Seychelle Environmental Technologies Inc (SYEV) SEC Quarterly Report (10-Q) for Q2 2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ending May 31, 2018

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. Yes ☑ No o

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 o

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 ☑
(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) Yes o No ☑

The number of shares outstanding of the Registrant's common stock, as of July 12, 2018 was 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
	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		11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15
Item 4.	Controls and Procedures		15
Item 4T.	Controls and Procedures		15

PART II OTHER INFORMATION

Item 1.	Legal Proceedings		17
Item 1A.	Risk Factors		17
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		18

Signatures			19

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PART I

ITEM 1. FINANCIAL STATEMENTS

SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	May 31, 2018			February 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	2,059,498		$	2,075,833
Accounts receivable, net of allowance for doubtful accounts
of $10,528 and $8,617, respectively		679,051			829,790
Related party receivables		33,601			35,007
Inventory, net		990,473			998,296
Prepaid expenses, deposits and other current assets		68,921			159,980
Total current assets		3,831,544			4,098,906

Property and equipment, net		121,067			135,539

Other assets		66,670			66,670

Total assets	$	4,019,281		$	4,301,115

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	215,807		$	441,866
Customer deposits		15,883			163,184
Capital lease obligations, current portion		5,532			5,402
Total current liabilities		237,222			610,452

Long-term liabilities:
Capital lease obligations, net of current		7,687			9,082
Total liabilities		244,909			619,534

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 May 31, 2018 and February 28, 2018, respectively		26,641			26,641
Additional paid-in capital		8,944,368			8,944,368
Accumulated deficit		(5,166,957	)		(5,259,748	)
Less treasury stock at cost (66,000 shares at May 31, 2018 and February 28, 2018 respectively)		(29,680	)		(29,680	)
Total stockholders' equity		3,774,372			3,681,581

Total liabilities and stockholders' equity	$	4,019,281		$	4,301,115

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,
	2018			2017
Sales	$	1,133,901		$	1,208,207
Cost of sales		603,440			663,782
Gross profit		530,461			544,425
Operating expenses
Selling, general, and administrative		424,462			361,090
Depreciation and amortization		14,472			17,675
Total operating expenses		438,934			378,765
Income from operations		91,527			165,660
Other (expense) income
Interest expense		(554	)		(1,427	)
Other income		1,818			-
Total other (expense) income		1,264			(1,427	)
Income before provision for income taxes		92,791			164,233
Income tax (expense)		-			(4,252	)
Net income	$	92,791		$	159,981
BASIC INCOME PER SHARE	$	0.00		$	0.01
DILUTED INCOME PER SHARE	$	0.00		$	0.01
BASIC WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		26,574,313			26,574,313
DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		28,910,996			26,574,313

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,
	2018			2017

OPERATING ACTIVITIES:
Net income	$	92,791		$	159,981
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		14,472			17,675
Provision (recovery) for doubtful accounts		1,912			(36,434	)
Changes in operating assets and liabilities:
Accounts receivable		148,827			477,789
Related party receivables		1,406			150
Inventory		7,823			255,108
Prepaid expenses, deposits and other assets		91,059			(107,754	)
Accounts payable and accrued expenses		(226,059	)		(136,475	)
Customer deposits		(147,301	)		(10,139	)
Net Cash (used in) provided by operating activities		(15,070	)		619,901

INVESTING ACTIVITIES:
Purchase of property and equipment		-			(2,995	)
Net Cash Used in Investing Activities		-			(2,995	)

FINANCING ACTIVITIES:
Repayment of capital lease obligation		(1,265	)		(1,768	)
Net Cash Used in Financing Activities		(1,265	)		(1,768	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(16,335	)		615,138

CASH AND CASH EQUIVALENTS – beginning of period		2,075,833			732,112

CASH AND CASH EQUIVALENTS – end of period	$	2,059,498		$	1,347,250

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	554		$	1,427

See accompanying notes to condensed consolidated financial statements.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

NOTE 1: CONDENSED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements have been prepared by Seychelle Environmental Technologies, Inc., and subsidiaries (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, 2018, 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 consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended February 28, 2018. The results of operations for the periods ended May 31, 2018 and 2017 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 the condensed consolidated financial statements and the February 28, 2018 consolidated financials included in the 10-K filed on June 8, 2018.

