UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or 12(g) of the Securities Exchange Act of
1934
Commission
File No. 0-29373
Seychelle
Environmental Technologies, Inc.
(Exact
Name of registrant as specified in its charter)
Nevada
|
IRS#
33-6159915
|
----------------------------
|
--------------------------
|
(State
or other jurisdiction
|
(IRS
Employer File Number)
|
Of
incorporation)
|
|
|
|
33012
Calle Perfecto
|
|
San
Juan Capistrano, California
|
92675
|
----------------------------------------
|
----------
|
(Address
of principal executive offices)
|
(zip
code)
|
|
|
(949)
234-1999
----------------------------------------------------
(Registrant's
telephone number, including area code)
Securities
to be Registered Pursuant to Section 12(b) of the Act: None
Securities
to be Registered Pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 per share par value
References
in this document to "us," "we," or "the Company" refer to Seychelle
Environmental Technologies, Inc., its predecessor and its
subsidiary.
TABLE
OF CONTENTS
ITEM
|
PAGE
|
PART
I
|
|
Item
1. Description of Business
|
1
|
(a)
Business Development
|
1
|
(b)
Business of Seychelle
|
2
|
Risk
Factors Related to Our Business
|
6
|
Item
2. Management’s Discussion and Analysis - Plan of
Operation
|
9
|
Item
3. Description of Property
|
12
|
Item
4. Security Ownership of Certain Beneficial Owners and
Management
|
12
|
Item
5. Directors, Executive Officers, Promoters and Control
Persons
|
13
|
Item
6. Executive Compensation
|
14
|
Item
7. Certain Relationships and Related Transactions
|
15
|
Item
8. Description of Securities
|
16
|
Part
II
|
|
Item
1. Market Price and Dividends on the Registrant’s
Securities
|
18
|
Item
2. Legal Proceedings
|
19
|
Item
3. Changes in and Disagreements with Accountants
|
20
|
Item
4. Recent Sales of Unregistered Securities
|
20
|
Item
5. Indemnification of Directors and Officers
|
21
|
Part
F/S
|
|
Report
of Independent Registered Public Accounting Firm
|
23
|
Consolidated
Financial Statements for Fiscal Year Ending February 28,
2005
|
24
|
Notes
to Consolidated Financial Statements for Fiscal Year Ending February
28,
2005
|
32
|
Consolidated
Financial Statements for Quarter Ending May 31, 2005
|
67
|
Notes
to Consolidated Financial Statements for Quarter Ending May 31,
2005
|
72
|
Part
III
|
|
Item
1. Index to Exhibits
|
88
|
Signatures
|
88
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this Form 10-SB, including statements under "Item 1. Description
of Business," and "Item 2. Management's Discussion and Analysis", constitute
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995 (collectively, the "Reform Act"). Certain, but not necessarily all, of
such
forward-looking statements can be identified by the use of forward-looking
terminology such as "believes", "expects", "may", "will", "should", or
"anticipates", or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of Seychelle Environmental Technologies, Inc. ("Seychelle", "the
Company", "we", "us" or "our") to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
PART
I
ITEM
1.
Description
of the Business.
(a)
Business
Development
History
of Seychelle
We
are a
Nevada corporation. Our principal business address is 33012 Calle Perfecto,
San
Juan Capistrano, California 92675. Our telephone number at this address is
949-234-1999.
We
were
incorporated under the laws of the State of Nevada on January 23, 1998 as a
change of 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.
On
January 30, 1998, we entered into an Exchange Agreement with Seychelle Water
Technologies, Inc., a Nevada corporation ("SWT"), whereby we exchanged our
issued and outstanding capital shares with the shareholders of SWT on a one
share for one share basis. We became the parent company and SWT became a wholly
owned subsidiary. SWT had been formed in 1997 to market water filtration systems
of Aqua Vision International.
On
January 31, 1998, we entered into a Purchase Agreement to acquire all of the
assets of Aqua Vision International, a private California entity. This Purchase
Agreement was amended on February 26, 1999 to provide for the issuance of 8,000
shares of Series "AAA" Cumulative Convertible Preferred Voting Stock in lieu
of
all consideration that had remained unpaid under the original Purchase
Agreement. Aqua Vision International had been in operation since 1995 to
develop, manufacture, and market its own proprietary water filtration systems.
In
April
2001, we repurchased all of our issued and outstanding Series A 13.5%
Non-Voting, Cumulative Preferred Stock, $.01 par value per share. This
repurchase was combined with a comprehensive settlement agreement, for the
benefit of all parties, with the beneficial owner of the Preferred Stock. We
also retired all of these Series A 13.5% Non-Voting, Cumulative
Preferred.
1
During
2002 through 2003 the company entered into a number of consulting agreements
that have all since been terminated with no further obligation to the company.
Further the company terminated both stock option agreements it had granted
in
2000 and in 2002.
In
December 2004 all Series AAA at 12% Cumulative Convertible Preferred Shares
were
converted into 4,500,000 shares of restricted common stock issued to the Tam
Irrevocable Trust. In addition, all dividends accrued and unpaid on the AAA
Preferred were waived.
As
of
February 28, 2005, the TAM Irrevocable Trust, one of our principal shareholders
and Pacific Financial, have loaned the Company funds from 2001 through 2005
to
continue to finance the company operations, with the balance due of $448,150
at
10% simple interest, repayable after March 1, 2006.
As
of May
31, 2005, there were 22,541,406 shares of common stock, par value $0.001, issued
and outstanding.
Organization
Our
Company is presently comprised of Seychelle Environmental Technologies, Inc.,
a
Nevada corporation, with one subsidiary, Seychelle Water Technologies, Inc.,
also a Nevada corporation. We use the trade name, "Seychelle Water Filtration
Products, Inc.," in our commercial operations.
(b)
Business
of Seychelle
General
Seychelle
designs and manufactures unique, state-of-the-art Ionic Adsorption Micron
Filters that remove up to 99.8% of all pollutants and contaminants found in
any
fresh water source. Using breakthrough technology, Seychelle has also developed
proprietary
ozone
systems. Patents or trade secrets cover all proprietary products. Since our
bodies are 75% water and the quality of water worldwide continues to
deteriorate, our mission is twofold: First, to help educate everyone about
the
problem and second, to provide the solution by making available low-cost,
effective filtration products that will meet the growing need for safe water.
Seychelle
has sold over 2 million portable water filtration bottles throughout the world
to customers such as individuals, dealers, and distributors - and to
governments, military, agencies and emergency relief organizations such as
the
US Marine Corps, the International Red Cross, Eco-Challenge, Kenya Wild Life
Service, La Cruz Roja de Mexico and the NY Institute for the Blind. In addition,
the company has donated thousands of portable bottles to church groups and
missionaries worldwide. Seychelle’s products are approved for sale and
distribution in many countries including the US, Mexico, Brazil, Argentina,
Venezuela, Japan, China, Korea, India, Pakistan, Australia, UK, New Zealand,
Malaysia, Indonesia and South Africa.
The
global water market is estimated to be in excess of $420 billion annually,
with
bottled water revenues at $20 billion growing at 20%. The major bottled water
marketers worldwide are PepsiCo with 5% share, Danone - 12%, Coca-Cola - 8%,
Nestle - 16% and all others at 59%. While bottled water is growing at a 20%
annual rate, water filtration products, which offer greater value, are achieving
up to 30% growth. Per capita bottle water consumption in Mexico is 42 gallons
a
year, compared with the US of about 23 gallons. Behind the US, Mexico is the
world’s
2
second
largest bottled water market with a growth rate of up to 30%. In developing
countries, up to 85% of the population boil their water for drinking and cooking
to kill bacteria, but this process does not remove the pyrogens, chemicals,
toxins, and other elements that remain in the water. In Africa alone,
approximately 25,000 people die every day because of water borne
diseases.
General
Business Plan
Seychelle
is the accumulation of over 35 years of improvements and innovations in the
field of micron technology. As a result, our products can deliver up to
.2-micron filtration, at pennies per gallon, with PSI as low as 24. Further,
our
point of difference filtration systems remove up to 99.8% of all known
pollutants and contaminants most commonalty found in fresh drinking water
supplies in the four major areas of concern.
The
unique patented Ionic Adsorption Micron Filter removes:
AESTHETICS:
Taste,
odor, chlorine, sand, sediment and odor problems.
BIOLOGICS:
Pathogens
such as Cryptosporidium, Giardia and E-Coli bacteria.
CHEMICALS:
Pesticides,
detergents, toxic chemicals and industrial waste.
DISSOLVED
SOLIDS:
Heavy
metals such as aluminum, asbestos, copper, lead, mercury and radon
222.
Seychelle
filters are the most tested in the world, and have been certified by California
and Florida approved independent laboratories implementing EPA, ANSI and NSF
protocol, procedures, standards and methodology.
No
other
water filtration system can achieve this level of removal of up to 99.8% of
all
known pollutants and contaminants most commonalty found in fresh drinking water
supplies in the four major areas of concern. The benefit of such a filtration
can save lives worldwide as awareness of Seychelle’s product line increases.
The
Products
Portables
Products
Seychelle
has a varied line of portable filters for people on the go. They include Flip
Top’s, Bottom’s Up’s and varied military style canteens - regular or with
silverators (for further bacteria control). Sizes are from 18oz to 30oz, and
provide up to 400 gallons of pure drinking water from any fresh water source,
running or stagnant (such as rivers, lakes, ponds, streams and
puddles).
The
current portable products include: Flip-Top, Survivor, Canteen, Bottoms UP,
In-Line Eliminator, Pure Water Bag, Pump n’ Pure, Facial Mist and replacement
filters.
Home
Products
Seychelle
technology has developed products for above-the-counter, below-the-counter,
and
to filter the whole house. Installation is easy, and unlike reverse osmosis
(RO), only a low PSI input line is needed. No water is wasted in the filtration
process. Seychelle also makes a variety of shower filters.
3
The
current home products include: Deluxe Shower, Handheld Shower, Royal Shower
Wall
Mount, Royal Shower Handheld, P.O.U. Countertop, P.O.E. Total Home and all
replacement filters, and feature technology developed for portable products.
New
Products
We
are
re-engineering the Flop Top bottle to eliminate parts, reduce costs, provide
a
more streamlined look, and add a disinfectant capability. The Counter Top has
been upgraded to provide more enhanced filter media to improve the taste and
quality of drinking water. Finally, the In-Line Filter is being changed to
provide greater filter media, and meet field conditions that require a longer,
narrower design.
We
also
acquired the rights of Enviro(3) Care Incorporated, as well as all applicable
intellectual properties. We will exercise our best efforts to complete the
product packaging, marketing, and service in order to maximize sales and
distribution of possible new ozonation products. This acquisition includes
a
patent and other trade secret assets that we plan to use to our advantage in
our
distribution. This product market includes home, spas, wells, R.V.,
agricultural, medical and other commercial and industrial
applications.
We
signed
a License Agreement with Aqua Gear USA for a product known as the "Hand Held
Pump Technology." We licensed all proprietary rights associated with this
technology, including patent #6,136,188. We will pay a 2% royalty on our gross
income for the technology during the term of the license. The License Agreement
is for an initial term of five years, with five successive five-year renewals.
This offers us an additional proprietary product in the portable filtration
industry. We believe that this purchase compliments our current product
line.
Manufacturing
Currently,
manufacturing is done at our San Juan Capistrano, California headquarters
location. Through an exclusive agreement with Heibei R.O. Environmental
Technologies, we will be able to produce all of our portable filtration products
in China. With two production facilities, we believe that such an agreement
will
allow the Seychelle brand to be sold at a very competitive price to US, China,
Asia and other international markets.
Sales
Channels
Sales
channels to be pursued will include: Retail, Military, Government, Multi-Level
Marketing, International, OEM and Joint Ventures.
Seychelle
is looking toward developing countries in South America, Africa and Asia as
its
next frontier. Currently, we have signed an agreement to proceed with a
marketing partner in South Africa, and talks are in various stages with
potential joint venture partners in Pakistan, India and Vietnam.
We
have
an agreement with the representatives of a company in Japan on a non-exclusive
basis to market and sell our entire product line throughout Japan. This company
is a current customer who is expanding its marketing operations.
4
We
will
also continue to promote our products and technologies to non-profit
organizations, such as the Red Cross, the U.S. and international militaries,
missionaries, charitable and fund-raising groups and other philanthropic
organizations.
Raw
Materials
The
use
of proprietary medias in the manufacturing of our line of products is a major
factor. To date, there is adequate availability of raw materials and proprietary
medias for all of our products. We do not expect this situation to change in
the
near future.
Customers
and Competition
There
are
a number of established companies in the water filtration business, with no
one
company in a dominant position.
Backlog
As
of May
31, 2005, we had backorders of $100,331 in customer orders in portable water
filtration units.
Employees
As
of May
31, 2005, we had three executive consultants managing the company with two
(2)
administrative consultants supporting that effort. In production, operations
and
warehousing we had one (1) full-time employee and four (4) independent
contractors working to fill all sales orders.
Proprietary
Information and Technology
We
own a
patent for the Portable Water Filtration System with the filter cap assembly,
Patent # 5,914,045. As described in the Abstract, it is "[a] filter assembly
for
a flexible, portable bottle having a sealing cap including a filter attached
to
the interior of the cap to filter out substantially all inorganics, organics,
radiological chemicals and microbiology. The filter assembly also may include
a
second filter or Iodinator sealed in the flexible bottle to further remove
micro-organisms from water passing there-through. The filter assembly is
designed so that the flexible bottle must be pressurized, as by being hand
pressed, after it is filled with water to force flow of water through the [sic]
either or both of the filters. The filter in the cap includes a check valve
to
allow the bottle to be re-pressurized after water has been dispensed from the
bottle."
We
also
own a patent, Patent #6,058,971, for a Quick Connect Diverter Valve. As
described in the Abstract, it is "A quick-connect diverter valve for use in
connecting existing water faucets and water filtration units in and around
a
kitchen, or other areas where clean water is desired."
Trademark
registrations have been filed with the USPTO for both Seychelle and Aqua Gear
and are in progress.
We
have a
trade name, "Seychelle Water Filtration Products, Inc.," which we use in our
commercial operations.
5
Government
Regulation
We
are
not, as a company, subject to any material governmental regulation or approvals.
However, our products are subject to inspection and evaluation by regulatory
authorities that have jurisdiction over water quality standards. Such
authorities are on the federal, state, and local level, both in the United
States and overseas, where we market our products. Most of our products have
already been inspected and evaluated by all applicable governmental authorities
in the areas in which we operate or plan to operate in the near future. With
respect to our new proposed focus of operations, we do not know if governmental
regulation will have a material impact on us in the future.
Research
and Development
We
have
spent approximately $25,100 and $12,500 in research and development activities
for the fiscal years ending, February 29, 2004 and February 28, 2005
respectively. During the three-month period ending May 31, 2004 and 2005, the
Company spent approximately $1,300 and $2,800, respectively.
Environmental
Compliance
At
the
present time Seychelle is not subject to any material costs for compliance
with
any environmental laws. With respect to our new proposed focus of operations,
we
do not know if environmental compliance will have a material impact on us in
the
future.
Risk
Factors Related to Our Business
THE
OWNERSHIP AND INVESTMENT IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS. OUR
COMMON SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS
RELATING TO OUR COMPANY.
Lack
of History
.
Our
Company was formed on January 23, 1998 and acquired the operations of a company
that had been in existence since 1995. Since beginning operations, we initially
sold water filtration products to a number of customers then later consolidated
the business with one customer, Nikken, to expand sales and cover increased
costs. This was done since Nikken is a global multi-level marketing company
in
the wellness consumer products industry and provided access to an expanded
base
of potential customers. Further, we have not been profitable except in fiscal
year ending February 28, 2002 when the relationship with Nikken ended. However,
product lines sales have stabilized since the Nikken business ended, but have
not generated enough revenue to support our Company. This has required us to
seek both investor capital and financing to buy the time required by new
management to reverse the downward trend. Recent sales activity as of May 31,
2005 has expanded suggesting a positive change in direction with the new
management. Still, we have limited financial results upon which you may judge
our potential. The company is not engaged in enough consistent business activity
over a sustained period of time to be said to have a successful operating
history. We have experienced in the past and may experience in the future
under-capitalization, shortages, setbacks and many of the problems, delays
and
expenses encountered by any early stage business. These include:
6
-
operating as a public entity, incurring non-cost of sales expenses such as
accounting, auditing, legal activities, and maintaining full compliance of
a
regulated reporting status including continuing Sarbanes-Oxley
requirements.
-
unplanned delays and expenses related to research, development and testing
of
our new products
-
production and marketing problems that may be encountered in connection with
our
existing products and technologies,
-
competition from larger and more established companies, and
-
under-capitalization to challenge the lack of market acceptance of our new
products and technologies.
Limited
Profitability.
Sales
of
our products may not continue to generate sufficient revenues to fund our
continuing operations. We may not continue to generate a positive cash flow
or
maintain profitability. To date, we have incurred significant losses. As of
February 28, 2005, our revenue was $341,106 versus $468,420 in the prior fiscal
year ending February 29, 2004. This decrease was due to primarily to lower
sales
to a large customer (from $223K to $35K) partially offset by sales to a smaller
customer (from $4K to $50K). Net Losses as of February 28, 2005 of $250,423
were
greater than in the prior year ending February 29, 2004 of $208,428 due to
claim
settlements ($31K) higher SG&A expenses ($89K) and partially offset by the
reversal of a product return liability of $61K. Going forward the company has
a
policy of not projecting sales and profits due to:
-
significant legal and professional fees associated with regulated business
activities and SEC reporting requirements including continuing Sarbanes-Oxley
requirements.
