UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-SB/A
Amendment
Number 2
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or 12(g) of the Securities Exchange Ac of
1934
Commission
File No. 0-29373
Seychelle
Environmental Technologies, Inc.
(Exact
Name of registrant as specified in its charter)
Nevada
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IRS#
33-6159915
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----------------------------
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--------------------------
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(State
or other jurisdiction
|
(IRS
Employer File Number)
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Of
incorporation)
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|
|
33012
Calle Perfecto
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San
Juan Capistrano, California
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92675
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----------------------------------------
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(Address
of principal executive offices)
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(zip
code)
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(949)
234-1999
----------------------------------------------------
(Registrant's
telephone number, including area code)
Securities
to be Registered Pursuant to Section 12(b) of the Exchange Act: None
Securities
to be Registered Pursuant to Section 12(g) of the Exchange Act:
Common
Stock, $0.001 per share par value
TABLE
OF CONTENTS
Item
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Description
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Page
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Part
I
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Item
1.
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Description
of Business
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2
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Risk
Factors
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8
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Item
2.
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Management
Discussion and Analysis
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11
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Item
3.
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Description
of Property
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17
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Item
4
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Security
Ownership of Certain Beneficial Owners and Management
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18
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Item
5.
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Directors,
Executive Officers, Promoters and Control Persons
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19
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Item
6.
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Executive
Compensation
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20
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Item
7.
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Certain
Relationships and Related Transactions
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21
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Item
8.
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Description
of Securities
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23
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Part
II
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Item
1
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Market
Price and Dividends on the Registrant’s Securities
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25
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Item
2.
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Legal
Proceedings
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26
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Item
3.
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Changes
in and Disagreements with Accountants
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27
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Item
4.
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Recent
Sales of Unregistered Securities
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27
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Item
5.
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Indemnification
of Directors and Officers
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32
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Part
Financial Statements
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Report
of Independent Registered Public Accounting Firm
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33
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Consolidated
Financial Statements for the Fiscal Years Ending February 28, 2005
and
2006
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35
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Notes
to Consolidated Financial Statements for the Fiscal Years Ending
February
28, 2005 and 2006
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48
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Consolidated
Financial Statements for the Fiscal Quarter Ending May 31,
2006
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86
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Notes
to Consolidated Financial Statements for the Fiscal Quarter Ending
May 31,
2006
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91
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Controls
and Procedures
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95
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Part
III
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Item
1.
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Index
to Exhibits
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97
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Signatures
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99
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1
PART
I
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this Form 10-SB, Amendment 1, 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 1933, as amended. 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.
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.
The
Company has consulting agreements with two officers. See Certain Relationships
and Related Transactions.
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.
2
As
of
February 28, 2006, the TAM Irrevocable Trust, one of our principal shareholders,
have loaned the Company funds to finance the company operations, with the
balance due of $363,150 at 10% simple interest, repayable after March 1, 2011.
The Company believes that with the increase in sales experienced during the
fiscal year ending February 28, 2006, no additional funding will be required
from the TAM Irrevocable Trust or other shareholders.
As
of May
31, 2006, there were 24,979,526 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, our mission is twofold: First, to
help
educate everyone to the fact that the quality of water they drink is important
and second, to make available low-cost, effective filtration products that
will
meet the 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.
In
an
article in the May 15, 2000 edition of Fortune magazine, the value of the world
water market was placed at $400 billion annually. Bottled water, according
to
Water Facts, has emerged as the second largest commercial beverage category
by
volume in the US. However, Seychelle products compete in a more limited market:
the portable and home filtration products segments.
In
developing countries, many people in rural areas 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,
according to Earth Prayers from around the world, approximately 6,000 people
die
every day because of water borne diseases.
Business
Plan
The
management of Seychelle represents over 35 years of combined experience in
developing 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 pressure as low as 24 pounds per square inch (PSI). 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 as follows:
3
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 have been tested by independent and government laboratories throughout
the world and are approved for sale and distribution in the following countries:
United States, Mexico, United Kingdom, Korea, Malaysia Indonesia, Japan, China,
Vietnam, New Zeeland, Australia, Brazil, Venezuela, Argentina, South Africa,
and
Pakistan. In the United States, Seychelle filters have been certified by
California and Florida approved independent laboratories implementing
Environmental Protection Agency, American Natural Standards Institute, and
National Sanitation Foundation protocol, procedures, standards and methodology.
Importantly, we offer a test pack for potential customers that include the
test
results from selected countries. In addition, results from the United States,
United Kingdom and South Africa are displayed on our Website:
www.seychelle.com
.
To
our
knowledge, 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 filtration can save lives worldwide as awareness of Seychelle’s product
line increases.
Principal
Products or Services and their Markets
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 100 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 pounds per square inch (PSI) input line is needed. No water
is
wasted in the filtration process. Seychelle also makes a variety of shower
filters.
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 Flip 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.
4
We
signed
a License Agreement with Aqua Gear USA on June 6, 2002 for a product known
as
the "Hand Held Pump Technology." We licensed all proprietary rights associated
with this technology. We will pay a 2% royalty on our gross income derived
from
the license for the technology during the term of the license, which is a patent
for a pressure system. 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. As of the date of this filing,
this technology has resulted in a product called Pump N’ Pure which allows the
user to draw filtered water from virtually any container or location. The
Company continues to believe that the product will be viable in developing
countries as an emergency preparedness product, and for families where cost
is a
prime consideration. No royalties have been paid to date under this
agreement.
During
April 2006, the Company issued 50,000 common shares to shareholders of
Continental Technologies, Inc. with an approximate value of $26,800 for the
Redi
Chlor brand name, trademark and the use of the EPA Registration Number
55304-4-7126. The agreement further agrees to remit Continental a ten percent
commission on net sales as defined of the existing product, or any new products
sold directly by the Seychelle, and ten percent on any product sold by
Continental for Seychelle to their existing or new customers at Seychelle’s OEM
prices. The agreement is of the life of Seychelle.
Manufacturing
The
Company has determined that we will be able to produce some of our product
components in China at a lower cost than what could be made in the US. However,
we anticipate that final assembly of our products will continue to be done
in
San Juan Capistrano.
In
China
the original manufacturing agreement with Hebei RO Environmental Technologies
expired and was not renewed. Instead, the company signed an exclusive agreement
with Huanghua Seychelle Plastic Co., Ltd on September 1, 2005.
Sales
Channels
Sales
channels to be pursued will include: Retail, Military, Government, Multi-Level
Marketing, International, OEM and Joint Ventures.
Seychelle
has signed product distribution agreements with Confident, Inc. for China,
Taiwan, Hong Kong and Singapore and with ABMS Health Care for India and are
exploring opportunities in other countries. During the fiscal year ending
February 28, 2006, total sales to Confident, Inc. and affiliated entities
approximated $90,000. Both agreements are attached as exhibits
hereto.
5
In
Japan,
Vortex represents Seychelle as a non-exclusive distributor selling our product
line to dealers, distributors and retail stores.
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
Seychelle’s
filters include the finest powder activated coconut and three other media to
form the porous plastic ionic filter. The media itself, the formulation process,
and manufacturing methodology are governed by trade secrets. To date, there
is
adequate availability of material for all of our products. We do not expect
this
situation to change in the near future.
Customers
and Competition
Seychelle
products compete against all forms of drinking water: tap water supplied by
municipal water districts, bottled water, and treated water provided by means
of
reverse osmosis, distillation, and filtration systems. There are literally
thousands of companies in the field including Culligan, Clorox, Proctor and
Gamble, G.E., Pepsi-Cola, Coca-Cola, Nestle and Danone. Therefore, Seychelle’s
portable and home filtration products compete in a more limited segment of
the
market as an alternative to other sources of drinking water.
Seychelle
is an emerging company with negligible share of the world’s pure water market.
Our products sell in a niche category of the market - portable filtration
bottles that use Ionic Adsorption Micron Filtration technology, which remove
many organic and inorganic contaminants that simple activated carbon filters
cannot. Most activated carbon filters on the market only remove Chlorine,
sediment and dirt thus improving taste and odor as well as a handful of other
contaminants such as Lead, Mercury, Zinc and Copper. There are other small
companies in the field with no one company having a majority share.
Seychelle
sells its products in two ways. First, it sells its own brand to individuals,
dealers, distributors, multilevel marketing companies and missionaries on a
direct basis, and through our Internet Web Site. Second, the company offers
its
products to the same customers as a Private Label supplier. In some instances,
we may supply only filters for their bottles or hydration backpacks as opposed
to completed products.
Currently,
the majority of our sales are to customers in the US. However, with Distribution
Agreements for China and India, overseas sales could increase in the future
as
developing countries have a greater need for safe drinking water than
industrialized nations. As of February 28, 2006, three customers (Wellness
Enterprises, BK Pakistan and Confident, Inc.) each account for greater than
10
percent of total sales.
Backlog
As
of May
31, 2006 and 2005, we had backorders of $1,418 and $2,143, respectfully, in
portable water filtration units.
Employees
As
of May
31, 2006, we had a President and two 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.
6
Proprietary
Information and Technology
We
own a
patent for the Portable Water Filtration System with the filter cap assembly,
Patent # 5,914,045 which expires on June 22, 2016. 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." The filter cap assembly is the core to
the
Company’s product lines, and will drive sales for many years to come as the
Company adds new products and configurations.
We
also
own a patent, Patent #6,058,971 which expires on May 9, 2017 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." The quick
connect diverter value is used in the above the counter filter system currently
being sold in the United States, Pakistan and soon in China. The Company
believes this is a viable and growing product line for developing countries
where the quality of water continues to deteriorate.
As
these
patents expire in 10 and 11 years, the Company cannot at this time estimate
the
financial impact of the expiration of these patents.
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.
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 $14,800 and $12,500 in research and development activities
for the fiscal years ending, February 28, 2006 and 2005, 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.
7
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 during March 2001
entered into a sales marketing agreement with Nikken Global, Inc. and Kenko
World, two affiliated multi-level marketing companies (collectively “Nikken”).
This agreement allowed Nikken, the exclusive rights to distribute our products
and technology for a period of ten years, commencing March 1, 2001. During
the
period of the agreement, the Company continued to promote its 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, which do not sell to distributors or resell
to customers. During the fiscal year ending February 28, 2002, the Company
decided to terminate its agreement with Nikken. The Company has continued to
expand its product lines, since the Nikken business ended, but have not
generated enough revenue to support operations. 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 for the fiscal year ending
February 28, 2006 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:
-
|
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.
|
8
Limited
Profitability.
To
date,
we have incurred significant losses. As of February 28, 2006, our revenue was
$751,844 versus $341,106 in the prior fiscal year ending February 28, 2005.
This
increase was due primarily to sales with three customers. Net Losses as of
February 28, 2006 of $932,456 were greater than in the prior year ending
February 28, 2005 of $250,423 due to $274K in accounting and legal fees to
assist in the audit and preparation of the Form 10 and other SEC filings, $272K
in financing costs with TAM the primary lender, the amortization of $201K in
officer stock compensation who received no salaries, the Company’s inventory
reserve adjustment of $79K for the countertop product and an impairment charge
of $104K for the discontinuance of the Enviro(3)Care technology were the primary
reasons for the result. 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. Therefore, investors should
consider an investment in us to be an extremely risky venture.
Delays
in the Development of New Products
.
We have
a limited product line, and 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 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.
9
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.
Dependence
on One or a Few Customers
As
of
February 28, 2006, the Company has expanded its customer base through entering
into various marketing and distribution agreements. As of February 28, 2006,
three customers (Wellness Enterprises, BK Pakistan and Confident, Inc.) account
for greater than 10 percent of total sales. Management believes that if the
targeted revenues are not achieved within their current marketing and
distribution agreements, the 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
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 100 F Street, N.E., 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.
10
ITEM
2.
Management's
Discussion and Analysis
Results
of Operations
Three-month
period ending May 31, 2006 compared to the corresponding period in
2005.
Selected
Financial Data
|
2005
|
2006
|
Year
Over Year
Change
|
%
|
|
|
|
|
|
Sales
|
$237,987
|
$169,875
|
($
68,112)
|
(29)
|
Cost
of sales
|
$
76,975
|
$111,394
|
$
34,419
|
44
|
Gross
profit
|
$161,012
|
$
58,481
|
($102,531)
|
(64)
|
General
& administrative expenses
|
$132,295
|
$149,394
|
($
15,401)
|
(9)
|
Consulting
fees to related parties
|
$
30,000
|
$
35,000
|
$
5,000
|
15
|
Interest
expense to related parties
|
$
53,753
|
$
75,582
|
$
21,829
|
41
|
Net
cash used in operating activities
|
($70,274)
|
($145,825)
|
(
$
75,551)
|
(107)
|
Net
cash used in investing activities
|
($25,435)
|
($1,283)
|
$
24,152
|
95
|
Net
cash provided financing activities
|
$
512,745
|
$
13,750
|
($498,995)
|
(97)
|
Sales.
In
the
three-month period ending May 31, 2006, sales were $169,875 compared to the
same
period in the prior year with sales of $237,987. This decrease in sales is
primarily attributable to decreased sales with two customers - approximately
$59K sales to Wellness Enterprises and $70K to BK Pakistan. This decrease in
sales was partially offset by the Company entering into a five (5) year
exclusive distribution agreement with Confident, Inc. to sell its water
filtration products in the markets of The Peoples Republic of China, Taiwan,
Singapore and Hong Kong. During the three-month period ending May 31, 2006,
total sales to Confident, Inc. and its affiliated entities approximated $30,000.
Additionally, the Company increased sales with Healthy Directions LLC (from
$7K
in 2005 to $21K in 2006), Vortex Ltd. (from nil in 2005 to $9K in 2006) and
Blackhawk Industries (from $1K in 2005 to $13K in 2006). In the fall of 2006,
the company will be launching several new products that have undergone the
extensive research and development, design, tooling and production steps
required for commercialization prior to introduction. This was made possible
by
the exclusive plastic manufacturing agreement signed with Huanghua Seychelle
Plastic Co., Ltd. in China. Also, the company is preparing a
disaster-preparedness order with one of the new products for a test market
by a
vendor of a major retailer.
Cost
of sales and gross profit.
In
the
three-month period ending May 31, 2006, cost of sales was $111,394 compared
to
the same period in the prior year with cost of sales of $76,975. Gross profit
decreased to $58,481 compared to the same period in the prior year of $161,795.
Gross profit as a percentage of sales decreased to 39% as compared to the same
period in the prior year of 67%. This decrease in gross profit is primarily
due
to a change in sales mix, as the gross profit for sales to Wellness Enterprises
and BK Pakistan approximated $105K during the three-month period ending May
31,
2005. The new products noted above have higher gross margins levels and will
improve the overall gross profit as the products achieve significant sales
levels.
General
& administrative expenses.
In
the
three-month period ending May 31, 2006, general and administrative expenses
were
$149,394 compared to the same period in the prior year of $132,295. This
increase in general & administrative expenses was primarily to increased
legal fees (from $8K in 2005 to $15K in 2006) and the reduction in prior year
consulting expenses of $33K as a consultant surrendered to the Company 250,000
restricted common shares due to his non-performance of certain contractual
obligations. This increase in general and administrative expenses was partially
offset by a decrease in outside accounting assistance (from $88K in 2005 to
$63K
in 2006) as the Company incurred such costs to catch up on SEC filings at the
beginning of the prior year.
11
Consulting
fees to related parties.
In the
three-month period ending May 31, 2006, consulting fees to related parties
were
$35,000 compared to the same period in the prior year of $30,000. This increase
in consulting fees was due to warrants issued to Messrs. Richard Parsons and
Jim
Place, during July 2005, redeemable into restricted shares of the Company’s
stock at $.225 per share. 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 compensation relating to the estimated value of these warrants
and is amortizing the beneficial conversion feature over the life of the
warrants. The Company has recorded compensation expense of approximately $5,000
for the three-month period ending May 31, 2006,
Interest
expense to related parties.
