UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


þQUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ending November 30, 2017

May 31, 2019

o 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 Of incorporation) (IRS Employer File Number)
   
22 Journey  
Aliso Viejo, California 92656
(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.    Yesþ  Noo

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 þ  Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company", in Rule 12b-2 of the Exchange Act.


Large accelerated filer☐
 
Accelerated filer☐
Non-accelerated filer☐ 
 Smaller reporting company ☑þ
(Do not check if smaller reporting company) 
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yeso   Noþ

The number of shares outstanding of the Registrant's common stock, as ofJanuary 11, 2018June 28, 2019 was 26,640,313.

26,640,313

References in this document to "us," "we," or "Company" refer to Seychelle Environmental Technologies, Inc., its predecessor and its subsidiaries.


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  3 
 Condensed Consolidated Balance Sheets   3 
 
Condensed Consolidated Statements of Operations
  4
Consolidated Statements of Stockholders' Equity5 
 Condensed Consolidated Statements of Cash Flows  6 
 Notes to Condensed Consolidated Financial Statements  7 
      
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations  11 
Item 3.Quantitative and Qualitative Disclosures About Market Risk  1516 
Item 4.Controls and Procedures  1516 
Item 4T.Controls and Procedures  1516 
      
PART II  OTHER INFORMATION    
      
Item 1.Legal Proceedings  1718 
Item 1A.Risk Factors  1718 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds  1718 
Item 3.Defaults Upon Senior Securities  1718 
Item 4.Submission of Matters to a Vote of Security Holders  1718 
Item 5.Other Information  1718 
Item 6.Exhibits  1819 
      
Signatures  1920 
- 2 -

PART I

ITEM 1. FINANCIAL STATEMENTS


SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

  
November 30,
2017
  
February 28,
2017
 
ASSETS      
Current assets:      
   Cash and cash equivalents $
1,776,482
  $732,112 
   Accounts receivable, net of allowance for doubtful accounts and sales returns        
     of $6,080 and $47,600, respectively
  756,766   905,507 
   Related party receivables  28,922   27,200 
   Inventory, net  975,373   1,421,871 
   Prepaid expenses, deposits and other current assets  241,649   282,560 
      Total current assets  
3,779,192
   3,369,250 
         
Property and equipment, net  127,267   164,997 
Other assets  74,848   81,310 
         
      Total assets  $
3,981,307
  $3,615,557 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
   Accounts payable and accrued expenses $322,820  $476,415 
   Customer deposits  130,058   99,677 
   Capital lease obligations, current portion  
5,277
   4,047 
       Total current liabilities  458,155   580,139 
         
Long-term liabilities:        
 Capital lease obligations, net of current  10,481   14,744 
    Total liabilities  468,636   594,883 
         
Stockholders' equity:        
   Preferred stock, 6,000,000 shares authorized, none issued or outstanding  -   - 
   Common stock $0.001 par value, 50,000,000 shares authorized, 26,640,313
    issued and outstanding at November 30, 2017 and February 28, 2017, respectively
  26,641   26,641 
   Additional paid-in capital  8,944,368   8,944,368 
   Accumulated deficit  
(5,428,658
)  (5,920,655)
   Less treasury stock at cost  (29,680)  (29,680)
Total stockholders' equity  
3,512,671
   3,020,674 
         
 Total liabilities and stockholders' equity $
3,981,307
  $3,615,557 

 

ASSETS

    
  May 31, February 28,
  2019 2019
CURRENT ASSETS        
  Cash and cash equivalents $2,174,866  $2,078,122 
  Accounts receivable, net of allowance for doubtful accounts of $1,156 and $4,614    respectively  293,807   352,818 
  Related party receivable  25,850   31,472 
  Inventory, net  1,119,756   972,497 
  Prepaid expenses, deposits and other current assets  73,460   129,049 
      Total current assets  3,687,739   3,563,958 
         
PROPERTY AND EQUIPMENT, NET  110,096   118,154 
         
OTHER ASSETS        
  Other assets  66,670   66,670 
  Right-of-use lease asset-operating  501,772   - 
         
        Total assets $4,366,277  $3,748,782 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
CURRENT LIABILITIES        
   Accounts payable and accrued expenses $288,707  $267,641 
   Customer deposits  56,813   30,567 
   Lease liability, current portion  234,865   5,938 
      Total current liabilities  580,385   304,146 
         
LONG-TERM LIABILITIES        
   Lease liability, net of current portion  296,645   3,182 
      Total long-term liabilities  296,645   3,182 
         
      Total liabilities  877,030   307,328 
         
STOCKHOLDERS' EQUITY        
Preferred stock, 6,000,000 shares authorized,        
    none issued or outstanding  -   - 
Common stock $0.001 par value, 50,000,000 shares        
authorized, 26,640,313 shares        
issued and outstanding  26,641   26,641 
Additional paid-in capital  8,944,368   8,944,368 
Accumulated deficit  (5,452,082)  (5,499,875)
Less treasury stock at cost 66,000 shares  (29,680)  (29,680)
         
      Total stockholders' equity  3,489,247   3,441,454 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,366,277  $3,748,782 

See accompanying notes to condensed consolidated financial statements.

