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

seychelle10q53110_7132010.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 May 31, 2010

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

EXCHANGE ACT OF 1934

For the transition period from _______________ to __________________

Commission File No. 0-29373

Seychelle Environmental Technologies, Inc.

(Exact Name of registrant as specified in its charter)

Nevada	33-0836954
(State or other jurisdiction	(IRS Employer File Number)
Of incorporation)

32963 Calle Perfecto
San Juan Capistrano, California	92675
(Address of principal executive offices)	(zip code)

(949) 234-1999

(Registrant's telephone number, including area code)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

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 common stock, as of May 31, 2010 was 25,854,146.

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

FORM 10-Q

Securities and Exchange Commission

Washington, D.C. 20549

Seychelle Environmental Technologies, Inc.

TABLE OF CONTENTS

	Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	12
Item 4. Controls and Procedures	12
Item 4T. Controls and Procedures	12

PART II OTHER INFORMATION
Item 1. Legal Proceedings	13
Item 1A. Risk Factors	13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3. Defaults Upon Senior Securities	17
Item 4. Submission of Matters to a Vote of Security Holders	17
Item 5. Other Information	17
Item 6. Exhibits	17

Signatures	18

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PART I

ITEM 1. FINANCIAL STATEMENTS

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	May 31, 2010			February 28, 2010
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	551,224			502,167
Accounts receivable, net of allowance for doubtful accounts
of $24,180 and $11,537, respectively		405,518			224,468
Inventory, net		423,753			383,675
Prepaid expenses and other current assets		95,514			34,079
Total current assets		1,476,009			1,144,389
Property and equipment, net		116,162			117,016
Intangible assets, net		8,435			9,742
Other assets		8,515			8,514
Total assets	$	1,609,121			1,279,661
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	221,895			134,292
Customer deposits		66,386			110,538
Accrued interest due to related party		52,861			50,034
Notes payable		11,238			14,870
Long-term related party notes payable, current portion		113,080			-
Total current liabilities		465,460			309,734
Long-term related party notes payable		171,913			471,088
Total liabilities		637,373			780,822

Subsequent events (Note 6)
Stockholders' equity:
Preferred stock, 6,000,000 shares authorized, none issued or outstanding		-			-
Common stock $0.001 par value, 50,000,000 shares authorized, 25,854,146 issued and outstanding		25,854			25,854
Additional paid-in capital		6,925,904			6,925,904
Accumulated deficit		(5,980,010	)		(6,452,919	)
Total stockholders' equity		971,748			498,839
Total liabilities and stockholders' equity	$	1,609,121			1,279,661

See accompanying notes to condensed consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended
	May 31,			May 31,
	2010			2009
Revenues	$	1,211,420		$	398,375
Cost of sales		534,119			251,138
Gross profit		677,301			147,237
General and Administrative Expenses
Selling and marketing expenses		31,637			6,796
General and administrative expenses		125,289			183,165
Executive compensation and related party expenses		42,118			5,002
Total general and administrative expenses		199,044			194,963
Income (Loss) from Operations		478,257			(47,726	)
Other Income (Expense)
Interest income		146			162
Interest expense-related parties		(4,379	)		(16,396	)
Interest expense-other		(1,115	)		(3,255	)
Other income (expense)		-			(2,613	)
Total other (expense)		(5,348	)		(22,102	)
Net income (loss) before income taxes		472,909			(69,828	)
Provision for income taxes		-			-
Net Income (loss)	$	472,909		$	(69,828	)
BASIC INCOME (LOSS) PER SHARE	$	0.02		$	(0.00	)
DILUTED INCOME (LOSS) PER SHARE	$	0.02		$	(0.00	)
BASIC WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		25,854,146			25,824,146
DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		30,208,182			25,824,146

See accompanying notes to condensed consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For The Three Months Ended
	May 31,			May 31,
	2010			2009

OPERATING ACTIVITIES:
Net income (loss)	$	472,909		$	(69,828	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization		13,181			13,593
Stock-based compensation		-			4,197

Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(181,050	)		(44,238	)
(Increase) decrease in inventory		(40,078	)		146,270
(Increase) decrease in prepaid expenses and other assets		(61,436	)		29,935
Increase (decrease) in accounts payable and accrued expenses		87,603			8,026
Increase (decrease) in accrued interest due to related party		2,827			(48,763	)
Increase (decrease) in customer deposits		(44,152	)		(55,107	)
Net Cash (Used in) Provided by Operating Activities		249,804			(15,915	)

INVESTING ACTIVITIES:
Purchase in property and equipment		(11,020	)		(2,980	)
Net Cash Used in Financing Activities		(11,020	)		(2,980	)

FINANCING ACTIVITIES:
Repayment of notes payable		(189,727	)		(2,634	)
Net Cash Used in Financing Activities		(189,727	)		(2,634	)

NET INCREASE (DECREASE) IN CASH		49,057			(21,529	)

CASH AT BEGINNING OF PERIOD		502,167			160,415

CASH AT END OF PERIOD	$	551,224		$	138,886




Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	2,666		$	-
Income taxes	$	-		$	-

See accompanying notes to condensed consolidated consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by Seychelle Environmental Technologies, Inc., and subsidiary (the “Company”) without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at May 31, 2010, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s February 28, 2010 audited financial statements. The results of operations for the periods ended May 31, 2010 and 2009 are not necessarily indicative of the operating results for the full years.

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

NOTE 2: BASIC INCOME (LOSS) PER SHARE

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

The denominator for diluted income per share for the period ended May 31, 2010 is adjusted to include the effect of dilutive common stock equivalents, consisting of warrants totaling 4,354,036. Common stock equivalents, consisting of 6,549,721 warrants were considered but were not included in the computation of loss per share for the period ended May 31, 2009, because they would have been anti-dilutive. Accordingly, basic and diluted loss per share for the period ended May 31, 2009 is computed based solely on the weighted average number of shares outstanding during the period.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3: 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. The amount of the expense charged to operations for compensatory warrants granted in exchange for services was $-nil-for the three months ended May 31, 2010 and $1,697 for the three months ended May 31, 2009.

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.

NOTE 4: COMMON STOCK PURCHASE WARRANTS

A summary of warrant activity for the three months ended May 31, 2010 is as follows:

			Weighted-
			Average
	Warrants		Exercise
	Outstanding		Price
Outstanding at February 28, 2010		6,549,721		0.25
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding at May 31, 2010		6,549,721		0.25
Vested at May 31, 2010		6,549,721		0.25
Exercisable at May 31, 2010		6,549,721		0.25

The following table summarizes significant ranges of outstanding warrants as of May 31, 2010:

		Warrants Outstanding				Warrants Exercisable
			Weighted		Weigted			Weighted
			Average		Average			Average
	Exercise	Number	Remaining		Exercise	Number		Exercise
		Outstanding	Life (Years)		Price	Outstanding		Price
$	0.19	600,000	0.26	$	0.19	600,000	$	0.19
	0.23	4,000,000	0.58		0.23	4,000,000		0.23
	0.29	107,221	0.26		0.29	107,221		0.29
	0.40	100,000	0.26		0.40	100,000		0.40
	0.33	1,700,000	0.26		0.33	1,700,000		0.33
	0.16	30,000	0.26		0.16	30,000		0.16
	0.25	10,000	0.04		0.25	10,000		0.25
	0.40	2,500	0.03		0.40	2,500		0.40
		6,549,721		$	0.25	6,549,721	$	0.25

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: INVENTORY

The Company’s inventory consisted of the following at May 31,2010 and February 28, 2010:
Raw materials	$	361,477		$	197,231
Finished goods		128,881			257,106
		490,358			454,337
Reserve for obsolete and slow moving inventory		(66,605	)		(70,662	)
	$	423,753		$	383,675

NOTE 6 – SUBSEQUENT EVENTS

In July 2010, the Company borrowed $100,000 against the line of credit available from Comerica and paid $113,080 against the outstanding long-term related party notes payable.

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

This discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of Seychelle Environmental Technologies, Inc., and subsidiary (the “Company”) for the three month periods ended May 31, 2010 and 2009. The discussion and analysis that follows should be read together with the consolidated financial statements of Seychelle Environmental Technologies, Inc. and the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K for the fiscal year ended February 28, 2010. Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company’s control.

