The accompanying notes are an integral
part of these consolidated financial statements.
Notes to the Consolidated Financial
Statements
NOTE 1: ORGANIZATION AND DESCRIPTION
OF BUSINESS
Organization
Seychelle Environmental Technologies,
Inc. was incorporated under the laws of the State of Nevada on January 23, 1998 as a change in domicile to Royal Net, Inc., a Utah
corporation that was originally incorporated on January 24, 1986. Royal Net, Inc. changed its state of domicile to Nevada and its
name to Seychelle Environmental Technologies, Inc. effective in January 1998. Seychelle Water Technologies, Inc., and
Fill 2 Pure International, Inc., both wholly owned subsidiaries, were formed as corporations in February 1997 and April 2013, respectively,
under the laws of the state of Nevada for the purpose of marketing. Seychelle Environmental Technologies, Inc. and it’s subsidiaries
are collectively herein referred to as “Seychelle” or the “Company”
Description of Business
The Company designs, assembles and
distributes water filtration systems. These systems include portable water bottles, canteens, pumps, home-use pitchers, and related
water filtration products that can be filled from nearly any available source of fresh water.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting
policies of the Company is presented to assist in understanding the Company's consolidated financial statements. The consolidated
financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently
applied in the preparation of the consolidated financial statements herein as of and for the years ended February 28, 2019
and 2018.
Basis of Presentation
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation
The Company is presently comprised of Seychelle Environmental
Technologies, Inc., a Nevada corporation, with two wholly-owned subsidiaries, Seychelle Water Technologies, Inc., and Fill 2 Pure
International, Inc., also Nevada corporations. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles in the United States, 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant
estimates made in preparing the consolidated financial statements include inventory reserves, the allowance for doubtful accounts
receivable and the deferred income tax valuation allowance. Actual results could differ from those estimates.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cash and Cash Equivalents
The Company considers highly liquid investments
with original maturities of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents
in bank deposit accounts which at times may exceed federally insured limits of $250,000. The Company has not experienced
any losses related to this concentration of risk. Deposits exceeded insured limits by approximately $1,828,000 as of February 28,
2019.
Accounts Receivable
The Company performs periodic credit evaluations of its customers'
financial condition and does not require collateral. Trade receivables generally are due in 30 days. An allowance for doubtful
accounts is recorded when it is probable that all or a portion of a trade receivable balance will not be collected.
Revenue Recognition
We derive our revenue primarily from
product sales. We determine revenue recognition through the following steps: (1) identification of the contract with a customer;
(2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of
the transaction price to the performance obligations in the contract; (5) recognition of revenue when, or as, we satisfy a performance
obligation.
The Company's performance obligations
consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised
products to customers in an amount that reflects the consideration we expect to receive in exchange for these products. Revenue
is recognized net of returns and any taxes collected from customers. We offer standard contractual terms in our purchase
orders. In addition, we use the practical expedient related to commissions paid since they would be amortized in less than one
year.
Inventory
Inventory is stated at the lower of
cost or net realizable value. Cost is determined on a first-in, first-out basis. Inventory is comprised of raw materials and finished
goods. Raw materials consist of fittings, caps and other components necessary to assemble the Company's finished goods. Finished
goods consist of water bottles and other filtration systems that are available for shipment to customers. Finished goods
and work in process include the costs of materials, labor and an allocation of overhead. Total overhead allocated to
inventory as of February 28, 2019 and 2018 amounted to approximately $200,000 and $68,000, respectively.
At each balance sheet date, the Company
evaluates its ending inventory for excess quantities and obsolescence. This evaluation includes an analysis of sales
levels by product type. Among other factors, the Company considers current product configurations, historical and forecasted
demand, market conditions and product life cycles when determining the net realizable value of the inventory. Provisions
are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs
are considered permanent adjustments to the cost basis of the excess or obsolete inventory. The Company's inventory
is reduced by excess and obsolete inventory reserve, which amounted to approximately $126,000 and $185,000 as of February 28, 2019
and 2018, respectively.