In
the
three-month period ending May 31, 2006, interest expense to related parties
were
$75,582 compared to the same period in the prior year of $53,753. This increase
in interest expense was primarily due to the amortization of the beneficial
conversion feature of the warrants issued to the TAM Trust during July 2005.
The
Company has recorded interest expense of approximately $22,500 related to
amortization of the July 2005 warrants for the three-month period ending May
31,
2006.
Net
loss.
Even
though profits for the three-month period ending May 31, 2006 were negative
by
$217K, $78K in accounting and legal fees to assist in the audit and preparation
of the Form 10 and other SEC filings, in addition to, $76K in financing costs
with TAM the primary lender, the amortization of $35K in officer stock
compensation were the primary reasons for the result.
Net
cash used in operating activities.
Net
cash
used in operating activities for the three-month period ending May 31, 2006
were
$145,825 compared to the same period in the prior year of $70,274. During the
three-month period ending May 31, 2006, the Company funded its operations
through funds previously obtained by sale of restricted common stock. During
the
three-month period ending May 31, 2006, the net loss from operations of $217K
was offset by $111K non-cash expenditures. These non-cash expenses primarily
relate to $66K in financing costs and the amortization of $35K in officer stock
compensation.
Net
cash used in investing activities.
Net
cash
used in investing activities for the three-month period ending May 31, 2006
were
$1,283 compared to the same period in the prior year of $25,435. The 2005
increase in cash used by investment activities was primarily due to the purchase
of $25K in equipment and tooling.
Net
cash used in financing activities.
Net
cash
provided by financing activities for the three-month period ending May 31,
2006
was $13,750 compared to the same period in the prior year of $512,745. The
2005
cash provided by financing activities was due to the sale of $537K in restricted
common stock, which was partially reduced by $25K repayment of related party
advances.
Fiscal
year ending February 28, 2006 compared to the corresponding period in
2005.
Selected
Financial Data
|
2005
|
2006
|
Year
Over Year
Change
|
%
|
|
|
|
|
|
Sales
|
$341,106
|
$751,844
|
$410,738
|
120
|
Cost
of sales
|
$155,113
|
$430,134
|
$275,021
|
177
|
Gross
profit
|
$185,993
|
$321,710
|
$135,717
|
73
|
General
& administrative expenses
|
$272,762
|
$591,557
|
$318,795
|
178
|
Consulting
fees to related parties
|
$
35,292
|
$201,293
|
$166,001
|
127
|
Interest
expense to related parties
|
$124,629
|
$272,653
|
$148,024
|
119
|
Net
cash used in operating activities
|
($64,262)
|
($205,077)
|
$140,815
|
219
|
Net
cash used in investing activities
|
($12,434)
|
($117,251)
|
$104,817
|
842
|
Net
cash provided financing activities
|
$
31,710
|
$934,110
|
$902,400
|
2845
|
12
Sales.
In
the
fiscal year ending February 28, 2006, sales were $751,844 compared to the same
period in the prior year with sales of $341,106. This increase in sales is
primarily attributable to continued increased sales with two customers -
approximately $189K sales to Wellness Enterprises and $91K to BK Pakistan.
Additionally, during the fiscal year ending February 28, 2006, the Company
entered into a five (5) year exclusive distribution agreement with Confident,
Inc. to sell its water filtration products in the markets of The Peoples
Republic of China, Taiwan, Singapore and Hong Kong. During the fiscal year
ending February 28, 2006, total sales to Confident, Inc. and its affiliated
entities approximated $90,000.
Cost
of sales and gross profit.
In
the
fiscal year ending February 28, 2006, cost of sales was $430,134 compared to
the
same period in the prior year with cost of sales of $155,113. Gross profit
increased to $321,710 compared to the same period in the prior year of $185,993.
Gross profit as a percentage of sales decreased to 43% as compared to the same
period in the prior year of 54%. As previously noted, during November 2005,
the
Company recorded an inventory reserve for its countertop product. If such
reserve had not been recorded, the gross profit percentage for the fiscal year
ending February 28, 2006 would have been 53%. The remaining slight decrease
in
gross profit is primarily due to increased raw material costs and increased
cost
for sub assemblies.
General
& administrative expenses.
In
the
fiscal year ending February 28, 2006, general and administrative expenses were
$591,557 compared to the same period in the prior year of $272,762. This
increase in general and administrative expenses was primarily due to the
following - (1) $270K increase in legal and accounting fees as the Company
incurred such costs to catch up on SEC filings; (2) $15K increase in consulting
expense as the Company engaged an outside consultant to maintain its accounting
records, as well as, engaged various individuals to perform design and
engineering procedures: (3) $27K increase in salaries and related employee
benefits for administrative assistant hired June 2005; and (4) and $5K increase
in depreciation expense as the Company has purchased $135K in new equipment
or
tooling during the past twelve months.
Consulting
fees to related parties.
In the
fiscal year ending February 28, 2006, consulting fees to related parties were
$201,293 compared to the same period in the prior year of $35,292. This increase
in consulting fees was due to the engagement of two officers / consultants,
Messrs. Richard Parsons and Jim Place, during December 2004. Both Messrs.
Parsons and Place received restricted common stock at below the estimated market
value upon commencement of providing services to the Company. The increase
in
consulting expense relates to the amortization of the discount on the restricted
common stock. As further consideration for services to be rendered, the
consultants were granted warrants during March and July 2005 redeemable into
restricted shares of the Company’s stock at $.225 per share. 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 compensation relating to the
estimated value of these warrants and is amortizing the beneficial conversion
feature over the life of the warrants.
Interest
expense to related parties.
In
the
fiscal year ending February 28, 2006, interest expense to related parties were
$272,653 compared to the same period in the prior year of $124,629. This
increase in interest expense was due to the amortization of the beneficial
conversion feature of the warrants issued to the TAM Trust during March and
July
2005.
Net
loss.
Even
though profits for the year ending February 28, 2006 were negative by $932K,
$274K in accounting and legal fees to assist in the audit and preparation of
the
Form 10 and other SEC filings, in addition to, $272K in financing costs with
TAM
the primary lender, the amortization of $201K in officer stock compensation
who
received no salaries, the Company’s inventory reserve adjustment of $79K for the
countertop product and an impairment charge of $104K for the discontinue of
the
Enviro(3)Care technology were the primary reasons for the result.
13
Net
cash used in operating activities.
Net
cash
used in operating activities for the year ending February 28, 2006 were $205,072
compared to the same period in the prior year of $64,262. During the fiscal
year
ending February 28, 2006, the Company funded its operations by sale of
restricted common stock. During the fiscal year ending February 28, 2006, the
net loss from operations of $932K was offset by $660K non-cash expenditures.
These non-cash expenses primarily relate to $272K in financing costs, the
amortization of $201K in officer stock compensation, the Company’s inventory
reserve adjustment of $79K for the countertop product, the Company’s impairment
charge of $104K for the Enviro(3)Care technology and the issuance of $25K in
restricted common stock for services rendered.
Net
cash used in investing activities.
Net
cash
used in investing activities for the fiscal year ending February 28, 2006 were
$117,251 compared to the same period in the prior year of $12,434. The 2006
increase in cash used by investment activities was primarily due to the purchase
of $135K in equipment and tooling.
Net
cash used in financing activities.
Net
cash
provided by financing activities for the fiscal year ending February 28, 2006
was $934,110 compared to the same period in the prior year of $31,710. The
2006
increase in cash provided by financing activities was due to the sale of $1,014K
in restricted common stock, combined withthe borrowing of $50K under one of
the
Company’s lines of credit. This increase in cash provided was partially reduced
by the following - (1) $85K repayment of related party advances; (2) $33K
purchase of treasury shares; and (3) payment of $12K in finders fees relating
to
the sale of certain restricted stock.
Fiscal
year ending February 28, 2005 compared to the corresponding period in
2004.
Selected
Financial Data
|
2004
|
2005
|
Year
Over Year
Change
|
%
|
|
|
|
|
|
Sales
|
$468,420
|
$341,106
|
($127,314)
|
(27)
|
Cost
of sales
|
$307,175
|
$155,113
|
($152,062)
|
(50)
|
Gross
profit
|
$161,245
|
$185,993
|
$
24,748
|
15
|
General
& administrative expenses
|
$239,897
|
$272,762
|
$
30,865
|
14
|
Consulting
fees to related parties
|
$
-0-
|
$
35,292
|
$
35,292
|
-
|
Interest
expense to related parties
|
$117,584
|
$124,629
|
$
7,045
|
6
|
Net
cash used in operating activities
|
($36,643)
|
($64,262)
|
$
27,619
|
74
|
Net
cash used in investing activities
|
($15,956)
|
($12,434)
|
($
3,522)
|
(22)
|
Net
cash provided financing activities
|
$115,670
|
$
31,710
|
($
83,960)
|
(73)
|
Sales.
In the
fiscal year ending February 28, 2005, sales were $341,106 compared to the same
period in the prior year with sales of $468,420. The decrease in sales is
primarily attributable to the reduction in sales to Wellness Enterprises, a
direct marketing company, with current year sales of $32,559 compared to the
same period in the prior year of $223,935. This reduction in sales was partially
offset by increased sales to Team in Focus (from $nil to $54K) and Phillips
Publishing (from $19K to $48K).
Cost
of sales and gross profit.
In
the
fiscal year ending February 28, 2005, cost of sales was $155,113 compared to
the
same period in the prior year with sales of $307,175. Gross profit increased
to
$185,993 compared to the same period in the prior year of $161,245. The gross
profit percentage for the fiscal year ending February 28, 2005 was 54 percent
compared to 34 percent to the same period in the prior year. This increase
in
gross profit percentage is attributable to decreased cost for outside assembly
labor combined with change in product mix, as previously noted the Company
decreased selling product to a direct marketing company.
14
General
& administrative expenses.
In
the
fiscal year ending February 28, 2005, general and administrative expenses were
$272,762 compared to the same period in the prior year of $239,897. This
increase in general and administrative expenses was primarily due to $38K in
consulting fees paid to two contractors who assisted with the company’s
accounting department. This increase in expenses was partially offset by
decreases in other administrative costs (i.e. telephone, utilities, etc.) due
to
decreased sales and production efforts.
Consulting
fees to related parties.
In
the
fiscal year ending February 28, 2005, consulting fees to related parties were
$35,292 compared to the same period in the prior year of $nil. This increase
in
consulting fees was due to the engagement of two officers / consultants, Messrs.
Richard Parsons and Jim Place, during December 2004. Both Messrs. Parsons and
Place received restricted common stock at below the estimated market value
upon
commencement of providing services to the Company. The increase in consulting
expense relates to the amortization of the discount on the restricted common
stock.
Interest
expense to related parties.
In
the
fiscal year ending February 28, 2005, interest expense to related parties were
$124,629 compared to the same period in the prior year of $117,584. The slight
increase in interest expense was due to the amortization of the beneficial
conversion feature of the warrants issued to the TAM Trust during March 2004
for
its continued financial support.
Net
loss.
Even
though net loss for the fiscal year ending February 28, 2005 were negative
by
$250K, $125K in financing costs with TAM the primary lender, the amortization
of
$89K in officer stock compensation who received no salaries and a claim
settlement of $31K were the primary reasons for the result.
Net
cash operating activities
.
Net
cash used in operating activities for the fiscal year ending February 28, 2005
were $64,262 compared to the same period in the prior year of $36,643. During
the fiscal year ending February 28, 2005, the Company funded its operations
by
sale of restricted common stock. During the fiscal year ending February 28,
2005, the net loss from operations of $250K was offset by $ 211K of non-cash
expenditures. These non-cash expenses primarily relate to the amortization
of
$89K in officer stock compensation, depreciation and amortization expense of
$34K, the issuance of $31K in restricted common stock for services rendered
and
the issuance of stock to settle a claim, valued at $29K.
Net
cash investing activities.
Net
cash
used in investing activities for the fiscal year ending February 28, 2005 were
$12,434 compared to the same period in the prior year of $15,956. The 2005
decrease in cash used by investment activities was primarily due to the proceeds
from a sale of a vehicle.
Net
cash financing activities.
Net
cash
provided by financing activities for the fiscal year ending February 28, 2005
was $31,710 compared to the same period in the prior year of $115,670. The
2005
decrease in cash provided by financing activities was due to the prior year
advances from related parties of $115,226 compared to $1,000 in the current
fiscal year combined with the repayment of $60K in advances from related
parties. This decrease in cash provided was partially offset by $91K in proceeds
from sale of restricted common stock.
Liquidity
and capital resources
.
As
of
February 28, 2006 the Company had $635,569 in cash and $100,000 available
borrowing under its two lines of credit. Both lines of credit do not contain
any
limitations on borrowing or any restrictive debt covenants. Over the next twelve
months, management is confident that sufficient working capital will be obtained
from a combination of revenues and external financing to meet the Company’s
liabilities and commitments as they become payable. During May 2006, the Company
did not renew one of its lines of credit totaling $50,000.
15
CONTRACTUAL
OBLIGATIONS, COMMITMENTS AND OFF BALANCE SHEET
ARRANGEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has various contractual obligations which are recorded as
liabilities in the consolidated financial
|
|
|
statements.
Other items, such as certain lease agreements are not recognized
as
liabilities in our
|
|
|
consolidated
financial statements but are required to be disclosed. For example,
the
Company is contractually
|
|
|
committed
to make certain minimum lease payments to rent its current corporate
location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes our significant contractual obligations
on an
undiscounted basis as of February 28,
|
|
|
2006
and the future periods in which such obligations are expected to
be
settled in cash or converted into the Company’s common stock. In addition,
the table reflects the timing of principal and interest payments
on
|
|
|
outstanding
borrowings. Additional details regarding these obligations are provided
in
footnotes to the
|
|
|
|
consolidated
financial statements, as referenced in the table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
Less
than
|
|
|
|
|
|
More
than
|
|
to
common
|
|
Total
|
|
1
year
|
|
2
years
|
|
3
years
|
|
3
years
|
|
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities
|
$
262,106
|
|
$
70,556
|
|
|
|
|
|
|
|
$
191,550
|
Line
of credit
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
Accrued
interest due to related party
|
169,315
|
|
|
|
|
|
|
|
169,315
|
|
|
Notes
payable to related parties
|
363,150
|
|
|
|
|
|
|
|
363,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844,571
|
|
120,556
|
|
|
|
|
|
532,465
|
|
191,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(1)
|
146,016
|
|
71,712
|
|
74,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations (2)
|
$
990,587
|
|
$
192,268
|
|
$
74,304
|
|
$
-
|
|
$
532,465
|
|
$
191,550
|
(1)
|
Other
commitments comprise of operating lease agreement with Turner San
Juan LLC
through February 2008
|
(2)
|
Comprised
of the following:
|
Liabilities
recorded on the balance sheet
$844,571
Commitments
not recorded on the balance sheet
146,016
Total
$990,587
The
Company currently estimates monthly cash requirements of $26,000 to cover
general and administrative overhead costs. Consequently, we do not foresee
the
need for additional funding at least for the period ending February 28, 2007.
As
of the date of this filing, the TAM Irrevocable Trust has expressed a
willingness to provide additional funding if required; however, an amount has
not been discussed. Moreover, in the foreseeable future the Company does not
believe additional funding is required.
16
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.
Research
and development.
The
flip
top container is being re-engineered 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.
Employees.
We
anticipate no additional executive and non-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.
Causes
for any material changes from period to period
.
