SEYCHELLE ENVIRONMENTAL TECHNOLOGIES INC /CA - Quarter Report: 2010 November (Form 10-Q)

 

 

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)

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

 

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

 

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

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

 

 

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

 

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

 

 

						Weighted-
						Average
		Warrants				Exercise
		Outstanding				Price
Outstanding at February 28, 2010			6,549,721				0.25
Granted			-				-
Exercised			-				-
Forfeited			(100,000)				0.40
Outstanding at November 30, 2010			6,449,721				0.25
Vested at November 30, 2010			6,449,721				0.25
Exercisable at November 30, 2010			6,449,721				0.25

			Warrants Outstanding							Warrants Exercisable
					Weighted			Weighted				Weighted
					Average			Average				Average
	Exercise		Number		Remaining			Exercise		Number		Exercise
			Outstanding		Life (Years)			Price		Outstanding		Price
$	0.19		600,000		0.002		$	0.19		600,000	$	0.19
	0.23		4,000,000		0.002			0.23		4,000,000		0.23
	0.29		107,221		0.002			0.29		107,221		0.29
	0.33		1,700,000		0.002			0.33		1,700,000		0.33
	0.16		30,000		0.002			0.16		30,000		0.16
	0.25		10,000		0.002			0.25		10,000		0.25
	0.40		2,500		0.002			0.40		2,500		0.40
			6,449,721				$	0.25		6,449,721	$	0.25

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

 

 

 

(1)

the portable water filtration industry is in a state of rapid technological change, which can render the Company’s products obsolete or unmarketable;

(2)

any failure by the Company to anticipate or respond to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on the Company’s business, operating results and financial condition;

(3)

the Company’s cost of sales may be materially affected by increases in the market prices of the raw materials used in the Company’s assembly processes;

(4)

the Company’s water related product sales could be materially affected by weather conditions and government regulations;

 

Three-month period ended November 30, 2010 compared to the corresponding period in 2009
										Year over
		2010				2009				year change				%
Sales		$	1,280,017			$	798,604				481,413				60	%
Cost of sales			656,554				386,428				270,126				70	%
Gross profit			623,463				412,176				211,287				51	%
Gross profit %			49	%			52	%
Selling and  marketing expenses			30,302				50,725				(20,423	)			-40	%
General and  administrative expenses			195,267				165,904				29,363				18	%
Compensation to executive officers and related parties			45,694				36,236				9,458				26	%
Interest expense to related parties			841				9,652				(8,811	)			-91	%
Net Income			308,778				146,946				161,832				110	%
Net Income %			24	%			18	%

Sales. Our customer concentration is constantly changing which contributes to much of the fluctuation in sales.  The current period increase in sales is primarily due to sales to four customers who accounted for 70% of sales in the three-month period ended November 30, 2010 compared to 50% in the same period ended November 30, 2009.  There was also a significant increase in website sales for the three-month period ended November 30, 2010 by $57,000 as more and more customers are discovering this means of purchasing our product.  Bottle revenue increased from $135,000 to $320,000.  Replacement filter revenue increased from $75,000 to $159,000.  Additional sales of the filter only were included in sales for the three month period ended November 30, 2010 which increased revenue by $256,000. It is normal for sales by product to fluctuate from quarter to quarter.  Further, sales are expected to continue to increase going forward.
 

 

Nine-month period ended November 30, 2010 compared to the corresponding period in 2009
										Year over
		2010				2009				year change				%
Revenues		$	3,191,538			$	1,829,641				1,361,897				74	%
Cost of sales			1,580,816				997,779				583,037				58	%
Gross profit			1,610,722				831,862				778,860				94	%
Gross profit %			51	%			45	%
Selling and  marketing expenses			103,197				79,148				24,049				30	%
General and  administrative expenses			504,463				419,960				84,503				20	%
Compensation to executive officers and related parties			150,447				50,600				99,847				197	%
Interest expense to related parties			9,004				28,869				(19,865	)			-69	%
Net Income			799,110				241,491				557,619				231	%
Net Income %			25	%			13	%

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)

	Seychelle Environmental Technologies, Inc.
Date:  January 13, 2011	By:	/s/ Carl Palmer
		Carl Palmer Director, Chief Executive Officer and President

Date:  January 13, 2011	By:	/s/ Jim Place
		Jim Place Director and Chief Financial Officer and Chief Operating Officer

 

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