-
lack of
consistent sales to maintain profitability,
Inherently
Risky-Competition.
Because
we are a company with a limited history, our operations will be extremely
competitive and subject to numerous risks. The water filtration business is
highly competitive with many companies having access to the same market.
Substantially all of them have greater financial resources and longer operating
histories than we have and can be expected to compete within the business in
which we engage and intend to engage. There can be no assurance that we will
have the necessary resources to be competitive. We are subject to the risks
that
are common with under-capitalized companies. Therefore, investors should
consider an investment in us to be an extremely risky venture.
Need
For Additional Financing.
To
position the Company for growth over the past 5 past years, we incurred
financing charges from the Tam Irrevocable Trust of $340,000 for which the
Company issued 1,266,667 shares of restricted common stock at $0.18 per share
and 500,000 warrants at $0.225 per share redeemable for an equal number of
shares of restricted common stock. Additionally, on March 29, 2005, the Company
granted the Tam Irrevocable Trust 1,972,133 restricted shares of the Company’s
common stock. For this the Company recorded unearned interest relating to the
estimated value of these shares of $493,000. During the three-month period
ending, May 31, 2005, the Company issued an aggregate of 2,150,000 common shares
to various investors for cash for an approximate total value of
$535,000.
7
For
the
foreseeable future, Seychelle is currently in a good cash position with $440,818
in cash as of, May 31, 2005. This included $188,946 in cash receipts from sales.
For domestic customers, we require 50% prepayment of the order. For
international customers, effective June 1, 2005, we require 100% prepayment
either though credit cards, wire transfers or Letters of Credit. We also have
$150,000 in credit lines at two of our banks. Consequently we do not foresee
the
need for additional funding for the balance of the fiscal year ending February
28, 2006.
However,
we cannot guarantee the success of this plan.
Potential
Inability to Conduct Successful Operations.
The
results of our operations will depend, among other things, upon our ability
to
develop and to market our water filtration products. Further, it is possible
that our proposed operations may not be able to generate income sufficient
to
meet operating expenses or sustain us. Our operations may be affected by many
factors, some known by us, some unknown and some that are beyond our control.
Any of these problems, or a combination thereof, could have a materially adverse
effect on our viability as an entity and might cause the investment of our
shareholders to be impaired or lost. Our technologies and products are in
various stages of development. The development stage products may not be
completed in time to allow production or marketing due to the inherent risks
of
new product and technology development, limitations on financing, competition,
obsolescence, loss of key personnel and other factors. Although we may license
or market our development technology at its current stage of development, there
can be no assurance that we will be able to do so. Unanticipated technical
obstacles can arise at any time and result in lengthy and costly delays or
in a
determination that further development is not feasible.
While
we
have a limited product line, the development of some of our technologies has
taken longer than anticipated and could be additionally delayed. Therefore,
there can be no assurance of timely completion and introduction of improved
products on a cost-effective basis, or that such products, if introduced, will
achieve market acceptance such that, in combination with existing products,
they
will sustain us or allow us to maintain profitable operations.
Dependence
Upon Technology.
We are
operating in a business that requires extensive and continuing research,
development and testing efforts. There can be no assurance that new products
will not render our products obsolete or non-competitive at some time in the
future.
Protection
of Technology.
A
successful challenge to the ownership of our technology could materially damage
our business prospects. We rely principally on trade secrets as well as trade
secret laws, two patents, two trademarks, copyrights, confidentiality procedures
and licensing arrangements to protect our intellectual property rights. We
currently have two U.S. patents issued and a license on two patents. Any issued
patent may be challenged and invalidated. Patents may not issue from any of
our
future applications. Any claims allowed from existing or future pending patents
may not be of sufficient scope or strength to provide significant protection
for
our products. Patents may not be issued in all countries where our products
can
be sold so as to provide meaningful protection or any commercial advantage
to
us. Our competitors may also be able to design around our patents or the patents
that we license.
Vigorous
protection and pursuit of intellectual property rights or positions characterize
our industry, which has resulted in significant and often protracted and
expensive litigation. Therefore, our competitors may assert that our
technologies or products infringe on their patents
8
or
proprietary rights. Problems with patents or other rights could increase the
cost of our products or delay or preclude new product development and
commercialization by us. If infringement claims against us are deemed valid,
we
may not be able to obtain appropriate licenses on acceptable terms or at all.
Litigation could be costly and time-consuming but may be necessary to protect
our future patent and/or technology license positions or to defend against
infringement claims.
Competition.
Technological competition from larger and more established companies is
significant and expected to increase. Most of the companies with which we
compete and expect to compete have far greater capital resources and more
significant research and development staffs, marketing and distribution programs
and facilities, and many of them have substantially greater experience in the
production and marketing of products. Our ability to compete effectively may
be
adversely affected by the ability of these competitors to devote greater
resources to the sale and marketing of their products than we can. In addition,
one or more of our competitors may succeed or may already have succeeded in
developing technologies and products that are more effective than any of those
we currently offer or are developing. In addition, there can be no guarantee
that we will be able to protect our technology from being copied or infringed
upon. Therefore, there are no assurances that we will ever be able to obtain
and
to maintain a profitable position in the marketplace.
Success
Dependent Upon Management
.
Our
success is dependent upon the decision making of our directors and executive
officers. These individuals have made a full commitment to the business. The
loss of any or all of these individuals could have a materially adverse impact
on our operations. On December 1, 2001, we entered into an employment agreement
with our President. During November 2004, the Company entered into consulting
agreements with two officers to provide management consulting services for
the
Company.
(c)
Reports
to Security Holders
Seychelle
is not at this time a reporting company required to file reports with the
Securities and Exchange Commission (“SEC”) and is not required to deliver an
annual report to our security holders. However, upon the effectiveness of this
Form 10-SB, Seychelle will become a reporting company and will be required
to
file periodic reports with the SEC. Those reports will be available to our
security holders (i) through the Internet web site maintained by the company,
http://www.seychelle.com
;
(ii) at
the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C
20549; and (iii) through an Internet site maintained by the SEC that contains
reports, proxy and information statements and other information regarding
issuers that file such documents electronically at
http://www.sec.gov
.
Information regarding the operations of the SEC’s Public Reference Room is
available by calling the SEC at 1-800-SEC-0330.
ITEM
2.
Management's
Discussion and Analysis - Plan of Operation
.
Since
beginning operations, we initially sold water filtration products to a number
of
customers then later consolidated most of the business with one customer,
Nikken, to expand sales and cover increased costs. This was done since Nikken
is
a global multi-level marketing company in the wellness consumer products
industry and provided access to an expanded base of potential customers.
However, we have not been profitable except in the fiscal year ending February
28, 2002 when the relationship ended with our principal customer
Nikken.
9
After
the
Nikken business ended in 2002, when sales were $1,971,744, the company
retrenched by cutting costs, de-registering with the SEC, returning to the
Pink
Sheets and by seeking out a new base of customers as the Nikken business had
been providing most of the revenues. Sales for the past two years have
stabilized at a lower level of $341,106 (fiscal year ending February 28, 2005)
and 468,420 (fiscal year ending February 29, 2004). Earnings in the fiscal
year
ending February 28, 2005 were a negative $250,423 due to higher costs on lower
sales versus a negative $208,428 in the fiscal year ending February 29, 2004.
In
the
three-month period ending May 31, 2005, sales were $237,987 compared to the
same
period in the prior year with sales of $128,547 and our backlog was $ 100,000
as
of May 31, 2005. This would have almost equaled sales in the fiscal year ending
February 28, 2005 in just the three-month period ending May 31, 2005.
Both
the
Plan of Operation and the Results of Operation are as follows:
a.
Plan of Operation
Seychelle
is currently in a good cash position with $440,818 in cash as of May 31, 2005.
This included $188,946 in cash receipts from sales that are on the upswing.
For
domestic customers, we require 50% prepayment of the order. For international
customers, effective June 1, 2005, sales are to be 100% prepaid either though
credit cards, wire transfers or Letters of Credit. Consequently, we do not
foresee the need for additional funding for the year ending February 28, 2006.
Seychelle also has $150,000 in credit lines at two of our banks.
ii.
|
Research
and development.
|
The
flip
top container is being reengineered in design for greater ease of use and now
includes disinfectant capabilities. The countertop is also been upgraded with
more advanced filtration media for removal of contaminants and pollutants.
The
in-line filter is also being redesigned as well to make it more applicable
to
field conditions.
iii
Capital
expenditures.
We
do not
expect any significant capital expenditures except for additional molds or
tooling to supplement our existing capital equipment, which can be funded out
of
current cash flow.
iv
Employees.
We
anticipate no additional executive hiring even with an increase in the business
that can be handled through the addition of variable and independent plant
contractors and outside consultants.
10
b.
Results
of Operations
i.
Three-month
periods ending May 31, 2005 compared to the corresponding period in 2004.
In
the
three-month period ending May 31, 2005, sales were $237,987 compared to the
same
period in the prior year with sales of $128,547 and our backlog was $100,000
as
of May 31, 2005. This would have almost equaled sales in the fiscal year ending
February 28, 2005 in just the three-month period ending May 31, 2005.
ii
Liquidity
and capital resources
.
For
domestic customers, we require 50% prepayment of the order. For international
customers, effective June 1, 2005, we require orders to be 100% prepaid either
though credit cards, wire transfers or Letters of Credit. Consequently, we
do
not foresee the need for additional funding for the year ending February 28,
2006.
iii
Capital
expenditures
.
We
do not
expect any significant capital expenditures except for additional molds or
tooling to supplement our existing capital equipment, which can be funded out
of
current cash flow.
iv.
Trends
that have or will likely impact revenues from continuing operations.
In
the
three-month period ending May 31, 2005, sales were $237,987 compared to the
same
period in the prior year with sales of $128,547 and our backlog was $ 100,000
as
of May 31, 2005. This would have almost equaled sales in the fiscal year ending
February 28, 2005 in just the three-month period ending May 31, 2005.
Consequently, the business is improving with both new and current (international
and domestic) customers purchasing product. Gross Profit Margins also improved
from 66.2% to 67.7% with greater sales of higher margin products. Gross Margins
for all of fiscal year ending February 28, 2005 were 54.5% that shows greater
emphasize on higher margin products.
v.
Significant
elements of income or loss not from continuing
operations
Even
though profits for the three-month period ending May 31, 2005 were negative
by
$83K, $85K in accounting and legal fees to assist in the audit and preparation
of the Form 10 were the primary explanation for the result. In addition, there
was $78K in financing costs and amortization of officer stock
compensation.
vi.
Causes
for any material changes from period to period
.
Fluctuations
in the ordering pattern from a small customer base.
vii.
Any
seasonal aspects
.
Except
for heavier consumption of water in the summer months, water is something
everyone drinks year round and should not be considered seasonal.
11
c.
Off-Balance
Sheet Arrangements
:
none
ITEM
3.
Description
of Properties.
As
of May
31, 2005, our business office was located at 33012 Calle Perfecto, San Juan
Capistrano, CA 92675. Our telephone number at this address is 949-234-1999.
We
pay a total of $7,000 in rent per month for approximately 12,000 square feet
of
office, operations and warehousing. We have a three-year lease with an
unaffiliated third party.
We
own
two patents and numerous trade secrets, see Proprietary Information above,
and
other proprietary information related to our business operations. We recently
filed for two trademarks: Seychelle that has been used in commerce since 1997
and Aqua Gear, which had been abandoned previously by Aqua Gear USA to
capitalize on the patent agreement we secured from them.
ITEM
4.
Security
Ownership of Certain Beneficial Owners and Management
.
The
following sets forth the number of shares of our $0.001 par value Common Stock
beneficially owned by (i) each person who, as of May 31, 2005, was known by
us
to own beneficially more than five percent (5%) of our Common Stock; (ii) our
individual directors and (iii) our officers and directors as a group. As of
May
31, 2005 there were a total of 22,541,406 shares of Common Stock issued and
outstanding.
NAME
AND ADDRESS
|
AMOUNT
AND NATURE OF
|
PERCENT
OF
|
OF
BENEFICIAL OWNER
|
BENEFICIAL
OWNERSHIP(1)(2)
|
CLASS
|
|
|
|
The
TAM Irrevocable Trust
|
10,108,388
(3)
|
44.8%
|
4012
S. Rainbow #K111
|
|
|
Las
Vegas, NV 80103-2012
|
|
|
|
|
|
Shawn
Lampman
|
2,000,000
|
8.9%
|
2345
Calico Creek
|
|
|
Las
Vegas, NV 89135
|
|
|
|
|
|
FTS
Worldwide Corp.
|
1,320,009
|
5.9%
|
24
Route De Malagnou
|
|
|
1208
Geneva Switzerland
|
|
|
|
|
|
Carl
Palmer
|
-0-
|
-0-
|
251
Jeanell Dr., Ste 3
|
|
|
Carson
City, NV 89703
|
|
|
|
|
|
Richard
Parsons
|
614,673
|
2.7%
|
251
Jeanell Dr., Ste 3
|
|
|
Carson
City, NV 89703
|
|
|
12
James
Place
|
300,000
|
1.3%
|
251
Jeanell Dr., Ste 3
|
|
|
Carson
City, NV 89703
|
|
|
|
|
|
All
officers and directors
|
914,673
|
3.7%
|
As
a Group (three persons)
|
|
|
(1)
All
ownership is beneficial and of record, unless indicated otherwise.
(2)
Beneficial owners listed above have sole voting and investment power with
respect to the shares shown, unless otherwise indicated.
(3)
The
TAM Irrevocable Trust is an irrevocable trust for the benefit of certain family
members of Mr. Carl Palmer. Mr. Palmer disclaims any beneficial ownership or
interest in this Trust.
ITEM
5.
Directors,
Executive Officers, Promoters, and Control Persons; Compliance with Section
16(a) of the Exchange Act.
Our
Directors and Executive Officers, their ages and positions held in the Company
as of May 31, 2005 are as follows:
NAME
|
AGE
|
POSITION
HELD
|
----
|
---
|
-------------
|
|
|
|
Carl
Palmer
|
71
|
President,
Chief Executive Officer and Director
|
Richard
Parsons
|
70
|
Executive
Vice President, Secretary and Director
|
|
|
|
James
Place
|
66
|
Chief
Operating Officer, Treasurer and
Director
|
Our
directors have served and will serve in such capacity until the next annual
meeting of our shareholders and until their successors have been elected and
qualified. The officers serve at the discretion of our directors.
Carl
Palmer
.
Mr.
Palmer has been the President, CEO and a director of the Company since January
1998. He is the founder of our company, innovator of the complete line of
Seychelle water filtration products and primary spokesperson worldwide. He
is an
internationally recognized expert in the field for over 35 years and pioneered
the development of the reverse osmosis (RO) home and office pure water business
in the US in the late 1970’s. That company, Aq-Ro-Matic, was later sold to
Coca-Cola. Carl developed CTA membrane, a breakthrough technological development
in the industry and subsequently, created and sold pure water companies to
Coca
Cola Los Angeles, AMF, Cuno and Shaklee. In the late 1980’s Carl developed the
Best Water RO business for Shaklee and sold over $53 million in
above-the-counter systems. Carl’s 30 years of direct sales experience has led to
many significant business relationships, many of which continue today. He is
the
inventor of thirteen patented products related to water purification. Mr. Palmer
received a Bachelors Degree from Whittier College.
13
Richard
Parsons
.
Mr.
Parsons has been Secretary, Executive Vice President and a director of the
Company since November 2004. He has over 30 years experience in bottled water,
RO and water filtration with Fortune 100 companies such as Coca-Cola, Arrowhead,
Shaklee, and Canadian Glacier. In addition, Mr. Parsons ran his own successful
consulting business in water and related beverages with clients such as General
Foods, Coke-USA, The Beverage Group, Coke-Japan and Mitsubishi Industries.
He
also has over 20 years experience in direct sales and multilevel marketing
with
companies such as Avon, Holiday Magic, Arrowhead and National Education. Mr.
Parsons has a Bachelors Degree from Principia College.
James
Place
.
Mr.
Place has been Treasurer, COO and a director of our Company since November
2004.
He has over 30 years experience in food, beverages and bottled water. While
at
Arrowhead, he took the liter still and sparkling business from $10 to $75
million in 5 years. Mr. Place also had extensive marketing, new product
development and operating experience with Fortune 100 companies such as
Carnation, Kerr Glass and Hunt-Wesson. Mr. Place also has substantial experience
in business development, M & A and with the investment community. Mr. Place
has an MBA from Michigan State University and a Bachelors degree from Albion
College.
ITEM
6.
Executive
Compensation.
The
following table sets forth the Summary Compensation Table for the Chief
Executive Officer and the compensated executive officers with salaries in excess
of $100,000 per annum who were serving as executive officers at the end of
the
last three completed fiscal years. Compensation does not include minor
business-related and other expenses paid by us. Such amounts in the aggregate
do
not exceed $10,000.
