Edgar Filing: SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CA

seychelle10q113009_11410.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, 2009

( ) 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 [ ]

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. 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 $0.001 par value common stock, as of January 13, 2010 was 25,854,146.

FORM 10-Q

Securities and Exchange Commission

Washington, D.C. 20549

Seychelle Environmental Technologies, Inc.

	Page
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (unaudited) as of November 30, 2009 and February 28, 2009	3
Consolidated Statements of Operations (unaudited) for the Three Months and Nine Months Ended November 30, 2009 and 2008	4
Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended November 30, 2009 and 2008	6
Notes to Consolidated Financial Statements (unaudited)	7

Item 2. Management’s Discussion of Financial Condition and Results of Operation	11
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	18
Item 6. Exhibits	18

Signatures	19

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PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

	November 30, 2009			February 28, 2009

ASSETS

Current assets:
Cash and cash equivalents	$	433,217			160,415
Accounts receivable, net of allowance for doubtful accounts
of $13,264 and $3,986, respectively		201,830			61,447
Inventory, net		239,871			409,353
Prepaid expenses and other current assets		47,117			77,827
Total current assets		922,035			709,042

Property and equipment, net		104,378			129,964
Intangible assets, net		11,646			16,374
Other assets		8,515			6,624
Total assets	$	1,046,574			862,004

LIABILITIES AND STOCKHOLDERS' EQUITY/( DEFICIT)

Current liabilities:
Accounts payable and accrued expenses	$	114,929			92,818
Customer deposits		124,882			177,325
Accrued interest due to related party		42,554			76,359
Capital lease obligation		18,221			26,802
Notes payable		100,000			100,000
Total current liabilities		400,586			473,304

Long-term related party notes payable		471,088			471,088
Total liabilities		871,674			944,392

Commitments and contingencies		-			-

Stockholders' equity/(deficit):
Preferred stock, 6,000,000 shares authorized, none issued or outstanding		-			-
Common stock $0.001 par value, 50,000,000 shares authorized, 25,854,146 and 25,824,146 shares issued and outstanding, respectively		25,854			25,824
Additional paid-in capital		6,923,404			6,907,637
Accumulated deficit		(6,774,358	)		(7,015,849	)
Total stockholders' equity/(deficit)		174,900			(82,388	)
Total liabilities and stockholders'/equity (deficit)	$	1,046,574			862,004

See accompanying notes to consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For The Nine-Month
	Periods Ended
	November 30,			November 30,
	2009			2008


Revenues	$	1,829,641		$	908,621
Cost of sales		997,779			523,238
Gross profit		831,862			385,383
Operating Expenses Selling, general, and administrative expenses		508,647			724,403
Depreciation and amortization		41,061			36,317
Total Operating Expenses		549,708			760,720
Income (Loss) from operations		282,154			(375,337	)
Other Income(Expense)
Interest income		443			123
Interest expense-related parties		(28,869	)		(143,856	)
Interest expense-other		(9,624	)		(8,693	)
Other income (expense)		(2,613	)		62,256
Total other income(expense)		(40,663	)		(90,170	)
Net income (loss) before income taxes		241,491			(465,507	)
Provision for income taxes		-			-
Net Income (Loss)	$	241,491		$	(465,507	)
BASIC INCOME (LOSS) PER SHARE	$	0.01		$	(0.02	)
DILUTED INCOME (LOSS) PER SHARE	$	0.01		$	(0.02	)

BASIC WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		25,826,219			25,769,295
DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING		32,273,172			25,769,295

See accompanying notes to consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For The Three-Month
	Periods Ended
	November 30,			November 30,
	2009			2008


Revenues	$	798,604		$	431,538
Cost of sales		386,428			285,633
Gross profit		412,176			145,905
Operating Expenses Selling, general, and administrative expenses		239,054			257,214
Depreciation and amortization		13,811			11,708
Total Operating Expenses		252,865			268,922
Income (Loss) from operations		159,311			(123,017	)
Other Income(Expense)
Interest income		141			66
Interest expense-related parties		(9,652	)		(70,118	)
Interest expense-other		(2,854	)		(2,424	)
Total other income(expense)		(12,365	)		(72,476	)
Net income (loss) before income taxes		146,946			(195,493	)
Provision for income taxes		-			-
Net Income (Loss)	$	146,946		$	(195,493	)
BASIC INCOME (LOSS) PER SHARE	$	0.01		$	(0.01	)
DILUTED INCOME (LOSS) PER SHARE	$	0.00		$	(0.01	)