Property and Equipment
Property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. The
estimated useful lives used in determining depreciation are three to five years for tooling, five years for computers and vehicles,
and five to seven years for furniture and equipment. Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the respective asset. Management evaluates useful lives regularly in order to determine
recoverability.
Maintenance and repairs are charged
to expense as incurred; additions and betterments are capitalized. Upon retirement or sale, the cost and related accumulated depreciation
of the disposed assets are removed, and any resulting gain or loss is recorded. Fully depreciated assets are not removed from the
accounts until physical disposition.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Long-Lived Assets
The carrying value of long-lived assets,
such as property and equipment, are evaluated when indicators of impairment are present. Impairment is assessed when the undiscounted
future cash flows estimated to be generated by those assets are less than the assets' carrying amount. If the carrying value of
the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during
fiscal years ended, February 28, 2019 and 2018.
Customer Deposits
Customer deposits represent advance payments received for
products and are recognized as a liability.
Fair Value of Financial Instruments
For certain financial instruments, including
accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their relatively
short maturities.
Cost of Sales
Cost of sales is comprised primarily of the cost of purchased
product, as well as labor, inbound freight costs, allocated overhead costs and other material costs required to complete products,
including inventory markdowns due to excess and obsolete inventory.
Shipping and Handling
All amounts billed to customers relating
to shipping and handling are reported as a component of sales. Costs incurred by the Company for shipping and handling, including
transportation costs paid to third party shippers, are reported as a component of cost of sales.
Sales Tax
The Company collects sales tax in various
jurisdictions. Upon collection from customers, it records the amount as a payable to the related jurisdiction. On a periodic basis,
it files a sales tax return with the jurisdictions and remits the amount indicated on the return.
Advertising
Advertising costs are expensed as incurred. Total
advertising expenses amounted to approximately $135,000 and $30,000 for the fiscal years ended February 28, 2019 and 2018, respectively,
and recorded as selling, general and administrative expenses in the accompanying consolidated statements of operations.
Research and Development
Research and development costs are expensed
as incurred and amounted to approximately $4,600 and $6,100 for the fiscal years ended February 28, 2019 and 2018, respectively.
These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Stock-Based Compensation
The Company follows FASB ASC Topic 718,
Compensation – Stock Compensation
, which establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains
services in share based payment transactions. ASC 718 requires entities to measure the cost of services received in exchange for
equity instruments, including restricted stock, based on the grant date fair value of the award and to recognize it as compensation
expense over the period services are to be provided, usually the vesting period.
The fair value of options and warrants is calculated using
the Black-Scholes option-pricing model. This model was developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions. As such, the values derived from using that model can differ significantly from other methods
of valuing the Company's stock based compensation arrangements. The Black-Scholes model also requires subjective assumptions,
including future stock price volatility and expected time to exercise, which greatly affect the calculated values. These
factors could change in the future, affecting the determination of stock based compensation expense in future periods.
Income Taxes
The Company utilizes the asset and liability
method of accounting for income taxes. The asset and liability method require that the current or deferred tax consequences
of all events recognized in the consolidated financial statements be measured by applying the provisions of enacted tax laws to
determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability
and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some
portion of the deferred tax assets will not be recovered.
The Company also follows ASC 740-10-25,
which provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions
recognized in an enterprise's financial statements in accordance with ASC 740, "
Accounting for Income Taxes"
. ASC
740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition.