Summary
Compensation Table
Annual
Compensation
|
Long
Term Compensation
|
----------------------------------
|
---------------------------------------
|
Awards
|
Payouts
|
----------------------------------
|
---------------------------------------
|
|
|
|
|
|
Restricted
|
All
|
Name
and
|
|
Salary
|
Annual
|
Other
Stock
|
LTIP
|
Other
|
Principal/
Positions
|
Fiscal
Year
Ending
|
Compensation($)
|
Bonus
($)
|
Compensation
($)(1)(3)
|
Award(s)
|
Securities
|
Carl
Palmer
|
2005
|
|
|
$10,000
|
|
|
President
& CEO
|
2004
|
|
|
$10,000
|
|
|
Director
|
2003
|
|
|
$10,000
|
|
|
|
|
|
|
|
|
|
Richard
Parsons
|
2005
|
|
|
$9,400(2)
|
|
$11,908(3)
|
Executive
VP*
|
2004
|
|
|
--
|
|
|
Director
(1)
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Place
|
2005
|
|
|
$9,400(2)
|
|
$4,584(3)
|
COO*
|
2004
|
|
|
--
|
|
|
Director
(1)
|
2003
|
|
|
--
|
|
|
[Footnotes
on following page]
14
(1)
|
Elected
to Board of Directors during November
2004
|
(2)
Messrs. Parsons and Place were granted 240,000 shares of restricted common
stock
valued at $.03 per share and are distributed over three years beginning December
1, 2004, 2005 and 2006
(3)
Messrs. Parsons and Place were granted warrants to purchase 500,000 shares
of
restricted common stock at $0.225 per share and are distributed over the same
three years and are exercisable from December 1, 2004 until December 1, 2008
The
Board
of Directors as a whole acts as a compensation committee. We have no retirement,
pension, sharing, stock option, insurance or other similar programs.
We
do not
pay members of our Board of Directors any fees for attendance or similar
remuneration, but reimburse them for any out-of- pocket expenses incurred by
them in connection with their activities.
ITEM
7.
Certain
Relationships and Related Transactions
Effective
December 1, 2001, the Company entered into an employment agreement with the
President of the Company. The agreement is for five years and provides for
a
salary of $10,000 per year plus one percent of the net after tax profits of
the
Company. The agreement shall be automatically renew for successive one-year
terms unless the Company or employee provides written notice of
non-renewal.
During
November 2004, the Company entered into consulting agreements with two officers
to provide management consulting services for the Company. As consideration
for
services to be rendered, the consultants received 480,000 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing on December 1, 2004,
2005
and 2006. The fair market value of the restricted shares earned during the
period ending November 30, 2004 was estimated at $225,600 and recorded to
unearned compensation. The Company is amortizing the estimated fair market
value
of the unearned compensation over the three-year term of the consulting
agreement. The Company has recorded amortization of approximately $18,800 and
$18,800 for the fiscal year ending February 28, 2005 and three-month period
ending May 31, 2005, respectively.
During
December 2004, all Series AAA at 12% Cumulative Convertible Preferred Shares
were converted into 4,500,000 shares of restricted common stock issued to the
Tam Irrevocable Trust. In addition, all dividends accrued and unpaid on the
AAA
Preferred were waived.
As
the
February 28, 2005 and February 29, 2004, the Company had received advances
of
$448,200 and $504,800 from companies related to an officer and Board member.
These advances bear interest at 10 percent. As of February 28, 2005, $100,000
of
these advances is due before February 28, 2006 with the balance of the advances
not repayable until after March 1, 2006.
As
of
February 28, 2005 and February 29, 2004, accrued interest on these advances
was
approximately $134,500 and $86,000, respectively, and is included in accrued
interest due to related parties in the accompanying consolidated balance
sheet.
15
During
December 2004, the Company granted the Tam Irrevocable Trust restricted common
stock of 1,266,667 shares, valued at $76,000 per year, effective March 1, 2002,
for additional interest and continued financial support.
As
of
February 28, 2005 and February 29, 2004, accrued charges on these advances
was
approximately $228,000 and $152,000, respectively, and are included in accrued
interest due to related parties in the accompanying consolidated balance
sheet.
On
March
29, 2005, the Company expanded the consulting agreement with one officer to
provide management consulting services for the Company. As consideration for
services to be rendered, the consultant received 316,312 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing on December 1, 2004,
2005
and 2006. The fair market value of the restricted share earned during the period
ending November 30, 2004 was estimated at $79,100 and recorded to unearned
compensation. The Company is amortizing the estimated fair market value of
the
unearned compensation over the three-year term of the consulting agreement.
The
Company has recorded amortization of approximately $8,800 and $6,600 for the
fiscal year ending February 28, 2005 and three-month period ending May 31,
2005,
respectively.
On
March
29, 2005, the Company expanded the consulting agreements with two officers
to
provide management consulting services for the Company. As further consideration
for services to be rendered, the consultants were granted 1,000,000 warrants
redeemable on restricted shares of the Company’s stock at $.225 per share. The
warrants are distributed in equal installments commencing on December 1, 2004,
2005 and 2006 and are exercisable through December 1, 2008. The fair market
value of the warrants earned during the period ending November 30, 2004 was
estimated at $55,300 and recorded to unearned compensation. The Company is
amortizing the estimated fair market value of the unearned compensation over
the
three-year term of the consulting agreement. The Company has recorded
amortization of approximately $6,100 and $4,600 for the fiscal year ending
February 28, 2005 and three-month period ending May 31, 2005,
respectively.
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
distributed in equal installments commencing on December 1, 2004, 2005 and
2006
but are exercisable through December 1, 2008. As the warrants provide for the
purchase of common stock at below the Company’s market price on the date of
grant, the Company recorded unearned interest relating to the estimated value
of
these warrants of $27,200. The Company is amortizing the estimated fair market
value of the unearned interest over a three-year term. The Company has recorded
amortization of approximately $3,000 and $3,100 for the fiscal year ending
February 28, 2005 and the three-month period ending May 31, 2005,
respectively.
ITEM
8.
Description
of Securities
Common
Stock
The
holders of Common Stock have one vote per share on all matters (including
election of Directors) without provisions for cumulative voting. The Common
Stock is not redeemable and has no conversion or preemptive rights.
16
In
the
event of liquidation of the Company, the holders of Common Stock will share
equally any balance of the Company’s assets available for distribution to them
after satisfaction of creditors and the holders of the Company’s senior
securities. The Company may pay dividends, in cash or in securities or other
property, when and as declared by the Board of Directors from assets legally
available. To date, the Company has not declared or paid dividends on its Common
Stock.
Preferred
Stock
The
Board
of Directors has the authority to issue Preferred Stock and to fix and determine
its series, relative rights and preferences to the fullest extent permitted
by
the laws of the State of Nevada and its articles of incorporation. As of
February 28, 2005, three classes of Preferred Stock were authorized and none
was
outstanding.
Series
“A” 13.5% Non Voting, Convertible Preferred Stock $0.01 par
value
Series
“A” Preferred Stock has rights which are superior to all other securities of the
Company, including upon liquidation and as to payment of dividends, if any,
carries a cumulative dividend of 13.5% per annum, is non-voting, and is
redeemable by the Company at any time at face value and is convertible into
common shares of the Company at the lesser of $10 per share or 85% of the last
five closing bid prices.
During
April 2001, the Company repurchased for $350,000 all issued and outstanding
Series A Preferred Stock, and settled all liability for dividends. This
repurchase was done in conjunction with a comprehensive settlement agreement
with the beneficial owner of the preferred stock.
The
stock
repurchase was funded by a loan made by one of the Company’s principal
stockholders.
Series
“AA” 10% Non Voting, Convertible Preferred Stock
Series
“AA” Preferred Stock has rights superior to all other securities of the Company
except to Series “A” Preferred Stock, including upon liquidation and as to
payment of dividends, if any, carries a 10% cumulative dividend, is non-voting,
redeemable by the Company at any time at face value and is convertible into
common shares of the Company at 85% of the last five closing bid prices. On
June
14, 1999, all of the Series “AA” Preferred Stock was converted into 1,337,509
shares of Common Stock at the original conversion terms.
Series
“AAA” 12 % Voting Convertible Preferred Stock
Series
“AAA” Preferred Stock has rights which are superior to all other securities of
the Company except Series “A” and the Series “AA” Preferred Stock, including
upon liquidation and as to payment of dividends, if any carries a 12% per annum
dividend payable in stock or cash, is voting, with each share equal to 100
shares of Common Stock, and is redeemable, at the Company’s option, according to
the following procedure: upon written notice of conversion from the holders,
the
Company shall have 45 days from receipt of such notice to repurchase for cash
shares of the Series “AAA” Preferred Stock at $1,000 per share.
17
As
a
result of the settlement of the litigation involving the Company and its former
Chairman, in which the Company was seeking to rescind the issuance of all common
shares previously issued to the former Chairman, the number of common shares
issuable to the holders pursuant to the conversion provisions of the Series
“AAA
Preferred Stock was reduced from 8,000,000 shares to 4,500,000 shares
In
December 2004 all Series “AAA” Preferred Shares were converted into 4,500,000
shares of restricted common stock issued to the Tam Irrevocable Trust. In
addition, all dividends accrued and unpaid on the “AAA” Preferred Stock were
waived.
PART
II
ITEM
1.
Market
Price of and Dividends on the Registrant’s Common Equity and Related Stockholder
Matters.
(a)
Principal
Market or Markets
Our
Common Stock began trading in 1997. Since the consummation of the Exchange
Agreement between our Company and SWT, market makers and other dealers have
provided bid and ask quotations of our Common Stock under the symbol "SYEV."
Trading was conducted in the over-the-counter market on the NASD's "Electronic
Bulletin Board" until April 20, 2000. We traded on the "Pink Sheets" until
December, 2000, when we were re-listed on the NASD's "Electronic Bulletin
Board." After we filed a Form 15 in 2002 we began trading on the “Pink Sheets”
where we currently trade. The table below represents the range of high and
low
bid quotations of our Common Stock as reported during the reporting period
herein. The following bid price market quotations represent prices between
dealers and do not include retail markup, markdown, or commissions; hence,
they
may not represent actual transactions. For the first quarter ending May 30,
2005, the common stock was at a High of $.37 and a Low of $.28.
Fiscal
Year 2005
|
High
Bid
|
Low
Bid
|
|
|
|
Month
Ending:
|
|
|
First
Quarter May 2004
|
$.28
|
$.11
|
Common
Shares
|
|
|
|
|
|
Second
Quarter Aug 2004
|
$.16
|
$.09
|
Common
Shares
|
|
|
|
|
|
Third
Quarter Nov 2004
|
$.13
|
$.04
|
Common
Shares
|
|
|
|
|
|
Fourth
Quarter Feb 2005
|
$.65
|
$.05
|
Common
Shares
|
|
|
18
Fiscal
Year 2004
|
High
Bid
|
Low
Bid
|
|
|
|
Month
Ending:
|
|
|
First
Quarter May 2003
|
$.11
|
$.03
|
Common
Shares
|
|
|
|
|
|
Second
Quarter Aug 2003
|
$.07
|
$.03
|
Common
Shares
|
|
|
|
|
|
Third
Quarter Nov 2003
|
$.07
|
$.04
|
Common
Shares
|
|
|
|
|
|
Fourth
Quarter Feb 2004
|
$.28
|
$.06
|
Common
Shares
|
|
|
Source:
Commodity Systems, Inc. through Yahoo Finance
(b)
Approximate
Number of Holders of Common Stock
As
of May
31, 2005, there were approximately 337 shareholders of record of our common
stock.
(c)
Dividends
Holders
of Common Stock are entitled to receive such dividends as may be declared by
our
Board of Directors. Seychelle paid no dividends on the Common Stock during
the
periods reported herein nor do we anticipate paying such dividends in the
foreseeable future
ITEM
2.
Legal
Proceedings.
During
May 2001, Seychelle Water Technologies, Inc. was named and served with a lawsuit
filed by SafeWater Anywhere, Inc. This lawsuit was filed in State Superior
Court
in Orange County, California. Mr. Carl Palmer was also named as a defendant.
The
complaint alleges breach of fiduciary duty, constructive fraud, promissory
fraud, rescission, constructive trust, unfair trade practices, and conversion.
The complaint sought unspecified damages and injunctive relief. We continue
to
believe that this matter is without any merit and intend to vigorously defend
our rights.
In
February 2002, Mr. Douglas Copp filed a lawsuit on behalf of himself and
American Rescue Team International, Inc. against Seychelle, Nikken, and Carl
Palmer in the U.S. District Court for the District of New Mexico. The Complaint,
which is essentially a claim for royalty payments, alleges breach of contract,
unfair trade practices, misappropriation of publicity, unjust enrichment,
violation of the Lanham Act, and conspiracy. A trial was held in 2004 and all
claims against Seychelle were dismissed.
19
On
or
about January 21, 2004 a lawsuit was filed on behalf of Ms. Letty Garcia against
Mr. Carl Palmer and/or Seychelle claiming injuries she suffered from riding
an
electric scooter allegedly imported by Mr. Palmer and/or Seychelle. This lawsuit
was filed in the Superior Court of San Diego, California. A trial was held
in
May 2005 and all claims against Seychelle were dismissed.
Otherwise,
as of May 31, 2005, we know of no legal proceedings pending or threatened or
judgments entered against any of our directors or officers in his or her
capacity as such.
ITEM
3.
Changes
in and Disagreements with Accountants.
Effective
August 1, 2002, the firm of Rushall Reital & Randall (former accountants)
resigned as independent auditors for the Company, and their resignation was
accepted by the Board of Directors. At no time were there any disagreements
between the Company and Rushall Reital & Randall on any matter of accounting
principles or practices, financial statement disclosures or auditing scopes
or
procedures. Rushall Reital & Randall performed the audit of the Company’s
financial statements for the fiscal years-ending February 28, 2001 and 2002.
The
audit report of Rushall Reital & Randall did not contain either an adverse
opinion or disclaimer of opinion, and was not modified as to uncertainty, audit
scope or accounting principles. The former accountants’ report on the financial
statements of the Company as of and for the fiscal years ending February 28,
2001 and 2002, contained separate paragraphs, which indicated that the Company
has experienced recurring losses, had an accumulated deficit, negative working
capital and had not yet commenced profitable operations. These factors, among
others, raised substantial doubt as to its ability to obtain long-term debt
or
equity financing in order to have the necessary resources to market the
Company’s new and existing products.
On
February 21, 2005, the Board of Directors approved the engagement of Armando
C.
Ibarra (A Professional Corporation) as independent auditors for the
Company.
ITEM
4.
Recent
Sales of Unregistered Securities.
During
the fiscal year ending February 28, 2000, the Company issued 32,000 shares
valued at $0.184 per share, or $5,900 for tooling.
During
May 2002, the Company completed an agreement to acquire rights to Enviro Care
Inc., as well as, all applicable intellectual properties, whereby the Company
can sell various ozonation products. In connection with the agreement, the
Company granted 500,000 shares of common stock valued at $0.208 per share,
or
$104,000.
On
June
6, 2002, the Company entered into a License Agreement for a product known as
the
“Hand Pump Technology.” The Company licensed all proprietary rights associated
with this technology, including patent #6,136,188 and the trademark Aqua Gear
TM. In connection with the license agreement, the Company granted the licensor
50,000 shares of common stock valued at $0.16 per share, or $8,000. The shares
were issued during March 2002.
During
the fiscal year ending February 29, 2004, the Company issued 120,000 shares
for
compensation; and 250,000 shares for services provided.
During
the fiscal year ending February 29, 2004, the Company settled approximately
$13,500 of its accrued expenses as of February 28, 2003 through the issuance
of
15,000 shares of common stock.
20
During
February 2004, the Company received $20,000 in proceeds for the issuance of
200,000 shares of common stock. The stock was delivered to the investor during
March 2004. As of February 29, 2004, the Company recorded the proceeds as an
un-issued stock liability in the accompanying consolidated financial
statements.
During
the fiscal year ending February 28, 2005, the Company issued 125,000 shares
for
compensation; and 70,000 shares for services provided.
During
the fiscal year ending February 28, 2005, the Company issued an aggregate of
541,166 shares to various investors for cash for an approximate total value
of
$91,100.
During
the fiscal year ending February 28, 2005, the Company issued an aggregate of
55,000 shares to various debt holders with an approximate total value of
$42,400.
During
the fiscal year ending February 28, 2005, the Company issued 84,000 shares
to
settle a claim with an approximate total value of $29,400.
During
March 2005, the Company settled approximately $6,000 of its accrued expenses
as
of February 28, 2005 through the issuance of 17,500 shares of common stock.
During
March 2005, a consultant surrendered to the Company 250,000 of common stock,
valued at $32,500, due to failure to perform certain contractual obligations.
During
April 2005, the Company settled approximately $228,000 of its accrued interest
due to related parties as of February 28, 2005, through the issuance of
1,266,667 shares of common stock.
During
the three-month period ending May 31, 2005, the Company issued an aggregate
of
2,150,000 common shares to various investors for cash for an approximate total
value of $535,000.
During
the first five months ending July 31 2005, the Company repurchased approximately
100,000 common shares, at prices ranging from $0.15 to $0.17, for an approximate
total value of $22,800.
Also
during July 2005, the Company issued 2,000,000 common shares to an investor
for
cash for a total value of $450,000.
