UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
( X ) QUARTERLY REPORT UNDER SECTION
13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
quarterly period ending August 31, 2008
(
) 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)
|
|
|
33012
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 registrant filed all documents and reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 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 August 31,
2008 was 25,757,003. Moreover, the aggregate market value of the voting stock of
the Registrant held by non-affiliates as of October 7, 2008 was
approximately $6,100,000.
Transitional
Small Business Disclosure Format (Check one): Yes [ ] No
[X]
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-QSB
Securities
and Exchange Commission
Washington,
D.C. 20549
Seychelle
Environmental Technology, Inc.
INDEX
|
Item
|
Description
|
Page
|
|
Part
I
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
Financial
Statements
|
|
|
Condensed
Consolidated Balance Sheets as of August 31, 2008 (unaudited) and February
29, 2008 (audited)
|
3
|
|
|
Condensed
Consolidated Statements of Operations for the three months and six months
ended August 31, 2008 (unaudited) and 2007 (unaudited)
|
4
|
|
|
Condensed
Consolidated Statements of Cash Flows for the six months ended August 31,
2008 (unaudited) and 2007 (unaudited)
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
7
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
Item
3.
|
Controls
and Procedures
|
19
|
|
Part
II
|
OTHER
INFORMATION
|
|
|
Item
1.
|
Legal
Proceedings
|
20
|
|
Item
2.
|
Changes
in Securities
|
20
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
20
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
20
|
|
Item
5.
|
Other
Information
|
20
|
|
Item
6.
|
Exhibits
and Reports on Form 8-K
|
20
|
|
Signatures
|
21
|
-
2 -
PART
I
ITEM
1. FINANCIAL STATEMENTS
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
August
31, 2008
|
February
29, 2008
|
|||||||
|
ASSETS
|
(unaudited) |
(unaudited)
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 91,995 | 19,851 | |||||
|
Accounts
receivable, net of allowance for doubtful accounts of
$5,650
|
78,042 | 20,709 | ||||||
|
Inventory,
net
|
364,604 | 383,372 | ||||||
|
Prepaid
expenses and other current assets
|
229,230 | 23,386 | ||||||
|
Asset
held for sale
|
- | 149,111 | ||||||
|
Total
current assets
|
763,871 | 596,429 | ||||||
|
Property
and equipment, net
|
99,773 | 112,095 | ||||||
|
Intangible
assets, net
|
20,089 | 23,468 | ||||||
|
Other
assets
|
6,624 | 6,624 | ||||||
|
Total
assets
|
$ | 890,357 | 738,616 | |||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 128,677 | 133,356 | |||||
|
Customer
deposits
|
105,398 | 66,951 | ||||||
|
Accrued
interest due to related party
|
230,128 | 221,170 | ||||||
|
Notes
payable
|
100,000 | 258,446 | ||||||
|
Total
current liabilities
|
564,203 | 679,923 | ||||||
|
Long-term
related party notes payable
|
471,088 | 396,088 | ||||||
|
Total
liabilities
|
1,035,291 | 1,076,011 | ||||||
|
Commitments
and contingencies (Note 10)
|
||||||||
|
Stockholders'
deficit:
|
||||||||
|
Preferred
stock, 6,000,000 shares authorized, none issued or outstanding as of
February 29, 2008
|
- | |||||||
|
Common
stock $0.001 par value, 50,000,000 shares authorized, 25,757,003 and
25,613,670 shares issued and outstanding, respectively
|
25,757 | 25,614 | ||||||
|
Additional
paid-in capital
|
6,785,018 | 6,322,685 | ||||||
|
Accumulated
deficit
|
(6,955,709 | ) | (6,685,694 | ) | ||||
|
Total
stockholders' deficit
|
(144,934 | ) | (337,395 | ) | ||||
|
Total
liabilities and stockholders' deficit
|
$ | 890,357 | 738,616 | |||||
See
accompanying notes to condensed consolidated financial
statements.
-
3 -
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
For
The Six Months
|
||||||||
|
Ended
|
||||||||
|
August
31,
|
August
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Revenues
|
$ | 477,083 | $ | 561,346 | ||||
|
Cost
of sales
|
237,605 | 268,723 | ||||||
|
Gross
profit
|
239,478 | 292,623 | ||||||
| Operating expenses: | ||||||||
|
Selling
and marketing expenses
|
14,225 | 20,933 | ||||||
|
General
and administrative expenses
|
294,947 | 440,664 | ||||||
|
Compensation
to executive officers
|
182,625 | 31,500 | ||||||
|
Total
operating expenses
|
491,798 | 493,097 | ||||||
|
Loss
from operations
|
(252,319 | ) | (200,474 | ) | ||||
|
Other
Income(Expense)
|
||||||||
|
Interest
income
|
56 | 5,192 | ||||||
|
Interest
expense-related parties
|
(73,738 | ) | (43,366 | ) | ||||
|
Interest
expense-other
|
(6,269 | ) | (14,055 | ) | ||||
|
Claim
Settlement
|
- | 168,000 | ||||||
|
Miscellaneous
expense(income)
|
62,256 | (3,962 | ) | |||||
|
Total
other income(expense)
|
(17,695 | ) | 111,809 | |||||
|
Loss
before income tax expense
|
(270,014 | ) | (88,665 | ) | ||||
|
Provision
for income taxes
|
- | - | ||||||
|
Net
loss
|
$ | (270,014 | ) | $ | (88,665 | ) | ||
|
BASIC
LOSS PER SHARE
|
$ | (0.01 | ) | $ | (0.00 | ) | ||
|
FULLY
DILUTED INCOME PER SHARE
|
$ | - | $ | - | ||||
|
BASIC
WEIGHTED AVERAGE NUMBER OF
|
||||||||
|
SHARES
OUTSTANDING
|
25,293,818 | 25,265199 | ||||||
|
FULLY
DILUTED AVERAGE NUMBER OF
|
||||||||
|
SHARES
OUTSTANDING
|
25,293,818 | 25,265,199 | ||||||
See
accompanying notes to condensed consolidated financial
statements.
