April 24, 2006
Mail Stop 7010
By U.S. Mail and facsimile to (949) 234-1998
Carl Palmer
President and Chief Executive Officer
Seychelle Environmental Technologies, Inc.
33012 Calle Perfecto
San Juan Capistrano, California 92675
Re: Seychelle Environmental Technologies, Inc.
Amendment No. 1 to Form 10-SB
Filed March 27, 2006
File No. 000-29373
Form 10-QSB for the period ended November 30, 2005
Filed February 7, 2006
File No. 000-29373
Dear Mr. Palmer:
We have reviewed your filing and have the following
comments.
We welcome any questions you may have about our comments or any
other
aspect of our review. Feel free to call us at the telephone
numbers
listed at the end of this letter.
General
1. Response letters that key responses to our comments, include
page
references to revised disclosures, and include explanation where
appropriate greatly facilitate our review.
2. The financial statements in your next amendment should be
updated
to comply with Rule 310(g) of Regulation S-B.
3. Please also include a currently dated consent from your
independent public accountant in the amendment.
Special Note Regarding Forward-Looking Statements, page 2
4. Delete reference to Section 21E of the Securities Exchange Act
of
1934. The safe harbor provided by this section excludes
statements
made by made by the issuers of penny stock.
Description of the Business, page 2
History of Seychelle, page 2
5. Please revise your statement at the top of page three to
clarify
that while earlier consulting agreements have been terminated, you
currently have consulting agreements with officers.
Business of Seychelle, page 3
6. We note your responses to comments 8 and 9 of our letter dated
October 14, 2005. Please provide us with the basis for your
assertions that "the quality of water worldwide continues to
deteriorate" and that there is a "growing need for safe water."
7. We note your statement that the "global water market is
estimated
to be in excess of $800 billion annually, according to the World
Bank." Attachment 1, however, states that the $800 million figure
was the World Bank`s estimate of potential growth in 1998, while
Fortune determined that the actual size of the water industry in
2000
was $400 billion. Furthermore, Attachment 1 is not a direct
source
for either figure. Please provide us with more recent information
directly supporting this statement or revise your document
accordingly.
8. Please include disclosure in this section that your products
compete in a more limited market, the market-portable filtration
bottles.
General Business Plan, page 4
9. Please provide us with independent support for your statement
that
"Seychelle filters are the most tested in the world . . . ." In
addition, please tell us whether this information is available
publicly.
Home Products, page 4
10. We note your response to comment 11 of our letter dated
October
14, 2005. Please revise your document to define "PSI."
New Products, page 5
11. Please revise to clarify whether the 2% royalty paid to Aqua
Gear
USA pursuant to the license agreement consists of 2% of all gross
income or 2% of gross income derived from the license. Please
also
disclose the amount of royalties paid under the agreement to date.
12. Please revise to disclose the terms of the agreements through
which you acquired the intellectual property rights discussed in
this
section. Please include the consideration paid, the duration of
the
agreements, and your material rights and responsibilities under
these
agreements. If the agreement with Enviro(3) Care Incorporated is
material, please file it as an exhibit to your registration
statement. Refer to Item 601(b)(10) of Regulation S-B.
Sales Channels, page 6
13. We note reference to "signed agreements with business partners
in
India and China . . . ." Please disclose the details of these
agreements, as well as your agreement with a company in Japan. If
material, file copies of the agreements as exhibits.
Customers and Competition, page 6
14. Please provide additional information regarding competitive
conditions and your position within the niche market in which you
compete. Please disclose the methods by which you compete within
this niche market as well as the geographic areas in which you
compete. See Regulation S-B, Item 101(b)(4).
15. Please revise your document to disclose the identity of
customers
who accounted for more than ten percent of your revenues in the
most
recently completed fiscal year.
Backlog, page 6
16. Please clarify the disclosure that you have orders earmarked
for
Pakistan. Please disclose whether this is a single order and
whether
it is subject to cancellation.
