the efforts. However, we cannot make any assurance that we will be successful in obtaining additional financing or if the financing terms will be favorable to the Company.
Results of Operations
Comparison for the three and nine months ended February 28, 2014 and 2013
Revenues
For the three months ended February 28, 2014, we generated revenues of $156,234, as compared to $244,765 for the same period in 2013. For the nine months ended February 28, 2014, we generated revenues of $419,669, as compared to $245,317 for the same period in 2013. The decrease in revenue for the quarter was attributable to the timing of orders. Some customers that placed orders in the 2013 comparison quarter did not, due to the cyclical nature of the business, reorder in the current fiscal quarter. The increase in revenue for the nine months was attributable to establishing new sales contracts with new vendors, both domestic and international.
Operating Expenses
Operating costs for the three months ended February 28, 2014 were $1,155,437, as compared to $129,022 for the same period in 2013. Operating costs for the nine months ended February 28, 2014 were $1,754,831, as compared to $292,461 for the same period in 2013. These costs are connected to general and administrative expenses, which are comprised of wages and salaries, advertising, professional fees, stock discount expense, and other related expenses. Expenses generally increased due to the increased scale and scope of our business operations and a greater emphasis on marketing and advertising efforts. The specific expenses that increased the most for the three months and nine months ended February 28, 2014 were legal and professional fees.
Our legal and professional fees, both cash and stock based, for the three months ended February 28, 2014 were $858,351, as compared to $12,121 for the same period in 2013. Our legal and professional fees, both cash and stock based, for the nine months ended February 28, 2014 were $991,473, as compared to $20,595 for the same period in 2013. The reasons for the increase were: 1) the increased compliance and regulatory expense of being a public company; and 2) our increased distribution presence and our hiring of professionals in the beverage industry as well as other consultants.
In the current quarter, as in prior quarters, we used common stock as a method of payment for certain services as incentive to our key employees. We expect to continue these arrangements.
Net Loss
Our net loss for the three months ended February 28, 2014 was ($1,238,213) as compared to ($16,867) for the same period in 2013. Our net loss for the nine months ended February 28, 2014 was ($1,801,093) as compared to ($188,771) for the same period in 2013. The increase in the losses was mainly attributable to the increase in legal and professional fees discussed above as well as the increase in wages and salaries and interest expense.
Liquidity and Capital Resources
As of February 28, 2014, our current assets were $1,299,715 and our total liabilities were $569,686. As of February 28, 2014, current assets were comprised of $739,143 in cash, $441,470 of receivables, $112,602 of inventory, and $6,500 in prepaid items. As of February 28, 2014, total liabilities were comprised of $103,686 in accounts payable, $216,000 of notes payable, and $250,000 of accounts receivable holdback liability.
As of February 28, 2014, our total assets were $1,666,944 comprised of current assets, furniture/equipment of $74,794, and $292,435 of deposits. Stockholders’ deficit decreased from ($151,606) as of May 31, 2013 to a positive $1,097,258 as of February 28, 2014.
Cash Flows From Operating Activities
We have not generated positive cash flows from operating activities. For the nine months ended February 28, 2014, net cash flows used in operating activities was $(1,660,037). Net cash flows used in operating activities was $(563,131) for the nine months ended February 28, 2013. Uncollected accounts receivables may adversely impact liquidity and require the Company to seek additional outside capital to fund operations. Accounts receivables represented a significant portion of sales as we experienced a delay in receiving payments that was longer than anticipated due to shipping delays, travel time delays, and a longer introduction period to customers. In addition, in limited circumstances, payment terms to a customer may be extended beyond those stated in the contract, in order to assist product success in the market with that customer.
Cash Flows From Financing Activities
We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the nine month period ended February 28, 2014, net cash provided by financing activities was $2,383,082. For the nine month period ended February 28, 2013, net cash provided by financing activities was $563,163.
Going Concern
The financial statements for the period ended February 28, 2014 contain an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Recent Accounting Pronouncements
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future consolidated financial statements.
Critical Accounting Policies
Our significant accounting policies are presented in our notes to financial statements for the period ended February 28, 2014 contained in this Amendment No. 2 on Form 10-Q/A, and fiscal year ended May 31, 2013, which are contained in the Company’s 2013 Annual Report on Form 10-K. The significant accounting policies that are most critical and aid in fully understanding and evaluating the reported financial results include the following:
The Company prepares its financial statements in conformity with GAAP. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with our board of directors; however, actual results could differ from those estimates.
We issue restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
PART II - OTHER INFORMATION
Item 6. Exhibits
Exhibit Number |
Exhibit Title | |
31.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
101.INS * | XBRL Instance Document | |
101.SCH * | XBRL Taxonomy Schema | |
101.CAL * | XBRL Taxonomy Calculation Linkbase | |
101.DEF * | XBRL Taxonomy Definition Linkbase | |
101.LAB * | XBRL Taxonomy Label Linkbase | |
101.PRE * | XBRL Taxonomy Presentation Linkbase |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Sealand Natural Resources Inc. |
Date: September 17, 2014 | By: | /s/ Lars Poulsen |
Lars Poulsen | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: September 17, 2014 | By: | /s/ Steve Matteson |
Steve Matteson | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |