UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549




FORM
10-K










(
X ) ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended February 28, 2009





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





For the
transition period from _______________ to __________________




Commission File No.
0-29373




logo


Seychelle
Environmental Technologies, Inc.




(Exact
Name of registrant as specified in its charter)








Nevada
                33-0836954(State
      or other jurisdiction
                (IRS
      Employer File Number)Of
      incorporation)33012
      Calle PerfectoSan Juan Capistrano,
    California
                92675(Address
      of principal executive offices)
                (zip
      code)




(949)
234-1999


(Registrant's
telephone number, including area code)





Securities
Registered Pursuant to Section 12(b) of the Exchange Act: None





Securities
Registered Pursuant to Section 12(g) of the Exchange Act:





Common
Stock, $0.001 per share par value





Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes []   No [X].
 
 Indicate
by check mark if registrant is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. Yes
[] No [X].
  Indicate
by check mark whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90
days.    Yes [X]  No [ ]
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months(or such shorter period that the
registrant was required to submit and post such files. Yes []  No [
]
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K.
[X]





Indicate
by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer,” and “small reporting company” in Rule
12b-2 of the Exchange Act.


Large
      accelerated filer []
                  Accelerated
      filer []Non-accelerated
      filer   [] (Do not check if a smaller reporting
      company)
                  Smaller
      reporting company  [X]
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) : Yes [ ] No [X]





The
number of shares outstanding of the registrant's common stock, as of February
28, 2009 was 25,824,146.  Moreover, the aggregate market value of the
voting stock of the Registrant held by non-affiliates as of May 22, 2009
was approximately $5,021,000.





References
in this document to "us," "we," “Seychelle,” “SYEV,” or "the Company" refer to
Seychelle Environmental Technologies, Inc., its predecessor and its
subsidiary.







TABLE
OF CONTENTS
  PART
      I
                          PageItem
      1. Business
                          3Item
      1A. Risk Factors
                          7Item
      2. Property
                          11Item
      3. Legal Proceedings
                          11Item
      4. Submission of Matters to a Vote of Security Holders
                          11PART
      IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities
                          12Item 6. Selected Financial Data
                          12Item 7. Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                          13Item 7A. Quantitative and Qualitative Disclosures About Market
      Risk
                          19Item 8. Financial Statements and Supplementary Data
                          19Item 9. Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosures
                          45Item 9A(T). Controls and Procedures
                          45Item
      9B. Other Information
                          46PART
      IIIItem
      10. Directors, Executive Officers and Corporate Governance
                          46Item
      11. Executive Compensation
                          48Item
      12. Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                          50Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
                          50Item
      14. Principal Accountant Fees and Services
                          51Item
      15. Exhibits Financial Statement Schedules
                          52Financial
      Statements pages
                          20-45Signatures
                          54


-
2 -




PART
I





Item
1. DESCRIPTION OF BUSINESS.




Business History of
Seychelle





We are a
Nevada corporation. Our principal business address is 33012 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 of
Aqua Vision International.





Organization





Our
Company is presently comprised of Seychelle Environmental Technologies, Inc., a
Nevada corporation, with one wholly-owned subsidiary, Seychelle Water
Technologies, Inc., also a Nevada corporation (collectively, the Company or
Seychelle). We use the trade name "Seychelle Water Filtration Products, Inc." in
our commercial operations.




Business of Seychelle




General





Seychelle
designs and manufactures unique, state-of-the-art ionic adsorption micron
filters that remove up to 99.99% of all pollutants and contaminants found in any
fresh water source. Patents or trade secrets cover all proprietary products.
Since human bodies are approximately 75% water, our mission is twofold: First,
to help educate everyone to the fact that the quality of water they drink is
important and second, to make available low-cost, effective filtration products
that will meet the need for safe, great tasting, high quality drinking
water.





As of
February 28, 2009, Seychelle has sold over 2 million portable water filtration
bottles throughout the world to customers such as individuals, dealers,
distributors and to governments, military, agencies and emergency relief
organizations such as the U.S. Marine Corps, the International Red Cross,
Eco-Challenge, Kenya Wild Life Service, La Cruz Roja de Mexico and the N.Y.
Institute for the Blind. In addition, the Company has donated thousands of
portable bottles to church groups and missionaries worldwide.





In 2001,
the World Bank placed the value of the world water market at close to $400
billion annually. Bottled water, according to Water Facts, has emerged as the
second largest commercial beverage category by volume in the U.S. However,
Seychelle products compete in a more limited market: the portable
filtration product segment.  Enviroscrub Technology estimated the U.S.
household water filtration market, in March 2004 to be $500 million in size,
growing at 10 percent annually. Additional information pertaining to the size of
the portable water filtration market is not reasonably known to us.





In
developing countries, many people in rural areas boil their water for drinking
and cooking to kill bacteria, but this process does not remove the pyrogens,
chemicals, toxins, volatile organisms, heavy metals and other pathogens that
remain in the water. In Africa alone, according to Earth Prayers From Around the
World, approximately 6,000 people die every day because of water borne
diseases.





Business
Plan




The
management of Seychelle represents over 100 years of combined experience in
developing improvements and innovations in the field of bottled water, reverse
osmosis, ultra filtration and filter technology. As a result, our products can
deliver up to .2-micron filtration, at pennies per gallon, with pressure as low
as 5 pounds per square inch (PSI). Further, our point of difference filtration
systems remove up to 99.99% of all known pollutants and contaminants most
commonalty found in fresh drinking water supplies in the four major areas of
concern as follows:


-
3 -





AESTHETICS:
Taste, chlorine, sand, sediment and odor problems.


BIOLOGICS:
Pathogens such as Cryptosporidium, Giardia and E. coli bacteria.


CHEMICALS:
Pesticides, detergents, toxic chemicals and industrial waste.


DISSOLVED
SOLIDS: Heavy metals such as aluminum, asbestos, copper, lead, mercury and
radon-222.





Seychelle
filters have been tested by independent and government laboratories throughout
the world and are approved for sale and distribution in the following countries:
United States, Mexico, United Kingdom, Korea, Malaysia, Japan, The Peoples
Republic of China, Vietnam, New Zealand, Australia, Brazil, Venezuela,
Argentina, South Africa, and Pakistan. In the United States, Seychelle filters
have been certified by California and Florida approved independent laboratories
implementing Environmental Protection Agency, American National Standards
Institute, and National Sanitation Foundation protocol, procedures, standards
and methodology. Additionally, we offer a test pack for potential customers that
include the test results from selected countries. In addition, results from the
United States, United Kingdom and South Africa are displayed on our Website:
www.seychelle.com. To our knowledge, no other water filtration system can
achieve this level of removal of up to 99.99% of all known pollutants and
contaminants most commonly found in fresh drinking water supplies in the four
major areas of concern. The benefit of such filtration can save lives worldwide
as awareness of Seychelle’s product line increases and is used.




Principal
Products or Services and their Markets





Current
Products





Seychelle
has a varied line of portable filter bottles for people on the go. They include
Pull Top and Flip Top’s and military style canteens - standard or with advanced
filters (for virus and bacteria control). Sizes are from 18 ounce to 38 ounces,
and provide up to 100 gallons of pure drinking water from any fresh water
source; running or stagnant (such as rivers, lakes, ponds, streams and
puddles).





The
current products include: Flip-Top and Pull Top bottles, Canteens, Pure Water
Pump, Bottoms-Up bottles, Emergency bottle, In-Line filter, Pure Water Bag, Pump
N’ Pure, Pure Water Straw, Emergency Survival Pack, Water Pitcher and
Replacement Filters.





New
Products





We have
re-engineered the Flip Top bottle to eliminate parts, reduce costs, provide a
more streamlined look, and add a disinfectant capability. Additionally, the
In-Line Filter has been changed to provide greater filter media, and meet field
conditions that require a longer, narrower design.  The Emergency
Survival Pack meets the essential needs, including food, for two people to
survive for three days during any kind of a disaster.





We signed
an exclusive license agreement with Gary Hess (the License Agreement), doing
business as Aqua Gear USA on June 6, 2002 for a product known as the "Hand Held
Pump Technology." We licensed all proprietary rights associated with this
technology. We pay a 2% royalty on our gross sales for the technology during the
term of the License Agreement. The License Agreement was for an initial term of
five years and was renewed with four successive five-year renewals remaining.
This offers us an additional proprietary product in the portable filtration
industry. We believe that this License Agreement compliments our current product
line. As of the date of this document, this technology, which was completed in
2005, has resulted in a product called Pump N’ Pure which allows the user to
draw filtered water from virtually any container or location. The Company
continues to believe that the product will be viable in developing countries, as
an emergency preparedness product, and for families where cost is a prime
consideration. The Company commenced marketing the Hand Held Pump as part of its
Aqua Gear product line in the U.S. sporting goods industry in fiscal
2008.





During
July 2006, the Company signed a second exclusive license agreement (the Second
Agreement) with Gary Hess, doing business as Aqua Gear USA. We will pay a 2%
royalty on net sales for this technology up to $120,000 and 1%
thereafter.  This agreement included the issuing of 100,000 warrants
to Gary Hess that is being amortized over three years.  The Second
Agreement shall continue indefinitely unless terminated due to a default or
breach of the agreement. This affords the Company additional patent protection
(patent # 6,136,188) and ownership of the trademark Aqua Gear. Products affected
include all Aqua Gear trademarked filter bottles sold in the product
line.  As of the date of this document, approximately $30,300 in
royalties has been paid under these license agreements.