Reports to Security Holders, page 10
17. Please note that the current address of the SEC Public
Reference
Room is 100 F Street, N.E., Washington, DC 20549, and revise your
document accordingly.
Management`s Discussion and Analysis, page 11
Results of Operations, page 11
18. In the nine-month period ended November 30, 2005, you state
that
the decrease in gross profit is primarily due to increased use of
outside assembly labor, increased production, and increased
material.
Please quantify the business reasons for these changes as well as
other material changes throughout your discussion of the results
of
operations. You should also consider discussing the changes in
revenues in terms of price and/or volume.
Consulting fees to related parties, page 13
19. Please reconcile the $88,506 of consulting fees to related
parties to the amounts shown in your summary compensation table on
page 21 and the related disclosure on page 22.
Employees, page 17
20. Please revise your document to state whether you anticipate
significant changes in the number of non-executive employees.
Causes for any material changes from period to period, page 17
21. The meaning of the last sentence on page 17 is unclear.
Please
revise to clarify that the potential financial impact of the
expiration of your patents is not known at this time as you stated
in
your response to our prior comment 35.
Security Ownership of Beneficial Owners and Management, page 18
22. Please update this section to disclose the security holdings
of
beneficial owners and management as of the most recent practicable
date.
23. Please tell us the person or persons who exercise voting
and/or
investment power over the shares held by the TAM Irrevocable
Trust.
It appears that Mr. Palmer may have beneficial ownership over the
shares held by the trust according to Rule 13d-3. If so, please
revise the beneficial ownership table to attribute the shares held
by
the trust to Mr. Palmer, or provide us your detailed analysis
regarding why he does not beneficially own the shares. Although
one
may disclaim beneficial ownership, this does not affect disclosure
of
beneficial ownership in the table.
Directors, Executive Officers, Promoters and Control Persons, page
19
24. Please update the information to the latest practicable date
and
provide the disclosure required by Item 401 of Regulation S-B for
each director of your company.
25. Please disclose the percentage of their business time of each
officer that is devoted to managing the affairs of the company.
Executive Compensation, page 21
26. Please include executive compensation information for the
fiscal
year completed February 28, 2006.
Certain Relationships and Related Transactions, page 22
27. In the second paragraph, you state that Messrs. Parsons and
Place
received 480,000 restricted shares of common stock at $0.03 per
share, or $14,400. However, such amount does not appear to be
reflected in your consolidated statement of changes in
stockholders`
deficit for the fiscal year ended February 28, 2005. Revise or
advise.
28. Please revise your disclosure in this section to discuss the
consulting agreements with Messrs. Parsons and Place in greater
detail. Please disclose the services performed pursuant to the
consulting agreements, as well as additional services performed
pursuant to their roles as officers and directors of the
corporation.
29. We note your response to comment 42 of our letter dated
October
14, 2005. Please file the contracts or notes evidencing your
advances from the TAM Irrevocable Trust, as well as revisions to
these agreements, as exhibits to your registration statement.
Part II
Market Price of and Dividends on the Registrant`s Common Equity .
..
.., page 25
30. Your Form 15 was filed with the Commission on November 26,
2002.
Please revise accordingly.
Recent Sales of Unregistered Securities, page 28
31. We note your response to comment 47 of our letter dated
October
14, 2005. Please revise your disclosure in this section to
provide
the information required by Item 701 of Regulation S-B for each
sale
of unregistered securities that has taken place within the past
three
years. Specifically, for each sale you must disclose the date
(day,
month, and year) and the person or class of persons to whom the
securities were sold. In addition, we note that on page 28 you do
not refer exclusively to Section 4(2) of the Securities Act, while
on
page 29 you state that each sale was made in reliance on this
section. On page 29, you also state that your reliance on Section
4(2) is justified in part because "there was only one offeree in
each
issuance . . . ." Many of the sales disclosed, however, refer to
multiple investors, consultants, or debt holders. Please revise
as
necessary.
In addition, please disclose the names of the purchasers of
securities sold to individuals affiliated with the company. For
shares sold other than for cash, describe the material terms of
the
transaction and disclose the consideration received by the
company.
