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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
Amendment No. 1
General Form For Registration of Securities
of Small Business Issuers Under
Section 12(b) or (g) of
the Securities Exchange Act of 1934
Seychelle Environmental Technologies, Inc.
------------------------------------------
(Exact Name of Small Business Issuer as specified in its charter)
Nevada 33-0836954
------ --------------------------
(State or other jurisdiction (IRS Employer File Number)
of incorporation)
32921 Calle Perfecto
San Juan Capistrano, California 92675
------------------------------- -----
(Address of principal executive offices) (zip code)
Securities to be Registered Pursuant to Section 12(b) of the Act:
None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 per share par value
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References in this document to "us," "we," or "the Company" refer to Seychelle
Environmental Technologies, Inc., its predecessor and its subsidiary.
RISK FACTORS
THE OWNERSHIP AND INVESTMENT IN OUR SECURITIES INVOLVES SUBSTANTIAL
RISKS, WHICH ARE SUMMARIZED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS RELATING TO OUR COMPANY.
NEWLY-FORMED COMPANY Our Company was formed on January 23, 1998 and
acquired the operations of a company which had only been in existence since
1995. Since beginning operations, we have operated at a loss. Nevertheless, we
have not engaged in any substantial business activity over a sustained period of
time, and thus cannot be said to have a successful operating history. We expect
to incur losses in the near future. Further, we are likely to experience
under-capitalization shortages, setbacks and other risks common to emerging
businesses. We cannot give any assurance that we will ever be profitable.
NEED FOR ADDITIONAL FINANCING For the foreseeable future, we expect to
rely principally upon our cash flow. We cannot guarantee the success of this
plan. We believe that from time to time, we may have to obtain additional
financing in order to conduct our business in a manner consistent with our
proposed operations. There can be no guaranty that additional funds will be
available when, and if, needed. If we are unable to obtain such financing, or if
the terms thereof are too costly, we may be forced to curtail proposed expansion
of operations until such time as alternative financing may be arranged, which
could have a materially adverse impact on our operations and our shareholders'
investment. At the present time, we have no definitive plans for additional
financing.
POTENTIAL INABILITY TO CONDUCT SUCCESSFUL OPERATIONS The results of our
operations will depend, among other things, upon our ability to develop and to
market our water filtration products. Further, it is possible that our proposed
operations will not generate income sufficient to meet operating expenses or
will generate income and capital appreciation, if any, at rates lower than those
anticipated or necessary to sustain ourselves. Our operations may be affected by
many factors, some known by us, some unknown, and some which are beyond our
control. Any of these problems, or a combination thereof, could have a
materially adverse effect on our viability as an entity and might cause the
investment of our shareholders to be impaired or lost.
START-UP COMPANY-INHERENTLY RISKY-COMPETITION Because we are a start-up
company with limited history, our operations will be extremely competitive and
subject to numerous risks. The water filtration business is highly competitive
with many companies having access to the same market. Substantially all of them
have greater financial resources and longer operating histories than us and can
be expected to compete within the business in which we engage and intend to
engage. There can be no assurance that we will have the necessary resources to
be competitive. We are subject to the risks which are common to start-up
companies. Therefore, investors should consider an investment in us to be an
extremely risky venture.
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DEPENDENCE UPON TECHNOLOGY We are operating in a business which
requires extensive and continuing research efforts. There can be no assurance
that new products will not render our products obsolete at some time in the
future. In addition, there can be no guarantee that we will be able to protect
our technology from being copied or infringed upon. Therefore, there are no
assurances that we will ever be able to obtain and to maintain a profitable
position in the marketplace.
SUCCESS DEPENDENT UPON MANAGEMENT Our success is dependent upon the
decision making of our directors and executive officers. These individuals
intend to commit as much time as necessary to our business. The loss of any or
all of these individuals could have a materially adverse impact on our
operations. We have no employment agreement with any individuals and have not
obtained key man life insurance on the lives of any of these individuals.
ITEM 1. DESCRIPTION OF BUSINESS.
(A) General Development of Business
We are a Nevada corporation. Our principal business address is 32921
Calle Perfecto, San Juan Capistrano, California 92675. 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.
On January 31, 1998, we entered into a Purchase Agreement to acquire
all of the assets of Aqua Vision International, a California sole
proprietorship. This Purchase Agreement was amended on February 26, 1999 to
provide for the issuance of 8,000 shares of Series "AAA" 12% Cumulative
Convertible Preferred Shares in lieu of all consideration which had remained
unpaid under the original Purchase Agreement. Aqua Vision International had been
in operation since 1996 to develop, manufacture, and market its own proprietary
water filtration systems.
We filed this Form 10-SB on a voluntary basis because our common shares
were trading on the Bulletin Board and, in order to maintain this listing, we
are required to be a reporting company under the Securities Exchange Act of 1934
(the "1934 Act"). In addition, we plan to engage in equity and/or debt
financings in the foreseeable future and believe that such fund raising could be
enhanced by having a record of regular disclosure. We have no plans in the
foreseeable future, under any circumstances, to terminate our registration under
the 1934 Act, even if the obligation to file these reports ceases.
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Organization
Our Company is presently comprised of one corporation with one
subsidiary, Seychelle Water Technologies, Inc., a Nevada corporation.
(B) Operations
General
We propose to implement a business plan to manufacture and market a
range of water filtration products. We are dedicated to improving the quality of
life by providing highly effective, economical, convenient, durable, reliable
filtration systems for assured quality drinking water. We design, manufacture
and supply water filtration systems to the general public. These systems will
range from portable water bottles that can be filled from nearly any available
source, to units which provide entire water facilities at the point of entry for
those facilities. We also have the capability of tailoring systems to meet the
needs of areas where specific water problems or severe water contamination
exist, on a local or worldwide basis.
GENERAL BUSINESS PLAN
The Environmental Protection Agency (EPA) has established Maximum
Contamination Levels in their National Primary Drinking Water Standards. All
seventy-nine (79) of the key contaminants listed by the EPA are addressed by our
products. These key contaminants may be grouped into Volatile Organic Compounds,
Inorganics, Microbiological Organisms, Trihalomethanes, and Radiologicals.
Our patented products reduce up to 99.8% of these key contaminants
listed by the EPA. We combine physical filtration, adsorption, and reduction
using sorbent medias and other materials. All products are engineered by first
analyzing the list of key contaminants by the EPA and analyzing the
contaminants' direct effect upon health from ingestion. All seventy-nine (79) of
the key contaminants are considered in the design effort in order to reach
maximum reduction percentages of these pollutants. Health claims are represented
by the reduction in volume percentages as determined by various independent
labs.
We develop and manufacture products in the area of water filtration -
Point of Use, Portable Water Filtration Systems and (currently under
development) Point of Entry units.
Our Point of Use (POU) filtration system is installed at a single tap
or hook-up where the water actually comes out. Americans are now spending
hundreds of millions of dollars per year for home drinking water units and their
replacement cartridges. Our POU products include our SE-1 Counter Top system.
This system uses the patented Quick Disconnect adapter. The one-micron filter
provides contaminant reduction for over 2,500 gallons per replaceable cartridge
filter.
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Our Shower Massage and Hand Held Shower Filter Units effectively reduce
the harmful contaminants that can be ingested, inhaled and absorbed through the
skin cells while showering. Our system filters over 15,000 gallons, or for up to
six months, per replaceable, reversible cartridge.
Our Coffee Maker Filtration System was designed to pre-treat product
water to eliminate scaling and remove unpleasant taste, odor and harmful
contaminants from coffee maker systems. The filter extends the life of the home,
office or industrial coffee machine as much as ten times.
Our Portable Water Filtration Units are filtration systems built to go
anywhere for use at any time. They are designed to be a practical, effective,
and superior substitute for bottled water and to provide additional protection
against waterborne contaminants while traveling, especially in foreign lands,
where the EPA regulations may not exist. Our patented Ionic-Adsorption
Micro-Filtration system is in every portable unit, including the following:
Gravity Feed Water Filtration System- portable unit that houses a
three-multi phase filtering system, including one phase with
anti-microbial properties, for enhanced filtration effectiveness. This
system produces a half-gallon of filtered water in less than ten
minutes. This system is portable and easily stored when not in use.
Bottom's UP(TM)- patented design, available in 18oz., 24oz. (this is
the "Designer Bottom's UP(TM)), and 30oz. portable water filtration
bottles, all of which fill from the bottom.
Baby UP(TM)- 18oz. portable water filtration bottle that attaches to
any standard baby bottle. It is filled from the bottom.
Canteen - 30oz. portable water filtration bottle. It fills from the top
and is carried on a belt or by sling.
Pres 2 Pure(TM) - 24oz. portable water filtration bottle. The device
fills from the top and has an easy grip design that also fits into bike
holders or a car caddy.
Tap 2 Pure(TM) - Portable universal rubber adapter with a filter
attached, which fits nearly every faucet, both in the United States and
internationally.
Pump n Pure(TM) - small. For use in pumping water from any source while
engaging in outdoor activities or in emergencies. This device comes
with a carrying case.
Pump n Pure(TM) - large. To be used with 5-gallon bottles when large
quantities of water are needed in remote areas or during emergencies.
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Products in Development
Our Point of Entry (POE) filtration system is designed to be installed
at a single point where water enters the entire home, office building, school,
hotel, hospital, or apartment complex. We believe that this market is expanding
rapidly. Our POE units are three-phase filtering systems which combine various
filtering concepts.
Our Under the Counter Unit is a system designed to be installed below
the counter, delivering filtered water through a sink dispenser. This unit
contains a one micron filter to provide contaminant reduction for over 2,500
gallons per replaceable cartridge filter and is designed to be convenient,
automatic, out of sight, permanently installed and to filter water for an ice
maker as well.
Our Hydration System is a portable backpack that provides filtered
water on demand. The system features a flexible, ergonomic blow-molded
reservoir, an air pressurized delivery system, an insulated cover, a survival
kit and includes additional anti-microbial properties in the patented filtration
system.
Our goal is to capture a significant share of the water filtration
market using these and other products which we plan to develop. We plan to
market our current products and to develop additional products in the water
filtration area.
(C) Markets
At the present time, we have begun our marketing efforts and have
developed relationships with various organizations in private labeling,
multi-level marketing, our own labeled products, and international licensing.
Our marketing plan is focused primarily on developing public awareness
and acceptance of our products through sales to independent sales
representatives, who sell to retailers and direct selling programs.
We sell our products through independent sales representatives to:
Military exchanges
Food and drug retailers
Travel Agencies
Trade shows and fairs
The coffee machine industry
We also private label our products to:
The outdoor sports market
Marine and recreational vehicle market
Multilevel marketing programs
(D) Raw Materials
The use of proprietary materials in the manufacturing of our line of
products is a major factor. We project production volumes to coordinate with raw
materials. However, at the present time, there is adequate
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availability of raw materials for all of our products. We do not expect this
situation to change in the near future.