-
4 -
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
For
The Three Months
|
||||||||
|
Ended
|
||||||||
|
August
31,
|
August
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Revenues
|
$ | 247,862 | $ | 150,375 | ||||
|
Cost
of sales
|
108,481 | 88,130 | ||||||
|
Gross
profit
|
139,380 | 62,245 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
and marketing expenses
|
7,417 | 7,818 | ||||||
|
General
and administrative expenses
|
167,568 | 235,561 | ||||||
|
Compensation
to executive officers
|
91,420 | 14,000 | ||||||
|
Total
operating expenses
|
266,406 | 257,379 | ||||||
|
Loss
from operations
|
(127,025 | ) | (195,134 | ) | ||||
|
Other
Income(Expense)
|
||||||||
|
Interest
income
|
47 | 2,903 | ||||||
|
Interest
expense-related parties
|
(65,078 | ) | (21,683 | ) | ||||
|
Interest
expense-other
|
(2,723 | ) | (7,259 | ) | ||||
|
Miscellaneous
expense(income)
|
48,256 | (4,310 | ) | |||||
|
Total
other income(expense)
|
(19,499 | ) | (30,349 | ) | ||||
|
Loss
before income tax expense
|
(146,524 | ) | (225,483 | ) | ||||
|
Provision
for income taxes
|
- | - | ||||||
|
Net
loss
|
$ | (146,524 | ) | $ | (225,483 | ) | ||
|
BASIC
LOSS PER SHARE
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
|
FULLY
DILUTED INCOME PER SHARE
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
|
BASIC
WEIGHTED AVERAGE NUMBER OF
|
||||||||
|
SHARES
OUTSTANDING
|
25,757,003 | 25,315,844 | ||||||
|
FULLY
DILUTED AVERAGE NUMBER OF
|
||||||||
|
SHARES
OUTSTANDING
|
25,757,003 | 27,315,844 | ||||||
See
accompanying notes to condensed consolidated financial
statements.
-
5 -
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For
the Six Months Ended
|
||||||||
|
August
31,
|
August
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
OPERATING
ACTIVITIES:
|
||||||||
|
Net
(loss)
|
$ | (270,015 | ) | $ | (88,665 | ) | ||
|
Adjustments
to reconcile net loss to net cash
|
||||||||
|
used
in operating activities:
|
||||||||
|
Depreciation
and amortization
|
15,702 | 18,081 | ||||||
|
Stock-based
compensation and interest expense
|
462,333 | 13,237 | ||||||
|
Accrued
interest due to related parties
|
- | 13,366 | ||||||
|
Contributed
executive services
|
- | 5,000 | ||||||
|
Provision
for doubtful accounts
|
- | 1,700 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
(Increase)
decrease in accounts receivable
|
(57,334 | ) | (2,508 | ) | ||||
|
(Increase)
decrease in inventory
|
18,768 | (64,745 | ) | |||||
|
(Increase)
decrease in prepaid expenses and other assets
|
(205,844 | ) | 132,662 | |||||
|
(Increase)
decrease in asset held for sale
|
149,111 | (11,239 | ) | |||||
|
Increase
(decrease) in accounts payable and accrued expenses
|
(4,679 | ) | 148,431 | |||||
|
Increase
(decrease) in accrued interest payable
|
8,958 | - | ||||||
|
Increase
(decrease) in customer deposits
|
38,447 | (201,115 | ) | |||||
|
Net
Cash Used in Operating Activities
|
155,447 | (35,795 | ) | |||||
|
INVESTING
ACTIVITIES:
|
||||||||
|
Release
of restricted cash
|
75,000 | |||||||
|
Purchase
in property and equipment
|
- | (12,654 | ) | |||||
|
Payment
for patents
|
(1,901 | ) | ||||||
| Net Cash Used in Financing Activities | 60,445 | |||||||
|
FINANCING
ACTIVITIES:
|
||||||||
|
Proceeds
from related party notes payable
|
75,000 | 175,000 | ||||||
|
Repayment
of notes payable
|
(158,446 | ) | (75,000 | ) | ||||
|
Net
Cash Provided by Financing Activities
|
(83,446 | ) | 100,000 | |||||
|
NET
INCREASE (DECREASE) IN CASH
|
72,144 | 124,650 | ||||||
|
CASH
AT BEGINNING OF PERIOD
|
19,851 | 36,723 | ||||||
|
CASH
AT END OF PERIOD
|
$ | 91,995 | $ | 161,373 | ||||
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
||||||||
|
Stock
issued for settlement of debt
|
$ | - | $ | 44,088 | ||||
|
Stock issued for services
|
$ | 462,333 | $ | 13,237 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
|
Cash
Paid for:
|
||||||||
| $ | $ | 44,055 | ||||||
| $ | - | $ | 1,600 | |||||
See
accompanying notes to condensed consolidated financial
statements.