During
the three-month period ending May 31, 2005, the Company issued 154,700 in
restricted shares, estimated value $47,400, for services provided in connection
with Form 10 filing.
ITEM
5.
Indemnification
of Directors and Officers.
Seychelle's
Bylaws provide that it will indemnify its officers and directors to the full
extent permitted by Nevada state law. Seychelle's bylaws likewise provide that
Seychelle will indemnify and hold harmless its officers and directors for any
liability including reasonable costs of defense arising out of any act or
omission taken on behalf of Seychelle, to the full extent allowed by Nevada
law,
if the officer or director acted in good faith and in a manner the officer
or
director reasonably believed to be in, or not opposed to, the best interests
of
the corporation.
21
In
so far
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
22
PART
F/S
ARMANDO
C. IBARRA
Certified
Public Accountants
A
Professional Corporation
Armando
C. Ibarra, C.P.A.
|
Members
of the California Society of Certified Public
Accountants
|
Armando
Ibarra, Jr., C.P.A., JD
|
Members
of the American Institute of Certified Public
Accountants
|
|
Registered
with the Public Company Oversight Accounting
Board
|
To
the Board of Directors
Seychelle
Environmental Technologies, Inc.
Report
of Independent Registered Public Accounting Firm
We
have
audited the accompanying consolidated balance sheets of Seychelle Environmental
Technologies, Inc. and subsidiaries as of February 28, 2005, and February 29,
2004 and the related consolidated statements of operations, changes in
shareholders’ equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Seychelle
Environmental Technologies, Inc., and subsidiaries as of February, 28, 2005,
and
February 29, 2004 and the results of their operations and its cash flows for
the
years then ended in conformity with U.S. generally accepted accounting
principles.
_
/s/
Armando C. Ibarra
_________________________________
ARMANDO
C. IBARRA, CPA
August
16, 2005
Chula
Vista, Ca. 91910
371
“E” Street, Chula Vista, CA 91910
Tel:
(619) 422-1348
|
Fax:
(619) 422-1465
|
23
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET
|
February
28,
|
February
29,
|
|
2005
|
2004
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
Cash
|
$
23,782
|
$
68,768
|
Trade
receivables, net of allowance for doubtful accounts of $2,047 and
$10,674
|
|
|
as
of February 28, 2005 and February 29, 2004, respectively
|
20,047
|
36,689
|
Inventories,
net
|
313,754
|
195,421
|
|
|
|
Total
current assets
|
357,583
|
300,878
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
99,826
|
104,350
|
|
|
|
INTANGIBLE
ASSETS, NET
|
121,567
|
122,911
|
|
|
|
OTHER
ASSETS
|
14,670
|
14,420
|
|
|
|
Total
non-current assets
|
236,063
|
241,681
|
|
|
|
TOTAL
ASSETS
|
$
593,646
|
$
542,559
|
See
accompanying notes to consolidated financial statements.
24
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET (CONTINUED)
|
February
28,
|
February
29,
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
2005
|
2004
|
|
|
|
CURRENT
LIABILITIES
|
|
|
Accounts
payable
|
$
25,179
|
$
37,283
|
Accrued
expenses
|
188,900
|
287,112
|
Accrued
interest due to related parties
|
362,518
|
237,959
|
Current
portion of notes payable to related parties
|
100,000
|
-
|
Customer
deposits
|
25,911
|
-
|
Income
taxes payable
|
8,397
|
6,797
|
|
|
|
Total
current liabilities
|
610,905
|
569,151
|
|
|
|
NOTES
PAYABLE TO RELATED PARTIES, less current portion
|
348,150
|
504,833
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
Preferred
stock, $.01 par value
|
|
|
Series
"AAA", preferred stock, 8,000 shares
|
-
|
80
|
authorized,
issued and outstanding as of February 29, 2004
|
|
|
Common
stock $.001 par value - 50,000,000 shares
|
16,665
|
10,513
|
authorized;
16,665,646 and 10,513,480 shares issued and
|
|
|
outstanding
as of February 28, 2005 and February 29, 2004,
respectively
|
|
|
Additional
paid-in capital
|
4,340,086
|
3,213,469
|
Unissued
stock liability
|
-
|
20,000
|
Accumulated
deficit
|
(4,025,910)
|
(3,775,487)
|
Unearned
interest
|
(462,443)
|
-
|
Unearned
compensation
|
(333,807)
|
-
|
|
|
|
Total
stockholders' deficit
|
(465,409)
|
(531,425)
|
|
|
|
TOTAL
LIABILITIES AND
|
|
|
STOCKHOLDERS'
DEFICIT
|
$
593,646
|
$
542,559
|
See
accompanying notes to consolidated financial statements.
25
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
Fiscal Years Ending February 28, 2005 and February 29, 2004
|
2005
|
2004
|
SALES
|
$
341,106
|
$
468,420
|
|
|
|
COST
OF SALES
|
155,113
|
307,175
|
|
|
|
Gross
profit
|
185,993
|
161,245
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling
|
27,425
|
6,904
|
General
and administrative
|
308,054
|
239,897
|
|
|
|
Total
expenses
|
335,479
|
246,801
|
|
|
|
LOSS
FROM OPERATIONS
|
(149,486)
|
(85,556)
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
Interest
expense
|
(124,629)
|
(117,584)
|
Claim
settlement
|
(31,360)
|
-
|
Write-Off
of accrual for product return liability
|
61,630
|
-
|
Gain
(loss) on sale of vehicle / equipment
|
5,100
|
(5,000)
|
Miscellaneous
income (expense)
|
(10,078)
|
1,312
|
|
|
|
Total
other income (expense)
|
(99,337)
|
(121,272)
|
|
|
|
LOSS
BEFORE PROVISION
|
|
|
FOR
INCOME TAXES
|
(248,823)
|
(206,828)
|
|
|
|
PROVISION
FOR INCOME TAXES
|
1,600
|
1,600
|
|
|
|
Net
loss
|
$
(250,423)
|
$
(208,428)
|
|
|
|
BASIC
AND DILUTED (LOSS) PER SHARE
|
$
(0.02)
|
$
0.02)
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
SHARES:
BASIC AND DILUTED
|
11,936,767
|
10,148,521
|
See
accompanying notes to consolidated financial statements.
26
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For
Fiscal Years Ending February 28, 2005 and February 29, 2004
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Unissued
|
|
|
|
Total
|
|
Stock
|
Stock
|
Stock
|
Stock
|
Paid-in
|
stock
|
Accumulated
|
Unearned
|
Unearned
|
Stockholders
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
liability
|
Deficit
|
Interest
|
Compensation
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2003
|
8,000
|
$
80
|
10,128,480
|
$
10,128
|
$
3,142,249
|
$
-
|
$
(3,567,059)
|
$
-
|
$
-
|
$
(414,602)
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
executive services
|
-
|
-
|
-
|
-
|
10,000
|
-
|
-
|
-
|
-
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
compensation
and services
|
-
|
-
|
250,000
|
250
|
32,250
|
-
|
-
|
-
|
-
|
32,500
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to
|
|
|
|
|
|
|
|
|
|
|
employees
|
-
|
-
|
120,000
|
120
|
15,480
|
-
|
-
|
-
|
-
|
15,600
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
exchange
for debt
|
-
|
-
|
15,000
|
15
|
13,490
|
-
|
-
|
-
|
-
|
13,505
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
cash
(delivered March 2004)
|
-
|
-
|
-
|
-
|
-
|
20,000
|
-
|
-
|
-
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from fiscal year ending
|
|
|
|
|
|
|
|
|
|
|
February
29, 2004
|
-
|
-
|
-
|
-
|
-
|
-
|
(208,428)
|
-
|
-
|
(208,428)
|
See
accompanying notes to consolidated financial statements
27
.
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For
Fiscal Years Ending February 28, 2005 and February 29, 2004
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Unissued
|
|
|
|
Total
|
|
Stock
|
Stock
|
Stock
|
Stock
|
Paid-in
|
stock
|
Accumulated
|
Unearned
|
Unearned
|
Stockholders
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
liability
|
Deficit
|
Interest
|
Compensation
|
Deficit
|
Balance,
February 29, 2004
|
8,000
|
80
|
10,513,480
|
10,513
|
3,213,469
|
20,000
|
(3,775,487)
|
-
|
-
|
(531,425)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
-
|
-
|
200,000
|
200
|
19,800
|
(20,000)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
executive services
|
-
|
-
|
-
|
-
|
10,000
|
-
|
-
|
-
|
-
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
compensation
and services
|
-
|
-
|
125,000
|
125
|
9,500
|
-
|
-
|
-
|
-
|
9,625
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
to
employees
|
-
|
-
|
70,000
|
70
|
21,280
|
-
|
-
|
-
|
-
|
21,350
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
cash
|
-
|
-
|
541,166
|
541
|
90,561
|
-
|
-
|
-
|
-
|
91,102
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
exchange
for debt
|
-
|
-
|
55,000
|
55
|
42,307
|
-
|
-
|
-
|
-
|
42,362
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
for
technology
|
-
|
-
|
32,000
|
32
|
5,868
|
-
|
-
|
-
|
-
|
5,900
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
for
claim settlement
|
-
|
-
|
84,000
|
84
|
29,316
|
-
|
-
|
-
|
-
|
29,400
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred to
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
(8,000)
|
(80)
|
4,500,000
|
4,500
|
(4,420)
|
-
|
-
|
-
|
-
|
-
|
See
accompanying notes to consolidated financial statements.
28
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For
Fiscal Years Ending February 28, 2005 and February 29, 2004
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Unissued
|
|
|
|
Total
|
|
Stock
|
Stock
|
Stock
|
Stock
|
Paid-in
|
stock
|
Accumulated
|
Unearned
|
Unearned
|
Stockholders
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
liability
|
Deficit
|
Interest
|
Compensation
|
Deficit
|
Discount
factor on common
|
|
|
|
|
|
|
|
|
|
|
stock
issued to consultants
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
65,000
|
65
|
22,685
|
-
|
-
|
-
|
-
|
15,167
|
|
|
|
|
|
|
|
|
|
|
|
Discount
factor on common
|
|
|
|
|
|
|
|
|
|
|
stock
issued to officers
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
480,000
|
480
|
225,120
|
-
|
-
|
-
|
(206,800)
|
18,800
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
on
warrants issued to
|
|
|
|
|
|
|
|
|
|
|
officers
at below fair value
|
-
|
-
|
-
|
-
|
55,275
|
-
|
-
|
-
|
(49,133)
|
6,142
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
on
warrants issued to note
|
|
|
|
|
|
|
|
|
|
|
holder
at below fair value
|
-
|
-
|
-
|
-
|
27,225
|
-
|
-
|
(24,200)
|
-
|
3,025
|
|
|
|
|
|
|
|
|
|
|
|
Discount
factor on common
|
|
|
|
|
|
|
|
|
|
|
stock
issued to officers
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
-
|
-
|
79,100
|
-
|
-
|
-
|
(70,291)
|
8,809
|
|
|
|
|
|
|
|
|
|
|
|
Discount
factor on common
|
|
|
|
|
|
|
|
|
|
|
stock
issued to note
|
|
|
|
|
|
|
|
|
|
|
holder
at below fair value
|
-
|
-
|
-
|
-
|
493,000
|
-
|
-
|
(438,243)
|
-
|
54,757
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from fiscal year ending February 28, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
(250,423)
|
|
-
|
(250,423)
|
Balance,
February 28, 2005
|
0
|
$
0
|
16,665,646
|
$
16,665
|
$
4,340,086
|
-
|
$
(4,025,910)
|
$
(462,443)
|
$
(333,807)
|
$
(465,409)
|
See
accompanying notes to consolidated financial statements.
29
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Fiscal
Years Ending February 28, 2005 and February 29, 2004
|
2005
|
2004
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$
(250,423)
|
$
(208,428)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
Depreciation
and amortization
|
33,868
|
38,215
|
Amortization
of beneficial conversion feature
|
9,167
|
-
|
Compensation
and interest expense on stock and warrants
|
97,533
|
-
|
Contributed
executive services
|
10,000
|
10,000
|
Stock
issued for services
|
30,975
|
48,100
|
Stock
issued for claim settlement
|
29,400
|
-
|
Allowance
for doubtful accounts
|
9,018
|
2,335
|
Provision
for slow moving inventory
|
162,700
|
2,480
|
Write
Off of product return liability
|
(61,630)
|
-
|
(Gain)
loss on disposal of vehicle
|
(5,100)
|
5,000
|
Changes
in operating assets and liabilities:
|
|
|
Trade
receivables
|
7,624
|
6,123
|
Inventories
|
(281,033)
|
32,832
|
Prepaid
expenses
|
-
|
6,912
|
Accounts
payable
|
(8,171)
|
(27,473)
|
Accrued
expenses
|
(349)
|
(71,924)
|
Accrued
interest due to related parties
|
124,559
|
117,585
|
Income
tax payable
|
1,600
|
1,600
|
Customer
deposits
|
26,000
|
-
|
|
|
|
Net
cash used by operating activities
|
(64,262)
|
(36,643)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Proceeds
from sale of vehicle
|
5,800
|
-
|
Purchase
of equipment
|
(18,234)
|
(15,956)
|
|
|
|
Net
cash used by investing activities
|
(12,434)
|
(15,956)
|
See
accompanying notes to consolidated financial statements.
30
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
Fiscal
Years Ending February 28, 2005 and February 29, 2004
|
2005
|
2004
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds
from sale of common stock
|
$
91,102
|
$
20,000
|
Proceeds
from related party advances
|
1,000
|
115,226
|
Repayments
on related party advances
|
(60,392)
|
(19,556)
|
|
|
|
Net
cash provided by financing activities
|
31,710
|
115,670
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
(44,987)
|
63,072
|
|
|
|
Cash,
beginning of year
|
68,768
|
5,696
|
|
|
|
Cash,
end of year
|
$
23,782
|
$
68,768
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
Interest
|
$
-
|
$
-
|
|
|
|
Income
taxes
|
$
-
|
$
-
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
Stock
issued for services
|
$
30,975
|
$
48,100
|
|
|
|
Stock
issued for settlement of debt
|
$
-
|
$
13,505
|
|
|
|
Stock
issued for settlement of claim
|
$
29,400
|
$
-
|
|
|
|
Stock
issued for purchase of technology
|
$
5,900
|
$
-
|
See
accompanying notes to consolidated financial statements.
31
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS
Organization
Seychelle
Environmental Technologies, Inc. (“SET”), 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 (“SWT”) was formed as a corporation in February 1997 under
the laws of the state of Nevada for the purpose of marketing the products of
Aqua Vision International (“Aqua Vision”), a private California entity operating
since 1996. Prior to January 1998, SWT operations were limited primarily to
fundraising and marketing activities.
On
January 30, 1998, SET entered into a stock exchange agreement with SWT, whereby
SWT shareholders emerged as the majority stockholder of SET. This reverse
acquisition resulted in SWT becoming a wholly owned subsidiary of SET. SWT
had
no material operations for each of the seven fiscal years ending February 28,
2005.
On
January 31, 1998, SET attempted a purchase of the assets of Aqua Vision for
$9.5
million. Only $1.2 million was paid to the Aqua Vision owners and the
transaction was not consummated. Effective February 28, 1999, the Company
revised its Purchase Agreement and issued 8,000 shares of its Series “AAA”
Preferred Stock Cumulative Preferred Voting Stock (described in Note 7) to
Aqua
Vision’s owners. As a result, Aqua Vision’s owners became the ultimate
controlling stockholder of SET. Because the assets were acquired from existing
shareholders, the $1.2 million payment was treated as a distribution and the
Series “AAA” stock issuance was treated as a recapitalization.
32
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS, continued
Description
of Business
The
Company designs, manufactures and supplies water filtration systems to the
general public. These systems range from portable water bottles that can be
filled from nearly any available source to units, which provide entire water
facilities at the point of entry for a facility. There are a number of
established companies in the water filtration business, with no one company
dominating the business.
During
the later part of the fiscal year ending February 28, 2002, the Company began
discussions with companies researching new technologies in the field of water
filtration including:
1
Ozonation;
and,
2
Waste
water recovery
During
May 2002, the Company completed an agreement to acquire rights to Enviro Care
Inc., as well as, all applicable intellectual properties, whereby the Company
can sell various ozonation products. The Company believes this agreement will
open product markets including home, spas, agriculture, medical and other
commercial and industrial applications.
During
June 2002, the Company entered into an exclusive agreement with Heibei R.O.
Environmental Technologies, whereby the Company can sell reverse osmosis-based
products, which is currently being developed in China. The agreement shall
be
for a period of three years with a performance understanding agreed upon at
the
end of the second year. The Company will be able to purchase Heibei products
for
cost plus fifteen percent. The Company believes this agreement will allow the
Seychelle brand to be sold at a very competitive price to US China, Asia and
other international markets.
33
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS, continued
Also,
during June 2002, the Company entered into a License Agreement for a product
known as the “Hand Pump Technology.” The Company licensed all proprietary rights
associated with this technology, including patent #6,136,188 and the trademark
Aqua Gear TM. The Company will pay a two percent royalty and a one- percent
license of trademark fee on any sales using this technology during the term
of
the license. The License Agreement is for an initial term of five years, with
five successive five years renewals. The Company intends to market this
technology in the United States and internationally.