BASIC WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		25,830,410			25,765,287
DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING		30,276,363			25,765,287

See accompanying notes to consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	November 30,			November 30,
	2009			2008

OPERATING ACTIVITIES:
Net income (loss)	$	241,491		$	(465,508	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		41,061			27,409
Stock-based compensation and interest expense		15,797			572,228

Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(140,383	)		(52,220	)
(Increase) decrease in inventory		169,482			84,698
(Increase) decrease in prepaid expenses and other assets		(27,425	)		(133,301	)
(Increase) decrease in asset held for sale		-			149,111
Increase (decrease) in accounts payable and accrued expenses		78,355			(15,639	)
Increase (decrease) in accrued interest payable		(33,804	)		16,438
Increase (decrease) in customer deposits		(52,443	)		83,495
Net Cash Provided by Operating Activities		292,131			266,711

INVESTING ACTIVITIES:
Purchase of property and equipment		(9,808	)		(37,079	)
Purchase of patents		(940	)		-
Net Cash Used in Financing Activities		(10,748	)		(37,079	)

FINANCING ACTIVITIES:
Proceeds from related party notes payable		-			75,000
Repayment of capital leases and notes payable		(8,581	)		(129,213	)
Net Cash Used in Financing Activities		(8,581	)		(54,213	)

NET INCREASE IN CASH		272,802			175,419

CASH AT BEGINNING OF PERIOD		160,415			19,851

CASH AT END OF PERIOD	$	433,217		$	195,270

NON-CASH INVESTING AND FINANCING ACTIVITIES
Warrants issued for accrued interest on notes payable	$	56,243		$	572,228
Stock issued for services	$	6,600		$	7,050

Supplemental disclosures of cash flow information:
Cash Paid for:
Interest	$	9,622		$	-
Income taxes	$	-		$	-

See accompanying notes to consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1: FINANCIAL STATEMENTS

The consolidated financial statements have been prepared by the Company without audit and in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”). 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, 2009, and for all periods presented herein, have been made.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended February 28, 2009. The results of operations for interim periods are not necessarily indicative of the operating results for the full year. Notes to financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year, as reported on Form 10-K, have been omitted.

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.

In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively. The adoption of SFAS 165 (ASC 855-10) during the quarter ended August 31, 2009 did not have a significant effect on the Company’s financial statements as of that date or subsequent to that date and for the quarter or year-to-date period then ended. In connection with preparing the accompanying unaudited financial statements as of November 30, 2009 and for the quarter and nine month period ended November 30, 2009, management evaluated subsequent events through the date that such financial statements were issued (filed with the SEC).

In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” pr ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented. As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.

With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.

In accordance with SFAS 165 (ASC 855-10) The Company’s management reviewed all material events through January 13, 2010 and there are no material subsequent events to report other than those reported.

The Company has reclassified certain amounts in the November 30, 2008 financial statements to conform with the presentation in the November 30, 2009 financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2: BASIC AND DILUTED INCOME (LOSS) PER SHARE

The three and nine month computation of income(loss) per common share is based on the weighted average number of shares outstanding during the period 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 period. Common stock equivalents, consisting of 1,802,500 in warrants were considered but were not included in the computation of loss per share for the three and nine month periods ended November 30, 2008, because they would have been anti-dilutive. For the three months and nine month period ended November 30, 2009 common stock equivalents consisting of 6,549,721 in warrants were included in the computation of fully diluted income per share. The diluted weighted average number of shares for the three and nine month periods ended November 30, 2009 were 30,276,363 and 32,273,172, respectively.

NOTE 3: CUSTOMER CONCENTRATION

For the nine months ended November 30, 2008, the Company had sales to one customer totaling 50% of our revenues, and sales to four other customers each totaling over 5% of revenue individually.

For the nine months ended November 30, 2009, the Company had sales to one customer totaled 50% of revenue and sales.

NOTE 4: EQUITY

On November 11, 2009, the Company granted 30,000 restricted shares of common stock to a third party for services rendered. As of the grant date, the market value of the shares granted amounted to $6,600. The shares vested immediately and the fair market value of the shares was recorded as compensation expense during the quarter ended November 30, 2009.

Warrants

The Company has determined the estimated value of the compensatory warrants granted to employee and non-employees in exchange for services and financing expenses using the Black-Scholes pricing model. Value of the compensatory warrants was computed assuming an expected life of 2 years, volatility of 167%, dividends of $-0-, and a risk free interest rate of 2.3-3.1%. The amount of the expense charged to operations for compensatory warrants granted in exchange for services was $1,697 and $277,910 for the nine months ended November 30, 2009 and 2008, respectively.

