SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CA - Quarter Report: 2018 May (Form 10-Q)

 SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

						Weighted-
						Average
		Warrants				Exercise
		Outstanding				Price
Outstanding at March 1, 2018			6,407,221				0.21
Granted			-				-
Exercised			-				-
Forfeited			-				-
Outstanding at May 31, 2018			6,407,221				0.21
Vested at May 31, 2018			6,407,221				0.21
Exercisable at February 28, 2018			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		2.54		$0.21		6,407,221		$0.21

 

 

 

---

 

 

NOTE 9:  INCOME TAX

Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. statutory corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. U.S. GAAP requires that deferred income tax assets and liabilities be remeasured at the income tax rate expected to apply when those temporary differences reverse, and that the effects of any change to such income tax rate be recognized in the period when the change was enacted.

In connection with the Company's initial analysis of the impact of the TCJA, the Company recorded a discrete net tax expense of $282,408 in the year ended February 28, 2018. This net expense is primarily due to the remeasurement of the Company's existing deferred tax assets and liabilities. Due to the Company having a full valuation allowance related to their deferred taxes, the $282,408 discrete tax expense associated with the remeasurement is equally offset by the valuation allowance causing an overall net zero impact on the Company's current tax rate.

The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that a company's accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

We recorded the effects of the TCJA for year ended February 28, 2018 using our best estimates and the information available to us through the date the financial statements were issued. However, our analysis is ongoing and as such, the income tax effects that we have recorded are provisional.

The valuation allowance for deferred tax assets as of February 28, 2018 and February 28, 2017 totaled $611,182 and $1,222,653, respectively.  The net change in the total valuation allowance was an increase of $558,002 and $1,081,998 for the years ended February 28, 2018 and February 28, 2017, respectively. In assessing the realization of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment.  It was determined that it was more likely than not that a full valuation allowance was necessary as of February 28, 2018.

At February 28, 2018, the Company had unused net operating loss carryovers of approximately $496,000 and $927,000 for federal and state tax purposes, respectively, which expire beginning in 2037. 

The Company includes interest and penalties, if any, arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of February 28, 2018, the Company had no accrued interest or penalties related to uncertain tax positions. The tax years that remain subject to examination by major taxing jurisdictions are fiscal years 2014 through 2017 for federal purposes and fiscal years 2013 through 2017 for state purposes.

The Company expects its effective tax rate for the 2019 fiscal year to be different from the federal statutory rate due primarily to a change in valuation allowance.

We recorded a provision for income taxes of $0 and $4,252 for the quarter ended May 31, 2018 and 2017 respectively, related to federal and state taxes, based on the Company's expected annual effective tax rate.

 

---

This discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of Seychelle Environmental Technologies, Inc., and subsidiaries (the "Company") as of and for the three month periods ended May 31, 2018 and 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 in the Company's annual report on Form 10-K for the fiscal year ended February 28, 2018.  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.

 

Forward-Looking Statements

 

Certain statements contained herein are "forward-looking" statements.  Forward-looking statements include statements which are predictive in nature; which depend upon or refer to future events or conditions; or which include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statement concerning future financial performance, ongoing business strategies or prospects, and possible future Company actions that may be provided by management are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company; and economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific intentions to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors including, among others:

(1)	the portable water filtration industry is in a state of rapid technological change, which can render the Company's products obsolete or unmarketable;

 

(2)

any failure by the Company to anticipate or respond to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on the Company's business, operating results and financial condition;

 

(3)	the Company's cost of sales may be materially affected by increases in the market prices of the raw materials used in the Company's assembly processes;

(4)

the Company's dependence on a few customers. Sales to these customers are unpredictable and difficult to estimate, and as such, may result in material fluctuations in sales from period to period. 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;

 

(4)	the Company's water related product sales could be materially affected by weather conditions and government regulations;

 

(5)	the Company is subject to the risks of conducting business internationally; and

 

(6)	the industries in which the Company operates are highly competitive. Additional risks and uncertainties are outlined in the Company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.

---

Description of the Business

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Three-month period ended May 31, 2018 compared to the corresponding period in 2017
										Year over
		2018				2017				year change				%
Sales		$	1,133,901			$	1,208,207				(74,306	)			(6	)%
Cost of sales			603,440				663,782				(60,342	)			(9	)%
Gross profit			530,461				544,425				(13,964	)			(3	)%
Gross profit %			47	%			45	%
Selling general and administrative			424,462				361,090				63,372				18	%
Depreciation and amortization expense			14,472				17,675				(3,203	)			(18	)%
Other (expense) income			1,264				(1,427	)			2,690				(189	)%
Income before provision for income taxes			92,791				164,233				(71,442	)			(44	)%
Provision for income taxes			-				4,252				4,252				(100	)%
Net income			92,791				159,981				(67,190	)			(42	)%
Net income %			8	%			13	%
Earnings per share – basic and diluted		$	0.00			$	0.01

 

 

 

 

 

 

 

 

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.

 

 

ITEM 4.  CONTROLS AND PROCEDURES

 

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

 

 

 

---

 

Exhibit No.		Description
31.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. 

	Seychelle Environmental Technologies, Inc.
Date: July 13, 2018	By:	/s/ Carl Palmer
		Carl Palmer Director, Chief Executive Officer and Chief Financial Officer