During
2004, the Company commenced contractual agreements with the
representatives
of a Japanese company on an exclusive basis to market and
sell
the
Company’s entire product line throughout Japan.
The
Company sells its products throughout the United States and abroad including
Asia. Geographic information for the fiscal years ending February 28, 2005
and
February 29, 2004 is as follows:
|
2005
|
2004
|
Water
filtration products sold to
|
|
|
external
customers (1) (2) in:
|
|
|
|
|
|
The
United States
|
$173,213
|
$462,298
|
Asia
and Abroad
|
167,893
|
6,122
|
|
|
|
Total
|
$341,106
|
$468,420
|
(1)
Sales
to
external customers are attributed based on the country of residence of the
customer.
(2)
Long
lived assets outside the United States included $50,000 in tooling costs located
in Asia at February 28, 2005 and February 29, 2004, respectively.
34
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of SET
and
its wholly owned subsidiary, SWT, (collectively, the “Company”). All significant
intercompany transactions and balances have been eliminated.
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the price to the buyer is fixed or determinable and
collectibility is reasonably assured. These criteria are typically met when
product is shipped. Revenue is not recognized at the time of shipment if these
criteria are not met.
The
Company performs periodic credit evaluations of its customers’ financial
condition and generally does not require collateral. Trade receivables generally
are due in 30 days. Credit losses have consistently been within management’s
expectations. An allowance for doubtful accounts is recorded when it is probable
that all or a portion of trade receivables balance will not be
collected.
The
Company provides a liability for returned products generally for a period of
twelve months. Management periodically reviews its estimate for potential
returnable products. Although management believes its recorded liability is
adequate, it is at least reasonably possible that such estimate may change
in
the near term
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the average
cost method. Finished goods inventory includes material, labor and manufacturing
overhead costs.
35
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Management
reviews and estimates realization of inventory on a regular basis with respect
to obsolete and slow moving inventory. Although management believes its
evaluations are sound, it is at least reasonably possible that such estimates
may change in the near term. During the fiscal year ending February 28, 2005,
the Company scrapped its previously identified slow moving and obsolete
inventory of approximately $162,000.
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 and five years for computers, furniture and equipment and
vehicles. Management evaluates useful lives regularly in order to determine
recoverability taking into consideration current technological conditions.
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 credited or charged to operations. Fully depreciated assets
are
not removed from the accounts until physical disposition.
Intangible
Assets
Intangible
assets include patents, product rights and technology costs. All patent, product
rights and technology costs are capitalized and amortized over ten years using
the straight-line method. The Company assesses whether there has been a
permanent impairment of the value of intangible assets by considering factors
such as expected future product revenues, anticipated product demand and
prospects and other economic factors.
36
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Accounting
For Long-Lived Assets
Long-lived
and intangible assets are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying value of an asset may not be
recoverable. In that case, if the sum of the expected future cash flows is
less
than the carrying amount of the asset, an impairment loss is recognized for
the
difference between the carrying amount of the asset and the fair value of the
asset.
Customer
Deposits
Customer
deposits represent advance payments received for products and is recognized
as
revenue when products are shipped.
Research
and Development Expenses
Research
and development costs are expensed as incurred and amounted to approximately
$12,500 and $25,100 for the fiscal years ending February 28, 2005 and February
29, 2004, respectively, and are included in cost of sales in the accompanying
consolidated statements of operations.
Advertising
Expenses
Advertising
expenses are expensed as incurred. Total advertising expenses amounted to
approximately $1,000 and $600 for the fiscal years ending February 28, 2005
and
2004, respectively, and are included in selling expenses in the accompanying
consolidated statements of operations.
37
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Concentration
of Credit Risk
For
the
fiscal years ending February 28, 2005 and February 29, 2004, SET had several
customers, which individually accounted for at least 10% of total sales. The
following table summarizes total sales and accounts receivable for the fiscal
years then ended for these customers:
|
2005
|
2005
|
2004
|
2004
|
|
Sales
|
Accounts
|
Sales
|
Accounts
|
|
Percentage
|
Receivable
|
Percentage
|
Receivable
|
|
|
|
|
|
Customer
1
|
16%
|
$2,041
|
0%
|
$
4,123
|
Customer
2
|
14%
|
0
|
4%
|
1,998
|
Customer
3
|
10%
|
100
|
48%
|
930
|
Management
believes that these revenues can be replaced through the sale of filters and
related products to other direct marketing companies. However, there can no
assurance that such this will occur which could result in an adverse effect
on
the Company’s financial condition or results of operations in the future.
For
the
fiscal years ending February 28, 2005 and February 29, 2004, SET had several
vendors, which individually supplied at least 10% of total purchases. The
following table summarizes total raw material purchases and accounts payable
for
the fiscal years then ended.
|
2005
|
2005
|
2004
|
2004
|
|
Purchase
|
Accounts
|
Purchase
|
Accounts
|
|
Percentage
|
Payable
|
Percentage
|
Payable
|
|
|
|
|
|
Vendor
1
|
18%
|
$
0
|
13%
|
$
0
|
Vendor
2
|
11%
|
0
|
3
%
|
0
|
Vendor
3
|
10%
|
1,102
|
0%
|
1,005
|
38
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Management
believes that these raw materials can be purchased through other comparable
suppliers.
Income
Taxes
The
Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on temporary
differences between the amount of taxable income and pretax financial income
and
between the tax bases of assets and liabilities and their reported amounts
in
the financial statements. Deferred tax assets and liabilities are included
in
the financial statements at currently enacted income tax rates applicable to
the
period in which the deferred tax assets and liabilities are expected to be
realized or settled. Valuation allowances are established, when necessary,
to
reduce deferred tax assets to the amount expected to be realized.
Issuance
of Stock for Services
SFAS
No.
123, "Accounting for Stock-Based Compensation," encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to continue to account
for employee stock-based compensation using the intrinsic method prescribed
in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, as permitted by SFAS No. 123;
accordingly, compensation expense for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
39
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
For
stock
options or other securities issued to non-employees, the issuance of such
securities is accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. Compensation expense is recognized in the financial
statements for securities granted to non-employees in the period in which the
consideration is obtained from the non-employee.
Loss
Per Common Share
Basic
net
loss per common share is computed by dividing net loss by the weighted average
number of outstanding common shares during the periods presented. Basic loss
per
share and diluted loss per share are the same amount because the impact of
additional common shares that might have been issued under the Company’s stock
option plan, warrants and convertible debt would be anti-dilutive.
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standards (“SFAS”) No. 107,
Disclosures
About Fair Value of Financial Instruments,
requires
disclosure of fair value information about financial instruments when it is
practicable to estimate that value. The carrying amounts of the Company’s
financial instruments as of February 28, 2005 and February 29, 2004 approximate
their respective fair values because of the nature of these instruments. Such
instruments consist of cash, accounts receivable and payable, inventory and
certain accrued expenses. The fair value of the related party accrued
liabilities and notes payable are not determinable.
40
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Management’s
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 period. Significant estimates made
in
preparing the consolidated financial statements include the allowance for
doubtful accounts, sales returns, inventory reserves, deferred income tax
valuation allowances and litigation. To the extent there are material
differences between estimates and the actual results, future results of
operations will be affected.
Product
Return Reserve
The
Company provides a reserve for returned products. Such costs are included in
cost of sales. Total costs for returned products for the fiscal years ending
February 28, 2005 and February 29, 2004 was $nil.
Management
reviews and estimates reserve for returned products on a regular basis. Although
management believes its evaluations are sound, it is at least reasonably
possible that such estimates may change in the near term. During the fiscal
year
ending February 28, 2005, the Company adjusted its reserve for returned
products, which was recorded during fiscal year ending February 28, 2001, as
no
products had been returned to the Company during the three fiscal years ending
February 28, 2005.
41
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Segment
Disclosures
SFAS
No.
131, “Disclosures About Segments of an Enterprise and Related Information”
requires public enterprises to report financial and descriptive information
about reportable operating segments and establishes standards for related
disclosures about product and services, geographic areas, and major customers.
At this time, the Company has only one operating segment.
Recent
Accounting Pronouncements
In
July
2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires the use of the purchase method of accounting and prohibits
the
use of the pooling of interests method of accounting for business combinations
initiated after June 30, 2001. SFAS No. 141 also requires that the Company
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS No. 141 applies to all business
combinations initiated after June 30, 2001, and for purchase business
combinations completed on or after July 1, 2001. Upon adoption of SFAS No.
142,
it also requires that the Company reclassify, if necessary, the carrying amounts
of intangible assets and goodwill, based on the criteria in SFAS No. 141.
SFAS
No.
142 requires, among other things, that companies no longer amortize goodwill,
but instead test goodwill for impairment, at least annually. In addition, SFAS
No. 142 requires that the Company identify reporting units for the purpose
of
assessing potential future impairments of goodwill, reassess the useful lives
of
other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. Adoption of this statement
is
not expected to be material.
42
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
In
August
2001, the FASB issued SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets.
SFAS No.
144 supersedes SFAS No. 121,
Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of
,
in that
it removes goodwill from its impairment scope and allows for different
approaches in cash flow estimation. However, SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement
of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of. SFAS No. 144 also supersedes the business segment concept
in
Accounting Principles Board Opinion No. 30,
Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of
a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions
,
in that
it permits presentation of a component of an entity, whether classified as
held
for sale or disposed of, as a discontinued operation. However, SFAS No. 144
retains the requirement of Accounting Principals Board Opinion No. 30 to report
discontinued operations separately from continuing operations. The provisions
of
this Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001 with earlier application encouraged.
Implementation of SFAS No. 144 did not have a material effect on the Company’s
results of operations or financial position.
In
December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure: An amendment of FASB Statement 123.
This
Statement amends SFAS 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value
based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method
of
accounting for stock-based employee compensation and the effect of the method
used on reporting results. The disclosure provisions of SFAS 148 are applicable
for fiscal periods ending after December 15, 2002. The Company has adopted
SFAS
148, which has no material effect on the consolidated financial
statements.
43
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
In
April
2003, the FASB issued SFAS No. 149,
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
,
which
amends SFAS No. 133 for certain decisions made by the FASB Derivatives
Implementation Group. In particular, SFAS No. 149 (1) clarifies under
what
circumstances a contract with an initial net investment meets the characteristic
of a derivative, (2) clarifies when a derivative contains a financing component,
(3) amends the definition of an underlying instrument to conform it to language
used in FASB Interpretation No. 45,
Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
,
and (4)
amends certain other existing pronouncements. This Statement is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, most provisions
of
SFAS No. 149 are to be applied prospectively. The adoption of SFAS
No. 149
did not have a material impact on the Company’s financial position, cash flows
or results of operations.
In
May
2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”).
SFAS 150 changes the accounting for certain financial instruments that under
previous guidance issuers could account for as equity. It requires that those
instruments are classified as liabilities in balance sheets. The guidance in
SFAS 150 is generally effective for all financial instruments entered into
or
modified after May 31, 2003, and otherwise is effective on July 1, 2003. The
adoption of SFAS 150 did not have a material impact on the Company’s financial
position, cash flows or results of operations.
44
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
In
December 2004, the FASB published SFAS 123R, “Share Based Payments” (“SFAS
123R). SFAS 123R required that compensation cost related to share-based payment
transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS 123R include stock options, restricted
stock plans, performance-based awards, stock appreciation rights and employee
share purchase plans. The provisions of SFAS 123R are effective as of the first
interim period that begins after June 15, 2005. Accordingly, the Company will
implement the revised standard in the third quarter ending November 30, 2005.
Currently, the Company accounts for its share-based payment transactions under
the provisions of APB 25, which does not necessarily require the recognition
of
compensation cost in the financial statements. Management is assessing the
implications of this revised standard, which may materially impact the Company’s
results of operations in the third quarter ending November 30, 2005 and
thereafter.
NOTE
3:
PROPERTY
AND EQUIPMENT
The
following is a summary of property and equipment at February 28, 2005 and
February 29, 2004:
|
2005
|
2004
|
|
|
|
Tooling
|
$231,266
|
$216,216
|
Equipment
|
21,392
|
21,392
|
Vehicles
|
31,433
|
33,433
|
Furniture
and fixtures
|
15,465
|
15,465
|
Computer
equipment
|
15,726
|
15,726
|
Leasehold
equipment
|
1,000
|
1,000
|
|
316,262
|
369,817
|
|
|
|
Less:
Accumulated depreciation
|
288,941
|
265,467
|
Book
Value
|
27,341
|
37,765
|
Tooling
not in service
|
72,485
|
66,575
|
|
$
99,826
|
$104,350
|
45
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
3:
PROPERTY
AND EQUIPMENT, continued
During
the fiscal years ending February 28, 2005 and February 29, 2004, the Company
sold a vehicle and tooling with an approximate cost and net book value of $700
and $nil, respectively. The gain or loss on disposition of the vehicle and
equipment is included in other expenses in the accompanying consolidated
statement of operations.
As
of
February 28, 2005 and February 29, 2004, the Company had purchased tooling
to be
used in connection with the new reverse osmosis-based products to be
manufactured in China. The Company intends on depreciating such tooling with
the
commencement of production and sale to customers. Depreciation will be computed
using the straight-line method over a period of 5 years.
The
carrying amount of all property and equipment is evaluated periodically to
determine if adjustment to the useful life or to the un-depreciated balance
is
warranted. As of February 28, 2005, no event has been identified that would
indicate an impairment of the value of property and equipment recorded in the
accompanying consolidated financial statements.
Total
depreciation expense for the fiscal years ending February 28, 2005 and February
29, 2004 was approximately $24,800 and $36,900, respectively.
NOTE
4:
INTANGIBLE
ASSETS
The
following is a summary of intangible assets at February 28, 2005 and February
29, 2004:
|
2005
|
2004
|
Enviro
Care technologies
|
$
104,000
|
$
104,000
|
Hand
pump
|
8,000
|
8,000
|
Patents
|
16,182
|
16,182
|
|
128,182
|
128,182
|
|
|
|
Less:
Accumulated amortization
|
6,615
|
5,271
|
|
|
|
|
$
121,567
|
$
122,911
|
46
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
4:
INTANGIBLE
ASSETS, continued
During
May 2002, the Company completed an agreement to acquire rights to Enviro Care
Inc., as well as, all applicable intellectual properties, whereby the Company
can sell various ozonation products. The Company believes this agreement will
open product markets including home, spas, agriculture, medical and other
commercial and industrial applications. In connection with the agreement, the
Company granted 500,000 shares of common stock valued at $0.208 per share,
or
$104,000. The Company anticipates that it will be utilizing the technology
during the fall of 2005. Once fully operational the Company anticipates
amortizing the technology using the straight-line method over a period of 5
years.
Also,
during June 2002, the Company entered into a License Agreement for a product
known as the “Hand Pump Technology.” The Company licensed all proprietary rights
associated with this technology, including patent #6,136,188 and the trademark
Aqua Gear TM. The Company will pay a two percent royalty and a one- percent
license of trademark fee on any sales using this technology during the term
of
the license. The Company intends to market this technology in the United States
and internationally. In connection with the license agreement, the Company
granted the licensor 50,000 shares of common stock valued at $0.16 per share,
or
$8,000. The shares were issued during March 2002. The License Agreement is
for
an initial term of five years, with five successive five years
renewals.
47
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
5:
ACCRUED
EXPENSES
Accrued
expenses consist of the following at February 28, 2005 and February 29,
2004:
|
2005
|
2004
|
|
|
|
Accrued
legal expenses
|
$114,985
|
$115,372
|
Reserve
for returned products
|
-
|
61,630
|
Accrued
accounting expenses
|
6,076
|
41,046
|
Accrued
rent
|
14,889
|
28,477
|
Accrued
claim settlement
|
12,750
|
12,750
|
Accrued
credit card purchases
|
19,134
|
10,779
|
Accrued
wages and benefits
|
1,932
|
1,800
|
Other
accrued expenses
|
19,134
|
15,258
|
|
|
|
|
$188,900
|
$287,112
|
The
accrued legal expenses represent the attorney fees the Company incurred in
connection with the SWT stock exchange agreement and purchase of Aqua Vision
(NOTE 1), of which approximately $113,500 will be paid in stock.
The
accrued settlement represents an estimate of the settlement of an
employment-related claim, of which $12,750 will be paid in stock.
NOTE
6:
NOTES PAYABLE TO RELATED PARTIES
As
the
February 28, 2005 and February 29, 2004, the Company received advances of
$448,200 and $504,800 from the Company’s primary investor, Tam Irrevocable Trust
(“Tam Trust”). These advances bear interest at 10 percent. As of February 28,
2005, $100,000 of these advances is due before February 28, 2006 with the
balance of the advances not repayable until after March 1, 2006.
48
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
6:
NOTES PAYABLE TO RELATED PARTIES, continued
As
of
February 28, 2005 and February 29, 2004, accrued interest on these advances
was
approximately $134,500 and $86,000, respectively, which is included in accrued
interest due to related parties.
During
December 2004, the Company granted the Tam Trust additional common stock of
1,266,667 shares, valued at $76,000 per year, effective March 1, 2002, for
additional interest and continued financial support.
As
of
February 28, 2005 and February 29, 2004, the estimated value of accrued interest
on these additional common shares was approximately $228,000 and $152,000,
respectively, which is included in accrued interest due to related
parties.
