SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CA - Annual Report: 2017 (Form 10-K)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act   [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) : Yes [ ] No [X]

 

 

References in this document to "Seychelle", "us," "we," or "Company" refer to Seychelle Environmental Technologies, Inc., a Nevada corporation and our wholly-owned subsidiaries, Seychelle Water Technologies, Inc. and Fill 2 Pure International, Inc., also Nevada corporations.

 

 

Manufacturing

 

Sales channels pursued include: retail, missionaries, multi-level marketing, international, OEM and joint ventures. Several distributors sell the Company's portable water filtration products to customers in specific distribution channels; including: retail, multi-national corporations, foundations and sports.

Raw Materials

Seychelle's filters include powdered, activated coconut and other media as components in the porous plastic ionic filter. To date, we believe there is an 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 companies offering water filtration and bottled water including (1) bottled water, (2) portable water filtration systems and (3) home water treatment systems provided by suppliers (such as independent dealers, distributors, catalogs, internet sellers, etc.) in the form of reverse osmosis systems, distillation, and filtration systems.  Therefore, Seychelle's portable and home filtration products compete in a limited segment of the drinking water market as an alternative to other sources of filtered or purified drinking water.

Seychelle has a negligible share of the world's filtered or purified water market. Our products sell in a niche category of the market - portable filtration bottles that use powder-activated carbon filters that compete with our powder-activated coconut filters with various media called ionic adsorption micron filtration technology (IAMF) which remove many organic and inorganic contaminants that simple activated carbon filters cannot. Most powder activated carbon filters on the market 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. This would include leading brands such as Brita, PUR, General Electric and Culligan, who collectively dominate the home market. In the portable segment of the market, there are hundreds of small companies selling a variety of specialized filters, with no one company having a majority share and no industry data available. We believe that our current share of this market is negligible.

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. Second, the Company offers specially designed products to the same customers as a private label supplier if purchasers buy in significant volume. In some instances, we may supply only filters for their bottles or hydration backpacks as opposed to complete products.

 

Proprietary Information and Technology

 

We previously held two patents, which have expired. The first patent was for the portable water filtration system with the filter cap assembly, Patent # 5,914,045. The second patent, Patent #6,058,971, was for a quick connect diverter valve.  We cannot at this time estimate the financial impact of the expiration of these patents to Seychelle. We currently hold no patents.

 

We have filed and received approval for five trademarks with the United States Patent and Trademark Office which were granted:  Seychelle®, which has been used in commerce since 1997, along with Pres 2 Pure, Fill 2 Pure, pH20 Plus and Aq-RO-matic.

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 current focus of operations, we do not know if governmental regulation will have a material impact on us in the future.

 

Research and Development

We did not spend a significant amount for research and development activities during the fiscal year ended February 28, 2017.  

Environmental Compliance

At the present time, Seychelle is not subject to any material costs for compliance with any environmental laws. With respect to our current focus of operations, we do not know if environmental compliance will have a material impact on us in the future.  

 

 

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.

 

		Net Income (Loss)
February 28, 2017		$	(2,147,224	)
February 29, 2016		$	1,032,941
February 28, 2015		$	(1,405,909	)
February 28, 2014		$	506,797
February 28, 2013		$	635,883
February 29, 2012		$	197,986
February 28, 2011		$	1,711,790
February 28, 2010		$	562,930

We Have a Significant Dependence on a Few Customers.

During the fiscal year ended February 28, 2017, the Company had three customers who accounted for approximately 36%, 9% and 8% (or 53%) of total sales during the fiscal year ended February 28, 2017.   As of February 29, 2016, the Company had three customers who accounted for approximately 34%, 28% and 14% (or 76% total) of total sales during the fiscal year ended February 29, 2016. One of those customers accounted for approximately 68% of net accounts receivable as of February 28, 2017.  As of February 29, 2016, one of those customers accounted for approximately 22% of net accounts receivable. Management believes that if future revenues from its significant customers decline, those revenues can be replaced through the sales to other customers.  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.

