ITEM 1. BUSINESS
History of Seychelle
We are a Nevada corporation. Our principal corporate office address is
22 Journey, Aliso Viejo
, California
92656
. Our telephone number at this address is 949-234-1999.
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.
Organization
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.
Business of Seychelle
General
Seychelle designs, assembles and distributes unique, state-of-the-art ionic adsorption micron filters specifically for portable filter devices that remove up to 99.99% of all pollutants and contaminants found in any fresh water source as well as increase the alkalinity of the water up a pH level of 9.5. Seychelle water filtration products address a worldwide problem of access to clean drinking water and makes available low-cost, effective filtration products that will meet the need for safe, great tasting, and high quality drinking water.
Seychelle markets its portable water filtration bottles throughout the world to customers such as individuals, dealers, distributors, non-governmental organizations and emergency relief organizations such as the Jimmy Bakker Ministry. In addition, the Company has donated thousands of portable bottles to church groups and missionaries worldwide during the life of the Company.
In developing countries, many people in rural areas boil their water for drinking and cooking to kill bacteria, but this process does not remove the pyrogens, chemicals, toxins, volatile organic compounds, heavy metals or other pathogens that remain in the water. The World Health Organization estimates that approximately 2.2 million people, mostly children in developing nations, die annually from water-related diseases.
Business Plan
The management of Seychelle has substantial experience in developing improvements and innovations in the field of bottled water, reverse osmosis, ultra filtration and filter technology. As a result, our products can deliver up to 2 micron absolute filtration for pennies per gallon, with pressure as low as 2 pounds per square inch (PSI). Further, our point of difference filtration systems removes up to 99.99% of pollutants and contaminants most commonly found in fresh drinking water supplies in the five major areas of concern as follows:
AESTHETICS: Taste, chlorine, sand, sediment and odor problems.
BIOLOGICS: Pathogens such as Cryptosporidium, Giardia and E.Coli Bacteria.
CHEMICALS: Pesticides, detergents, toxic chemicals and industrial waste.
DISSOLVED SOLIDS: Heavy metals such as aluminum, asbestos, copper, lead, mercury and chromium 6.
RADIOLOGICAL: Cesium 134 & 137, Radon, Radium, Uranium, Radioactive Iodine, etc.
New pH Product which increases the alkalinity of source water up to 9.5 pH level or more.
Seychelle filters have been tested by independent and government laboratories. Selected results from the United States are displayed on our Website at www.seychelle.com, but such information included on our website is not incorporated into this filing. The benefit of such filtration can save lives worldwide as more people become aware of the benefits of using products utilizing Seychelle's proprietary portable water filtration technology.
Principal Products or Services and Their Markets
Current Products
Seychelle has a varied line of portable filter bottles for people on the go. The current products include: Flip-Top and Pull Top bottles, Canteens, Water Pitchers, Pure Water Pump, Stainless Steel bottles, In-Line Filter, Pure Water Bag, Pump N' Pure, Pure Water Pouch and Pure Water Straws. They include regular, standard or advanced filters (for virus and bacteria control up to 99.99% reduction). Sizes are from 20 ounces to 42 ounces, and provide up to 150 gallons of pure drinking water from any fresh water source; running or stagnant (such as rivers, lakes, ponds and streams).
New Products
Product design is a constant focus and all products are reviewed annually.
Manufacturing
The Company has determined that the production and assembly of some of our product components in China and Mexico through the use of third-party contract manufacturers at a lower cost than in the U.S. will still maintain equivalent quality standards. However, our proprietary filter will continue to be manufactured in the U.S. The assembly of all our products is completed at our facility in Aliso Viejo, California.
Sales Channels
Sales channels pursued include: retail, missionaries, multi-level marketing, international, OEM and joint ventures. Several distributors sell the Company's portable water filtration products to customers in specific distribution channels; including: retail, multi-national corporations, foundations and sports.
Raw Materials
Seychelle's filters include powdered, activated coconut and other media as components in the porous plastic ionic filter. To date, we believe there is an adequate availability of material for all of our products. We do not expect this situation to change in the near future.
Customers and Competition
Seychelle products compete against companies offering water filtration and bottled water including (1) bottled water, (2) portable water filtration systems and (3) home water treatment systems provided by suppliers (such as independent dealers, distributors, catalogs, internet sellers, etc.) in the form of reverse osmosis systems, distillation, and filtration systems. Therefore, Seychelle's portable and home filtration products compete in a limited segment of the drinking water market as an alternative to other sources of filtered or purified drinking water.