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are to
be distributed in equal installments commencing on December 1, 2004, 2005 and
2006 and are exercisable through December 1, 2008. As the warrants provide
for
the purchase of common stock at below the Company’s market price on the date of
grant, the Company recorded unearned interest relating to the estimated value
of
these warrants of $27,200. The Company is amortizing the estimated fair market
value of the unearned interest over a three-year term. The Company has recorded
amortization of approximately $3,000 for the fiscal year ending February 28,
2005.
Additionally,
on March 29, 2005, the Company granted the Tam Trust 1,972,133 restricted shares
of the Company’s common stock. These shares were granted at a price of $0.03 per
share and vest over a three-year period, beginning November 1, 2004. As the
Tam
Trust was granted the common stock at below the Company’s market price on the
date of grant, the Company recorded unearned interest relating to the estimated
value of these shares of $493,000. The Company is amortizing the estimated
fair
market value of the unearned interest over a three-year term. The Company has
recorded interest expense of approximately $54,800 for the fiscal year ending
February 28, 2005.
49
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE
Common
Stock
The
holders of Common Stock have one vote per share on all matters (including
election of Directors) without provisions for cumulative voting. The Common
Stock is not redeemable and has no conversion or preemptive rights.
In
the
event of liquidation of the Company, the holders of Common Stock will share
equally in any balance of the Company’s assets available for distribution to
them after satisfaction of creditors and the holders of the Company’s senior
securities. The Company may pay dividends, in cash or in securities or other
property, when and as declared by the Board of Directors from assets legally
available. To date, the Company has not declared or paid dividends on its Common
Stock.
During
May 2002, the Company completed an agreement to acquire rights to Enviro Care
Inc., as well as, all applicable intellectual properties, whereby the Company
can sell various ozonation products. In connection with the agreement, the
Company granted 500,000 shares of common stock valued at $0.208 per share,
or
$104,000.
On
June
6, 2002, the Company entered into a License Agreement for a product known as
the
“Hand Pump Technology.” In connection with the license agreement, the Company
granted the licensor 50,000 shares of common stock valued at $0.16 per share,
or
$8,000. The shares were issued during March 2002.
During
the fiscal year ending February 29, 2004, the Company issued 120,000 shares
for
compensation; and 250,000 shares for services provided.
During
the fiscal year ending February 29, 2004, the Company settled approximately
$13,500 of its accrued expenses as of February 28, 2003 through the issuance
of
15,000 shares of common stock.
50
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL STRUCTURE, continued
During
February 2004, the Company received $20,000 in proceeds for the issuance of
200,000 shares of common stock. The stock was delivered to the investor during
March 2004. As of February 29, 2004, the Company recorded the proceeds as an
un-issued stock liability in the accompanying consolidated financial
statements.
During
December 2004, the Company granted the Tam Trust additional common stock of
1,266,667 shares, valued at $76,000 per year, effective March 1, 2002, for
additional interest and continued financial support.
During
the fiscal year ending February 28, 2005, the Company issued 125,000 shares
for
compensation; and 70,000 shares for services provided.
During
the fiscal year ending February 28, 2005, the Company issued an aggregate of
541,166 common shares to various investors for cash for an approximate total
value of $91,100.
During
the fiscal year ending February 28, 2005, the Company issued an aggregate of
55,000 shares to various debt holders with an approximate total value of
$42,400.
During
the fiscal year ending February 28, 2005, the Company issued 32,000 shares
to
purchase tooling with an approximate value of $5,900.
During
the fiscal year ending February 28, 2005, the Company issued 84,000 shares
to
settle a claim with an approximate total value of $29,400.
During
November 2004, the Company entered into a six-month consulting agreement with
an
individual to provide accounting services for the Company. As consideration
for
services to be rendered, the consultant received 65,000 restricted shares of
the
Company’s common stock. The common shares were distributed on November 1, 2004.
The Company recorded unearned compensation relating to the estimated value
of
the shares of $22,750. The Company is amortizing the estimated fair market
value
of the unearned compensation over a six-month term. The Company has recorded
amortization of approximately $15,100 for the fiscal year ending February 28,
2005.
51
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE, continued
During
December 2004, all Series AAA at 12% Cumulative Convertible Preferred Shares
were converted into 4,500,000 shares of restricted common stock issued to the
Tam Irrevocable Trust.
Additionally,
on March 29, 2005, the Company granted the Tam Trust 1,972,133 restricted shares
of the Company’s common stock. These shares were granted at a price of $0.03 per
share and vest over a three-year period, beginning November 1, 2004. As the
Tam
Trust was granted the common stock at below the Company’s market price on the
date of grant, the Company recorded unearned interest relating to the estimated
value of these shares of $493,000. The Company is amortizing the estimated
fair
market value of the unearned interest over a three-year term. The Company has
recorded interest expense of approximately $54,800 for the fiscal year ending
February 28, 2005.
Preferred
Stock
The
Board
of Directors has the authority to issue Preferred Stock and to fix and determine
its series, relative rights and preferences to the fullest extent permitted
by
the laws of the State of Nevada and its articles of incorporation. As of
February 28, 2005, three classes of Preferred Stock were authorized and none
was
outstanding.
Series
“A” 13.5% Non Voting, Cumulative, Convertible Preferred Stock
Series
“A” Preferred Stock has rights which are superior to all other securities of the
Company, including upon liquidation and as to payment of dividends, if any,
carries a cumulative dividend of 13.5% per annum, is non-voting, and is
redeemable by the Company at any time at face value and is convertible into
common shares of the Company at the lesser of $10 per share or 85% of the last
five closing bid prices.
52
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE, continued
During
April 2001, the Company repurchased for $350,000 all issued and outstanding
Series A 13.5 percent non-voting, cumulative preferred stock, $0.01 par value
per share and settled all liability for dividends. This repurchase was done
in
conjunction with a comprehensive settlement agreement with the beneficial owner
of the preferred stock. The stock repurchase was funded by a loan made by one
of
the Company’s principal stockholders.
Series
“AA” Non Voting, Cumulative, Convertible Preferred Stock
Series
“AA” Preferred Stock had rights superior to all other securities of the Company
except to Series “A” Preferred Stock, including upon liquidation and as to
payment of dividends, if any, carried a 10% cumulative dividend, was non-voting,
redeemable by the Company at any time at face value and was convertible into
common shares of the Company at 85% of the last five closing bid prices. On
June
14, 1999, all of the Series “AA” Non Voting, Cumulative Convertible Preferred
Stock was converted into 1,337,509 shares of Common Stock at the original
conversion terms.
Series
“AAA” 12 % Cumulative, Convertible Preferred Shares
Series
“AAA” Preferred Stock has rights, which are superior to all other securities of
the Company except Series “A”, and the Series “AA” Preferred Stock, including
upon liquidation and as to payment of dividends, if any. Series “AAA”
Cumulative, Convertible Preferred Voting Stock carries a 12% per annum dividend
payable in stock or cash, is voting, with each share equal to 100 shares of
Common Stock, and is redeemable, at the Company’s option, according to the
following procedure: upon written notice of conversion from the holders, the
Company shall have 45 days from receipt of such notice to repurchase for cash
up
to 2,000 shares of the Series “AAA” 12 % Cumulative, Convertible Preferred
Shares at $1,000 per share.
53
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE, continued
As
a
result of the settlement of the litigation involving the Company and its former
Chairman, in which the Company was seeking to rescind the issuance of all common
shares in the Company previously issued to the former Chairman, the number
of
common shares issuable to the holders pursuant to the conversion provisions
of
the Series “AAA” Cumulative, Convertible Preferred Shares were reduced from
8,000,000 shares to 4,500,000 shares (but after pro rata adjustments, if any,
for stock dividends, stock splits, reverse stock splits, and any other similar
capital stock adjustments of a general nature). There are 8,000 shares issued
and outstanding at February 29, 2004. The cumulative dividend shall be computed
based on the Preferred Stock $80 par value.
In
December 2004, all Series AAA at 12% Cumulative Convertible Preferred Shares
were converted into 4,500,000 shares of restricted common stock issued to the
Tam Irrevocable Trust. In addition, all dividends accrued and unpaid on the
AAA
Preferred were waived.
Cumulative
Dividends
Aggregate
preferred redemption value and cumulative dividends in arrears at February
29,
2004 is as follows:
Series
“AAA”
|
|
Aggregate
redemption value
|
$
4,500,000
|
Per
share cum. preferred dividend in arrears
|
.33
|
Per
share cumulative preferred dividend
|
.00
|
As
previously noted, during December 2004, the Series AAA at 12% Cumulative
Convertible Preferred Shares were converted into 4,500,000 shares of restricted
common stock.
54
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL STRUCTURE, continued
Consulting
Agreements
During
November 2004, the Company entered into consulting agreements with two officers
to provide management consulting services for the Company. As consideration
for
services to be rendered, the consultants received 480,000 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing on December 1, 2004,
2005
and 2006. The first third vested on the effective date of the agreement as
an
enticement to enter into the agreement.
The
fair
market value for these options was estimated at the date of grant using a
Black-Scholes security pricing model with the following assumptions for the
fiscal year 2004: risk-free interest rate of 6.5%; expected life of the option
of 3 years; zero dividend yield; and a volatility factor of the expected market
price of SET common stock of 250%. The estimated fair market value of the stock
as of November 30, 2004 was $225,600 and recorded to unearned compensation.
The
Company is amortizing the estimated fair market value of the unearned
compensation over the three-year term of the consulting agreements. The Company
has recorded compensation expense of approximately $18,800 for the fiscal year
ending February 28, 2005.
On
March
29, 2005, the Company expanded the consulting agreement with one officer to
provide management consulting services for the Company. As consideration for
services to be rendered, the consultant received 316,312 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing
on
December 1, 2004, 2005 and 2006.
55
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE, continued
The
fair
market value of the restricted share earned during the period ending November
30, 2004 was estimated at $79,100 and recorded to unearned
compensation.
The
Company is amortizing the estimated fair market value of the unearned
compensation over the three-year term of the consulting agreement. The Company
has recorded compensation expense of approximately $8,800 for the fiscal year
ending February 28, 2005.
Warrants
On
March
29, 2005, the Company expanded the consulting agreements with two officers
to
provide management consulting services for the Company. As further consideration
for services to be rendered, the consultants were granted 1,000,000 warrants
redeemable on restricted shares of the Company’s stock at $.225 per share. The
warrants are distributed in equal installments commencing on December 1, 2004,
2005 and 2006 but are exercisable through December 1, 2008. The fair market
value of the warrants earned during the period ending November 30, 2004 was
estimated at $55,300 and recorded to unearned compensation. The Company is
amortizing the estimated fair market value of the unearned compensation over
the
three-year term of the consulting agreements. The Company has recorded
compensation expense of approximately $6,100 for the fiscal year ending February
28, 2005.
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
distributed in equal installments commencing on December 1, 2004, 2005 and
2006
but are exercisable through December 1, 2008. As the warrants provide for the
purchase of common stock at below the Company’s market price on the date of
grant, the Company recorded unearned interest relating to the estimated value
of
these warrants of $27,200. The Company is amortizing the estimated fair market
value of the unearned interest over a three-year term. The Company has recorded
compensation expense of approximately $3,000 for the fiscal year ending February
28, 2005.
56
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE, continued
The
fair
market value for these warrants was estimated at the date of grant using a
Black-Scholes security pricing model with the following assumptions for the
fiscal year 2004: risk-free interest rate of 6.5%; expected life of the option
of 3 years; zero dividend yield; and a volatility factor of the expected market
price of SET common stock of 250%.
A
summary
of warrant activity is as follows:
Outstanding
warrants
|
Warrants
Outstanding
|
Exercise
Price
|
|
|
|
Balance,
February 29 ,2004
|
0
|
0
|
Granted
|
1,500,000
|
$
0.225
|
Exercised
|
0
|
0
|
Canceled
|
0
|
0
|
Balance,
February 28, 2005
|
1,500,000
|
$
0.225
|
|
|
|
Stock
Compensation Plan
During
July 2000, the Company adopted a stock compensation plan to be administered
by
the Board of Directors, or a Compensation Committee to be appointed by the
Board. Consultants, advisors, and employees of the Company are eligible to
participate in the Plan. The Plan provides for the issuance of 300,000 shares
of
common stock to be issued as stock grants, or under stock option agreements.
During October 2000, the Company settled approximately $109,200 of its accrued
expenses through the issuance of 109,139 shares of common stock.
During
the fiscal year ending February 28, 2005, the Company terminated this stock
compensation plan.
57
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
7:
CAPITAL
STRUCTURE, continued
During
February 2002, the Company adopted an additional stock compensation plan to
be
administered by the Board of Directors or a Compensation Committee to be
appointed by the Board. The Plan provides for the issuance of 300,000 shares
of
common stock to be issued as stock grants, or under stock option agreements.
During February 2002, the Company issued 10,000 shares for compensation and
232,000 shares for services provided. During the fiscal year ending February
28,
2005, the Company terminated this stock compensation plan.
A
summary
of stock option activity is as follows:
Outstanding
options
|
Stock
Options Outstanding
|
Exercise
Price
|
|
|
|
Balance,
February 29 ,2004
|
248,861
|
Market
|
Granted
|
0
|
|
Exercised
|
0
|
|
Canceled
|
248,861
|
|
Balance,
February 28, 2005
|
0
|
|
Contributed
Executive Services
Effective
December 1, 2001, the Company entered into an employment agreement with the
President of the Company. The agreement is for five years and provides for
a
salary of $10,000 per year plus one percent of the net after tax profits of
the
Company as reported in the Company's Form 10-KSB. The agreement shall be
automatically renewed for successive one-year terms unless the Company or
employee provides written notice of non-renewal.
As
the
President of the Company has decided not to accept his salary until the Company
has become profitable, the Company recorded additional paid in capital in the
accompanying consolidated statements of changes in stockholders’
deficit.
58
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
8:
INCOME
TAXES
The
components of the provision for income taxes for the fiscal years ending
February 28, 2005 and February 29, 2004 are as follows:
|
2005
|
2004
|
Current:
|
|
|
State
|
$1,600
|
$1,600
|
Federal
|
-
|
-
|
|
|
|
Deferred:
|
|
|
State
|
(16,797)
|
(6,390)
|
Federal
|
(70,591)
|
(37,096)
|
|
|
|
Valuation
allowance
|
87,388
|
43,486
|
|
|
|
Provision
for income taxes
|
$1,600
|
$1,600
|
|
|
|
The
reconciliation of the effective tax rates and U.S. statutory tax rates for
the
fiscal years ending February 28, 2005 and February 29, 2004 are as
follows:
|
2005
|
2004
|
|
|
|
Tax
(benefit) of statutory rate
|
(34%)
|
(34%)
|
|
|
|
Deferred
tax effect of goodwill
|
|
|
relating
to Aqua Vision Acquisition
|
(12%)
|
(12%)
|
Contributed
executive services
|
3%
|
3%
|
Effect
of state tax benefit
|
(3%)
|
(3%)
|
Other
|
4%
|
4%
|
Change
in valuation allowance
|
42%
|
42%
|
|
|
|
Effective
tax Rate
|
0%
|
0%
|
59
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
8:
INCOME
TAXES, continued
At
February 28, 2005, the Company has net operating loss carry forwards, for income
tax reporting purposes, of approximately $ 2,872,000 and $1,752,000 available
to
offset future federal and California taxable income, respectively. The federal
carry forwards begin to expire in 2019 and the California carry forwards expire
in 2010.
At
February 28, 2005, the Company had available tax credit carry forwards comprised
of federal and state research and experimentation credits of approximately
$8,700 and $5,100, respectively. The research and experimentation credit carry
forwards expire through 2023 for federal purposes and do not expire for
California purposes.
The
components of the net deferred tax asset and (liability) for the fiscal years
ending February 28, 2005 and February 29, 2004 are as follows:
|
2005
|
2004
|
|
|
|
Net
operating loss carry forward
|
$
922,372
|
$
852,372
|
Accrued
interest
|
63,840
|
42,560
|
Inventory
& bad debt reserves
|
14,275
|
43,372
|
Other
|
3,741
|
2,693
|
|
|
|
Less:
Valuation allowance
|
(1,004,228)
|
(940,997)
|
|
|
|
Net
deferred tax asset (liability)
|
$
0
|
$
0
|
NOTE
9:
COMMITMENTS
AND CONTINGENCIES
The
Company leases an office and production facility under an operating lease that
expires in February 2008. As of February 28, 2005, the Company paid $5,544
per
month in base rent. The Company must also pay approximately $1,300 per month
to
cover taxes, maintenance, insurance and certain other operating expenses
applicable to the premises.
60
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
9:
COMMITMENTS
AND CONTINGENCIES, continued
Total
rent expense amounted to approximately $82,900 and $96,400 for the fiscal years
ending February 28, 2005 and February 29, 2004, respectively.
Future
minimum base lease payments are as follows:
Fiscal
Year Ending February 28
2006
|
$
69,120
|
2007
|
71,712
|
2008
|
74,304
|
|
|
|
$215,136
|
Legal
Proceedings
During
May 2001, Safewater Anywhere LLC filed a lawsuit against Seychelle Water
Technologies, Inc., an officer of the Company and others in the Orange County
Superior Court. The complaint alleges breach of fiduciary duty, constructive
fraud, promissory fraud, rescission, constructive trust, unfair trade practices
and conversion. The complaint sought unspecified damages and injunctive relief.
