UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One) 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

 

For the quarterly period ended August 31, 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 October 20, 2014, the registrant had 2,773,375 shares of common stock issued and outstanding.

 

  

SEALAND NATURAL RESOURCES INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

August 31, 2014

 

			Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		5
Item 4.	Controls and Procedures.		6
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.		7
Item 1A.	Risk Factors.		7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		7
Item 3.	Defaults Upon Senior Securities.		7
Item 4.	Mine Safety Disclosures		7
Item 5.	Other Information.		7
Item 6.	Exhibits.		7
			7
SIGNATURES			8

 

  

PART I - FINANCIAL INFORMATION

 

Item 1.       Financial Statements.

 

 

SEALAND NATURAL RESOURCES, INC.

FORMERLY VITAS GROUP, INC.

(A Development Stage Enterprise)

 

Table of Contents

 

 

Balance Sheets:
August 31, 2014 and May 31, 2014			F-2
Statements of Operations:
For the three months ended August 31, 2014 and 2013			F-3
Statements of Cash Flows:
For the three months ended August 31, 2014 and 2013			F-4
Notes to Financial Statements:
August 31, 2014			F-5

 

 

SEALAND NATURAL RESOURCES, INC.

FORMERLY VITAS GROUP, INC.

(A Development Stage Enterprise)

Balance Sheets

  

 

		August 31,				May 31,
		2014				2014
		Unaudited				Audited
ASSETS
Current assets:
Cash		$	439,388			$	810,433
Accounts receivable, net of allowance			212,990				530,637
Inventory			125,047				109,628
Prepaids			56,703				48,086
Total current assets			834,128				1,498,784
Fixed assets
Furniture and Equipment, net			85,308				85,579
Other assets
Security deposits on land useage			150,000				150,000
Total assets		$	1,069,436			$	1,734,363
LIABILITIES
Current liabilities:
Accounts payable and accrued taxes		$	132,275			$	49,198
Related party loans			-				-
Notes Payable			113,751				108,000
Accounts recievable holdback liability			-				250,000
Total current liabilities			246,026				407,198
Total liabilities			246,026				407,198
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value, 75,000,000 authorized, 2,717,029 and 2,678,515 shares issued and outstanding			2,717				2,679
Capital in excess of par value			4,237,415				3,898,776
Stock subscription			1,230,280				1,003,575
Deficit accumulated during the development stage			(4,647,002	)			(3,577,865	)
Total stockholders' deficit			823,410				1,327,165
Total liabilities and stockholders' deficit		$	1,069,436			$	1,734,363

  

The accompanying notes are an integral part of these statements.

 

  

SEALAND NATURAL RESOURCES, INC.

FORMERLY VITAS GROUP, INC.

 (A Development Stage Enterprise)

Statement of Operations

 Unaudited

 

 

		Three months				Three months
		August 31,				August 31,
		2014				2013
Sales		$	125,203			$	42,067
Cost of Sales			132,766				48,605
Gross Profit			(7,563	)			(6,538	)
General and administrative expenses:
Wages and salaries			181,054				113,324
Advertising and marketing			82,693				12,023
Legal and professional			92,103				41,223
Bad debts			225,000
Stock based professional fees			284,458
Computer and internet			5,984				2,761
Travel and entertainment			54,718				22,103
Product development costs			3,258				3,766
Bank charges			1,678				2,122
Rent			38,787				19,085
Depreciation and amortization			2,943				1,527
Other office and miscellaneous			41,918				18,520
Total operating expenses			1,014,594				236,454
(Loss) from operations			(1,022,157	)			(242,992	)
Other income (expense):
Interest (expense)			(46,980	)			(4,700	)
Income/(Loss) before taxes			(1,069,137	)			(247,692	)
Provision/(credit) for taxes on income			-				-
Net Income/(loss)		$	(1,069,137	)		$	(247,692	)
Basic earnings/(loss) per common share		$	(0.40	)		$	(0.12	)
Weighted average number of shares outstanding			2,705,431				2,135,000

 

The accompanying notes are an integral part of these statements.