Seychelle has a negligible share of the world's filtered or purified water market. Our products sell in a niche category of the market - portable filtration bottles that use powder-activated carbon filters that compete with our powder-activated coconut filters with various media called ionic adsorption micron filtration technology (IAMF) which remove many organic and inorganic contaminants that simple activated carbon filters cannot. Most powder activated carbon filters on the market remove Chlorine, sediment and dirt thus improving taste and odor, as well as a handful of other contaminants such as Lead, Mercury, Zinc and Copper. This would include leading brands such as Brita, PUR, General Electric and Culligan, who collectively dominate the home market. In the portable segment of the market, there are hundreds of small companies selling a variety of specialized filters, with no one company having a majority share and no industry data available. We believe that our current share of this market is negligible.
Seychelle sells its products in two ways. First, it sells its own brand to individuals, dealers, distributors, multilevel marketing companies and missionaries on a direct basis. Second, the Company offers specially designed products to the same customers as a private label supplier if purchasers buy in significant volume. In some instances, we may supply only filters for their bottles or hydration backpacks as opposed to complete products.
Currently, the majority of our sales are to customers in the U.S. For the year ended February 28, 2018, we had three U.S. based customers that accounted for 56% of our total sales. For the year ended February 28, 2017, we had three U.S. based customers that accounted for 53% of our total sales.
Backlog
As of February 28, 2018, and February 28, 2017, we had a backlog of approximately $395,000 and $465,000, respectively in unshipped orders.
Employees
As of February 28, 2018, we had a President and one (1) executive employee managing the Company with five (5) administrative employees supporting that effort. In assembly, operations and warehousing we had seventeen (17) full-time employees and one (1) part-time employee.
As of February 28, 2017, we had a President and one (1) executive employee managing the Company with six (6) administrative employees supporting that effort. In assembly, operations and warehousing we had twenty six (26) full-time employees and one (1) part-time employee working to fill orders.
Proprietary Information and Technology
We previously held two patents, which have expired. The first patent was for the portable water filtration system with the filter cap assembly, Patent # 5,914,045. The second patent, Patent #6,058,971, was for a quick connect diverter valve.
We have filed and received approval for five trademarks with the United States Patent and Trademark Office which were granted: Seychelle®, which has been used in commerce since 1997, along with Pres 2 Pure, Fill 2 Pure, pH20 Plus and Aq-RO-matic.
We have a trade name, "Seychelle Water Filtration Products, Inc.," which we use in our commercial operations.
Government Regulation
We are not, as a company, subject to any material governmental regulation or approvals. However, our products are subject to inspection and evaluation by regulatory authorities that have jurisdiction over water quality standards. Such authorities are on the federal, state, and local level, both in the United States and overseas, where we market our products. Most of our products have already been inspected and evaluated by all applicable governmental authorities in the areas in which we operate or plan to operate in the near future. With respect to our current focus of operations, we do not know if governmental regulation will have a material impact on us in the future.
Research and Development
We did not spend a significant amount for research and development activities during the fiscal year ended February 28, 2018.
Environmental Compliance
At the present time, Seychelle is not subject to any material costs for compliance with any environmental laws. With respect to our current focus of operations, we do not know if environmental compliance will have a material impact on us in the future.
ITEM 1A. RISK FACTORS
THE OWNERSHIP AND INVESTMENT IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS. OUR COMMON SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS RELATING TO OUR COMPANY.
We Have Been Profitable for Six of Our Eight Most Recent Fiscal Years. However, We Cannot Guarantee That We Will Continue to Conduct Profitable Operations. We were profitable for our most recent fiscal year.
We recorded a net loss and negative cash flows from operations for the most recent fiscal year ending February 28, 2017. We had the following (loss) income for the years ending:
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Net Income
(Loss)
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February 28, 2018
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$
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660,907
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February 28, 2017
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$
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(2,147,224
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)
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February 29, 2016
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$
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1,032,941
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February 28, 2015
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$
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(1,405,909
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)
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February 28, 2014
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$
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506,797
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February 28, 2013
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$
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635,883
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February 29, 2012
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$
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197,986
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February 28, 2011
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$
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1,711,790
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While we believe that we have had a successful operating history, we cannot guarantee that we will continue to be profitable. If we do not continue to be profitable, we may go out of business, and an investor could lose their entire investment.
We Have a Significant Dependence on a Few Customers.
During the fiscal year ended February 28, 2018, the Company had three customer who accounted for approximately 33%, 12% and 11% (or 56%) of total sales during the fiscal year ended February 28, 2018. As of February 28, 2017, the Company had three customers who accounted for approximately 36%, 9% and 8% (or 53%) of total sales during the fiscal year ended February 28, 2017. One of those customers accounted for approximately 33% and 60% of net accounts receivable as of February 28, 2018 and February 28, 2017, respectively. 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.
