| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2: SIGNIFICANT ACCOUNTING POLICIES 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 29, 2016 and February
28, 2015. Basis of Presentation The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America. Principles of Consolidation The Company is presently comprised of Seychelle Environmental Technologies,
Inc., a Nevada corporation, with two wholly-owned subsidiaries, Seychelle Water Technologies, Inc., and Fill 2 Pure International,
Inc., also Nevada corporations (collectively, the Company or Seychelle). All significant intercompany transactions and balances
have been eliminated in consolidation. Use of 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 periods.
Significant estimates made in preparing the consolidated financial statements include the allowance for doubtful accounts and sales
returns, stock-based compensation, inventory reserves, valuation allowances for property and equipment and intangible assets, and
the deferred income tax valuation allowance. To the extent there are material differences between estimates and the actual results,
future results of operations will be affected. The current economic environment has increased the degree of uncertainty
inherent in these estimates and assumptions. Cash and Cash Equivalents Cash equivalents are comprised of certain highly
liquid investments with original maturities of three months or less when purchased. The Company maintains its cash and
cash equivalents in bank deposit accounts which at times may exceed federally insured limits of $250,000. The Company
has not experienced any losses related to this concentration of risk. Deposits exceeded insured limits by approximately $1,693,000
as of February 29, 2016. Accounts Receivable The Company performs periodic credit evaluations of its customers'
financial condition and does not require collateral. Trade receivables generally are due in 30 days. An allowance for doubtful
accounts is recorded when it is probable that all or a portion of a trade receivable balance will not be collected. Revenue Recognition The Company recognizes revenue when persuasive
evidence of an arrangement exists, products are shipped and title has passed, the price to the buyer is fixed or determinable and
collectability is reasonably assured. These criteria are typically met when the product is shipped. Revenue is not recognized
at the time of shipment if these criteria are not met. Certain of the Company's sales include a right for the customer
to return the product if they are not satisfied. The Company 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. In accordance
with FASB ASC Topic 605, Revenue Recognition Inventory 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 29, 2016 and February 28, 2015 amounted to approximately $505,000 and $216,000, 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 $40,000 as of February 29, 2016 and February 28, 2015. 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, five years for computers and vehicles, and five
to seven years for furniture and equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated
useful life of the respective asset. Management evaluates useful lives regularly in order to determine recoverability. 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. Intangible Assets Intangible assets include intellectual property,
patents and trademarks. All patents and trademarks are capitalized and amortized over the economic useful lives 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. Long-Lived Assets 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 $100,000 for the year ended February 29, 2016. Customer Deposits Customer deposits represent advance payments
received for products and are recognized as revenue in accordance with the Company's revenue recognition policy. Fair Value of Financial Instruments For certain financial instruments, including
accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their relatively
short maturities. Cost of Sales Cost of sales is comprised primarily of the
cost of purchased product, as well as labor, inbound freight costs, allocated overhead costs and other material costs
required to complete products, including inventory markdowns due to excess and obsolete inventory. Shipping and Handling All amounts billed to customers relating to
shipping and handling are reported as a component of sales. Costs incurred by the Company for shipping and handling, including
transportation costs paid to third party shippers, are reported as a component of cost of sales. Sales Tax The Company collects sales tax in various jurisdictions.
Upon collection from customers, it records the amount as a payable to the related jurisdiction. On a periodic basis, it files a
sales tax return with the jurisdictions and remits the amount indicated on the return. Advertising Advertising costs are expensed as incurred. Total
advertising expenses amounted to approximately $10,700 and $3,700 for the fiscal years ended February 29, 2016 and February 28,
2015, respectively, and recorded as selling, general and administrative expenses in the accompanying consolidated statements of
operations. Research and Development Research and development costs are expensed
as incurred and amounted to approximately $2,000 and $1,000 for the fiscal years ended February 29, 2016 and February 28,
2015, respectively. These costs are included in selling, general and administrative expenses in the accompanying consolidated statements
of income. Stock-Based Compensation The Company follows FASB ASC Topic 718, Compensation
Stock Compensation 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.
Expected life in years 7
Stock price volatility 244%
Risk free interest rate 2.9%
Expected dividends None The assumptions used in the Black-Scholes model
referred to above are based upon the following data: (1) The expected life of the option or warrant is estimated by considering
the contractual term, the vesting period and the expected exercise price. (2) The expected stock price volatility of the underlying
shares over the expected life is based upon historical share price data. (3) The risk free interest rate is based on published
U.S. Treasury Department interest rates for the expected life. (4) Expected dividends are based on historical dividend data and
expected future dividend activity. Income Taxes 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" Income (Loss) Per Common Share Basic net income (loss) per common share is
computed by dividing net income (loss) 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. During the years ended February 29, 2016 and February 28, 2015,
0 and 6,725,776 warrants, respectively, were excluded from diluted income (loss) per share as their inclusion would be anti-dilutive.
For the year ended
February 29, February 28,
2016 2015
Numerator:
Net (loss) income available to common shareholders $ 1,032,941 $ (1,405,909 )
Weighted average shares basic 26,210,545 25,902,194
Net income per share basic $ 0.04 $ (0.05 )
Dilutive effect of common stock equivalents:
Warrants 3,130,763 -
Weighted average shares diluted 29,141,308 25,902,194
Net (loss) income per share diluted $ 0.04 $ (0.05 ) Concentrations The Company utilizes the services of two individuals,
one of which is a related party and one of which is third-party, in China to source materials and the manufacturing of component
parts with third-party vendors in China. As of February 29, 2016 and February 28, 2015, the Company had deposits for inventory
purchases in China of approximately $25,000 and $37,000, respectively. For the fiscal years ended February 29, 2016 and February
28, 2015, purchases facilitated through the related party accounted for approximately 34% and 46%, respectively, of total raw material
purchases. The Company has two other vendors that respectively accounted for an additional 20% and 17% of raw material
purchases for the fiscal year ended February 29, 2016 and 18% and 12% of total raw material purchases for the fiscal year ended
February 28, 2015. For the year ended February 29, 2016, we had three customers that
accounted for 34%, 28% and 14% (or 76% total) of our total sales. As of February 29, 2016, one of these customers accounted
for 22% of net accounts receivable. Our largest customer during the year ended February 29, 2016, has raised concerns regarding
the effectiveness of certain of our filters, in particular, the efficacy of fluoride removal. The likelihood of this customer
continuing to purchase our product is remote. The Company has agreed to replace any filters for this customer. While
the Company believes it is adequately reserved for any potential future returns, there can be no assurance that future returns
will not exceed our estimate.For the year ended February 28, 2015, we had four customers that accounted for 66% (7%, 33%, 12% and
14%) of our total sales. As of February 28, 2015, the Company had four customers who accounted for approximately 76% of net accounts
receivable (37%, 14%, 13% and 12%, respectively). Reclassifications Certain reclassifications have been made to the fiscal 2015 consolidated
financial statements to conform to the fiscal 2016 presentation. Recent Accounting Pronouncements On May 28, 2014, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial StatementsGoing ConcernDisclosures of Uncertainties about an entity's Ability to Continue
as a Going Concern In February 2016, the FASB issued ASU 2016-02,
"Leases (Topic 842)," Management does not believe any other recently
issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company's present or future
consolidated financial statements. |