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.

Except for the accounting policy for revenue recognition, which was updated as a result of adopting a new accounting standard related to revenue recognition, 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, 2018.

The Financial Accounting Standards Board, or FASB, issued an accounting standards update that creates a single source of revenue guidance under U.S. GAAP for all companies, in all industries. We adopted this guidance on February 1, 2018 using the modified retrospective approach. The adoption of this guidance did not have a significant impact on our consolidated financial statements. Refer to Note 5 of these Notes to Condensed Consolidated Financial Statements for additional information.

NOTE 2: BASIC INCOME PER SHARE

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during each period presented. Diluted income 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, 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 would be 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 per share for the three months ended May 31, 2018 and 2017 included 2,336,683 and 0 warrants, respectively.

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

	For the three months ended
	May 31,
	2018		2017
Numerator:
Net income available to common shareholders	$	92,791	$	159,981
Weighted average shares – basic		26,574,313		26,574,313
Net income per share – basic	$	0.00	$	0.01

Dilutive effect of common stock equivalents:
Warrants		2,336,683		-
Weighted average shares – diluted		28,910,996		26,574,313
Net income per share – diluted	$	0.00	$	0.01

NOTE 3: COMMON STOCK

Common Stock

During the quarter ended May 31, 2018 and 2017, no shares of restricted stock were issued by the Company.

Warrants

A summary of warrant activity for the three months ended May 31, 2018 is shown below.

			Weighted-
			Average
	Warrants		Exercise
	Outstanding		Price

Outstanding at March 1, 2018		6,407,221		0.21
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding at May 31, 2018		6,407,221		0.21
Vested at May 31, 2018		6,407,221		0.21
Exercisable at February 28, 2018		6,407,221		0.21

The following table summarizes significant ranges of outstanding warrants as of May 31, 2018:

		Warrants Outstanding						Warrants Exercisable
				Weighted		Weighted				Weighted
				Average		Average				Average
				Remaining		Exercise		Number		Exercise
Exercise Price		Number		Life (Years)		Price		Outstanding		Price

	$0.21		6,407,221		2.54		$0.21		6,407,221		$0.21

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

NOTE 4: INVENTORY

The Company's inventory consisted of the following at May 31, 2018 and February 28, 2018:

	May 31, 2018		February 28, 2018
Raw materials	$	842,564	$	860,424
Finished goods		147,909		137,872
		990,473		998,296

NOTE 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.

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 customer accounted for 37% sales for the three month period ended May 31, 2018. Accounts receivable from this customer accounted to approximately $467,000 or 69% of accounts receivable as of May 31, 2018.

Sales to one customer accounted for 33% of sales for the three month period ended May 31, 2017. Accounts receivable from this customer accounted to approximately $533,000 or 84% of accounts receivable as of May 31, 2017.

NOTE 6: RELATED PARTY TRANSACTIONS

During the three months ended May 31, 2018 and 2017, TAM purchased on behalf of the Company, approximately $1,000 and $0 respectively of raw materials from a vendor with which it already had a business relations. All amounts due to TAM had been paid in full as of May 31, 2018.

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 May 31, 2018 and 2017, purchases facilitated through the related party accounted for approximately 20% and 13%, respectively, of total raw material purchases. The Company paid approximately $16,000 and $14,000 in direct commissions to the related party consultant during the three months ended May 31, 2018 and 2017, respectively.

The Company had advanced amounts to employee of approximately $27,000 and $27,000 as of May 31, 2018 and 2017, respectively. These amounts are being repaid through direct payroll withdrawals.

The Company had receivable from stockholders of approximately $7,000 and $0 as of May 31, 2018 and 2017 respectively.