(Loss) Income Per Common Share
Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of outstanding
common shares during each of the periods presented. Diluted net income per common share is determined using the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, assuming the
conversion, exercise, or issuance of all potential common stock equivalents unless the effect per share is antidilutive. If the
inclusion of common stock equivalents in the weighted average number of common shares outstanding would be anti-dilutive these
items would be omitted from the calculation of net (loss) income per common share. The dilutive effect of outstanding stock options
and warrants is reflected in diluted earnings per share by application of the treasury stock method.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
|
For the year ended
|
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
Net (loss) income available to common shareholders
|
|
$
|
(240,127)
|
|
|
$
|
660,907
|
|
Weighted average shares – basic
|
|
|
26,574,313
|
|
|
|
26,574,313
|
|
Net (loss) income per share – basic
|
|
$
|
(0.01)
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares – diluted
|
|
|
26,574,313
|
|
|
|
26,574,313
|
|
Net (loss) income per share – diluted
|
|
$
|
(0.01)
|
|
|
$
|
0.02
|
|
For the year ended February 28, 2019
and 2018, 6,407,221 potential common shares issuable upon the exercise of outstanding warrants have been excluded from the computation
of diluted earnings per share because their inclusion would be anti-dilutive since the warrants are not "in the money".
Concentrations
The Company utilizes the services of
two individuals, one of which is a related party and one of which is a third-party in China to source materials and the manufacturing
of component parts with third-party vendors in China. As of February 28, 2019 and 2018, the Company had deposits for inventory
purchases in China of approximately $66,237 and $3,067, respectively.
For the year ended February 28, 2019, we had two customers
that accounted for 30% and 28% (or 58%) of our total sales. As of February 28, 2018, we had three customers that accounted
for 33%, 12% and 11% (or 56%) of our total sales. One of these customers accounted for 80% and 33% of net accounts receivable
as of February 28, 2019 and 2018, respectively.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Recent Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Updated ("ASU") 2014-09, Revenue from Contracts with Customers,
issued as a new Topic, ASC Topic 606 ("ASU 2014-09"). The new revenue recognition standard provides a give-step analysis
of transactions to determine when and how revenue is recognized. The premise of the standard is that a Company should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 can be adopted by the Company either retrospectively
or as a cumulative-effect adjustment as of the date of adoption.
The Company has adopted the guidance beginning in fiscal
2019 using the modified retrospective approach. The impact of adopting the standard on our consolidated financial statements and
related disclosures was not material.
In February 2016, the FASB issued ASU
2016-02,
"Leases (Topic 842),"
which will require lessees to recognize almost all leases on their balance sheet
as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases
to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied
in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated
to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the
potential impact this standard will have on its consolidated financial statements and related disclosures.
Management does not believe any other
recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company's present
or future consolidated financial statements.
NOTE 3: INVENTORY
The Company's inventory consisted of
the following:
|
|
February 28, 2019
|
|
|
February, 28 2018
|
|
Raw materials
|
|
$
|
382,658
|
|
|
$
|
860,424
|
|
Finished goods
|
|
|
589,839
|
|
|
|
137,872
|
|
Net inventory
|
|
$
|
972,497
|
|
|
$
|
998,296
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 4: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
|
|
|
|
|
|
|
|
|
February 28,
|
February 28,
|
|
|
2019
|
|
2018
|
|
Tooling
|
|
$
|
424,578
|
|
|
$
|
408,453
|
|
Equipment
|
|
|
84,647
|
|
|
|
63,117
|
|
Computer equipment
|
|
|
63,520
|
|
|
|
63,520
|
|
|
|
|
572,745
|
|
|
|
535,090
|
|
Less: accumulated depreciation and amortization
|
|
|
(454,591
|
)
|
|
|
(399,551
|
)
|
Total
|
|
$
|
118,154
|
|
|
$
|
135,539
|
|
Fixed assets outside the United States
included $367,123 and $350,998 in tooling and equipment, at cost, located in various third party locations which
manufacture the Company's component parts at February 28, 2019 and February 28, 2018, respectively. Depreciation expense included
in operating expenses were $55,040 and $60,232 for the fiscal years ended February 28, 2019 and 2018, respectively.