32. On page 28 you list identical stock issuances to TAM
Irrevocable
Trust that occurred in December 2004 and April 2005, while your
Related Transactions disclosure includes a December 2004 stock
issuance and the issuance of warrants on March 28, 2005, and July
27,
2005. Please reconcile your disclosures.
33. We note disclosure on page 29 of a sale of 20,000 shares of
common stock for $6,000 and that the stock has not yet been
delivered
to the investor. Please provide us with additional information
regarding this transaction, including the name of the purchaser,
the
date of sale, the date proceeds were received, and the reason why
the
shares have not yet been delivered.
Audited Financial Statements
Statements of Changes in Stockholders` Deficit, page 35
34. We have reviewed your responses to comments 66 and 67. In
your
response to comment 67 you refer to stock issued in April 2005.
In
Note 6 you refer to stock being issued in December 2004, which you
characterize as being "effective March 1, 2002," but which is to
be
distributed in the first fiscal quarter of the fiscal year ended
February 28, 2006. The meaning of an "effective issuance date"
that
predates an actual issuance is unclear. The significance of a
"distribution" after an issuance date is also unclear. Please
revise
your disclosure to clearly identify the actual date on which the
restricted stock was issued. Please ensure that your revised
disclosure agrees to your Statement of Changes in Stockholders`
Deficit.
35. You also state that you are amortizing the value of the stock
over the "three-year term commencing March 1, 2002." We assume
the
issuance is in satisfaction of interest payable to the TAM
Irrevocable Trust recorded as of April 28, 2003, in addition to
the
interest subsequently accrued. Please tell us the amount of
interest expense related to this issuance accrued during fiscal
2003
and 2004 and the accrued liability as of each balance sheet date
presented.
If our assumption is incorrect, please tell us how you intend to
"spread back [the fair market value of the restricted stock] over
the
three-year period to March 1, 2002," whether you intend to restate
your financial statements to do so, and how your intended
presentation complies with generally accepted accounting
principles.
Note 1: Organization and Description of Business, page 40
36. If sales attributable to an individual foreign country are
material, please provide the disclosures required by paragraph 38
of
SFAS 131.
Note 2: Summary of Significant Accounting Policies
Revenue Recognition, page 43
37. We note the changes made in response to our prior comment 53
in
your Revenue Recognition policy of the financial statements
regarding
in which you disclose the types of expenses that you include in
the
cost of sales line item. We do not see where you have disclosed
the
types of expenses included in the selling and general and
administrative line items. Based on your revised disclosure it
appears that you do not account for inbound freight charges,
purchasing and receiving costs, inspection costs, internal
transfer
costs, and the other costs of your distribution network in the
cost
of sales line item. As previously requested, please disclose in a
footnote the line items in which these excluded costs are included
and the amounts included in each line item for each period
presented.
38. We note that you eliminated the language that revenue is
recognized when "collectibility is reasonably assured." As this
is
one of the criteria for appropriate revenue recognition, it is
unclear why you made this change. Please revise or advise.
39. We note the added disclosure regarding your liability for
returned products; however we did not note the specific disclosure
we
requested in our prior comment 55. Please disclose your policy
for
product returns including the specific period during which
products
may be returned and whether you provide a full or partial refund
in
such an event.
Inventories, page 44
40. Please expand the table on page 44 to show the comparative
figures for the fiscal year 2004.
Issuance of Stock for Services, page 48
41. We note your response to our prior comment 62. We could not
locate the required information in Note 7. Paragraph 2(e) of SFAS
148, requires the tabular presentation described in subsection (c)
to
be disclosed in the Summary of Significant Accounting Policies or
its
equivalent. As such, please include the tabular presentation in
Note
2. Examples of the required tabular presentation are included in
Appendix B of SFAS 148.