The Company had sales to two companies related to a member of the Board of Directors. Specifically, sales to Sovereign Earth, LLC (dba Revolve) totaled approximately $271,000 and $63,000 for the three months ended May 31, 2018 and 2017, respectively and sales to Amazon Seychelle totaled approximately $34,000 and $0 for the three months ended May 31, 2018 and 2017, respectively. Sovereign Earth, LLC (dba Revolve) is the sole and exclusive seller of the following products in worldwide markets, including Amazon World Marketplaces: amazon.com, amazon.co uk, amazon.de, amazon.fr, amazon.jp, amazon, it, amazon.ca, amazon.cn, amazon.in, and amazon.com.mx for the duration of the agreement: Generation#1 Filter Pitcher: All filter iterations (regular, standard, advanced, radiological, extreme, supreme, etc.)

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SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS

NOTE 7: COMMITMENTS AND CONTINGENCIES

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

Legal Proceedings

The Company was involved in litigation or legal proceedings as of February 28, 2018. On March 27, 2017, the Company received a Notice of Filing of Discrimination complaint in the Superior Court of the State 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 Court of California, County of Orange by the same employee. Trial was set for June 25, 2018. However this matter was resolved.

Another pending action is 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 early discovery and no trial date is set. 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, 2018 and 2017, the Company paid $1,037 and $0, respectively, in royalties and licensing fees related under these agreements.

NOTE 8: SUBSEQUENT EVENTS

Management has evaluated subsequent events from May 31, 2018 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.

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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 is 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.

We recorded the effects of the TCJA for year ended February 28, 2018 using our best estimates and the information available to us through the date the financial statements were issued. However, our analysis is ongoing and as such, the income tax effects that we have recorded are provisional.

The valuation allowance for deferred tax assets as of February 28, 2018 and February 28, 2017 totaled $611,182 and $1,222,653, respectively. The net change in the total valuation allowance was an increase of $558,002 and $1,081,998 for the years ended February 28, 2018 and February 28, 2017, respectively. In assessing the realization of deferred tax assets, management considers whether it is more-likely-than-not that 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, 2018.

At February 28, 2018, the Company had unused net operating loss carryovers of approximately $496,000 and $927,000 for federal and state tax purposes, respectively, which expire beginning in 2037.

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, 2018, 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 2014 through 2017 for federal purposes and fiscal years 2013 through 2017 for state purposes.

The Company expects its effective tax rate for the 2019 fiscal year to be different from the federal statutory rate due primarily to a change in valuation allowance.

We recorded a provision for income taxes of $0 and $4,252 for the quarter ended May 31, 2018 and 2017 respectively, related to federal and state taxes, based on the Company's expected annual effective tax rate.

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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 month periods ended May 31, 2018 and 2017. 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, 2018. 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 Annual Report on Form 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 ), 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 ). 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, California 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, 2018 and 2017 are derived from our condensed consolidated financial statements included elsewhere in this report.

Three-month period ended May 31, 2018 compared to the corresponding period in 2017

							Year over
	2018			2017			year change			%


Sales	$	1,133,901		$	1,208,207			(74,306	)		(6	)%
Cost of sales		603,440			663,782			(60,342	)		(9	)%
Gross profit		530,461			544,425			(13,964	)		(3	)%
Gross profit %		47	%		45	%
Selling general and administrative		424,462			361,090			63,372			18	%
Depreciation and amortization expense		14,472			17,675			(3,203	)		(18	)%
Other (expense) income		1,264			(1,427	)		2,690			(189	)%
Income before provision for income taxes		92,791			164,233			(71,442	)		(44	)%
Provision for income taxes		-			4,252			4,252			(100	)%

Net income		92,791			159,981			(67,190	)		(42	)%
Net income %		8	%		13	%
Earnings per share – basic and diluted	$	0.00		$	0.01

Sales. Sales decreased by approximately $74,000 or 6% to $1,134,000 during the three months ended May 31, 2018 from $1,208,000 during the three months ended May 31, 2017. The decrease is minimal and primarily due to typical seasonal variations of sales of our bottle, portable retail, pitcher replacement and pitcher custom product line. Sales during the three months ended May 31, 2017 of this product line were approximately $932,000, compared to $780,000 in the comparable current period 2018.