(E) Customers and Competition
There are a number of established companies in the water filtration
business, with no one company dominating this business. Many of those companies
are larger and better capitalized than we are and/or have greater personnel
resources and technical reserves. In view of our extremely limited financial
resources and limited management availability, we will continue to be at a
significant competitive disadvantage compared to many, if not most, of our
competitors. There is no guarantee that we will ever be profitable.
(F) Backlog
As of November 30, 1999 we had no current backlog.
(G) Employees
As of November 30, 1999 we had thirteen employees, seven corporate and
administrative employees and six operations and warehouse employees, who worked
for us under a lease arrangement with an unaffiliated third party Professional
Employer Organization. We hire additional employees, on a temporary or ongoing
basis, as circumstances require.
(H) Proprietary Information
We have been granted a patent for the Portable Water Filtration System
with the filter cap assembly, Patent # 5,914,045. As described in the Abstract,
it is "[a] filter assembly for a flexible, portable bottle having a sealing cap
including a filter attached to the interior of the cap to filter out
substantially all INORGANICS, ORGANICS, RADIOLOGICAL CHEMICALS AND MICROBIOLOGY.
The filter assembly also may include a second filter or Iodinator sealed in the
flexible bottle to further remove micro-organisms from water passing
there-through. The filter assembly is designed so that the flexible bottle must
be pressurized, as by being hand pressed, after it is filled with water to force
flow of water through the [sic] either or both of the filters. The filter in the
cap includes a check valve to allow the bottle to be re-pressurized after water
has been dispensed from the bottle."
We have recently been granted an additional patent, Patent # 6,004,460,
for the Portable Water Filtration System that allows the user to fill the bottle
from the bottom, thereby reducing any chance of contaminating the filter that is
attached to the top of the bottle. The patent is described in the abstract as
"[a] combination filter assembly and flexible portable bottle having a bottom
opening with a sealing cap attached thereto, to filter out substantially all
INORGANICS, ORGANICS, RADIOLOGICAL CHEMICALS and MICROBIOLOGY held in water in
the bottle. The filter assembly may be attached to an adapter sealed to the top
of the flexible bottle. Water in the bottle passes through the filter assembly
and out a top nozzle or valve when the flexible bottle is squeezed. The flexible
bottle is filled with water through the bottom opening." This is the technology
which we use for our Bottom's UP product line.
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We also have a United States Utility Patent application, S.N.
09/144,589 for Quick Connect Diverter Valve, for which a notice of allowance was
recently received.
In addition, we have the trademark registration for "Pres to Pure,"
S.N. 75/040,704.
(I) 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 who 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. 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.
Therefore, the impact of governmental regulation is not expected to be material
to our operations.
(J) Research and Development
We have spent $41,866 and $5,741 in research and development activities
for the fiscal years ended February 28, 1999 and 1998, respectively.
(K) Environmental Compliance
At the present time we, as a company, are not subject to any material
costs for compliance with any environmental laws.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward-Looking Statements
The following discussion contains forward-looking statements regarding
our Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause our actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking statements include,
without limitation: our ability to successfully develop new products for new
markets, the impact of competition on our revenues, changes in law or regulatory
requirements that adversely affect or preclude customers from using our products
for certain applications, delays in our introduction of new products or
services, and our failure to keep pace with emerging technologies.
When used in this discussion, words such as "believes," "anticipates,"
"expects," "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
Registration Statement. We undertake no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by us in this Registration Statement and other reports filed
with the Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that may affect our business.
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Results of Operations
During fiscal year 1998 and 1999, we experienced steady revenues from
our operations. We are currently in a marginally unprofitable position as of the
end of our third fiscal quarter, after applying an accounting convention which
requires allocating a salary to our President, who actually received no salary
for the period. However, we continue to expand the market for our products. We
believe that the revenue growth experienced during the first nine months of our
fiscal year ended February 28, 2000 demonstrates increased acceptance of our
products from consumers. Our original plan has been to market our products to
retailers who in turn will sell these products to the public. Along with this
strategy, we have developed private label arrangements with several retailers
and programs with two multi-level marketing programs. For the remainder of this
fiscal year we intend to continue to focus on this plan.
Our revenues were relatively static for the fiscal years ended February
28, 1998 and 1999. They were $703,240 and $710,576, respectively. For the nine
months ended November 30, 1999, our revenues were $1,376,383, which compares to
$432,768 for the same nine months in 1998. The increase for the nine months
ended November 30, 1999 represents a substantial gain primarily due to an
expansion of our manufacturing capabilities and wider public acceptance of our
products. We believe that this increase follows a pattern of growth in revenue
which will continue for at least for the next twelve months.
Costs of sales include all costs incurred in the manufacturing process.
The major components of direct job costs are direct labor and associated
benefits, materials and freight. The major components of indirect job costs are
indirect labor costs and associated benefits and depreciation of production
equipment. Our costs of sales as a percentage of revenue grew for the fiscal
years ended February 28, 1998 and 1999. They were 47.2% and 56.6%, respectively.
For the nine months ended November 30, 1999, our costs of sales as a percentage
of revenue were 43.3%, which compares to 56.6% for the same nine months in 1998.
We believe that we have better control over our costs of sales and should
continue to see additional economies of scale in our manufacturing process in
the future.
Gross profit from operations was $371,496 or 52.8% for the year ended
February 28, 1998 and decreased slightly to $309,921, or 43.4% of revenue for
the year ended February 28, 1999. Gross profit from operations for the nine
months ended November 30, 1999 was $780,915 or 56.7% of revenue. This is a
significant increase in gross profit compared to the previous fiscal years and
in comparison to $187,814, or 43.4% of revenue for the nine months ended
November 30, 1998. We believe that the most recent margins better reflect what
is to be expected in the future. Earlier results were affected by the trials and
errors inherent in starting operations.
Our general and administrative expenses were $1,300,161 for the year
ended February 28, 1999, and $790,814 for the year ended February 28, 1998. Our
general and administrative expenses were $709,540 for the nine months ended
November 30, 1999, compared to $1,076,647 for the nine months ended November 30,
1998. We have reduced a number of controllable expenses and will continue to
look for opportunities to do so in the future. However, we do not expect to see
a further substantial reduction in expenses since most of our remaining fixed
expenses cannot be further reduced. Nevertheless, we are pleased that our
expenses, and particularly our general and administrative expenses, are now in
line for us to potentially generate an operational profit in the future.
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The major components of general and administrative expenses are office
salaries and associated payroll costs, general and health insurance costs, rent,
telephone, accounting and legal expenses.
As of the nine months ended November 30, 1999, we had a modest
operational loss of $11,050, compared with a loss of $855,370 for the same
period of the previous year. This modest operational loss nevertheless
represents a substantial reversal of the previous trend in our results of
operations. However, we anticipate an operational profit as of the fiscal year
end.
Liquidity and Capital Resources
Our operating activities used $684,237 during the year ended February
28, 1999, compared to $581,165 for the previous year. Our operating activities
generated $18,621 for the nine months ended November 30, 1999, compared to using
$618,146 for the nine months ended November 30, 1998. We believe that our
increased cash flows from operations result from our higher revenues and lower
general and administrative expenses.
Our investing activities used $123,447 for the year ended February 28,
1999, compared to $89,388 for the year ended February 28, 1998. Our investing
activities used $23,990 for the nine months ended November 30, 1999, compared to
$117,906 for the nine months ended November 30, 1998. All investing activities
were directed toward the purchase of property and equipment.
We had positive cash flows from financing activities for the year ended
February 28, 1999 of $286,532, compared to $1,235,820 for the year ended
February 28, 1998. These activities were essentially related to our private
placements of securities. We had no cash flows from financing activities for the
nine months ended November 30, 1999, compared to $286,532 for the nine months
ended November 30, 1998. For the nine months ended November 30, 1999, we used
internally generated cash from our activities and issued stock to settle
litigation and to pay for services.
Our net cash and cash equivalents at November 30, 1999 were $47,062,
compared to $124,053 at November 30, 1998. Our net cash and cash equivalents
decreased from $573,583 at February 28, 1998 to $52,431 at February 28, 1999.
Net accounts receivable increased to $139,852 for the year ended
February 28, 1999, compared to $13,179 for the year ended February 28, 1998.
Accounts receivable were slightly lower at $71,976 for the nine months ended
November 30, 1999, compared to $91,752 for the nine months ended November 30,
1998.
Inventories increased to $263,869 for the year ended February 28, 1999,
compared to $74,490 for the year ended February 28, 1998. Inventories increased
to $374,842 for the nine months ended November 30, 1999, compared to $294,796
for the nine months ended November 30, 1998.
Accounts payable increased to $104,463 for the year ended February 28,
1999 from $55,719 for the year ended February 28, 1998. Accounts payable
decreased by $14,647 to $89,816 in the nine month ended November 30, 1999,
compared to an increase in the prior fiscal year of $16,416 to $72,135 for the
nine months ended November 30, 1998.
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We entered into various arrangements for the settlement of outstanding
litigation during the nine months ended November 30, 1999 and incurred
substantial legal expenses during fiscal year 1999 and 1998. We expect that such
expenses will be minimized in the near term.
In July, 1999, we settled a lawsuit which we had brought against our
former Chairman, Mr. DuSean Berkich, and certain of his affiliates. Under the
terms of the settlement, Mr. Berkich and his affiliates returned a total of
4,440,666 shares of Common Stock for cancellation by us, and we released Mr.
Berkich and his affiliates from all future liability to us. In addition, a
lawsuit brought by an individual claiming consulting fees from us was dismissed
by the U.S. District Court for the District of Colorado in July, 1999.
Our financial situation continues to become healthier. However, we
still believe that we are slightly undercapitalized for the activities which we
plan to undertake in the next twelve months. Nevertheless, we believe that a
combination of profitable operations, prudent management, and new products will
permit us to show positive earnings and increasing revenues for the next twelve
months.
ITEM 3. DESCRIPTION OF PROPERTIES
As of November 30, 1999 our business office was located at 32921 Calle
Perfecto, San Juan Capistrano, CA 92675. Our telephone number at this address is
949-234-1999. We pay a total of $8,020 in rent per month for approximately
13,000 square feet of office space through March 31, 2002, escalating to $8,750
per month through January 14, 2003. We have a three-year lease with an
unaffiliated third party. We own manufacturing equipment, office equipment and
inventory.