During the fiscal year ending February 28, 2002, the Company filed a motion
to
have the matter set for arbitration / mediation. The court approved the
Company’s motion and arbitration / mediation is currently pending. The Company
believes that the claims are without merit and intends to aggressively defend
the case. Accordingly, no accrual has been made for potential
damages.
In
February 2002, Mr. Douglas Copp filed a lawsuit on behalf of himself and
American Rescue Team International, Inc. against Seychelle Environmental
Technologies, an officer of the Company and Nikken, in the U.S. District Court
for the District of New Mexico. The Complaint, which is essentially a claim
for
royalty payments, alleges breach of contract, unfair trade practices,
misappropriation of publicity, unjust enrichment, violation of the Lanham Act,
and conspiracy. While believes that the claims are without merit and will
aggressively defend our rights,
61
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
9:
COMMITMENTS
AND CONTINGENCIES, continued
the
Company plans to seek an early dismissal because the case was filed in the
wrong
court. We have not yet responded in this matter. Accordingly, no accrual has
been made for potential damages.
On
or
about January 21, 2004 a lawsuit was filed on behalf of Ms. Letty Garcia against
Mr. Carl Palmer and/or Seychelle claiming injuries she suffered from riding
an
electric scooter allegedly imported by Mr. Palmer and/or Seychelle. This lawsuit
was filed in the Superior Court of San Diego, California. A trial was held
in
May 2005 and all claims against Seychelle were dismissed.
Otherwise,
no legal proceedings to which we are a party are pending as of February 28,
2005, and we know of no legal proceedings pending or threatened or judgments
entered against any of our directors or officers in his or her capacity as
such.
NOTE
10:
RELATED
PARTY TRANSACTIONS
Effective
December 1, 2001, the Company entered into an employment agreement with the
President of the Company. The agreement is for five years and provides for
a
salary of $10,000 per year plus one percent of the net after tax profits of
the
Company. The agreement shall be automatically renew for successive one-year
terms unless the Company or employee provides written notice of
non-renewal.
During
November 2004, the Company entered into consulting agreements with two officers
to provide management consulting services for the Company. As consideration
for
services to be rendered, the consultants received 480,000 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing on December 1, 2004,
2005
and 2006. The fair market value of the restricted share earned during the period
ending November 30, 2004 was estimated at $225,600 and recorded to unearned
compensation. The Company is amortizing the estimated fair market value of
the
unearned compensation over the three-year term of the
62
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
10:
RELATED
PARTY TRANSACTIONS, continued
consulting
agreements. The Company has recorded compensation expense of approximately
$18,800 for the fiscal year ending February 28, 2005.
During
December 2004, all Series AAA at 12% Cumulative Convert ible
Preferred
Shares were converted into 4,500,000 shares of restricted common stock issued
to
the Tam Irrevocable Trust. In addition, all dividends accrued and unpaid on
the
AAA Preferred were waived.
During
December 2004, the Company granted the Tam Trust additional common stock of
1,266,667 shares, valued at $76,000 per year, effective March 1, 2002, for
additional interest and continued financial support.
On
March
29, 2005, the Company expanded the consulting agreement with one officer to
provide management consulting services for the Company. As consideration for
services to be rendered, the consultant received 316,312 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing
on
December 1, 2004, 2005 and 2006. The fair market value of the restricted share
earned during the period ending November 30, 2004 was estimated at $79,100
and
recorded to unearned compensation.
The
Company is amortizing the estimated fair market value of the unearned
compensation over the three-year term of the consulting agreement. The Company
has recorded compensation expense of approximately $8,800 for the fiscal year
ending February 28, 2005.
Additionally,
on March 29, 2005, the Company granted the Tam Trust 1,972,133 restricted shares
of the Company’s common stock. These shares were granted at a price of $0.03 per
share and vest over a three-year period, beginning November 1, 2004. As the
Tam
Trust was granted the common stock at below the Company’s market price on the
date of grant,
63
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
10:
RELATED
PARTY TRANSACTIONS, continued
the
Company recorded unearned interest relating to the estimated value of these
shares of $493,000. The Company is amortizing the estimated fair market value
of
the unearned interest over a three-year term. The Company has recorded interest
expense of approximately $54,800 for the fiscal year ending February 28,
2005.
On
March
29, 2005, the Company expanded the consulting agreements with two officers
to
provide management consulting services for the Company. As further consideration
for services to be rendered, the consultants were granted 1,000,000 warrants
redeemable on restricted shares of the Company’s stock at $.225 per share. The
warrants are distributed in equal installments commencing on December 1, 2004,
2005 and 2006 but are exercisable through December 1, 2008. The fair market
value of the warrants earned during the period ending November 30, 2004 was
estimated at $55,300 and recorded to unearned compensation. The Company is
amortizing the estimated fair market value of the unearned compensation over
the
three-year term of the consulting agreements. The Company has recorded
compensation expense of approximately $6,100 for the fiscal year ending February
28, 2005.
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
distributed in equal installments commencing on December 1, 2004, 2005 and
2006
but are exercisable through December 1, 2008. As the warrants provide for the
purchase of common stock at below the Company’s market price on the date of
grant, the Company recorded unearned interest relating to the estimated value
of
these warrants of $27,200. The Company is amortizing the estimated fair market
value of the unearned interest over a three-year term. The Company has recorded
interest expense of approximately $3,000 for the fiscal year ending February
28,
2005.
64
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
11:
LOSS
PER
SHARE
|
February
28, 2005
|
February
29, 2004
|
Numerator:
|
|
|
|
|
|
Net
loss
|
$
(250,423)
|
$
(208,428)
|
Preferred
stock dividends
|
-
|
33
|
|
|
|
Loss
available to common stockholders
|
$
(250,423)
|
$
(208,461)
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted
average shares outstanding
|
11,936,767
|
10,148,521
|
|
|
|
Basic
and diluted profit (loss) per share
|
$
(0.02)
|
$
(0.02)
|
Warrants
to purchase common stock were outstanding during the 2005 fiscal year (see
Note
7) but were excluded in the computation of the diluted loss per share because
their inclusion would have an anti-dilutive effect.
Also
excluded from the computation of diluted loss per share because of their
anti-dilutive effect was preferred stock convertible to approximately
5,587,000
shares of common stock at February 29, 2004.
NOTE
12:
SUBSEQUENT
EVENTS
During
March 2005, the Company entered into two lines of credit agreement, totaling
$150,000. The lines of credit bear interest at the institutions index rate
plus
two percent (7.5% at February 28, 2005) and are not repayable until March 31,
2006. The proceeds from the $50,000 line of credit were used to pay down the
Note Payable to Related Parties (see Note 6). During May 2005, the Company
paid
down an additional $25,000 on the Note Payable to Related Parties.
During
March 2005, the Company settled approximately $6,000 of its accrued expenses
as
of February 28, 2005 through the issuance of 17,500 shares of common stock.
65
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2005
NOTE
12:
SUBSEQUENT EVENTS, continued
During
March 2005, a consultant surrendered to the Company 250,000 of common stock,
valued at $32,500, due to failure to perform certain contractual obligations.
During
April 2005, the Company settled approximately $228,000 of its accrued interest
due to related parties as of February 28, 2005, through the issuance of
1,266,667 shares of common stock to the Company’s primary investor, Tam Trust.
During
the three-month period ending May 31, 2005, the Company issued an aggregate
of
2,150,000 common shares to various investors for cash for an approximate total
value of $535,000.
During
the three month period ending May 31, 2005, the Company issued 154,700 in
restricted shares, estimated value $47,400, for services provided in connection
with Form 10 filing.
During
the first five months of fiscal year ending February 28, 2006, a shareholder
presented an opportunity to the Company to repurchase approximately 100,000
common shares, at prices under the market ranging from $0.15 to $0.17 that
the
Company accepted for an approximate total value of $22,800.
Also
during July 2005, the Company issued 2,000,000 common shares to an investor
for
cash for a total value of $450,000.
66
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET (UNAUDITED)
As
of May
31, 2005
|
May
31,
|
|
2005
|
ASSETS
|
|
CURRENT
ASSETS
|
|
Cash
|
$
440,818
|
Trade
receivables, net of allowance for doubtful accounts
|
78,349
|
of
$-0- as of May 31, 2005
|
|
Inventories,
net
|
332,414
|
Prepaid
expenses
|
57,020
|
|
|
Total
current assets
|
908,601
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
118,591
|
|
|
INTANGIBLE
ASSETS
|
121,232
|
|
|
OTHER
ASSETS
|
9,742
|
|
|
Total
non-current assets
|
249,565
|
|
|
TOTAL
ASSETS
|
$
1,158,166
|
See
accompanying notes to consolidated financial statements.
67
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET (CONTINUED) (UNAUDITED)
As
of May
31, 2005
|
May
31,
|
|
2005
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
CURRENT
LIABILITIES
|
|
Accounts
payable
|
$
28,731
|
Accrued
expenses
|
208,065
|
Line
of credit/
|
50,000
|
Current
portion of Notes Payable to Related Parties
|
25,000
|
Accrued
interest due to related parties
|
144,464
|
Customer
deposits
|
51,485
|
Income
taxes payable
|
6,400
|
|
|
Total
current liabilities
|
514,145
|
|
|
NOTES
PAYABLE TO RELATED PARTIES
|
348,150
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
Common
stock $.001 par value
|
19,082
|
Additional
paid-in capital
|
5,125,688
|
Accumulated
deficit
|
(4,106,357)
|
Unearned
compensation and interest
|
(742,542)
|
|
|
Total
stockholders' deficit
|
295,871
|
|
|
TOTAL
LIABILITIES AND
|
|
STOCKHOLDERS'
DEFICIT
|
$
1,158,166
|
|
|
See
accompanying notes to consolidated financial statements.
68
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
For
Three-Month Periods Ending May 31, 2005 and 2004
|
2005
|
2004
|
|
|
|
SALES
|
$
237,987
|
$
128,547
|
|
|
|
COST
OF SALES
|
76,975
|
43,374
|
|
|
|
Gross
profit
|
161,012
|
85,173
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling
|
23,475
|
820
|
General
and administrative
|
194,795
|
50,295
|
|
|
|
Total
expenses
|
218,270
|
51,115
|
|
|
|
(LOSS)
INCOME FROM OPERATIONS
|
(57,258)
|
34,058
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
Interest
expense
|
(53,753)
|
(30,542)
|
Miscellaneous
income (expense)
|
28,846
|
(2,001)
|
|
|
|
Total
other income (expense)
|
(24,907)
|
(32,543)
|
|
|
|
LOSS
BEFORE PROVISION
|
|
|
FOR
INCOME TAXES
|
(82,165)
|
1,515
|
|
|
|
PROVISION
FOR INCOME TAXES
|
1,600
|
1,600
|
|
|
|
Net
loss
|
$
(83,765)
|
$
(85)
|
|
|
|
BASIC
AND DILUTED (LOSS)
|
|
|
PER
SHARE
|
$
(0.01)
|
$
0.00
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
SHARES:
BASIC AND DILUTED
|
14,053,760
|
10,303,884
|
See
accompanying notes to consolidated financial statements
69
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
For
Three-Month Periods Ending May 31, 2005 and 2004
|
2005
|
2004
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$
(83,765)
|
$
(85)
|
Adjustments
to reconcile net loss to net
|
|
|
cash
used by operating activities:
|
|
|
Depreciation
and amortization
|
7,026
|
1,011
|
Compensation
and interest expense on stock and warrants
|
80,933
|
-
|
Contributed
executive services
|
2,500
|
2,500
|
Provision
for doubtful accounts
|
-
|
(3,268)
|
Reversal
of product return liability
|
-
|
(61,630)
|
Changes
in operating assets and liabilities:
|
|
|
Trade
receivables
|
(58,302)
|
(5,128)
|
Inventory
|
(18,660)
|
30,047
|
Prepaid
inventory
|
(49,842)
|
-
|
Other
current assets
|
(7,178)
|
7,061
|
Accounts
payable
|
3,551
|
(2,848)
|
Accrued
expenses
|
18,719
|
(11,535)
|
Accrued
interest due to related parties
|
9,945
|
30,543
|
Income
tax payable
|
1,600
|
1,600
|
Customer
deposits
|
25,574
|
-
|
|
|
|
Net
cash used by operating activities
|
(67,899)
|
(11,732)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Purchase
of equipment
|
(25,800)
|
(6,925)
|
|
|
|
Net
cash used by investing activities
|
(25,800)
|
(6,925)
|
See
accompanying notes to consolidated financial statements.
70
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
For
Three-Month Periods Ending May 31, 2005 and 2004
|
2005
|
2004
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds
from sale of common stock
|
$
535,735
|
$
11,000
|
Proceeds
from line of credit
|
50,000
|
-
|
Repayments
on related party advances
|
(75,000)
|
(12,230)
|
|
|
|
Net
cash provided (used) by financing activities
|
510,735
|
(1,230)
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
417,036
|
(19,887)
|
|
|
|
Cash,
beginning of period
|
23,782
|
68,768
|
|
|
|
Cash,
end of period
|
$
440,818
|
$
48,881
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
Interest
|
$
-
|
$
-
|
|
|
|
Income
taxes
|
$
-
|
$
-
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
Stock
issued for settlement of debt
|
$
53,400
|
$
1,867
|
|
|
|
Stock
issued for accrued interest
|
$
228,000
|
$
-
|
See
accompanying notes to consolidated financial statements.
71
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS
Organization
Seychelle
Environmental Technologies, Inc. (“SET”), 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 (“SWT”) was formed as a corporation in February 1997 under
the laws of the state of Nevada for the purpose of marketing the products of
Aqua Vision International (“Aqua Vision”), a private California entity operating
since 1996. Prior to January 1998, SWT operations were limited primarily to
fundraising and marketing activities.
On
January 30, 1998, SET entered into a stock exchange agreement with SWT, whereby
SWT shareholders emerged as the majority stockholder of SET. This reverse
acquisition resulted in SWT becoming a wholly owned subsidiary of SET. SWT
had
no material operations for each of the seven fiscal years ending February 28,
2005.
On
January 31, 1998, SET purchased the assets of Aqua Vision for $9.5 million.
Only
$1.2 million was paid to the Aqua Vision owners and the transaction was not
consummated. Effective February 28, 1999, the Company revised its Purchase
Agreement and issued 8,000 shares of its Series “AAA” Preferred Stock Cumulative
Preferred Voting Stock (described in Note 8) to Aqua Vision’s owners. As a
result, Aqua Vision’s owners became the ultimate controlling stockholder of SET.
Because the assets were acquired from existing shareholders, the $1.2 million
payment was treated as a distribution and the Series “AAA” stock issuance was
treated as a recapitalization.
72
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS, continued
Description
of Business
The
Company designs, manufactures and supplies water filtration systems to the
general public. These systems range from portable water bottles that can be
filled from nearly any available source to units, which provide entire water
facilities at the point of entry for a facility. There are a number of
established companies in the water filtration business, with no one company
dominating the business.
During
the later part of the fiscal year ending February 28, 2002, the Company began
discussions with companies researching new technologies in the field of water
filtration including -
1
Ozonation;
and,
2
Waste
water recovery
During
May 2002, the Company completed an agreement to acquire rights to Enviro Care
Inc., as well as, all applicable intellectual properties, whereby the Company
can sell various ozonation products. The Company believes this agreement will
open product markets including home, spas, agriculture, medical and other
commercial and industrial applications.
During
June 2002, the Company entered into an exclusive agreement with Heibei R.O.
Environmental Technologies, whereby the Company can sell reverse osmosis-based
products, which is currently being developed in China. The agreement shall
be
for a period of three years with a performance understanding agreed upon at
the
end of the second year. The Company will be able to purchase Heibei products
for
cost plus fifteen percent. The Company believes this agreement offers the
Company to expand into the home market with a product that is revolutionary
and
can be produced and sold at a price that is competitive to the market.
Additionally, the Company believes the agreement will further enable
distribution of portable filtration products.
73
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS, continued
Also,
during June 2002, the Company entered into a License Agreement for a product
known as the “Hand Pump Technology.” The Company licensed all proprietary rights
associated with this technology, including patent #6,136,188 and the trademark
Aqua Gear TM. The Company will pay a two percent royalty and a one percent
license of trademark fee on any sales using this technology during the term
of
the license. The License Agreement is for an initial term of five years, with
five successive five years renewals. The Company intends to market this
technology in the United States and internationally.
During
2004, the Company commenced contractual agreements with the
representatives
of a Japanese company on an exclusive basis to market and sell the Company’s
entire product line throughout Japan.
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of SET
and
its wholly owned subsidiary, SWT, (collectively, the “Company”). All significant
intercompany transactions and balances have been eliminated.
Unaudited
Interim Financial Information
The
accompanying interim period financial statements together with the related
notes
are unaudited and, in the opinion of management, include all normal recurring
adjustments that the Company considers necessary. Certain information and note
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted. Inventories and cost of goods sold have been estimated based
on the purchases and sales from the most recent inventory. The interim period
financial statements should be read in connection with the audited financial
statements and accompanying footnotes.
74
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
The
results of operations for the three-month period ending May 31, 2005 are not
necessarily indicative of operating results to be expected for the full
year.
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the price to the buyer is fixed or determinable and
collectibility is reasonably assured. These criteria are typically met when
product is shipped. Revenue is not recognized at the time of shipment if these
criteria are not met.