-
6 -
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1: CONDENSED FINANCIAL STATEMENTS
The
accompanying financial statements have been prepared by 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 August 31, 2008, 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 financial statements and notes thereto included in the Company’s February
29, 2008 audited financial statements. The results of operations for
the periods ended August 31, 2008 and 2007 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 period. Actual results could differ from those
estimates.
NOTE
2: GOING CONCERN
The
Company has experienced recurring losses from operations and has an accumulated
deficit of $6,955,709 as of August 31, 2008. These factors, among others, raise
substantial doubt about the Company’s ability to continue as a going
concern.
Recoverability
of a major portion of the recorded asset amounts shown in the accompanying
condensed consolidated balance sheet is dependent upon continued operations of
the Company, which, in turn, is dependent upon the Company's ability to continue
to finance its activities and ultimately generate positive cash flows from
operations. The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classifications of liabilities that might be necessary
should the Company be unable to continue its existence.
In order
to continue as a going concern, the Company needs to develop a reliable source
of revenue, and achieve a profitable level of operation. During the fiscal year
ended February 29, 2008 and the six months ended August 31, 2008, the Company
funded its operations primarily through utilization of customer sales to pay
related purchase orders and funds received from a related party (see Note
3). As of August 31, 2008 the Company held $91,995 in cash. It had a
backlog of $213,400 in unshipped products and $328,087 available to borrow from
a related party. Over the next twelve months, management believes
that sufficient working capital may be obtained from a combination of revenues
and external financing to meet the Company’s liabilities and commitments as they
become payable. However, additional funding may still be required from the TAM
Irrevocable Trust (TAM Trust), a related entity, or other shareholders. During
April 2007, the TAM Trust committed to providing up to $250,000 in additional
funding. As of August 31, 2008, $78,087 remained available under this
commitment. During June 2008, the TAM Trust committed to providing up
to $250,000 in additional funding if necessary. As of August 31,
2008, the TAM Trust has extended $701,217 in financing borrowings plus accrued
interest to the Company.
NOTE
3: SIGNIFICANT EVENTS
In
September 2008, an agreement was signed with EcoUsable, Inc. which includes an
order for over $1,000,000 in revenue to be fulfilled by December
2009.
-
7 -
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4: BASIC INCOME (LOSS) PER SHARE
The
computation of basic and diluted income (loss) per common share is based on the
weighted average number of shares outstanding during each period.
|
|
August
31,
|
|||||||
|
|
2008
|
2007
|
||||||
|
NET
INCOME
(LOSS)
|
$ | (270,014 | ) | $ | (88,665 | ) | ||
|
|
||||||||
|
BASIC
INCOME (LOSS) PER COMMON SHARE
|
$ | (0.01 | ) | $ | 0.00 | |||
|
BASIC
WEIGHTED AVERAGE
|
||||||||
|
NUMBER
OF SHARES OUTSTANDING
|
25,757,003 | 25,315,844 | ||||||
The
computation of loss per common share is based on the weighted average number of
shares outstanding during the year plus the common stock equivalents which would
arise from the exercise of stock options and warrants outstanding using the
treasury stock method and the average market price per share during the
year. Common stock equivalents, consisting of 19,190,037 in warrants
were considered but were not included in the computation of loss per share at
August 31, 2008, because they would have been anti-dilutive.
NOTE
5: COMMON STOCK PURCHASE WARRANTS
Warrants
The
Company has determined the estimated value of the compensatory warrants granted
to non-employees in exchange for services and financing expenses using the
Black-Scholes pricing model and the following assumptions: expected term of
1year, a risk free interest rate of 2.37%, a dividend yield of 0% and volatility
of 139% in 2008. The amount of the expense charged to operations for
compensatory warrants granted in exchange for services was $91,776 for the three
months ended August 31, 2008.
The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company’s common stock issued to non-employees of
the Company. These warrants were granted in lieu of cash compensation for
services performed or financing expenses.
-
8 -
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5: COMMON STOCK PURCHASE WARRANTS (Continued)
A summary
of warrant activity for the six months ended August 31, 2008 and the year ended
February 28, 2008 are as follows.