In
the
fiscal year ending February 28, 2006, sales were $751,844 compared to the same
period in the prior year with sales of $341,106. Therefore, sales for the fiscal
year ending February 28, 2006 have more than doubled sales from the fiscal
year
ending February 28, 2005. Consequently, the business is improving with both
new
and current (international and domestic) customers purchasing product. Even
though water consumption increases in the summer months, the impact on our
sales
is slight as our overall distribution is still relatively low. As previously
noted, gross profit margins have decreased slightly due to the Company recorded
an inventory reserve for its countertop product combined with higher outside
assembly labor and raw material costs. At this time, the Company does not know
what the impact of the patents expiration will be, as the expiration will not
occur for several years. Finally, there are no off-balance sheet arrangements
to
skew sales.
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.
Off-Balance
Sheet Arrangements
:
none
ITEM
3.
Description
of Properties.
As
of
February 28, 2006, 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 $7,200 in rent per month for approximately 7,200 square feet
of office, operations and warehousing. We have a lease with an unaffiliated
third party, which expires February 2008.
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.
17
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, including instruments stock warrants, etc. that are issuable
within sixty days from the filing of this document, by (i) each person who,
as
of May 31, 2006, 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, 2006 there were a total of 24,979,526 shares
of Common Stock issued and outstanding.
NAME
AND ADDRESS
|
AMOUNT
AND NATURE OF
|
PERCENT
OF
|
OF
BENEFICIAL OWNER
|
BENEFICIAL
OWNERSHIP (1)(2)(4)
|
CLASS
|
|
|
|
The
TAM Irrevocable Trust
|
10,315,578
(3)
|
41.3%
|
4012
S. Rainbow #K111
|
|
|
Las
Vegas, NV 80103-2012
|
|
|
|
|
|
Shawn
Lampman
|
4,000,000
|
16.0%
|
2345
Calico Creek
|
|
|
Las
Vegas, NV 89135
|
|
|
|
|
|
FTS
Worldwide Corp.
|
1,320,009
|
5.3%
|
24
Route De Malagnou
|
|
|
1208
Geneva Switzerland
|
|
|
|
|
|
Carl
Palmer
|
-0-
|
-0-
|
251
Jeanell Dr., Ste 3
|
|
|
Carson
City, NV 89703
|
|
|
|
|
|
Richard
Parsons
|
733,719
|
2.9%
|
251
Jeanell Dr., Ste 3
|
|
|
Carson
City, NV 89703
|
|
|
|
|
|
James
Place
|
205,000
|
0.8%
|
251
Jeanell Dr., Ste 3
|
|
|
Carson
City, NV 89703
|
|
|
|
|
|
All
officers and directors as a Group (three persons)
|
938,719
|
3.7%
|
(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. Cari Beck, his daughter, is the Trustee of the Trust
and
has total beneficiary rights, including all voting rights and investment power
as the Trustee. The Trust is held in her name (50%) as well as that of Lindsay
Helvey (25%) and Casey Helvey (25%), both granddaughters.
(4)
|
There
are no other financial instruments, including stock warrants, etc.
that
are issuable within sixty days from the filing of this document.
|
(5)
All
three officers spend 100% of their time managing the affairs of the
Company.
18
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 February 28, 2006 are as follows:
NAME
|
AGE
|
POSITION
HELD
|
Carl
Palmer
|
72
|
President,
Chief Executive Officer and Director
|
Richard
Parsons
|
71
|
Executive
Vice President, Secretary and Director
|
James
Place
|
67
|
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. The Board
of
Directors as a whole serves as the audit committee and Mr. Place is the
financial expert. There are no family relationships among the Directors or
Officers of the Company. None of the Directors have been involved in the types
of litigation specified in Item 401 d. of Regulation S-B.
Biographies
of Our Executive Officers and 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 in 1973. He developed cellouse triacetate membrane, a breakthrough
technological development in the industry and subsequently, created and sold
pure water companies to Coca Cola Los Angeles as noted previously, AMF/Cuno
in
1985 and Shaklee in 1989. Also, in the late 1980’s Mr. Palmer developed the Best
Water reverse osmosis 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.
Richard
Parsons
.
Mr.
Parsons has been Secretary, Executive Vice President and a director of the
Company since November 2004. In March 2005, he assumed additional
responsibilities for International sales activities in Asia, including China
and
India. He has over 30 years experience in bottled water, reverse osmosis and
water filtration with major companies such as Coca-Cola, Arrowhead, Shaklee,
and
Canadian Glacier. Mr. Parsons was a General Manager at Coca-Cola in 1974, a
Vice
President at Arrowhead from 1975 to 1985, a consultant with Shaklee in 1988,
and
Vice President of US Operations for Canadian Glacier from 1989 to
1990.
For
the
past five years, Mr. Parsons acted as a consultant, and then became chairman
of
The Beverage Group, Inc. in 2002. In November 2004, he joined Seychelle as
Executive Vice President. 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 for many years. 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.
In March 2005, he assumed additional responsibilities for Manufacturing,
Operations and became the Chief Financial Officer (CFO). 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
19
Carnation,
Kerr Glass and Hunt-Wesson. Mr. Place was Vice President and General Manager
of
the Grocery Products Division at Arrowhead from 1981 to 1988, a Vice President
of Sales/Marketing - New Products at Kerr Glass from 1988 to 1990, Manager,
New
Products at Carnation from 1979 to 1981 and Sales/Marketing Manager at
Hunt-Wesson Foods from 1970 to 1976.
Mr.
Place
also has substantial experience in business development, Mergers &
Acquisitions and with the investment community. Mr. Place ran his own consulting
business in consumer products including water and other beverages with small
to
medium sized companies from 1990 to 2004. This included working successfully
with these companies on financing plans for both new products and expansion
programs. 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 $10,000.
Summary
Compensation Table
Annual
Compensation
|
Long
Term Compensation
|
Awards
|
Payouts
|
|
|
|
|
|
Restricted
|
All
|
Name
and
|
|
Salary
|
Annual
|
Other
Stock
|
LTIP
|
Other
|
Principal/
Positions
|
Fiscal
Year
Ending
|
Compensation
($)
(2)
|
Bonus
($)
|
Compensation
($)(1)(3)
|
Award(s)
|
Securities
|
Carl
Palmer
|
2006
|
$10,000
(2)
|
|
|
|
|
President
& CEO
|
2005
|
$10,000
(2)
|
|
|
|
|
Director
|
2004
|
$10,000
(2)
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Parsons
|
2006
|
|
|
$44,203(3)(5)(7)
|
|
$77,595(4)(6)
|
Executive
VP*
|
2005
|
|
|
$9,400(3)
|
|
$11,908(4)
|
Director
(1)
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Place
|
2006
|
|
|
$9,400(3)
|
|
$70,944
(4)(6)
|
COO*
|
2005
|
|
|
$9,400(3)
|
|
$4,584(4)
|
Director
(1)
|
2004
|
|
|
--
|
|
|
(1)
|
Elected
to Board of Directors during November
2004.
|
(2)
Effective December 1, 2001, the Company entered into an employment agreement
with the President of the Company. The President of the Company has decided
not
accept his salary until the Company becomes profitable.
(3)
During November 2004, 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. The fair market value of the
restricted shares was estimated to be $225,600 and the Company is amortizing
this value over the three-year term of the consulting agreements.
20
(4)
In
November 2004 Mr. Parsons and Mr. Place joined the Company as Executive Vice
President and Chief Operating Officer respectively. In March 2005 Mr. Parsons
assumed additional responsibilities for International sales activities in Asia
including China and India; and Mr. Place assumed additional responsibilities
for
Manufacturing, Operations and became acting Chief Financial
Officer.
(5)
During March 2005, 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 fair value of the warrants was estimated to be
$55,300 and the Company is amortizing this value over the three-year term of
the
consulting agreements.
(6)
During March 2005, Mr. Parsons was granted 316,312 shares of restricted common
stock valued at $0.03 per share and are distributed in equal installments
commencing on December 1, 2004, 2005 and 2006. The fair market value of the
restricted shares was estimated to be $79,100 and the Company is amortizing
the
estimated value over the three-year term of the consulting agreement.
(7)
During July 2005, the Company expanded the consulting agreements with Messrs.
Parsons and Place to provide management-consulting services for the Company.
As
further
consideration for services to be rendered, the consultants were granted 500,000
warrants
redeemable on restricted shares of the Company’s stock at $.225 per share. The
warrants are exercisable any time after December 1, 2006 and expire 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
compensation relating to these warrants of $30,000. The Company is amortizing
the estimated fair market value of the unearned compensation over the period
from the date of grant through December 1, 2006.
(8)
During January 2006, the Company issued Mr. Parsons 37,500 shares of common
shares for services rendered. As the common stock was issued at below the
Company’s market price at date of grant ($nil cost per share), the Company
recorded consulting expense relating to the estimated value of these shares
of
$8,437.
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 Carl
Palmer, 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 renewed 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 Messrs.
Parsons and Place to provide management consulting services for the Company
as
Executive Vice President and Chief Operating Officer, respectfully. As
consideration for services to be rendered, the Messrs. Parsons and Place
received 480,000 restricted shares of the Company’s common stock at $0.03 per
share (below market) with agreements attached as exhibits hereto. 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
21
consulting
agreement. The Company has recorded amortization of approximately $75,000 and
$18,800 for the fiscal year ending February 28, 2006 and 2005 respectively.
In
March
2005 Mr. Parsons assumed additional responsibilities for International sales
activities in Asia including China and India; and Mr. Place assumed additional
responsibilities for Manufacturing, Operations and became acting Chief Financial
Officer. No other services are performed by either of them.
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, 2006 and 2005, the Company had received advances of $363,150 and
$448,200 from the TAM Irrevocable Trust in which Cari Beck, is a trustee as
well
as a daughter of Carl Palmer an officer and Board member. These advances bear
interest at 10 percent. As of February 28, 2006, $363,150 of these advances
is
not repayable until after March 1, 2011.
As
of
February 28, 2006 and 2005, accrued interest on these advances was approximately
$169,300 and $134,500, respectively, and is included in accrued interest due
to
related parties in the accompanying consolidated balance sheet.
During
December 2004, the Company granted the TAM Irrevocable Trust restricted common
stock of 1,266,667 shares, effective March 1, 2002, for interest on prior
advances of funds. The restricted common shares are to be distributed during
the
first quarter of the fiscal year ending February 28, 2006. The fair market
value
of the restricted shares was estimated at $228,000. The Company is amortizing
the estimated fair market value of the interest over the three-year term
commencing March 1, 2002. During April 2005, the Company settled this liability
through the issuance of common stock to the company’s primary
investor.
On
March
29, 2005, the Company expanded the consulting agreement with Mr. Parsons to
provide management-consulting services for the Company with agreements attached
as an exhibit hereto. 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 $26,400 and $8,800 for the fiscal years ending
February 28, 2006 and 2005, respectively.
On
March
29, 2005, the Company expanded the consulting agreements with Messrs. Parsons
and Place to provide management-consulting services for the Company with
agreements attached as an exhibit hereto. 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 $18,400 and $6,100 for the fiscal years ending February 28, 2006
and 2005, respectively.
22
On
March
29, 2005, the Company granted the TAM Trust 500,000 warrants redeemable into
restricted shares of the Company’s stock at $.225 per share for additional
interest charged to the Company for previous unpaid notes and continued
financial support. 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 $9,100 and $3,000 for the
fiscal years ending February 28, 2006 and 2005, respectively.
On
July
27, 2005, the Company granted the TAM Trust 2,000,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
exercisable any time after December 1, 2006 and expire 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 $120,000. The Company is amortizing
the
estimated fair market value of the unearned interest over the period from date
of grant through December 1, 2006. The Company has recorded interest expense
of
approximately $46,700 for the fiscal year ending February 28, 2006.
On
July
27, 2005, the Company expanded the consulting agreements with Messrs. Parsons
and Place to provide management-consulting services for the Company with
agreements attached as an exhibit hereto. As further consideration for services
to be rendered, the consultants were granted 500,000 warrants redeemable on
restricted shares of the Company’s stock at $.225 per share. The warrants are
exercisable any time after December 1, 2006 and expire 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 compensation relating
to the estimated value of these warrants of $30,000. The Company is amortizing
the estimated fair market value of the unearned compensation over the period
from date of grant through December 1, 2006. The Company has recorded consulting
fees of approximately $11,700 for the fiscal year ending February 28,
2006.
On
January 23, 2006, the Company issued to the TAM Trust 37,500 common shares
for
continued financial support. As the common stock was issued at below the
Company’s market price at the date of grant ($nil cost per share), the Company
recorded interest expense relating to the estimated value of these shares of
$8,437.
On
January 23, 2006, the Company issued to the Messrs. Parsons 37,500 common shares
for services rendered. As the common stock was issued at below the Company’s
market price at the date of grant ($nil cost per share), the Company recorded
compensation
expense
relating to the estimated value of these shares of $8,437.
ITEM
8. Description of Securities
Common
Stock
As
of May
31, 2006, the Company is retaining several common stock certificates for its
primary lender (TAM) and certain management consultants (Messrs. Place and
Parsons). As noted (Notes 7 and 8), these share certificates were granted to
TAM
during March 2005 and to Messrs. Place and Parsons during November 2004 and
are
to be distributed equally over a three-year period commencing November 2004.
The
transfer agent issued the share certificates to the Company upon execution
of
the respective agreement. A reconciliation of common shares outstanding as
of
May 31, 2006 is as follows:
23
Number
of
shares issued by transfer agent
24,979,526
Shares
held by company for future distribution to
(2,256,626
)
TAM
and
certain management consultants
Shares
issued and outstanding per financial statements
22,722,900
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 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 May
31,
2006, 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.
24
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.
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.
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
for 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." On November 26, 2002, the Company filed a Form 15 with the SEC, making
the Company no longer a reporting company and moving trading of its stock back
to the “Pink Sheets.” 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 fiscal year ending February 28, 2006,
the
common stock was at a High of $.99 and a Low of $.11.
Fiscal
Year 2006
|
High
Bid
|
Low
Bid
|
|
|
|
Month
Ending:
|
|
|
First
Quarter May 2005
|
$.36
|
$.28
|
Common
Shares
|
|
|
|
|
|
Second
Quarter Aug 2005
|
$.36
|
$.17
|
Common
Shares
|
|
|
|
|
|
Third
Quarter Nov 2005
|
$.35
|
$.11
|
Common
Shares
|
|
|
|
|
|
Fourth
Quarter Feb 2006
|
$.99
|
$.27
|
Common
Shares
|
|
|
25
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
|
|
|
Source:
Commodity Systems, Inc. through Yahoo Finance
(b)
Approximate Number of Holders of Common Stock
As
of
February 28, 2006, there were approximately 339 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
originally filed by SafeWater Anywhere, Inc. and John Ferguson as plaintiffs.
This lawsuit was filed in State Superior Court in Orange County, California.
Mr.
Carl Palmer was also named as a defendant. The complaint alleged breach of
fiduciary duty, constructive fraud, promissory fraud, rescission, constructive
trust, unfair trade practices, and conversion, and sought unspecified damages
and injunctive relief. The original suit was dismissed upon motion of the
defendants, but was subsequently re-filed by John M. Ferguson individually
on or
about October 13, 2004. The re-filed suit was again brought against Seychelle
Water Technologies, Inc. and Carl Palmer, and again alleges breach of fiduciary
duty, constructive fraud, promissory fraud, rescission, constructive trust,
unfair trade practices, and conversion, and seeks unspecified damages and
injunctive relief. Plaintiff essentially alleges that defendants Seychelle
Water
Technologies, Inc. (hereafter “Seychelle Water”) and Carl Palmer fraudulently
induced plaintiff to enter into an agreement to relinquish 4,000,000 shares of
the stock of defendant Seychelle Water. Plaintiff alleges that he originally
entered into a joint venture and stock subscription agreement with DuSean
Berkich (“Berkich”), pursuant to which Berkich and plaintiff formed and
controlled Seychelle Water. Plaintiff alleges that when he discovered certain
improprieties by Berkich, he became concerned, and ultimately agreed to the
(re)purchase by Berkich of his interest in the Seychelle Water stock. Plaintiff
is now suing to recover damages he allegedly suffered as a result of the
(re)purchase by Berkich of his interest in Seychelle
26
Water.
