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EX-32.2 - EXHIBIT 32.2 - SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CAseychell10q1130x322_11100.htm
EX-31.2 - EXHIBIT 31.2 - SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CAseychell10q1130x312_11100.htm
EX-32.1 - EXHIBIT 32.1 - SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CAseychell10q1130x321_11100.htm
EX-31.1 - EXHIBIT 31.1 - SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CAseychell10q1130x311_11100.htm

 
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 ( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ending November 30, 2010

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _______________ to __________________

Commission File No. 0-29373
 
Seychelle Environmental Technologies, Inc.
(Exact Name of registrant as specified in its charter)

Nevada
33-0836954
(State or other jurisdiction
(IRS Employer File Number)
Of incorporation)
 
   
32963 Calle Perfecto
 
San Juan Capistrano, California
92675
(Address of principal executive offices)
(zip code)
   
(949) 234-1999
(Registrant's telephone number, including area code)
  
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]  No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(Section 232.405 of this chapter) during the preceding 12 months(or such shorter period that the registrant was required to submit and post such files. Yes []  No [ ]

`See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer []                                   
Accelerated filer []
Non-accelerated filer   [] (Do not check if a smaller reporting company)
 Smaller reporting company  [X]

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

The number of shares outstanding of the Registrant's common stock, as of November 30, 2010 was 25,882,646.

References in this document to "us," "we," “Seychelle,” “SYEV,” or "the Company" refer to Seychelle Environmental Technologies, Inc., its predecessor and its subsidiary.
 
 
 
 
 
 

 
 
 

 
FORM 10-Q
 
Securities and Exchange Commission
Washington, D.C. 20549

Seychelle Environmental Technologies, Inc.


TABLE OF CONTENTS

 
Page
PART I  FINANCIAL INFORMATION
 
 
Item 1. Financial Statements
 
                     Condensed Consolidated Balance Sheets 
3
                     Condensed Consolidated Statements of Income
4-5
                     Condensed Consolidated Statements of Cash Flows
7
                     Notes to Condensed Consolidated Financial Statements
7-9
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
Item 3. Quantitative and Qualitative Disclosures About Market Risk
15
Item 4. Controls and Procedures
15
Item 4T. Controls and Procedures
15
   
PART II  OTHER INFORMATION
 
  Item 1. Legal Proceedings
15
  Item 1A. Risk Factors
15
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
15
  Item 3. Defaults Upon Senior Securities
16
  Item 4. Submission of Matters to a Vote of Security Holders
16
  Item 5. Other Information
16
  Item 6. Exhibits
16
   
Signatures
17
   
 
 
 
 
 
 
- 2 -

 
 
 



 
PART I
ITEM 1. FINANCIAL STATEMENTS

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

   
November 30, 2010
   
February 28, 2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
       
Current assets:
           
Cash and cash equivalents
 
$
867,515
   
 
$
502,167
 
Accounts receivable, net of allowance for doubtful accounts and sales returns
               
   of $104,099 and $11,537, respectively
   
307,125
     
224,468
 
Inventory, net
   
290,016
     
383,675
 
    Prepaid expenses and other current assets
   
55,110
     
34,079
 
      Total current assets
   
1,519,766
     
1,144,389
 
Property and equipment, net
   
94,469
     
117,016
 
Intangible assets, net
   
8,538
     
9,742
 
Other assets
   
8,514
     
8,514
 
      Total assets 
 
$
1,631,287
   
1,279,661
 
                       LIABILITIES AND STOCKHOLDERS' EQUITY
               
           
Current liabilities:
               
   Accounts payable and accrued expenses
 
$
187,243
   
134,292
 
   Customer deposits
   
86,788
     
110,538
 
   Accrued interest due to related party
   
-
     
50,034
 
   Notes payable
   
53,037
     
14,870
 
                 
       Total current liabilities
   
327,068
     
309,734
 
   Long-term related party notes payable
   
-
     
471,088
 
 Total liabilities
   
327,068
     
780,822
 
                 
                 
Stockholders' equity:
               