|
Weighted-
|
|||||||||
|
Average
|
|||||||||
|
Warrants
|
Exercise
|
||||||||
|
Outstanding
|
Price
|
||||||||
|
Outstanding
at March 1, 2007
|
6,100,000
|
$
|
0.23
|
||||||
|
Granted
|
707,221
|
0.40
|
|||||||
|
Exercised
|
-
|
-
|
|||||||
|
Forfeited
|
-
|
-
|
|||||||
|
Outstanding
at February 28, 2008
|
6,807,221
|
0.23
|
|||||||
|
Granted
|
1,730,000
|
0.33
|
|||||||
|
Exercised
|
-
|
-
|
|||||||
|
Forfeited
|
-
|
-
|
|||||||
|
Outstanding
at August 31, 2008
|
8,537,221
|
0.25
|
|||||||
|
Vested
or expected to vest at August 31, 2008
|
8,537,221
|
0.25
|
|||||||
|
Exercisable
at August 31, 2008
|
7,700,000
|
0.25
|
|||||||
The
following table summarizes significant ranges of outstanding warrants as of
August 31, 2008:
|
Warrants
Outstanding
|
Warrants
Exercisable
|
||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||
|
Average
|
Average
|
Average
|
|||||||||||
|
Exercise
|
Number
|
Remaining
|
Exercise
|
Number
|
Exercise
|
||||||||
| Price |
Outstanding
|
Life
(Years)
|
Price |
Outstanding
|
Price
|
||||||||
|
$
|
0.19
|
600,000
|
2.76
|
$
|
0.19
|
-
|
$
|
0.19
|
|||||
|
0.23
|
6,000,000
|
0.75
|
0.23
|
6,000,000
|
0.23
|
||||||||
|
0.29
|
107,221
|
2.76
|
0.29
|
-
|
0.29
|
||||||||
|
0.40
|
100,000
|
2.42
|
0.40
|
-
|
0.40
|
||||||||
|
0.33
|
1,700,000
|
2.76
|
0.33
|
1,700,000
|
0.33
|
||||||||
|
0.16
|
30,000
|
2.42
|
0.16
|
||||||||||
|
8,537,221
|
$
|
0.25
|
7,700,000
|
$
|
0.25
|
||||||||
-
9 -
SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6: LINE OF CREDIT
As of
August 31, 2008, the Company has a line of credit agreement, totaling $100,000.
The line of credit bears interest at the lending institutions’ index rate (6.00%
at November 30, 2007) plus two percent and is due June 1, 2009. As of August 31,
2008, the Company has borrowed $100,000 against the line of credit. The line of
credit agreement does not include any limitations on borrowings or any
restrictive debt covenants and the Company intends to renew the line of credit
for another year when it becomes due.
NOTE
7: INVENTORY
The
Company’s inventory consisted of the following at August 31, 2008:
|
Raw
materials
|
$ | 183,315 | |||
|
Work
in Progress
|
701 | ||||
|
Finished
goods
|
346,174 | ||||
| 530,190 | |||||
|
Reserve
for obsolete and slow moving inventory
|
(165,586 | ) | |||
| $ | 364,604 |
NOTE
8: CONTINGENT LIABILITY
The
company defaulted on a loan in July 2008 which held the company’s airplane as
collateral. A contingent liability exists due to this
default.
-
10 -
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 the Company and its
subsidiary for the three and six-month period ended August 31, 2008 and 2007.
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-KSB for the fiscal year ended February 29, 2008. 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.
Risk
Factors Related to Our Business
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.
Lack of Successful Operating History.
Our Company was formed on January 23, 1998 and acquired the operations of
a company that had been in existence since 1996. Since beginning operations, we
initially sold water filtration products to a number of customers, then during
March 2001 entered into a sales marketing agreement with Nikken Global, Inc. and
Kenko World, two affiliated multi-level marketing companies (collectively
“Nikken”). This agreement allowed Nikken the exclusive rights to distribute our
products and technology for a period of ten years, commencing March 1, 2001.
During the period of the agreement, the Company continued to promote its
products and technologies to non-profit organizations, such as the Red Cross,
the U.S. and international militaries, missionaries, charitable and fund-raising
groups and other philanthropic organizations, which do not sell to distributors
or resell to customers. During the fiscal year ending February 28, 2002, the
Company decided to terminate its agreement with Nikken. The Company has
continued to expand its product lines, since the Nikken business ended, but have
not generated enough revenue to support operations. This has required us to seek
both investor capital and financing to buy the time required by new management
to reverse the downward trend. Recent sales activity for the fiscal year ended
February 29, 2008 has decreased over the past year. Still, we have limited
financial results upon which you may judge our potential. The Company is not
engaged in enough consistent business activity over a sustained period of time
to be said to have a successful operating history. We have experienced in the
past and may experience in the future under-capitalization, shortages, setbacks
and many of the problems, delays and expenses encountered by any early stage
business. These include:
|
-
|
operating
as a public entity, incurring non-cost of sales expenses such as
accounting, auditing, financial reporting and compliance, legal and costs
to maintain full compliance with rules governing regulated reporting
status, including continuing Sarbanes-Oxley
requirements,
|
|
-
|
unplanned
delays and expenses related to research, development and testing of our
new products
|
|
-
|
production
and marketing problems that may be encountered in connection with our
existing products and technologies,
|
|
-
|
competition
from larger and more established companies, and
|
|
-
|
under-capitalization
to challenge the lack of market acceptance of our new products and
technologies.
|
Lack of Profitability. To
date, we have incurred significant losses. For the quarter ended
August 31, 2008, our revenue was $247,862 versus $150,375 for the
comparative quarter ended August 31, 2007. This increase was due primarily to
sales with two customers (Wellness and Healthy Directions) as detailed in the
Results of Operations section below. Net losses for the quarter
ended August 31, 2008 of $146,524 were significantly lower than net income
in the comparative quarter ended August 31, 2007 of $225,483 as a result of an
increase in sales in the quarter ended August 31, 2008. We have a
policy of not projecting sales and profits due to:
|
-
|
lack
of consistent sales to maintain profitability,
|
|
-
|
significant
legal and professional fees associated with regulated business activities
and the SEC,
|
|
-
|
reporting
requirements, including continuing Sarbanes-Oxley
requirements.
|
-
11 -
As a
result of our history of operations, it is not possible for us to predict when,
if ever, we may achieve profitability. If we continue to be unprofitable, we may
eventually go out of business. As a result, investors may lose some or all of
their investment.