NOTE 5: CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment
under leases classified as capital leases. The leased equipment carried a cost of $26,000 as of February 28, 2019 and
2018 and is depreciated on a straight-line basis over 5 years. Total accumulated depreciation related to the leased
equipment was $13,000 as of February 28, 2019 and 2018. Obligations outstanding consisted of the following:
|
|
February 28,
2019
|
|
February 28,
2018
|
Capital lease for equipment requiring monthly payments of principal and
Interest of $546 through August 2020 bearing interest at an annual rate of 9.5%
|
|
$
|
10,266
|
|
|
$
|
16,914
|
|
Total capital lease obligations, principal and interest
|
|
|
10,266
|
|
|
|
16,914
|
|
Less amount representing interest
|
|
|
(1,146
|
)
|
|
|
(2,430
|
)
|
Total capital lease obligations, principal
|
|
|
9,120
|
|
|
|
14,484
|
|
Less current portion
|
|
|
(5,938
|
)
|
|
|
(5,402
|
)
|
Long term portion
|
|
$
|
3,182
|
|
|
$
|
9,082
|
|
Future maturities of the capital lease obligation as of February
28, 2019 are:
Fiscal Year Ending
|
|
|
|
February 28,
|
|
Amount
|
|
|
|
|
|
2020
|
|
$
|
5,938
|
|
2021
|
|
|
3,182
|
|
Total
|
|
$
|
9,120
|
|
NOTE 6: RELATED PARTY TRANSACTIONS
During the fiscal year ended
February 28, 2018, TAM Trust purchased, on behalf of the Company, approximately $132,000 of raw materials from a vendor with which
it already had a business relationship.
The Company paid commission to a related
party for sourcing raw materials with third-party vendors in China. The Company paid approximately $47,000 and $63,000 in direct
commissions to the related party during the fiscal years ended February 28, 2019 and 2018, respectively.
The Company had advanced amounts to
employees of approximately $26,000 and $28,600 as of February 28, 2019 and 2018, respectively. These amounts are being repaid through
direct payroll withdrawals.
The Company had receivables from stockholders of approximately
$5,000 and $6,000 as of February 28, 2019 and 2018, respectively.
The Company had sales to two companies related to a member
of the Board of Directors. Specifically, the two companies were Sovereign Earth, LLC and Amazon Seychelle. Sales to Sovereign
Earth, LLC (dba Revolve) were $899,000 and $636,000 for the fiscal years ended February 28, 2019 and 2018, respectively and sales
to Amazon Seychelle totaled $165,000 and $24,000 for 2019 and 2018 respectively. Pursuant to the agreement with the Company, Sovereign
Earth, LLC is the sole and exclusive seller of the certain Seychelle products in specified Amazon world markets.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 7: EQUITY TRANSACTIONS
Restricted Stock Grants
None
Warrants
A summary of warrant activity for the
fiscal years ended February 28, 2019 and February 28, 2018 is shown below.