- 3 -

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

  
For the Three Months Ended
November 30,
 
  2017  2016 
Sales $1,629,324  $1,257,844 
Cost of sales  858,765   1,003,395 
         Gross profit  770,559   254,449 
Operating expenses        
    Selling, general, and administrative  507,325   523,029 
    Depreciation and amortization  16,040   19,821 
                 Total  operating  expenses  523,365   542,850 
 Income (loss)  from operations  247,194   
(288,401
)
Other income (expense)        
     Interest income  -   7 
     Interest expense  
(576
)  
(621
)
     Other income (expense)  -   (1,068)
                  Total other income (expense)  
(576
)  (1,682)
Income (loss)  before income tax benefit (expense)  246,618   
(290,083
)
Income tax benefit (expense)  -   5,853 
Net  income (loss) $246,618  $
(284,230
)
BASIC INCOME (LOSS) PER SHARE $
0.01
  $(0.01)
DILUTED  INCOME (LOSS) PER SHARE $
0.01
  $(0.01)
BASIC WEIGHTED AVERAGE NUMBER OF        
SHARES OUTSTANDING  
26,574,313
   
26,574,313
 
DILUTED WEIGHTED AVERAGE NUMBER OF        
SHARES OUTSTANDING  
26,574,313
   
26,574,313
 

  For the Three Months Ended
  May 31, May 31,
  2019 2018
Sales $680,399  $1,133,901 
Cost of sales  283,744   603,440 
Gross profit  396,655   530,461 
Operating expenses        
Selling, general, and administrative  334,954   424,462 
Depreciation and amortization  12,919   14,472 
Total  operating  expenses  347,873   438,934 
Income from operations  48,782   91,527 
Other (expense) income        
Interest expense  (264)  (554)
Other income  75   1,818 
Total other (expense) income  (189)  1,264 
Income before provision for income taxes  48,593   92,791 
Income tax (expense)  (800)  - 
Net  income $47,793  $92,791 
BASIC INCOME PER SHARE $0.00  $0.00 
DILUTED  INCOME PER SHARE $0.00  $0.00 
BASIC WEIGHTED AVERAGE NUMBER OF        
SHARES OUTSTANDING  26,574,313   26,574,313 
DILUTED WEIGHTED AVERAGE NUMBER OF        
SHARES OUTSTANDING  26,574,313   28,910,996 
         
*NET REVENUE FROM RELATED PARTIES $329,000  $305,000 

 See accompanying notes to condensed consolidated financial statements.

- 4 -


SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
  
For the Nine Months
Ended
November 30,
 
  2017  2016 
Sales $3,829,465  $2,885,212 
Cost of sales  2,014,064   1,950,312 
Gross profit  
1,815,401
   934,900 
Operating expenses        
    Selling, general, and administrative  1,262,269   2,144,063 
    Depreciation and amortization  51,094   62,651 
                 Total  operating  expenses  1,313,363   2,206,714 
 Income (loss)  from operations  502,038   
(1,271,814
)
Other income (expense)        
     Interest income  -   23 
     Interest expense  
(3,850
)  
(1,624
)
     Other income  (142)  11,163 
Total other income (expense)  
(3,992
)  9,562 
Income (loss)  before income tax benefit (expense)  498,046   
(1,262,252
)
Income tax benefit (expense)  
(6,051
)  385,211 
Net  income (loss) $491,995  $
(877,041
)
BASIC INCOME (LOSS) PER SHARE $
0.02
  $
(0.03
)
DILUTED  INCOME (LOSS) PER SHARE $
0.02
  $
(0.03
)
BASIC WEIGHTED AVERAGE NUMBER OF        
SHARES OUTSTANDING  
26,574,313
   
26,574,313
 
DILUTED WEIGHTED AVERAGE NUMBER OF        
SHARES OUTSTANDING  
26,574,313
   
26,574,313
 

Consolidated Statements of Stockholders' Equity

For the Quarter Ended May 31, 2019 and 2018

 Common Stock Treasury Stock      
 Shares Amount Shares Amount 

Additional

Paid-In

Capital

 

Accumulated

Deficit

 Total
              
Balance at February 28, 2018 26,640,313  $26,641   66,000  $(29,680) $8,944,368  $(5,259,748) $3,681,581 
                            
Net income -   -   -   -   -   92,791   92,791 
                            
Balance at May 31, 2018 26,640,313  $26,641   66,000  $(29,680) $8,944,368  $(5,166,957) $3,774,372 
                            
Balance at February 28, 2019 26,640,313  $26,641   66,000  $(29,680) $8,944,368  $(5,499,875) $3,441,454 
                            
Net income -   -   -   -   -   47,793   47,793 
                            
Balance at May 31, 2019 26,640,313  $26,641   66,000  $(29,680) $8,944,368  $(5,452,082) $3,489,247 

See accompanying notes to condensed consolidated financial statements.