During
April 2006, the Company issued 50,000 shares of common stock to the shareholders
of Continental Technologies, Inc. (Continental) with an approximate value of
$16,100 for the Redi Chlor brand name, trademark and the use of the EPA
Registration Number 55304-4-7126. As of the date of this document, the Company
has commenced selling the Redi Chlor brand name water chlorine tablets to
consumers, dealers, distributors and manufacturers. Under the agreement, the
Company further agreed to remit to Continental a 10% commission on net sales, as
defined, of the existing product and 10% on any product sold by Continental for
us to their existing or new customers at our original equipment manufacturer
(OEM) prices. The agreement is through the life of Seychelle. Through February
29, 2008, $3,011 has been paid in royalties.


-
4 -







During
July 2007, the Company received approval from the U.S Food and Drug
Administration to import certain of the Company’s emergency preparedness
products. As of the date of this document, the Company has sold approximately
2,250 units to its customers.





Manufacturing





The
Company has determined that we will be able to produce some of our product
components in China at a lower cost than in the U.S. while maintaining
equivalent quality standards. Our proprietary filter will continue to be
manufactured in the U.S. The final assembly of our products is completed at our
facility in San Juan Capistrano, California.





On
September 1, 2005, we signed an exclusive agreement with Huanghua Seychelle
Plastic Co., Ltd to manufacture component parts.





Sales Channels





Sales
channels to be pursued will include: Retail, Military, Government,
Non-Governmental Agencies (NGO)’s, Foundations, Missionaries, Multi-Level
Marketing, International, OEM and Joint Ventures. At present, we are talking to
several multi-level marketing companies with over one million distributors
worldwide who currently do not have a water product in their line. Seychelle,
with over sixty years of combined multi-level and direct sales marketing
experience is well positioned to help any of these companies make a meaningful
impact within their sales organizations.


.


Several
other distributors continue to represent the Company’s portable water filtration
products to customers in specific distribution channels; including: retail,
multi-national corporations, foundations, sports, governmental agencies, and the
military (both US and International).





Another
water filter marketing company has contacted us to private label products for
them. They have many contacts within the retail and governmental channels and we
are in discussions with them on a distribution rights agreement.





Raw
Materials





Seychelle’s
filters include the finest powdered water-activated coconut and three other
media as components in the porous plastic ionic filter. The media itself, the
formulation process, and manufacturing methodology are governed by trade
secrets. To date, there is an adequate availability of material for all of our
products. We do not expect this situation to change in the near
future.




Customers
and Competition





Seychelle
products compete against all forms of drinking water: tap water supplied by
municipal water districts, bottled water, and home water treatment systems
provided by suppliers (such as independent dealers, distributors, catalogs,
Internet sellers, etc.) in the form of reverse osmosis systems, distillation,
and filtration systems.  Therefore, Seychelles’ portable and home
filtration products compete in a limited segment of the market as an alternative
to other sources of drinking water.





Seychelle
is an emerging company with negligible share of the world’s pure water market.
Our products sell in a niche category of the market - portable filtration
bottles that use ionic adsorption micron filtration technology, which remove
many organic and inorganic contaminants that simple activated carbon filters
cannot. Most activated carbon filters on the market remove Chlorine, sediment
and dirt thus improving taste and odor, as well as a handful of other
contaminants such as Lead, Mercury, Zinc and Copper. This would include leading
brands such as Brita, PUR, General Electric and Culligan, who collectively
dominate the market. In the portable segment of the market, there are hundreds
of small companies selling a variety of specialized filters with no one company
having a majority share and no industry data available. We believe that our
current share of this market is negligible.





Seychelle
sells its products in two ways. First, it sells its own brand to individuals,
dealers, distributors, multilevel marketing companies and missionaries on a
direct basis, and through our Internet Web Site. Second, the Company offers its
products to the same customers as a private label supplier if purchasers buy in
significant volume. In some instances, we may supply only filters for their
bottles or hydration backpacks as opposed to completed products.





Currently,
the majority of our sales are to customers in the U.S.  However, with
distribution agreements for the Peoples Republic of China, Hong Kong,
Japan, Singapore, Taiwan and India, overseas sales could increase in the future
as these countries have a greater need for safe drinking
water.  As of February 28, 2009, one customer (Welfare Services, 19%)
accounted for greater than 10% of our total sales.


-
5 -




Backlog





As of
February 28, 2009, Ecousable. had approximately 11,500 stainless steel bottle
filters on back order, with an estimated sales value of approximately
$66,000.  Additionally, as of February 28, 2009, Innova had
approximately 9,700 bottles on back order with an estimated value of
approximately $61,000.  The total backlog amount as of February 28,
2009 was approximately $179,000.





Employees





As of
February 28, 2009, we had a President and two (2) executive employees managing
the Company with two (2) administrative employees supporting that
effort.  In production, operations and warehousing we had one (1)
full-time employee and two (2) independent contractors working to fill all sales
orders.




Proprietary
Information and Technology





We own a
patent for the portable water filtration system with the filter cap assembly,
Patent # 5,914,045 that expires on June 22, 2016. 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." The filter cap assembly is the core to the
Company’s product lines, and will drive sales for many years to come as the
Company adds new products and configurations.





We also
own a patent, Patent #6,058,971 that expires on May 9, 2017 for a quick connect
diverter valve. As described in the Abstract, it is "A quick-connect diverter
valve for use in connecting existing water faucets and water filtration units in
and around a kitchen, or other areas where clean water is desired." The quick
connect diverter value is used in the above the counter filter system currently
being sold in the United States, Pakistan and China. The Company believes this
is a viable and growing product line for developing countries where the quality
of water continues to deteriorate.





As these
patents expire in 7 and 8 years, respectively, the Company cannot at this time
estimate the financial impact of the expiration of these patents.





Trademark
registrations have been filed with the United States Patent and Trademark Office
for both Seychelle and Aqua Gear and are in progress.





We have a
trade name, "Seychelle Water Filtration Products, Inc.," which we use in our
commercial operations.





Government
Regulation





We are
not, as a company, subject to any material governmental regulation or approvals.
However, our products are subject to inspection and evaluation by regulatory
authorities that have jurisdiction over water quality standards. Such
authorities are on the federal, state, and local level, both in the United
States and overseas, where we market our products. Most of our products have
already been inspected and evaluated by all applicable governmental authorities
in the areas in which we operate or plan to operate in the near future. With
respect to our current focus of operations, we do not know if governmental
regulation will have a material impact on us in the future.





Research
and Development





We have
spent approximately $3,100 in research and development activities during the
fiscal year ended February 28, 2009.  As of the time of this filing,
virtually all research, development and testing are being performed by Carl
Palmer, the Company’s CEO, as part of his day-to-day
duties.





Environmental
Compliance





At the
present time, Seychelle is not subject to any material costs for compliance with
any environmental laws. With respect to our current focus of operations, we do
not know if environmental compliance will have a material impact on us in the
future.


-
6 -





Item
1A. RISK FACTORS.





THE
OWNERSHIP AND INVESTMENT IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS. OUR
COMMON SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS
RELATING TO OUR COMPANY.





Because
we had incurred continuing operating losses, our accountants expressed doubts
about our ability to continue as a going concern.





For the
fiscal year ended February 28, 2009, the accountants for the Company expressed
doubt about our ability to continue as a going concern as a result of continuing
operating losses. Our ability to achieve and maintain profitability and positive
cash flow will depend on the success of our business plan.





We
do not have a successful operating history and may never become
profitable.





Our
Company was formed on January 23, 1998 and acquired the operations of a company
that had been in existence since 1996. Since beginning operations, we have
continued to expand our product lines but have not generated enough revenue to
be profitable. This has required us to seek both investor capital and financing
from time to time. Recent sales activity for the fiscal year ended February 28,
2009 has increased over the past year but not to the extent to be profitable. We
have experienced in the past and may experience in the future
under-capitalization, shortages, setbacks and many of the problems, delays and
expenses encountered by any early stage business. These include:





-
            operating
      as a public entity, incurring non-cost of sales expenses such as
      accounting, auditing, financial reporting and compliance, legal and costs
      to maintain full compliance with rules governing regulated reporting
      status, including continuing Sarbanes-Oxley
  requirements,-
            unplanned
      delays and expenses related to research, development and testing of our
      new products,-
            production
      and marketing problems that may be encountered in connection with our
      existing products and technologies,-
            competition
      from larger and more established companies, and-
            under-capitalization
      to challenge the lack of market acceptance of our new products and
      technologies.





As a
result of our history of operations, it is not possible for us to predict when,
if ever, we may achieve profitability. If we continue to be unprofitable, we may
eventually go out of business. As a result, investors may lose some or all of
their investment.





Because
we are a Company with a no history of profitability, 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 we have 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. Therefore,
investors should consider an investment in us to be an extremely risky
venture.





We
have a limited product line, and the development of some of our technologies has
taken longer than anticipated and could be additionally delayed.





Therefore,
there can be no assurance of timely completion and introduction of improved
products on a cost-effective basis, or that such products, if introduced, will
achieve market acceptance such that, in combination with existing products, they
will sustain us or allow us to achieve profitable operations.





As
an organization, we are dependent  upon technology for the development
of our products.





We are
operating in a business that requires extensive and continuing research,
development and testing efforts. There can be no assurance that new products
will not render our products obsolete or non-competitive at some time in the
future.





Our
success as an organization depend, in large part, upon our ability to protect
our intellectual property rights .





A
successful challenge to the ownership of our technology could materially damage
our business prospects. We rely principally on trade secrets as well as trade
secret laws, two patents, two trademarks, copyrights, confidentiality procedures
and licensing arrangements to protect our intellectual property rights. We
currently have two U.S. patents issued and a license on two patents. Any issued
patent may be challenged and invalidated. Patents may not be issued from any of
our future applications. Any claims allowed from existing or future pending
patents may not be of sufficient scope or strength to provide significant
protection for our products. Patents may not be issued in all countries where
our products can be sold so as to provide meaningful protection or any
commercial advantage to us. Our competitors may also be able to design around
our patents or the patents that we license.


