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 (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. At November 30, 2016, management determined that a deferred tax asset valuation allowance was not necessary due to the Company's profitability in recent years. Management will continue to evaluate the need for a deferred tax asset valuation allowance going forward each reporting period.
NOTE 6: CONCENTRATIONS
Sales to one customer accounted for 38% and 37%, respectively, of sales for the three and nine month period ended November 30, 2016. Accounts receivable from this customer amounted to $518,242 or 59% of accounts receivable as of November 30, 2016.
Sales to two customers accounted for 61% and 64%, respectively, of sales for the three and nine month period ended November 30, 2015. Accounts receivable from these two customers amounted to $702,797 or 84% of accounts receivable as of November 30, 2015.
NOTE 7: RELATED PARTY TRANSACTIONS
During the three month periods ended November 30, 2016 and 2015, payments totaling $12,350 and $37,500, respectively, and during the nine month periods ended November 30, 2016 and 2015, payments totaling $49,090 and $112,500 respectively, were made to TAM Irrevocable Trust ("TAM") for consulting services, in which Cari Beck, is a trustee
,
as well as
a Director of the Company and
the daughter of the Company's CEO, Founder and President.
During the three month periods ended November 30, 2016 and 2015, TAM purchased, on behalf of the Company, $61,884 and $185,000 respectively, of raw materials, respectively, from a vendor with which it already had a business relationship. During the nine month periods ended November 30, 2016 and 2015, TAM purchased, on behalf of the Company, $86,734 and $393,000, respectively, of raw materials, and paid $0 and $3,500, respectively, for related tooling to a vendor with which it already had a business relationship.
As of November 30, 2016 and February 29, 2016, the Company had receivables from employees of $27,350 and $39,575. These amounts are being repaid through direct payroll withdrawals.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS
NOTE 8: COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated on three operating leases at November 30, 2016: two in San Juan Capistrano, California (as previously reported in the Company's Form 10-K/A filed with the Securities and Exchange Commission for the year ended February 29, 2016) and one (new) in Aliso Viejo, California. The Company moved its corporate headquarters from San Juan Capistrano to Aliso Viejo during August 2016 and combined its corporate offices with warehouse and production space, which were previously in separate locations. The Company has sub-leased its prior office space location to a third party in connection with the move, and is attempting to sub-lease the remaining San Juan Capistrano location to other third parties.
The sub-lease was effective September 1, 2016, provides the Company with rental income of $6,505 per month, and expires July 31, 2017.
The Company's Aliso Viejo lease was effective August 1, 2016, requires monthly payments of $19,446, with graduated annual increases, and expires in July 2021.
Litigation
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 November 30, 2016, which would be deemed material except as described below:
On September 26, 2016, the Company was served with a complaint by a former employee alleging breach of contract. The Company believes the case is without merit and intends to vigorously defend itself in this matter. No outcome or range of loss can be determined at this time.
NOTE 9: SUBSEQUENT EVENTS
There are no subsequent events to report.