Inherently Risky-Competition.
Because we are a Company with no history of profitability, our operations
will be extremely competitive and subject to numerous risks. The water
filtration business is highly competitive with many companies having access to
the same market. Substantially all of them have greater financial resources and
longer operating histories than we have and can be expected to compete within
the business in which we engage and intend to engage. 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.
Delays in the Development of New
Products. We have a limited product line, and the development of some of
our technologies has taken longer than anticipated and could be additionally
delayed. Therefore, there can be no assurance of timely completion and
introduction of improved products on a cost-effective basis, or that such
products, if introduced, will achieve market acceptance such that, in
combination with existing products, they will sustain us or allow us
to achieve profitable operations.
Dependence Upon Technology. We
are operating in a business that requires extensive and 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.
Protection of Technology. A
successful challenge to the ownership of our technology could materially damage
our business prospects. We rely principally on trade secrets as well as trade
secret laws, two patents, two trademarks, copyrights, confidentiality procedures
and licensing arrangements to protect our intellectual property rights. We
currently have two U.S. patents issued and a license on two patents. Any issued
patent may be challenged and invalidated. Patents may not be issued from any of
our future applications. Any claims allowed from existing or future pending
patents may not be of sufficient scope or strength to provide significant
protection for our products. Patents may not be issued in all countries where
our products can be sold so as to provide meaningful protection or any
commercial advantage to us. Our competitors may also be able to design around
our patents or the patents that we license.
Vigorous
protection and pursuit of intellectual property rights or positions characterize
our industry, which has resulted in significant and often protracted and
expensive litigation. Therefore, our competitors may assert that our
technologies or products infringe on their patents or proprietary rights.
Problems with patents or other rights could increase the cost of our products or
delay or preclude new product development and commercialization by us. If
infringement claims against us are deemed valid, we may not be able to obtain
appropriate licenses on acceptable terms or at all. Litigation could be costly
and time-consuming but may be necessary to protect our future patent and/or
technology license positions or to defend against infringement
claims.
Competition. 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 more 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. Therefore, there are
no assurances that we will ever be able to obtain and to maintain a profitable
position in the marketplace. However, no company to date has been able to match
our technology or our cost.
Success Dependent Upon
Management. Our success is dependent upon the decision making of
our directors and executive officers. These individuals have made a full
commitment to the business. The loss of any or all of these individuals could
have a materially adverse impact on our operations. On December 1, 2001, we
entered into an employment agreement with our President. During November 2004,
the Company entered into consulting agreements with two officers to provide
management consulting services.
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12 -
Dependence on One or a Few
Customers. For the quarter ended August 31, 2008, two customers
(Healthy Directions and Wellness) individually accounted for greater than 10
percent of total sales. In addition two other customers (K-Ceuticals and Food
for Health) individually account for approximately 5% of total
sales. Management believes that if the targeted revenues are not
achieved within their current marketing and distribution agreements, the
revenues can be replaced through the sale of filters and related products to
other direct marketing companies. 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.
Our Senior Management’s Limited
Experience Managing A Publicly Traded Company May Divert Management’s Attention
From Operations and Harm Our Business. Our management team has
relatively limited recent experience managing a publicly traded company and
complying with federal securities laws, including compliance with recently
adopted disclosure requirements on a timely basis. Our management
will be required to design and implement appropriate programs and policies in
responding to increased legal, regulatory compliance and reporting requirements,
and any failure to do so could lead to the imposition of fines and penalties and
harm our business.
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 our future acquisitions 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 amortization expenses,
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 subject 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 to conform to generally accepted accounting
principles, or GAAP, in the United States. These accounting
principles are subject to interpretation by the Financial Accounting Standards
Board (FASB), the Securities and Exchange Commission, the Public Company
Accounting Oversight Board and various other bodies. 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.
For
example, the Company has used stock warrants, restricted stock, and other equity
incentives as a fundamental component of our executive compensation
packages. The Company believes that stock warrants and other equity
incentives directly motivate our executives to maximize long-term stockholder
value and, through the use of vesting, encourage executives to remain with the
Company. In December 2004, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 123(R), which requires that grants of equity
incentives be recognized on the income statement based upon their fair
values. In addition, regulations implemented by the NASDAQ National
Market generally require stockholder approval for all equity
incentives. We may, as a result of these changes, incur increased
compensation costs, change our equity compensation strategy or find it difficult
to attract, retain and motivate employees, each of which could materially and
adversely affect our business, operating results and financial
condition.
-
13 -
Our Financial Results Could Vary
Significantly From Quarter to Quarter and Are Difficult to
Predict. Our revenues and operating results could vary
significantly from quarter to quarter because of a variety of factors, many of
which are outside of the Company’s control. As a result, comparing
our operating results on a period-to-period basis may not be
meaningful. In addition, we may not be able to predict our future
revenues or results of operations. We base our current and future
expense levels on our internal operating plans and anticipated sales levels, and
our operating costs are to a large extent fixed. As a result, we may
not be able to reduce our costs sufficiently to compensate for an unexpected
shortfall in revenues, and even a small shortfall in revenues could
disproportionately and adversely affect financial results for that
period. In addition, any payments due to us from our customers may be
delayed because of changes or issues with those customers’
processes.