-
7 -







Vigorous
protection and pursuit of intellectual property rights or positions characterize
our industry, which has resulted in significant and often protracted and
expensive litigation. Therefore, our competitors may assert that our
technologies or products infringe on their patents or proprietary rights.
Problems with patents or other rights could increase the cost of our products or
delay or preclude new product development and commercialization by us. If
infringement claims against us are deemed valid, we may not be able to obtain
appropriate licenses on acceptable terms or at all. Litigation could be costly
and time-consuming but may be necessary to protect our future patent and/or
technology license positions or to defend against infringement
claims.





Many
of our competitors have substantially greater capabilities and resources and may
be able to develop and commercialize products before we do.





Technological
competition from larger and more established companies is significant and
expected to increase. Most of the companies with which we compete and expect to
compete have far greater capital resources and more significant research and
development staffs, marketing and distribution programs and facilities, and many
of them have substantially greater experience in the production and marketing of
products. Our ability to compete effectively may be adversely affected by the
ability of these competitors to devote greater resources to the sale and
marketing of their products than we can. In addition, one or more of our
competitors may succeed or may already have succeeded in developing technologies
and products that are more effective than any of those we currently offer or are
developing. In addition, there can be no guarantee that we will be able to
protect our technology from being copied or infringed upon. Therefore, there are
no assurances that we will ever be able to obtain and to maintain a profitable
position in the marketplace. However, no company to date has been able to match
our technology or our cost.





Our
success is dependent upon the decision making of our directors and executive
officers.





Our directors and executive officers
have made a full commitment to our business. The loss of any or all of these
individuals could have a materially adverse impact on our operationsWe will depend on our senior executive
officers as well as other key personnel. If any key employee decides to
terminate his employment with us, this termination could delay the
commercialization of our products or prevent us from becoming profitable.
Competition for qualified employees is intense among companies in our industry,
and the loss of qualified employees, or an inability to attract, retain and
motivate additional highly skilled employees required for the expansion of our
activities, could hinder our ability to successfully develop and maintain
marketable products.





We
have a significant dependence on a few customers.





For the
year ended February 28, 2009, one customer (Welfare Services, 19%) accounted for
greater than 10% of our total sales.  In addition four other customers
(Emergency Essentials, Giles Butler, Wellness Enterprises, and Healthy
Directions) individually account for approximately 5% of total
sales.  Management believes that if the targeted revenues are not
achieved within their current marketing and distribution agreements, the
revenues can be replaced through the sale of filters and related products to
other direct marketing companies. However, there can be no assurance that this
will occur which could result in an adverse effect on the Company’s financial
condition or results of operations in the future.





Our Senior Management’s Limited
Experience Managing A Publicly Traded Company May Divert Management’s Attention
From Operations and Harm Our Business.





Our
management team has relatively limited recent experience managing a publicly
traded company and complying with federal securities laws, including compliance
with recently adopted disclosure requirements on a timely basis.  Our
management will be required to design and implement appropriate programs and
policies in responding to increased legal, regulatory compliance and reporting
requirements, and any failure to do so could lead to the imposition of fines and
penalties and harm our business.





The Acquisition of Other Technologies
Could Result In Operating Difficulties, Dilution and Other Harmful
Consequences.





We may
selectively pursue strategic acquisitions, any of which could be material to our
business, operating results and financial condition.  Future
acquisitions could divert management’s time and focus from operating our
business.  In addition, integrating an acquired technology is risky
and may result in unforeseen operating difficulties and
expenditures.





The
anticipated benefits of our future acquisitions may not
materialize.  Future acquisitions or dispositions could result in
potentially dilutive issuances of our equity securities, including our common
stock, the incurrence of debt, contingent liabilities or amortization expenses,
or write-offs of intellectual properties any of which could harm our financial
condition.  Future acquisitions may also require us to obtain
additional financing, which may not be available on favorable terms or at
all.


-
8 -


We
Face Risks Associated With Currency Exchange Rate
Fluctuations.





Although
we currently transact business primarily in U.S. dollars, a large portion of our
revenues and related cost of goods sold may be determined in foreign currencies
if we continue to expand our international operations.  Conducting
business in currencies other than U.S. dollars subject the Company to
fluctuations in currency exchange rates that could have a negative impact on our
reported operating results.  Fluctuations in the value of the U.S.
dollar relative to other currencies may impact our revenue, cost of goods sold
and operating gross margin and result in foreign currency translation gains and
losses.  Historically, we have not engaged in exchange rate hedging
activities.





Changes to Financial Accounting or
Other Standards May Affect Our Operating Results and Cause Us To Change Our
Business Practices.





We
prepare our consolidated financial statements to conform to generally accepted
accounting principles, or GAAP, in the United States.  These
accounting principles are subject to interpretation by the Financial Accounting
Standards Board (FASB), the Securities and Exchange Commission, the Public
Company Accounting Oversight Board and various other bodies.  A change
in those policies could have a significant effect on our reported results
and may affect our reporting of transactions completed before a change is
announced.




For
example, the Company has used stock warrants, restricted stock, and other equity
incentives as a fundamental component of our executive compensation
packages.  The Company believes that stock warrants and other equity
incentives directly motivate our executives to maximize long-term stockholder
value and, through the use of vesting, encourage executives to remain with the
Company.   In December 2004, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 123(R), which requires that grants of equity
incentives be recognized on the income statement based upon their fair
values.  In addition, regulations implemented by the NASDAQ National
Market generally require stockholder approval for all equity
incentives.  We may, as a result of these changes, incur increased
compensation costs, change our equity compensation strategy or find it difficult
to attract, retain and motivate employees, each of which could materially and
adversely affect our business, operating results and financial
condition.




Our Financial Results Could Vary
Significantly From Quarter to Quarter and Are Difficult to
Predict.





Our
revenues and operating results could vary significantly from quarter to quarter
because of a variety of factors, many of which are outside of our
control.  As a result, comparing our operating results on a
period-to-period basis may not be meaningful.  In addition, we may not
be able to predict our future revenues or results of operations.  We
base our current and future expense levels on our internal operating plans and
anticipated sales levels, and our operating costs are to a large extent
fixed.  As a result, we may not be able to reduce our costs
sufficiently to compensate for an unexpected shortfall in revenues, and even a
small shortfall in revenues could disproportionately and adversely affect
financial results for that period.  In addition, any payments due to
us from our customers may be delayed because of changes or issues with those
customers’ processes.





If We Continue to Fail in Maintaining
Effective Internal Control Over Financial Reporting, The Price of Our Common
Stock May be Adversely Affected.  We Have Determined That Our Internal
Control Over Financial Reporting Have Material Weaknesses and Conditions That
Need to Be Addressed, The Disclosure of Which May Have an Adverse Impact on the
Price of Our Common Stock.





We are
required to establish and maintain appropriate internal control over financial
reporting.  Failure to establish those controls, or any failure of
those controls once established, could adversely impact our public disclosure
regarding our business, financial condition or results of
operations.  In addition, our future assessments of internal control
over financial reporting may identify additional weaknesses and conditions that
need to be addressed in our internal control over financial reporting or other
matters that may raise concerns for investors.  Any actual of
perceived weaknesses and conditions that need to be addressed in our internal
control over financial reporting, disclosure of management’s assessment of our
internal control over financial reporting or disclosure of our independent
registered public accounting firm’s attestation report, when applicable, on
management’s assessment of our internal control over financial reporting may
have an adverse impact of our common stock.


-
9 -


Standards
for Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are Uncertain,
and If We Fail to Comply in a Timely Manner, Our Business Could Be Harmed and
Our Stock Price Could Decline.





Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting, and
attestation of our assessment by our independent registered public accounting
firm.  Currently, we believe these two requirements apply to our
annual reports for fiscal 2009 and 2010, respectively.  The standards
that must be met for the management to assess the internal control over
financial reporting as effective are evolving and complex, and require
significant documentation, testing, and possible remediation to meet the
detailed standards.  We have incurred, and expect to incur,
significant expenses and to devote resources to Section 404 compliance during
fiscal year 2010 and on an ongoing basis.  It is difficult for us to
predict how long it will take to complete the assessment of the effectiveness of
our internal control over financial reporting for each year and to remediate any
deficiencies in our internal control over financial reporting.  As a
result, we may not be able to complete the assessment and remediation process on
a timely basis.  In addition, the attestation process by our
independent registered public accounting firm is new and we may encounter
problems or delays in completing the implementation of any requested
improvements and receiving an attestation of our assessment by our independent
registered public accounting firm.  In the event that our Chief
Executive Officer, Chief Financial Officer, or independent registered public
accounting firm determine that our internal control over financial reporting is
not effective as defined under Section 404, we cannot predict how regulators
will react of how the market prices of our shares will be affected, however, we
believe that there is a risk that investor confidence and share value may be
negatively impacted.





Maintaining
and Improving Our Financial Controls and The Requirements Of Being a Public
Company May Strain Our Resources, Divert Managements Attention and Affect Our
Ability to Attract and Retain Qualified Members For Our Board of
Directors.





As a
public company, we are subject to the reporting requirements of the Securities
Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.  The
requirements of these rules and regulations increase our legal, accounting, and
financial compliance costs, make some activities more difficult, time-consuming
and costly and may also place undue strain on our personnel, systems, and
resources.  The Sarbanes-Oxley Act of 2002 requires, among other
things, that we maintain effective disclosure controls and procedures and
internal controls over financial reporting.  Fulfilling this
requirement can be difficult to achieve and maintain.