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.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A summary of warrant activity for the nine months ended November 30, 2009 are as follows:

	Warrants Outstanding		Weighted- Average Exercise Price

Outstanding at March 1, 2009		6,549,721	$	0.25
Granted		-		-
Exercised		-		-
Forfeited		-		-

Outstanding at November 30, 2009		6,549,721		0.25

Exercisable at November 30, 2009		6,549,721	$	0.25

		Warrants Outstanding						Warrants Exercisable
				Weighted		Weighted				Weighted
				Average		Average				Average
Exercise Price		Number Outstanding		Remaining Life (Years)		Exercise Price		Number Outstanding		Exercise Price


$	0.19		600,000		1.00	$	0.19		600,000	$	0.19
	0.23		4,000,000		1.00		0.23		4,000,000		0.23
	0.29		107,221		1.00		0.29		107,221		0.29
	0.40		100,000		1.00		0.40		100,000		0.40
	0.33		1,700,000		1.00		0.33		1,700,000		0.33
	0.16		30,000		1.00		0.16		30,000		0.33
	0.25		10,000		1.00		0.25		10,000		0.25
	0.40		2,500		1.00		0.40		2,500		0.40
			6,549,721			$	0.25		6,549,721	$	0.25

NOTE 5: LINE OF CREDIT

As of November 30, 2009, the Company has a line of credit agreement, totaling $100,000. The line of credit bears interest at the lending institutions’ index rate (4.75% at November 30, 2009) plus two percent and is due February 1, 2010. As of November 30, 2009, the Company has borrowed $100,000 against the line of credit, which is recorded as a note payable. The line of credit agreement does not include any limitations on borrowings or any restrictive debt covenants.

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 November 30, 2009, the TAM Trust has loaned the Company $299,175 at 10% simple interest, repayable after March 1, 2011. During June 2007, the TAM Trust committed to providing up to $250,000 in additional funding. As of November 30, 2009 the TAM Trust has advanced the Company $171,913 of $500,000 committed. We have this commitment available to meet potential working capital requirements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 6: INVENTORY

The Company’s inventory consisted of the following at:

	November 30, 2009			February 28, 2009

Raw materials	$	185,897		$	230,018
Work in progress		-			53,187
Finished goods		129,067			260,461
		314,964			543,666
Reserve for obsolete and slow moving inventory		(75,093	)		(134,313	)
	$	239,871		$	409,353

The Company liquidated $59,220 of the obsolete and slow moving inventory during the nine months ended November 30, 2009 which resulted in a reduction in the reserve.

NOTE 7: RELATED PARTY TRANSACTIONS

The Company has notes payable of $471,088 and accrued interest payable totaling $42,555 to related party entities controlled by a director.

The Company recorded $7,500 of compensation expense for donated services of the President of the Company during the nine months ended November 30, 2009.

NOTE 8: COMMITMENTS AND CONTINGENCIES

Commitments

The Company’s office and production facility leases expired in August of 2009. Consequently, the Company leased new office and production facility space at a new location under two leases. Both leases were signed July 15, 2009 for a term of 60 months each, at a monthly cost of $3,551 and $4,764, respectively.

The future minimum lease payments for the new office leases are as follows:

Twelve Month Period ending November 30,
2010	$	99,780
2011		99,780
2012		99,780
2013		99,780
2014		87,308
Total	$	486,428

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this document to "us," "we," “Seychelle” or "Company" refer to Seychelle Environmental Technologies, Inc., a Nevada corporation and our wholly-owned subsidiary, Seychelle Water Technologies, Inc., also a Nevada corporation.

This discussion summarizes the significant factors affecting the operating results, financial condition liquidity and cash flows of the Company and its subsidiary for the three and nine-month periods ended November 30, 2009 and 2008. 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, 2009. 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 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 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.

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.

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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 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

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 consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report. The selected consolidated statements of operations data for the three and nine-months ended November 30, 2009 and 2008 are derived from our consolidated financial statements included elsewhere in this report.