We own two patents, a trademark, trade secrets (see Proprietary
Information above), and other proprietary information related to our business
operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth the number of shares of our $0.001 par value
Common Stock beneficially owned by (i) each person who, as of November 30, 1999,
was known by us to own beneficially more than five percent (5%) of our Common
Stock; (ii) our individual directors and (iii) our officers and directors as a
group. As of November 30, 1999, there were a total of 8,550,046 shares of Common
Stock issued and outstanding.
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<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)(2) CLASS
- ------------------- --------------------------- -----------
<S> <C> <C>
The TAM Irrevocable Trust 2,100,000(3) 24.65%
4012 S. Rainbow #K111
Las Vegas, NV 80103-2012
Select Property Investments, LLC 1,400,000(4) 16.43%
4012 S. Rainbow #K111
Las Vegas, NV 80103-2012
FTS Worldwide Corp. 1,337,509 15.70%
24 Route De Malagnon
1208 Geneva, Switzerland
Carl Palmer -0- -0-
32921 Calle Perfecto
San Juan Capistrano, CA 92675
Donald S. Whitlock 40,000(5) .47%
720 East Hyman Ave., Suite 301
Aspen, CO 81611
Paul H. Lusby 152,500 1.78%
141 East Walnut Street
Pasadena, California 91103
Michelle Palmer 2,000(4) .02%
32921 Calle Perfecto
San Juan Capistrano, CA 92675
Jeffrey DeLong 82,000(6) .96%
32921 Calle Perfecto
San Juan Capistrano, CA 92675
Susan Mallett 52,000 .61%
32921 Calle Perfecto
San Juan Capistrano, CA 92675
Kenneth Rawald 62,000 .73%
32921 Calle Perfecto
San Juan Capistrano, CA 92675
All officers and directors as a Group 390,500 4.57%
(seven persons)
</TABLE>
(1) All ownership is beneficial and of record, unless indicated otherwise.
(2) Beneficial owners listed above have sole voting and investment power with
respect to the shares shown, unless otherwise indicated.
(3) The TAM Irrevocable Trust is an irrevocable trust for the benefit certain
family members of Mr. Carl Palmer. Mr. Palmer disclaims any beneficial ownership
or interest in this Trust. In addition, this entity owns an interest in our
Series "AAA" 12% Cumulative Convertible Preferred Shares.
(4) Select Property Investments, LLC is a limited liability company owned by Ms.
Michelle Palmer, the wife of Mr. Carl Palmer. Mr. Palmer disclaims any
beneficial ownership or interest in this limited liability company. In addition,
this entity owns an interest in our Series "AAA" 12% Cumulative Convertible
Preferred Shares.
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(5) Does not include 4,700 shares owned of record by the wife of Mr. Whitlock.
Mr. Whitlock disclaims any beneficial ownership or interest in these shares.
(6) Mr. DeLong, one of our former Vice Presidents, owned these shares of record
as of that date. However, we have the right to repurchase 45,000 shares at a
nominal amount, since Mr. DeLong resigned to pursue other opportunities prior to
the end of the term of his employment agreement.
Certain of these individual shareholders signed lock up agreements
which will prevent all of the shares of Common Stock from being sold or
transferred, either in the open market or in a private transaction, except based
upon the passage of time and upon defined percentage sales.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Our current directors and executive officers, their ages and present
positions held are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ----------------------------- --- ------------------------------------
<S> <C> <C>
Carl Palmer 65 President, Chief Executive Officer
Treasurer and Director
Paul H. Lusby 44 Secretary and Director
Donald S. Whitlock 29 Director
Michelle Rae Palmer 36 Vice President
Susan Mallett 52 Vice President - Communications
Kenneth Rawald 75 Vice President - Engineering
</TABLE>
Our directors have served and will serve in such capacity until the
next annual meeting of our shareholders and until their successors have been
elected and qualified. The officers serve at the discretion of our directors.
Except for Carl and Michelle Palmer, who are husband and wife, and Ken Rawald,
who is the father of Michelle Palmer, there are no family relationships among
the Company's officers and directors, nor are there any arrangements or
understandings between any of the directors or officers of the Company or any
other person pursuant to which any officer or director was or is to be selected
as an officer or director.
Carl Palmer. Mr. Palmer has been the President, CEO and a director of
the Company since January, 1998. He is the founder of our company, innovator of
the complete line of Seychelle water filtration products and primary
spokesperson worldwide. He personally oversees every aspect of operations. He is
the inventor of twelve patented products related to water purification. Mr.
Palmer received a Bachelors Degree from Whittier College.
Paul H. Lusby. Mr. Lusby has been Secretary and a director of the
Company since January, 1998. For the past five years he has been a principal of
the law firm of Cooper, Kardaras & Scharf L.L.P. He has a Juris Doctor from the
University of Virginia and a Bachelor of Arts from the University of Virginia.
He has been an active member of the California Bar since 1982. He is also the
current Chairman of the Board of
12
<PAGE> 14
Pacific Clinics, a non-profit organization dedicated to the treatment of
children and adults suffering from behavioral and mental health disorders.
Donald S.Whitlock. Mr. Whitlock has been a director of our Company
since January, 1998. For the past five years, he has been a principal of
International Corporate Development, Ltd., an investment banking firm
headquartered in Aspen, Colorado. Mr. Whitlock is a Fellow of the Aspen
Institute. He has a Bachelors degree in Economics from Loyola Marymount College.
Michelle Rae Palmer. Ms. Palmer has been Vice President of our Company
since January, 1998. Her past and present responsibilities include all aspects
of accounting, implementation of product lines, corporate structure and
operational configurations. She was co-inventor of the Pres 2 Pure(TM)water
filtration system. She received a Bachelor of Arts Degree from California State
University, Long Beach.
Susan Mallett. Ms. Mallett has been a Vice President of Communications
since March, 1998. Her past experience includes all venues of communication -
newsletters, press releases, manuals, advertisements, video and audio scripts,
training and support materials, contracts, plus public speaking, events
planning, and product development. She has extensive experience in exportation
to the Pacific Rim. She received a Bachelor of Arts degree and Teaching
Credential from California State University, Long Beach.
Kenneth Rawald. Mr. Rawald has been a Vice President of Engineering
since January, 1998. His primary responsibilities include product design and
engineering, fixture design and assembly procedures. He provides necessary
engineering drawings as well as presentation perspective sketches in various
mediums for our Company and patent offices. He received a certification in
Engineering from Pratt Institute.
ITEM 6. EXECUTIVE COMPENSATION
Only one of our executive officers received compensation in excess of
$100,000 during the fiscal years ended February 28, 1998 or 1999. Compensation
does not include minor business-related and other expenses paid by us. Such
amounts in the aggregate do not exceed $10,000. Mr. Jeff DeLong, a former Vice
President, received a salary of $120,000 for the fiscal year ended February 28,
1999 and a car allowance of $500 per month, of which $3,500 had been paid in
cash through February 28, 1999. Mr. DeLong resigned in February, 2000 to pursue
other opportunities. Our President, Carl Palmer, received no compensation for
1998 or 1999. Mr. Palmer serves as our President on a full-time basis.
We have granted 139,000 shares of our Common Stock as additional
compensation to our employees for the fiscal years ended 1998 and 1999.
For the fiscal years 1998 and1999, we paid health care insurance for
our employees. We have no pension plan. We have no plans or agreements which
provide compensation in the event of a change in control. We have no plans or
agreements which provide compensation in the event of termination of employment.
13
<PAGE> 15
We do not customarily pay members of our Board of Directors any fees
for attendance or similar remuneration, but reimburse them for any out-of-
pocket expenses incurred by them in connection with their activities.
After the 1999 fiscal year end, we granted Mr. Paul Lusby, one of our
directors, 150,000 shares of Common Stock, valued at $75,000, as consideration
for past services rendered as a member of the Board of Directors. At the same
time, we granted Mr. Donald S. Whitlock, one of our directors 40,000 shares of
Common Stock valued at $20,000 for past services rendered as a member of our
Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into a Purchase Agreement and an Amended Purchase
Agreement for the acquisition of Aqua Vision International, a private California
entity controlled by the TAM Irrevocable Trust and Select Property Investments,
LLC. The TAM Irrevocable Trust is an irrevocable trust for the benefit of
certain family members of Mr. Carl Palmer. Mr. Palmer disclaims any beneficial
ownership or interest in this Trust. Select Property Investments, LLC is a
limited liability company owned by Ms. Michelle Palmer. Mr. Palmer also
disclaims any beneficial ownership or interest in this limited liability
company. Under the terms of these agreements, these entities received 8,000
shares of Series "AAA" 12% Cumulative Convertible Preferred Shares.
From its inception through the acquisition of SET on January 30, 1998,
SWT spent most of its time and effort to raise funds to finance the common
venture and to market Aqua Vision products. The owners of both companies at the
time came to believe that both organizations would mutually profit from an
affiliation between the two companies. Mr. Palmer negotiated the transaction as
an agent of Aqua Vision. The original Purchase Agreement was negotiated by SWT.
SET acquired Aqua Vision the day after the SET transaction. The original
Purchase Agreement and the Amended Purchase Agreement were approved by the Board
of Directors of SET after the January 30, 1998 acquisition. Mr. Palmer was a
member of the Board of Directors but did not participate in the voting.
Mr. Paul Lusby, one of our directors and shareholders, provided legal
services through his law firm for us during the 1999 fiscal year for which his
firm was compensated $2,000 in cash and 100,000 shares of Common Stock, which
was granted after the fiscal year end, with a value of $50,000. He was also
personally granted 150,000 shares of Common Stock, valued at $75,000, after the
fiscal year end as consideration for services rendered as a member of the Board
of Directors.
Mr. Donald S. Whitlock, one of our directors and shareholders, provided
advice to us, through a firm with which he is associated, on capitalization and
business development matters during the 1998 and 1999 fiscal years. The firm
with which he is associated was issued 559,266 shares at inception and was paid
$54,478 and $150,451, respectively. Subsequent to the 1999 fiscal year end, he
was personally granted 40,000 shares of common stock valued at $20,000 for
services rendered as a member of our Board of Directors.
We have made short term advances in the ordinary course of business
from time to time to Mr. Carl Palmer, our President for incidental expenses
which we believed had a benefit to us. No Board of Directors action was taken on
these advances. Because they were short term advances which were expected to be
repaid, we did not charge interest. As of November 30, 1999 we had advanced
$25,609 to Mr. Palmer.
14
<PAGE> 16
These advances are not compensation and were repaid after November 30, 1999. The
current policy of the Board of Directors is to address a request for advance on
a case-by-case basis. At this time, no further requests for advances are
anticipated.
ITEM 8. DESCRIPTION OF SECURITIES.
We are authorized to issue 50,000,000 shares of Common Stock, par value
$0.001 per share, and 1,000,000 shares of Preferred Stock, par value $0.01 per
share. As of January 1, 2000 a total of 8,550,046 shares of Common Stock were
outstanding.