 

 

SEALAND NATURAL RESOURCES, INC.

FORMERLY VITAS GROUP, INC.

(A Development Stage Enterprise)

Statement of Cash Flows

Audited

 

  

		Three months				Three months
		August 31,				August 31,
		2014				2013
Cash flows from operating activities:
Net income (loss)		$	(1,069,137	)		$	(247,692	)
Adjustments to reconcile net (loss) to cash
provided (used) by developmental stage activities:
Common stock issued for services			258,858
Depreciation and amortization			2,943				1,527
Amortization of note discount			30,816
Stock option plan			25,600
Change in current assets and liabilities:
Accounts receivable			92,647				104,801
Inventory			(15,419	)			(14,431	)
Prepaids			(8,617	)
Accounts receivable holdback liability
Allowance for doubtful accounts			225,000
Accounts payable and accrued expenses			88,936				(277,291	)
Net cash flows from operating activities			(368,373	)			(433,086	)
Cash flows from investing activities:
Purchase of fixed assets			(2,672	)
							-
Net cash flows from investing activities			(2,672	)			-
Cash flows from financing activities:
Proceeds from sale of common stock							590,000
Deposits paid							(15,214	)
Notes Payable
Stock subscription receivable							(44,687	)
Net cash flows from financing activities			-				530,099
Net cash flows			(371,045	)			97,013
Cash and equivalents, beginning of period			810,433				34,297
Cash and equivalents, end of period		$	439,388			$	131,310

 

The accompanying notes are an integral part of these statements.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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 principal markets for the natural function beverages are primarily Europe and Southeast Asia. The product is primarily sold to wholesale and retail distributors worldwide.

 

The Company’s operations are based in the United States. We have an individual that works in Denmark who oversees the Birch Sap production and sales as well as an additional support staff person in Denmark who assists in these tasks.

 

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company’s market penetration before another company develops a similar product.

 

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.” The Company has adopted the new provision of FASB ASC 915-275 and is not reporting inception to date activities as previously required.

 

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 for the period ended August 31, 2014 and May 31, 2014 and for the three months ended August 31, 2014 and 2013.

 

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. At times, cash balances may be in excess of the FDIC Insurance limit. 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 August 31, 2014 and May 31, 2014.

 

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 August 31, 2014 and 2013 the company had recognized total depreciation expense of $2,943 and $1,527, 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.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

Accounts receivable

 

Trade receivables are carried at original invoice amount. Management has determined that an 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. Any account over 90 days past due is now analyzed and any risk of collection is added to allowance for doubtful accounts.

 

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. In August 2014, the Company and the factoring agent determined to eliminate this agreement. The Company is issuing shares of stock for the monies received by the factoring agent. As of August 31, 2014, the Company has recorded $250,000 as a stock subscription.

 

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.

 

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.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

Convertible Debentures:

 

Beneficial Conversion Features – If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded as a debt discount pursuant to FASB ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

Debt Discount – The Company determines of the convertible debenture should be accounted for as liability or equity under FASB ASC 480, Liabilities – Distinguishing Liabilities from Equity. FASB ASC 480, applies to certain contract involving a company’s own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, Obligations that require or may require repurchase of the issuer’s equity shares by transferring assets (e.g., written put options and forward purchase contracts), and Certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:

 

-

A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer’s equity shares with an issuance date fair value equal to a fixed dollar amount.

-

Variations in something other than the fair value of the issuer’s equity shares for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer’s equity shares, or

-

Variations inversely related to changes in fair value of the issuer’s equity shares, for example, a written put that could be net share settled.

 

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.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by FASB ASC 815, in certain circumstances, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.

 

Determination of fair value:

 

The Company’s financial instruments consist of convertible notes payable. The Company believes all of the financial instruments’ recorded values approximate their fair values because of their nature and respective durations.

 

The Company complies with the provisions of FASB ASC 820-10, “Fair Values Measurements and Disclosures.” FASB ASC 820-10 relates to financial assets and financial liabilities. FASB ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the Unites States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

 

FASB ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consist of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 and Level 2) and the lowest priority to unobservable inputs (Level 3).