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
|
|
|
|
|
|
Outstanding at March 1, 2017
|
|
|
6,407,221
|
|
|
|
0.21
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at February 28, 2018
|
|
|
6,407,221
|
|
|
|
0.21
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at February 28, 2019
|
|
|
6,407,221
|
|
|
|
0.21
|
|
Vested at February 28, 2019
|
|
|
6,407,221
|
|
|
|
0.21
|
|
Exercisable at February 28, 2019
|
|
|
6,407,221
|
|
|
|
0.21
|
|
The following table summarizes significant ranges of outstanding
warrants as of February 28, 2019:
|
Warrants Outstanding
|
Warrants Exercisable
|
|
|
Weighted
|
Weighted
|
|
Weighted
|
|
|
Average
|
Average
|
|
Average
|
|
|
Remaining
|
Exercise
|
Number
|
Exercise
|
Exercise Price
|
Number
|
Life (Years)
|
Price
|
Outstanding
|
Price
|
|
|
|
|
|
|
|
$0.21
|
|
6,407,221
|
|
1.79
|
|
$0.21
|
|
6,407,221
|
|
$0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2019 and 2018 the total outstanding warrants
had an intrinsic value of $0.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 8: INCOME TAXES
Income tax expense (benefit) consists of the following:
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
Year ended February 28, 2019:
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total income tax expense (benefit)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(2,970
|
)
|
|
|
-
|
|
|
|
(2,970)
|
|
State
|
|
|
9,667
|
|
|
|
-
|
|
|
|
9,667
|
|
Total income tax expense
|
|
$
|
6,697
|
|
|
|
-
|
|
|
|
6,697
|
|
The income tax expense (benefit) differs
from the expected amount of income tax expense (benefit) determined by applying a combined U.S. federal and state income tax rate
of 27% to pretax (loss) income for the years ended February 28, 2019 and 2018 as follows:
|
|
2019
|
|
2018
|
Expected tax (benefit) provision
|
|
$
|
(50,427
|
)
|
|
$
|
212,520
|
|
State Income tax (benefit) provision
|
|
|
(13,082
|
)
|
|
|
40,088
|
|
Other
|
|
|
(838
|
)
|
|
|
28,468
|
|
Change in tax rate
|
|
|
-
|
|
|
|
282,408
|
|
Permanent differences
|
|
|
930
|
|
|
|
1,215
|
|
Change in valuation allowance
|
|
|
63,417
|
|
|
|
(558,002
|
)
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
6,697
|
|
Deferred tax assets are as follows:
|
|
February 28,
2019
|
|
February 28,
2018
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryforwards
|
|
$
|
231,649
|
|
|
$
|
158,318
|
|
Depreciation
|
|
|
(15,715
|
)
|
|
|
(23,600
|
)
|
Reserves and accrued expenses
|
|
|
48,674
|
|
|
|
70,171
|
|
Stock compensation
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
410,316
|
|
|
|
406,293
|
|
Valuation allowance
|
|
|
(674,924
|
)
|
|
|
(611,182
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 8: INCOME TAXES
(CONTINUED)
Tax Cuts and Jobs Act
On December 22, 2017, the U.S. government enacted comprehensive
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes broad and complex changes
to the U.S. tax code, including, but not limited to, reducing the U.S. statutory corporate income tax rate from 35 percent to 21
percent, effective January 1, 2018. U.S. GAAP requires that deferred income tax assets and liabilities be remeasured at the income
tax rate expected to apply when those temporary differences reverse, and that the effects of any change to such income tax rate
be recognized in the period when the change was enacted.
In connection with the Company's initial analysis of the
impact of the TCJA, the Company recorded a discrete net tax expense of $282,408 in the year ended February 28, 2018. This net expense
is primarily due to the remeasurement of the Company's existing deferred tax assets and liabilities. Due to the Company having
a full valuation allowance related to their deferred taxes, the $282,408 discrete tax expense associated with the remeasurement
was equally offset by the valuation allowance causing an overall net zero impact on the Company's current tax rate.
The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB
118"), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should
not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that
a company's accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate,
it must record a provisional estimate in the financial statements.
The valuation allowance for deferred
tax assets as of February 28, 2019 and 2018, $674,924 and $611,182, respectively. The net change in the total valuation
allowance was an increase of $63,417 and $558,002 for the years ended February 28, 2019 and 2018, respectively. In assessing the
realization of deferred tax assets, management considers whether it is more-likely-than-notthat some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. It
was determined that it was more likely than not that a full valuation allowance was necessary as of February 28, 2019.
At February
28, 2019, the Company had unused net operating loss carryovers of approximately $770,000 and $1,198,000 for federal and state
tax purposes, respectively, which expire beginning in 2038. Note that any federal net operating loss carryovers from 2018
have an indefinite carryforward period. This was part of the legislation passed as part of the TCJA.
The Company includes interest and penalties,
if any, arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income
taxes. As of February 28, 2019 the Company had no accrued interest or penalties related to uncertain tax positions. The tax years
that remain subject to examination by major taxing jurisdictions are fiscal years 2015 through 2018 for federal purposes and fiscal
years 2014 through 2018 for state purposes.