A
demurrer to the re-filed complaint was filed and in response a first amended
complaint was filed and served. A second demurrer to the First Amended Complaint
has been filed and sustained by the Court, and plaintiff has been granted
fourteen days leave to amend. A second amended complaint has now been filed
and
answered. We continue to believe that this matter is without merit and intend
to
vigorously defend against plaintiff’s claims.
As
of May
31, 2006, 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 on Accounting and Financing
Disclosure.
On
February 21, 2005, the Board of Directors approved the engagement of Armando
C.
Ibarra, Certified Public Accountants (A Professional Corporation) as independent
auditors for the Company.
Effective
February 28, 2006, the independent auditors for Seychelle Environmental
Technologies, Inc. (the “Company”), terminated its relationship with Armando C.
Ibarra as principal auditor for the Company. At no time were there any
disagreements between the Company and Armando C. Ibarra on any matter of
accounting principles or practices, financial statement disclosures or auditing
scopes or procedures. Armando C. Ibarra performed the audit of the Company’s
financial statements for the fiscal years-ending February 29, 2004 and February
28, 2005. The audit report of Armando C. Ibarra, Certified Public Accountants
did not contain either an adverse opinion or disclaimer of opinion, and was
not
modified as to uncertainty, audit scope or accounting principles.
The
Board
of Directors of the Company, at a meeting held on March 26, 2006, approved
the
resignation of Armando C. Ibarra and appointed Windes & McClaughry
Accountancy Corporation as independent auditors for the Company beginning with
the fiscal year ending February 28, 2006.
ITEM
4. Recent Sales of Unregistered Securities
During
the fiscal year ending February 29, 2004, the Company issued two (2) employees
an aggregate total of 120,000 shares for compensation for an approximate value
of $15,600.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated
value
|
|
|
|
|
|
February
10, 2004
|
M.
Rae
|
Compensation
|
100,000
|
$13,000
|
February,
10 2004
|
J.
Sierra
|
Compensation
|
20,000
|
$
2,600
|
On
February 10, 2004, the Company issued T. Lampert, a consultant, 250,000 shares
for design and engineering services for an approximate value of $32,500.
On
February 10, 2004, the Company settled approximately $13,500 of its accrued
legal expenses with David Wagner & Associates as of February 28, 2003
through the issuance of 15,000 shares of common stock.
On
February 23, 2004, the Company received payment of $20,000 from Maha Bakhaya
for
200,000 shares of its common stock, which were issued on March 3,
2004.
During
the fiscal year ending February 28, 2005, the Company issued three (3) employees
an aggregate total of 70,000 shares for compensation for an approximate value
of
$21,350.
27
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated
value
|
|
|
|
|
|
February
16, 2005
|
M.
Rae
|
Compensation
|
50,000
|
$17,500
|
January
17, 2005
|
J.
Sierra
|
Compensation
|
10,000
|
$
2,000
|
January
17, 2005
|
A.
Villafuerte
|
Compensation
|
10,000
|
$
1,850
|
During
the fiscal year ending February 28, 2005, the Company issued three (3)
consultants an aggregate total of 125,000 shares for services provided for
an
approximate value of $9,600.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated
value
|
|
|
|
|
|
February
28, 2002
|
D.
Wagner
|
Legal
services
|
100,000
|
$
5,000
|
January
17, 2005
|
H.
Mathews
|
Consultant
|
15,000
|
$
2,775
|
January
17, 2005
|
Li
Yang
|
Consultant
|
10,000
|
$
1,850
|
During
the fiscal year ending February 28, 2005, the Company issued to fourteen (14)
individual investors an aggregate of 541,166 shares for cash for an approximate
total value of $91,100.
Date
Issued
|
Issue
to
|
Common
Shares
|
Stock
Estimated
value
|
|
|
|
|
March
3, 2004
|
N.
Carreon
|
12,500
|
$
1,000
|
March
19, 2004
|
R.
Chadderdon
|
100,000
|
$
10,000
|
January
17, 2005
|
J.
Place
|
55,000
|
$
11,000
|
January
17, 2005
|
D.
Parsons
|
55,000
|
$
11,000
|
January
17, 2005
|
V.
Parsons
|
20,000
|
$
4,000
|
January
17, 2005
|
R.
Sierra
|
50,000
|
$
11,000
|
January
17, 2005
|
S.
Weston
|
15,000
|
$
3,000
|
January
17, 2005
|
M.
Ward
|
15,000
|
$
6,000
|
February
16, 2005
|
R.
Haugh
|
1,666
|
$
500
|
February
16, 2005
|
HC
Consulting
|
50,000
|
$
7,500
|
February
16, 2005
|
S.
Croner
|
50,000
|
$
7,500
|
February
22, 2006
|
J.
McGonigle
|
100,000
|
$15,000
|
February
21, 2005
|
C.
Fiege
|
5,000
|
$
1,500
|
February
16, 2005
|
H.
Bassett
|
7,000
|
$
2,100
|
28
During
the fiscal year ending February 28, 2005, the Company issued two (2) debt
holders an aggregate of 55,000 shares with an approximate total value of
$42,600.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated
value
|
|
|
|
|
|
January
17, 2005
|
Wong
Johnson & Associates, APC.
|
Debt
settlement
|
50,000
|
$
40,500
|
March
26, 2004
|
M.
Bennett
|
Debt
settlement
|
5,000
|
$
2,100
|
On
February 12, 2005, the Company issued 84,000 shares to settle a claim with
an
approximate total value of $29,400.
On
March
6, 2005, T. Lampert, a consultant, surrendered to the Company 250,000 of common
stock, valued at $32,500, due to failure to perform contractual
obligations.
During
December 2004, the Company granted the TAM Irrevocable Trust restricted common
stock of 1,266,667 shares, valued at $228,000 for unpaid interest. On March
16,
2005, the Company settled such accrued interest due to related parties as of
February 28, 2005, through the issuance of such shares of common stock.
On
April
13, 2005, the Company settled approximately $6,000 of its accrued accounting
expenses with Wong Johnson & Associates, APC as of February 28, 2005 through
the issuance of 17,500 shares of common stock.
During
the three-month period ending May 31, 2005, the Company issued to twenty-one
(21) individual investors an aggregate of 2,150,000 common shares for cash
for
an approximate total value of $535,000.
Date
Issued
|
Issue
to
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
April
13, 2005
|
S.
Sparks
|
5,000
|
$
1,500
|
April
13, 2005
|
F.
Duesler
|
20,000
|
$
6,000
|
April
13, 2005
|
S.
Lampman
|
2,000,000
|
$450,000
|
April
19, 2005
|
R.
Kelly
|
7,500
|
$
1,500
|
April
13, 2005
|
C.
Blevins
|
200,000
|
$
50,000
|
April
19, 2005
|
J.
Rodriguez
|
5,000
|
$
1,000
|
May
11, 2005
|
G.
Bailard Trust
|
20,000
|
$
5,000
|
May
11, 2005
|
K.Kahoolyzadeh
|
6,000
|
$
1,800
|
May
11, 2005
|
Hakimipour
|
1,333
|
$
400
|
May
11, 2005
|
K.Kahoolyzadeh
|
4,000
|
$
1,200
|
May
11, 2005
|
M.
Kohan
|
1,000
|
$
300
|
May
11, 2006
|
C.
Kackert
|
23,333
|
$
7,000
|
May
1, 2005
|
B.
Kackert
|
3,333
|
$
1,000
|
May
11, 2005
|
J.
Kackert
|
3,333
|
$
1,000
|
May
11, 2005
|
Ch.
Kackert
|
3,333
|
$
1,000
|
May
11, 2005
|
A.
Gomez
|
10,000
|
$
3,000
|
May
11, 2005
|
S.
White
|
3,333
|
$
1,000
|
May
11, 2005
|
L.
Inque
|
3,333
|
$
1,000
|
May
11, 2005
|
J.
Kearny
|
20,000
|
$
20
|
May
16, 2005
|
W.
Wright
|
10,000
|
$
10
|
May
24, 2005
|
B.
McDonagh
|
6,060
|
$
2,000
|
29
During
the three-month period ending May 31, 2005, the Company issued 154,700 in
restricted shares, estimated value $47,400, for accounting services provided
by
Wong Johnson & Associates, APC, in connection with the preparation of Form
10 and other SEC filings.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
|
April
13, 2005
|
Wong
Johnson & Associates
|
Accounting
& SEC reporting
|
51,500
|
$
|
May
16, 2005
|
Wong
Johnson & Associates
|
Accounting
& SEC reporting
|
103,200
|
$
|
During
the period ending July 31 2005, the Company repurchased approximately 103,600
common shares, at prices ranging from $0.15 to $0.17, from F. Duarte, former
owner of Enviro(3)Care, for an approximate total value of $22,800.
Date
Repurchased
|
Repurchased
from
|
Common
Shares
|
Stock
Estimated
value
|
|
|
|
|
June
9, 2005
|
F.
Duarte
|
28,600
|
$10,000
|
August
1, 2005
|
F.
Duarte
|
75,000
|
$12,800
|
During
the three-month period ending August 31, 2005, the Company issued two (2)
employees an aggregate of 30,000 shares for compensation for an approximate
value of $9,000.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
|
July
29, 2005
|
V.
Parsons
|
Compensation
|
15,000
|
$
4,500
|
July
29, 2005
|
C.
Garcia
|
Compensation
|
15,000
|
$
4,500
|
During
the three-month period ending August 31, 2005, the Company issued seven (7)
consultants an aggregate total of 83,500 shares for services provided for an
approximate value of $22,300.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
|
June
6, 2005
|
J.
Sierra
|
China
interface
|
20,000
|
$
4,800
|
July
22, 2005
|
C
Garcia
|
Administration
|
5,000
|
$
1,200
|
July
29, 2005
|
V.
Parsons
|
Accounting
services
|
5,000
|
$
1,200
|
August
9, 2005
|
J.
Kearny
|
Consultant
|
20,000
|
$
4,500
|
August
17, 2005
|
W.
Qing
|
Consultant
|
5,000
|
$
1,200
|
June
27, 2005
|
K.
Lee
|
Design
and engineering services
|
21,000
|
$
6,200
|
August
8, 2005
|
K.
Lee
|
Design
and engineering services
|
7,500
|
$
3,200
|
During
the three-month period ending August 31, 2005, the Company issued to twelve
(12)
individual investors an aggregate of 2,098,334 common shares for cash for an
approximate total value of $478,000.
30
Date
Issued
|
Issue
to
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
June
8, 2005
|
W.
Wright
|
15,000
|
$
3,750
|
June
8, 2005
|
W.
Wright
|
15,000
|
$
3,750
|
August
8, 2005
|
S.
Lampman
|
2,000,000
|
$450,000
|
August
8, 2005
|
J.
Zurcher Trust
|
30,000
|
$
10,000
|
August
8, 2005
|
C.
Fiege
|
5,000
|
$
1,500
|
August
18, 2005
|
S.
Gahl
|
1,667
|
$
500
|
August
18, 2005
|
L.
Soares
|
1,667
|
$
500
|
August
22, 2005
|
W.
Wright
|
5,000
|
$
1,000
|
August
22, 2005
|
W.
Wright
|
5,000
|
$
1,000
|
August
24, 2005
|
Nickerson
Trust
|
10,000
|
$
3,000
|
May
16, 2005
|
W.Wright
|
5,000
|
$
1,500
|
May
16, 2005
|
W.Wright
|
5,000
|
$
1,500
|
During
the three-month period ending August 31, 2005, the Company issued 130,909 in
restricted shares, estimated value $68,500, for accounting services provided
by
Wong Johnson & Associates, APC. in connection with Form 10 and other SEC
filings.
Date
Issued
|
Issue
to
|
Service
Performed
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
|
June
14, 2005
|
Wong
Johnson & Associates
|
Accounting
& SEC reporting
|
91,909
|
$30,300
|
August
18, 2005
|
Wong
Johnson & Associates
|
Accounting
& SEC reporting
|
39,000
|
$38,200
|
On
October 28, 2005, the Company issued 10,157 in restricted shares, estimated
value $3,500, for accounting services provided by Wong Johnson & Associates,
APC in connection with various SEC filings.
On
November 15, 2005, the Company issued K. Lee 10,800 shares for additional design
and engineering services provided for an approximate value of
$3,000.
On
January 23, 2006, the Company issued to D. Parsons, one of its officers, 37,500
common shares, estimated value of $8,400, for services rendered.
On
January 23, 2006, the Company issued to the TAM Trust, its primary lender,
37,500 common shares, estimated value of $8,400, for continued financial
support.
During
the three-month period ended May 31, 2006, the Company issued an aggregate
of
50,000 common shares to various investors for cash for an approximate total
value of $11,250.
Date
Issued
|
Issue
to
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
March
16, 2006
|
B.
Clark
|
10,000
|
$
2,250
|
March
16, 2006
|
C.
Yris
|
10,000
|
$
2,250
|
March
16, 2006
|
J.
Condon
|
10,000
|
$
2,250
|
March
16, 2006
|
J.
Oppat
|
10,000
|
$
2,250
|
March
16, 2006
|
J.
Westwood
|
10,000
|
$
2,250
|
31
On
May 2,
2006, the Company issued 50,000 common shares to shareholders of Continental
Technologies, Inc. (“Continental’) with an approximate value of $26,800 for
intellectual property.
During
the three-month period ended May 31, 2006, the Company issued an aggregate
of
164,516 restricted shares to three debt holders with an approximate total value
of $108,000.
Date
Issued
|
Issue
to
|
Type
of Liability
|
Common
Shares
|
Stock
Estimated value
|
|
|
|
|
|
March
29, 2006
|
Wong
Johnson & Associates, APC
|
Accrued
accounting fees
|
25,000
|
$
65,470
|
April
10, 2006
|
Phil
Englund
|
Accrued
legal fees
|
65,516
|
$
5,000
|
April
26, 2006
|
Horn
& Loomis
|
Accrued
legal fees
|
75,000
|
$
37,500
|
In
each
if these issuances, the Company relied on exemptions provided by Section 4(2)
of
the Securities Act of 1933, as amended. The Company made these offerings based
on the following factors: (1) the issuance was an isolated private transaction
by the Company which did not involve a public offering; (2) there was only
one
offeree in each issuance; (3) the offerees did not resell the stock but continue
to hold it until the present; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offerees and the Company.
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.
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.
32
Financial
Statements
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and
Stockholders
of Seychelle Environmental Technologies, Inc.
We
have
audited the accompanying consolidated balance sheet of Seychelle Environmental
Technologies, Inc. as of February 28, 2006, and the related statements of
operations, changes in stockholders’ equity, and cash flows for the year then
ended. These 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 audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, 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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Seychelle
Environmental Technologies, Inc. as of February 28, 2006, and the results of
its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
/S/WINDES
& McCLAUGHRY ACCOUNTANCY CORPORATION
Windes
& McCLaughry Accountancy
Corporation
April
12,
2006
18201
Von
Karman Ave. Suite 1060, Irvine, CA 92612
Tele:
(949) 271-2600
Fax:
(949) 660-5681
33
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
|
34
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET
FEBRUARY
28, 2006 AND 2005
|
|
|
|
2006
|
2005
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
Cash
|
$
635,569
|
$
23,782
|
Trade
receivables, net of allowance for doubtful accounts of $-0- and
$2,047
|
|
|
as
of February 28, 2006 and 2005, respectively
|
33,602
|
20,047
|
Inventories,
net
|
391,641
|
313,754
|
Prepaid
expenses
|
45,261
|
-
|
|
|
|
Total
current assets
|
1,106,073
|
357,583
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
157,671
|
99,826
|
|
|
|
INTANGIBLE
ASSETS, NET
|
17,664
|
121,567
|
|
|
|
OTHER
ASSETS
|
6,742
|
14,670
|
|
|
|
Total
non-current assets
|
182,077
|
236,063
|
|
|
|
TOTAL
ASSETS
|
$
1,288,150
|
$
593,646
|
See
accompanying notes to consolidated financial statements.