Three-month period ended November 30, 2009 compared to the corresponding period in 2008

							Year over
	2009			2008			year change			%


Sales	$	798,604		$	431,538			367,066			85	%
Cost of sales		386,428			285,633			100,795			35	%
Gross profit		412,176			145,905			266,271			182	%
Gross profit percentage		52	%		34	%
Selling, general, and administrative expenses		239,054			257,214			(18,160	)		-2	%
Depreciation & amortization expense		13,811			11,708			2,103			18	%
Interest income		141			67			74			110	%
Interest expense to related parties		9,652			70,118			(60,466	)		-86	%
Net Income (Loss)		146,946			(195,493	)		342,439			175	%
Net Income (Loss) %		19	%		-45	%

Sales. The increase in sales is primarily due to increased sales to one of our customers. We had approximately $405,000 in sales to one customer in the three month period ended November 30, 2009 compared to $220,000 in sales to the same customer in the three month period ended November 30, 2008. We expect sales to this customer to remain constant or increase in the future. This increase in sales was further expanded by sales to 11 other customers increasing by approximately $194,000 collectively for the three month period ended November 30, 2009. The number of bottles sold increased from 29,189 to 42,603, while the average sales price per bottle increased by approximately 1.3% from $9.91 in 2008 to $10.04 in the three month periods in 2009.

Cost of sales and gross profit percentage. The increase in cost of sales is primarily due to increased sales. The actual average cost per bottle increased 101% to $5.72 for the three months ended November 30, 2009 from $2.85 for the three months November 30, 2008. This increase in cost is primarily due to increased labor during the three month period ended November 30, 2009 due to quality control issues, specialized orders, freight and packaging costs, and an increase in costs for components. As a percentage of sales, the gross profit margin during the three months ended November 30, 2009 increased to 54% from 34% for the three months ended November 30, 2008. This was due to increased sales of higher gross margin bottles, pitchers and other new products. Inventory reserve decreased in the three month period ended November 30, 2009 due to sales of reserved items during the period.

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Selling, general, and administrative expenses. Selling expenses consist primarily of commissions paid to salespeople. There was an increase in 2009 versus 2008 of approximately $4,000 as a direct result of an increase in the amount of sales for which we have to pay commissions. Compensation to executive officers decreased for the three-month period ended November 30, 2009, compared to the three-month period ended November 30, 2008 and was due to an additional 700,000 warrants being issued to two executive officers in April 2008. The warrants issued in April 2008 had a nine-month vesting period and were valued at $74,000. Additional warrants valued at $16,700 were granted in December 2007 and vested in December 2008.

Interest expense to related parties. The decrease in interest expense for the three-month period ended November 30, 2009, compared to the three-month period ended November 30, 2008, is due to the Company issuing 1,000,000 warrants on April 30, 2008 in payment of accrued interest on related party notes payable. The value of these warrants was $224,970. The value was recognized as interest expense in the three month period ended November 30, 2008 for a value of $56,243.

Net Income (loss). Net Income for the three-month period ended November 30, 2009 was $146,946 compared to a net loss of $195,493 for the three-month period ended November 30, 2008. This was primarily due to an increase in sales in the three month period ended November 30, 2009 of over $360,000 in higher gross margin products compared to the product mix sold in the three months ended November 30, 2008.

Nine-month period ended November 30, 2009 compared to the corresponding period in 2008

							Year over
	2009			2008			year change			%


Sales	$	1,829,641		$	908,621			921,020			101	%
Cost of sales		997,779			523,238			474,541			91	%
Gross profit		831,862			385,383			446,479			116	%
Gross profit percentage		47	%		42	%
Selling, general, and administrative expenses		508,647			724,403			(215,756	)		-30	%
Depreciation & amortization expense		41,061			36,317			4,744			13	%
Interest income		443			123			320			260	%
Interest expense to related parties		28,869			143,856			(114,987	)		-80	%
Net income (loss)		241,491			(465,507	)		706,998			152	%
Net Income (loss) %		14	%		-51	%

Net cash provided by (used in) operating activities		292,131			266,711			25,420			10	%
Net cash provided by (used in) investing activities		(10,748	)		(37,079	)		26,331			71	%
Net cash provided by (used in) financing activities		(8,581	)		(54,213	)		45,632			-84	%

Sales. Sales increased primarily due to sales to one customer during the nine-month period ended November 30, 2009 in comparison to the previous fiscal year’s first nine months. The number of bottles sold increased from 36,961 to 83,763, while the average price per bottle increased from $7.33 to $9.01. Sales of bottles totaled approximately $465,000 while sales of other products during the nine-month period ended November 30, 2009 totaled approximately $1,364,000. Other products include the new higher gross margin mission pack, straws, replacement filters, and canteens.