As of the same date, three classes of Preferred Stock were authorized
but only two classes were issued or outstanding: 17 shares of Series "A" 13.5%
Non Voting, Cumulative and 8,000 shares of Series "AAA" 12% Cumulative
Convertible Preferred Shares.
COMMON STOCK
The holders of Common Stock have one vote per share on all matters
(including election of directors) without provision for cumulative voting. Thus,
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors, if they choose to do so. The Common Stock is not
redeemable and has no conversion or preemptive rights.
The Common Stock currently outstanding is validly issued, fully paid
and non-assessable. In the event of our liquidation, the holders of Common Stock
will share equally in any balance of our assets available for distribution to
them after satisfaction of creditors and the holders of our senior securities,
whatever they may be. We may pay dividends, in cash or in securities or other
property when and as declared by the Board of Directors from funds legally
available therefor, but we have paid no cash dividends on our Common Stock.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors has the
authority to issue Preferred Stock and to fix and determine its series, relative
rights and preferences to the fullest extent permitted by the laws of the State
of Nevada and such Articles of Incorporation. As of the date of this
Registration Statement, three classes of Preferred Stock were authorized, but
only two were issued or outstanding.
Series "A" 13.5% Non Voting, Cumulative, Convertible Preferred Stock
Such Stock has rights which are superior to all other securities of the
Company, including upon liquidation and as to payment of dividends, if any. The
Series "A" Preferred carries a dividend of 13.5% per annum, is non-voting, and
is redeemable by us at any time at face value and is convertible into Common
Stock at the lesser of $10 per share or 85% of the average last five closing bid
prices. A total of 17 shares are issued and outstanding as of the date of this
Registration Statement.
Series "AA" Non Voting, Cumulative, Convertible Preferred Stock
15
<PAGE> 17
Such Stock had rights which were superior to all other securities of
the Company except to Series "A" 13.5% Non Voting, Cumulative, Convertible
Preferred Stock, including upon liquidation and as to payment of dividends, if
any. The Series "AA" Preferred carried a dividend which was set by the Board of
Directors at 10% prior to the time of issuance thereof, was non-voting,
redeemable by the Company at any time at face value and was convertible into
Common Stock of the Company at 85% of the average last five closing bid prices.
We had previously issued 26 shares of the Preferred Stock. As of the date of
this Registration Statement, all of the Series "AA" Non Voting, Cumulative,
Convertible Preferred Stock had been converted to Common Stock. This Series "AA"
is no longer issued or outstanding. A total of 1,337,509 shares of Common Stock
were issued upon conversion, including for accrued interest.
Series "AAA" 12% Cumulative Convertible Preferred Shares
Such Stock has rights which are superior to all other securities of the
Company except Series "A" 13.5% Non Voting, Cumulative, Convertible Preferred
Stock and, before its conversion, the Series "AA" Non Voting, Convertible
Preferred Stock, including upon liquidation and as to payment of dividends, if
any. The Series "AAA" Cumulative Convertible Preferred Voting Stock carries a
12% per annum dividend payable in stock or cash, is voting, with each share
equal to 100 shares of Common Stock, and is redeemable according to the
following procedure: upon written notice of conversion from the holders, the
Company shall have the right, but not the obligation, for 45 days from receipt
of such notice to repurchase, for cash, up to 2,000 shares of the Series "AAA"
12% Cumulative Convertible Preferred Shares at $1,000 per share.
Pursuant to the terms of the Amended Purchase Agreement, the number of
shares of Common Stock issuable to the holders pursuant to the conversion
provisions of the Series "AAA" 12% Cumulative Convertible Preferred Shares was
reduced from 8,000,000 shares to 4,500,000 shares (subject to pro rata
adjustments, if any, for stock dividends, stock splits, reverse stock splits,
and any other similar capital stock adjustments of a general nature). At the
date of this Registration Statement, there are 8,000 shares issued and
outstanding.
We do not plan to issue any other Preferred Stock in the foreseeable
future.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
(A) Principal Market or Markets
Our Common Stock began trading in 1987. Since the consummation of the
Exchange Agreement between the Company and SWT, market makers and other dealers
have provided bid and ask quotations of our Common Stock under the symbol
"SYEV." Trading is conducted in the over-the-counter market on the NASD's
"Electronic Bulletin Board."
The table below represents the range of high and low bid quotations of
our Common Stock as reported during the reporting period herein. The following
bid price market quotations represent prices between dealers and do not include
retail markup, markdown, or commissions; hence, they may not represent actual
transactions.
16
<PAGE> 18
<TABLE>
<CAPTION>
Fiscal Year 1999 High Low
------ -----
<S> <C> <C>
First Quarter $ 2.25 $0.50
Common Shares
Second Quarter $ 1.75 $0.91
Common Shares
Third Quarter $ 0.97 $0.53
Common Shares
Fourth Quarter $ 0.69 $0.34
Common Shares
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
------ -----
<S> <C> <C>
First Quarter $20.00 $1.88
Common Shares
Second Quarter $ 2.43 $0.75
Common Shares
Third Quarter $ 1.13 $0.49
Common Shares
Fourth Quarter $ 0.69 $0.35
Common Shares
</TABLE>
(B) Approximate Number of Holders of Common Stock
As of November 30, 1999, a total of 8,550,046 of our shares of
Common Stock were outstanding and 273 holders of record owned these shares.
However, we believe that we have a significantly greater number of shareholders
because a substantial number of our shares are held in nominee name. The number
of outstanding shares is computed after the approximate 4,400,666 shares of
Common Stock which have been canceled by us a result of the settlement of the
lawsuit with the former Chairman of the Company and certain of his affiliates.
(C) Dividends
Holders of Common Stock are entitled to receive such dividends
as may be declared by our Board of Directors. No dividends on the Common Stock
were paid by us during the periods reported herein nor do we anticipate paying
dividends in the foreseeable future.
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<PAGE> 19
ITEM 2. LEGAL PROCEEDINGS.
No legal proceedings of a material nature to which we are a party are
pending, and we know of no legal proceedings of a material nature pending or
threatened or judgments entered against any director or officer of the Company
in his capacity as such.
In July, 1999, we settled a lawsuit which we had brought against our
former Chairman, Mr. DuSean Berkich, and certain of his affiliates. Under the
terms of the settlement, Mr. Berkich and his affiliates returned a total of
4,440,666 shares of Common Stock for cancellation by us, and we released Mr.
Berkich and his affiliates from all future liability to us.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We did not have any disagreements on accounting and financial
disclosures with our accounting firm during the reporting period.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Between its incorporation in February 1997 and January 30, 1998, SWT
issued securities in the amounts and for the aggregate consideration as listed
as follows: SWT relied upon Rule 504 of Regulation D under the Securities Act
for a total of $998,610.76 in value because those issuances met all the
conditions of Rule 504 as then in effect, including the dollar limitation, and
SWT was not at the time of such transactions within any of the categories of
issuers prohibited from using Rule 504. SWT filed a Form D as to the applicable
issuances. SWT also relied upon Sections 4(2) and 4(6) of the Securities Act
with respect to those issuances, which, in addition to Rule 504, met the
criteria of those Sections and as to those securities which did not meet the
criteria of Rule 504. All shares were acquired directly from SWT except where
indicated below:
18
<PAGE> 20
<TABLE>
<CAPTION>
Name Number of Shares Price
- ---- ---------------- -------
<S> <C> <C>
Aribi, Robbi 3,000 $ .001
Barie, Julie 1,000 $ .001
Beadelston, Marina 1,333 $ .001
Berkich Limited Partners* 3,500,000 $ .001
Berkich, Cynthia L.* 15,000 $ .001
Berkich, Donald B.* 15,000 $ .001
Berkich, DuSean* 800,000 $ .001
Berkich, John* 1,000 $ .001
Berkich, Judy* 15,000 $ .001
Berkich, Rebecca, L.* 15,000 $ .001
Blake, Peter 2,000 $ .001
Bowden, Bob 2,000 $ .001
Brownell, Veronica 25,000 $ .001
Casper, Brandy 6,700 $ .001
Davidson, Gary 12,000 $ 0.42
Delong, Jeffrey Foster 80,000 $ .001
Dunn, Lawrence 5,000 $ 4.00
Duplan, Stefan Debelle 5,000 $ .001
Erdman, Colin 1,000 $ .001
Farver, Suzanne 6,700 $ .001
Frederick, William 30,000 $ .001
Gaydos, Chad 14,000 $ .001
Grasso, Diane 2,500 $ .001
Hammel, Charles & Cathy (JTROS) 24,000 $ .001
Helvey, Casey 10,000 $ .001
Helvey, Lindsay 10,000 $ .001
Holstein, Phil 5,000 $ .001
International CorporateDevelopment, Ltd. 116,250 $ .001
Intresco Ltd 25,000 $ .001
Jenkins, Lorna 1,000 $ .001
Jones, Michael 1,000 $ .001
Kam, Raymond** 144,000 $ .001
Kearns, Michael 243,000 $ .001
Kikuyama, Kendall** 12,000 $ .001
Laymac, John 77,000 $ .001
Larson, Jim 80,000 $ .001
Lippert, Eric 20,000 $ .001
Lupo, Thomas M.* 80,000 $ .001
Lusby, Paul 2,500 $ .001
MacKinney, Mary 2,500 $ .001
Macre, Thomas 20,000 $ .001
McDougall, John 3,333 $ .001
Mason Trust** 3,750 $ .001
Murakami, Mitsuo or Ema** 24,000 $ .001
Murakami, David** 24,000 $ .001
Nanniga, Alison 371,250 $ .001
Otta, David S.* 15,000 $ .001
Otta, Mark W.* 15,000 $ .001
Palmer, Cari 279,000 $ .001
Patterson, Mark 10,000 $ .001
Rawald, Kenneth 10,000 $ .001
Rawald, Marie 5,000 $ .001
Roby, James 3,334 $ .001
Rojo, Louis Napolean 30,000 $ .001
Salet, Willy 10,000 $ .001
Sax Family Trust 1,667 $ .001
Schwartz, Hans 2,000 $ .001
Silver, Joseph 3,333 $ .001
Select Property Investments, LLC 1,400,000 $ .001
Stanberry, Dan 2,600 $ .001
Solinap, Wilhelmina 1,000 $ .001
STG - Coopers & Lybrand 62,500 $ 4.00
Suchor, Sandra A 7,200 $ 0.42
Swiss American Securities Co 180,000 $ 3.96
The Tam Irrevocable Trust 2,100,000 $ .001
Ulrich, George* 100,000 $ .001
Ulrich, Michael* 10,000 $ .001
Wagner, David 180,000 $ .001
Wagner & Assoc. Money Pur. Plan 12,500 $ .001
Wagner & Assoc. Profit Sharing Plan 12,500 $ .001
Wagner, Diana 20,000 $ .001
Warner, James 6,000 $ .001
Whitlock, Debbie 60,000 $ .001
Whitlock, Donald S 93,750 $ .001
Whitlock, Donald A 12,000 $ .001
Whitlock, Donald S 138,600 $ .001
Whitlock, Tim 4,927 $ .001
Wiles, Grace 54,000 $ .001
Work, Horace 6,666 $ .001
Wright, Doug** 1,250 $ .001
Yafuso, Alvin** 12,000 $ .001
Zeimer, David* 100,000 $ .001
</TABLE>
* All or part of these shares have been canceled.
