SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CA - Annual Report: 2018 (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 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, 2018.  

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, 2018		$	660,907
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

We Have a Significant Dependence on a Few Customers.

During the fiscal year ended February 28, 2018, the Company had three customer who accounted for approximately 33%, 12% and 11% (or 56%) of total sales during the fiscal year ended February 28, 2018.  As of 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.  One of those customers accounted for approximately 33% and 60% of net accounts receivable as of February 28, 2018 and February 28, 2017, respectively.  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

 

 

 

 

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, 2018 and February 28, 2017.  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.

 

 

 

 

Legal expenses.  The decrease in legal expenses of $211,679 is due to fees for employment matters/product design and performance not recurring in 2018.

Impairment of intangible assets. The Company did not record any impairment charge during the fiscal year ended February 28, 2018.  The Company recorded an impairment charge of $50,000 the balance of purchased intellectual property from a related party for $150,000 in fiscal year ended February 28, 2017.

Selling, general and administrative. The selling, general and administrative expenses decreased $799,340, or (33%), from prior year. This decrease was a direct result of the decrease in personnel costs incurred in reductions of the Company's management and Board of Directors.

Interest income and expense. Interest income and expense was relatively consistent from year to year.

Other income and expense.  Other income and expense increased $32,253, or 6790%.

 

Provision for income taxes.   The Company recorded an income tax expense of $6,697 with pretax income of $667,603.  In the fiscal year ended February 28, 2017 the company recorded an income tax provision of $302,140. 

 

Net Income (loss).  The net income for the year ended February 28, 2018 is $660,907 compared to the net (loss) for the year ended February 28, 2017 of $2,147,224 ($0.02 income per basic share and $0.02 per diluted share).

 

 

 

  

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

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of Seychelle Environmental Technologies, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Seychelle Environmental Technologies, Inc. and its subsidiaries (the Company) as of February 28, 2018 and 2017, the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

We have served as the Company's auditor since 2016.

 

Newport Beach, California

 

June 8, 2018

Consolidated Statements of Stockholders' Equity

For the Years Ended February 28, 2017 and February 29, 2016

 

		Common Stock Shares				Amount				Treasury Stock Shares				Amount				Additional Paid-In Capital				Accumulated Deficit				Total
Balance at February 28, 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
Net income			-				-				-				-				-				660,907				660,907
Balance at February 28, 2018			26,640,313			$	26,641				66,000			$	(29,680	)		$	8,944,368			$	(5,259,748	)		$	3,681,581

 

 

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, 2018 and February 28, 2017.

 

Inventory is stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Inventory is comprised of raw materials and finished goods.  Raw materials consist of fittings, caps and other components necessary to assemble the Company's finished goods.  Finished goods consist of water bottles and other filtration systems that are available for shipment to customers.  Finished goods and work in process include the costs of materials, labor and an allocation of overhead.  Total overhead allocated to inventory as of February 28, 2018 and February 28, 2017 amounted to approximately $68,000 and $234,000, 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 $185,000 and $416,000 as of February 28, 2018 and February 28, 2017, respectively.

The carrying value of long-lived assets, such as property and equipment, are evaluated when indicators of impairment are present. Impairment is assessed when the undiscounted future cash flows estimated to be generated by those assets are less than the assets' carrying amount. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. 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 restricted stock, based on the grant date fair value of the award and to recognize it as compensation expense over the period services are to be provided, usually the vesting period.

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

The Company's fair value calculations for stock based compensation awards have been based on the following assumptions relates to year end February 28, 2018.

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.  

 

 

 

 

NOTE 3:   INVENTORY

 

 

The following is a summary of property and equipment at February 28, 2018 and February 28, 2017:
	February 28,				February 28,
	2018				2017
Tooling		$	408,453			$	380,529
Equipment			63,117				60,268
Computer equipment			63,520				63,520
Leasehold equipment			-				-
			535,090				504,317
Less: accumulated depreciation and amortization			(399,551	)			(339,320	)
Total		$	135,539			$	164,997

 

		February 28,				February 28,
		2018				2017
Intellectual property		$	-			$	-
Trademarks			24,100				24,100
Patents			22,560				22,560
			46,660				46,660
Less: accumulated amortization			(46,660	)			(46,660	)
Total		$	-			$	-

 

NOTE 6:    CAPITAL LEASE OBLIGATIONS

			February 28, 2018				February 28, 2017
Capital lease for equipment requiring monthly payments of principal and Interest of $546 through August 2020 bearing interest at an annual rate of 9.5%			16,914				22,918
Total capital lease obligations, principal and interest			16,914				22,918
Less amount representing interest			(2,430	)			(4,127	)
Total capital lease obligations, principal			14,484				18,791
Less current portion			(5,402	)			(4,047	)
Long term portion		$	9,802			$	14,744

Fiscal Year Ending
February 28,		Amount
2019			5,402
2020			5,938
2021			3,144
Total		$	14,484

 

NOTE 7:   RELATED PARTY TRANSACTIONS

 

		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		2.79		$0.21		6,407,221		$0.21