Cost of sales and gross profit. The increase in cost of sales is primarily due to increased sales. As a percentage of sales, the gross profit percentage increased from 42% to 47% due to a change in the product mix of bottles sold combined with a change in production costs due to quality control issues offset by a slight increase in cost of components. The average sales price per bottle increased while the average cost per bottle increased from $2.93 to $5.70 for the nine-month period ended November 30, 2009. The trend continues toward a higher gross margin product mix. Inventory reserve decreased in the three month period ended November 30, 2009 due to sales of reserved items during the period.

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Selling, general and administrative expenses. The decrease in general and administrative expenses is due to the following: a decrease in accounting fees of $64,000 offset by an increase in rent of $15,000. Compensation to executive officers decreased for the nine-month period ended November 30, 2009, compared to the nine-month period ended November 30, 2008 and was due to an additional 700,000 warrants being issued to two executive officers in April 2008. The warrants issued in April 2008 had a nine-month vesting period and were valued at $222,000 which was recognized over the vesting period.

Interest expense to related parties. The decrease in interest expense for the nine-month period ended November 30, 2009, compared to the nine-month period ended November 30, 2008, 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 was $224,970. $143,856 was recognized as interest expense in the nine month period ended November 30, 2008. None of the value of these warrants were recognized in the nine-month period ended November 30, 2009.

Net income (loss). There was a net income of $241,491 for the nine-month period ended November 30, 2009 compared to a net loss of $465,508 for the nine-month period ended November 30, 2008. The loss was significant in the previous year primarily due to additional warrants being issued in April 2008 which increased expenses in the nine-month period ended November 30, 2008. In addition, total sales increased by over $900,000 for the nine months ended November 30, 2009 compared to the nine months ended November 30, 2008. The trend continues toward higher gross margin products in the product mix.

Liquidity and Capital Resources

Operating Activities We generated $292,131 from operating activities during the nine-month period ended November 30, 2009 as compared to $266,711 for the same period 2008. This increase is largely due to an increase in sales.

Investing Activities We used $10,748 in investing activities during the nine-month period ended November 30, 2009 compared to $37,079 in the same period 2008. We invested $6,600in tooling molds for China production and an additional $3,200 in warehouse equipment in the USA.

Financing Activities We used $8,581 in financing activities during the nine-month period ended November 30, 2009 compared to $54,213 in the same period 2008. The $8,581 was payment for an equipment lease.

As of November 30, 2009, we had $433,217 in cash and no remaining amount available to borrow under our line of credit. The line of credit does not contain any limitations on borrowing or any restrictive debt covenants. We believe that our liquidity and committed funds are sufficient to meet our operating needs through November 30, 2010.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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.

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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 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, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer has reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are effective.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 240.15d-15 that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of November 30, 2009, there are no known legal proceedings or judgments entered, either pending or threatened, against the Company or any of our directors or officers.

ITEM 1A. RISK FACTORS

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.

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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 and manufactures for sale water filtration products. The Company has continued to expand its product lines but have not generated enough revenue to support operations. This has required us to seek both investor capital and financing to develop the market for our new products. Recent sales activity for the nine months ended November 30, 2009 has increased over the past year. Still, we have limited financial results upon which an investor 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. Through February 28, 2009, we incurred significant losses. However, during the nine months ended November 30, 2009 we have recorded profits and positive cash flows from operations. There appears to be a trend toward greater profitability by emphasizing higher gross margin products and is evidenced by the results in the current fiscal year. We had net income for the quarter ended November 30, 2009 of $146,946 compared to a net loss in the comparative quarter ended November 30, 2008 of $195,493. This reduced the accumulated deficit to $6,774,358. 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.

Risk of Competition. 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.

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.

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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.

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.

Dependence on One or a Few Customers. For the quarter ended November 30, 2009, one customer individually accounted for approximately 50 percent 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.

Risks Associated With Currency Exchange Rate Fluctuations. Historically, we have not engaged in exchange rate hedging activities and all of our transactions are denominated in US dollars.

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.

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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.

Maintaining and Improving Our Financial Controls and The Requirements Of Being a Public Company May Strain Our Resources, Divert Management’s 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 maintain.

In addition, our assessments of internal control over financial reporting may identify 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. 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 could also involve substantial accounting related costs.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the nine-month period ended November 30, 2009, the Company issued 30,000 shares of restricted stock for services rendered. Otherwise, there have been no further issuances of securities through the date of this filing.

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)

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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 15 2009	By:	/s/ Carl Palmer
		Carl Palmer Director, Chief Executive Officer and President



Date: January 15 2009	By:	/s/ Jim Place
		Jim Place Director and Chief Financial Officer and Chief Operating Officer

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