- 5 -

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  
For The Nine Months Ended
November 30,
 
  2017  2016 
       
CASH FLOW FROM OPERATING ACTIVITIES:      
Net income (loss) $491,995  $
(877,041
)
Adjustments to reconcile net income (loss)  to net cash provided by (used in)  operating activities:        
    Depreciation and amortization  51,094   62,651 
    Loss on disposal of assets  -   
5,586
 
    Stock-based compensation  -   117,500 
    Provision for doubtful accounts  
(41,520
)  (103,652)
    Deferred income tax expense (benefit)  -   
(391,485
)
Changes in operating assets and liabilities:        
   Accounts receivable  190,261   
(531,850
)
   Related party receivables  (1,722)  12,225 
   Inventory  446,498   519,922 
   Prepaid expenses, deposits  and other assets  47,375   
(85,647
)
   Accounts payable and accrued expenses  
(153,595
)  
(99,916
)
   Income taxes payable  -   
(252,414
)
   Customer deposits  30,381   105,962 
Net Cash Provided By (Used In) Operating Activities  1,060,767   
(1,518,159
)
         
CASH FLOW FROM INVESTING ACTIVITIES:        
 Purchase of property and equipment  
(13,364
)  (25,582)
Net Cash Used In Investing Activities  
(13,364
)  (25,582)
         
CASH FLOW FROM FINANCING ACTIVITIES:        
 Repayment of capital lease obligations  
(3,033
)  
(8,269
)
 Repurchase of common stock  -   (17,400)
Net Cash Used in Financing Activities  
(3,033
)  
(25,669
)
         
       NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  1,044,370   
(1,569,410
)
         
       CASH AND CASH EQUIVALENTS - beginning of period  732,112   2,062,873 
         
       CASH AND CASH EQUIVALENTS - end of period $
1,776,482
  $493,463 
         
Supplemental disclosures of cash flow information:         
         
Cash paid for:        
 Interest $
3,850
  $
1,624
 
 Income taxes $-  $252,414 

  For The Three Months Ended
  May 31, May 31,
  2019 2018
     
OPERATING ACTIVITIES:        
Net income $

 

47,793

  $92,791 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Depreciation and amortization  12,919   14,472 
Provision (recovery) for doubtful accounts  (3,458)  1,912 
Accretion of right-of-use lease asset  53   - 
Changes in operating assets and liabilities:        
Accounts receivable  62,469   148,827 
Related party receivables  5,622   1,406 
Inventory  (147,259)  7,823 
Prepaid expenses, deposits and other assets  55,590   91,059 
Accounts payable and accrued expenses  43,063   (226,059)
Customer deposits  26,246   (147,301)
Net cash provided by (used in) operating activities  103,038   (15,070)
         
INVESTING ACTIVITIES:        
Purchase of property and equipment ��(4,861)  - 
Net cash used in investing activities  (4,861)  - 
         
FINANCING ACTIVITIES:        
Repayment of capital lease obligation  (1,432)  (1,265)
Net cash used in financing activities  (1,432)  (1,265)
         
       NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  96,745   (16,335)
         
       CASH AND CASH EQUIVALENTS – beginning of period  2,078,122   2,075,833 
         
       CASH AND CASH EQUIVALENTS – end of period $2,174,867  $2,059,498 
         
Supplemental disclosures of cash flow information:        
    Initial recognition of lease asset $555,296  $- 
    Cash paid for:        
Interest $387  $554 

 See accompanying notes to condensed consolidated financial statements.

- 6 -

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

November 30, 2017

NOTE 1:    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The accompanying condensed consolidated financial statements have been prepared by Seychelle Environmental Technologies, Inc., and subsidiaries (the "Company" or "Seychelle") without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows at November 30, 2017,as of May 31, 2019, 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 (“U.S. GAAP”) have been condensed or omitted.  It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Reportannual report on Form 10-K for the year ended February 28, 2017.2019.  The results of operations for the periods ended November 30, 2017May 31, 2019 and 20162018 are not necessarily indicative of the operating results for the full fiscal years.


The summary of significant accounting policies of the Company is presented to assist in understanding the Company's consolidated financial statements. The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of thesethe condensed consolidated financial statements and the February 28, 20172019 consolidated financials included in the Form 10-K filed on June 14, 2017.


May 29, 2019.

The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.



NOTE 2:    MANAGEMENT'S PLAN

As

Except for the accounting policy for Leases, which was updated as a result of November 30adopting a new accounting standard, there have been no material changes to our significant accounting policies in Note 2 - Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), 2017,which amended the Company had $1,776,482existing accounting standards for lease accounting to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. We adopted the standard effective March 1, 2019. Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for periods presented before March 1, 2019 as these prior periods conform to the Accounting Standards Codification 840. We elected the package of practical expedients permitted under the transition guidance within the new standard. By adopting these practical expedients, we were not required to reassess (1) whether an existing contract meets the definition of a lease; (2) the lease classification for existing leases; or (3) costs previously capitalized as initial direct costs. We evaluated all leases within this scope under existing accounting standards and under the new ASU lease standard recognized approximately $580,000 of operating right-of-use assets and lease liabilities. Other required disclosures include:

Weighted average lease term5 years
Weighted average lease rate6.25%

Future minimum payments on the operating lease liability are as follows:

  2019$147,509 
  2020$258,181 
  2021$153,209 
  Total$558,899 

The FASB issued an accounting standards update that creates a single source of revenue guidance under U.S. GAAP for all companies, in cash and cash equivalents, $756,766 in accounts receivable andall industries. We adopted this guidance on February 1, 2018 using the modified retrospective approach. The adoption of this guidance did not have a backlogsignificant impact on our consolidated financial statements.  Refer to Note 5 of $400,699 in unshipped product.  This year, Seychelle has expanded its sales efforts in the following international markets; Mexico, Sri Lanka, Vietnam, South Korea, Australia, New Zealand, Japan and China.  Managements intendsthese Notes to expand marketing activities in international markets and E-commerce.  In addition, Seychelle continues to manage cost in line with current revenue.