35
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET (CONTINUED)
FEBRUARY
28, 2006 AND 2005
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
2006
|
2005
|
|
|
|
CURRENT
LIABILITIES
|
|
|
Accounts
payable
|
$
61,010
|
$
24,747
|
Accrued
expenses
|
262,106
|
188,900
|
Line
of credit
|
50,000
|
-
|
Accrued
interest due to related parties
|
169,315
|
362,518
|
Current
portion of notes payable to related parties
|
-
|
100,000
|
Customer
deposits
|
29,048
|
25,911
|
Income
taxes payable
|
6,400
|
8,397
|
|
|
|
Total
current liabilities
|
577,879
|
710,473
|
|
|
|
NOTES
PAYABLE TO RELATED PARTIES, less current portion
|
363,150
|
348,150
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
Preferred
stock, none authorized, issued or outstanding as
|
|
|
of
February 28, 2006 and 2005, respectively
|
-
|
-
|
Common
stock $.001 par value - 50,000,000 shares
|
22,458
|
16,665
|
authorized;
22,458,384 and 16,665,646 shares issued and
|
|
|
outstanding
as of February 28, 2006 and 2005, respectively
|
|
|
Additional
paid-in capital
|
5,392,553
|
4,340,086
|
Estimated
value of warrants
|
448,000
|
-
|
Accumulated
deficit
|
(4,957,934)
|
(4,025,478)
|
Unearned
interest
|
(353,523)
|
(462,443)
|
Unearned
compensation
|
(204,413)
|
(333,807)
|
|
|
|
Total
stockholders' equity (deficit)
|
347,121
|
(464,977)
|
|
|
|
TOTAL
LIABILITIES AND
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
$
1,288,150
|
$
593,646
|
See
accompanying notes to consolidated financial statements.
36
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
Fiscal Years Ending February 28, 2006 and 2005
|
2006
|
2005
|
SALES
|
$
751,844
|
$
341,106
|
|
|
|
COST
OF SALES
|
430,134
|
155,113
|
|
|
|
Gross
profit
|
321,710
|
185,993
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling
|
59,459
|
27,425
|
General
and administrative
|
591,557
|
272,762
|
Consulting
fees to related parties
|
201,293
|
35,292
|
Impairment
of intellectual property
|
104,000
|
-
|
|
|
|
Total
expenses
|
956,309
|
335,479
|
|
|
|
LOSS
FROM OPERATIONS
|
(634,599)
|
(149,486)
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
Interest
expense due to related parties
|
(272,653)
|
(124,629)
|
Claim
settlement
|
-
|
(31,360)
|
Write-off
of accrual for product return liability
|
-
|
61,630
|
Gain
(loss) on sale of vehicle / equipment
|
(30,000)
|
5,100
|
Miscellaneous
income (expense)
|
6,396
|
(10,078)
|
Total
other income (expense)
|
(296,257)
|
(99,337)
|
LOSS
BEFORE PROVISION
|
|
|
FOR
INCOME TAXES
|
(930,856)
|
(248,823)
|
|
|
|
PROVISION
FOR INCOME TAXES
|
1,600
|
1,600
|
Net
loss
|
$
(932,456)
|
$
(250,423
)
|
|
|
|
BASIC
AND DILUTED (LOSS) PER SHARE
|
$
(0.05)
|
$
(0.02)
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
SHARES:
BASIC AND DILUTED
|
17,969,317
|
11,936,767
|
See
accompanying notes to consolidated financial statements.
37
.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For
Fiscal Years Ending February 28, 2006 and 2005
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Estimated
|
Unissued
|
|
|
|
|
Total
|
|
Stock
|
Stock
|
Stock
|
Stock
|
Paid-in
|
Value
of
|
Stock
|
Accumulated
|
Unearned
|
Unearned
|
Finders
|
Stockholders
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Warrants
|
Liability
|
Deficit
|
Interest
|
Compensation
|
Fees
|
Deficit
|
Balance,
February 29, 2004
|
8,000
|
$80
|
10,513,480
|
$10,513
|
$3,213,469
|
-
|
$20,000
|
$(3,775,055)
|
-
|
-
|
-
|
$(530,993)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
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.
39
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For
Fiscal Years Ending February 28, 2006 and 2005
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Estimated
|
Unissued
|
|
|
|
|
Total
|
|
Stock
|
Stock
|
Stock
|
Stock
|
Paid-in
|
Value
of
|
Stock
|
Accumulated
|
Unearned
|
Unearned
|
Finders
|
Stockholders
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Warrants
|
Liability
|
Deficit
|
Interest
|
Compensation
|
Fees
|
Deficit
|
Discount
factor on common
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
issued to consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
65,000
|
65
|
22,685
|
-
|
-
|
-
|
-
|
(7,583)
|
-
|
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
|
40
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.
41
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Estimated
|
Unissued
|
|
|
|
|
Total
|
|
Stock
|
Stock
|
Stock
|
Stock
|
Paid-in
|
Value
of
|
Stock
|
Accumulated
|
Unearned
|
Unearned
|
Finders
|
Stockholders
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Warrants
|
Liability
|
Deficit
|
Interest
|
Compensation
|
Fees
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
executive services
|
-
|
-
|
-
|
-
|
10,000
|
-
|
-
|
-
|
-
|
-
|
-
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for services rendered
|
-
|
-
|
64,300
|
64
|
20,085
|
-
|
-
|
-
|
-
|
-
|
-
|
20,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for compensation or services
|
-
|
-
|
30,000
|
30
|
7,170
|
-
|
-
|
-
|
-
|
-
|
-
|
7,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
-
|
-
|
2,474,225
|
2,474
|
564,282
|
-
|
-
|
-
|
-
|
-
|
-
|
566,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares with detachable stock warrants with conversion at
below
market value
|
-
|
-
|
2,000,000
|
2,000
|
-
|
448,000
|
-
|
-
|
-
|
-
|
-
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares to settle accrued interest to primary
shareholder
|
-
|
-
|
1,266,667
|
1,267
|
226,733
|
-
|
-
|
-
|
-
|
-
|
-
|
228,000
|
42
Issuance
of shares to primary lendor for continued financial
support
|
-
|
-
|
37,500
|
38
|
8,400
|
-
|
-
|
-
|
-
|
-
|
-
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for settlement of debt
|
-
|
-
|
312,784
|
312
|
125,093
|
-
|
-
|
-
|
-
|
-
|
-
|
125,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares to consultant for services performed
|
-
|
-
|
37,500
|
38
|
8,400
|
-
|
-
|
-
|
-
|
-
|
-
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of finders fees
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(11,800)
|
(11,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of finders fees to additional paid in capital
|
-
|
-
|
-
|
-
|
(11,800)
|
-
|
-
|
-
|
-
|
-
|
11,800
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surrender
of shares due to failure to perform services
|
-
|
-
|
(250,000)
|
(250)
|
(32,250)
|
-
|
-
|
-
|
-
|
-
|
-
|
(32,500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of shares from investor
|
-
|
-
|
(210,238)
|
(210)
|
(32,636)
|
-
|
-
|
-
|
-
|
-
|
-
|
(32,846)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
on
warrants issued to note holder
|
|
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
-
|
-
|
120,000
|
-
|
-
|
-
|
(120,000)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Discount
factor on common stock / warrants issued to primary lender at below
fair
value
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
228,920
|
-
|
-
|
228,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature on warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
to consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
30,000
|
30
|
8,970
|
-
|
-
|
-
|
-
|
(9,000)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
factor on common stock / warrants issued to officers at below fair
value
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
164,877
|
-
|
164,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
factor on common stock issued to consultants at below fair
value
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,517
|
-
|
3,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
factor on warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
to consultant
|
|
|
|
|
|
|
|
|
|
|
|
|
at
below fair value
|
-
|
-
|
-
|
-
|
15,000
|
-
|
-
|
-
|
-
|
(15,000)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Discount
factor on warrants issued to employee at below fair value
|
-
|
-
|
-
|
-
|
15,000
|
-
|
-
|
-
|
-
|
(15,000)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from fiscal year ending February 28, 2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(932,456)
|
|
-
|
-
|
(932,456)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2006
|
0
|
0
|
22,458,384
|
$22,458
|
$5,392,533
|
$448,000
|
-
|
($4,957,934)
|
($353,523)
|
($204,413)
|
-
|
$
347,121
|
See
accompanying notes to consolidated financial statements
45
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Fiscal
Years Ending February 28, 2006 and 2005
|
2006
|
2005
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$
(932,456)
|
$
(250,423)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
Depreciation
and amortization
|
26,407
|
33,868
|
Compensation
and interest expense on stock and warrants
|
422,519
|
106,700
|
Contributed
executive services
|
10,000
|
10,000
|
Stock
issued for services
|
25,350
|
30,975
|
Stock
issued for claim settlement
|
-
|
29,400
|
Allowance
for doubtful accounts
|
2,047
|
9,018
|
Impairment
of intellectual property
|
104,000
|
-
|
(Reversal)
Provision for slow moving inventory
|
79,789
|
-
|
Write
off of product return liability
|
-
|
(61,630)
|
Gain
(loss) on disposal of vehicle / equipment
|
30,000
|
(5,100)
|
Return
of shares due to failure to perform services
|
(32,500)
|
-
|
Changes
in operating assets and liabilities:
|
|
|
Trade
receivables
|
(15,602)
|
7,624
|
Inventories
|
(157,676)
|
(118,333)
|
Prepaid
expenses and other assets
|
(37,329)
|
-
|
Accounts
payable
|
35,831
|
(8,171)
|
Accrued
expenses
|
198,611
|
(349)
|
Accrued
interest due to related parties
|
34,797
|
124,559
|
Income
tax payable
|
(1,997)
|
1,600
|
Customer
deposits
|
3,137
|
26,000
|
|
|
|
Net
cash used by operating activities
|
(205,072)
|
(64,262)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Proceeds
from sale of vehicle / equipment
|
20,000
|
5,800
|
Purchase
of equipment
|
(135,811)
|
(18,234)
|
Increase
in patents
|
(1,440)
|
-
|
|
|
|
Net
cash used by investing activities
|
(117,251)
|
(12,434)
|
See
accompanying notes to consolidated financial statements.
46
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
Fiscal
Years Ending February 28, 2006 and 2005
|
2006
|
2005
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds
from sale of common stock
|
$
1,013,756
|
$
91,102
|
Purchase
of common stock
|
(32,846)
|
-
|
Payment
of finders fees
|
(11,800)
|
-
|
Proceeds
from line of credit
|
50,000
|
-
|
Proceeds
from related party advances
|
-
|
1,000
|
Repayments
on related party notes payable
|
(85,000)
|
(60,392)
|
|
|
|
Net
cash provided by financing activities
|
934,110
|
31,710
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
611,787
|
(44,987)
|
|
|
|
Cash,
beginning of year
|
23,782
|
68,768
|
|
|
|
Cash,
end of year
|
$
635,569
|
$
23,782
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
Interest
|
$
-
|
$
-
|
|
|
|
Income
taxes
|
$
1,997
|
$
-
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
Stock
issued for services
|
$
25,350
|
$
30,975
|
Stock
issued for settlement of debt
|
$
125,405
|
$-
|
Stock
issued for accrued interest
|
$228,000
|
-
|
Stock
issued for settlement of claim
|
$-
|
$
29,400
|
Return
of shares due to non-performance of services
|
$
32,500
|
-
|
Stock
issued for purchase of technology
|
$-
|
$
5,900
|
See
accompanying notes to consolidated financial statements.
47
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
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 eight fiscal years ending February 28,
2006.
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 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.
48
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
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.
Significant
Agreements
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 are currently being developed in China. Additionally, the
agreement allows the Company to produce all portable filtration products in
China. During the fourth quarter of fiscal 2006, the Company commenced
production in China. As of February 28, 2006, the Company has prepaid inventory
in China of approximately $33,000. 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.
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 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-year
renewals. This offers the Company an additional proprietary product in the
portable filtration industry. The Company believes that this purchase
compliments our current product line. As of the date of this filing, this
technology has resulted in product called Pump N’ Pure which allows the user to
draw filtered water from virtually any container or location. The Company
continues to believe that the product will be viable in developing countries
as
an emergency preparedness product, and for families where cost is a prime
consideration.
49
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
1:
ORGANIZATION
AND DESCRIPTION OF BUSINESS, continued
During
2005, the Company attempted to enter into an agreement with Vortex, a company
located in Japan, to market and sell the Company’s entire product line on an
exclusive basis throughout Japan. However, they never signed the agreement
but
are representing us on a non-exclusive basis.
Seychelle
has signed a five (5) year exclusive distribution agreement with Confident,
Inc.
to sell its water filtration products in the markets of The Peoples Republic
of
China, Taiwan, Singapore and Hong Kong. Under the agreement, to maintain
exclusivity, Confident, Inc. has to purchase from Seychelle a minimum of one
million dollars ($1,000,000) of product the first year, with a minimum volume
increase of fifty percent (50%) in each of the succeeding years over the
previous year’s minimum purchase requirement. Upon signing the agreement on
January 4, 2006, Confident, Inc. placed an initial product order for $50,000.
During the fiscal year ending February 28, 2006, total sales to Confident,
Inc.
and affiliated entities approximated $90,000. The agreement is subject to
cancellation and is outlined in the agreement.
Seychelle
has also signed a ten (10) year exclusive distribution/manufacturing agreement,
subject to certain restrictions, with ABMS Health Care Pvt. Ltd. to sell its
water filtration products on a non-exclusive basis in India.
The
Company sells its products throughout the United States and internationally.
Geographic information for the fiscal years ending February 28, 2006 and 2005
is
as follows:
|
2006
|
2005
|
Water
filtration products sold to
|
|
|
external
customers (1) (2) in:
|
|
|
|
|
|
The
United States
|
$523,077
|
$173,213
|
Pakistan
|
91,700
|
-
|
China
|
90,000
|
-
|
Asia
|
35,115
|
167,893
|
United
Kingdom
|
11,952
|
-
|
|
|
|
Total
|
$751,844
|
$341,106
|
50
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
(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 $96,500 and $50,000 in tooling
costs located in China at February 28, 2006 and 2005, respectively.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of SET
and
its wholly owned subsidiary, SWT, (collectively the “Company”). All significant
inter-company transactions and balances have been eliminated.
Basis
of Presentation
|
The
Company’s consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable
to a going concern, which contemplates the realization of assets
and
liquidation of liabilities in the normal course of business. The
Company
has experienced recurring losses from operations and has an accumulated
deficit of $4,957,934 as of February 28, 2006. These factors, among
others, raise substantial doubt as to its ability to have the necessary
resources to market the Company’s new
products.
|
|
|
In
order to continue as a going concern, the Company needs to develop
a
reliable source of revenues, and achieve a profitable level of operations.