 

 

 

 

 

 

The Water Filtration Business is Subject to Intense Competition and Subject to Numerous Risks. Many of Our Competitors Have Substantially Greater Capabilities and Resources and May be Able to Develop and Commercialize Products Before We Do.

The water filtration business is highly competitive with many companies having access to the same market. 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 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. 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.

As an Organization, We are Dependent Upon Technology for the Development of Our Products.

We are operating in a business that requires 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.

 

 

Our directors and executive officers have made a full commitment to our business. The loss of any or all of these individuals could have a materially adverse impact on our operations because we have no succession plan for any of them. We will depend on our senior executive officers as well as other key personnel.  If any key employee decides to terminate his employment with us, this termination could delay the commercialization of our products or prevent us from sustaining our profitability. Competition for qualified employees is intense among companies in our industry and the loss of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could hinder our ability to successfully develop and maintain marketable products. 

 

The Acquisition of Other Technologies Could Result In Operating Difficulties, Dilution and Other Harmful Consequences.  

We may selectively pursue strategic acquisitions, any of which could be material to our business, operating results and financial condition.  Future acquisitions could divert management's time and focus from operating our business.  In addition, integrating an acquired technology is risky and may result in unforeseen operating difficulties and expenditures.

The anticipated benefits of future acquisitions, if consummated, may not materialize.  Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, including our common stock, the incurrence of debt, contingent liabilities, or write-offs of intellectual properties any of which could harm our financial condition.  Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all.

We Face Risks Associated With Currency Exchange Rate Fluctuations.  

Although we currently transact business primarily in U.S. dollars, a large portion of our revenues and related cost of goods sold may be determined in foreign currencies if we continue to expand our international operations.  Conducting business in currencies other than U.S. dollars subjects the Company to fluctuations in currency exchange rates that could have a negative impact on our reported operating results.  Fluctuations in the value of the U.S. dollar relative to other currencies may impact our revenue, cost of goods sold and operating gross margin, and result in foreign currency translation gains and losses.  Historically, we have not engaged in exchange rate hedging activities.

Changes to Financial Accounting or Other Standards May Affect Our Operating Results and Cause Us To Change Our Business Practices.    

We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States.  These accounting principles are issued by the Financial Accounting Standards Board (FASB).  The Securities and Exchange Commission also provides interpretation, guidance and principles in the preparation of financial statements.  A change in those policies could have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced.

 

 

Maintaining and Improving Our Financial Controls and The Requirements Of Being a Public Company May Strain Our Resources, Divert Management's Attention, and Affect Our Ability to Attract and Retain Qualified Members For Our Board of Directors.  

 

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.  The requirements of these rules and regulations increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and may also place undue strain on our personnel, systems, and resources.  The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting.  Fulfilling this requirement can be difficult to achieve and maintain.

 

As a result, management's attention may be diverted from other business concerns, which could harm our business, operating results and financial condition.  These efforts also involve substantial costs.

We May be Impacted By the Implementation of Regulatory Requirements as a Result of the Passage of the Dodd-Frank Act.

 

 

ITEM 2. PROPERTIES

 

 

ITEM 3. LEGAL PROCEEDINGS

 

The Company may be, from time to time, involved in legal proceedings in the normal course of business.  The Company is not involved in any litigation or legal proceedings as of February 28, 2017 which would be deemed material except as described below:

 

 

 

This discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company and its subsidiaries as of and for the fiscal years ended February 28, 2017 and February 29, 2016.  The discussion and analysis that follows should be read together with the consolidated financial statements of Seychelle Environmental Technologies, Inc. and the notes to the consolidated financial statements included elsewhere in this annual report on Form 10-K.  Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company's control.

