The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
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 29, 2020
and February 28, 2019.
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 provisions, 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 $2,072,000 as of February 29,
2020.
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 for approximately $2,200 and $4,600 as of February 29, 2020 and February 28, 2019 respectively 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 29, 2020 and February 28, 2019 amounted to approximately $204,000 and $200,000, 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 provision, which amounted to approximately $143,000 and $126,000 as of February 29,
2020 and February 28, 2019, 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 29, 2020 and February 28, 2019.
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 $10,000 and $135,000 for the fiscal years ended February 29, 2020 and February 28,
2019, 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 $2,900 and $4,600 for the fiscal years ended February 29, 2020 and February 28, 2019,
respectively. These costs are not significant and have been included in selling, general and administrative 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 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 29,
|
|
February 28,
|
|
|
2020
|
|
2019
|
Numerator:
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(118,999
|
)
|
|
$
|
(240,127
|
)
|
Weighted average shares – basic
|
|
|
26,574,313
|
|
|
|
26,574,313
|
|
Net loss per share – basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares – diluted
|
|
|
26,574,313
|
|
|
|
26,574,313
|
|
Net loss per share – diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
For the year ended February 29, 2020
and February 28, 2019, 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.
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 29, 2020 and February 28, 2019, the Company had deposits for
inventory purchases in China of approximately $24,000 and $66,000, respectively.
For the year ended February 29, 2020,
we had two customers that accounted for 35% and 20% (or 55%) of our total sales. As of February 28, 2019, we had two customers
that accounted for 30% and 28% (or 58%) of our total sales. One of these customers accounted for 68% and 80% of net accounts
receivable as of February 29, 2020 and February 28, 2019, 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”) issues 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 five-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. The Company adopted ASU 2014-09 beginning of
March 1, 2018 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 required 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. We adopted the
standard effective March 1, 2019. Consequently financial information will not be updated and disclosures required under the
new standard will not be provided for the periods presented before March 1, 2019 as these prior periods conform to the
Accounting Standards Codification 840. We elected the package of practical expedients permitted under the transition guidance
within the new standard. By adopting these practical expedients, we were not required to reassess (1) whether an existing
contract meets the definition of a lease; (2) the lease classification for existing leases; or (3) costs previously
capitalized as initial direct costs. We evaluated all leases within this scope under existing accounting standards and under
the new ASU lease standard recognized an operating right-of-use assets and lease liabilities as at the date of
adoption (see Note 5).
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 29, 2020
|
|
February, 28 2019
|
Raw materials
|
|
$
|
700,517
|
|
|
$
|
382,658
|
|
Finished goods
|
|
|
320,109
|
|
|
|
589,839
|
|
Net inventory
|
|
$
|
1,020,626
|
|
|
$
|
972,497
|
|
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 29,
|
|
February 28,
|
|
|
2020
|
|
2019
|
Tooling
|
|
$
|
437,421
|
|
|
$
|
424,578
|
|
Equipment
|
|
|
84,647
|
|
|
|
84,647
|
|
Computer equipment
|
|
|
63,519
|
|
|
|
63,520
|
|
|
|
|
585,587
|
|
|
|
572,745
|
|
Less: accumulated depreciation and amortization
|
|
|
(506,096
|
)
|
|
|
(454,591
|
)
|
Total
|
|
$
|
79,491
|
|
|
$
|
118,154
|
|
Fixed assets outside the United States
included $379,965 and $367,123 in tooling and equipment, at cost, located in various third party locations which manufacture the
Company's component parts at February 29, 2020 and February 28, 2019, respectively. Depreciation expense included in operating
expenses were $51,505 and $55,040 for the fiscal years ended February 29, 2020 and February 28, 2019, respectively.