During the fiscal year ending February 28, 2006, the Company funded
its
operations by sale of restricted common stock. As of February 28,
2006 the
Company had $635,569 in cash and $100,000 available borrowing under
its
two lines of credit. Both lines of credit do not contain any limitations
on borrowing or any restrictive debt covenants. Over the next twelve
months, management believes that sufficient working capital will
be
obtained from a combination of revenues and external financing to
meet the
Company’s liabilities and commitments as they become payable. As of the
date of this filing, the TAM Irrevocable Trust has expressed a willingness
to provide additional funding if required; however, an amount has
not been
discussed. The Company currently estimates monthly cash requirements
of
$26,000 to cover general and administrative overhead
|
51
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
continued
|
Costs.
Accordingly, the consolidated financial statements are accounted for as if
the
Company is a going concern and do not include any adjustments
relating
to the recoverability and classification of recorded asset amounts
or
the
amount and classification of liabilities or other adjustments that
might
be
necessary should be Company be unable to continue as a going
concern.
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.
Cost
of Sales
Cost
of
sales is comprised primarily of the cost of purchased product, as well as,
labor, inbound freight costs and other material costs required to complete
products.
Shipping
and handling
All
amounts billed to a customer in a sales transaction related to shipping and
handling represent revenues earned and is reported as revenue. Costs incurred
by
the Company for shipping and handling, including transportation costs paid
to
third party shippers, are reported as a cost of sale expense.
52
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
General
and Administrative Expenses
General
and administrative expense is comprised primarily of legal and accounting fees
incurred to assist the Company in catching up with SEC filings, consulting
costs
for outside accounting personal and design and engineering projects, salaries
and related costs for an administrative assistant hired during June 2005 and
other administrative costs (i.e. telephone, utilities, etc.) to support
operations.
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, 2006 and 2005 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
as no products had been returned to the Company during the three fiscal years
ending February 28, 2005.
Seychelle
has an unconditional return policy for the first 90 days. Customers may return
the product for a full refund, or they may receive a replacement at no charge.
The same policy applies to any product sold from the period 91 days after
purchase to one year, for any defects in materials or workmanship.
53
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the average
cost method and consist of the following as of February 28, 2006 and
2005:
|
2006
|
2005
|
Raw
materials
|
$161,066
|
$
169,427
|
Work
in progress
|
105,760
|
34,513
|
Finished
goods
|
204,604
|
109,814
|
|
471,430
|
313,754
|
Reserve
for obsolete or
slow
moving inventory
|
(79,789)
|
-
|
|
|
|
Net
inventories
|
$391,641
|
$
313,754
|
|
|
|
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. During November 2005, the Company
re-evaluated its countertop water filtration systems and determined that such
product should be wholly reserved and recorded an inventory reserve adjustment
of approximately $79,800. 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.
54
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
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 recorded. Fully depreciated assets are not removed from the
accounts until physical disposition. During the fiscal year ending February
28,
2006, the Company disposed of certain tooling, as well as, scrapped certain
fully depreciated assets (Note 3).
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. During the fiscal year ending February
28,
2006, the Company determined that the Enviro(3)Care system was no longer
economically feasible and recorded an impairment charge.
55
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
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 in accordance with the Company’s revenue recognition
policy.
Research
and Development Expenses
Research
and development costs are expensed as incurred and amounted to approximately
$14,800 and $12,500 for the fiscal years ending February 28, 2006 and 2005,
respectively, and are included in general and administrative expenses in the
accompanying consolidated statements of operations.
Advertising
Expenses
Advertising
expenses are expensed as incurred. Total advertising expenses amounted to
approximately $19,400 and $1,000 for the fiscal years ending February 28, 2006
and 2005, respectively, and are included in selling expenses in the accompanying
consolidated statements of operations.
Concentration
of Credit Risks
Cash
The
Company maintains its cash in various accounts at several financial
institutions. At various times during the year, the amount on deposit with
a
single financial institution may exceed federal depository
insurance
56
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
limits.
At February 28, 2006, the Company had balances on deposit approximating $478,000
in excess of such limits. Management does not believe this represents a
significant risk to the Company.
Trade
Receivables
The
Company performs periodic credit evaluations of its customers’ financial
condition and 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.
For
the
fiscal years ending February 28, 2006 and 2005, 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:
|
2006
|
2006
|
2005
|
2005
|
|
Sales
|
Accounts
|
Sales
|
Accounts
|
|
Percentage
|
Receivable
|
Percentage
|
Receivable
|
|
|
|
|
|
Customer
1
|
25%
|
$6,100
|
10%
|
$
-
|
Customer
2
|
4%
|
673
|
16%
|
2,041
|
Customer
3
|
12%
|
-
|
-%
|
-
|
Customer
4
|
12%
|
-
|
-%
|
10
|
During
the fiscal year ending February 28, 2006, the Company has entered into several
marketing and distribution agreements to sell its products internationally
on
both an exclusive and non-exclusive basis. Management believes that if the
targeted revenues are not achieved, the revenues can be replaced through the
sale of filters and related products to other direct marketing companies.
However, there can be no assurance that this will occur which could result
in an
adverse effect on the Company’s financial condition or results of operations in
the future.
57
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
continued
|
Accounts
Payable
For
the
fiscal years ending February 28, 2006 and 2005, 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.
|
2006
|
2006
|
2005
|
2005
|
|
Purchase
|
Accounts
|
Purchase
|
Accounts
|
|
Percentage
|
Payable
|
Percentage
|
Payable
|
|
|
|
|
|
Vendor
1
|
24%
|
$
7,407
|
-
|
$
-
|
Vendor
2
|
15%
|
-
|
18%
|
|
Vendor
3
|
-
|
-
|
11%%
|
-
|
As
previously noted, in China, the original manufacturing agreement with Hebei
RO
Environmental Technologies expired and was not renewed.
Instead,
the company signed an exclusive agreement with Huanghua Seychelle Plastic Co.
Ltd. on September 1, 2005.
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.
58
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
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 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 (restricted and free trading) 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
59
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Company’s
financial instruments as of February 28, 2006 and 2005 approximate their
respective fair values because of the nature of these instruments. Such
instruments consist of accounts receivable and payable, inventory and certain
accrued expenses. The fair value of the related party accrued liabilities and
notes payable are not determinable.
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.
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.
The Company evaluated SFAS No. 131 and determined that the Company operates
in
multiple segments (Note 12).
Reclassifications
Certain
amounts in the 2005 financial statements have been reclassified to conform
to
the 2006 presentations. These reclassifications had no effect on previously
reported results of operations or retained earnings (accumulated
deficit).
60
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
Recent
Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board Statement issued SFAS
No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”, which
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and charges regardless of whether they meet the criterion of
“so
abnormal” that was originally stated in Accounting Research Bulletin No. 43,
chapter 4. In addition, SFAS No. 151 requires that the allocation of fixed
production overheads to conversion costs be based on the normal capacity of
the
production facilities. SFAS No. 151 is effective for inventory costs incurred
during
fiscal
years beginning after June 15, 2005. Management does not expect the
implementation of this new standard to have a material impact on its financial
position, results of operations and cash flows
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. In March 2005, the SEC released
Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”), which
provides interpretive guidance related to the interaction between SFAS 123(R)
and certain SEC rules and regulations. It also provides the SEC staff’s views
regarding valuation of share-based payment arrangements. In April 2005, the
SEC
amended the compliance dates for SFAS 123(R), to allow companies to implement
the standard at the beginning of their next fiscal year, instead of the next
reporting period beginning after June 15, 2005. The Company does not anticipate
that the implementation of this standard will have a material impact on its
financial statements.
61
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
On
December 16, 2004, FASB issued Statement of Financial Accounting Standards
No.
153, “Exchanges of Nonmonetary Assets” (“SFAS 153”), an amendment of APB Opinion
No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”). This statement
amends APB 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception of exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a
nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted
for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial statements.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principle and
requires retrospective application to prior periods’ financial statements of
changes in accounting principle, unless this would be impracticable. This
statement also makes a distinction between “retrospective application” of an
accounting principle and the “restatement” of financial statements to reflect
the correction of an error. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not anticipate that the implementation of this standard
will have a material impact on its financial statements.
In
June
2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
Period for Leasehold Improvements (“EITF 05-6.”) EITF 05-6 provides guidance on
determining the amortization period for leasehold improvements acquired in
a
business combination or acquired subsequent to lease inception. The guidance
in
EITF 05-6 will be applied prospectively and is effective for periods beginning
after June 29, 2005. EITF 05-6 is not expected to have a material effect
on its consolidated financial position or results of operations.
62
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, continued
In
February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”. SFAS No. 155, permits fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS No. 133,
establishes a requirement to evaluate interest in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition
on the qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. This statement is effective for all financial
instruments acquired or issued after the beginning of the Company’s first fiscal
year that begins after September 15, 2006. SFAS No. 155 is not expected to
have a material effect on its consolidated financial position or results of
operations.
NOTE
3:
PROPERTY
AND EQUIPMENT
The
following is a summary of property and equipment at February 28, 2006 and
2005:
|
2006
|
2005
|
Tooling
|
$271,510
|
$231,216
|
Equipment
|
36,602
|
21,392
|
Vehicles
|
10,000
|
33,433
|
Furniture
and fixtures
|
15,465
|
15,465
|
Computer
equipment
|
16,956
|
15,726
|
Leasehold
equipment
|
1,000
|
1,000
|
|
351,533
|
316,262
|
|
|
|
Less:
Accumulated depreciation
|
206,810
|
288,941
|
Book
Value
|
144,723
|
27,341
|
Tooling
not in service
|
12,948
|
72,485
|
|
$
157,671
|
$99,826
|
63
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
3:
PROPERTY
AND EQUIPMENT, continued
As
of
February 28, 2006 and 2005, the Company had recorded $12,985 and $72,485,
respectively, in reverse osmosis-based tooling to be used in China. Depreciation
will be computed using the straight-line method over a period of 5
years.
During
the fiscal year ending February 28, 2006, the Company sold for $20,000 a
pleating machine with an approximate cost of $25,000. Additionally, during
2006,
a countertop machine with a value of $25,000 was stolen from its location in
China. The combined $30,000 loss on disposition of this equipment is included
in
other expenses in the accompanying consolidated statement of operations. Both
of
these items had previously been included in equipment not in service in the
accompanying consolidated balance sheet.
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, 2006, 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, 2006 and February
29, 2005 was approximately $25,100 and $24,800, respectively.
NOTE
4:
INTANGIBLE
ASSETS
The
following is a summary of intangible assets at February 28, 2006 and
2005:
|
2006
|
2005
|
Enviro
Care technologies
|
$
-
|
$
104,000
|
Hand
pump
|
8,000
|
8,000
|
Patents
|
17,623
|
16,182
|
|
25,623
|
128,182
|
|
|
|
Less:
Accumulated amortization
|
7,959
|
6,615
|
|
$
17,664
|
$
121,567
|
64
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
4:
INTANGIBLE
ASSETS, continued
The
estimated future amortization expense of intangible assets as of February 28,
2006 for each of the five succeeding years is approximately $1,200.
The
Company has a License Agreement for a product known as the “Hand Pump
Technology.” The Company licensed all proprietary rights associated with this
technology 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.
The
carrying amount of all intangibles is evaluated periodically to determine if
adjustment to the useful life or to the un-amortized balance is warranted.
As of
February 28, 2006, except for the impairment relating to the Enviro(3)Care
system, no event has been identified that would indicate an impairment of the
value of intangibles recorded in the accompanying consolidated financial
statements.
NOTE
5:
ACCRUED
EXPENSES
Accrued
expenses consist of the following at February 28, 2006 and 2005:
|
2006
|
2005
|
|
|
|
Accrued
legal expenses
|
$124,296
|
$114,985
|
Accrued
accounting expenses
|
95,346
|
6,076
|
Accrued
rent
|
-
|
14,889
|
Accrued
claim settlement
|
12,750
|
12,750
|
Accrued
credit card purchases
|
11,926
|
19,134
|
Accrued
wages and benefits
|
2,647
|
1,932
|
Other
accrued expenses
|
15,141
|
19,134
|
|
|
|
|
$262,106
|
$188,900
|
65
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
5:
ACCRUED
EXPENSES, continued
During
March 2006, the Company settled approximately $90,300 of its accrued accounting
expenses as of February 28, 2006 through the payment of $25,000 cash and the
issuance of 25,000 shares of the Company’s restricted common stock.
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. Management
does
not believe however, that the stock will be issued during the foreseeable
future.
The
accrued settlement represents an estimate of the settlement of an
employment-related claim, of which $12,750 will be paid in stock. Management
does not believe however, that the stock will be issued during the foreseeable
future.
NOTE
6:
LINES
OF
CREDIT
During
March 2005, the Company entered into two unsecured lines of credit agreements,
totaling $150,000. The lines of credit bear interest at the institutions index
rate (7.5% at February 28, 2006) plus two percent and are not repayable until
March 31, 2006. The Company utilized proceeds of $50,000 from one line of credit
to pay down the Note Payable to Related Parties (see Note 7). Both agreements
do
not contain any limitations on borrowing or any restrictive debt covenants.
During April 2006, the Company decided not to renew one of its lines of
credit.
NOTE
7
NOTES
PAYABLE TO RELATED PARTIES
As
the
February 28, 2006 and 2005, the Company received advances of $363,200 and
$448,200 from the Company’s primary investor, TAM Irrevocable Trust (“TAM
Trust”). These advances bear interest at 10 percent. As of February 28, 2006,
the balance of the advances is not repayable until after March 1, 2011.
The
repayment of these advances is
subordinate
to the Company’s lines of credit (see Note 6).
As
of
February 28, 2006 and 2005, accrued interest on these advances was approximately
$169,300 and $134,500, respectively, which is included in accrued interest
due
to related parties.
66
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
7:
NOTES PAYABLE TO RELATED PARTIES, continued
On
March
29, 2005, the Company granted the TAM Trust 500,000 warrants redeemable on
restricted shares of the Company’s stock at a purchase price of $.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 $9,100 and $3,000 for the
fiscal years ending February 28, 2006 and 2005, respectively. 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%.
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 $164,300 and $54,800 for the fiscal
years ending February 28, 2006 and 2005, respectively.
On
July
27, 2005, the Company granted the TAM Trust 2,000,000 warrants redeemable on
restricted shares of the Company’s stock at a purchase price of $.225 per share.
The warrants are exercisable any time after December 1, 2006 and expire 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 $120,000. The
Company is amortizing the estimated fair market value of the unearned interest
over the period from date of grant through December 1, 2006. The Company has
recorded interest expense of approximately $46,700 as of February 28,
2006.
67
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
7:
NOTES PAYABLE TO RELATED PARTIES, continued
On
January 23, 2006, the Company issued to the TAM Trust 37,500 common shares
for
continued financial support. As the common stock was issued at below the
Company’s market price at the date of grant ($nil cost per share), the Company
recorded interest expense relating to the estimated value of these shares of
$8,437.
NOTE
8:
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 preferred
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.
On
February 28, 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 Irrevocable Trust restricted common
stock of 1,266,667 shares, for interest from the period March 1, 2002 through
February 28, 2005. The restricted common shares were distributed during the
first quarter of the fiscal year ending February 28, 2006. The fair market
value
of the restricted shares was estimated at $228,000.
68
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
8:
CAPITAL STRUCTURE, continued
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 has recorded amortization of approximately $7,600 and $15,100 for the
fiscal years ending February 28, 2006 and 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.
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
69
SEY
CHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
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 $164,300 and $54,800 for the fiscal years ending
February 28, 2006 and 2005, respectively.
During
the fiscal year ending February 28, 2006, the Company issued an aggregate of
4,248,334 common shares to various investors for cash for an approximate total
value of $1,013,000.
During
the fiscal year ending February 28, 2006, the Company issued 295,766 in
restricted shares, estimated value $119,400, for accounting services provided
in
connection with Form 10 and other SEC filings.