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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 as defined under Statement on Financial Accounting Standards Accounting Standards Codification FASB ASC 915-205 "Development-Stage Entities”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.

 

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.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

Recently Issued Accounting Pronouncements

 

As of August 31, 2014 and May 31, 2014, 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 August 31, 2014, the Company had an accumulated deficit of$4,647,002. 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.

 

 

SEALAND NATURAL RESOURCES INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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			$	30,431
General and Administrative expenses		$	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, an omitted foreign bank account and related transactions, and the inclusion of expenses related to a stock option grant and subsequent vesting. 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 filed, on September 17, 2014 its second restated unaudited financial statements for the above mentioned period.

 

 

SEALAND NATURAL RESOURCES INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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 – 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, December 31, 2013, March 31, 2014 and June 30, 2014 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, December 31, 2013, March 31, 2014 and June 30, 2014 have not been issued but have been accounted for as a stock subscription payable.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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. Additionally, this officer can earn an additional 10,000 shares when the Company achieves $2.0 million in net sales, an additional 10,000 shares with the Company achieves $3.0 million in net sales and an additional 10,000 shares when the Company achieves $5.0 million in net sales. 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. Additionally, the 3,000 shares to be issued on March 31, 2014 and June 30, 2014 have not been issued and have been added to the stock subscription payable. On July 18, 2014, the Company terminated the current agreement with Mr. Matteson and entered a new Service Agreement. The Company terminated these shares and offset the stock subscription to the related expense. The new agreement grants 1,500 shares per quarter starting on September 30, 2014 and a monthly payment of $6,000.

 

On July 2, 2013, the Company entered into a Service Agreement with Peter Kuhn. 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, the 1,500 shares were issued on December 31, 2013, the 1,500 for the quarter ending March 31, 2014 were issued on April 2, 2014 and the June 30, 2014 shares were issued on July 1, 2014.

 

On March 1, 2014, the Company restructured these service agreements. The Company eliminated the restricted nature of the shares earned and converted those to fully tradable shares.

 

Note 5 – Security Deposit on Land Usage

 

On February 12, 2014, The Company entered into an agreement with Tuomo Forest for the sole right to all raw organic birch sap to be harvested in the 42 hectares land owned by Tuomo Forest. This exclusive agreement is valid for (10) ten years unless canceled in writing with a (4) four month notice. The Company has a minimum order of 100,000 liters of birch sap per year. The agreement called for a deposit for usage of $150,000.

 

Note 6 – Cumulative sale of 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 1^st 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 $210,500.

 

During the month of June 2013, the Company issued 87,500 shares of common stock for $350,000 cash.

 

During the month of July 2013, the Company issued 12,500 shares of common stock for $50,000 cash.

 

During the month of August 2013, the Company issued 47,500 shares of common stock for $190,000 cash.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

During the month of September 2013, the Company issued 130,000 shares of common stock for $520,000.

 

During September 2013, the Company issued 1,500 shares are part of their consulting agreement and recognized stock based compensation expense of $13,875.

 

During October 2013, the Company issued 4,500 shares are part of their consulting agreement and recognized stock based compensation expense of $34,380.

 

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 $538,949 in expense.

 

During the month of December 2013, the Company issued 94,500 shares of common stock for $567,000 cash.

 

During the month of January 2014, the Company issued 3,000 shares are part of their consulting agreement and recognized stock based compensation expense of $35,250.

 

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. These 83,340 shares were issued in May 2014.

 

On March 31, 2014, the Company recorded stock based compensation expense for three key individuals. The Company recorded an expense of $71,940 but did not issue the 6,000 shares. The Company has recorded these shares as a stock subscription payable.

 

During the month of April 2014, the Company received cash of $810,000 for shares of common stock. These shares have not been issued and the amounts have been recorded as a stock subscription payable.

 

On April 1, 2014, the Company issued 1,500 shares of common stock as part of their service agreement with one key individual. The Company recognized $17,985 in stock based compensation expense.