Preferred stock, 6,000,000 shares authorized, none issued or outstanding
   
-
     
-
 
Common stock $0.001 par value, 50,000,000 shares authorized, 25,882,646
    and 25,854,146  shares issued and outstanding, respectively
   
25,883
     
25,854
 
Additional paid-in capital
   
6,932,145
     
6,925,904
 
    Accumulated deficit
   
(5,653,809
)
   
(6,452,919
)
          Total stockholders' equity
   
1,304,219
     
498,839
 
 Total liabilities and stockholders' equity
 
$
1,631,287
   
1,279,661
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
 
 
 
- 3 -

 
 
 


 
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

   
For the Three Months Ended
 
   
November 30,
   
November 30,
 
   
2010
   
2009
 
Revenues
   
1,280,017
   
$
798,604
 
Cost of sales
   
656,554
     
386,428
 
               Gross profit
   
623,463
     
412,176
 
Operating Expenses
               
    Selling and marketing expenses
   
30,302
     
50,725
 
    General and administrative expenses
   
195,267
     
165,904
 
    Executive compensation and related party expenses
   
45,694
     
36,236
 
                 Total  operating expenses
   
271,263
     
252,865
 
Income from Operations
   
352,200
     
159,311
 
Other Income (Expense)
               
     Interest income
   
277
     
141
 
     Interest expense-related parties
   
(841
)
   
(9,652
)
     Interest expense-other
   
(1,393
)
   
(2,854
)
     Other income
   
16,985
 
      -  
                    Total other (income)
   
15,028
 
   
(12,365
)
Income before provision for income taxes
   
367,228
     
146,946
 
Provision for income taxes
   
58,450
     
-
 
Net Income
 
$
308,778
   
$
146,946
 
BASIC INCOME PER SHARE
 
$
0.01
   
$
0.01
 
DILUTED INCOME PER SHARE
 
$
0.01
   
$
0.00
 
BASIC WEIGHTED AVERAGE NUMBER OF
               
SHARES OUTSTANDING
   
25,862,602
     
25,830,410
 
DILUTED WEIGHTED AVERAGE NUMBER OF
               
SHARES OUTSTANDING
   
30,246,097
     
30,276,363
 

 See accompanying notes to condensed consolidated financial statements.
 
 
 
 
- 4 -

 

 

 SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

   
For the Nine Months Ended
 
   
November 30,
   
November 30,
 
   
2010
   
2009
 
Revenues
 
$
3,191,538
   
$
1,829,641
 
Cost of sales
   
1,580,816
     
997,779
 
               Gross profit
   
1,610,722
     
831,862
 
General and Administrative Expenses
               
    Selling and marketing expenses
   
103,197
     
79,148
 
    General and administrative expenses
   
504,463
     
419,960
 
    Executive compensation and related party expenses
   
150,447
     
50,600
 
                 Total  general and administrative expenses
   
758,107
     
549,708
 
Income from Operations
   
852,615
     
282,154
 
Other Income (Expense)
               
     Interest income
   
660
     
443
 
     Interest expense-related parties
   
(9,004
)
   
(28,869
)
     Interest expense-other
   
(3,693
)
   
(9,624
)
     Other income (expense)
   
 16,982
     
(2,613
)
                    Total other (income)
   
4,945
 
   
(40,663
)
Income before provision for income taxes
   
857,560
     
241,491
 
Provision for income taxes
   
58,450
     
-
 
Net Income
 
$
799,110
   
$
241,491
 
BASIC INCOME PER SHARE
 
$
0.03
   
$
0.01
 
DILUTED INCOME PER SHARE
 
$
0.03
   
$
0.01
 
BASIC WEIGHTED AVERAGE NUMBER OF
               
SHARES OUTSTANDING
   
25,856,954
     
25,826,219
 
DILUTED WEIGHTED AVERAGE NUMBER OF
               
SHARES OUTSTANDING
   
30,221,433
     
32,273,172
 

 See accompanying notes to condensed consolidated financial statements.
 