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
the fiscal year ending February 28, 2006, the Company issued 30,000 shares
for
compensation; and 94,300 shares for services provided.
During
the fiscal year ending February 28, 2006, a shareholder presented an opportunity
to the Company to repurchase approximately 210,238 common shares, at prices
under the market ranging from $0.15 to $0.17 that the Company accepted for
an
approximate total value of $32,800.
During
January 2006, the Company issued to one of its officers 37,500 common shares,
estimated value of $8,400, for services rendered.
During
January 2006, the Company issued to its primary lender (TAM) 37,500 common
shares, estimated value of $8,400, for continued financial support.
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, 2006, three classes of Preferred Stock were authorized and none
was
outstanding.
70
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
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
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
71
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
8:
CAPITAL
STRUCTURE, continued
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.
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.
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 a purchase price of $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 shares 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 $75,200 and $18,800 for
the
fiscal years ending February 28, 2006 and 2005, respectively.
In
November 2004 Mr. Parsons and Mr. Place joined the Company as Executive Vice
President and Chief Operating Officer respectively. In March 2005 Mr. Parsons
assumed additional responsibilities for International sales activities in Asia
including China and India; and Mr. Place assumed additional responsibilities
for
Manufacturing, Operations and became acting Chief Financial
Officer.
72
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
8:
CAPITAL
STRUCTURE, continued
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 a purchase price of $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 as of 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 $26,400 and $8,800 for the
fiscal years ending February 28, 2006 and 2005, respectively.
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 a purchase price of
$.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 as of 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 $18,400 and $6,100 for the fiscal years ending February 28,
2006 and 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
73
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
8:
CAPITAL STRUCTURE, continued
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 $9,100 and $3,000 for the fiscal year ending
February 28, 2006 and 2005, respectively.
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%.
On
July
27, 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 500,000 warrants
redeemable on restricted shares of the Company’s stock at a purchase price of
$.225 per share. The warrants are exercisable any time after December 1, 2006
and expire December 1, 2008. As the warrants provide for the purchase of commons
stock at below the Company’s market price on the date of grant, the Company
recorded unearned compensation relating to the estimated value of these warrants
of $30,000. The Company is amortizing the estimated fair market value of the
unearned compensation over the period from date of grant through December 1,
2006.
The
Company has recorded compensation expense of approximately $11,700 for the
fiscal year ending February 28, 2006.
A
summary
of warrant activity is as follows:
|
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
|
Granted
|
2,500,000
|
$
0.225
|
Exercised
|
0
|
|
Canceled
|
0
|
|
Balance,
February 28, 2006
|
4,000,000
|
$
0.225
|
74
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
8:
CAPITAL STRUCTURE, continued
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.
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
|
|
Granted
|
0
|
|
Exercised
|
0
|
|
Canceled
|
0
|
|
Balance,
February 28, 2006
|
0
|
|
75
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
8:
CAPITAL
STRUCTURE, continued
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.
NOTE
9:
INCOME
TAXES
The
components of the provision for income taxes for the fiscal years ending
February 28, 2006 and 2005 are as follows:
|
2006
|
2005
|
Current:
|
|
|
State
|
$1,600
|
$1,600
|
Federal
|
-
|
-
|
|
|
|
Deferred:
|
|
|
State
|
97,503
|
(16,797)
|
Federal
|
308,761
|
(70,591)
|
|
|
|
Valuation
allowance
|
(406,264)
|
87,388
|
|
|
|
Provision
for income taxes
|
$1,600
|
$1,600
|
76
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
The
reconciliation of the effective tax rates and U.S. statutory tax rates for
the
fiscal years ending February 28, 2006 and 2005 are as follows:
|
2006
|
2005
|
|
|
|
Tax
(benefit) of statutory rate
|
(34%)
|
(34%)
|
|
|
|
Deferred
tax effect of goodwill
|
|
|
relating
to Aqua Vision Acquisition
|
(6%)
|
(12%)
|
Contributed
executive services
|
1%
|
3%
|
Interest
due to related parties
|
29%
|
49%
|
Consulting
fees due to related parties
|
21%
|
35%
|
Impairment
and inventory reserves
|
19%
|
(64%)
|
Effect
of state tax benefit
|
(3%)
|
(3%)
|
Other
|
13%
|
4%
|
Change
in valuation allowance
|
(40)%
|
22%
|
|
|
|
Effective
tax Rate
|
0%
|
0%
|
At
February 28, 2006, the Company has net operating loss carry forwards, for income
tax reporting purposes, of approximately $3,411,000 and $1,865,000 available
to
offset future federal and California taxable income, respectively. Based on
current tax law, the Company’s federal net operating loss carry forwards will
expire as follows: $801,500 during the fiscal year ending 2018; $1,084,900
during the fiscal year ending 2019; $110,600 during the fiscal year ending
2020;
$625,100 during the fiscal year ending 2021; $249,900 during the fiscal year
ending 2023; $170,000 during the fiscal year ending 2024; $38,000 during the
fiscal year ending 2025; and $331,000 during the fiscal year ending 2026. The
Company’s state net operating loss carry forwards begin to expire in 2010
through 2026
.
At
February 28, 2006, 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.
77
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
9:
INCOME
TAXES, continued
The
components of the net deferred tax asset for the fiscal years ending February
28, 2006 and 2005 are as follows:
|
2006
|
2005
|
|
|
|
Net
operating loss carry forward
|
$
1,111,651
|
$
922,372
|
Interest
to related parties
|
144,610
|
45,365
|
Consulting
fees to related parties
|
105,486
|
32,216
|
Impairment
charge
|
37,856
|
-
|
Inventory
& bad debt reserves
|
29,043
|
14,275
|
Other
|
6,003
|
14,157
|
|
|
|
Less:
Valuation allowance
|
(1,434,649)
|
(1,028,385)
|
|
|
|
Net
deferred tax asset
|
$
0
|
$
0
|
NOTE
10:
COMMITMENTS
AND CONTINGENCIES
The
Company leases an office and production facility under an operating lease that
expires in February 2008. As of February 28, 2006, 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.
Total
rent expense amounted to approximately $98,700 and $82,900 for the fiscal years
ending February 28, 2006 and 2005, respectively.
Future
minimum base lease payments are as follows:
Fiscal
Year Ending February 28
2007
|
$
71,712
|
2008
|
74,304
|
|
|
|
$146,016
|
78
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
10:
COMMITMENTS
AND CONTINGENCIES, continued
Legal
Proceedings
During
May 2001, Seychelle Water Technologies, Inc. was named and served with a lawsuit
originally filed by SafeWater Anywhere, Inc. and John Ferguson as plaintiffs.
This lawsuit was filed in State Superior Court in Orange County, California.
Mr.
Carl Palmer was also named as a defendant. The complaint alleged breach of
fiduciary duty, constructive fraud, promissory fraud, rescission, constructive
trust, unfair trade practices, and conversion, and sought unspecified damages
and injunctive relief. The original suit was dismissed upon motion of the
defendants, but was subsequently re-filed by John M. Ferguson individually
on or
about October 13, 2004. The re-filed suit was again brought against Seychelle
Water Technologies, Inc. and Carl Palmer, and again alleges breach of fiduciary
duty, constructive fraud, promissory fraud, rescission, constructive trust,
unfair trade practices, and conversion, and seeks unspecified damages and
injunctive relief. Plaintiff essentially alleges that defendants Seychelle
Water
Technologies, Inc. (hereafter “Seychelle Water”) and Carl Palmer fraudulently
induced plaintiff to enter into an agreement to relinquish 4,000,000 shares
of
the stock of defendant Seychelle Water. Plaintiff alleges that he originally
entered into a joint venture and stock subscription agreement with DuSean
Berkich (“Berkich”), pursuant to which Berkich and plaintiff formed and
controlled Seychelle Water. Plaintiff alleges that when he discovered certain
improprieties by Berkich, he became concerned, and ultimately agreed to the
(re)purchase by Berkich of his interest in the Seychelle Water stock. Plaintiff
is now suing to recover damages he allegedly suffered as a result of the
(re)purchase by Berkich of his interest in Seychelle Water. A demurrer to the
re-filed complaint was filed and in response a first amended complaint was
filed
and served. Currently a second demurrer to the First Amended Complaint has
been
filed and sustained by the Court, and plaintiff has been granted fourteen days
to leave to amend. A second amended complaint has now been filed and answered.
We continue to believe that this matter is without merit and intend to
vigorously defend against plaintiff’s claims.
As
of
February 28, 2006, 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
79
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
11:
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 a purchase price of $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 agreements. The Company has recorded compensation expense
of approximately $75,200 and $18,800 for the fiscal years ending February 28,
2006 and 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.
During
December 2004, the Company granted the TAM Irrevocable Trust restricted common
stock of 1,266,667 shares for interest on prior year advances. The fair market
value of the restricted shares was estimated at $228,000. The Company is
amortizing the estimated fair market value of the interest over the three-year
term commencing March 1, 2002. The Company has recorded interest expense of
$228,000 as of February 28, 2005. During April 2005, the Company issued the
1,266,667 shares to the TAM Irrevocable Trust.
80
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
11:
RELATED PARTY TRANSACTIONS, continued
In
November 2004 Mr. Parsons and Mr. Place joined the Company as Executive Vice
President and Chief Operating Officer respectively. In March 2005 Mr. Parsons
assumed additional responsibilities for International sales activities in Asia
including China and India; and Mr. Place assumed additional responsibilities
for
Manufacturing, Operations and became acting Chief Financial
Officer.
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 a purchase price of $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 $26,400 and $8,800 for the
fiscal years ending February 28, 2006 and 2005, respectively.
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 $164,300 and $54,800 for the fiscal
years ending February 28, 2006 and 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 a purchase price of
$.225 per share. The
81
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
11:
RELATED
PARTY TRANSACTIONS, continued
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 $18,400 and $6,100 for the fiscal years ending February 28,
2006 and 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
interest expense of approximately $9,100 and $3,000 for the fiscal years ending
February 28, 2006 and 2005, respectively.
On
July
27, 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 500,000 warrants
redeemable on restricted shares of the Company’s stock at a purchase price of
$.225 per share. The warrants are exercisable any time after December 1, 2006
and expire December 1, 2008. As the warrants provide for the purchase of commons
stock at below the Company’s market price on the date of grant, the Company
recorded unearned compensation relating to the estimated value of these warrants
of $30,000. The Company is amortizing the estimated fair market value of the
unearned compensation over the period from date of grant through December 1,
2006. The Company has recorded compensation expense of approximately $11,700
for
the fiscal year ending February 28, 2006
82
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
11:
RELATED
PARTY TRANSACTIONS, continued
During
January 2006, the Company issued to its primary lender 37,500 common shares,
estimated value of $8,400, for continued financial support.
NOTE
12 -
SEGMENT INFORMATION
During
the fiscal years ending February 28, 2006 and 2005, the Company had foreign
assets in China. The following geographic area data for trade revenues is based
on product or service delivery location, and property, plant, and equipment
is
based on physical location.
Net
revenue from external sources at February 28:
|
2006
|
2005
|
United
States
|
$
751,844
|
$
341,106
|
China
|
-
|
-
|
|
$
751,844
|
$
341,106
|
Segment
assets:
|
|
|
|
2006
|
2005
|
United
States
|
$
1,184,065
|
$
543,646
|
China
|
$
104,085
|
$
50,000
|
|
$
1,288,150
|
$
593,646
|
83
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
13:
LOSS
PER
SHARE
|
February
28, 2006
|
February
28, 2005
|
Numerator:
|
|
|
|
|
|
Net
loss
|
$
(932,456)
|
$
(250,423)
|
|
|
|
Loss
available to common stockholders
|
$
(932,456)
|
$
(250,423)
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted
average shares outstanding (includes both restricted and free trading
shares)
|
17,969,317
|
11,936,767
|
|
|
|
Basic
and diluted loss per share
|
$
(0.05)
|
$
(0.02)
|
Warrants
to purchase common stock were outstanding during the 2006 fiscal year (see
Note
8) but were excluded in the computation of the diluted loss per share because
their inclusion would have an anti-dilutive effect.
84
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
February 28, 2006
NOTE
14:
SUBSEQUENT
EVENTS
The
Company has now signed a product distribution/manufacturing agreement that
incorporates an earlier distribution arrangement with ABMS Health Care for
India
with a copy of this agreement attached as an exhibit hereto.
The
Company purchased certain assets, rights, contracts, EPA registration number
and
the Redi-Chlor trademark from Continental Technologies. The terms of the
agreement are attached as an exhibit hereto.
85
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET (UNAUDITED)
As
of May
31, 2006
ASSETS
|
|
CURRENT
ASSETS
|
|
Cash
|
$
502,210
|
Trade
receivables, net of allowance for doubtful accounts
|
48,802
|
of
$-0- as of May 31, 2006
|
|
Inventories,
net
|
445,638
|
Prepaid
expenses
|
58,359
|
|
|
Total
current assets
|
1,055,009
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
149,666
|
|
|
INTANGIBLE
ASSETS, NET
|
44,128
|
|
|
OTHER
ASSETS
|
6,742
|
|
|
Total
non-current assets
|
200,536
|
|
|
TOTAL
ASSETS
|
$
1,255,545
|
See
accompanying notes to consolidated financial statements.
86
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET (UNAUDITED)
(CONTINUED)
As
of May
31, 2006
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
CURRENT
LIABILITIES
|
|
Accounts
payable
|
$
59,834
|
Accrued
expenses
|
224,968
|
Line
of credit
|
50,000
|
Accrued
interest due to related parties
|
177,597
|
Customer
deposits
|
2,816
|
Income
taxes payable
|
8,000
|
|
|
Total
current liabilities
|
523,215
|
|
|
NOTES
PAYABLE TO RELATED PARTIES
|
363,150
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
Common
stock $.001 par value - 50,000,000 shares authorized;
22,722,900
issued and outstanding
|
22,722
|
Additional
paid-in capital
|
5,530,113
|
Estimated
value of warrants
|
448,000
|
Accumulated
deficit
|
(5,174,489)
|
Unearned
compensation
|
(169,413)
|
Unearned
interest
|
(287,753)
|
|
|
Total
stockholders' equity
|
369,180
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
1,255,545
|
See
accompanying notes to consolidated financial statements.
87
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
For
Three-Month Periods Ending May 31
|
2006
|
2005
|
|
|
|
SALES
|
$
169,875
|
$
237,987
|
COST
OF SALES
|
111,394
|
76,975
|
|
|
|
Gross
profit
|
58,481
|
161,012
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling
|
19,035
|
23,475
|
General
and administrative
|
149,394
|
132,295
|
Consulting
fees to related parties
|
35,000
|
30,000
|
|
|
|
Total
expenses
|
203,429
|
185,770
|
|
|
|
LOSS
FROM OPERATIONS
|
(144,948)
|
(24,758)
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
Interest
income
|
4,752
|
-
|
Interest
expense to related parties
|
(75,582)
|
(53,753)
|
Miscellaneous
income (expense)
|
823
|
(768)
|
|
|
|
Total
other income (expense)
|
(70,007)
|
(54,521)
|
|
|
|
Net
loss before provision for income taxes
|
(214,955)
|
(79,279)
|
Provision
for income taxes
|
(1,600)
|
(1,600)
|
Net
loss
|
$ (216,555)
|
$ (80,879)
|
BASIC
AND DILUTED (LOSS)
|
|
|
PER
SHARE
|
$
(0.01)
|
$
(0.00)
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
SHARES:
BASIC AND DILUTED
|
22,126,033
|
14,027,909
|
See
accompanying notes to consolidated financial statements
88
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
For
the
Three-Month Periods Ending May 31,
|
2006
|
2005
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$
(216,555)
|
$
(80,879)
|
Adjustments
to reconcile net loss to net
|
|
|
cash
used in operating activities:
|
|
|
Depreciation
and amortization
|
7,124
|
7,005
|
Compensation
and interest expense on stock and warrants
|
100,770
|
53,708
|
Contributed
executive services
|
2,500
|
2,500
|
Provision
for doubtful accounts
|
-
|
(2,047)
|
Return
of shares due to failure to perform services
|
-
|
(32,500)
|
Changes
in operating assets and liabilities:
|
|
|
Trade
receivables
|
(15,200)
|
(56,255)
|
Inventory
|
(53,997)
|
(18,660)
|
Prepaid
expenses and other assets
|
(13,097)
|
(52,092)
|
Accounts
payable
|
(1,177)
|
2,857
|
Accrued
expenses
|
60,157
|
72,566
|
Accrued
interest due to related parties
|
8,282
|
9,946
|
Customer
deposits
|
(26,232)
|
25,574
|
Income
tax payable
|
1,600
|
(1,997)
|
|
|
|
Net
cash used in operating activities
|
(145,825)
|
(70,274)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Purchase
of tooling and equipment
|
(1,283)
|
(25,435)
|
|
|
|
Net
cash used investing activities
|
(1,283)
|
(25,435)
|
See
accompanying notes to consolidated financial statements.