 

On April 12, 2014, the Company issued 3,250 shares of common stock for professional services rendered. The Company recorded an expense of $39,975.

 

During the month of April 2014, the Company issued 800 shares of common stock that was purchased in February 2012 but never issued.

 

During the month of June 2014, the Company issued 17,600 shares of stock. The Company issued 8,300 shares and recorded an expense of $96,858 for stock based professional fees and issued 9,300 shares of common stock that was purchased in February 2012 but never issued.

 

During the month of July 2014, the Company issued 20,914 shares of common stock. The Company issued 1,500 shares as part of their consultancy agreement and recorded an expense of $15,150. The Company also issued 18,000 shares of stock for professional services and recorded an expense of $162,000. Additionally, the Company issued 1,414 shares that were purchased in February 2012 but never issued.

 

Note 7 – Convertible Notes Payable

 

Larkin Family Trust

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).

 

 

SEALAND NATURAL RESOURCES INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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 August 31, 2014 was $5,751.

 

Note 8 – Consulting Agreement

 

The Company has entered into an agreement with DASH Advisors, LLC (“DASH”) 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 9 – Joint Venture

 

On March 1, 2014, the Company entered into a joint venture with KeeSan Family Co, Ltd. The purpose of the joint venture is the development and growth of Birk brand in Asia. The joint venture is called Sealand Natural Resources Korea Co, Ltd. It calls for the investment of $22,500 for an ownership of 45%. As of May 31, 2014, the Company has not funded this joint venture and there is no activity.

 

Note 10 – Return of Capital

 

During the period ending May 31, 2014, the Company reimbursed two investors for monies that were given for stock purchases in 2011 and 2012 that was never issued.

 

On March 18, 2014, the Company refunded $8,600 and on March 21, 2014, the Company also refunded an additional $18,500. For a total of $27,100.

 

The Company recorded these transactions as a prior period adjustment.

 

Note 11 – Service Condition Stock Options

 

The Company has initiated a stock option agreement with one of its vendors (See Note 8). Compensation costs are recognized on a graded basis.

 

 

SEALAND NATURAL RESOURCES INC.

 (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

August 31, 2014

 

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-point 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.

 

		Period Ended
		August 31,
		2014
Expected volatility			91.83	%
Weighted-average volatility			81.83	%
Expected dividends			-
Expected term (in years)			10.00
Weighted-average risk-free interest rate			2.35	%
Expected Forfeiture rate			-

 

Stock option transactions under the Company’s plans for the period ending August 31, 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				9.33
Exercised			-
Forfeited			-
Outstanding at August 31, 2014			51,532				6.00				9.33
Exercisable at August 31, 2014			34,352			$	6.00				9.33

 

During the period ending August 31, 2014, the Company recorded stock based professional fees of $25,600.

 

Note 12 – Subsequent Events

 

Management has reviewed events between August 31, 2014 and the date the financials were issued, October 20, 2014, and there were no significant events identified for disclosure.

 

On September 10, 2014, the Company issued 3,346 shares of common stock.

 

On October 1, 2014, the Company issued 3,000 shares of common stock as part of the service agreements they have with key employees.

 

 

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 principal markets for the natural function beverages are primarily Europe and Southeast Asia. The product is primarily sold to wholesale and retail distributors worldwide.

  

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 months ended August 31, 2014 and 2013

 

Revenues

 

For the three months ended August 31, 2014 and 2013 we generated revenues of $125,203 and $42,067, respectively. Revenue increase was attributable to establishing new sales contracts with new vendors, both domestic and international, and repeat orders from existing customers.

 

Operating Expenses

 

Operating costs for the three months ended August 31, 2014 and 2013 were $1,014,594 and $236,454, respectively. These costs are connected to general and administrative expenses, which are comprised of wages and salaries, advertising, professional fees, and other related expenses. Expenses increased primarily due to: a) increased scale and scope of business operations; b) greater emphasis on marketing and advertising efforts; c) increased use of professional and related consulting services, and d) an allowance for bad debts.  