As a
result, management’s attention may be diverted from other business concerns,
which could harm our business, operating results and financial
condition.  These efforts will also involve substantial accounting
related costs.





Our
articles of incorporation and bylaws could discourage acquisition proposals,
delay a change in control, or prevent other transactions.





Provisions
of our articles of incorporation and bylaws, as well as provisions of the Nevada
Business Corporation Act, may discourage, delay or prevent a change in control
of our Company that you as a stockholder may consider favorable and may be in
your best interest. Our certificate of incorporation and bylaws contain
provisions that:





•
            authorize
      the issuance of  “blank check” preferred stock that could be
      issued by our board of directors to increase the number of outstanding
      shares and discourage a takeover attempt; and•
            limit
      who may call special meetings of
stockholders.





Our
stock price can be volatile.





The
future market price of our common stock could fluctuate widely because
of:


•
            future
      announcements about our Company or our competitors, including the results
      of testing, technological innovations or new commercial
      products;•
            negative
      regulatory actions with respect to our potential products or regulatory
      approvals with respect to our competitors’ products;•
            changes
      in government regulations;•
            developments
      in our relationships with our partners;•
            developments
      affecting our partners;•
            our
      failure to acquire or maintain proprietary rights to the products we
      develop;•
            litigation;
      and•
            public
      concern as to the safety of our
products.





-
10 -


he stock
market has experienced price and volume fluctuations that have particularly
affected the market price for many emerging companies. These fluctuations have
often been unrelated to the operating performance of these companies. These
broad market fluctuations may cause the market price of our common stock to be
lower or more volatile than otherwise expected.





Buying
low-priced penny stocks is very risky and speculative. The applicability of
the “penny stock rules” to broker-dealer sales of our common stock will have a
negative effect on the liquidity and market price of our common
stock.





Trading
in our shares is subject to the "penny stock rules" adopted pursuant to Rule
15g-9 of the Securities and Exchange Act of 1934, as amended, which apply to
companies that are not listed on an exchange and whose common stock trades at
less than $5.00 per share or which have a tangible net worth of less than
$5,000,000 - or $2,000,000 if we have been operating for three or more years.
The penny stock rules impose additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and institutional accredited investors. For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the penny stock rules will affect the ability of
broker-dealers to sell shares of our common stock and may affect the ability of
shareholders to sell their shares in the secondary market, as compliance with
such rules may delay and/or preclude certain trading transactions. The rules
could also have an adverse effect on the market price of our common
stock.





These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for our common stock. Many brokers may be
unwilling to engage in transactions in our common stock because of the added
disclosure requirements, thereby making it more difficult for stockholders to
dispose of their shares. You will also find it difficult to obtain accurate
information about, and/or quotations as to the price of our common
stock.





The
lack of a broker or dealer to create or maintain a market in our common stock
could adversely impact the price and liquidity of our securities.





We have
no agreement with any broker or dealer to act as a market maker for our
securities and there is no assurance that we will be successful in obtaining any
market makers. The lack of a market maker for our securities could adversely
influence the market for and price of our securities, as well as your ability to
dispose of, or to obtain accurate information about, and/or quotations as to the
price of, our securities.


We
do not expect to pay dividends on common stock.





We have
not paid any cash dividends with respect to our common stock, and it is unlikely
that we will pay any dividends on our common stock in the foreseeable
future





ITEM
2. DESCRIPTION OF PROPERTY.





As of
February 28, 2009, our business office was located at 33012 Calle Perfecto, San
Juan Capistrano, CA 92675. Our telephone number at this address is 949-234-1999.
We pay a total of approximately $8,300 in rent per month for approximately 7,200
square feet of office, operations and warehousing. We have a lease with an
unaffiliated third party, which was renewed in  January 2008 will
expire in August 2009.  The Company is uncertain as to whether this
lease will be renewed again upon expiration.




We own
two patents and numerous trade secrets, see Proprietary Information and
Technology above, and other proprietary information related to our business
operations. We recently filed for two trademarks: Seychelle which has been used
in commerce since 1997 and Aqua Gear, which had been previously abandoned by
Aqua Gear USA, to capitalize on the license agreement we secured from
them.








ITEM
3. LEGAL PROCEEDINGS.





As of the
date of this document, we know of no legal proceedings pending or threatened or
judgments entered against the Company or any of our directors or officers in his
or her capacity as such.







ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.








We did
not submit any matter to a vote of security holders through solicitation of
proxies during the fourth quarter of our fiscal year.


-
11 -


PART
II





ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.





Principal
Market or Markets





Our
Common Stock began trading in 1997 on the NASDAQ’s “Electronic Bulletin Board"
OTCBB.  Since the consummation of the Exchange Agreement between our
Company and SWT, market makers and other dealers have provided bid and ask
quotations of our Common Stock under the symbol "SYEV." We de-listed from the
OTCBB in 2002 and were traded on the "Pink Sheets" from December 2002 to March
11, 2008 when we were re-listed on the OTCBB. 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. For the fiscal
year ended February 28, 2009, the common stock was at a High bid price of $.55
and a Low bid price of $.09.





Fiscal
      Year 2009
                                  High
      Bid
                                  Low
      BidQuarter
      Ended:First
      Quarter May 2008
                                  $.44
                                  $.21Second
      Quarter August 2008
                                  $.40
                                  $.09Third
      Quarter November 2008
                                  $.55
                                  $.21Fourth
      Quarter February 2009
                                  $.25
                                  $.10





Fiscal
      Year 2008
                            High
      Bid
                            Low
      BidQuarter
      Ended:First
      Quarter May 2007
                            $.42
                            $.26Second
      Quarter August 2007
                            $.42
                            $.29Third
      Quarter November 2007
                            $.51
                            $.20Fourth
      Quarter February 2008
                            $.40
                            $.19


Approximate
Number of Holders of Common Stock




As of
February 28, 2009, there were approximately 363 shareholders of record of our
common stock.





Dividends




Holders
of our common stock are entitled to receive such dividends as may be declared by
our Board of Directors. Seychelle paid no dividends on the common stock during
the periods reported herein nor do we anticipate paying such dividends in the
foreseeable future.







ITEM
6. SELECTED FINANCIAL DATA





A smaller
reporting company is not required to provide the information in this
Item.





-
12 -


ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS







This
discussion summarizes the significant factors affecting the operating results,
financial condition, liquidity and cash flows of the Company and its subsidiary
for the fiscal years ended February 29, 2008 and February 28,
2009.  The discussion and analysis that follows should be read
together with the consolidated financial statements of Seychelle Environmental
Technologies, Inc. and the notes to the consolidated financial statements
included elsewhere in this annual report on Form 10-K.  Except for
historical information, the matters discussed in this section are forward
looking statements that involve risks and uncertainties and are based upon
judgments concerning various factors that are beyond the Company’s
control.





Application
of Critical Accounting Policies and Estimates





Our
consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses. These estimates and assumptions are affected by management’s
application of accounting policies.





Critical
accounting policies for us include our accounting for inventory reserves,
intangible assets, and share based payment arrangements.





Inventory
Reserves





At each
balance sheet date, the Company evaluates its ending inventory for excess
quantities and obsolescence.  This evaluation includes an analysis of
sales levels by product type.  Among other factors, the Company
considers current product configurations, historical and forecasted demand,
market conditions and product life cycles when determining the net realizable
value of the inventory.  This requires significant judgments including
estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for our business, and the period over
which cash flows will occur. Provisions are made to reduce excess or obsolete
inventories to their estimated net realizable values.  Once
established, write-downs are considered permanent adjustments to the cost basis
of the excess or obsolete inventory.  The Company’s reserve for excess
and obsolete inventory amounted to $134,313 as of February 28,
2009.





Intangible
Assets





Intangible
assets for us are patents, trademarks and other rights. Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, requires that goodwill and other intangible assets be tested for
impairment on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying value. These events or circumstances could
include a significant change in the business climate, legal factors, operating
performance indicators, competition or sale or disposition of a significant
portion of an operating unit. Application of the impairment test requires
judgment, including the identification of reporting units, assignment of assets
and liabilities to reporting units, assignment of intangibles to reporting
units, and determination of the fair value of each reporting unit. The fair
value of each reporting unit is estimated using a discounted cash flow
methodology. This requires significant judgments including estimation of future
cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, the useful life over which cash flows
will occur, and determination of our weighted average cost of capital. Changes
in these estimates and assumptions could materially affect the determination of
fair value and/or intangible impairment.





Share
Based Payment





SFAS No.
123(R), Share Based
Payment, requires companies to estimate the fair value of share based
payments on the date of grant. For stock grants, the Company uses the closing
price on the date of grant. For warrants, we use the Black Scholes option
pricing model. In order to estimate the fair value of the warrants, certain
assumptions are made regarding future events. Such assumptions include the
estimated future volatility of the Company’s stock price, the expected lives of
the awards and the expected forfeiture rate. Changes in these estimates would
change the estimated fair value of the awards and the corresponding accounting
for the rewards.





Recent
Accounting Pronouncements





In
June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore need to be included in the computation of earnings per share under
the two-class method as described in FASB Statement of Financial Accounting
Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning on or after
December 15, 2008 and earlier adoption is prohibited. We are not required to adopt
FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material
effect on our consolidated financial positionand results of
operations if adopted.


-
13 -





In
May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial
Guarantee Insurance Contracts-and interpretation of FASB Statement No.
60”.SFAS
No. 163 clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement of  premium
revenue and claims liabilities. This statement also requires expanded
disclosures about financial guarantee insurance contracts. SFAS No. 163 is
effective for fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”.SFAS No. 162 sets forth
the level of authority to a given accounting pronouncement or document by
category. Where there might be conflicting guidance between two categories, the
more authoritative category will prevail. SFAS No. 162 will become effective 60
days after the SEC approves the PCAOB’s amendments to AU Section 411 of the
AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.