The Company analyzes its current accounts receivable portfolio and sales returns in accordance with FASB Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. Estimates for potential uncollectible accounts receivable and sales returns are based on a variety of factors, the age of the receivable, historical payment patterns, and actual return experience of specific products or similar products. The Company also reviews its estimates for product returns based on expected return data communicated to us by customers and historical experience.  Management is able to make reasonable and reliable estimates of its allowance for doubtful accounts and product returns based on our history in this business.

Cost of sales and gross profit percentage.  The decrease in cost of sales is largely a direct result of the 60% decrease in sales for the year ended February 28, 2017 as compared to the year ended February 29, 2016.  Cost of sales decreased by only 44%, resulting in gross profit margin decreasing by 79% due partially to the lower volume of business to absorb the company's overhead costs.  Our profit margin will also fluctuate from time to time based on the product mix within sales.

 

 

		Total				Less Than 1 Year				1- 3 Years				3-5 Years				More Than 5 Years
Accounts payable and accrued liabilities		$	476,415			$	476,415			$	-			$	-			$	-
Customer deposits			99,677				99,677				-				-				-
Capital lease			18,791				4,047				14,744				-				-
Other contractual commitments (1)			1,063,179				226,988				700,067				136,124				-
Total contractual obligations		$	1,658,062			$	807,127			$	714,811			$	136,124			$	-
(1) Office lease commitments expiring July 2017 and July 2021 and equipment lease expiring in fiscal year 2020.

 

 

  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

A smaller reporting company is not required to provide the information in this Item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

/s/ Squar Milner LLP

Newport Beach, California
June 14, 2017

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Board of Directors and Stockholders

of Seychelle Environmental Technologies, Inc.:

 

 

 

 

 

---

																	Additional
	Common Stock								Treasury Stock								Paid-In				(Accumulated
	Shares				Amount				Shares				Amount				Capital				Deficit)				Total
Balance at February 28, 2015			25,913,646			$	25,914				-			$	-			$	8,457,603			$	(4,806,372	)		$	3,677,145
Stock-based compensation			476,667				477				-				-				369,515				-				369,992
Treasury stock at cost			-				-				36,000				(12,280	)			-				-				(12,280	)
Net income			-				-				-				-				-				1,032,941				1,032,941
Balance at February 29, 2016			26,390,313			$	26,391				36,000				(12,280	)		$	8,827,118			$	(3,773,431	)		$	5,067,798

Stock-based compensation			250,000				250				-				-				117,250				-				117,500
Treasury stock at cost			-				-				30,000				(17,400	)			-				-				(17,400	)
Net loss			-				-				-				-				-				(2,147,224	)			(2,147,224	)
Balance at February 28, 2017			26,640,313			$	26,641				66,000			$	(29,680	)		$	8,944,368			$	(5,920,655	)		$	3,020,674

This summary of significant accounting policies of the Company is presented to assist in understanding the Company's consolidated financial statements.  The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States and have been consistently applied in the preparation of the consolidated financial statements herein as of and for the years ended February 28, 2017 and February 29, 2016.

 

Inventory is stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Inventory is comprised of raw materials and finished goods.  Raw materials consist of fittings, caps and other components necessary to assemble the Company's finished goods.  Finished goods consist of water bottles and other filtration systems that are available for shipment to customers.  Finished goods and work in process include the costs of materials, labor and an allocation of overhead.  Total overhead allocated to inventory as of February 28, 2017 and February 29, 2016 amounted to approximately $234,000 and $505,000 respectively.

  

At each balance sheet date, the Company evaluates its ending inventory for excess quantities and obsolescence.  This evaluation includes an analysis of sales levels by product type.  Among other factors, the Company considers current product configurations, historical and forecasted demand, market conditions and product life cycles when determining the net realizable value of the inventory.  Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values.  Once established, write-downs are considered permanent adjustments to the cost basis of the excess or obsolete inventory.  The Company's reserve for excess and obsolete inventory amounted to approximately $416,000 and $40,000 as of February 28, 2017 and February 29, 2016 respectively.