- 7 -

Condensed Consolidated Financial Statements for additional information.

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

November 30, 2017

NOTE 3:2:    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 presented.  Diluted income (loss) per share is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents.  In periods when losses are reported,equivalents, assuming conversion, exercise, or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share.  If the inclusion of common stock equivalents in the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.anti-dilutive these items would be omitted from the calculation of net income per common share.  The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method.


The denominator for diluted income (loss) per share for the periodsthree months ended November 30, 2017May 31, 2018 included 2,336,683 warrants.

  For the three months ended
  May 31,
  2019 2018
Numerator:    
Net income available to common shareholders $47,793  $92,791 
Weighted average shares – basic  26,574,313   26,574,313 
Net income per share – basic $0.00  $0.00 
         
Dilutive effect of common stock equivalents:        
Warrants  -   2,336,683 
Weighted average shares – diluted  26,574,313   28,910,996 
Net income per share – diluted $0.00  $0.00 

NOTE 3:   COMMON STOCK

Common Stock

During the quarter ended May 31, 2019 and 2016, respectively, did not include 6,407,221 warrants as they would have been anti-dilutive.

  
For the nine months ended
 
  
November 30,
 
  2017  2016 
Numerator:      
Net income (loss) available to common shareholders $491,995  $
(877,041
)
Weighted average shares – basic  26,574,313   
26,574,313
 
Net income (loss) per share – basic $
0.02
  $
(0.03
)
         
Dilutive effect of common stock equivalents:        
Warrants  -   - 
Weighted average shares – diluted  26,574,313   
26,574,313
 
Net income (loss) per share – diluted $
0.02
  $
(0.03
)

  For the three months ended 
  
November 30,
 
  2017  2016 
Numerator:      
Net income (loss) available to common shareholders $246,618  $
(284,230
)
Weighted average shares – basic  26,574,313   
26,574,313
 
Net income (loss) per share – basic $
0.01
  $(0.01)
         
Dilutive effect of common stock equivalents:        
Warrants  -   - 
Weighted average shares – diluted  26,574,313   
26,574,313
 
Net income  (loss) per share – diluted $
0.01
  $(0.01)
- 8 -

2018, no shares of restricted stock were issued by the Company.

Warrants

A summary of warrant activity for the three months ended May 31, 2019 is shown below.

     Weighted- 
     Average 
  Warrants  Exercise 
  Outstanding  Price 
       
Outstanding at March 1, 2019  6,407,221  $0.21 
Granted  -   - 
Exercised  -   - 
Outstanding at May 31, 2019  6,407,221   0.21 
Vested at May 31, 2019  6,407,221   0.21 
Exercisable at February 28, 2019  6,407,221   $0.21 

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

November 30, 2017

NOTE 3:   COMMON STOCK (continued)

The following table summarizes significant ranges of outstanding warrants as of May 31, 2019:

 Warrants Outstanding Warrants Exercisable
  WeightedWeighted  Weighted
  AverageAverage  Average
  RemainingExercise NumberExercise
Exercise PriceNumberLife (Years)Price OutstandingPrice
       
  $0.21   6,407,221   1.54  $0.21    6,407,221  $0.21
             

NOTE 4:    COMMON STOCK

During the nine month period ended November 30, 2016, 250,000 shares of fully vested restricted common stock were issued by the Company to an employee.  The shares were valued at the closing price of the Company's common stock at the date of the grant for a total expense of $117,500. No shares were issued to employees during the current fiscal year.

NOTE 5:    INVENTORY

The Company's inventory consisted of the following at November 30, 2017May 31, 2019 and February 28, 2017:

  
November 30,
2017
  
February 28,
2017
 
Raw materials $716,182  $
1,034,406
 
Finished goods  259,191   387,465 
  Net inventory $975,373  $1,421,871 
2019:

  

May 31,

2019

 

February 28,

2019

Raw materials $622,630  $382,658 
Finished goods  497,126   589,839 
Net inventory $1,119,756  $972,497 

NOTE 6:5:    REVENUE RECOGNITION AND CONCENTRATIONS


We derive our revenue primarily from product sales.  We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; (5) recognition of revenue when, or as, we satisfy a performance obligation.

The Company’s performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for these products.  Revenue is recognized net of returns and any taxes collected from customers.  We offer standard contractual terms in our purchase orders. In addition, we use the practical expedient related to commissions paid since they would be amortized in less than one year.

Sales to one customerfour customers accounted for 33% and 32%79% sales for the three month period ended May 31, 2019.  Accounts receivable from these customers accounted to approximately $274,000 or 93% of accounts receivable as of May 31, 2019.

Sales to three customers accounted for 71% of sales for the three and ninemonth periodsperiod ended November 30, 2017, respectively.May 31, 2018. Accounts receivable from one customer amountedthese customers accounted to $583,779approximately $532,000 or approximately 89%71% of accounts receivable as of November 30, 2017.

Sales to one customer accounted for 38% and 37%, respectively, of sales for the three and nine month period ended November 30, 2016. Accounts receivable from this customer amounted to $518,242 or 59% of accounts receivable as of November 30, 2016.