NOTE 5: RIGHT OF USE LEASED
ASSET AND LEASE OBLIGATION
In July 2018, the FASB issued ASU
2018-11, Leases (Topic 842), Targeted Improvements, which allows for an additional optional transition method where
comparative periods presented in the financial statements in the period of adoption will not be restated and instead those
periods will be presented under existing guidance in accordance with ASC 840, Leases Management used this optional transition
method at March 1, 2019, the adoption date. Accordingly, management recorded a right of use lease asset and a lease liability
of approximately $555,000 and $577,000.
At February 29, 2020, the right of
use asset is as follows:
|
Right of Use Leased Asset- Gross
|
|
|
$
|
555,296
|
|
|
Less Accumulated Amortization
|
|
|
|
219,279
|
|
|
Right of Use Lease Asset- Net
|
|
|
$
|
336,017
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 5: RIGHT OF USE LEASED
ASSET AND LEASE OBLIGATION (CONTINUED)
Future minimum payments on the operating lease liability
are as follows:
Fiscal Year Ending
|
|
|
|
February
28,
|
|
Amount
|
|
|
|
|
|
2021
|
|
$
|
259,456
|
|
2022
|
|
|
109,435
|
|
Total
|
|
$
|
368,891
|
|
The lease, which relates to the Company’s headquarters,
is a five year lease with an effective rate of 6.25%
NOTE 6: RELATED PARTY TRANSACTIONS
During the fiscal year ended February
29, 2020, TAM Trust purchased, on behalf of the Company, approximately $4,500 of raw materials from a vendor with which it already
had a business relationship. During fiscal year ended February 28, 2019, TAM Trust did not make any purchases in behalf of the
Company.
During the fiscal year ended February
29, 2020, the Company paid Carl Palmer, approximately $143,200 as a Consulting Fees. During fiscal year ended February 28, 2019,
Carl Palmer was an employee of the Company as such, no consulting fees were paid.
The Company paid commission to a related
party for sourcing raw materials with third-party vendors in China. The Company paid approximately $34,000 and $47,000 in direct
commissions to the related party during the fiscal years ended February 29, 2020 and February 28, 2019, respectively.
The Company had advanced amounts to
employees of approximately $25,000 and $26,000 as of February 29, 2020 and February 28, 2019, respectively. These amounts are being
repaid through direct payroll withdrawals.
The Company had receivables from stockholders
of approximately $0 and $5,000 as of February 29, 2020 and February 28, 2019, respectively.
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 29, 2020 and February 28, 2019 is shown below.
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
Warrants
|
|
Exercise
|
|
|
Outstanding
|
|
Price
|
|
|
|
|
|
|
Outstanding at March 1, 2018
|
|
|
|
6,407,221
|
|
|
|
0.21
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at February 28, 2019
|
|
|
|
6,407,221
|
|
|
|
0.21
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at February 29, 2020
|
|
|
|
6,407,221
|
|
|
|
0.21
|
|
|
Vested at February 29, 2020
|
|
|
|
6,407,221
|
|
|
|
0.21
|
|
|
Exercisable at February 29, 2020
|
|
|
|
6,407,221
|
|
|
|
0.21
|
|
The following table summarizes significant ranges of outstanding
warrants as of February 29, 2020:
|
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
|
|
0.54
|
|
$0.21
|
|
6,407,221
|
|
$0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2020 and February 28, 2019 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 consists of the following:
|
|
Current
|
|
Deferred
|
|
Total
|
Year ended February 29, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
1,600
|
|
|
|
—
|
|
|
|
1,600
|
|
Total income tax
expense
|
|
$
|
1,600
|
|
|
|
—
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total income tax
expense
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The income tax expense differs from
the expected amount of income tax expense determined by applying a combined U.S. federal and state income tax rate of 27% to pretax
loss for the years ended February 29, 2020 and February 28, 2019 as follows:
|
|
2020
|
|
2019
|
Expected tax (benefit) provision
|
|
$
|
(24,990
|
)
|
|
$
|
(50,427
|
)
|
State Income tax (benefit) provision