** These individuals acquired their shares directly from, and paid
consideration directly to, Mr. DuSean Berkich, who was an officer and a
director of us at the time.
19
<PAGE> 21
On January 30, 1998, we entered into an Exchange Agreement with SWT,
whereby we exchanged our issued and outstanding capital shares with the
shareholders of SWT on a one share for one share basis, with us becoming the
parent company and SWT becoming a wholly-owned subsidiary. We relied upon Rule
504 of Regulation D under the Securities Act for a total of $998,610.76 in value
because those issuances met all the conditions of Rule 504 as then in effect,
including the dollar limitation, and we were not at the time of such
transactions within any of the categories of issuers prohibited from using Rule
504. We filed a Form D as to the applicable issuances. We also relied upon
Sections 4(2) and 4(6) of the Securities Act with respect to those issuances,
which, in addition to Rule 504, met the criteria of those Sections and as to
those securities which did not meet the criteria of Rule 504.
During the three years prior to the date of this Registration
Statement, Royal Net, Inc. had issued and sold unregistered securities as Royal
Net, Inc. for $.001 per share consideration, in the amounts and at the times
listed as follows:
<TABLE>
<CAPTION>
Name Number of Shares Date
----------------- ---------------- ---------
<S> <C> <C>
Anthony Eames 2,500,000 7/02/96
Thomas Eames 2,500,000 7/02/96
Garth Jacobson 2,500,000 7/02/96
</TABLE>
We relied upon Sections 4(2) and 4(6) of the Securities Act with
respect to those issuances, which, met the criteria of those Sections.
20
<PAGE> 22
As a part of the Exchange Agreement between SWT and us, these shares
and all other issued and outstanding shares of Common Stock of Royal Net were
reverse split one-for-five and then a total of 1,413,597 shares of our post
split Common Stock were canceled. At the time of the Exchange Agreement, there
were no more than 300,000 shares of Common Stock issued and outstanding in Royal
Net.
Subsequent to the Exchange Agreement, we have issued securities in the
amounts, at the times, and for the amounts of consideration listed as follows:
Series "A" 13.5% Non Voting, Cumulative, Convertible Preferred Stock
A total of 17 shares for $850,000 were sold effective January 31, 1998
to Rohm and Bodmer.
Series "AA" Non Voting, Cumulative, Convertible Preferred Stock
A total of 26 shares for $1,300,000 were sold effective March 27, 1998
to FTS Worldwide Corporation. These shares were converted on June 14, 1999 into
1,337,509 shares of Common Stock.
Series "AAA" 12% Cumulative Convertible Preferred Shares
On January 31, 1998, we entered into a Purchase Agreement to acquire
all of the assets of Aqua Vision International, a California entity. This
Purchase Agreement was amended on February 26, 1999 to provide for the issuance
of 8,000 shares of Series "AAA" 12% Cumulative Convertible Preferred Shares in
lieu of all consideration which then remained unpaid under the original Purchase
Agreement.
We relied upon Sections 4(2) and 4(6) of the Act and Regulation S with
respect to the Series "A" and "AA" and Sections 4(2) of the Act with respect to
Series "AAA" because those issuances met the criteria of those Sections and
Regulation.
Common Stock
In March, 1998, we sold 62,500 restricted shares of Common Stock for
$250,000 to Harvel, Limited. We also issued 18,500 restricted shares of Common
Stock to Rick Emmett in cancellation of a promissory note held by him. We relied
upon Sections 4(2) and 4(6) of the Act and Regulation S with respect to this
transaction.
21
<PAGE> 23
On April 1, 1999, we granted shares of Common Stock valued at $.50 per
share to the following individuals and entities in the amounts indicated below:
<TABLE>
<CAPTION>
Name Number of Shares
--------------------------------- ----------------
<S> <C>
Jeff DeLong 2,000
Susan Mallett 52,000
Michelle Rae Palmer 2,000
Ken Rawald 52,000
Louis N. Rojo 22,000
Arturo & Maria Villafuerte 7,000
Horn & Loomis 75,000
David Wagner & Associates, P.C. 100,000
Cooper, Kardaras & Scharf L.L.P. 100,000
Wickens, Herzer & Panza 50,000
Donald S. Whitlock 40,000
Paul H. Lusby 150,000
</TABLE>
We relied upon Rule 504 of Regulation D under the Securities Act for
these issuances because those issuances met all the conditions of Rule 504 as
then in effect, including the dollar limitation, and we were not at the time of
such transactions within any of the categories of issuers prohibited from using
Rule 504. We filed a Form D as to the applicable issuances. We also relied upon
Sections 4(2) and 4(6) of the Securities Act with respect to those issuances,
which, in addition to Rule 504, met the criteria of those Sections.
On July 1, 1999, we issued shares of Common Stock valued at $.50 per
share to the following individuals in the amounts indicated below:
<TABLE>
<CAPTION>
Name Number of Shares
--------------------------------- ----------------
<S> <C>
Grace Wiles 2,000
Israel Marelus 75,000
</TABLE>
We relied upon Section 4(2) of the Securities Act and, in addition,
Regulation S of the Securities Act with respect to Mr. Marelus, because those
issuances met the applicable criteria.
No underwriters were engaged in connection with the foregoing sales of
securities. These sales were made without general solicitation or advertising.
We believe that each purchaser was either an "accredited investor" or a
sophisticated investor with access to all relevant information necessary to
evaluate the investment who represented to SWT or to us, as the case may be,
that the shares were being acquired for investment.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation authorize the Board of Directors, on
behalf of the Company and without shareholder action, to exercise all of the
Company's powers of indemnification to the maximum extent permitted under the
applicable statute. The Nevada Private Corporations Act allows indemnification
of directors, officers, employees and agents of the Company, including the
advancement of expenses:
Section 78.751 of the Nevada Private Corporations Act provides:
1. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonable incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
22
<PAGE> 24
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation. Indemnification may not be made for any
claim, issue or matter as to which such person shall have been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1. and 2., or in defense of any claim,
issue or matter therein, he must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
4. Any indemnification under subsections 1. and 2., unless ordered by a court or
advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made: (a) By the stockholders; (b) By the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding; (c) If a majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written opinion; (d) If a quorum
consisting of directors who were not parties to the act, suit or proceeding
cannot be obtained, by independent legal counsel in a written opinion.
5. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this section:
23
<PAGE> 25
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
articles or incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his
official capacity or an action in another capacity while holding such
office, except that indemnification, unless ordered by a court
pursuant to subsection 2 or for the advancement of expenses made
pursuant to subsection 5, may not be made to or on behalf of any
director or officer if a final adjudication establishes that his acts
or omissions involved intentional misconduct, fraud or knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors,
and administrators of such a person.
The indemnification discussed herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under the Articles
of Incorporation, any Bylaw, agreement, vote of shareholders, or disinterested
directors, or otherwise, and any procedure provided for by any of the foregoing,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
heirs, executors, and administrators of such a person.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of our
Company under to the preceding provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expense incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
24
<PAGE> 26
CONSOLIDATED AUDITED FINANCIAL STATEMENTS
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
YEARS ENDED FEBRUARY 28, 1999 AND 1998
<PAGE> 27
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2 to F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5 to F-7
Consolidated Statements of Cash Flows F-8 to F-9
Notes to Consolidated Financial Statements F-10 to F-24
</TABLE>
<PAGE> 28
[RAIMONDO PETTIT GROUP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Seychelle Environmental Technologies, Inc.
San Clemente, California
We have audited the accompanying consolidated balance sheet of Seychelle
Environmental Technologies, Inc. as of February 28, 1999, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years ended February 28, 1999 and 1998. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Seychelle Environmental Technologies, Inc. as of February 28, 1999 and the
consolidated results of their operations and their cash flows for the two years
then ended, in conformity with generally accepted accounting principles.
RAIMONDO PETTIT GROUP
Torrance, California
August 10, 1999
F-1
<PAGE> 29
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 47,062 $ 52,431
Trade receivable, net of allowance for doubtful
accounts of $5,179 and $6,861, respectively 71,976 139,852
Inventories 374,842 263,869
Other current assets 20,000 17,292
------------- -------------
Total current assets 513,880 473,444
------------- -------------
Property and equipment, net 180,528 222,283
Intangible assets, net 10,658 8,948
Other non-current assets 21,141 8,650
------------- -------------
Total non-current assets 31,799 17,598
------------- -------------
TOTAL ASSETS $ 726,207 $ 713,325
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 30
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 89,816 $ 104,463
Accrued expenses 241,663 481,952
Customer deposits 8,380 8,334
Note payable -- 31,530
Other current liabilities 6,500 --
------------- -------------
Total current liabilities 346,359 626,279
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value - 1,000,000 shares authorized,
Series "A", non-voting, cumulative, convertible preferred
stock, 17 shares issued and outstanding 0 0
Series "AA", non-voting, cumulative, convertible preferred
stock, 0 and 26 shares, respectively, issued and outstanding -- 0
Series "AAA", preferred stock, 8,000 shares issued and
outstanding 80 80
Common stock, $.001 par value - 50,000,000 shares authorized;
8,550,046 and 11,200,643 shares issued and outstanding 8,550 11,201
Additional paid-in capital 2,226,050 1,917,526
Accumulated deficit (1,829,223) (1,818,173)
Receivable from stockholder (25,609) (23,588)
------------- -------------
Total stockholders' equity 379,848 87,046
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 726,207 $ 713,325
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 31
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months For the years
ended November 30, ended February 28,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
SALES $ 1,376,383 $ 432,768 $ 710,576 $ 703,240
COST OF SALES 595,468 244,954 400,655 331,744
-------------- -------------- -------------- --------------
GROSS PROFIT 780,915 187,814 309,921 371,496
-------------- -------------- -------------- --------------
OPERATING EXPENSES
Selling 80,863 46,848 144,072 279,079
General and administrative 709,540 1,076,647 1,300,161 790,814
-------------- -------------- -------------- --------------
TOTAL EXPENSES 790,403 1,123,495 1,444,233 1,069,893
-------------- -------------- -------------- --------------
PROFIT (LOSS) FROM OPERATIONS (9,488) (935,681) (1,134,312) (698,397)
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest expense (1,562) (3,689) (4,918) (8,954)
Miscellaneous income (expense) -- -- (5,707) (100,000)
-------------- -------------- -------------- --------------
TOTAL OTHER INCOME (EXPENSE) (1,562) (3,689) (10,625) (108,954)
-------------- -------------- -------------- --------------
PROFIT (LOSS) BEFORE PROVISION
FOR INCOME TAXES (11,050) (939,370) (1,144,937) (807,351)
-------------- -------------- -------------- --------------
PROVISION FOR INCOME TAXES -- -- -- --
-------------- -------------- -------------- --------------
NET PROFIT (LOSS) $ (11,050) $ (939,370) $ (1,144,937) $ (807,351)
-------------- -------------- -------------- --------------
BASIC AND DILUTED PROFIT (LOSS)
PER SHARE $ (.02) $ (.10) $ (0.12) $ (0.10)
-------------- -------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF
SHARES: BASIC AND DILUTED 9,525,863 11,200,643 11,200,643 8,416,686
============== ============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 32
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ---------------------- Paid-In Ret. Earn.