NOTE 7:    INCOME TAXES

We recorded a provision for income taxes of $0 for the quarter ended November 30, 2017, related to federal and state taxes, based on the Company's expected annual effective tax rate and utilization of net operating loss carried forward.  The Company expects its effective tax rate for the 2018 fiscal year to be different from the federal statutory rate due primarily to a change in the income tax valuation allowance.

Management evaluated the need for a full valuation allowance at the end of the quarter ended November 30, 2017. Management evaluated both positive and negative evidence.  The weight of negative factors and level of economic uncertainty in our current business continues to support the conclusion that the realization of our deferred tax assets does not meet the "more likely than not" standard.  Therefore, a full valuation allowance remains against the net deferred tax assets.
Our federal income tax returns are open to audit under the statute of limitations for the fiscal years ended February 2014 through 2017. We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years ended February 2014 through 2017. 

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May 31, 2018.

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

November 30, 2017



NOTE 8:6:    RELATED PARTY TRANSACTIONS


During the three month periods ended November 30, 2017 and 2016, the Company incurred consulting fees to related parties in the amounts of $0 and $12,350, respectively. During the nine month periods ended November 30, 2017 and 2016, the Company incurred consulting fees to related parties in the amounts of $0 and $49,090 respectively. These fees from TAM Irrevocable Trust ("TAM") were related to consulting services from TAM, in which Cari Beck is trustee.  Ms. Beck is a current Board member of the Company, as well as daughter of Carl Palmer, Chief Executive Officer and Board member of the Company. These amounts are included as a component of selling, general and administrative expenses on the condensed consolidated statements of operations. All amounts due to TAM have been paid in full.  

During the three months ended November 30, 2017 and 2016, TAM purchased, on behalf of the Company, $0 and $61,884, respectively, of raw materials from a vendor with which it already had a business relationship. During the nine months ended November 30, 2017 and 2016, TAM purchased, on behalf of the Company, $0 and $86,734, respectively, of raw materials from the same vendor.

The Company utilizes the services of an individual, who is a related party, to source materials and provide the manufacturing of component parts with third-party vendors in China. For the three months ended November 30, 2017May 31, 2019 and 2016,2018, purchases facilitated through the related party accounted for approximately 27%41% and 16%20%, respectively, of total raw material purchases. The Company raw materials purchases.  For the nine months ended November 30, 2017paid approximately $9,000 and 2016, purchases facilitated through$16,000 in direct commissions to the related party accounted for approximately 22%consultant during the three months ended May 31, 2019 and 33%, respectively, of total Company raw material purchases.


As of November 30, 2017 and February 28, 2017, the2018, respectively.

The Company had receivables from employeesadvanced amounts to employee of approximately $26,750$26,000 and $27,200.$27,000 as of May 31, 2019 and 2018, respectively. These amounts are being repaid through direct payroll withdrawals.


The Company had sales to two companies related to a former member of the Board of Directors.  Specifically, sales to Sovereign Earth, LLC (dba Revolve) totaled approximately $204,000 and $271,000 for the three months ended May 31, 2019 and 2018, respectively and sales to Amazon Seychelle totaled approximately $125,000 and $34,000 for the three months ended May 31, 2019 and 2018, respectively. Pursuant to the agreement with the Company, Sovereign Earth, LLC is the sole and exclusive seller of the certain Seychelle products in specified Amazon world markets.

NOTE 9:7:  COMMITMENTS AND CONTINGENCIES


The Company hasentered into a lease agreement on one facility for its corporate offices, inventory and production facility at 22 Journey in Aliso Viejo, CA.  The lease has for a term of 5 years at a monthly rental of approximately $19,000.


Legal Proceedings

There is a pending legal action named Rolling Tides, LLC vs. Carl Palmer, Seychelle Environmental Technologies, Inc., and other defendants.  The case was brought in the Superior Court of the State of California, County of Orange.  The action alleges certain fraudulent transfers occurred from Seychelle to the various defendants.  The plaintiffs have refused to identify any such transfers by date or amount.  The matter is in discovery and trial is set for August, 2019.  All the defendants have denied the allegations of the complaint, and are vigorously defending the matter.  It is not likely that the case will be settled without trial.  The Company believes that the case has no merit.

Licenses

The Company has historically entered into licensing agreements with third-parties for product proprietary rights, patent and trademark ownership, and use of product name. In return, the Company agrees to pay licensing fees and/or royalties on sales of those products. During the three months ended May 31, 2019 and 2018, the Company paid $3,080 and $1,037, respectively, in royalties and licensing fees related under these agreements.

NOTE 10:8: SUBSEQUENT EVENTS


Management has evaluated subsequent events from November 30, 2017May 31, 2019 through the date the condensed consolidated financial statements were issued, and has concluded that no subsequent events have occurred that would require recognition or disclosure in these condensed consolidated financial statements.

10

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

NOTE 9:  INCOME TAX

Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. statutory corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. U.S. GAAP requires that deferred income tax assets and liabilities be remeasured at the income tax rate expected to apply when those temporary differences reverse, and that the effects of any change to such income tax rate be recognized in the period when the change was enacted.