Forward-Looking Statements

Certain statements contained herein are “forward-looking” statements. Forward-looking statements include statements which are predictive in nature; which depend upon or refer to future events or conditions; or which include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statement concerning future financial performance, ongoing business strategies or prospects, and possible future Company actions that may be provided by management are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company; and economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific intentions to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors including, among others:

(1)

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

(2)

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

(3)

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

(4)

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

(5)

the Company is subject to the risks of conducting business internationally; and

(6)

the industries in which the Company operates are highly competitive. Additional risks and uncertainties are outlined in the Company’s filings with the Securities and Exchange Commission, including its most recent fiscal 2010 Annual Report on Form 10-K.

Description of the Business

We were incorporated under the laws of the State of Nevada on January 23, 1998 as a change of domicile to Royal Net, Inc., a Utah corporation that was originally incorporated on January 24, 1986. Royal Net, Inc. changed its state of domicile to Nevada and its name to Seychelle Environmental Technologies, Inc. effective in January 1998.

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.

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Our Company is presently comprised of Seychelle Environmental Technologies, Inc., a Nevada corporation, with one wholly-owned subsidiary, Seychelle Water Technologies, Inc., also a Nevada corporation (collectively, the Company or Seychelle). We use the trade name "Seychelle Water Filtration Products, Inc." in our commercial operations.

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

Our principal business address is 32963 Calle Perfecto, San Juan Capistrano, California 92675. Our telephone number at this address is 949-234-1999.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Our summary historical financial data is presented in the following table to aid in your analysis. You should read this data in conjunction with this section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 May 31, 2010 and 2009 are derived from our condensed consolidated financial statements included elsewhere in this report.

Three-month period ended May 31, 2010 compared to the corresponding period in 2009

							Year over
	2010			2009			year change			%


Sales	$	1,211,420		$	398,375			813,045			204	%
Cost of sales		534,119			251,138			282,981			113	%
Gross profit		677,301			147,237			530,064			360	%
Gross profit %		56	%		37	%
Selling and marketing expenses		31,637			6,796			24,841			366	%
General and administrative expenses		125,289			183,165			(57,876	)		-32	%
Compensation to executive officers and related parties		42,118			5,002			37,116			742	%
Interest expense to related parties		(4,379	)		(16,396	)		12,017			-73	%
Net Income (Loss)		472,909			(69,828	)		542,737			777	%
Net Income (Loss) %		39	%		-18	%

Sales. The increase in sales is primarily due to sales to two customers who accounted for 59% of sales in the period ended May 31, 2010. This increase in sales was further expanded by the normal fluctuation of sales between customers, however we expect to continue to expand our customer base. Approximately 41,831 bottles were sold during the three-month period ended May 31, 2010 at an average price of $10.77 per bottle compared to the previous year in which approximately 25,683 plastic bottles were sold at an average price of $8.75. The remaining sales by product for the period ended May 31, 2010 were $379,000 in mission packs, $113,000 in pitchers, $74,000 in replacement filters, and $87,000 in stainless steel bottles.

Cost of sales and gross profit percentage. The increase in cost of sales is primarily a direct result of sales increasing during the three-month period ended May 31, 2010. As a percentage of sales, the gross profit margin during the three months ended May 31, 2010 increased to 56% from 37% for the three months ended May 31, 2009 due to production being centered on two products for a majority of sales in the three month period ended May 31, 2010. The two products are the stainless steel water bottle and the missionary water bottle. Both products have a higher gross margin. We sold $87,276 of stainless steel water bottles in 2010 compared to $14,071 in 2009. We also sold $379,033 of missionary water bottles packs in 2010 compared to $-nil- in 2009. We expect that these products will account for the majority of our sales throughout the rest of fiscal year 2011.

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Selling expenses. Selling expenses consist primarily of commissions paid to salespeople. The increase in 2010 versus 2009 is a direct result of the increase in sales to two customers for which two sales people are paid commissions. Selling expenses comprised 2.6% of sales for 2010 compared to 1.7% for 2009. We expect sales commissions to be approximately 2.5% of sales for the remainder of fiscal year 2011.