If We Continue to Fail in Maintaining
Effective Internal Control Over Financial Reporting, The Price of Our Common
Stock May be Adversely Affected. We Have Determined That Our Internal
Control Over Financial Reporting Have Material Weaknesses and Conditions That
Need to Be Addressed, The Disclosure of Which May Have an Adverse Impact on the
Price of Our Common Stock. We are required to establish and
maintain appropriate internal control over financial
reporting. Failure to establish those controls, or any failure of
those controls once established, could adversely impact our public disclosure
regarding our business, financial condition or results of
operations. In addition, our future assessments of internal control
over financial reporting may identify additional weaknesses and conditions that
need to be addressed in our internal control over financial reporting or other
matters that may raise concerns for investors. Any actual of
perceived weaknesses and conditions that need to be addressed in our internal
control over financial reporting, disclosure of management’s assessment of our
internal control over financial reporting or disclosure of our independent
registered public accounting firm’s attestation report, when applicable, on
management’s assessment of our internal control over financial reporting may
have an adverse impact of our common stock.
Standards for Compliance with Section
404 of the Sarbanes-Oxley Act of 2002 are Uncertain, and If We Fail to Comply in
a Timely Manner, Our Business Could Be Harmed and Our Stock Price Could
Decline. Rules adopted by the SEC pursuant to Section 404 of
the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control
over financial reporting, and attestation of our assessment by our independent
registered public accounting firm. Currently, we believe these two
requirements apply to our annual reports for fiscal 2008 and 2009,
respectively. The standards that must be met for the management to
assess the internal control over financial reporting as effective are evolving
and complex, and require significant documentation, testing, and possible
remediation to meet the detailed standards. We have incurred, and
expect to incur, significant expenses and to devote resources to Section 404
compliance during the remainder of fiscal year 2009 and on an ongoing
basis. It is difficult for us to predict how long it will take to
complete the assessment of the effectiveness of our internal control over
financial reporting for each year and to remediate any deficiencies in our
internal control over financial reporting. As a result, we may not be
able to complete the assessment and remediation process on a timely
basis. In addition, the attestation process by our independent
registered public accounting firm is new and we may encounter problems or delays
in completing the implementation of any requested improvements and receiving an
attestation of our assessment by our independent registered public accounting
firm. In the event that our Chief Executive Officer, Chief Financial
Officer, or independent registered public accounting firm determine that our
internal control over financial reporting is not effective as defined under
Section 404, we cannot predict how regulators will react of how the market
prices of our shares will be affected, however, we believe that there is a risk
that investor confidence and share value may be negatively
impacted.
Maintaining and Improving Our
Financial Controls and The Requirements Of Being a Public Company May Strain Our
Resources, Divert Managements 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.
We have a
substantial effort ahead of us to remediate our control deficiencies and
material weaknesses we have identified during the fiscal year
2008. 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 will also involve substantial
accounting related costs.
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14 -
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.
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 and manufactures unique, state-of-the-art ionic adsorption micron
filters that remove up to 99.99% of all pollutants and contaminants found in any
fresh water source. Patents or trade secrets cover all proprietary
products.
Our
principal business address is 33012 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
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, 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 ended August 31, 2008 and 2007 are derived from our
condensed consolidated financial statements included elsewhere in this
report.
|
Three-month
period ended August 31, 2008 compared to the corresponding period in
2007
|
||||||||||||||||
|
Year
over
|
||||||||||||||||
|
2008
|
2007
|
year
change
|
%
|
|||||||||||||
|
Sales
|
$ | 247,862 | $ | 150,375 | 97,487 | 65 | % | |||||||||
|
Cost
of sales
|
108,481 | 88,130 | 20,351 | 23 | % | |||||||||||
|
Gross
profit
|
139,381 | 62,245 | 77,136 | 124 | % | |||||||||||
|
Gross
profit percentage
|
56 | % | 41 | % | ||||||||||||
|
Selling
and marketing expenses
|
7,417 | 7,818 | (401 | ) | -5 | % | ||||||||||
|
General
and administrative expenses
|
167,568 | 235,561 | (67,993 | ) | -29 | % | ||||||||||
|
Compensation
to executive officers
|
91,420 | 14,000 | 77,420 | 553 | % | |||||||||||
|
Interest
expense to related parties
|
65,078 | 21,683 | 43,395 | 200 | % | |||||||||||
|
Net
loss
|
(146,524 | ) | (225,483 | ) | 78,959 | -35 | % | |||||||||
Sales. The increase in sales
is primarily due to increased sales to two of our main customers. We had
approximately $16,000 in sales to Food for Health in the three month period
ended August 31, 2008 compared to no sales to Food for Health in the three month
period ended August 31, 2007. This increase in sales was further
expanded by a normal fluctuation of sales with a significant distributor,
Wellness Enterprises. Their sales increased from approximately $1,000 in 2007 to
$39,000 in 2008. In addition, sales to Healthy Directions increased
from $18,000 in the three month period ended August 31, 2007 to $58,000 in the
three month period ended August 31, 2008. The average sales price per
bottle remained unchanged. Non-bottle sales were lower during the
period as the shift to more bottle sales continues.
-
15 -
Cost of sales and gross profit
percentage. The decrease in cost of sales is primarily due to increased
sales as well as lower raw material cost. The average sales
price per bottle remained constant; however, the actual average cost per bottle
decreased 37% from $2.79 as of August 31, 2007 to $1.75 as of August 31,
2008. This decrease is cost is primarily due to a majority of the
sales during the three month period ended August 31, 2008 being sales of the
remaining bottles from a failed sale that were completed and in inventory for
over twelve months. As a percentage of sales, the gross profit margin
during the three months ended August 31, 2008 increased to 56% from 41% for the
three months ended August 31, 2007.