In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.This standard requires companies to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company has not yet adopted the
provisions of SFAS No. 161, but does not expect it to have a material impact on
its financial position, results of operations or cash flows.





In
December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding
the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with SFAS No. 123 (R), Share-Based
Payment.  In particular, the staff indicated in SAB 107 that it
will accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined estimates of
expected term. At the time SAB 107 was issued, the staff believed that more
detailed external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would, over
time, become readily available to companies. Therefore, the staff stated in SAB
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31, 2007. The
Company currently uses the simplified method for “plain vanilla” share options
and warrants.  Implementation of SAB 110 did not have an impact on our
consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No.
51.  This statement amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. Before this
statement was issued, limited guidance existed for reporting noncontrolling
interests. As a result, considerable diversity in practice existed. So-called
minority interests were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and
equity. This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009,
for entities with calendar year-ends). Earlier adoption is prohibited. The
effective date of this statement is the same as that of the related Statement
141 (revised 2007). The Company will adopt this Statement beginning March 1,
2009. It is not believed that this will have an impact on the Company’s
financial position, results of operations or cash flows.





In
December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations.’This
Statement replaces FASB Statement No. 141, Business Combinations, but
retains the fundamental requirements in Statement 141.  This
Statement establishes principles and requirements for how the acquirer: (a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This statement
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. The
effective date of this statement is the same as that of the related FASB
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements.  The Company will adopt this
statement beginning March 1, 2009. It is not believed that this will have an
impact on the Company’s financial position, results of operations or cash
flows.


-
14 -


In
February 2007, the FASB, issued SFAS No. 159,The Fair Value Option for Financial
Assets and Liabilities—Including an Amendment of FASB Statement No.
115.  This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option is
available to all entities. Most of the provisions in FAS 159 are elective;
however, an amendment to FAS 115 Accounting for Certain Investments
in Debt and Equity Securities applies to all entities with available for
sale or trading securities. Some requirements apply differently to entities that
do not report net income. SFAS No. 159 is effective as of the beginning of an
entities first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the previous fiscal year provided that the
entity makes that choice in the first 120 days of that fiscal year and also
elects to apply the provisions of SFAS No. 157 Fair Value
Measurements.  The Company adopted SFAS No. 159 beginning March
1, 2008. The adoption of this pronouncement did not have an impact on the
Company’s financial position, results of operations or cash flows.





In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements  This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements.
However, for some entities, the application of this statement will change
current practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including financial statements for an interim period within that fiscal year.
The Company adopted this statement March 1, 2008. The adoption of this
pronouncement did not have an impact on the Company’s financial position,
results of operations or cash flows.





Results
of Operations





Our
summary historical financial data is presented in the following table to aid you
in your analysis.  You should read this data in conjunction with this
section entitled Management Discussion and Analysis of Financial Condition and
Results of Operations, our consolidated financial statements and the related
notes to the consolidated financial statements included elsewhere in this
report.  The selected consolidated statements of operations data for
the fiscal years ended February 29, 2008 and February 28, 2008 are derived from
our consolidated financial statements included elsewhere in this
report





Fiscal year ended February
28, 2009 compared to the corresponding period in fiscal
2008.




Selected
Financial Data





Years
      EndedFebruary
      28,
                      
                      
                      February
      29,
                      
                      
                      
                      
                      
                      Percentage2009
                      
                      
                      2008
                      
                      
                      Difference
                      
                      
                      ChangeSales
                      
                      $
                      1,123,370
                      
                      
                      $
                      858,769
                      
                      
                      
                      264,601
                      
                      
                      
                      31
                      %Cost
      of sales
                      
                      
                      594,766
                      
                      
                      
                      491,066
                      
                      
                      
                      103,700
                      
                      
                      
                      21
                      %Gross
      profit
                      
                      
                      528,604
                      
                      
                      
                      367,703
                      
                      
                      
                      160,901
                      
                      
                      
                      44
                      %Gross
      profit percentage
                      
                      
                      47
                      %
                      
                      
                      43
                      %Selling
      and marketing expenses
                      
                      
                      59,456
                      
                      
                      
                      33,645
                      
                      
                      
                      25,811
                      
                      
                      
                      77
                      %General
      and administrative expenses
                      
                      
                      520,305
                      
                      
                      
                      719,517
                      
                      
                      
                      (199,212
                      )
                      
                      
                      -28
                      %Loss
      from operations
                      
                      
                      (332,926
                      )
                      
                      
                      (385,459
                      )
                      
                      
                      (52,533)
                      
                      
                      
                      -14
                      %Interest
      expense
                      
                      
                      (59,540
                      )
                      
                      
                      (55,851
                      )
                      
                      
                      (3,689)
                      
                      
                      
                      -7
                      %Interest
      income
                      
                      
                      56
                      
                      
                      
                      7,887
                      
                      
                      
                      (7,831
                      )
                      
                      
                      -99
                      %Other
      income
                      
                      
                      62,255
                      
                      
                      
                      169,961
                      
                      
                      
                      (107,706
                      )
                      
                      -63
                      %Net
      loss
                      
                      
                      (330,155
                      )
                      
                      
                      (263,462
                      )
                      
                      
                      (66,693)
                      
                      
                      
                      -25
                      %Net
      cash provided by (used in) operating activities
                      
                      
                      255,424
                      
                      
                      
                      (271,785
                      )
                      
                      
                      518,553
                      
                      
                      
                      190
                      %Net
      cash provided by (used in) investing activities
                      
                      
                      42,466
                      
                      
                      
                      (135,967
                      )
                      
                      
                      185,527
                      
                      
                      
                      -136
                      %Net
      cash provided by (used in) financing activities
                      
                      
                      72,394
                      
                      
                      
                      (118,946
                      )
                      
                      
                      175,590
                      
                      
                      
                      -147
                      %





Sales. The increase in sales
is primarily attributable to two new customers acquired throughout fiscal year
ended February 28, 2009.    Sales to these customers
accounted for $289,000 of sales in fiscal year ended February 28,
2009.  Overall, the number of bottles sold with or without replacement
filters decreased by approximately 11% (from 85,000 bottles during 2008 to
76,000 bottles during 2009) while the average sales price per bottle increased
by 17%.  Customer concentration is constantly
changing  which contributes to most of the fluctuation in
sales.  During the fiscal year ended 2009, 9 customers accounted
for  69% of total sales.  Management is actively pursuing
additional sales opportunities and we expect sales in the year ending February
28, 2010 to be comparable to or higher than the level in the year ended February
28, 2009.


-
15 -








Cost of sales and gross profit
percentage.The increase in cost of sales and corresponding
increase in gross profit dollars and gross profit percentage is primarily due to
an increase in sales of approximately the same percentage of increase for cost
of sales.  The average sales price for bottles increased by 17%;
however the actual average cost of producing the bottles increased by 11% from
fiscal year 2008 to fiscal year 2009. The increase in production costs was
primarily due to changes made in the bottle design to reduce the number of
components in each product and additional items constantly in developing stages.
Since over a third of the sales in units were discontinued products and below a
40% gross margin in fiscal 2009, we expect the gross profit percentage to
improve going forward.




Selling and marketing
expenses.  The increase in selling expenses is primarily due to
sales commissions totaling $34,000 being paid to two representatives for
bringing in customers. This increase was slightly offset by a decrease in
advertising expense for the fiscal year ended February 28,
2009.  Sales and marketing costs are expected to remain at
approximately the same level in the year ending February 28, 2010 as compared to
fiscal 2009.




General and administrative expenses.The decrease in general and administrative expenses was primarily due to
the following : (1) There was a decrease in accounting fees of approximately
$152,000 due to different vendors being used in fiscal year ended 2009 for
auditing services and independent CPA services. (2) During the fiscal year ended
February 28, 2009, the Company decreased their legal expenses by approximately
$23,000.  During the fiscal year ended February 28, 2009, the Company
determined that there were no long lived assets in need of
impairment.





Interest expense.There was
not a significant change in interest expense for the fiscal year ended 2009
compared to the fiscal year ended 2008.





Interest income. The reduction
in interest income was due to a combination of lower interest rates available on
deposits and lower balances being carried in interest bearing accounts at the
bank.





Other income. The other income
during the year ended February 29, 2008 was a legal settlement. Other income
during the year ended February 28, 2009 was due to customer deposits that were
applied to miscellaneous income as per an agreement between Seychelle and the
customer.





Net loss. The net loss for the
fiscal year ended February 28, 2009 was $330,155 or 25% more than 2008 due to an
increase of $103,700 in cost of goods sold and an increase of $25,811 in selling
and marketing expenses.  However, most of this variable cost increase
was attributed to a 31% increase in sales as gross margins improved from 43% to
47%.   Looking further, the drop in other income by $107,705 (due
to a one-time gain of $168,000 in FY 2008) was the primary reason for the
increase in the net loss of $66,693,   As a result of better
overall control of expenses and the continued emphasis on higher gross margin
items with the discontinuance of products lower than 40%, we expect continued
improvement in the profitability of the Company.





CONTRACTUAL
OBLIGATIONS, COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS





The
Company has various contractual obligations, which are recorded as liabilities
in the consolidated financial statements. Other items, such as certain lease
agreements are not recognized as liabilities in our consolidated financial
statements but are required to be disclosed. For example, the Company is
contractually committed to make certain minimum lease payments to rent its
current corporate location.