General and administrative expenses. The decrease in general and administrative expenses was primarily due to the allocation of general and administrative expenses to inventory. The increased inventory turnover resulted in higher absorption of overhead costs to inventory. We capitalized $41,293 of overhead to inventory in 2010. Other significant components of general and administrative expenses are printing and reproduction of $10,388 for 2010 compared to $1,421 in 2009; professional fees of $25,919 in 2010 compared to $26,833 in 2009; depreciation expense of $13,181 in 2010 compared to $13,593 in 2009; insurance expense of $13,672 in 2010 compared to $5,940 in 2009; rent expense of $24,942 in 2010 compared to $33,424 in 2009 and administrative salaries of $39,940 compared to $24,337. We expect only a slight increase in general and administrative expenses for the remainder of fiscal 2011 as we expand to handle the growth of our sales.

Compensation to executive officers and related parties. The increase in compensation to executive officers for the three-month period ended May 31, 2010, compared to the three-month period ended May 31, 2009, is due to monthly payments paid to the Company’s officers for services rendered. Only one payment was made to two of the officers in the first three months ended May 31, 2009. During the first three months ended May 31, 2010, three payments of $5000 were made to Pacific Financial as compensation for consulting. To further this increase, payments to two officers were increased by $12,100 for one officer and $9,500 for the other in the period ended May 31, 2010 compared the three months ended May 31 in the prior year.

Interest expense to related parties. The decrease in interest expense for the three-month period ended May 31, 2010, compared to the three-month period ended May 31, 2009, is due to a partial repayment on the outstanding notes payable reducing the interest due for each period on the remaining balance.

Net Income (loss). Net income for the three-month period ended May 31, 2010 was $472,909 compared to a net loss of $69,828 for the three-month period ended May 31, 2009. This was primarily due to an increase in sales revenue in the three-month period ended May 31, 2010 and improved gross profit margins. Further, we expect continued improvement in the Company’s profitability.

Change of Accountant. On June 16, 2010, our Board of Directors voted to dismiss our independent registered public accounting firm, GBH CPAs, PC, of Houston, Texas and to replace them with Windes & McClaughry Accountancy Corporation (Windes & McClaughry), of Irvine, California. As of that date, Windes & McClaughry formally accepted us as a client for the audit of our consolidated financial statements for the fiscal year ending February 28, 2011 which will be included in our fiscal 2011 annual report to be reported on Form 10-K.

Liquidity and Capital Resources

Net cash used in operating activities. During the three-month period ended May 31, 2010, the Company funded its operations primarily through the sales proceeds received. Our accounts receivable increased by $181,050 reflecting the growth in sales. We also increased our inventory levels by $40,078 and prepaid for approximately $61,500 in inventory (included in prepaid expenses) in anticipation of continued sales growth in fiscal 2011. We used funds to fulfill $44,152 in orders that were open as of February 28, 2010. Our accounts payable increased by $87,603 due to the inventory purchases.

Net cash used in investing activities. During the three-month period ended May 31, 2010, the increase in cash used by investing activities was due to the purchase of $11,020 of property and equipment compared $2,980 during the same time period in the prior fiscal year.

Net cash provided by financing activities. The increase in cash used in financing activities during the three month period ended May 31, 2010 was largely due to repayments totaling $189,727 on notes payable compared to $2,634 in the time period of 2009.

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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 May 31, 2010, the TAM Trust has loaned the Company $248,993 at 10% simple interest, repayable by March 1, 2011. The Company believes that despite the increase in sales experienced during the fiscal years ended February 28, 2010 and February 28, 2009 and the three-month period ended May 31, 2010, additional funding may still be required from the TAM Trust or other shareholders to handle the growth in sales volume. During April 2010, the TAM Trust committed to providing up to $250,000 in additional funding.

As of May 31, 2010, the Company had $551,224 in cash and $100,000 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 2011.

Critical Accounting Policies and Estimates

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

The Company believes that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of its most recent fiscal 2010 Annual Report on Form 10-K have the greatest potential impact on its consolidated financial statements, so it considers these to be its critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates the Company uses in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for inventory reserves and stock-based compensation. These policies require that the Company make estimates in the preparation of its consolidated financial statements as of a given date.