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Cost of sales and gross profit percentage. As a percentage of sales, the gross profit margin during the three months ended May 31, 2018 increased to approximately 47% from approximately 45%. The product mix and timing of significant sales is always a significant factor in the resulting profit margins reported. The Company believes that the average gross margin percentages overall will remain at approximately 45% in the foreseeable future.

Selling, general and administrative. These expenses increased by approximately $62,000, or 17%, during the period ended May 31, 2018 compared to the same period ended in the prior year. The increase was largely a direct result of legal fees related to ongoing litigation compared to the prior year.

Depreciation and amortization expense. Depreciation and amortization expense was decreased due to fully depreciated fixed assets.

Income tax expense. The Company recorded provision of approximately $0 due to a pretax income of approximately $93,000 during the three month period ended May 31, 2018 compared to income tax provision of approximately $4,200 due to the pretax income of approximately $164,000 during the three-month period ended May 31, 2017.

Net income. Net income for the three-month period ended May 31, 2018 was approximately $93,000, down approximately $67,000 or (42)% compared to income for the three-month period ended May 31, 2017 of $160,000. This was primarily due to an decrease of approximately $74,000 in sales, decrease of approximately of $60,000 in cost of sales and a increase of approximately $62,000 in selling, general and administrative expenses.

Net cash used for operating activities. During the three-month period ended May 31, 2018 cash used in operating activities was approximately $15,000, compared to cash provided by operating activities of approximately $620,000 in the same period during 2017. This was primarily the result of our net income of approximately $93,000, paying approximately $226,000 in accounts payable and customer deposits of approximately $147,000. This was offset by net collection on accounts receivable of $149,000 and add back of non- cash expenses for depreciation of approximately $14,000, bad debt recovery of $2,000, inventories of $8,000, related party receivable of $1,400, prepaid and other assets of $91,000 and income tax payable of $0.

Net cash used in investing activities. During the three-month periods ended May 31, 2018 and 2017, the Company spent approximately $0 and $2,990, respectively, on capital expenditures.

Net cash used in financing activities. Cash used in financing activities during the three month period ended May 31, 2018 totaled approximately $1,300, compared to approximately $1,800 during the comparable prior period. This was a result of the capital lease repayments during the three month period ended May 31, 2018 compared to $1,800 during the three month period ended May 31, 2017.

Management's Plan. As of May 31, 2018, the Company had $2,059,498 in cash and cash equivalents, $679,051 in accounts receivable and a backlog of $138,971 in unshipped product. This year, Seychelle plans to release a variety of new products in the upcoming months that introduce hollow fiber technology and further improvements to our filter effectiveness and production. We anticipate an increase in earnings with the addition of our innovative technology that focuses on water soluble medical cannabis in conjunction with our portable products. Our strong year reflected our dedication to continued investment in product innovation, expanding our marketing opportunities, and the increased demand of water filtration products.

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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 2018 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. There were no material changes to the Company's critical accounting policies or estimates during the three-month period ended May 31, 2018.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updated ("ASU") 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606 ("ASU 2014-09"). The new revenue recognition standard provides a give-step analysis of transactions to determine when and how revenue is recognized. The premise of the standard is that a Company 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. The Company has elected to adopt the guidance beginning in fiscal 2019 using the modified retrospective approach. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset 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 and 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 this standard will have on its consolidated financial statements and related disclosures.

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4. 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.

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;

●	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;

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

●

●	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.

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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 entitled Internal 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 May 31, 2018.

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 May 31, 2018:

(1)	lack of a functioning audit committee and lack of a majority of 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 period ended May 31, 2018.

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.

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 annual 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.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

There have been no changes to our Risk Factors included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 8, 2018.

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

During the quarter ended May 31, 2018, 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		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)

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: July 13, 2018	By:	/s/ Carl Palmer
		Carl Palmer Director, Chief Executive Officer and Chief Financial Officer

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