Shares Amount Shares Amount Capital (Accum. Def.)*
---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1997 -- $ -- -- $ -- $ 39,651 $ 134,115
Issuance of Seychelle Water
Technologies common stock -- -- 8,024,927 8,025 (25) --
Issuance of SWT common stock
in connection with Regulation
D offering, net of issuance costs
of $64,899 -- -- 2,794,716 2,795 924,973 --
Issuance of SWT common stock
in satisfaction of note payable- -- -- 18,500 19 37,620 --
Issuance of SWT common stock
in connection with Private
Placement, net of issuance costs
of $16,390 -- -- 62,500 62 233,548 --
Aqua Vision owners net contri-
bution -- -- -- -- (70,168) --
Reverse merger of SWT with SET- -- -- 300,000 300 (300) --
Capital Distribution -- -- -- -- (200,000) --
Issuance of Series "A" Preferred
Stock, net of issuance costs
of $138,251 17 -- -- -- 711,749 --
Contributed executive services- -- -- -- 72,000 -- --
Net Loss for the year ended
February 28, 1998 -- -- -- -- -- (807,351)
---------- ---------- ---------- ---------- ---------- ------------
Balance, February 28, 1998 17 $ -- 11,200,643 $ 11,201 $1,749,048 $ (673,236)
========== ========== ========== ========== ========== ============
<CAPTION>
Total
Stockholders'
Stk. Sub. Rec. & Equity
Stockholder Rec.** (Deficit)
------------------ -------------
<S> <C> <C>
Balance, March 1, 1997 $ -- $ 173,766
Issuance of Seychelle Water
Technologies common stock -- 8,000
Issuance of SWT common stock
in connection with Regulation
D offering, net of issuance costs
of $64,899 -- 927,768
Issuance of SWT common stock
in satisfaction of note payable -- 37,639
Issuance of SWT common stock
in connection with Private
Placement, net of issuance costs
of $16,390 -- 233,610
Aqua Vision owners net contri-
bution -- (70,168)
Reverse merger of SWT with SET -- --
Capital Distribution -- (200,000)
Issuance of Series "A" Preferred
Stock, net of issuance costs
of $138,251 (149,983) 561,766
Contributed executive services -- 72,000
Net Loss for the year ended
February 28, 1998 -- (807,351)
------------------ ------------
Balance, February 28, 1998 $ (149,983) $ 937,030
================== ============
</TABLE>
- ----------------------
* Retained Earnings (Accumulated Deficit)
** Stock Subscription Receivable and Stockholder Receivable
F-5
<PAGE> 33
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ---------------------- Paid-In Ret. Earn.
Shares Amount Shares Amount Capital (Accum. Def.)*
---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1998 17 $ -- 11,200,643 $ 11,201 $1,749,048 $ (673,236)
Payment of stock subscriptions
receivable -- -- -- -- -- --
Issuance of Series "AA" Preferred
Stock, net of issuance costs of
$211,442 26 -- -- -- 1,088,558 558
Issuance of Series "AAA" Pre-
ferred Stock 8,000 80 -- -- (80) --
Capital Distribution -- -- -- -- (992,000) --
Receivable from stockholder -- -- -- -- -- --
Contributed executive services -- -- -- -- 72,000 --
Net Loss for year ended
February 28, 1999 -- -- -- -- -- (1,144,937)
========== ========== ========== ========== ========== ============
Balance, February 28, 1999 8,043 $ 80 11,200,643 $ 11,201 $1,917,526 $ (1,818,173)
Shareholder advances
(unaudited) -- -- -- -- -- --
Conversion of Series "AA"
Preferred Stock to common
stock (unaudited) (26) -- 1,337,509 1,338 (1,338) --
Issuance of common stock in
connection with settlement of
lawsuit (unaudited) -- -- 100,000 100 20,213 --
Issuance of common stock for
compensation and services
(unaudited) -- -- 327,000 327 163,173 --
Issuance of common stock for
commissions (unaudited) -- -- 75,000 75 37,425 --
Cancellation to common stock of
former consultant (unaudited) -- -- (80,000) (80) 80 --
Cancellation of common stock
in connection with Berkich
lawsuit (unaudited) -- -- (4,440,666) (4,441) 4,441 --
<CAPTION>
Total
Stockholders'
Stk. Sub. Rec. & Equity
Stockholder Rec.** (Deficit)
------------------ -------------
<S> <C> <C>
Balance, March 1, 1998 $ (149,983) $ 937,030
Payment of stock subscriptions
receivable 149,983 149,983
Issuance of Series "AA" Preferred
Stock, net of issuance costs of
$211,442 -- 1,088,558
Issuance of Series "AAA" Pre-
ferred Stock -- --
Capital Distribution -- (992,000)
Receivable from stockholder (23,588) (23,588)
Contributed executive services -- 72,000
Net Loss for year ended
February 28, 1999 -- (1,144,937)
================== =============
Balance, February 28, 1999 $ (23,588) $ 87,046
Shareholder advances
(unaudited) (2,021) (2,021)
Conversion of Series "AA"
Preferred Stock to common
stock (unaudited) -- --
Issuance of common stock in
connection with settlement of
lawsuit (unaudited) -- 20,313
Issuance of common stock for
compensation and services
(unaudited) -- 163,500
Issuance of common stock for
commissions (unaudited) -- 37,500
Cancellation to common stock of
former consultant (unaudited) -- --
Cancellation of common stock
in connection with Berkich
lawsuit (unaudited) -- --
</TABLE>
- ----------------------
* Retained Earnings (Accumulated Deficit)
** Stock Subscription Receivable and Stockholder Receivable
F-6
<PAGE> 34
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Preferred Stock Common Stock Additional Earnings
---------------------- ---------------------- Paid-In (Accumulated
Shares Amount Shares Amount Capital Deficit)
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
consideration for settlement of
note payable (unaudited) -- $ -- 30,500 $ 30 $ 30,530 $ --
Contributed executive services -- -- -- -- 54,000 --
Net (loss) for the period ended
(unaudited) -- -- -- -- -- (11,050)
---------- ---------- ---------- ---------- ---------- ------------
Balance, November 30, 1999
(unaudited) 8,017 $ 80 8,550,046 $ 8,550 $2,226,050 $ (1,829,223)
========== ========== ========== ========== ========== ============
<CAPTION>
Stock Subscription Total
Receivable and Stockholders'
Stockholder Equity
Receivable (Deficit)
------------------ -------------
<S> <C> <C>
Issuance of common stock in
consideration for settlement of
note payable (unaudited) $ -- $ 30,560
Contributed executive services -- 54,000
Net (loss) for the period ended
(unaudited) -- (11,050)
------------------ -------------
Balance, November 30, 1999
(unaudited) $ (25,609) $ 379,848
================== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 35
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months For the years
ended November 30, ended February 28,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net profit (loss) $ (11,050) $ (939,370) $ (1,144,937) $ (807,351)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 70,989 44,613 60,598 28,683
Provision for doubtful accounts 6,349 12,539 6,861 167
Notes issued for services -- -- 2,707 28,820
Stock issued for services -- 235,891 364,500 38,989
Write down carrying value of
receivable -- -- -- 6,525
Write off carrying value of
investment in joint venture -- -- -- 8,000
Contributed executive services 54,000 54,000 72,000 72,000
Loss on sale of equipment 1,256 -- -- --
Increase (decrease) resulting
from changes in:
Accounts receivable 61,527 (91,112) (133,534) (9,588)
Inventory (110,973) (220,306) (189,379) 90,100
Prepaid assets (2,708) 4,789 (11,082) (6,210)
Receivable from shareholders (2,021) 160,912 160,912 22,291
Other assets (14,201) 11,464 (4,140) (11,750)
Accounts payable (14,647) 16,416 48,744 (3,129)
Accrued liabilities (19,946) 83,684 74,179 5,774
Customer deposits 46 8,334 8,334 (44,486)
-------------- -------------- -------------- --------------
Net cash (used in) provided by
operating activities 18,621 (618,146) (684,237) (581,165)
-------------- -------------- -------------- --------------
INVESTING ACTIVITIES:
Purchase of property and equipment (23,990) (117,906) (123,447) (89,388)
-------------- -------------- -------------- --------------
Net cash used in investing activities (23,990) (117,906) (123,447) (89,388)
-------------- -------------- -------------- --------------
</TABLE>
F-8
<PAGE> 36
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months For the years
ended November 30, ended February 28,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Issuance of common stock $ -- $ -- $ -- $ 1,242,642
Issuance of preferred stock -- 1,300,000 1,300,000 700,018
Cash paid for capital transaction
fees -- (171,451) (171,451) (220,834)
Cash proceeds from stock
subscriptions receivable -- 149,983 149,983 --
Equity draws and distributions -- (992,000) (992,000) (486,006)
-------------- -------------- -------------- --------------
Net cash provided by financing
activities -- 286,532 286,532 1,235,820
-------------- -------------- -------------- --------------
Net change in cash and cash
equivalents (5,369) (449,520) (521,152) 565,267
Cash and cash equivalents,
beginning of period 52,431 573,583 573,583 8,316
-------------- -------------- -------------- --------------
Cash and cash equivalents,
end of period $ 47,062 $ 124,053 $ 52,431 $ 573,583
============== ============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
CASH PAID DURING THE PERIOD
FOR:
Interest $ 2,682 $ -- $ -- $ 7,592
Income Taxes $ -- $ -- $ -- $ 800
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Notes issued for services $ -- $ 6,861 $ 6,861 $ 28,820
Stock issued for services
and settlement of litigation $ 223,025 $ -- $ -- $ 38,989
Stock issued for settlement
of debt $ 31,530 $ -- $ -- $ --
Contributed executive
services $ 54,000 $ 54,000 $ 72,000 $ 72,000
============== ============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 37
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
Seychelle Environmental Technologies, Inc. ("SET"), a Nevada corporation, was
formed in 1998 for the purpose of merging into and surviving the former
RoyalNet, Inc., a Utah shell corporation, formed in 1986.