Within the context of these critical accounting policies, the Company is not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4. CONTROLS AND PROCEDURES

Not applicable

ITEM 4T. CONTROLS AND PROCEDURES

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

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There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal three months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This report does not include an attestation report by the Company’s independent registered public accounting firm regarding internal control over financial reporting. Identified in connection with the evaluation required by paragraph (d) of Rule 240.13a-15 or Rule 240.15d-15 of this chapter that occurred during the registrant’s last fiscal three months that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of May 31, 2010, 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 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.

Lack of Profitability. Through May 31, 2010, we had incurred significant losses. However, sales activity for the three months ended May 31, 2010 increased significantly over the prior year, and we have recorded profits and positive cash flows from operations. We had net income for the quarter ended May 31, 2010 of $472,909 compared to a net loss in the quarter ended May 31, 2009 of $69,828. This reduced the accumulated deficit to $5,980,010. Nevertheless, we have a limited history of profitable financial results upon which an investor may judge our potential. The Company has not engaged in enough consistent profitable 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.

Because we are a Company with a limited operating history, our operations will be subject to intense competition 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.

We have a limited product line, and the development of some of our technologies has taken longer than anticipated and could be additionally delayed.

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 will allow us to sustain or achieve profitable operations.

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As an organization, we are dependent upon technology for the development of our products.

We are operating in a business that requires 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.

Our success as an organization depends, in large part, upon our ability to protect our intellectual property rights.

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, three patents, three trademarks, copyrights, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We currently have three U.S. patents issued and a license on one patent. 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.

Many of our competitors have substantially greater capabilities and resources and may be able to develop and commercialize products before we do.

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 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 maintain our recently achieved profitable position in the marketplace.

Our success is dependent upon the decision making of our directors and executive officers.

Our directors and executive officers have made a full commitment to our business. The loss of any or all of these individuals could have a materially adverse impact on our operations. We will depend on our senior executive officers as well as other key personnel. If any key employee decides to terminate his employment with us, this termination could delay the commercialization of our products or prevent us from sustaining our profitability. Competition for qualified employees is intense among companies in our industry, and the loss of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could hinder our ability to successfully develop and maintain marketable products.

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We have a significant dependence on a few customers.

Sales to two customers who accounted for 59% of sales in the period ended May 31, 2010. Management believes that if future revenues from its significant customers decline those revenues can be replaced through the sales to other customers. 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 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 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 subjects 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 in accordance with generally accepted accounting principles, or GAAP, in the United States. These accounting principles are issued by the Financial Accounting Standards Board (FASB). The Securities and Exchange Commission also provides interpretation, guidance and principles in the preparation of financial statements. 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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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; however, grants of equity based compensation are measured at their grant date fair value and recognized over the requisite service period, if any. We may, as a result of changes in accounting principles, change our equity compensation strategy which could affect our ability to attract, retain and motivate employees, which could materially and adversely affect our business, operating results and financial condition.

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 our 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 budgeted expense levels on our internal operating plans and anticipated sales levels, and our historical operating costs which 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 Fail in Maintaining Effective Internal Control Over Financial Reporting, The Price of Our Common Stock May be Adversely Affected. However, We Have Determined That Our Internal Control Over Financial Reporting Were Effective as of May 31, 2010,

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 material weaknesses that need to be addressed in management’s assessment of our internal control over financial reporting or in the report on the effectiveness of our internal controls by our independent registered public accounting firm, when applicable, 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 management’s annual assessment of our internal control over financial reporting. The standards that must be met for the management to assess the internal control over financial reporting as effective are 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 fiscal year 2010 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 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 the event that our Chief Executive Officer and Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how investors will react on 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.

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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.

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 also involve substantial costs.

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

During the three-month period ended May 31, 2010, the Company issued no restricted stock or warrants or options.

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 TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibits

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 Section 906 of the Sarbanes-Oxley Act of 2002)

32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350 Section 906 of the Sarbanes-Oxley Act of 2002)

Reports on Form 8-K

We filed no reports on Form 8-K for the fiscal quarter ended May 31, 2010.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	Seychelle Environmental Technologies, Inc.

Date: July 13, 2010	By:	/s/ Carl Palmer
		Carl Palmer Director, Chief Executive Officer and President



Date: July 13, 2010	By:	/s/ Jim Place
		Jim Place Director and Chief Financial Officer and Chief Operating Officer

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