The
Company performs periodic credit evaluations of its customers’ financial
condition and generally does not require collateral. Trade receivables generally
are due in 30 days. Credit losses have consistently been within management’s
expectations. An allowance for doubtful accounts is recorded when it is probable
that all or a portion of trade receivables balance will not be
collected.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the average
cost method. Finished goods inventory includes material, labor and manufacturing
overhead costs.
Management
reviews and estimates realization of inventory on a regular basis with respect
to obsolete and slow moving inventory. Although management believes its
evaluations are sound, it is at least reasonably possible that such estimates
may change in the near term.
Customer
Deposits
Customer
deposits represent advance payments received for products and is recognized
as
revenue when products are shipped.
75
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income
Taxes
The
Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on temporary
differences between the amount of taxable income and pretax financial income
and
between the tax bases of assets and liabilities and their reported amounts
in
the financial statements. Deferred tax assets and liabilities are included
in
the financial statements at currently enacted income tax rates applicable to
the
period in which the deferred tax assets and liabilities are expected to be
realized or settled.
Valuation
allowances are established, when necessary, to reduce deferred tax assets to
the
amount expected to be realized.
Issuance
of Stock for Services
SFAS
No.
123, "Accounting for Stock-Based Compensation," encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to continue to account
for employee stock-based compensation using the intrinsic method prescribed
in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, as permitted by SFAS No. 123;
accordingly, compensation expense for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
For
stock
options issued to non-employees, the issuance of stock options is accounted
for
based on the fair value of the consideration received or the fair value of
the
equity instruments issued, whichever is more reliably measurable. Compensation
expense is recognized in the financial statements for stock options granted
to
non-employees in the period in which the consideration is obtained from the
non-employee.
76
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Loss
Per Common Share
Basic
net
loss per common share is computed by dividing net loss by the weighted average
number of outstanding common shares during the periods presented. Basic loss
per
share and diluted loss per share are the same amount because the impact of
additional common shares that might have been issued under the Company’s stock
option plan, warrants and convertible debt would be anti-dilutive.
NOTE
3:
PROPERTY
AND EQUIPMENT
The
following is a summary of property and equipment at May 31, 2005:
Tooling
|
$
256,720
|
Equipment
|
21,392
|
Vehicles
|
31,433
|
Furniture
and fixtures
|
15,465
|
Computer
equipment
|
15,726
|
Leasehold
equipment
|
1,000
|
|
341,736
|
|
|
Less:
Accumulated depreciation
|
295,630
|
Book
Value
|
46,106
|
Tooling
not in service
|
72,385
|
|
|
Total
|
$
118,491
|
As
of May
31, 2005, the Company had purchased tooling to be used in connection with the
new reverse osmosis-based products to be manufactured in China. The Company
intends on depreciating such tooling with the commencement of production and
sale to customers. Depreciation will be computed using the straight-line method
over a period of 5 years.
77
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
3:
PROPERTY
AND EQUIPMENT, continued
The
carrying amount of all property and equipment is evaluated periodically to
determine if adjustment to the useful life or to the undepreciated balance
is
warranted. As of May 31 28, 2005, no event has been identified that would
indicate an impairment of the value of property and equipment recorded in the
accompanying consolidated financial statements.
Total
depreciation expense for the three-month period ending May 31, 2005 and 2004
was
approximately $6,800 and $600, respectively.
NOTE
4:
INTANGIBLE
ASSETS
The
following is a summary of intangible assets at May 31, 2005:
Enviro
Care technologies
|
$
104,000
|
Hand
pump
|
8,000
|
Patents
|
16,182
|
|
|
Subtotal
|
128,182
|
|
|
Less:
Accumulated amortization
|
6,950
|
|
|
Total
|
$
121,232
|
During
May 2002, the Company completed an agreement to acquire rights to Enviro Care
Inc., as well as, all applicable intellectual properties, whereby the Company
can sell various ozonation products. The Company believes this agreement will
open product markets including home, spas, agriculture, medical and other
commercial and industrial applications. The Company anticipates that it will
be
utilizing the technology during the fall of 2005. Once fully operational the
Company anticipates amortizing the technology using the straight-line method
over a period of 5 years.
78
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
4:
INTANGIBLE
ASSETS, continued
Also,
during June 2002, the Company entered into a License Agreement for a product
known as the “Hand Pump Technology.” The Company licensed all proprietary rights
associated with this technology, including patent #6,136,188 and the trademark
Aqua Gear TM. The Company will pay a two percent royalty and a one percent
license of trademark fee on any sales using this technology during the term
of
the license. The Company intends to market this technology in the United States
and internationally. The License Agreement is for an initial term of five years,
with five successive five years renewals.
NOTE
5:
ACCRUED
EXPENSES
Accrued
expenses consist of the following at May 31, 2005:
Accrued
legal expenses
|
$115,372
|
Accrued
accounting expenses
|
41,046
|
Accrued
rent
|
28,477
|
Accrued
claim settlement
|
12,750
|
Accrued
credit card purchases
|
10,779
|
Other
accrued expenses
|
359
|
|
|
|
$208,783
|
The
accrued legal expenses represent the attorney fees the Company incurred in
connection with the SWT stock exchange agreement and purchase of Aqua Vision
(NOTE 1), of which approximately $113,500 will be paid in stock. .
The
accrued settlement represents an estimate of the settlement of an
employment-related claim, of which $12,750 will be paid in stock.
79
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
6:
LINES
OF
CREDIT
During
March 2005, the Company entered into two lines of credit agreement, totaling
$150,000. The lines of credit bear interest at the institutions index rate
plus
two percent (7.5% at February 28, 2005) and are not repayable until March 31,
2006. The proceeds from the $50,000 line of credit were used to pay down the
Note Payable to Related Parties (see Note 7).
NOTE
7:
NOTES PAYABLE TO RELATED PARTIES
During
December 2004, the Company granted the Tam Trust additional common stock of
1,266,667 shares, valued at $76,000 per year, effective March 1, 2002, for
additional interest and continued financial support.
NOTE
7:
NOTES PAYABLE TO RELATED PARTIES, continued
As
the
May 31, 2005, the Company had advances of $373,150 from the Company’s primary
investor, Tam Irrevocable Trust (“Tam Trust”). These advances bear interest at
10 percent and are not repayable until March 1, 2006. During the quarter ending
May 31, 2005, the proceeds from the $50,000 line of credit were used to pay
down
the Note Payable to Related Parties (See Note 6). Additionally, the Company
remitted the related party cash of $25,000 during the quarter ending May 31,
2005.
As
of May
31, 2005, accrued interest on these advances was approximately $144,500 that
is
included in accrued interest due to related parties.
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
distributed in equal installments commencing on December 1, 2004, 2005 and
2006
but are exercisable through December 1, 2008. As the warrants provide for the
purchase of common stock at below the Company’s market price on the date of
grant, the
80
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
7:
NOTES PAYABLE TO RELATED PARTIES, continued
Company
recorded unearned interest relating to the estimated value of these warrants
of
$27,200. The Company is amortizing the estimated fair market value of the
unearned interest over a three-year term. The Company has recorded interest
expense of approximately $6,100 as of May 31, 2005.
Additionally,
on March 29, 2005, the Company granted the Tam Trust 1,972,133 restricted shares
of the Company’s common stock. These shares were granted at a price of $0.03 per
share and vest over a three-year period, beginning November 1, 2004. As the
Tam
Trust was granted the common stock at below the Company’s market price on the
date of grant, the Company recorded unearned interest relating to the estimated
value of these shares of $493,000. The Company is amortizing the estimated
fair
market value of the unearned interest over a three-year term. The Company has
recorded interest expense of approximately $95,900 for the fiscal year ending
February 28, 2006.
NOTE
8:
CAPITAL
STRUCTURE
Common
Stock
During
the three-month period ending May 31, 2005, the Company issued an aggregate
of
2,150,000 common shares to various investors for cash for an approximate total
value of $535,000.
During
the three-month period ending May 31, 2005, the Company issued 154,700 in
restricted shares, estimated value $47,400, for services provided in connection
with Form 10 filing.
Preferred
Stock
The
Board
of Directors has the authority to issue Preferred Stock and to fix and determine
its series, relative rights and preferences to the fullest extent permitted
by
the laws of the State of Nevada and its articles of incorporation. As of
February 28, 2005, three classes of Preferred Stock were authorized and none
was
outstanding.
81
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
8:
CAPITAL
STRUCTURE, continued
Consulting
Agreements
During
November 2004, the Company entered into consulting agreements with two officers
to provide management consulting services for the Company. As consideration
for
services to be rendered, the consultants received 480,000 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing on December 1, 2004,
2005
and 2006. The fair market value of the restricted share earned during the period
ending November 30, 2004 was estimated at $225,600 and recorded to unearned
compensation. The Company is amortizing the estimated fair market value of
the
unearned compensation over the three-year term of the consulting agreement.
The
Company has recorded amortization of approximately $37,600 as of May 31,
2005.
On
March
29, 2005, the Company expanded the consulting agreement with one officer to
provide management consulting services for the Company. As consideration for
services to be rendered, the consultant received 316,312 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing
on
December 1, 2004, 2005 and 2006. The fair market value of the restricted share
earned during the period ending November 30, 2004 was estimated at $79,100
and
recorded to unearned compensation.
The
Company is amortizing the estimated fair market value of the unearned
compensation over the three-year term of the consulting agreement. The Company
has recorded amortization of approximately $15,400 as of May 31,
2005.
Warrants
On
March
29, 2005, the Company expanded the consulting agreements with two officers
to
provide management consulting services for the Company. As further consideration
for services to be rendered, the consultants were granted 1,000,000 warrants
redeemable on restricted
82
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
8:
CAPITAL
STRUCTURE, continued
shares
of
the Company’s stock at $.225 per share. The warrants are distributed in equal
installments commencing on December 1, 2004, 2005 and 2006 but are exercisable
through December 1, 2008. The fair market value of the warrants earned during
the period ending November 30, 2004 was estimated at $55,300 and recorded to
unearned compensation. The Company is amortizing the estimated fair market
value
of the unearned compensation over the three-year term of the consulting
agreement. The Company has recorded amortization of approximately $10,700 as
of
May 31, 2005.
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
distributed in equal installments commencing on December 1, 2004, 2005 and
2006
but are exercisable through December 1, 2008. As the warrants provide for the
purchase of common stock at below the Company’s market price on the date of
grant, the Company recorded unearned interest relating to the estimated value
of
these warrants of $27,200. The Company is amortizing the estimated fair market
value of the unearned interest over a three-year term. The Company has recorded
amortization of approximately $6,100 as of May 31, 2005
.
The
fair
market value for these warrants was estimated at the date of grant using a
Black-Scholes security pricing model with the following assumptions for the
fiscal year 2004: risk-free interest rate of 6.5%; expected life of the option
of 3 years; zero dividend yield; and a volatility factor of the expected market
price of SET common stock of 250%.
83
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
9:
RELATED
PARTY TRANSACTIONS
Effective
December 1, 2001, the Company entered into an employment agreement with the
President of the Company. The agreement is for five years and provides for
a
salary of $10,000 per year plus one percent of the net after tax profits of
the
Company. The agreement shall be automatically renew for successive one-year
terms unless the Company or employee provides written notice of
non-renewal.
During
November 2004, the Company entered into consulting agreements with two officers
to provide management consulting services for the Company. As consideration
for
services to be rendered, the consultants received 480,000 restricted shares
of
the Company’s common stock at $.225 per share (below market). The common shares
are to be distributed in equal installments commencing on December 1, 2004,
2005
and 2006. The fair market value of the options earned during the period ending
November 30, 2004 was estimated at $225,600 and recorded to unearned
compensation. The Company is amortizing the estimated fair market value of
the
unearned compensation over the three-year term of the consulting agreements.
The
Company has recorded accumulated compensation expense of approximately $37,600
as of May 31, 2005.
During
December 2004, all Series AAA at 12% Cumulative Convertible Preferred Shares
were converted into 4,500,000 shares of restricted common stock issued to the
Tam Irrevocable Trust. In addition, all dividends accrued and unpaid on the
AAA
Preferred were waived.
During
December 2004, the Company granted the Tam Trust additional common stock of
1,266,667 shares, valued at $76,000 per year, effective March 1, 2002, for
additional interest and continued financial support.
On
March
29, 2005, the Company expanded the consulting agreement with one officer to
provide management-consulting services for the Company. As consideration for
services to be rendered, the consultant received 316,312 restricted shares
of
the Company’s common stock at $0.03 per share (below market). The common shares
are to be distributed in equal installments commencing
on
December 1, 2004, 2005 and 2006.
84
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
9:
RELATED
PARTY TRANSACTIONS, continued
The
fair
market value of the restricted share earned during the period ending November
30, 2004 was estimated at $79,100 and recorded to unearned
compensation.
The
Company is amortizing the estimated fair market value of the unearned
compensation over the three-year term of the consulting agreement. The Company
has recorded compensation expense of approximately $15,400 as of May 31,
2005.
Additionally,
on March 29, 2005, the Company granted the Tam Trust 1,972,133 restricted shares
of the Company’s common stock. These shares were granted at a price of $0.03 per
share and vest over a three-year period, beginning November 1, 2004. As the
Tam
Trust was granted the common stock at below the Company’s market price on the
date of grant, the Company recorded unearned interest relating to the estimated
value of these shares of $493,000. The Company is amortizing the estimated
fair
market value of the unearned interest over a three-year term. The Company has
recorded interest expense of approximately $95,900 as of May 31,
2005.
On
March
29, 2005, the Company expanded the consulting agreements with two officers
to
provide management-consulting services for the Company. As further consideration
for services to be rendered, the consultants were granted 1,000,000 warrants
redeemable on restricted shares of the Company’s stock at $.225 per share. The
warrants are distributed in equal installments commencing on December 1, 2004,
2005 and 2006 but are exercisable through December 1, 2008. The fair market
value of the warrants earned during the period ending November 30, 2004 was
estimated at $55,300 and recorded to unearned compensation. The Company is
amortizing the estimated fair market value of the unearned compensation over
the
three-year term of the consulting agreements. The Company has recorded
compensation expense of approximately $10,700 as of May 31, 2005.
85
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
9:
RELATED
PARTY TRANSACTIONS, continued
On
March
29, 2005, the Company granted the Tam Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
distributed in equal installments commencing on December 1, 2004, 2005 and
2006
but are exercisable through December 1, 2008. As the warrants provide for the
purchase of common stock at below the Company’s market price on the date of
grant, the Company recorded unearned interest relating to the estimated value
of
these warrants of $27,200. The Company is amortizing the estimated fair market
value of the unearned interest over a three-year term. The Company has recorded
interest expense of approximately $7,600 as of May 31, 2005.
During
May 2005, the Company paid down $25,000 on the Note Payable to Related
Parties.
Contributed
Executive Services
Effective
December 1, 2001, the Company entered into an employment agreement with the
President of the Company. The agreement is for five years and provides for
a
salary of $10,000 per year plus one percent of the net after tax profits of
the
Company as reported in the Company's Form 10-KSB. The agreement shall be
automatically renew for successive one-year terms unless the Company or employee
provides written notice of non-renewal.
As
the
President of the Company has decided not to accept his salary until the Company
has become profitable, the Company recorded additional paid in capital in the
accompanying consolidated statements of changes in stockholders’
deficit.
86
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of May
31, 2005
NOTE
10:
SUBSEQUENT
EVENTS
During
the first five months of fiscal year ending February 28, 2006, a shareholder
presented an opportunity to the Company to repurchase approximately 100,000
common shares, at prices under the market ranging from $0.15 to $0.17 that
the
Company accepted for an approximate total value of $22,800.
Also
during July 2005, the Company issued 2,000,000 common shares to an investor
for
cash for a total value of $450,000.
87
PART
III
ITEM
1.
Index
to Exhibits
.
Exhibit
No.
|
Description
|
|
|
2A*
|
Plan
of Exchange between Seychelle Environmental Technologies, Inc. and
Seychelle Water Technologies, Inc.
|
|
|
3A*
|
Articles
of Incorporation
|
|
|
3B*
|
Articles
of Merger of Royal Net, Inc. into Seychelle Environmental Technologies,
Inc
|
|
|
3C*
|
Amendment
to Articles of Incorporation re: Series "A" Preferred
Stock
|
|
|
3D*
|
Amendment
to Articles of Incorporation re: Series "AA" Preferred
Stock
|
|
|
3E*
|
Amendment
to Articles of Incorporation re: Series "AAA" Preferred
Stock
|
|
|
3F*
|
Bylaws
|
|
|
10A*
|
Purchase
Agreement with Aqua Vision
|
|
|
10B*
|
Amended
Purchase Agreement with Aqua Vision
|
|
|
10C*
|
Purchase
Agreement with Aqua Gear
|
|
|
10D*
|
Employment
Contract with Carl Palmer
|
|
|
10E**
|
Employment
Contract with Richard Parsons
|
|
|
10F**
|
Employment
Contract with James Place
|
|
|
23**
|
Auditor’s
Consent
|
*
Previously filed with the Securities and Exchange Commission
**
Incorporated herein
SIGNATURES
In
accordance with Section 12 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.
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
Dated:
September 16, 2005
By:
/s/
Carl Palmer
Carl
Palmer
President
88