The carrying value of long-lived assets, such as property and equipment and intangible assets, are evaluated when indicators of impairment are present. Impairment is assessed when the undiscounted future cash flows estimated to be generated by those assets are less than the assets' carrying amount. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company recorded an impairment charge for certain intangible assets in the amount of $50,000 for the year ended February 28, 2017.

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements

NOTE 2:   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company follows FASB ASC Topic 718, Compensation – Stock Compensation, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains services in share based payment transactions. ASC 718 requires entities to measure the cost of services received in exchange for equity instruments, including stock options and warrants, based on the grant date fair value of the award and to recognize it as compensation expense over the period services are to be provided, usually the vesting period.

The fair value of options and warrants is calculated using the Black-Scholes option-pricing model. This model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions. As such, the values derived from using that model can differ significantly from other methods of valuing the Company's stock based compensation arrangements. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.  These factors could change in the future, affecting the determination of stock based compensation expense in future periods.

The Company's fair value calculations for stock based compensation awards have been based on the following assumptions relates to year end February 29, 2016.

The Company utilizes the asset and liability method of accounting for income taxes.  The asset and liability method requires that the current or deferred tax consequences of all events recognized in the consolidated financial statements be measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.

The Company also follows ASC 740-10-25, which provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise's financial statements in accordance with ASC 740, "Accounting for Income Taxes".  ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  

Basic net (loss) income  per common share is computed by dividing net (loss) income by the weighted average number of outstanding common shares during each of the periods presented. Diluted net income per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method.

		For the year ended
		February 28,				February 29,
		2017				2016
Numerator:
Net (loss) income available to common shareholders		$	(2,147,224	)		$	1,032,941
Weighted average shares – basic			26,574,313				26,210,545
Net (loss) income per share – basic		$	(0.08	)		$	0.04
Dilutive effect of common stock equivalents:
Warrants			-				3,130,763
Weighted average shares – diluted			26,574,313				29,341,308
Net (loss) income  per share – diluted		$	(0.08	)		$	0.04

 

 

 

 

NOTE 3:   INVENTORY

 

 

 

Fixed assets outside the United States included approximately $330,000 and $318,000 in tooling and equipment, at cost, located in various third party locations which manufacture the Company's component parts at February 28, 2017 and February 29, 2016, respectively. Depreciation expense included in operating expense was $79,434 and $84,119 for the fiscal years ended February 28, 2017 and February 29, 2016, respectively.

 

The following is a summary of intangible assets at February 28, 2017 and February 29, 2016:

 

 

 

NOTE 6:    CAPITAL LEASE OBLIGATIONS

 

Fiscal Year Ending
February 28,		Amount
2018		$	4,267
2019			5,403
2020			5,938
2021			3,183
Total		$	18,791

 

						Weighted-
						Average
		Warrants				Exercise
		Outstanding				Price
Outstanding at March 1, 2015			8,407,221				0.21
Granted			-				-
Exercised			-				-
Forfeited			(2,000,000)				-
Outstanding at February 29, 2016			6,407,221				0.21
Granted			-				-
Exercised			-				-
Outstanding at February 28, 2017			6,407,221				0.21
Vested at February 28, 2017			6,407,221				0.21
Exercisable at February 28, 2017			6,407,221				0.21

		Warrants Outstanding						Warrants Exercisable
				Weighted		Weighted				Weighted
				Average		Average				Average
				Remaining		Exercise		Number		Exercise
Exercise Price		Number		Life (Years)		Price		Outstanding		Price
	$0.21		6,407,221		4.79		$0.21		6,407,221		$0.21

NOTE 9:   INCOME TAXES

		Current				Deferred				Total
Year ended February 29, 2017:
U.S. federal		$	(261,967	)			501,492				239,525
State			(25,884	)			88,498				62,614
Total income tax expense (benefit)		$	(287,851	)			589,990				302,139
Year ended February 28 2016:
U.S. federal		$	256,530				548,162				804,692
State			57,973				96,734				154,708
Total income tax expense		$	314,503				644,896				959,399