 
 
- 5 -

 


SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
For The Nine Months Ended
 
   
November 30,
   
November 30,
 
   
2010
   
2009
 
             
OPERATING ACTIVITIES:
           
Net income
 
$
799,110
   
$
241,491
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
                 
    Depreciation and amortization
   
36,474
     
41,061
 
    Increase in allowance for doubtful accounts      92,562        9,278  
    Increase (decrease) in inventory reserve      124,882        (59,220 )
    Stock-based compensation
   
6,270
     
15,797
 
    Loss on disposal of fixed assets
   
 34,205
        -  
Changes in operating assets and liabilities:
               
   (Increase) in accounts receivable
   
(175,219
)
   
(149,661
)
   Increase in inventory
   
(31,223
   
228,702
 
   (Increase) in prepaid expenses and other assets
   
(21,031
)
   
(27,425
)
   Increase  in accounts payable and accrued expenses
   
52,951
     
78,355
 
 (Decrease) in accrued interest due to related party
   
(50,034
   
(33,804)
 
   (Decrease) in customer deposits
   
(23,750
)
   
(52,443
)
Net Cash Provided by Operating Activities
   
845,197
     
292,131
 
                 
INVESTING ACTIVITIES:
               
   Purchase of patents
   
(2,705
)
   
(940
)
   Purchase in property and equipment
   
(44,223)
     
(9,808
)
Net Cash Used in Investing Activities
   
(46,928)
     
(10,748
)
                 
FINANCING ACTIVITIES:
               
   Repayment of related party notes payable
   
(471,088)
         
   Net borrowings on notes payable
   
38,167
     
(8,581
)
Net Cash Used in Financing Activities
   
(432,921)
     
(8,581
)
                 
       NET INCREASE IN CASH
   
365,348
     
272,802
 
                 
       CASH AT BEGINNING OF PERIOD
   
502,167
     
160,415
 
                 
       CASH AT END OF PERIOD
 
$
867,515
   
$
433,217
 
                 
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Warrants issued for accrued interest on notes payable
 
$
-
   
$
56,243
 
Stock issued for services
 
$
-
   
$
6,600
 
 
Supplemental disclosures of cash flow information:
               
    Cash paid for:
               
       Interest
 
$
12,697
   
$
9,622
 
       Income taxes
 
$
-
   
$
-
 
                 
See accompanying notes to condensed consolidated financial statements.
 
 
 
- 6 -

 
 
 
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
NOTE 1:    CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by Seychelle Environmental Technologies, Inc., and subsidiary (the “Company”) without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at November 30, 2010, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the February 28, 2010 consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the United States Securities and Exchange Commission.  The results of operations for the interim periods ended November 30, 2010 and 2009 are not necessarily indicative of the operating results for the full years.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. 


NOTE 2:    INCOME PER SHARE

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during each period.  Diluted net income per share is computed by using the treasury stock method and dividing net income by the weighted average number of common shares outstanding during the period after giving effect to all potentially dilutive common stock, consisting of stock warrants.

The denominator for diluted income per share is adjusted to include the effect of dilutive common stock equivalents, consisting of 4,383,495 and 4,364,479 warrants for the three and nine month periods ended November 30, 2010, respectively.  Common stock equivalents, consisting of 1,819,721 and 1,809,721 warrants were considered but were not included in the computation of diluted income per share for the three and nine month periods ended November 30, 2010, respectively, because they would have been anti-dilutive.  Dilutive common stock equivalents for the three and nine month periods ended November 30, 2009 consisted of warrants totaling 6,549,721.


NOTE 3:   COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS

During the three months ended November 30, 2010, the Company issued 28,500 shares of common stock as compensation with a total value of $6,270, which was based on the fair value of the stock on the date of grant.

The Company from time to time has granted warrants in lieu of cash compensation for services performed or financing expenses.  The Company has determined the estimated value of these compensatory warrants using the Black-Scholes pricing model.  There were no expenses charged to operations for compensatory warrants granted in exchange for services for the three and nine month periods ended November 30, 2010 and $1,697 for the three and nine month period ended November 30, 2009.
 
 
- 7 -

 
 
 

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued by the Company.
 