 

Specifically, our legal and professional expenses, both cash and stock, for the three months ended August 31, 2014 were $376,561, as compared to $41,223 for the three months ended August 31, 2013. The reasons for the increase were: 1) increased compliance and regulatory expense of being a public company; and 2) increased distribution presence and the 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 its key employees.   We expect to continue these arrangements.

 

Net Loss

 

Our operating results have recognized losses in the amount of $1,069,137 and $247,692 for the three months ended August 31, 2014 and 2013, respectively.  The increase in the losses was attributable to additional expenditures in salaries, greater emphasis on marketing/advertising and associated travel expenses, and growth of the operations through expansion of the production/distribution channels.

 

Liquidity and Capital Resources

  

As of August 31, 2014, our current assets were $834,128 and our total liabilities were $246,026. As of August 31, 2014, current assets were comprised of $439,388 in cash, $212,990 of receivables, $125,047 of inventory, and $56,703 in prepaids. As of August 31, 2014, total liabilities were comprised of $132,275 in accounts payable and accrued taxes, and $113,751 of notes payable.

 

As of August 31, 2014, our total assets were $1,069,436 comprised of current assets, furniture/equipment of $85,308, and $150,000 of deposits.  Stockholders’ deficit decreased from $1,327,165 as of August 31, 2013 to $823,410 as of August 31, 2014.   

 

  

Cash Flows From Operating Activities

 

We have not generated positive cash flows from operating activities. For the quarter ended August 31, 2014, net cash flows used in operating activities was ($368,373). Net cash flows used in operating activities was ($433,086) for the quarter ended August 31, 2013. 

 

Cash Flows From Financing Activities

 

We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the quarter ended August 31, 2014 net cash provided by financing activities was $0. Net cash provided by financing activities for the quarter ended August 31, 2013 was $530,099.

 

Going Concern

 

The financial statements for the period ended August 31, 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

 

As of August 31, 2014 and May 31, 2014, 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. 

 

Critical Accounting Policies

 

Our significant accounting policies are presented in our notes to financial statements for the: a) period ended August 31, 2014 contained in this Form 10-Q; b) 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

  

   

Item 4. Controls and Procedures.

 

Disclosure of Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company's principal executive officer and principal financial officer concluded that due to the material weakness discussed below, the Company's disclosure controls and procedures were not effective, as of the end of the quarter ended August 31, 2014, to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

 

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. In its assessment of the effectiveness of internal control our financial reporting as of August 31, 2014, the Company determined that the following items constituted material weaknesses:

 

•

The Company does not have policies and procedures in place to ensure the timely review, disclosure and accurate financial reporting for significant agreements and transactions.

 

•

The Company does not have an independent audit committee in place, which would provide oversight of the Company’s officers, operations and financial reporting function.

   

Changes in Internal Controls Over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

  

Item 1A.  Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the quarter ended August 31, 2014, the Company issued 38,514 shares of common stock. The Company issued 26,300 shares for stock based professional fees, 10,714 shares that were purchased in February 2012 but never issued, and 1,500 shares as part of a consultancy agreement.

 

These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our common stock qualified for exemption under Section 4(2) since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

  

Item 3.  Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

Item 5.  Other Information.

 

On July 18, 2014, the Company terminated the current Service Agreement with Steve Matteson, our Chief Financial Officer, and entered into a new Service Agreement. The new Service Agreement grants 1,500 shares of common stock per quarter to Mr. Matteson starting on September 30, 2014 and a monthly payment of $6,000. The foregoing description of the terms of the Service Agreement is qualified in its entirety by reference to the provisions of the Employment Services Agreement, filed as Exhibit 10.7 to this Quarterly Report on Form 10-Q, which is incorporated by reference herein.

 

Item 6.  Exhibits

 

Exhibit Number		Exhibit Title
10.7		Service Agreement with Steve Matteson, dated July 18, 2014.
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: October 20, 2014	By:	/s/ Lars Poulsen
		Lars Poulsen
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: October 20, 2014	By:	/s/ Steve Matteson
		Steve Matteson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)