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company entered into a lease agreement
on one facility for its corporate offices, inventory and production at 22 Journey in Aliso Viejo, CA for a term of 5 years at a
monthly rental of approximately $19,000, and such amounts are included in the table below.
Future minimum base lease payments are as follows:
Fiscal Year Ending
|
|
|
February 28,
|
|
Amount
|
|
|
|
|
|
|
|
2020
|
|
|
$
|
253,908
|
|
|
2021
|
|
|
|
259,000
|
|
|
2022
|
|
|
|
109,000
|
|
|
Total
|
|
|
$
|
621,908
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to the Consolidated Financial
Statements
NOTE 9: COMMITMENTS AND CONTINGENCIES
(CONTINUED)
Legal Proceedings
There is a pending legal action named
Rolling Tides, LLC vs. Carl Palmer, Seychelle Environmental Technologies, Inc., and other defendants. The case was brought
in the Superior Court of the State of California, County of Orange. The action alleges certain fraudulent transfers occurred
from Seychelle to the various defendants. The plaintiffs have refused to identify any such transfers by date or amount.
The matter is in discovery and trial is set for August, 2019. All the defendants have denied the allegations of the complaint,
and are vigorously defending the matter. It is not likely that the case will be settled without trial. The Company
believes that the case has no merit.
Licenses
The Company has historically entered
into licensing agreements with third-parties for product proprietary rights, patent and trademark ownership, and use of product
name. In return, the Company agrees to pay licensing fees and/or royalties on sales of those products. During the fiscal years
ended February 28, 2019 and 2018, the Company paid $13,296 and $22,651, respectively, in royalties and licensing fees under these
agreements.
NOTE 10: GEOGRAPHIC
AREAS
The Company
sells its products throughout the United States and internationally. Geographic sales information for the fiscal years ended February
28, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
United States
|
|
$
|
3,129,556
|
|
|
$
|
5,130,357
|
|
Asia
|
|
|
-
|
|
|
|
105,568
|
|
United Kingdom
|
|
|
20,806
|
|
|
|
-
|
|
Canada
|
|
|
2,467
|
|
|
|
40,291
|
|
Other countries
|
|
|
600
|
|
|
|
3,161
|
|
Total
|
|
$
|
3,153,429
|
|
|
$
|
5,279,377
|
|
_____________
(1) Sales are
based on the country of residence of the customer.
Long lived assets at February 28, 2019
are in the following geographic areas:
|
|
United States
|
|
China
|
|
Total
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
57,167
|
|
|
$
|
60,987
|
|
|
$
|
118,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
66,670
|
|
|
|
-
|
|
|
|
66,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
123,837
|
|
|
$
|
60,987
|
|
|
$
|
184,824
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 10: GEOGRAPHIC AREAS (CONTINUED)
Long lived assets at February 28, 2018
are in the following geographic areas:
|
|
United
States
|
|
China
|
|
Total
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
57,264
|
|
|
$
|
78,275
|
|
|
$
|
135,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
66,670
|
|
|
|
-
|
|
|
|
66,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
123,934
|
|
|
$
|
78,275
|
|
|
$
|
202,209
|
|
NOTE 11: SUBSEQUENT EVENTS
Management
has evaluated events subsequent to February 28, 2019 through the date the accompanying consolidated financial statements were
filed with the Securities and Exchange Commission for transactions and other events that may require adjustment of and/or disclosure
in such financial statements. Based on its review, except for the following, no material events were identified that require adjustment
to the financial statements. Effective March 8, 2019, Mr. Carl Palmer resigned from his position as President, Treasurer, CEO
and CFO but remains as a Board Member. At that date, Mrs. Cari Beck became the President, CEO, CFO, Treasurer and HR Manager.
Ms. Lena Smith becaame the Secretary of Seychelle.