         
Weighted-
 
         
Average
 
   
Warrants
   
Exercise
 
   
Outstanding
   
Price
 
Outstanding at February 28, 2010
   
6,549,721
     
0.25
 
Granted
   
-
     
-
 
Exercised
   
-
     
-
 
Forfeited
   
(100,000)
     
0.40
 
Outstanding at November 30, 2010
   
6,449,721
     
0.25
 
Vested at November 30, 2010
   
6,449,721
     
0.25
 
Exercisable at November 30, 2010
   
6,449,721
     
0.25
 
 
The following table summarizes significant ranges of outstanding warrants as of November 30, 2010:
 
     
Warrants Outstanding
 
Warrants Exercisable
         
Weighted
   
Weighted
     
Weighted
         
Average
   
Average
     
Average
 
       Exercise
 
       Number
 
Remaining
   
Exercise
 
   Number
 
Exercise
     
 Outstanding
 
 Life (Years)
   
 Price
 
     Outstanding
 
Price
$
           0.19
 
        600,000
 
0.002
 
$
0.19
 
        600,000
$
0.19
 
           0.23
 
     4,000,000
 
0.002
   
0.23
 
     4,000,000
 
0.23
 
           0.29
 
        107,221
 
0.002
   
0.29
 
        107,221
 
0.29
 
           0.33
 
     1,700,000
 
0.002
   
0.33
 
     1,700,000
 
0.33
 
           0.16
 
          30,000
 
0.002
   
0.16
 
         30,000
 
0.16
 
           0.25
 
          10,000
 
0.002
   
0.25
 
          10,000
 
0.25
 
           0.40
 
            2,500
 
0.002
   
0.40
 
           2,500
 
0.40
     
    6,449,721
     
  $
0.25
 
    6,449,721
  $
   0.25
 


NOTE 4:    INVENTORY

The Company’s inventory consisted of the following at November 30,2010 and February 28, 2010:
 
 
Raw materials
 
$
117,797
   
$
197,231
 
Finished goods
   
367,763
     
257,106
 
     
485,560
     
454,337
 
Reserve for obsolete and slow moving inventory
   
(195,544
)
   
(70,662
)
   
$
290,016
   
$
383,675
 

 
 
 
 
- 8 -

 
 
 
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5:    LINE OF CREDIT
 
As of November 30, 2010, the Company has a line of credit agreement, totaling $100,000. The line of credit bears interest at the lending institutions’ index rate (3.0% at November 30, 2010) plus two percent and is due February 1, 2011. As of November 30, 2010, the Company has borrowed $50,000 against the line of credit, which is recorded as a note payable on the accompanying consolidated balance sheet. The line of credit agreement does not include any limitations on borrowings or any restrictive debt covenants. 

 

NOTE 6:    CONCENTRATIONS
 
Sales to four significant customers for the three and nine month periods ended November 30, 2010 represented 70% and 65%, respectively, of  total revenue.  For the three and nine months ended November 30, 2009, the Company had sales to one customer that totaled 50% of total revenue in both time periods.
 
As of November 30, 2010, receivable balances from two customers accounted for 44% of total accounts receivable.


NOTE 7:    RELATED PARTY TRANSACTIONS
 
During the three and nine months ended November 30, 2010, payments totaling $17,500 and $60,280, respectively, were made to TAM Irrevocable Trust as compensation for consulting services provided compared to the three and nine months ended November 30, 2009, payments totaled $9,000 and $26,750, respectively.

At February 28, 2010, the Company had outstanding notes payable from the Company’s primary shareholder (the TAM Irrevocable Trust, in which Cari Beck, is the trustee as well as a daughter of Carl Palmer (an officer and Board member) totaling and $471,088. A portion ($299,175) of these notes bore interest at 10% per annum, while $171,913 of the notes payable bore interest at a rate of 3.25%. The Company paid off the outstanding notes payable, including interest, owed to the TAM Irrevocable Trust in September and October, 2010.
 

NOTE 8:  SUBSEQUENT EVENTS

In December 2010, the Company issued warrants to purchase approximately 8.5 million shares of common stock to certain individuals, including related parties, exercisable at $0.21 per share.  The warrants vest over five years and have a ten year life.
 
 
 
- 9 -

 
 
 


ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of Seychelle Environmental Technologies, Inc., and subsidiary (the “Company”) for both the three and nine month periods ended November 30, 2010 and 2009. 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, 2010.  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 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 fiscal 2010 Annual Report on Form 10-K.
 