Note 4: Intangible Assets, page 55
42. As stated in our prior comment 64, you have incurred losses
from
operations in fiscal 2005 and 2004 of $149,486 and $85,556
respectively. In the nine months ended November 30, 2005, you
have
also incurred another loss from operations of $413,534. Paragraph
8
of SFAS 144 gives examples of when to test a long-lived asset for
recoverability. Paragraph 8e states one such example as a
current-
period operating loss combined with a history of operating losses.
As previously requested, please provide us with a quantitative
impairment analysis prepared in accordance with the requirements
of
paragraphs 7-24 of SFAS 144 as of each balance sheet date
presented
in your filing.
Note 7: Capital Structure
Consulting Agreements, page 64
43. No changes were noted as suggested by your response to our
prior
comment 69. As previously requested, please revise your
disclosure
to clarify whether you issued restricted stock or options related
to
the November 2004 and March 2005 consulting agreements. Based on
Exhibits 10.5 and 10.6 it appears these are not options. If
restricted stock was issued, please clarify whether the stock was
purchased at a price of $0.03 per share or if $0.03 per share was
used to determine the number of shares to be issued based on a
nominal value attributed to the services to be provided by the
consultants. Please also tell us how you determined the values
you
attribute to the consideration, including the price of your common
stock used in the valuation.
44. No changes were noted as suggested by your response to our
prior
comment 70. You state that the first third of the restricted
stock
issued in connection with the November 2004 consulting agreement
vested immediately. Exhibits 10.5 and 10.6 indicate that prior to
December 1, 2005, all shares may be called by you. As previously
requested, please revise your disclosure to clarify this apparent
inconsistency.
Note 7: Capital Structure
Warrants, page 65
45. No changes were noted as suggested by your response to our
prior
comment 72. As previously requested, please provide us with your
calculation of the value of the warrants issued on March 29, 2005.
The value you attributed to the warrants appears to approximate
the
intrinsic value rather than the fair value. Please advise or
revise.
46. We note your response to our prior comment 73. Please tell us
the business reason for the grant of 500,000 warrants to the TAM
Trust. Your current disclosure refers to unearned interest but
also
states that you recorded compensation expense. Please clarify.
Note 8: Income Taxes, page 68
47. Please revise your disclosure to clarify what is meant by your
statement that "[t]he Company`s state net operating loss carry
forwards have been suspended in the State of California."
Note 10: Related Party Transactions, page 72
48. In the last paragraph on page 73, as well as on page 23, you
discuss several issuances of restricted shares or warrants granted
to
two officers (Messrs. Parsons and Place) on March 29, 2005.
Please
explain why you are recognizing expense in the year ended February
28, 2005, for grants that occurred subsequent to the end of such
fiscal year.
Interim Financial Statements
Note 2: Summary of Significant Accounting Policies, page 85
49. Please discuss the anticipated impact of your adoption of SFAS
123R in your summary of significant accounting policies in your
interim financial statements.
Exhibits
50. Exhibit 10E, purporting to be a purchase agreement between the
company and Aqua Gear appears to be between the company and Gary
Hess. In your document and exhibit table, please refer to
agreements
with the party referenced in the agreement.
Form 10-QSB for the period ended November 30, 2005
General
51. Please address the comments above in your interim filings as
well.
Controls and Procedures, page 35
Evaluation of Disclosure Controls and Procedures, page 35
52. Please revise management`s conclusion regarding the
effectiveness
of your disclosure controls and procedures to state whether such
controls and procedures are or are not effective without reference
to
the qualification "generally." Please also revise the disclosure
to
refer to Rule 13a-15.
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Marie Humphrey, Staff Accountant, at (202)
551-
3734 or Scott Watkinson, Senior Staff Accountant, at (202) 551-
3741
if you have questions regarding comments on the financial
statements
and related matters. Please contact Matt Franker, Staff Attorney,
at
(202) 551-3749 or Chris Edwards, Special Counsel, at (202) 551-
3742
with any other questions. Alternatively, you may contact me at
(202)
551-3760.
Sincerely,
Pamela A. Long
Assistant Director
Carl Palmer
Seychelle Environmental Technologies, Inc.
April 24, 2006
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE