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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CA - Quarter Report: 2008 August (Form 10-Q)

seychelle10q83108_10808.htm
 
 
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
 
Logo
 
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.

 
- 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.
 
 
- 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.


 
- 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;
 

 
- 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.

 
- 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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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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