In connection with the Company's initial analysis of the impact of the TCJA, the Company recorded a discrete net tax expense of $282,408 in the year ended February 28, 2018. This net expense is primarily due to the remeasurement of the Company's existing deferred tax assets and liabilities. Due to the Company having a full valuation allowance related to their deferred taxes, the $282,408 discrete tax expense associated with the remeasurement was equally offset by the valuation allowance causing an overall net zero impact on the Company's current tax rate.

The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that a company's accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

The valuation allowance for deferred tax assets as of February 28, 2019 and 2018 was $674,924 and $611,182, respectively. In assessing the realization of deferred tax assets, management considers whether it is more-likely-than-notthat some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment.  It was determined that it was more likely than not that a full valuation allowance was necessary as of February 28, 2019.

At February 28, 2019, the Company had unused net operating loss carryovers of approximately $770,000 and $1,198,000 for federal and state tax purposes, respectively, which expire beginning in 2038. Note that any federal net operating loss carryovers from 2018 have an indefinite carryforward period. This was part of the legislation passed as part of the TCJA.

The Company includes interest and penalties, if any, arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of February 28, 2019, the Company had no accrued interest or penalties related to uncertain tax positions. The tax years that remain subject to examination by major taxing jurisdictions are fiscal years 2015 through 2018 for federal purposes and fiscal years 2014 through 2018 for state purposes.

We recorded a provision for income taxes of $800 for the quarter ended May 31, 2019 related to state taxes, based on the Company’s expected annual effective tax rate.



11

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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 subsidiaries (the "Company") as of and for the three and ninemonth periods ended November 30, 2017May 31, 2019 and 2016.2018. 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 Reportannual report on Form 10-K for the fiscal year ended February 28, 2017.2019.  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 dependence on a few customers. Sales to these customers are unpredictable and difficult to estimate, and as such, may result in material fluctuations in sales from period to period. 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;

(4)the Company's water related product sales could be materially affected by weather conditions and government regulations;

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

(6)the industries in which the Company operates are highly competitive. Additional risks and uncertainties are outlined in the Company's filings with the Securities and Exchange Commission, including its most recent fiscal Annual Report on Form 10-K for the fiscal year ended February 28, 2017.10-K.
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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)(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 two wholly-owned subsidiaries, Seychelle Water Technologies, Inc. and Fill 2 Pure International, Inc., also Nevada corporations (collectively, the Company or Seychelle)Seychelle). We use the trade name "Seychelle Water Filtration Products, Inc." in our commercial operations.


Seychelle designs, assembles and distributes unique, state-of-the-art ionic absorption micron filters for portable filter devices 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 22 Journey, Aliso Viejo, CACalifornia 92656. 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 summarized 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, 2019 and nine month periods ended November 30, 2017 and 20162018 are derived from our condensed consolidated financial statements included elsewhere in this report.

Three month period ended November 30, 2017 compared to the corresponding period in 2016
       
     Period over   
 2017 2016 Period change % 
         
         
Sales $1,629,324  $1,257,844   371,480   30%
Cost of sales  858,765   1,003,395   (144,630)  -14%
Gross profit  770,559   254,449   516,110   203%
Gross profit %  47%  20%        
Selling general and administrative  507,325   523,029   (15,704)  -3%
Depreciation and amortization  16,040   19,821   (3,781)  -19%
Other income (expense)  (576)  (1,682)  1,106   66%
Income (loss) before income tax benefit (expense)  246,618   (290,083)  536,701   185%
Income tax benefit (expense)  -   5,853   (5,853)  -100%
Net income (loss)  246,618   (284,230)  530,848   187%
Sales.

Three-month period ended May 31, 2019 compared to the corresponding period in 2018    
          
        Year over    
  2019  2018  year change  % 
             
             
Sales $680,399  $1,133,901   (453,502)  (40)%
Cost of sales  283,744   603,440   (319,696)  (53)%
Gross profit  396,655   530,461   (133,806)  (25)%
Gross profit %  58%  47%        
Selling general and administrative  334,954   424,462   (89,508)   (21)%
Depreciation and amortization expense  12,919   14,472   (1,553)  (11)%
Other (expense) income  (189)   1,264   (1,453)   (115)%
Income before provision for income taxes  48,593   92,791   (44,198)  (48)%
Provision for income taxes  (800)   -   (800)   (100)%
                 
Net income  47,793   92,791   (44,998)  (48)%
Net income %  7%  8%        
Earnings per share – basic and diluted $0.00  $0.00         

Sales. Sales increaseddecreased by $371,480approximately $454,000 or 30(40)% to $1.63 million$680,000 during the three months ended November 30, 2017May 31, 2019 from $1.26 millionapproximately $1,134,000 during the three months ended November 30, 2016.May 31, 2018.  The increasedecrease is primarily due to increasingtypical seasonal variations of sales of our bottle, portable retail, and pitcher replacement and pitcher custom product lines.lines. Sales during the three months ended November 30, 2017May 31, 2018 of these product lines were $1,471,441,approximately $780,000, compared to $1,072,450 for the same period ended$439,000 in the prior year.  At this time it is too early to give definitive guidance regarding sales for the fourthcomparable current period of fiscal quarter.

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year 2019.