The Water Filtration Business is Subject to Intense Competition and Subject to Numerous Risks. Many of Our Competitors Have Substantially Greater Capabilities and Resources and May be Able to Develop and Commercialize Products Before We Do.
The water filtration business is highly competitive with many companies having access to the same market. Technological competition from larger and more established companies is significant and expected to increase. Most of the companies with which we compete and expect to compete have far greater capital resources and significant research and development staffs, marketing and distribution programs and facilities, and many of them have substantially greater experience in the production and marketing of products. Our ability to compete effectively may be adversely affected by the ability of these competitors to devote greater resources to the sale and marketing of their products than we can. In addition, one or more of our competitors may succeed or may already have succeeded in developing technologies and products that are more effective than any of those we currently offer or are developing. In addition, there can be no guarantee that we will be able to protect our technology from being copied or infringed upon. There can be no assurance that we will have the necessary resources to be competitive. Therefore, investors should consider an investment in us to be an extremely risky venture.
As an Organization, We are Dependent Upon Technology for the Development of Our Products.
We are operating in a business that requires continuing research, development and testing efforts. There can be no assurance that new products will not render our products obsolete or non-competitive at some time in the future.
Our Success as an Organization Depends, in Large Part, Upon Our Ability to Protect Our Intellectual Property Rights. While We Have Several Items of Intellectual Property, Our Two Patents Have Expired.
We hold trademarks and a tradename, but our two patents have expired. We cannot at this time estimate the financial impact of the expiration of these patents to Seychelle. In general, vigorous protection and pursuit of intellectual property rights or positions characterize our industry, which has resulted in significant and often protracted and expensive litigation. Therefore, our competitors may assert that our technologies or products infringe on their patents or proprietary rights. Problems with patents or other rights could increase the cost of our products or delay or preclude new product development and commercialization by us. If infringement claims against us are deemed valid, we may not be able to obtain appropriate licenses on acceptable terms or at all. Litigation could be costly and time-consuming but may be necessary to protect our technology license positions or to defend against infringement claims.
Our Success is Dependent Upon the Decision Making of Our Directors and Executive Officers.
Our directors and executive officers have made a full commitment to our business. The loss of any or all of these individuals could have a materially adverse impact on our operations because we have no succession plan for any of them. We will depend on our senior executive officers as well as other key personnel. If any key employee decides to terminate his employment with us, this termination could delay the commercialization of our products or prevent us from sustaining our profitability. Competition for qualified employees is intense among companies in our industry and the loss of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could hinder our ability to successfully develop and maintain marketable products.
Our Board of Directors and the Majority of the Shares of the Company is Under the Complete Control of Mr. Carl Palmer.
The Board of Directors is completely under the control of Mr. Carl Palmer. The current Board of Directors consists of Mr. Palmer, his daughter, Mrs. Cari Beck, her husband and Mr. Palmer's son-in-law, Mr. John Beck, Gary Hess and Jenevieve Fisher.
Further, as a result of his control of the majority of the shares of the Company and its Board of Directors, it must be assumed that all final decisions of the Company will ultimately be made solely by Mr. Palmer. The amount of outside input and advice which Mr. Palmer will utilize, including that from the two independent directors, can be expected to be entirely within his sole discretion.
The Acquisition of Other Technologies Could Result In Operating Difficulties, Dilution and Other Harmful Consequences
.
We may selectively pursue strategic acquisitions, any of which could be material to our business, operating results and financial condition. Future acquisitions could divert management's time and focus from operating our business. In addition, integrating an acquired technology is risky and may result in unforeseen operating difficulties and expenditures.
The anticipated benefits of future acquisitions, if consummated, may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, including our common stock, the incurrence of debt, contingent liabilities, or write-offs of intellectual properties any of which could harm our financial condition. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all.
We Face Risks Associated With Currency Exchange Rate Fluctuations.
Although we currently transact business primarily in U.S. dollars, a large portion of our revenues and related cost of goods sold may be determined in foreign currencies if we continue to expand our international operations. Conducting business in currencies other than U.S. dollars subjects the Company to fluctuations in currency exchange rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. dollar relative to other currencies may impact our revenue, cost of goods sold and operating gross margin, and result in foreign currency translation gains and losses. Historically, we have not engaged in exchange rate hedging activities.
Changes to Financial Accounting or Other Standards May Affect Our Operating Results and Cause Us To Change Our Business Practices.
We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States. These accounting principles are issued by the Financial Accounting Standards Board (FASB). The Securities and Exchange Commission also provides interpretation, guidance and principles in the preparation of financial statements. A change in those policies could have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced.