Description of the Business
 
We were incorporated under the laws of the State of Nevada on January 23, 1998 as a change of domicile to Royal Net, Inc., a Utah corporation that was originally incorporated on January 24, 1986. Royal Net, Inc. changed its state of domicile to Nevada and its name to Seychelle Environmental Technologies, Inc. effective in January 1998.

 
- 10 -

 
 
 

On January 30, 1998, we entered into an Exchange Agreement with Seychelle Water Technologies, Inc., a Nevada corporation (SWT), whereby we exchanged our issued and outstanding capital shares with the shareholders of SWT on a one share for one share basis. We became the parent company and SWT became a wholly owned subsidiary. SWT had been formed in 1997 to market water filtration systems of Aqua Vision International.  Our Company is presently comprised of Seychelle Environmental Technologies, Inc., a Nevada corporation, with one wholly-owned subsidiary, Seychelle Water Technologies, Inc., also a Nevada corporation (collectively, the Company or Seychelle). We use the trade name "Seychelle Water Filtration Products, Inc." in our commercial operations.

Seychelle designs, assembles and distributes water filtration systems. These systems include portable water bottles that can be filled from nearly any available source of water. Patents or trade secrets cover all proprietary products.

Our principal business address is 32963 Calle Perfecto, San Juan Capistrano, California 92675. Our telephone number at this address is 949-234-1999.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Results of Operations
 
Our summary historical financial data is presented in the following table to aid in your analysis. You should read this data in conjunction with this section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations, and our condensed consolidated financial statements and the related notes to the condensed consolidated financial statements included elsewhere in this report. The selected condensed consolidated statements of operations data for the three months and nine months periods ended November 30, 2010 and 2009 are derived from our condensed consolidated financial statements included elsewhere in this report.

Three-month period ended November 30, 2010 compared to the corresponding period in 2009
       
                   
               
Year over
       
   
2010
   
2009
   
year change
   
%
 
                         
                         
Sales
 
$
1,280,017
   
$
798,604
     
481,413
     
60
%
Cost of sales
   
656,554
     
386,428
     
270,126
     
70
%
Gross profit
   
623,463
     
412,176
     
211,287
     
51
%
Gross profit %
   
49
%
   
52
%
               
Selling and  marketing expenses
   
30,302
     
50,725
     
(20,423
   
-40
%
General and  administrative expenses
   
195,267
     
165,904
     
29,363
     
18
%
Compensation to executive officers and related parties
   
45,694
     
36,236
     
9,458
     
26
%
Interest expense to related parties
   
841
     
9,652
     
(8,811
   
-91
%
Net Income
   
308,778
     
146,946
     
161,832
     
110
%
Net Income %
   
24
%
   
18
%
               
 
Sales. Our customer concentration is constantly changing which contributes to much of the fluctuation in sales.  The current period increase in sales is primarily due to sales to four customers who accounted for 70% of sales in the three-month period ended November 30, 2010 compared to 50% in the same period ended November 30, 2009.  There was also a significant increase in website sales for the three-month period ended November 30, 2010 by $57,000 as more and more customers are discovering this means of purchasing our product.  Bottle revenue increased from $135,000 to $320,000.  Replacement filter revenue increased from $75,000 to $159,000.  Additional sales of the filter only were included in sales for the three month period ended November 30, 2010 which increased revenue by $256,000. It is normal for sales by product to fluctuate from quarter to quarter.  Further, sales are expected to continue to increase going forward.
 

 
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Cost of sales and gross profit percentage. The increase in cost of sales is largely a direct result of the 60% increase in sales for the three-month period ended November 30, 2010 from the comparable period in the prior year.  Cost of sales increased by 70% from period to period by comparison, resulting in a decline in gross profit margin to 49% from 52%.  Our profit margin will fluctuate from time to time based on the product mix within sales.  This increase in cost of sales in the current period was partially offset by the sale of some higher gross margin products.   We are continuing to pursue efficiencies in the production process and are negotiating for better filter prices and believe that gross margins will improve further if we are successful in these plans.  Cost of direct materials used in production of product for the three month period ended November 30, 2010 increased by approximately 62% due to a slight increase in a couple of key components and additional products being upgraded or added to the product line compared to the same period in the prior year.