The
following table summarizes our significant contractual obligations on an
undiscounted basis as of February 28, 2009 and the future periods in which such
obligations are expected to be settled in cash or converted into the Company’s
common stock. In addition, the table reflects the timing of principal and
interest payments on outstanding borrowings. Additional details regarding these
obligations are provided in footnotes, as referenced
below:


-
16 -





ConvertibleLess
      Than
                      
                      
                      
                      
                      
                      
                      
                      
                      More
      Than
                      
                      
                      to
      StockTotal
                      
                      
                      1
      Year
                      
                      
                      1-
      2 Years
                      
                      
                      2-3
      Years
                      
                      
                      3
      Years
                      
                      
                      or
      WarrantsAccounts
      payable and accrued liabilities
                      
                      $
                      92,818
                      
                      
                      $
                      92,817Customer
      deposits
                      
                      
                      177,325
                      
                      
                      
                      177,325Accrued
      interest to related party
                      
                      
                      76,359
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      245,087Note
      payable to related party
                      
                      
                      471,088
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      471,08840,000Note
      payable
                      
                      
                      126,802
                      
                      
                      
                      126,8021,113,119
                      
                      
                      
                      445,555
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      471,088
                      
                      
                      
                      285,087Other
      contractual commitments (2)
                      
                      
                      45,957
                      
                      
                      
                      43,668
                      
                      
                      
                      2,289Total
      contractual obligations
                      
                      $
                      1,159,076
                      
                      
                      $
                      489,223
                      
                      
                      $
                      2,289
                      
                      
                      $
                      
                      
                      
                      $
                      471,088
                      
                      
                      $
                      285,087________________(1)
      Increased to $100,000 in March 2008(2)
      Office lease commitment expiring August 2009 and office equipment
      lease





The
Company currently estimates monthly cash requirements of $46,000 to cover
general and administrative overhead costs.





As of
February 28, 2009, the Company has unrestricted cash of approximately $160,000
and a backlog of $179,000 in unshipped orders.  The Company believes
that additional funding may still be required in the form of related party notes
or other shareholder investment. During March 2008, the Company received an
additional $75,000 in related party notes to fund operations.  During
April 2008, the TAM Trust committed to providing up to $250,000 in additional
funding, if required.  As of February 28, 2009, $22,000 was available
to Seychelle.





Liquidity and capital
resources.





Net cash used in operating
activities. During the fiscal years ended February 28, 2009 and February
29, 2008, the Company funded its operations though the utilization of customer
deposits to pay for raw material and other production costs. The Company also
continues to pay some of its vendors in common stock instead of cash.
Additionally, the Company pays its related party interest expense in stock
purchase warrants. These activities conserve cash despite the losses incurred
during the year. Additionally, the Company has been successful in collecting its
accounts receivable timely, which also helps with operating cash
flow.





Net cash used in investing
activities. The fiscal 2009 decrease in cash from investment activities is due
to purchasing tooling throughout the year and the purchase of a bagging machine
for production.The fiscal 2008 increase in cash from investment
activities was primarily due to refinancing the airplane, resulting in a release
from the requirement to hold $150,000 as restricted cash.





Net cash used in financing
activities. In 2009, the Company exchanged the airplane for the remaining
loan outstanding on the airplane.  In 2008, the Company obtained
additional financing by restructuring the airplane note and receiving additional
loans from a related party.





Our
principal sources of liquidity have historically been borrowings from one of our
principal shareholders.  As of February 28, 2009, the shareholder has
loaned the Company $471,088 at 10% simple interest, repayable after March 1,
2011.   The Company has accrued $76,359 for interest costs to the
related party as of February 28, 2009.   During March 2008, the
Company received an additional $75,000 in funds from the TAM Trust to continue
the development of its new emergency preparedness products.  During April
2008, the TAM Trust committed to providing up to $250,000 in additional funding,
if required.  The Company believes it has liquidity and committed
funds to meet its operating needs through fiscal 2010.





Capital
expenditures.





We do not
expect any significant capital expenditures in fiscal 2010, except for
additional molds or tooling to supplement our existing capital equipment, which
can be funded out of current cash flow.


-
17 -


Research and
development.





We are
operating in a business that requires extensive and continuing research,
development and testing efforts.  However, there is no separate
allocation of salaries for Carl Palmer in research and
development.   The portable filtration bottles are continuously
being redesigned to find the most efficient way to produce the product while
making all products as high quality as possible.





Employees.





We
anticipate no additional executive and non-executive hiring.  Any
projected increase in the business can be handled through the addition of
variable and independent plant contractors and outside consultants.





Causes for any material
changes from period to period.





In the
fiscal year ended February 28, 2009, sales were $1,123,170 compared to the same
period in the prior year with sales of $858,769.  Company management
believes that the business is prepared to continue growth with both new and
current (international and domestic) customers purchasing product. Our
experience is that the general market for the sales of pure water increases
during the summer months. Our experience to date has not shown measurable
increases due to its very limited retail distribution. As previously noted,
gross profit margins have increased due to lower outside assembly labor and raw
material costs and higher sales prices and overall product mix. At this time,
the Company does not know what the impact of the patents expiration will be, as
the expiration will not occur for several years. Finally, there are no
off-balance sheet arrangements to skew sales.




Any seasonal
aspects




We have
not experienced seasonal sales spikes in our sales as a result of our very
limited retail distribution.




Off-Balance
Sheet Arrangements: none




-
18 -


ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
















logo






SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC.





Consolidated
Financial Statements


Fiscal
Years Ended February 28, 2009 and February 29, 2008

















-
19 -





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 To
the Board of Directors
 Seychelle
Environmental Technologies Inc.
 
 
 We have
audited the accompanying consolidated balance sheets of Seychelle Environmental
Technologies Inc.  as of February 28, 2009, and the related
consolidated statements of operations, stockholders’ deficit and cash flows for
the years ended February 28, 2009 and February 29, 2008. These financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conduct our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Seychelle Environmental
Technologies Inc.  as of February 28, 2009, and the related statements
of operations, stockholders’ deficit and cash flows for the years ended February
28, 2009 and February 29, 2008, in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, the Company has experienced recurring
losses from operations and has an accumulated deficit of $7,015,849, which
raises substantial doubt about its ability to continue as a going
concern.  Management’s plans concerning these matters are also
described in Note 1.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 
 
 /s/
Moore & Associates, Chartered
 
 Moore
& Associates, Chartered
 Las
Vegas, Nevada
 May 22,
2009
 6490 West Desert Inn Rd, Las
Vegas, NV 89146 (702) 253-7499 Fax (702)
253-7501
 -
20 -




REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM











To the
Board of Directors and Stockholders


of
Seychelle Environmental Technologies, Inc.:





We have
audited the accompanying consolidated balance sheet of Seychelle Environmental
Technologies, Inc. and subsidiary (the Company) as of February 29, 2008, and the
related consolidated statements of operations, changes in stockholders’ deficit,
and cash flows for the fiscal year ended February 29, 2008.  These
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 audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides 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. and subsidiary as of February 29, 2008, and the
results of their operations and their cash flows for the fiscal year ended
February 29, 2008, in conformity with accounting principles generally accepted
in the United States of America.





As
described in Notes 2 and 9 to the consolidated financial statements, effective
March 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No.109."











/s/
Windes & McClaughry Accountancy Corporation


Windes
& McClaughry Accountancy Corporation








Irvine,
California


May 29,
2008




-
21 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS


FEBRUARY
28, 2009 and FEBRUARY 29, 2008








ASSETS2009
                                                                
                                                                
                                                                2008Current
      assets:Cash
      and cash equivalents
                                                                
                                                                $
                                                                160,415
                                                                
                                                                
                                                                $
                                                                19,851Accounts
      receivable, net61,447
                                                                
                                                                
                                                                
                                                                20,709Inventory,
      net
                                                                
                                                                
                                                                409,353
                                                                
                                                                
                                                                
                                                                383,372Prepaid
      expenses and other current assets
                                                                
                                                                
                                                                77,827
                                                                
                                                                
                                                                
                                                                23,386Asset
      held for sale
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                149,111Total
      current assets
                                                                
                                                                
                                                                709,042
                                                                
                                                                
                                                                
                                                                596,429Property
      and equipment, net
                                                                
                                                                
                                                                129,964
                                                                
                                                                
                                                                
                                                                112,095Intangible
      assets, net
                                                                
                                                                
                                                                16,374
                                                                
                                                                
                                                                
                                                                23,468Other
      assets
                                                                
                                                                
                                                                6,624
                                                                
                                                                
                                                                
                                                                6,624Total
      assets
                                                                
                                                                $
                                                                862,004
                                                                
                                                                
                                                                $
                                                                738,616LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable and accrued expenses
                                                                
                                                                $
                                                                92,818
                                                                
                                                                
                                                                $
                                                                133,356Customer
      deposits
                                                                
                                                                
                                                                177,325
                                                                
                                                                
                                                                
                                                                66,951Accrued
      interest due to related party
                                                                
                                                                
                                                                76,359
                                                                
                                                                
                                                                
                                                                221,170Notes
      payable
                                                                
                                                                
                                                                126,802
                                                                
                                                                
                                                                
                                                                258,446Total
      current liabilities
                                                                
                                                                
                                                                473,304
                                                                
                                                                
                                                                
                                                                679,923Long-term
      related party notes payable
                                                                
                                                                
                                                                471,088
                                                                
                                                                
                                                                
                                                                396,088Total
      liabilities
                                                                
                                                                
                                                                944,392
                                                                
                                                                
                                                                
                                                                1,076,011Commitments
      and contingencies (Note 10)Stockholders'
      deficit:Preferred
      stock, 6,000,000 shares authorized, none issued or
    outstanding
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Common
      stock $0.001 par value, 50,000,000 shares authorized, 25,824,146 and
      25,613,670 shares issued and outstanding, respectively
                                                                