If We Fail in Maintaining Effective Internal Control Over Financial Reporting, The Price of Our Common Stock May be Adversely Affected.
We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosure regarding our business, financial condition or results of operations. In addition, our future assessments of internal control over financial reporting may identify additional weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any material weaknesses that needs to be addressed in management's assessment of our internal control over financial reporting or in the report on the effectiveness of our internal controls by our independent registered public accounting firm, when, and if, applicable, may have an adverse impact of our common stock.
If We Fail to Comply with Section 404 of the Sarbanes-Oxley Act of 2002 in a Timely Manner, Our Business Could Be Harmed and Our Stock Price Could Decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require management's annual assessment of our internal control over financial reporting. The standards that must be met for the management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We have incurred significant expenses and we devote resources to Section 404 compliance on an ongoing basis. In the event that our Chief Executive Officer/Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react on how the market prices of our shares will be affected, however, we believe that there is a risk that investor confidence and share value may be negatively impacted.
Maintaining and Improving Our Financial Controls and The Requirements Of Being a Public Company May Strain Our Resources, Divert Management's Attention, and Affect Our Ability to Attract and Retain Qualified Members For Our Board of Directors.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. The requirements of these rules and regulations increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and may also place undue strain on our personnel, systems, and resources. The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Fulfilling this requirement can be difficult to achieve and maintain.
As a result, management's attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts also involve substantial costs.
We May be Impacted By the Implementation of Regulatory Requirements as a Result of the Passage of the Dodd-Frank Act.
In July, 2010, Congress enacted the Dodd-Frank Act, which instituted major changes in the regulatory regime for public companies. At the present time, we do not believe that Seychelle will be impacted in a material way by this legislation. However, the implementation of the provisions of the Dodd-Frank Act is subject to regulations which have not yet been written and its statutory provisions have not been the subject of extensive judicial review, so we cannot guarantee that we may not come under its purview at some point in the future and be affected negatively by it.
Our Articles of Incorporation and Bylaws Could Discourage Acquisition Proposals, Delay a Change in Control, or Prevent Other Transactions.
Provisions of our articles of incorporation and bylaws, as well as provisions of the Nevada Business Corporation Act, may discourage, delay or prevent a change in control of our Company that you as a stockholder may consider favorable and may be in your best interest. Our certificate of incorporation and bylaws contain provisions that:
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authorize the issuance of "blank check" preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and discourage a takeover attempt;
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Limit who may call special meetings of stockholders.
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Our Stock Price Can Be Volatile.
The future market price of our common stock could fluctuate widely because of:
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future announcements about our Company or our competitors, including the results of testing, technological innovations or new commercial products;
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negative regulatory actions with respect to our potential products or regulatory approvals with respect to our competitors' products;
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changes in government regulations;
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developments in our relationships with our partners including customers, vendors and distributors;
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developments affecting our partners; including customers, vendors and distributors;
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our failure to acquire or maintain proprietary rights to the products we develop;
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litigation; and
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public concern as to the safety of our products.
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The stock market has experienced price and volume fluctuations that have particularly affected the market price for many emerging companies. These fluctuations have often been unrelated to the operating performance of these companies. These broad market fluctuations may cause the market price of our common stock to be lower or more volatile than otherwise expected.
Buying Penny Stocks is Very Risky and Speculative. The Applicability of the "Penny Stock Rules" to Broker-dealer Sales of Our Common Stock Will Have a Negative Effect on the Liquidity and Market Price of Our Common Stock.
Trading in our shares is subject to the "penny stock rules" adopted pursuant to Rule 15g-9 of the Securities and Exchange Act of 1934, as amended, which apply to companies that are not listed on an exchange and whose common stock trades at less than $5.00 per share or which have a tangible net worth of less than $5,000,000 or $2,000,000 if we have been operating for three or more years. The penny stock rules impose additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the penny stock rules will affect the ability of broker-dealers to sell shares of our common stock and may affect the ability of shareholders to sell their shares in the secondary market, as compliance with such rules may delay and/or preclude certain trading transactions. The rules could also have an adverse effect on the market price of our common stock.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common stock. Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for stockholders to dispose of their shares. You will also find it difficult to obtain accurate information about, and/or quotations as to the price of our common stock.
We have added a stock broker to create or maintain a market in our common stock, which could favorably impact the price and liquidity of our securities.
We Do Not Expect to Pay Dividends on Our Common Stock.
We have not paid any cash dividends with respect to our common stock, and it is unlikely that we will pay any dividends on our common stock in the foreseeable future, as we are a growth company.