Selling expenses. Selling expenses consist primarily of commissions paid to salespeople, however not all sales are commissionable.  The decrease in selling expenses for the three-month period ended November 30, 2010 when compared to the same period in 2009 is largely a direct result of the decrease in commissionable sales and the increase in customer sales fluctuations.  Since overall sales increased $481,400, the significant decrease in commissionable sales results in selling expenses comprising a smaller percentage of sales than we would normally expect.  Selling expenses comprised 2% of sales for 2010 compared to 6% for 2009.

General and administrative expenses. The increase of $29,363 was due to the increase in sales.. We expect only a slight increase in general and administrative expenses for the remainder of fiscal 2011 as we expand to handle the growth of our sales.

Compensation to executive officers and related parties.  The increase in compensation to executive officers for the three-month period ended November 30, 2010, compared to the three-month period ended November 30, 2009, is due to monthly payments paid to the Company’s officers for services rendered.     During the three months ended November 30, 2010, payments were made totaling $17,500 to the TAM Irrevocable Trust as compensation for consulting.  To further this increase, payments to two officers increased by $3,900 in the period ended November 30, 2010 compared the three months ended November 30 in the prior year.  These increases were discretionary increases based on the Company’s increased profitability in the current year.
 
Interest expense to related parties. The decrease in interest expense to related parties for the three-month period ended November 30, 2010, compared to the three-month period ended November 30, 2009, is due to the repayment on the outstanding notes payable balance during the period ended November 30, 2010.
 
Net Income. Net income for the three-month period ended November 30, 2010 was $308,778 compared to net income of $146,946 for the three-month period ended November 30, 2009.  This was due to the increase in revenues offset by the decrease in gross profit margin discussed above and an increase in general and administrative expense in the three-month period ended November 30, 2010.
 
Nine-month period ended November 30, 2010 compared to the corresponding period in 2009
       
                   
               
Year over
       
   
2010
   
2009
   
year change
   
%
 
                         
                         
Revenues
 
$
3,191,538
   
$
1,829,641
     
1,361,897
     
74
%
Cost of sales
   
1,580,816
     
997,779
     
583,037
     
58
%
Gross profit
   
1,610,722
     
831,862
     
778,860
     
94
%
Gross profit %
   
51
%
   
45
%
               
Selling and  marketing expenses
   
103,197
     
79,148
     
24,049
     
30
%
General and  administrative expenses
   
504,463
     
419,960
     
84,503
     
20
%
Compensation to executive officers and related parties
   
150,447
     
50,600
     
99,847
     
197
%
Interest expense to related parties
   
9,004
     
28,869
     
(19,865
)
   
-69
%
Net Income
   
799,110
     
241,491
     
557,619
     
231
%
Net Income %
   
25
%
   
13
%
               

Revenues. The increase in revenues is primarily due to sales to four customers who accounted for 65% of sales in the period ended November 30, 2010 compared to 50% in the same period of the prior year.  This increase in sales was

 
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further expanded by the fluctuation of sales between customers; however we expect to continue to expand our customer base. Approximately 98,900 plastic bottles were sold during the nine-month period ended November 30, 2010 at an average price of $10.07 per bottle compared to the previous year in which approximately 83,700 plastic bottles were sold at an average price of $9.01. The remaining sales by product for the period ended November 30, 2010 were $704,000 in mission packs, $369,000 in pitchers, $297,000 in replacement filters, and $291,000 in stainless steel bottles compared to the period ended November 30, 2009 in which sales included $343,000 for mission packs, $40,000 in pitchers, $75,000 in replacement filters, and $110,000 in stainless steel bottles.  As noted in the three month discussion, the Company is well positioned to finish out the year well ahead of prior year’s sales.