Selling expenses. Selling
expenses consist primarily of commissions paid to salespeople. The decrease in
2008 versus 2007 is a direct result of the decrease in sales with an increase in
the amount of sales related to commissions.
General and administrative
expenses. The decrease in general and administrative expenses was
primarily due to a decrease in accounting fees of over $57,000 followed by a
decrease in legal fees of approximately $5,300. The additional
decrease was due to a decrease in allocated general and administrative
expense.
Compensation to executive
officers. The increase in compensation to executive officers
for the three-month period ended August 31, 2008, compared to the three-month
period ended August 31, 2007, is due to an additional 700,000 warrants being
issued to two executive officers in April 2008. The warrants issued
in April 2008 have a nine-month vesting period which valued $74,000 in the
period. There was an additional value of $16,700 recognized due to
warrants issued in December 2007 which will also vest in
December. This difference in compensation was partially offset by the
Company paying a monthly stipend, commencing October 2006 of $2,500 to Messrs.
Parsons and Place. The stipend to Mr. Place was reduced to $750 in July
2007 and subsequently reduced to $375 in November 2007. The stipend to Mr.
Parsons was reduced to $1,250 in November 2007. Total stipends paid during the
three-month period ended August 31, 2007 were $11,500 while no stipends were
paid during the three month period ended August 31, 2008.
Interest expense to related
parties. The increase in interest expense for the three-month period
ended August 31, 2008, compared to the three-month period ended August 31, 2007,
is due to the Company issuing 1,000,000 warrants on April 30, 2008 as interest
due for related party notes payable. The value of these warrants is
$224,970. One fourth of the value was recognized as interest expense
in the three month period ended August 31, 2008 for a value of
56,243.
Net Income (loss). Net Loss
for the three-month period ended August 31, 2008 was $146,524 compared to a net
loss of $225,483 for the three-month period ended August 31,
2007. This was primarily due to an increase in sales in the three
month period ended August 31, 2008.
|
Six-month
period ended August 31, 2008 compared to the corresponding period in
2007
|
||||||||||||||||
|
Year
over
|
||||||||||||||||
|
2008
|
2007
|
year
change
|
%
|
|||||||||||||
|
Sales
|
$ | 477,083 | $ | 561,346 | (84,263 | ) | -15 | % | ||||||||
|
Cost
of sales
|
237,605 | 268,723 | (31,118 | ) | -12 | % | ||||||||||
|
Gross
profit
|
239,478 | 292,623 | (53,145 | ) | -18 | % | ||||||||||
|
Gross
profit percentage
|
50 | % | 52 | % | ||||||||||||
|
Selling
and marketing expenses
|
14,225 | 20,933 | (6,708 | ) | -32 | % | ||||||||||
|
General
and administrative expenses
|
294,947 | 440,664 | (145,717 | ) | -33 | % | ||||||||||
|
Compensation
to executive officers
|
182,625 | 31,500 | 151,125 | 480 | % | |||||||||||
|
Interest
expense to related parties
|
73,738 | 43,366 | 30,372 | 70 | % | |||||||||||
|
Net
loss
|
(270,014 | ) | (88,665 | ) | (181,349 | ) | 205 | % | ||||||||
|
Net
cash provided by (used in) operating activities
|
152,067 | (35,795 | ) | 187,862 | -525 | % | ||||||||||
|
Net
cash provided by (used in) investing activities
|
3,380 | 60,445 | (57,065 | ) | -94 | % | ||||||||||
|
Net
cash provided by (used in) financing activities
|
(83,446 | ) | 100,000 | (183,446 | ) | -183 | % | |||||||||
-
16 -
Sales. Sales decreased
primarily due to sales to Food for Health and Wellness Enterprises during the
six-month period ended August 31, 2008 in comparison to the previous fiscal
year’s first six months. The number of bottles sold increased
from 64,733 to 36,961, while the average price per bottle decreased from $6.82
to $5.53. Sales of bottles totaled approximately $204,500 while sales of other
products during the six-month period ended August 30, 2008 totaled approximately
$272,500, including the new emergency survival pack, replacement filters and
canteens. Going forward, we anticipate a continued decline in the sales of
non-bottle products with the trend to more sales of
bottles. .
Cost of sales and gross
profit. The decrease in cost of sales is primarily due to
decreased sales. As a percentage of sales, the gross profit
percentage decreased from 52% to 50% due to a change in the pricing of bottles
combined with a change in production costs. As previously
noted, the average sales price per bottle decreased while the average cost
per bottle remained approximately $2.68 for both six-month periods. The decrease
in production costs was primarily due to a decrease in sales.
General and
administrative expenses. The decrease in general and
administrative expenses is due to the following: (1) accounting expenses
decreased by approximately $113,000 (2) legal expenses decreased by 12,000(3) an
increase in allocated general and administrative expense of $46,000 due to
overhead calculation (4) an increase in outside services by 11,000 (5) merchant
fees increased by $3000 due to a new vendor being used and changes in the daily
process for charging transactions (6) rent increased by $16,000 due to an
increase in CAM expenses and additional rent being paid in China to
increase production.
Compensation to executive officers.