NOTE 9:   INCOME TAXES

		Current				Deferred				Total
Year ended February 28, 2018:
U.S. federal		$	(2,970	)			-				(2,970	)
State			9,667				-				9,667
Total income tax expense (benefit)		$	6,697				-				6,697
Year ended February 28 2017:
U.S. federal		$	(261,967	)			501,492				239,525
State			(25,884	)			88,498				62,614
Total income tax expense		$	(287,851	)			589,990				302,139

		2018				2017
Expected tax (benefit) provision		$	212,520			$	(627,328	)
State Income tax (benefit) provision			40,088				(105,566	)
Other			28,468				(46,965	)
Change in tax rate			282,408				-
Permanent differences			1,215				-
Change in valuation allowance			(558,002	)			1,081,998
Income tax provision		$	6,697			$	302,139

		February 28,				February 28,
		2018				2017
Deferred tax assets:
NOL carryforwards		$	158,318			$	379,326
Depreciation			(23,600	)			(80,545	)
Reserves and accrued expenses			70,171				202,471
Stock compensation			-				645,673
Other			406,293				75,728
Valuation allowance			(611,182	)			(1,222,653	)
Net deferred tax assets		$	-			$	-

 

 

 

 

 

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

 

Long lived assets at February 28, 2018 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, 2018.

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, 2018:

(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

 

 

 

Cari Beck. Secretary-Treasurer, HR Manager and Director. From 1992-2002, Mrs. Beck worked as the production coordinator for Krystal Enterprises, one of the largest limousine manufacturers in the world.  During her time at Krystal Enterprises, Mrs. Beck worked collaboratively with major US auto manufacturers to purchase chassis for limousine production.  She was responsible for coordinating all aspects of production and accounts receivable to ensure timely delivery and satisfaction to the customer.  She was instrumental in coordinating the preparation, organization and set up for all quarterly trade shows.  Mrs. Beck worked directly with the Executive Vice President handling the company's national accounts and maintaining inventory levels on all finished products. During her tenure, Krystal Enterprises grew from a company producing 20 vehicles to 150 monthly. For the past seven years Mrs. Beck has consulted for Seychelle (in her role as the trustee of the TAM Trust), with a focus on manufacturing, assembly and process control. Ms. Beck became a Director in April 2016.

 

John Beck. Mr. Beck currently holds the position of Vice President of Operations at Grech Motors, a private company.  He has a history of being a part of a team working to help companies grow.  From 1976-1986, Mr. Beck worked for Quality Bowling Corporation where he started as the sixth employee hired and finished his time there as a purchasing agent in a company that had grown to over 40 employees. In 1983, Mr. Beck purchased his first limousine and started a part-time limousine venture that led to a 30-year career with Krystal Enterprises, a private company.  His responsibilities included sales, marketing, and substantial input on design and production.  Over his 30 years at Krystal Enterprises, sales grew from $150,000 a month during the early 1980's to approximately $10 million a month in sales during the late 1990's.  After Krystal Enterprises was sold in 2011, Mr. Beck retired.  Not long after retiring he began consulting and then was hired on as the Vice President of Operations for Grech Motors. Mr. Beck became a Director in May 2016.

 

Jenevieve Fisher. Ms. Fisher has been devoted, since the age of twenty-two, to helping others negotiate the challenges of dealing with a diagnosis of cancer.  As a cancer survivor of Hodgkin's disease, she has committed herself to bringing health education, encouragement and hope to those living with cancer and their families.  She has been an avid supporter of the American Cancer Society, the Leukemia and Lymphoma Society and the National Childhood Cancer Foundation.  She is also a member of the Society of Children's Book Writers and Illustrators, as well as the Northwest Christian Writer's Association.  She has written and film over one hundred health videos.

Gary Hess. Mr. Hess has sixteen years of experience in the water filtration business.  For the past eleven years, he has managed his own engineering firm, Hess & Associates, which specializes in industrial water reclamation with a focus on removing heavy metals and environmental toxins from process water.  His company services and supports some of the largest military Printed Circuit Board manufacturers in the U.S., treating in excess of 2 million gallons of water per day using proprietary chemistry, procedures and equipment.

 

 

 

 

 

 

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	2018		$	120,875			$	0.00			$	0.00			$	0.00				0.00			$	0.00			$	0.00
President, CEO, CFO	2017			45,250				0.00				0.00				0.00				0.00				0.00				0.00
Director	2016			45,000				80,000				0.00				0.00				0.00				0.00				0.00
Cari Beck (1)	2018			43,781				0.00				0.00				0.00				0.00				0.00				0.00
HR Manager/Sec-Treasurer	2017			8,219				0.00				0.00				0.00				0.00				0.00				0.00
Director	2016			0.00				0.00				0.00				0.00				0.00				0.00				0.00
James Place(2)	2018			0.00				0.00				0.00				0.00				0.00				0.00				0.00
Former COO and CFO	2017			48,103				0.00				0.00				0.00				0.00				0.00				0.00
2016			$	40,874			$	0.00			$	0.00			$	0.00				0.00			$	0.00			$	0.00