                                                                
                                                                25,824
                                                                
                                                                
                                                                
                                                                25,614Additional
      paid-in capital
                                                                
                                                                
                                                                6,907,637
                                                                
                                                                
                                                                
                                                                6,322,685Accumulated
      deficit
                                                                
                                                                
                                                                (7,015,849
                                                                )
                                                                
                                                                
                                                                (6,685,694
                                                                )Total
      stockholders' deficit
                                                                
                                                                
                                                                (82,388
                                                                )
                                                                
                                                                
                                                                (337,395
                                                                )Total
      liabilities and stockholders' deficit
                                                                
                                                                $
                                                                862,004
                                                                
                                                                
                                                                $
                                                                738,616





The
accompanying notes are an integral part of these consolidated financial
statements


-
22 -







SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS








For
      the Years EndedFebruary
      28,
                          
                          
                          February
      29,2009
                          
                          
                          2008Revenues
                          
                          $
                          1,123,370
                          
                          
                          $
                          858,769Cost
      of sales
                          
                          
                          594,766
                          
                          
                          
                          491,066Gross
      profit
                          
                          
                          528,604
                          
                          
                          
                          367,703Operating
      ExpensesSelling
      and marketing expenses
                          
                          
                          59,456
                          
                          
                          
                          33,645General
      and administrative expenses
                          
                          
                          520,305
                          
                          
                          
                          665,871Compensation
      to executive officers
                          
                          
                          281,769
                          
                          
                          
                          53,646Total
      operating expenses
                          
                          
                          861,530
                          
                          
                          
                          753,162Loss
      from operations
                          
                          
                          (332,926
                          )
                          
                          
                          (385,459
                          )Other
      Income(Expense)Interest
      income
                          
                          
                          56
                          
                          
                          
                          7,887Interest
      expense-related parties
                          
                          
                          (47,766
                          )
                          
                          
                          (38,861
                          )Interest
      expense-other
                          
                          
                          (11,774
                          )
                          
                          
                          (16,990
                          )Miscellaneous
      expense(income)
                          
                          
                          62,255
                          
                          
                          
                          169,961Total
      other income(expense)
                          
                          
                          2,771
                          
                          
                          
                          121,997Loss
      before income tax expense
                          
                          
                          (330,155
                          )
                          
                          
                          (263,462
                          )Provision
      for income taxes
                          
                          
                          -
                          
                          
                          
                          -Net
      loss
                          
                          $
                          (330,155
                          )
                          
                          $
                          (263,462
                          )BASIC
      AND DILUTED LOSS PER SHARE
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.01
                          )WEIGHTED
      AVERAGE NUMBER OFSHARES
      OUTSTANDING
                          
                          
                          25,773,953
                          
                          
                          
                          25,351,604





The
accompanying notes are an integral part of these consolidated financial
statements


-
23 -













SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT





Common
      Stock
                        
                        
                        Additional
                        
                        
                        AccumulatedShares
                        
                        
                        Amount
                        
                        
                        Paid-In
      Capital
                        
                        
                        Deficit
                        
                        
                        TotalBalance
      at February 28, 2007
                        
                        
                        25,150,896
                        
                        
                        $
                        25,151
                        
                        
                        $
                        6,106,916
                        
                        
                        $
                        (6,422,232
                        )
                        
                        $
                        (290,165
                        )Contributed
      executive services
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        10,000
                        
                        
                        
                        
                        
                        
                        
                        10,000Issuance
      of common stock for compensation
                        
                        
                        83,500
                        
                        
                        
                        84
                        
                        
                        
                        24,545
                        
                        
                        
                        
                        
                        
                        
                        24,629Issuance
      of common stock as partial payment of accounts payable
                        
                        
                        389,274
                        
                        
                        
                        389
                        
                        
                        
                        125,783
                        
                        
                        
                        
                        
                        
                        
                        126,172Warrants
      issued as payment of accrued interest due to related party
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        60,509
                        
                        
                        
                        
                        
                        
                        
                        60,509Warrants
      issued for services
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        32,422
                        
                        
                        
                        
                        
                        
                        
                        32,422Buy
      back of common stock
                        
                        
                        (10,000
                        )
                        
                        
                        (10
                        )
                        
                        
                        (37,490
                        )
                        
                        
                        
                        
                        
                        
                        (37,500
                        )Net
      loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (263,462
                        )
                        
                        
                        (263,462
                        )Balance
      at February 29, 2008
                        
                        
                        25,613,670
                        
                        
                        
                        25,614
                        
                        
                        
                        6,322,685
                        
                        
                        
                        (6,685,694
                        )
                        
                        
                        (337,395
                        )Contributed
      executive services
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        10,000
                        
                        
                        
                        -
                        
                        
                        
                        10,000Issuance
      of common stock for compensation
                        
                        
                        40,000
                        
                        
                        
                        40
                        
                        
                        
                        11,960
                        
                        
                        
                        
                        
                        
                        
                        12,000Issuance
      of common stock as partial payment of accounts payable
                        
                        
                        230,476
                        
                        
                        
                        230
                        
                        
                        
                        66,504
                        
                        
                        
                        
                        
                        
                        
                        66,734Warrants
      issued as payment of accrued interest due to related party
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        224,970
                        
                        
                        
                        
                        
                        
                        
                        224,970Warrants
      issued for services
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        287,208
                        
                        
                        
                        
                        
                        
                        
                        287,208Buy
      back of common stock
                        
                        
                        (60,000
                        )
                        
                        
                        (60
                        )
                        
                        
                        (15,690
                        )
                        
                        
                        
                        
                        
                        
                        (15,750
                        )Net
      loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (330,155
                        )
                        
                        
                        (330,155
                        )Balance
      at February 28,2009
                        
                        
                        25,824,146
                        
                        
                        $
                        25,824
                        
                        
                        $
                        6,907,637
                        
                        
                        $
                        (7,045,534
                        )
                        
                        $
                        (82,388
                        )





The
accompanying notes are an integral part of these consolidated financial
statements


-
24 -







SEYCHELLE ENVIRONMENTAL TECHNOLOGIES,
INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Years
      EndedFebruary
      28,
                                        
                                        
                                        February
      29,2009
                                        
                                        
                                        2008OPERATING
      ACTIVITIES:Net
      loss
                                        
                                        $
                                        (330,155
                                        )
                                        
                                        $
                                        (263,462
                                        )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                                        
                                        
                                        31,691
                                        
                                        
                                        
                                        43,188Stock-based
      compensation and interest expense
                                        
                                        
                                        534,178
                                        
                                        
                                        
                                        57,051Contributed
      executive services
                                        
                                        
                                        
                                        
                                        
                                        
                                        10,000Provision
      for doubtful accounts
                                        
                                        
                                        3,896
                                        
                                        
                                        
                                        2,094Gain
      on common stock issued as settlement of payables
                                        
                                        
                                        
                                        
                                        
                                        
                                        (47,276
                                        )Reserve
      for obsolete and slow moving inventory
                                        
                                        
                                        
                                        
                                        
                                        
                                        (49,785
                                        )Gain
      on disposal of property and equipment
                                        
                                        
                                        
                                        
                                        
                                        
                                        (3,057
                                        )Changes
      in operating assets and liabilities:(Increase)
      decrease in accounts receivable
                                        
                                        
                                        (44,634
                                        )
                                        
                                        
                                        50,071(Increase)
      decrease in inventory
                                        
                                        
                                        (25,981
                                        )
                                        
                                        
                                        24,776(Increase)
      decrease in prepaid expenses and other assets
                                        
                                        
                                        12,293
                                        )
                                        
                                        
                                        120,805(Increase)
      decrease in asset held for sale
                                        
                                        
                                        149,111
                                        
                                        
                                        
                                        (11,239
                                        )Increase
      (decrease) in accounts payable and accrued expenses
                                        
                                        
                                        (40,538
                                        )
                                        
                                        
                                        (17,545
                                        )Increase
      (decrease) in accrued interest payable to related party
                                        
                                        
                                        (144,811
                                        )
                                        
                                        
                                        29,918Increase
      (decrease) in customer deposits
                                        
                                        
                                        110,374
                                        
                                        
                                        
                                        (217,324
                                        )Net
      Cash Provided by (Used in) Operating Activities
                                        
                                        
                                        255,424
                                        
                                        
                                        
                                        (271,785
                                        )INVESTING
      ACTIVITIES:Release
      of restricted cash
                                        
                                        
                                        -
                                        
                                        
                                        
                                        150,000Proceeds
      from sale of property and equipment
                                        
                                        
                                        
                                        
                                        
                                        
                                        3,500Purchase
      in property and equipment
                                        
                                        
                                        (42,466
                                        )
                                        
                                        
                                        (17,567
                                        )Increase
      in intangible assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        (84
                                        )Decrease
      in other assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        118Net
      Cash Provided by (Used) in Investing Activities
                                        
                                        
                                        (42,466
                                        )
                                        
                                        
                                        135,967FINANCING
      ACTIVITIES:Proceeds
      from related party notes payable
                                        
                                        
                                        75,000
                                        
                                        
                                        
                                        96,913Proceeds
      from notes payable
                                        
                                        
                                        
                                        
                                        
                                        
                                        179,500Repayment
      of notes payable
                                        
                                        
                                        (131,644
                                        )
                                        
                                        
                                        (137,467
                                        )Payments
      of buy back of common stock
                                        
                                        
                                        (15,750
                                        )
                                        
                                        
                                        (20,000
                                        )Net
      Cash Provided by (Used) by Financing Activities
                                        
                                        
                                        (72,394
                                        )
                                        
                                        
                                        118,946NET
      INCREASE (DECREASE) IN CASH
                                        
                                        
                                        140,564
                                        
                                        
                                        
                                        (16,872
                                        )CASH
      AT BEGINNING OF YEAR
                                        
                                        
                                        19,851
                                        
                                        
                                        
                                        36,723CASH
      AT END OF YEAR
                                        
                                        $
                                        160,415
                                        
                                        
                                        
                                        19,851NON-CASH
      INVESTING AND FINANCING ACTIVITIESStock
      issued for settlement of debt and accounts payable
                                        
                                        $
                                        66,734
                                        
                                        
                                        $
                                        173,448Stock
      and warrants issued for services and interest
                                        
                                        $
                                        534,178
                                        
                                        
                                        $
                                        85,138Supplemental
      disclosures of cash flow information:Cash
      Paid for:Interest
                                        
                                        $
                                        29,623
                                        
                                        
                                        $
                                        25,933Income
      taxes
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -




The
accompanying notes are an integral part of these consolidated financial
statements


-
25 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008









NOTE
1:   ORGANIZATION AND DESCRIPTION OF BUSINESS





Organization





Seychelle
Environmental Technologies, Inc. (SET) was incorporated under the laws of the
State of Nevada on January 23, 1998 as a change in 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.