The increase in compensation to executive officers for the six-month
period ended August 31, 2008, compared to the six-month period ended August 31,
2007, is due to an additional 700,000 warrants being issued to two executive
officers in April 2008. The warrants issued in April 2008 have a
nine-month vesting period which valued 148,000 in the period. This
increase in compensation was partially offset by the Company paying a monthly
stipend, commencing October 2006 of $2,500 to Messrs. Parsons and
Place. The stipend to Messer. Place was reduced to $750 during July
2007 (total stipends paid during the six-month period ended August 31, 2007 were
$31,500).
Interest expense to related
parties. The increase in interest expense for the six-month
period ended August 31, 2008, compared to the six-month period ended August 31,
2007, is due to the Company issuing 1,000,000 warrants on April 30, 2008 as
interest due for related party notes payable. The value of these
warrants is $224,970. One fourth of the value was recognized as
interest expense in the three month period ended August 31, 2008 for a value of
56,243.
Net loss. There was
a net loss of $270,014 for the six-month period ended August 31, 2008 compared
to a net loss of $88,665 for the six-month period ended August 31,
2007. The loss was significantly higher than the previous year
primarily attributable to additional warrants being issued in April 2008 which
increased expenses in the six month period ended August 31, 2008.
Liquidity
and Capital Resources
Net cash used in operating
activities. During the six-month period ended August 31, 2008, the
Company funded its operations primarily through the utilization of customer
deposits to purchase raw material and other production costs and proceeds
received from the TAM Trust while in the prior fiscal year, the Company
primarily funded its operations by the sale of restricted common
stock. During the six-month period ended August 31, 2007, the net
loss of approximately $88,665 was offset by approximately $55,400 non-cash
expenditures.
Net cash used in investing
activities. During the six-month period ended August 31, 2008; the
decrease in cash provided by investing activities was due to patent fees
incurred.
Net cash provided by financing
activities. The decrease in cash provided by financing activities during
the three month period ended August 31, 2007 was due to the decreased borrowing
from the TAM Trust and a repayment of notes payable of approximately
$22,000.
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17 -
Our
principal sources of liquidity have historically been funds generated from
operating activities and borrowings from the TAM Trust, one of our principal
shareholders. As of August 31, 2008, the TAM Trust has loaned the Company
$464,175 at 10% simple interest, repayable after March 1, 2011. The
Company believes that despite the increase in sales experienced during the
fiscal years ended February 28, 2007 and 2008 and the six-month period ended
August 31, 2008, additional funding may still be required from the TAM Trust or
other shareholders. During June 2007, the TAM Trust committed to providing up to
$250,000 in additional funding. As of August 31, 2008, the TAM Trust has
advanced the Company $171,913 of $500,000 committed.
As of
August 31, 2008, the Company had $91,995 in cash and no remaining amount
available to borrow under 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 and committed funds to meet its operating
needs through the balance of fiscal 2008.
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
2008 Annual Report on Form 10-KSB 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, impairment of long-lived assets and intangible assets, accounting for
transactions which potentially could be settled in a company’s own stock 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.
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;
|
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18 -
|
(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 manufacturing
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 2008 Annual Report on Form
10-KSB.
|
ITEM
3. CONTROLS AND PROCEDURES
We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of February 29, 2008. This evaluation was carried
out under the supervision and with the participation of our Chief Executive
Officer and our Chief Financial Officer. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of February 29,
2008, our disclosure controls and procedures are not effective. During the
quarter ended August 31, 2008 we completed the process to engage a firm to
design and implement a more effective system of internal controls based upon the
work recently completed for the Company in this area. The internal
control system has not been in place for a sufficient period of time for our
Chief Executive Officer and Chief Financial Officer to evaluate its
effectiveness. Accordingly, we will consider our controls and procedures
inadequate until such an evaluation is completed and the new, more effective
internal controls system is implemented during the year ended February 28,
2009. .
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Limitations on the
Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.
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19 -
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
As of
August 31, 2008, we know of no legal proceedings pending or threatened or
judgments entered against the Company or any of our directors or officers in his
capacity as such.
ITEM
2. CHANGES IN SECURITIES
During
the three-month period ended August 31, 2008, the Company issued 30,000 warrants
to individuals as payment for services with an approximate total value of
$3,300.
In all of
the transactions shown above, we have issued stop transfer orders concerning the
transfer of certificates representing all the common stock issued and
outstanding as reported in this section.
There
have been no further issuances of securities through the date of this
filing.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS OF A VOTE TO SECURITY
HOLDERS
We did
not submit any matter to a vote of security holders through solicitation of
proxies during the third quarter of the fiscal year covered by this
report.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS AND REPORTS IN FORM 8-K
(a)
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)
|
(b)
Reports on Form 8-K
We filed
one report on July 10, 2008 under cover of Form 8-K for the period ended August
31, 2008 relating to the entry into a material definitive
agreement.
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20 -
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act OF 1934, the Registrant
has duly caused this Form 10-QSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Seychelle
Environmental Technologies, Inc.
|
||
|
|
|
|
|
Date: October
8, 2008
|
By:
|
/s/ Carl
Palmer
|
|
Carl
Palmer
Director,
Chief Executive Officer
and President
|
||
|
|
|
|
|
Date: October
8, 2008
|
By:
|
/s/ Jim
Place
|
|
Jim
Place
Director
and Chief Financial Officer and Chief Operating
Officer
|
||
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