89
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED)
For
the
Three-Month Periods Ending May 31,
|
2006
|
2005
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds
from sale of common stock
|
$
11,250
|
$
537,745
|
Proceeds
from sale of equipment
|
2,500
|
-
|
Repayments
on related party notes payable
|
-
|
(25,000)
|
|
|
|
Net
cash provided by financing activities
|
13,750
|
512,745
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
(133,358)
|
417,036
|
|
|
|
Cash,
beginning of period
|
635,569
|
23,782
|
|
|
|
Cash,
end of period
|
$
502,210
|
$
440,818
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
Interest
|
$
-
|
$
-
|
Income
taxes
|
$
-
|
$
1,997
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
Stock
issued for settlement of debt
|
$
107,995
|
$
53,401
|
Stock
issued for intellectual property
|
$
26,800
|
$
-
|
Stock
issued for accrued interest
|
$
-
|
$
228,000
|
Return
of shares due to non-performance of services
|
$
-
|
$
32,500
|
|
|
|
90
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
AS
OF MAY
31, 2006
NOTE
1:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Information
The
unaudited consolidated condensed financial statements of Seychelle Environmental
Technologies, Inc. (the “Company”) for the three month periods ended May 31,
2006 and May 31, 2005 have been prepared in conformity with the accounting
principles described in the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2006 (the “Annual Report”) and include all adjustments
considered necessary by management for a fair statement of the interim periods.
Such adjustments consist only of normal recurring items. This report should
be
read in conjunction with the Annual Report. Due to seasonality and other
factors, interim results are not necessarily indicative of the results to be
expected for the full year.
Accounting
for Stock-Based Compensation
The
Company accounts for stock-based compensation in accordance with SFAS No.123R,
Share-Based Payment, which addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange
for
(a) equity instruments of the enterprise or (b) liabilities that are based
on
the fair value of the enterprise's equity instruments or that may be settled
by
the issuance of such equity instruments. SFAS No. 123R eliminates the ability
to
account for share-based compensation transactions using the intrinsic value
method under APB Opinion No. 25, and requires instead that such transactions
be
accounted for using a fair-value-based method. The Company's assessment of
the
estimated stock-based compensation expense is affected by the Company's stock
price as well as assumptions regarding a number of complex variables and the
related tax impact. These variables include, but are not limited to, the
Company's stock price, volatility, and employee stock option exercise behaviors
and the related tax impact. The Company will recognize stock-based compensation
expense on all awards on a straight-line basis over the requisite service period
using the modified prospective method. The adoption of SFAS No. 123R effective
March 1, 2006 had no effect on the Company's results of operations since there
were no vested options at March 1, 2006 and there were no employee stock options
issued during the current and prior fiscal three months ended May 31, 2006
and
2005. Future changes to various assumptions used to determine the fair value
of
awards issued or the amount and type of equity awards granted create uncertainty
as to whether future stock-based compensation expense will be similar to the
historical SFAS No. 123 pro forma expense.
91
NOTE
2:
INVENTORY
The
following is a summary of inventory as of May 31, 2006:
Raw
materials
|
$
181,007
|
Work
in progress
|
33,464
|
Finished
goods
|
310,956
|
|
525,427
|
Reserve
for obsolete or
slow
moving inventory
|
(79,789)
|
|
|
Net
inventories
|
$
445,638
|
Work
in
progress and finished goods inventory includes material, labor and manufacturing
overhead costs.
NOTE
3:
PROPERTY
AND EQUIPMENT
The
following is a summary of property and equipment at May 31, 2006:
Tooling
|
$285,695
|
Equipment
|
36,652
|
Vehicles
|
10,000
|
Furniture
and fixtures
|
15,465
|
Computer
equipment
|
14,802
|
Leasehold
equipment
|
1,000
|
|
363,614
|
Less:
accumulated depreciation and amortization
|
213,948
|
|
|
|
$149,666
|
Total
depreciation expense for the three-month periods ended May 31, 2006 and 2005,
respectively, was approximately $6,800.
92
NOTE
4:
INTANGIBLE
ASSETS
The
following is a summary of intangible assets at May 31, 2006:
Redi
Chlor brand name and trademark
|
$
26,800
|
Hand
pump
|
8,000
|
Patents
|
17,622
|
|
|
|
52,422
|
Less:
Accumulated amortization
|
8,294
|
|
|
|
$44,128
|
The
estimated future amortization expense is approximately $1,200 per
year.
During
April 2006, the Company issued 50,000 common shares (one year maturity date)
to
shareholders of Continental Technologies, Inc. (“Continental’) with an
approximate value of $26,800 for the Redi Chlor brand name and trademark. The
agreement further agrees to remit Continental a ten percent commission on net
sales as defined of the existing product, or any new products sold directly
by
Seychelle, and ten percent on any product sold by Continental for Seychelle
to
their existing or new customers at Seychelle’s OEM prices. The agreement has an
indefinite life.
NOTE
5:
ACCRUED
EXPENSES
Accrued
expenses consist of the following at May 31, 2006:
Accrued
legal expenses
|
$129,398
|
Accrued
accounting expenses
|
48,082
|
Accrued
claim settlement
|
12,750
|
Accrued
commissions
|
10,905
|
Accrual
for stock purchase (Continental Technologies)
|
10,700
|
Accrued
credit card purchases
|
9,824
|
Other
accrued expenses
|
3,309
|
|
$224,968
|
93
NOTE
5:
ACCRUED
EXPENSES, continued
During
April 2006, the Company issued 50,000 common shares (one year maturity date)
to
shareholders of Continental Technologies, Inc. (“Continental’) with an
approximate value of $26,800 for the Redi Chlor brand name and trademark. As
the
purchase agreement provides the shareholders of Continental the right to sell
the common shares back-to the Company, at Continental’s sole option for a period
of six months after the maturity date at $0.75 per share, the Company recorded
a
contingent liability for approximately $10,700 (see Notes 4 and 7).
NOTE
6:
LINES
OF
CREDIT
The
Company has one line of credit agreement, totaling $100,000. The line of credit
bears interest at the institutions index rate (7.5% at May 31, 2006) plus two
percent and are not repayable until March 31, 2007.
NOTE
7:
CAPITAL
STRUCTURE
Common
Stock
During
the three-month period ended May 31, 2006, the Company issued an aggregate
of
50,000 common shares to various investors for cash for an approximate total
value of $11,250.
During
the three-month period ending May 31, 2006, the Company issued 50,000 common
shares to shareholders of Continental Technologies, Inc. (“Continental’) with an
approximate value of $26,800 for intellectual property (see Note 4). As the
purchase agreement provides the shareholders of Continental the ability to
sell
the common shares after one year back-to the Company, the Company recorded
a
contingent liability reducing additional paid in capital for approximately
$10,700 (see Notes 4 and 5).
During
the three-month period ended May 31, 2006, the Company issued an aggregate
of
164,516 restricted shares to three debt holders with an approximate total value
of $108,000.
Warrants
A
summary
of warrant activity is as follows:
Outstanding
warrants
|
Warrants
Outstanding
|
Exercise
Price
|
|
|
|
Balance,
February 28, 2006
|
4,000,000
|
$
0.225
|
Granted
|
0
|
0
|
Exercised
|
0
|
0
|
Canceled
|
0
|
0
|
Balance,
May 31, 2006
|
4,000,000
|
$
0.225
|
|
|
|
94
Subsequent
Events
1.
Food
for Health International, a manufacturer and marketer of nutritional food and
vitamin products based in Orem, UT has agreed to sell certain Seychelle products
under the Aqua Gear brand name to a variety of their current customers including
big-box stores in the US, Canada and Mexico. Initial purchases began in August
of this year.
2.
The
company had sufficient cash in its accounts and decided to reduce its interest
expense by paying off the most recent notes payable to related
parties.
Controls
and Procedures
(a)
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer
and Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15 and 15d-15
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as
of the end of the period covered by this annual report (the “Evaluation Date”).
During
the fiscal year February 28, 2006, the Company attempted to establish disclosure
controls and procedures to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to the officers
who certify the Company’s financial reports and to other members of senior
management and the Board of Directors. As the Company has not hired a full
time
internal accountant, the Company has concluded, as of the Evaluation Date,
that
our disclosure controls and procedures were not effective in ensuring that
all
information required to be disclosed in reports that we file or
submit
under
the
Exchange Act was available within the time periods specified in the Securities
and
Exchange
Commission rules and forms.
(b)
Management’s Report on Internal Control Over Financial Reporting
.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in
Internal
Control - Integrated Framework
issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. Based
on
our evaluation under the framework in
Internal
Control - Integrated Framework,
our
management concluded that our internal control over financial reporting was
not
effective in ensuring that all information required to be disclosed in reports
that we file or submit under the Exchange Act was available within the time
periods specified in the Securities and Exchange Commission rules and
forms.
in
our
financial statements as of February 28, 2006, as previously noted
above.
Material
Weakness in Internal Control over Financial Reporting
(c)
Material Weakness in Internal Control over Financial Reporting. A material
weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected.
Management has concluded that as of February 28, 2006, the Company did not
maintain effective controls over the preparation, review, presentation and
disclosure of amounts included in our Consolidated Balance Sheet, consolidated
Statements of Operations and Consolidated Statement of Cash Flows and the
related footnotes. Specifically the company did not timely reconcile various
accounts including inventory, fixed assets and other accounts, and were required
to make adjustments during the audit process. In addition, the company was
not
95
applying
appropriate accounting principles with respect to impaired assets and was
required to make adjustments during the audit process for both valuation and
presentation. As a result the company was not able to timely report its
regulatory filings. These control deficiencies could result in a misstatement
of
the Company’s accounts that would result in a material misstatement to the
Company’s presentation and disclosure that would not be prevented or detected.
Accordingly, management has concluded that these control deficiencies constitute
a material weakness.
(d)
Remediation Plan. The remediation plan the Company has implemented provides
for
enhanced procedures which include improved training and review processes to
ensure proper preparation, review, presentation, and disclosure of amounts
included in its balance sheet, operations statement and statement of cash flows.
Accordingly, management believes it has improved the design and effectiveness
of
its internal control over financial reporting; however, not all of the newly
designed controls have operated for a sufficient period of time to demonstrate
operating effectiveness. Therefore, management will continue to monitor and
assess these control procedures to ascertain if the material weakness discussed
above has been remedied. To fully implement these control procedures, the
Company is currently in the process of locating an internal
accountant.
.
(e)
Changes in Internal Controls over Financial Reporting. During the most recent
fiscal year, there have not been any significant changes in our internal
controls over financial reporting or in other factors that have materially
affected, or are reasonably likely to material affect our internal controls
over
financial reporting.
96
PART
III
ITEM
1.
EXHIBITS,
LIST
Exhibit
No.
|
Description
|
2A*
|
Plan
of Exchange between Seychelle Environmental Technologies, Inc. and
Seychelle Water Technologies, Inc. dated January 30, 1998 as filed
with
Form 10-SB 12 G on February 8, 2000.
|
|
|
3A*
|
Articles
of Incorporation dated January 23, 1998 as filed with Form 10-SB
12 G on
February 8, 2000.
|
|
|
3B*
|
Articles
of Merger of Royal Net, Inc. into Seychelle Environmental Technologies,
Inc as filed with Form 10-SB 12 G on February 8, 2000.
|
|
|
3C*
|
Amendment
to Articles of Incorporation re: Series "A" Preferred Stock as of
January
31, 1998 as filed with Form 10-SB 12 G on February 8,
2000.
|
|
|
3D*
|
Amendment
to Articles of Incorporation re: Series "AA" Preferred Stock as of
June 5,
1998 as filed with Form 10-SB 12 G on February 8, 2000.
|
|
|
3E*
|
Amendment
to Articles of Incorporation re: Series "AAA" Preferred Stock as
of
February 18, 1999 as filed with Form 10-SB 12 G on February 8,
2000.
|
|
|
3F*
|
Bylaws
as filed with Form 10-SB 12 G on February 8, 2000.
|
|
|
10A*
|
Purchase
Agreement with Aqua Vision as filed with Form 10-SB 12 G on February
8,
2000.
|
|
|
10B*
|
Amended
Purchase Agreement with Aqua Vision as filed with Form 10-SB 12 G
on
February 8, 2000.
|
|
|
10C*
|
2000
Stock Compensation Plan I, dated July 1, 2000 as filed with Registration
Statement on Form S-8 on August 31, 2000.
|
|
|
10D*
|
2002
Stock Compensation Plan I, dated February 12, 2002 as filed with
Registration Statement on Form S-8 on February 27,
2002.
|
|
|
10E*
|
Purchase
Agreement with Aqua Gear as filed with Annual Report on Form 10-KSB
on
June 14, 2002.
|
|
|
10F*
|
Employment
Contract with Carl Palmer as filed with Annual Report on Form 10-KSB
on
June 14, 2002.
|
97
10G*
|
Management
Consulting Contract with Richard Parsons
|
|
|
10H*
|
Management
Consulting Contract with James Place
|
|
|
10I*
|
Joint
Venture Agreement with Huanghua Plastic Co. Ltd. dated September
1,
2005
|
|
|
10J*
|
ABMS
Health Care Pvt. Ltd. Distribution Rights Agreement dated April 1,
2006
|
|
|
10K*
|
Confident,
Inc. Exclusive Distribution Rights Agreement dated January 1,
2006
|
|
|
10L*
|
Continental
Technologies. Inc., Purchase Agreement dated April 26,
2006
|
|
|
10M**
|
Promissory
Note to TAM Trust dated May 1, 2001
|
|
|
10N**
|
Promissory
Note to TAM Trust dated February 28, 2002
|
|
|
10O**
|
Promissory
Note to TAM Trust dated February 28, 2003
|
|
|
10P**
|
Promissory
Note to TAM Trust dated November 1, 2003
|
|
|
10Q**
|
Promissory
Note to TAM Trust dated February 28, 2004
|
|
|
23**
|
Auditor’s
Consents
|
*
Previously filed with the Securities and Exchange Commission as indicated and
incorporated by reference herein
**
Attached as an exhibit hereto
98
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Seychelle
Environmental Technologies, Inc.
By:
/s/
Carl
Palmer
Carl
Palmer
Director, Chief Executive Officer and
President
Date:
September 12, 2006
By:
/s/
Jim
Place
Jim
Place
Director
and Chief Financial Officer
Date:
September 12, 2006
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
/s/
Carl
Palmer
Director,
Chief Executive Officer and President September 12, 2006
/s/
Jim
Place
Director
and Chief Financial Officer
September 12, 2006
99