Seychelle Water Technologies ("SWT") was formed as a corporation in February
1997 under the laws of the state of Nevada for the purpose of marketing the
products of Aqua Vision International ("Aqua Vision"), a private California
entity operating since 1996. Prior to January 1998, SWT operations were limited
primarily to fundraising activities.
On January 30, 1998, SET entered into a stock exchange agreement with SWT,
whereby SWT shareholders emerged as the majority stockholder of SET. This
reverse acquisition resulted in SWT becoming a wholly-owned subsidiary of SET.
On January 31, 1998, SET purchased the assets of Aqua Vision for $9.5 million.
Only $1.2 million was paid to the Aqua Vision owners and the transaction was not
consummated. Effective February 28, 1999, the Company revised its Purchase
Agreement and issued 8,000 shares of its Series "AAA" Preferred Stock (described
in Note 7) to Aqua Vision's owners. The Company sued its controlling stockholder
and, subsequent to year end, the controlling stockholder returned his shares to
the Company (see Note 11). As a result, Aqua Vision's owners became the ultimate
controlling stockholder of SET. Accordingly, the above transactions were treated
as reverse acquisitions where SWT and Aqua Vision are included in the
accompanying consolidated financial statements at their historical bases.
Because the assets were acquired from existing shareholders, the $1.2 million
payment was treated as a distribution and the Series "AAA" stock issuance was
treated as a recapitalization. Costs to acquire SET ($100,000) were expensed as
period costs.
F-10
<PAGE> 38
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
Description of Business
SET develops, manufacturers and sells water filtration products through
retailers and multilevel marketing programs. The Company sells its products
throughout the United States and abroad including Europe and Asia. Geographic
information is as follows:
<TABLE>
<CAPTION>
For the Years Ended February 28,
1999 1998
---------- -----------
<S> <C> <C>
Water filtration products sold to
external customers (1) (2) in:
the United States $ 666,139 $ 534,762
Europe and Asia 40,510 131,790
Canada 3,927 36,688
---------- -----------
Total $ 710,576 $ 703,240
========== ===========
</TABLE>
(1) Sales to external customers are attributed based on the country of
residence of the customer.
(2) There are no long lived assets outside the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of SET
(formerly known as RoyalNet), its wholly-owned subsidiary, SWT (collectively,
the "Company"). Prior to the merger transactions referred to in Note 1, the
financial statements include the combined assets, liabilities and operations of
SWT and Aqua Vision. All significant intercompany transactions and balances have
been eliminated.
F-11
<PAGE> 39
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Sales are recognized upon shipment of the products.
Cash and Cash Equivalents
The Company considers short-term investments which have maturities of three
months or less at the date of acquisition to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method.
Property and Equipment
Property and equipment, including significant improvements thereto, are stated
at cost and are depreciated using the straight-line method over an estimated
useful life of 5 years. Maintenance and repairs are charged to expense as
incurred.
Intangible Assets
Intangible assets include patents, product rights and technology costs. All
patent, product rights and technology costs are capitalized and amortized over
ten years using the straight-line method. The Company assesses whether there has
been a permanent impairment of the value of intangible assets by considering
factors such as expected future product revenues, anticipated product demand and
prospects and other economic factors. Total intangible assets amounted to
$8,948, net of $0 accumulated amortization at February 28, 1999.
Accounting For Long-Lived Assets
Long-lived and intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. If the fair value of the asset is less than the carrying value of
the asset, an impairment loss is recognized for the difference.
F-12
<PAGE> 40
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Expenses
Research and development costs are expensed as incurred and amounted to $41,866
and $5,741 for the years ended February 28, 1999 and 1998, respectively.
Advertising Expenses
Advertising expenses are expensed as incurred. Total advertising expenses
amounted to $40,455 and $258,356 for the years ended February 28, 1999 and 1998.
Risk Concentrations
The Company places its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of the FDIC
insurance limit.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables generally are
due in 30 days. Credit losses have consistently been within management's
expectations. An allowance for doubtful accounts is recorded when it is probable
that all or a portion of the receivables balance will not be collected.
During fiscal 1999, the Company derived 27% of its revenues from a single
customer representing 43% of accounts receivable at February 28, 1999. For
fiscal 1998, 13% and 10% were derived from two single customers, one of which
represented 1% of accounts receivable at February 28, 1998.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the consolidated financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the consolidated financial statements and the tax basis of
assets and liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
F-13
<PAGE> 41
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss Per Common Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statement of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations.
Basic net loss per common share is computed by dividing net loss by the weighted
average number of outstanding common shares during the periods presented. For
purposes of SFAS No. 128, basic loss per share and diluted loss per share are
the same amount as the impact of additional common shares that might have been
issued under the Company's stock option plan, warrants and convertible debt
would be anti-dilutive.
Fair Value of Financial Instruments
The carrying value of financial instruments included in current assets and
liabilities approximates fair value because of the short maturity of these
items.
Issuance of Stock for Services
Shares of the Company's common stock issued for services are recorded in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", at the
fair market value of the stock issued or the fair market value of the services
provided, whichever value is the more clearly evident.
Stock Compensation Plan
SFAS No. 123 encourages, but does not require, companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company
elected to account for stock-based compensation using the intrinsic value method
prescribed in APBO No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
F-14
<PAGE> 42
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires presentation of comprehensive income
within an entity's primary financial statements. Comprehensive income is defined
as net income as adjusted for changes to equity resulting from events other than
net income or transactions related to an entity's capital structure.
Comprehensive income equaled net income for all periods presented.
Segment Disclosures
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires public enterprises
to report financial and descriptive information about its reportable operating
segments and establishes standards for related disclosures about product and
services, geographic areas, and major customers. At this time, the Company has
only one segment.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of November 30, 1999 and
the consolidated statements of operations, changes in stockholders' equity and
cash flows for the nine months ended November 30, 1999 and 1998, together with
the related notes are unaudited and include all normal recurring adjustments
that the Company considers necessary. Inventories and cost of goods sold have
been estimated based on the purchases and sales from the most recent physical
inventory. Results for the nine months ended November 30, 1999 and 1998 are not
necessarily indicative of results for an entire year.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
November 30, 1999 February 28, 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Raw Materials $ 222,371 $ 219,902
Work In Progress 69,701 16,620
Finished goods 82,770 27,347
---------- ----------
$ 374,842 $ 263,869
========== ==========
</TABLE>
F-15
<PAGE> 43
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation as of February 28, 1999:
<TABLE>
<S> <C>
Tooling $ 238,056
Equipment 12,090
Vehicles 45,600
Furniture and fixtures 12,400
Computer equipment 18,116
Leasehold improvements 2,975
-----------
$ 329,237
Accumulated depreciation 106,954
-----------
$ 222,283
===========
</TABLE>
Total depreciation expense for the years ended February 28, 1999 and 1998 was
$60,598 and $28,683, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<S> <C>
Accrued legal expenses and settlements $ 182,813
Accrued wages and benefits 105,885
Accrued outside services 95,000
Accrued consulting fees 37,500
Other accrued expenses 60,754
-----------
$ 481,952
===========
</TABLE>
The accrued legal expenses and settlements represent the amounts the Company
agreed to pay in connection with various litigation along with accrued
attorneys' fees related to these actions.
F-16
<PAGE> 44
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. ACCRUED EXPENSES (CONTINUED)
During fiscal 1999, the Company replaced all of its employees with leased
employees from a Professional Employer Organization (PEO). The accrued wages and
benefits represent amounts due to the PEO for the outstanding amounts due at
February 28, 1999.
Of the $481,952 in accrued expenses, $384,733 were settled after year end
through the issuance of 829,000 shares of common stock of which, 502,000 shares
had been issued by November 30, 1999 (see Note 7).
6. NOTES PAYABLE
At February 28, 1998, $25,034 principal plus $6,496 in accrued interest at 10%
per annum was due on a convertible note which matured July 1, 1998. In November
1999, the note was renegotiated and as such will be repaid by the issuance of
30,560 shares of common stock and payment of $2,503.
7. CAPITAL STRUCTURE
Common Stock
The holders of Common Stock have one vote per share on all matters (including
election of Directors) without provisions for cumulative voting. The Common
Stock is not redeemable and has no conversion or preemptive rights.
In the event of liquidation of the Company, the holders of Common Stock will
share equally in any balance of the Company's assets available for distribution
to them after satisfaction of creditors and the holders of the Company's senior
securities. The Company may pay dividends, in cash or in securities or other
property when and as declared by the Board of Directors from funds legally
available therefore, but has not declared or paid dividends on its Common Stock.
During the nine months ended November 30, 1999, the Company issued 137,000
shares for compensation; 190,000 shares for services provided; 100,000 shares in
settlement of a lawsuit; and 75,000 shares for commissions due.
F-17
<PAGE> 45
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. CAPITAL STRUCTURE (CONTINUED)
Preferred Stock
The Board of Directors has the authority to issue Preferred Stock and to fix and
determine its series, relative rights and preferences to the fullest extent
permitted by the laws of the State of Nevada and its articles of incorporation.
As of February 28, 1999, three classes of Preferred Stock were issued and
outstanding.
Series "A" 13.5% Non Voting, Cumulative, Convertible Preferred Stock
Series "A" Preferred Stock has rights which are superior to all other securities
of the Company, including upon liquidation and as to payment of dividends, if
any, carries a cumulative dividend of 13.5% per annum, is non-voting, and is
redeemable by the Company at any time at face value and is convertible into
common shares of the Company at the lesser of $10 per share or 85% of the last
five closing bid prices. A total of 17 shares are issued and outstanding as of
February 28, 1999 and November 30, 1999 (unaudited).
Series "AA" Non Voting, Cumulative, Convertible Preferred Stock
Series "AA" Preferred Stock has rights which are superior to all other
securities of the Company except to Series "A" Preferred Stock, including upon
liquidation and as to payment of dividends, if any, carries a cumulative
dividend which was set by the Board of Directors at 10% prior to the time of
issuance thereof, is non-voting, redeemable by the Company at any time at face
value and is convertible into common shares of the Company at 85% of the last
five closing bid prices. On June 14, 1999, all of the Series "AA" Non Voting,
Cumulative, Convertible Preferred Stock were converted into 1,337,509 shares of
common stock.