|
|
|
(1,600
|
)
|
|
|
(13,082
|
)
|
Other
|
|
|
1,695
|
|
|
|
(838
|
)
|
Change in tax rate
|
|
|
—
|
|
|
|
—
|
|
Permanent differences
|
|
|
883
|
|
|
|
930
|
|
Change in valuation allowance
|
|
|
25,612
|
|
|
|
63,417
|
|
Income tax provision
|
|
$
|
1,600
|
|
|
$
|
—
|
|
Deferred tax assets are as follows:
|
|
February 29,
2020
|
|
February 28,
2019
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryforwards
|
|
$
|
242,797
|
|
|
$
|
231,649
|
|
Depreciation
|
|
|
(4,952
|
)
|
|
|
(15,715
|
)
|
Reserves and accrued expenses
|
|
|
47,016
|
|
|
|
48,674
|
|
Lease Accounting
|
|
|
4,797
|
|
|
|
—
|
|
Other
|
|
|
410,878
|
|
|
|
410,316
|
|
Valuation allowance
|
|
|
(700,536
|
)
|
|
|
(674,924
|
)
|
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 valuation allowance for deferred
tax assets as of February 29, 2020 and February 28, 2019, $700,536 and 674,924, respectively. The net change in the total
valuation allowance was an increase of $25,612 and $63,417 for the years ended February 29, 2020 and February 28, 2019, respectively.
In assessing the realization of deferred tax assets, management considers whether it is more-likely-than-not that 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
29, 2020.
At February 29, 2020, the Company had
unused net operating loss carryovers of approximately $811,000 and $1,244,000 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 29, 2020 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 2016 through 2019 for federal purposes and fiscal
years 2015 through 2019 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
|
|
|
|
|
2021
|
|
|
$
|
259,000
|
|
|
2022
|
|
|
|
109,000
|
|
|
Total
|
|
|
$
|
368,000
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to the Consolidated Financial
Statements
NOTE 9: COMMITMENTS AND CONTINGENCIES
(CONTINUED)
Legal Proceedings
The Company may be subject to various
claims and actions, which arise, in the ordinary course of business. The Company recognizes a liability for contingencises, if
any, when a loss is probable and the amount can be reasonably estimated. Estimation requires significant judgment regarding each
case and the varying process of proceedings. Accordingly, the Company’s estimate may change from time to time and actual
losses, if any, may vary from current estimates. At February 29, 2020 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 in Fiscal 2019. 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. Trial is set
for September 28, 2020. All the defendants have denied the allegations of the complaint, and are vigorously defending the
matter. The Company believes that the case has no merit and expects its final resolution will not result in a material adverse
effect to the Company’s financial position and results of operation.
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 29, 2020 and February 28, 2019, the Company paid $12,305 and $13,296, 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 29, 2020 and February 28, 2019 as follows:
|
|
|
|
|
|
|
2020
|
|
2019
|
United States
|
|
$
|
2,997,536
|
|
|
$
|
3,129,556
|
|
Asia
|
|
|
36,390
|
|
|
|
—
|
|
United Kingdom
|
|
|
—
|
|
|
|
20,806
|
|
Canada
|
|
|
7,522
|
|
|
|
2,467
|
|
Other countries
|
|
|
44,960
|
|
|
|
600
|
|
Total
|
|
$
|
3,086,408
|
|
|
$
|
3,153,429
|
|
_____________
(1) Sales are
based on the country of residence of the customer.
Long lived assets at February 29, 2020
are in the following geographic areas:
|
|
United States
|
|
China
|
|
Total
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
33,746
|
|
|
$
|
45,745
|
|
|
$
|
79,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
66,670
|
|
|
|
—
|
|
|
|
66,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,416
|
|
|
$
|
45,745
|
|
|
$
|
146,161
|
|
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
Notes to the Consolidated Financial
Statements
NOTE 10: GEOGRAPHIC AREAS (CONTINUED)
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
|
|
NOTE 11: SUBSEQUENT EVENTS
The Company plans to file a Form 15
under the Securities Exchange Act of 1934, as amended. Otherwise, no material events were identified that require adjustment to
the consolidated financial statements.