Cost of sales and gross profit percentage.As a percentage of sales, the gross profit margin during the three months ended November 30, 2017 May 31, 2019 increased to 47%approximately 58% from 20% due to the Company managing cost in line with revenue.approximately 47%.   The product mix and timing of significant sales is always an importanta significant factor in the resulting profit margins reported.  The Company believes that the average gross margin percentages overall can decrease to a range aroundwill remain at approximately 45% in the foreseeable future.


Selling, general, and administrative.These expenses decreased by $15,704,approximately $90,000, or (3(21)%), during the three monthsperiod ended Novem\ber 30, 2017May 31, 2019 compared to the same period ended in the prior year.  The decrease was a direct result of theyear due to decrease in advertising, legal and personnel costs.


merchant fees.  

Depreciation and amortization.  amortization expense.  Depreciation and amortization expense was decreased due to disposal offully depreciated fixed assets over the past year.


assets.

Income tax benefit (expense).  expense. The Company recorded no tax a provision of approximately $800 due to NOL utilization even with a pretax income of $246,618approximately $48,000 during the three month period ended November 30, 2017May 31, 2019 compared to income tax benefitprovision of $5,853approximately $0 due to the pretax lossincome of ($290,083)approximately $93,000 during the three monthsthree-month period ended November 30, 2016.

May 31, 2018.

Net income (loss).income.Net income for the three monththree-month period ended November 30, 2017May 31, 2019 was $246,618approximately $48,000, down approximately $44,000 or (48)% compared to net (loss)income for the three monththree-month period ended November 30, 2016May 31, 2018 of $284,230.approximately $93,000.  This was primarily due to the increase of $371,480 or 30 % in sales and a decrease of $15,704approximately $454,000 in selling, general and administrative.



Nine month period ended November 30, 2017 compared to the corresponding period in 2016
   
       
     Period over   
 2017 2016 Period change % 
         
         
Sales $3,829,465  $2,885,212   944,253   33%
Cost of sales  2,014,064   1,950,312   63,752   3%
Gross profit  1,815,401   934,900   880,501   94%
Gross profit %  47%  32%        
Selling general and administrative  1,262,269   2,144,063   (881,794)  -41%
Depreciation and amortization  51,094   62,651   (11,557)  -18%
Other income (expense)  (3,992)  9,562   (13,554)  -142%
Income (loss) before income tax benefit (expense)  498,046   (1,262,252)  1,760,298   139%
Income tax benefit (expense)  (6,051)  385,211   (391,262)  -102%
Net income (loss)  491,995   (877,041)  1,369,036   156%
Sales. The increase in sales to $3,829,465 during the nine months ended November 30, 2017 from $2,885,212 during the nine months ended November 30, 2016.  The increase of 33% is primarily due to increasing sales of our bottle, portable retail and pitcher products.  At this time it is too early to give definitive guidance regarding salessales.

Net cash used for the fourth fiscal quarter.


Cost of sales and gross profit percentage. As a percentage of sales, the gross profit margin during the nine months ended November 30, 2017 increased to 47% from 32% due to the Company managing cost in line with revenue.  The product mix and timing of significant sales is always an important factor in the resulting profit margins reported.  The Company believes that the average gross margin percentages overall can decrease to a range around approximately 45% in the foreseeable future.
- 13 -
Selling, general, and administrative. These expenses decreased by $881,794 or (41%), during the nine months ended November 30, 2017 compared to the same period in the prior year.  The decrease was a direct result of the decrease in legal and personnel costs incurred in reductions of the Company's management and Board of Directors.

Depreciation and amortization.  operating activities.During the nine months ended November 30, 2017 changed by $11,557 compared to the depreciation for the nine months ended November 30, 2016.
Income tax benefit (expense).  The Company recorded an income tax $6,051 due to NOL utilization even with pretax income of $498,046 compared to an income tax benefit of $385,211 due to the pretax loss of $1,262,252 during the nine monththree-month period ended November 30, 2016.
Net income (loss). Net income for the nine month period ended November 30, 2017 was $491,995 compared to net loss of $877,041 for the nine month period ended November 30, 2016.

 Liquidity and Capital Resources

NetMay 31, 2019 cash provided by operating activities. During the nine-month period ended November 30, 2017, cash provided in operating activities was $1,060,767,amounted to approximately $103,000, compared to cash used inby operating activities of $1,518,159approximately $15,000 in the same period during 2016.This was primarily the result of increased sales and reduced expenses combined with collections of accounts receivable.
comparable prior period.

Net cash used in investing activities.During the nine monththree-month period ended November 30, 2017,May 31, 2019, the Company spent approximately $13,364$4,900 on capital expenditures.  In comparable period of the prior year, the Company spent $25,582 on capital expenditures.

Net cash provided byused in financing activities.Cash used in financing activities during the ninethree month period ended November 30, 2017 was $3,033May 31, 2019 totaled approximately $1,400, compared to $25,669approximately $1,300 during the comparable prior period. The decrease is the This was a result of the additioncapital lease repayments during the three month period ended May 31, 2019 of $1,400 compared to $1,300 during the three month period ended May 31, 2018. 

Management's Plan. As of May 31, 2019, the Company had approximately $2,175,000 in cash and cash equivalents, $294,000 in accounts receivable and a capitalbacklog of $306,600 in unshipped product.  The Company is continuing to develop products and improve technology. The Company plans to release a variety of new products in the prior fiscal year.


upcoming months that include Thermal Bottles, new ergonomic loop cap, universal design style replacement filter, combination straw and bottle product that removes up to 500 gallons of pathogen. 