		February 28,				February 29,
		2017				2016
Deferred tax assets:
NOL carryforwards		$	379,326			$	-
Depreciation			(80,545	)			29,725
Reserves and accrued expenses			202,471				160,027
Stock compensation			645,673				564,626
Other			75,728				-
Valuation allowance			(1,222,653	)			(140,655	)
Net deferred tax assets		$	-			$	613,723

Fiscal Year Ending
February 28,		Amount
2018			270,000
2019			245,000
2020			252,000
2021			259,000
Thereafter			109,000
Total		$	1,135,000
Rent from SJC			(33,000	)
Total			1,102,000

 

 

 

 

_____________

 

(1)    Sales are based on the country of residence of the customer.

 

Long lived assets at February 28, 2017 are in the following geographic areas:

 

		United States				China				Total
Property and equipment, net		$	75,909			$	89,088			$	164,997
Other assets			81,310				-				81,310
Total		$	157,219			$	89,088			$	246,307

Long lived assets at February 29, 2016 are in the following geographic areas:

 

 

 

NOTE 12:   SUBSEQUENT EVENTS

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosure. As required by Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.  Based on the foregoing, our principal executive and principal financial officer concluded that our disclosure controls and procedures are not effective to ensure the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed and reported within the time periods specified in the SEC's rules and forms.

Management's Annual Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (US GAAP) and includes those policies and procedures that:

●	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

●

provide reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements;

●	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

●

provide reasonable assurance that the transactions are recorded  as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Management has used the framework set forth in the report entitled Internal Control-Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of February 28, 2017.

A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at February 28, 2017:

(1)	lack of a functioning audit committee and lack of a majority of outside directors on the Company's Board of Directors capable to oversee the audit function;

(2)	inadequate segregation of duties due to limited number of personnel, which makes the reporting process susceptible to management override;

(3)	insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements;

 

(4)	ineffective controls over period end financial disclosure and reporting processes; and

Changes in Internal Control over Financial Reporting

There was no change in internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

 

ITEM 9B. OTHER INFORMATION

NONE

 

 

Carl Palmer	83	Chief Executive Officer ("CEO"), President, Chief Financial Officer and Director
Cari Beck	56	Secretary-Treasurer, HR Manager and Director
John Beck	59	Director
Gary Hess	56	Director
Jenevieve Fisher	46	Director

 

 

 

 

 

 

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.

 

 

Item 11.  EXECUTIVE COMPENSATION

 

The following table sets forth the Summary Compensation Table for the President and the 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.   

 

 

																Long Term Compensation
				Annual Compensation												Awards								Payouts
(a)		(b)		(c)				(d)				(e)				(f)				(g)				(h)				(i)
												Other				Restricted				Securities								All
												Annual				Stock				Underlying				LTIP				Other
Fiscal				Salary				Bonus				Compensation				Award(s)				Option/SARs				Payouts				Compensation
Name and Principle Position		Year		($)				($)				($)				($)					(#)			($)				($)
Carl Palmer		2017		$	45,250			$	0.00			$	0.00			$	0.00			$	0.00			$	0.00			$	0.00
President, CEO, CFO		2016			45,000				80,000				0.00				0.00				0.00				0.00				0.00
Director		2015			0.00				0.00				0.00				0.00				0.00				0.00				0.00
Cari Beck (1)		2017			8,219				0.00				0.00				0.00				0.00				0.00				0.00
HR Manager/Sec-Treasurer		2016			0.00				0.00				0.00				0.00				0.00				0.00				0.00
Director		2015			0.00				0.00				0.00				0.00				0.00				0.00				0.00
James Place(2)		2017			48,103				0.00				0.00				0.00				0.00				0.00				0.00
Former COO and CFO		2016			40,874				0.00				0.00				0.00				0.00				0.00				0.00
2015				$	39,762			$	4,784			$	0.00			$	0.00			$	0.00			$	0.00			$	0.00