SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC. This discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows ofSeychelle Environmental Technologies, Inc. , and subsidiaries (the "Company") as of and for the three and nine month periods endedNovember 30, 2019 and 2018. The discussion and analysis that follows should be read together with the consolidated financial statements ofSeychelle Environmental Technologies, Inc. and the notes to the condensed consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year endedFebruary 28, 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 inthe 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;
(5) the Company's water related product sales could be materially affected by
weather conditions and government regulations;
(6) the Company is subject to the risks of conducting business
internationally; and
(7) the industries in which the Company operates are highly competitive.Additional risks and uncertainties are outlined in the Company's filings
with the
fiscal Annual Report on Form 10-K for the fiscal year ended February 28,
2019 .
14
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 inJanuary 1998 . OnJanuary 30, 1998 , we entered into an Exchange Agreement withSeychelle Water Technologies, Inc. , aNevada 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 ofAqua Vision International . Our Company is presently comprised ofSeychelle Environmental Technologies, Inc. , aNevada corporation, with two wholly-owned subsidiaries,Seychelle Water Technologies, Inc. and Fill 2Pure International, Inc. , alsoNevada 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.
Our principal business address is 22 Journey,
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 and nine month periods endedNovember 30, 2019 and 2018 are derived from our condensed consolidated financial statements included elsewhere in this report. Three month period endedNovember 30, 2019 compared to the corresponding period in 2018 Period over 2019 2018 Period change % Sales$ 816,001 $ 609,444 206,557 34 % Cost of sales 422,496 292,296 130,200 45 % Gross profit 393,505 317,148 76,357 24 % Gross profit % 48 % 52 % 37 % Selling, general, and administrative 373,053 429,650 (56,597 ) (13 %) Depreciation and amortization 11,747 13,294 (1,547 ) (12 %) Other income (expense) 1,713 (462 ) 2,175 (471 %) Income (loss) before income tax expense 10,418 (126,258 ) 136,676 (108 %) Provision for income taxes - - - Net income (loss) 10,418 (126,258 ) 133,676 (108 %) 15 Sales. Sales increased by$206,557 or 34% to$816,001 during the three months endedNovember 30, 2019 from$609,444 during the three months ended November, 2018. The increase is primarily due to increase in sales of our pitcher, pitcher replacement and pitcher custom product lines. Sales during the three months endedNovember 30, 2019 of this product line were$523,428 , compared to$401,386 in the comparable current period 2018. Cost of sales and gross profit percentage. As a percentage of sales, the gross profit margin during the three months endedNovember 30, 2019 decreased to 48% from 52%. 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 could eventually be in a range around approximately 45% in the foreseeable future. Selling, general, and administrative expenses. These expenses decreased by$56,597 , or (13%), during the three months endedNovember 30, 2019 compared to the same period ended in the prior year. The decrease was a direct result of the decrease in legal and advertising costs.
Depreciation and amortization. Depreciation and amortization expense was decreased due to fully depreciated fixed assets.
Income tax benefit (expense). The Company did not record a provision due to a net loss carry forward.
Net income (loss). Net income for the three months period endedNovember 30, 2019 was$10,418 compared to net loss for the three months period endedNovember 30, 2018 of$126,258 . Nine month period endedNovember 30, 2019 compared to the corresponding period in 2018 Period over 2019 2018 Period change % Sales$ 2,287,343 $ 2,479,023 (191,680 ) (8 %) Cost of sales 1,238,968 1,246,809 (7,841 ) (1 %) Gross profit 1,048,375 1,232,214 (183,839 ) (15 %) Gross profit % 46 % 50 % 96 %
Selling, general, and administrative 1,078,073 1,352,421 (274,348 ) (20 %) Depreciation and amortization 36,560 41,296 (4,736 ) (11 %) Other income (expense) 425 (1,584 ) 2,009 (127 %) Loss before income tax expense (65,833 ) (163,087 )
97,254 (60 %)
Income tax expense (1,600 ) - (1,600 )
Net loss (67,433 ) (163,087 ) 95,654 (59 %)
Sales. Sales decreased by $191,680 or 8% to $2,287,343 during the nine months
ended November 30, 2019 . The decrease is primarily due to a decrease in sales
of our pitcher product lines.
Cost of sales and gross profit percentage. As a percentage of sales, the gross
profit margin during the nine months ended November 30, 2019 decreased to 46%
from 50%. 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 will remain in a range around
approximately 45% in the foreseeable future.
Selling, general, and administrative. These expenses decreased by $274,348 , or
(20%), during the nine months ended November 30, 2019 compared to the same
period in the prior year. The decrease was a direct result of the decreasein legal and advertising costs. 16
Depreciation and amortization. Depreciation and amortization was decreased due to fully depreciated fixed assets.
Income tax expense. The Company recorded an income tax expense of
Net loss. Net loss for the nine month period ended
Net cash from operating activities.During the nine month period endedNovember 30, 2019 , cash provided in operating activities was$65,489 , compared to cash used in operating activities of$13,302 in the same period during 2018. This was primarily due to increase in customer deposits, collections of accounts receivable and related party receivable, increase in inventories and prepayments.
Net cash from investing activities.During the nine month period ended
Net cash from financing activities.Cash used in financing activities during the nine month period endedNovember 30, 2019 was$4,401 compared to$3,966 during the comparable period. This is was a result of capital lease repayments. Management's Plan. As ofNovember 30, 2019 , the Company had$2,134,349 in cash and cash equivalents,$453,454 in accounts receivable and a backlog of$413,389 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 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 withU.S. GAAP. 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 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 nine month period endedNovember 30, 2019 . InMay 2014 , theFinancial 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 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 adopted the guidance effectiveMarch 1, 2018 using the modified retrospective approach. The adoption of this guidance did not have a significant impact on our consolidated financial statements. 17 InFebruary 2016 , the FASB issued Accounting 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 effectiveMarch 1, 2019 . Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for periods presented beforeMarch 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 at the date of adoption. InJune 2016 , the FASB issued ASU 2016-13, "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 is effective for annual reporting periods beginning afterDecember 15, 2019 and interim periods within fiscal years beginning afterDecember 15, 2020 . The Company is currently evaluating this statement and its impact on the Company's results of operations and financial 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.
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