Cost of sales and gross profit percentage. The increase in cost of sales is primarily a direct result of sales increasing during the nine-month period ended November 30, 2010.  As a percentage of sales, the gross profit margin during the nine months ended November 30, 2010 increased to 51% from 45% for the nine months ended November 30, 2009 due to longer  production runs being centered on a higher quantity of products reducing the labor costs associated with these items.  Our profit margin will also fluctuate from time to time based on the product mix within sales.  The increase in the current period is due to the sale of higher gross margin products.  As mentioned above, a large reason for the increase in sales was a $329,000 increase in sales of the pitcher, a $220,000 increase in replacement filter sales, and a $361,000 increase in sales of the missionary pack versus prior year.  The missionary pack results in a higher margin per unit than many of our other products.  We are continuing to pursue efficiencies in the production process and are negotiating for better filter prices and believe that gross margins will improve further if we are successful in these plans.

Selling expenses. Selling expenses consist primarily of commissions paid to salespeople, however not all sales are commissionable. The increase in selling expenses for the nine-month period ended November 30, 2010 when compared to the same period in 2009 is largely a direct result of the increase in commissionable sales to two customers totaling $66,400 in commission for the period ended November 30, 2010 compared to $57,000 in the same period ended November 30, 2009.  Since overall sales increased $1,361,897, the significant increase in commissionable sales results in selling expenses comprising a smaller percentage of sales than we would normally expect.  Selling expenses comprised 0.3% of sales for 2010 compared to 4.3% for 2009. We expect sales commissions to be approximately 2% of sales for the remainder of fiscal year 2011.

General and administrative expenses. Significant components of general and administrative expenses are printing and reproduction of $30,000 for 2010 compared to $18,000 in 2009 due to different manuals being made in the current year; gift-bonus expense of $18,000 in 2010 compared to $7,200 in 2009 due to an increase in sales; wages and salaries expense of $112,000 in 2010 compared to $104,000 in 2009 due to an employee being hired in June 2009 that is still with the Company, and insurance expense of $47,900 in 2010 compared to $23,500 in 2009 directly reflected by the increase in payroll.  We expect only a slight increase in general and administrative expenses for the remainder of fiscal 2011 as we expand to handle the growth of our sales.

Compensation to executive officers and related parties.  The increase in compensation to executive officers for the nine-month period ended November 30, 2010, compared to the nine-month period ended November 30, 2009, is due to monthly payments paid to the Company’s officers for services rendered.   During the nine months ended November 30, 2010, payments totaling $58,999 were made to the TAM Irrevocable Trust as compensation for consulting.  To further this increase, payments to two officers were increased by $67,500 in the period ended November 30, 2010 compared the nine months ended November 30 in the prior year.  These increases were discretionary increases based on the Company’s increased profitability in the current year.
 
Interest expense to related parties. The decrease in interest expense to related parties for the nine-month period ended November 30, 2010, compared to the nine-month period ended November 30, 2009, is due to the repayment on the outstanding notes payable balance during the period ended November 30, 2010.
 
Net Income. Net income for the nine-month period ended November 30, 2010 was $799,110 compared to $241,491 for the nine-month period ended November 30, 2009.  This was due to the increase in revenues in the nine-month period ended November 30, 2010.  Further, we expect continued improvement in the Company’s profitability since we are proceeding to ramp up the business.


 
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Liquidity and Capital Resources

Net cash provided by operating activities. During the nine-month period ended November 30, 2010, the Company funded its operations primarily through product sales and collection of related receivables. Our accounts receivable increased by $82,657 due to sales increasing the current fiscal year and the timing of collection due to different payment terms created for one of the larger customers. We decreased our inventory levels by $93,659 and increased prepaids by approximately $21,000 in anticipation of continued sales growth in fiscal 2011. Our accounts payable and accrued expenses both increased by $52,951.

Net cash used in investing activities. During the nine-month period ended November 30, 2010, cash used in investing activities was $46,928 for the purchase of property and equipment and intangibles compared to $10,748 during the same time period in the prior fiscal year.
 
Net cash used in financing activities. The increase in cash used in financing activities during the nine-month period ended November 30, 2010 was largely due to repayments totaling $432,921 on notes payable, of which $471,088 was for payments on related party notes payable, compared to $8,581 in the time period of 2009, offset partially by proceeds of $50,000 from increased borrowings under the line of credit.