Series "AAA" 12% Cumulative, Convertible Preferred Shares
Series "AAA" Preferred Stock has rights which are superior to all other
securities of the Company except Series "A" and the Series "AA" Preferred Stock,
including upon liquidation and as to payment of dividends, if any. Series "AAA"
Cumulative, Convertible Preferred Voting Stock carries a 12% per annum dividend
payable in stock or cash, is voting, with each share equal to 100 shares of
common stock, and is redeemable, at the Company's option, according to the
following procedure: upon written notice of conversion from the holders, the
Company shall have 45 days from receipt of such notice to repurchase for cash up
to 2,000 shares of the Series "AAA" 12% Cumulative, Convertible Preferred Shares
at $1,000 per share.
F-18
<PAGE> 46
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. CAPITAL STRUCTURE (CONTINUED)
Preferred Stock (Continued)
As a result of the settlement of the litigation involving the Company and its
former Chairman, in which the Company was seeking to rescind the issuance of all
common shares in the Company previously issued to the former Chairman, the
number of common shares issuable to the holders pursuant to the conversion
provisions of the Series "AAA" Cumulative, Convertible Preferred Shares are
reduced from 8,000,000 shares to 4,500,000 shares (but after pro rata
adjustments, if any, for stock dividends, stock splits, reverse stock splits,
and any other similar capital stock adjustments of a general nature). There are
8,000 shares issued and outstanding at February 28, 1999 and November 30, 1999
(unaudited). The 12% cumulative dividend shall be computed based on the
preferred stock par value.
Aggregate preferred redemption value and cumulative dividends in arrears at
February 28, 1999 and November 30, 1999 are as follows:
<TABLE>
<CAPTION>
November 30, 1999 February 28, 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Aggregate redemption value $ 5,729,706 $ 6,888,379
Cumulative preferred dividend $ 379,706 $ 238,378
Per share preferred dividend $ .03 $ .03
=========== ===========
</TABLE>
Stockholder's Receivable
Represents advances made to a stockholder and not reimbursed at the date of
these financial statements.
Contributed Executive Services
Contributed executive services represents an estimate of the fair value of
services donated by the President of the Company.
F-19
<PAGE> 47
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. CAPITAL STRUCTURE (CONTINUED)
Warrants
Outstanding warrants at February 28, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 February 28, 1998
-------------------- --------------------
SHARES WAEP* Shares WAEP*
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Outstanding, beginning of year -- -- -- --
Granted 100,000 $ 1.50 -- --
Canceled-expired -- -- -- --
Exercised -- -- -- --
-------- ------- -------- -------
Outstanding, end of year 100,000 $ 1.50 -- --
======== ======= ======== =======
Exercisable, end of year 100,000 $ 1.50 -- --
======== ======= ======== =======
</TABLE>
* Weighted average exercise price
8. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended February 28,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Current:
State $ -- $ --
Federal -- --
-------- --------
Deferred:
State (46,360) (77,136)
Federal (360,157) (303,107)
Valuation allowance 406,517 380,243
-------- --------
$ -- $ --
======== ========
</TABLE>
F-20
<PAGE> 48
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES (CONTINUED)
The reconciliation of the effective tax rates and U.S. statutory tax rates are
as follows:
<TABLE>
<CAPTION>
Years Ended February 28,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Tax (benefit) at statutory rate (34%) (34%)
Tax benefit exclusion relating to Aqua Vision prior to
January 31, 1998 -- 33%
Deferred tax effect of goodwill relating to Aqua Vision
acquisition -- (46%)
Contributed executive services 3% 3%
Effect of state tax benefit (4%) --
Other 1% (3%)
Change in valuation allowance 34% 47%
-------- --------
-- --
======== ========
</TABLE>
Since Aqua Vision was a flow through entity prior to January 31, 1998, the tax
benefit relating to the period prior to January 31, 1998 was excluded from the
computation of the tax benefit, deferred taxes and NOL's carryforward.
At February 28, 1999, the Company has net operating loss (NOL) carryforwards,
for income tax reporting purposes, of approximately $1,126,919 and $563,144
available to offset future federal and California taxable income, respectively.
The federal carryforwards expire in 2009 and the California carryforwards expire
in 2004.
At February 1999, the Company had available tax credit carryforwards comprised
of federal and state research and experimentation credits of $4,187 and $2,303,
respectively. The research and experimentation credit carryforwards expire in
2019 for federal purposes and do not expire for California purposes.
F-21
<PAGE> 49
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset and (liability) are as follows:
<TABLE>
<CAPTION>
Ended February 28,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Goodwill $ 342,748 $ 366,917
Net operating loss carryforward 427,591 8,628
Depreciation and amortization 5,623 --
Other 9,287 4,698
---------- ----------
Less: Valuation allowance (785,249) (380,243)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under an operating lease that expires in fiscal
year 2000. Total rent expense amounted to $75,237 and $70,796 for the years
ended June 30, 1999 and 1998.
Other Commitments and Contingencies
The Company's current management believes that the Company's and SWT's former
management entered into certain contracts, agreements and transactions which
were not properly authorized or consummated. At the date of these consolidated
financial statements, the Company is not aware of any formal claim relating to
these contracts, agreements or transactions and believe that any such claims
would be without merit. The Company cannot currently estimate the potential
liability that would arise if such claim were to be made. Accordingly, no
accrual has been made for these contingencies.
F-22
<PAGE> 50
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Legal Proceedings
No legal proceedings of a material nature to which the Company is a party are
pending at November 30, 1999, and the Company knows of no legal proceedings of a
material nature pending or threatened or judgments entered against any director
or officer of the Company in his capacity as such.
In July 1999, the Company settled a lawsuit which it had brought against its
former Chairman, Mr. DuSean Berkich, and certain of his affiliates. Under the
terms of the settlement, Mr. Berkich and his affiliates returned a total of
4,400,666 common shares for cancellation by the Company, and the Company
released Mr. Berkich and his affiliates from all future liability to the
Company.
Indemnification Agreement
The Company agreed to indemnify its agent with respect to a claim brought
against the agent and his firm with respect to services performed by the firm on
behalf of the Company. The Company was not named as a defendant and legal
counsel has advised the Company that, at the date of these consolidated
financial statements, it is not probable that there will be an unfavorable
outcome to the Company.
10. RELATED PARTY TRANSACTIONS
A board member's firm provided legal services for the Company during the 1999
fiscal year for which the firm was compensated $2,000 in cash payments and
100,000 shares of common stock granted after year end valued at $50,000. In
addition, the board member was granted 150,000 shares of common stock valued at
$75,000 after year end as consideration for services rendered as a member of the
board of directors.
Another board member's firm was engaged to advise the Company on capitalization
issues during the 1998 and 1999 fiscal years for which the firm was compensated
$54,478 and $150,451, respectively, as well as the issuance of 559,266 shares of
common stock valued at $559. Subsequent to year end, the board member was
granted 40,000 shares of common stock valued at $20,000 for services rendered as
a member of the board of directors.
F-23
<PAGE> 51
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. NET PROFIT (LOSS) PER SHARE
<TABLE>
<CAPTION>
For the Nine Months For the Years Ended
Ended November 30, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net profit (loss) $ (11,050) $ (939,370) $ (1,144,937) $ (807,351)
Preferred stock dividends (141,268) (169,761) (230,503) (7,875)
------------ ------------ ------------ ------------
Loss available to common
stockholders (152,378) (1,109,131) (1,375,440) (815,226)
============ ============ ============ ============
DENOMINATOR:
Weighted average shares
outstanding 9,525,863 11,200,643 11,200,643 8,416,686
------------ ------------ ------------ ------------
Basic profit (loss) per share $ (.02) $ (.10) $ (.12) $ (.10)
============ ============ ============ ============
</TABLE>
Options to purchase common stock and convertible preferred stock, were
outstanding during the 1999 and 2000 fiscal years (see Note 7) but were excluded
in the computation of the diluted loss per share because their inclusion would
have an anti-dilutive effect.
Also excluded from the computation of diluted loss per share because of their
anti-dilutive effect was preferred stock convertible to approximately 6,888,380
and 857,900 shares of common stock at February 28, 1999 and 1998, respectively.
The fiscal 1999 loss per share includes the operations of Aquavision, a sole
proprietorship, the Company's predecessor (see Note 1).
Subsequent to year end, approximately 4,400,000 shares of common stock were
canceled. The effect of this cancellation on loss per share would increase the
loss per share by $0.07 and $0.10 per share for the years ended February 28,
1999 and 1998, respectively.
Subsequent to year end, the Series "AA" Preferred Stock was converted into
common stock (see Note 7).
F-24
<PAGE> 52
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2A* Plan of Exchange between Seychelle Environmental Technologies, Inc. and Seychelle Water
Technologies, Inc.
3A* Articles of Incorporation
3B* Articles of Merger of Royal Net, Inc. into Seychelle Environmental Technologies, Inc
3C* Amendment to Articles of Incorporation re: Series "A" Preferred Stock
3D* Amendment to Articles of Incorporation re: Series "AA" Preferred Stock
3E* Amendment to Articles of Incorporation re: Series "AAA" Preferred Stock
3F* Bylaws
10A* Purchase Agreement with Aqua Vision
10B* Amended Purchase Agreement with Aqua Vision
</TABLE>
* Previously filed
ITEM 2. DESCRIPTION OF EXHIBITS.
<TABLE>
<S> <C>
2A Plan of Exchange between Seychelle Environmental Technologies, Inc. and Seychelle Water
Technologies, Inc. dated January 30, 1998.
3A Articles of Incorporation dated January 23, 1998.
3B Articles of Merger of Royal Net, Inc. into Seychelle EnvironmentalTechnologies,Inc.
3C Amendment to Articles of Incorporation re: Series "A" Preferred Stock as
of January 31, 1998.
3D Amendment to Articles of Incorporation re: Series "AA"
Preferred Stock as of June 5, 1998.
3E Amendment to Articles of Incorporation re: Series "AAA" Preferred Stock as
of February 18, 1999.
3F Bylaws
10A Purchase Agreement with Aqua Vision
10B Amended Purchase Agreement with Aqua Vision
</TABLE>
25
<PAGE> 53
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SEYCHELLE ENVIRONMENTAL TECHNOLOGIES, INC.
Dated: 4/4/00 By: /s/ CARL PALMER
------------------------
Carl Palmer
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
CHIEF FINANCIAL OFFICER
Dated: 4/4/00 By: /s/ CARL PALMER
----------------------------------------
Carl Palmer
Treasurer and Director
Dated: 4/4/00 By: /s/ PAUL H. LUSBY
------ ----------------------------------------
Paul H. Lusby
Secretary and Director
Dated: By:
------ ----------------------------------------
Donald S. Whitlock
Director
26