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 2019 Annual Report on Form 10-K for the fiscal year ended February 28, 2017 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. There were no material changes to the Company's critical accounting policies or estimates during the three-monthsthree-month period ended November 30, 2017.


May 31, 2019.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards UpdateUpdated ("ASU") No. 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606 ("ASU 2014-09"), which is effective for public entities for annual reporting periods beginning after December 15, 2017.. The new revenue recognition standard provides a five-stepgive-step analysis of transactions to determine when and how revenue is recognized. The core principlepremise of the standard is that a companyCompany should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluatinghas elected to adopt the impact ofguidance beginning in fiscal 2019 using the pendingmodified retrospective approach. The adoption of ASU 2014-09this guidance did not have a significant impact on theour consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in fiscal year 2019.

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In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern—Disclosures of Uncertainties about an entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provides new guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards and to provide related footnote disclosures. This new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company adopted ASU 2014-15 during the fiscal year ended February 28, 2017.

statements.

In February 2016, the FASB issued ASUAccounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)," which amended the existing accounting standards for lease accounting to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. We adopted the standard effective March 1, 2019. Consequently, financial information will require lesseesnot be updated and disclosures required under the new standard will not be provided for periods presented before March 1, 2019 as these prior periods conform to recognize almostthe Accounting Standards Codification 840. We elected the package of practical expedients permitted under the transition guidance within the new standard. By adopting these practical expedients, we were not required to reassess (1) whether an existing contract meets the definition of a lease; (2) the lease classification for existing leases; or (3) costs previously capitalized as initial direct costs. We evaluated all leases on their balance sheet as a right-of-use assetwithin this scope under existing accounting standards and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model andunder the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact thislease standard will have on its consolidated financial statementsrecognized approximately $580,000 of operating right-of-use assets and related disclosures.


lease liabilities.

In MarchJune 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this update change existing2016-13, “Financial Instruments – Credit Losses,” which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including2019 and interim periods within those annual periods, with early adoption permitted.fiscal years beginning after December 15, 2020. The Company adopted ASU 2016-09 duringis currently evaluating this statement and its impact on the current fiscal year.  This adoption did not have a material impact on the company's consolidatedCompany’s results of operations and financial condition or cash flows.


position.

Management does not believe any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company's present or future consolidated financial statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4.  CONTROLS AND PROCEDURES

None.
ITEM 4T.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosure. As required by Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.  Based on the foregoing, our principal executive and principal financial officer concluded that our disclosure controls and procedures are not effective to ensure the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed and reported within the time periods specified in the SEC's rules and forms.



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Management's Annual Report on Internal Control over Financial Reporting


The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (US GAAP) and includes those policies and procedures that:


●pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

●provide reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

●provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.statements;

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.


Management has used the framework set forth in the report entitledInternal Control-Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of November 30, 2017.


May 31, 2019.

A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at November 30, 2017:


May 31, 2019:

(1)lack of a functioning audit committee and lack of a majority ofany outside directors on the Company's Board of Directors capable to oversee the audit function;

(2)inadequate segregation of duties due to limited number of personnel, which makes the reporting process susceptible to management override;

(3)insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements;
(4)ineffective controls over period end financial disclosure and reporting processes; and

Management believes that the material weaknesses set forth in items (1) through (4) above did not have an effect on the Company's financial reporting during the fiscal quarterperiod ended November 30, 2017.


May 31, 2019.

We are committed to improving our financial organization. As part of this commitment, we plan to prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements.


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We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

This quarterly report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting


There was no change in internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS


On March 27, 2017, the Company received

There is a Notice of Filing of Discrimination complaintpending legal action named Rolling Tides, LLC vs. Carl Palmer, Seychelle Environmental Technologies, Inc., and other defendants.  The case was brought in the Superior Court of California, County of Orange by a former employee.  The Company also received on June 5, 2017, a Request for Entry of Default filed to Superior Courtthe State of California, County of OrangeOrange.  The action alleges certain fraudulent transfers occurred from Seychelle to the various defendants.  The plaintiffs have refused to identify any such transfers by date or amount.  The matter is in discovery and trial is set for August, 2019.  All the same employee.  Thedefendants have denied the allegations of the complaint, and are vigorously defending the matter.  It is not likely that the case is currently in the discovery phase.will be settled without trial.  The Company believes that the complaint is completely without merit and plans to vigorously contest the matter.



case has no merit.

ITEM 1A. RISK FACTORS


There have been no material changes to our Risk Factors included in our fiscal 2017most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 14, 2017.



May 29, 2019.

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


None


During the quarter ended May 31, 2019, the Company did not issue any securities.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


None



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


None



ITEM 5.  OTHER INFORMATION


None



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ITEM 6.  EXHIBITS


Exhibits

Exhibit No. Description
   
31.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
   
32.1 
32.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)2002)
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
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SIGNATURES

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



 Seychelle Environmental Technologies, Inc. 
    
Date: January 12, 2018July 19, 2019By:  /s/ Carl PalmerCari Beck 
 
Carl Palmer

Cari Beck

Director, Chief Executive Officer and Chief Financial Officer

 



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