Our principal sources of liquidity have historically been funds generated from operating activities and borrowings from the TAM Irrevocable Trust, one of our principal shareholders and borrowing under our line of credit. At February 28, 2010, the Company had outstanding notes payable from the Company’s primary shareholder(the TAM Irrevocable Trust, in which Cari Beck, is the trustee as well as a daughter of Carl Palmer an officer and Board member) totaling and $471,088. A portion ($299,175) of these notes bore interest at 10% per annum, while $171,913 of the notes payable bore interest at a rate of 3.25%. The Company paid the outstanding notes payable, including interest, owed to the TAM Irrevocable Trust in September and October, 2010.  The Company believes that despite the increase in sales experienced during the fiscal years ended February 28, 2010 and February 28, 2009 and the nine-month period ended November 30, 2010, additional funding may still be required from the TAM Irrevocable Trust or other shareholders to handle the growth in sales volume. During April 2010, the TAM Irrevocable Trust committed to providing up to $250,000 in additional funding.

As of November 30, 2010, the Company had $867,515 in cash and cash equivalents and $50,000 in borrowings outstanding on its line of credit. The line of credit does not contain any limitations on borrowing or any restrictive debt covenants. The Company believes it has liquidity to meet its operating needs through the balance of fiscal 2011.

Critical Accounting Policies and Estimates
 
The Company’s discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

The Company believes that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of its most recent fiscal 2010 Annual Report on Form 10-K have the greatest potential impact on its consolidated financial statements, so it considers these to be its critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates the Company uses in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for inventory reserves and stock-based compensation. These policies require that the Company make estimates in the preparation of its consolidated financial statements as of a given date.
 
Within the context of these critical accounting policies, the Company is not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

 
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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.


ITEM 4. CONTROLS AND PROCEDURES

Not applicable


ITEM 4T. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a -15(e) and 15(d)-15(e) under the Exchange Act), our Chief Executive Officer and the Chief Financial Officer each have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the applicable time periods specified by the SEC’s rules and forms.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 240.13a-15(e) or Rule 240.15d-15(e) of this chapter that occurred during our most recent fiscal three months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This report does not include an attestation report by the Company’s independent registered public accounting firm regarding internal control over financial reporting.

 
PART II - OTHER INFORMATION
 
ITEM 1.   LEGAL PROCEEDINGS
 
 As of the date of this document, we know of no material legal proceedings pending or threatened or judgments entered against the Company or any of our directors or officers in his or her capacity as such.

 ITEM 1A. RISK FACTORS –

There have been no changes to our Risk Factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 8, 2010.  


ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the nine-month period ended November 30, 2010, the Company issued 28,500 shares of restricted stock to employees for services rendered valued at $6,270.  No warrants or options were issued in the same time period
.
The Company’s previously outstanding warrants expired in December 2010 and new warrants were issued on December 15, 2010 exercisable at $0.21 per share, with a five year vesting period, and have a ten year life.

The Company relied upon exemptions available under Sections 4(2) and 4(6) of the Securities Act of 1933, as amended, and analogous state exemption for the issuance of the foregoing securities.

 


 
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ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None
 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None
 

ITEM 5.  OTHER INFORMATION

                  None
 

ITEM 6.  EXHIBITS

Exhibits

31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
 
31.2
Certification of the 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 pursuant to 18 U.S.C.ss.1350 Section 906 of the Sarbanes-Oxley Act of 2002)
 
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350 Section 906 of the Sarbanes-Oxley Act of 2002)
 
Reports on Form 8-K

We filed the following Form 8-Ks during the fiscal quarter ended November 30, 2010.  On October 18, 2010 we announced our earnings for the fiscal quarter ended August 31, 2010. On November 8, 2010 we announced $1 million in new orders for the fiscal quarter ended November 30, 2010.

 
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SIGNATURES
 
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:  January 13, 2011
By:  
/s/ Carl Palmer
 
Carl Palmer
Director, Chief Executive Officer and President
 
     
  
  
  
Date:  January 13, 2011
By:  
/s/ Jim Place
 
Jim Place
Director and Chief Financial Officer and Chief Operating Officer 
 
 
 
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