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 and marketing 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 attempted a purchase of 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 Cumulative Preferred Voting Stock to Aqua Vision’s owners. As a
result, Aqua Vision’s owners became the ultimate controlling stockholder of
SET.  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.





Description of
Business





The
Company designs, manufactures and supplies water filtration systems to the
general public. These systems 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 a facility.





Management’s
Plan





As
reflected in the accompanying consolidated financial statements, the Company has
experienced recurring losses from operations and has an accumulated deficit of
$7,015,849 as of February 28, 2009. These factors, among others, raise
substantial doubt about the Company’s ability to continue as a going
concern.




In view
of the matters described in the preceding paragraph, recoverability of a major
portion of the recorded asset amounts shown in the accompanying consolidated
balance sheets is dependent upon continued operations of the Company, which, in
turn, is dependent upon the Company’s ability to continue to raise capital and
ultimately generate positive cash flows from operations. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue its existence.





Management’s
plan regarding these matters is to develop a reliable source of revenues, and
achieve a profitable level of operation. As of February 28, 2009 the Company had
$160,415 in cash and a backlog of $179,000 in unshipped products.  Over the
next twelve months, management believes that sufficient working capital will be
obtained from a combination of revenues and external financing. However,
additional funding may still be required from the TAM Irrevocable Trust (TAM
Trust), a related entity, or other shareholders. During June 2007, the TAM Trust
committed to providing up to $250,000 in additional funding, if required.
Available borrowings under this commitment as of February 28, 2009 were
approximately $22,000.  In April 2009, the TAM Trust committed to fund
up to an addition $250,000 under similar terms as the current amount
outstanding.


-
26 -







SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 28, 2008





NOTE
2:   SIGNIFICANT ACCOUNTING POLICIES





Basis of
Presentation





The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America.





Principles of
Consolidation





The
consolidated financial statements include the accounts of SET and its wholly
owned subsidiary, SWT, (collectively the Company). All significant intercompany
transactions and balances have been eliminated in consolidation.





Use of
Estimates





The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States, 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 periods. Significant estimates made
in preparing the consolidated financial statements include the allowance for
doubtful accounts, sales returns, stock based compensation, inventory reserves,
valuation allowances for property and equipment and intangible assets, deferred
income tax valuation allowances and litigation. To the extent there are material
differences between estimates and the actual results, future results of
operations will be affected.





Cash and Cash
Equivalents





Cash
equivalents are comprised of certain highly liquid investments with original
maturities of three months or less when purchased.  The Company
maintains its cash in bank deposit accounts which at times may exceed federally
insured limits.  The Company has not experienced any losses related to
this concentration of risk.





Accounts
Receivable





The
Company performs periodic credit evaluations of its customers’ financial
condition and does not require collateral. Trade 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 trade receivables balance will not be collected. The
Company’s allowance for doubtful accounts of $3,986 and $2,094, as of February
28, 2009 and February 29, 2008, respectively.





As of
February 28, 2009, the Company had four customers which accounted for 38%, 13%,
10%, and 9% of net accounts receivable.  The Company had two customers
during the fiscal year ended February 28, 2009 that accounted for 19% of total
sales.  The Company had two customers during the fiscal year ended
February 29, 2008 that accounted for 26% and 18% of total sales., and four
customers which accounted for 28%, 26%, 19% and 13% of net accounts receivable
as of February 29, 2008.





Inventory





Inventory
is stated at the lower of cost or net realizable value. Cost is determined on a
first-in, first-out basis; and the inventory is comprised of raw materials and
finished goods. Work in process of approximately $28,620 at February 28,
2009.  Raw materials consist of fittings, caps and other components
necessary to assemble the Company’s finished goods.  Finished goods
consist of water bottles and other filtration systems that are available for
shipment to customers.  Finished goods include the costs of materials,
labor and an allocation of overhead.  Total overhead allocated to
inventory as of February 28, 2009 and February 29, 2008 amounted to $185,633 and
$134,555., respectively.





At each
balance sheet date, the Company evaluates its ending inventory for excess
quantities and obsolescence.  This evaluation includes an analysis of
sales levels by product type.  Among other factors, the Company
considers current product configurations, historical and forecasted demand,
market conditions and product life cycles when determining the net realizable
value of the inventory.  Provisions are made to reduce excess or
obsolete inventories to their estimated net realizable values.  Once
established, write-downs are considered permanent adjustments to the cost basis
of the excess or obsolete inventory.  The Company’s reserve for excess
and obsolete inventory amounted to $134,313 as of February 28, 2009 and $193,645
as of February 29, 2008.


-
27 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 28, 2008










Asset Held For
Sale





As of February 28, 2009, the Company no
longer was in possession of any assetsheldfor sale.As of February 28, 2008,  the
Company’s asset held for sale consisted of an airplane, which was stated at the
lower of its carrying value or estimated fair value less cost to sell.TheCompany defaulted on a loan in July 2008
which held the Company’s airplane as collateral.  A contingent
liability exists due to this default.





Property and
Equipment





Property
and equipment are stated at cost.  Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable
assets.  The estimated useful lives used in determining depreciation
are three to five years for tooling, five years for computers and vehicles, and
five to seven years for furniture and equipment. Management evaluates useful
lives regularly in order to determine recoverability taking into consideration
current technological conditions.





Maintenance
and repairs are charged to expense as incurred; additions and betterments are
capitalized. Upon retirement or sale, the cost and related accumulated
depreciation of the disposed assets are removed, and any resulting gain or loss
is recorded. Fully depreciated assets are not removed from the accounts until
physical disposition.





Intangible
Assets





Intangible
assets include patents and purchased product rights and technology costs. All
patents and purchased product rights and technology costs are capitalized and
amortized over the expected economic life of five 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.





Long-Lived
Assets





In
accordance with FASB Statement No. 144 (Statement 144), Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets, such as property,
plant, and equipment, and purchased intangible assets subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If circumstances
require a long-lived asset be tested for possible impairment, the Company first
compares undiscounted cash flows expected to be generated by an asset to the
carrying value of the asset. If the carrying value of the long-lived asset is
not recoverable on an undiscounted cash flow basis, an impairment is recognized
to the extent that the carrying value exceeds its fair value. Fair value is
determined through various valuation techniques including discounted cash flow
models, quoted market values and third-party independent appraisals, as
considered necessary.





Customer
Deposits





Customer
deposits represent advance payments received for products and are recognized as
revenue in accordance with the Company’s revenue recognition
policy.





Fair Value of Financial
Instruments





For
certain financial instruments, including accounts receivable, accounts payable
and accrued expenses, the carrying amounts approximate fair value due to their
relatively short maturities. In the case of the notes payable, the interest rate
on the notes approximates the market rate of interest for similar borrowings.
Consequently the carrying value of the notes payable also approximates the fair
value. It is not practicable to estimate the fair value of the related party
notes payable due to the relationship of the counterparty.


-
28 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008










Operating
Segments





The
Company operates in one operating segment.





Revenue
Recognition





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
title has passed, the price to the buyer is fixed or determinable and
collectability is reasonably assured.  These criteria are typically
met when the product is shipped. Revenue is not recognized at the time of
shipment if these criteria are not met.





Certain
of the Company’s sales include a right for the customer to return the product if
they are not satisfied.  The Company has an unconditional return
policy for the first 90 days.  Customers may return the product for a
full refund, or they may receive a replacement at no charge. The same policy
applies to any product sold from the period 91 days after purchase to one year,
for any defects in materials or workmanship.  In accordance with
Statement of Financial Accounting Standards (SFAS) No. 48, Revenue Recognition When Right of
Return Exists, the Company makes periodic assessments of return activity
and if necessary records a reserve for product returns.





Cost of
Sales




Cost of
sales is comprised primarily of the cost of purchased product, as well as labor,
inbound freight costs and other material costs required to complete products.
Overhead costs such as rent, depreciation, purchasing and inspection costs are
allocated between production and administrative costs. The costs allocated to
production are capitalized into inventory and recognized as cost of sales as the
related products are sold.





Shipping and
Handling





All
amounts billed to customers relating to shipping and handling are reported as a
component of product sales. Costs incurred by the Company for shipping and
handling, including transportation costs paid to third party shippers, are
reported as a component of cost of sales.





Sales
Tax





The
Company collects sales tax in various jurisdictions. Upon collection from
customers, it records the amount as a payable to the related jurisdiction. On a
periodic basis, it files a sales tax return with the jurisdictions and remits
the amount indicated on the return. Any difference between what it collected and
what it remits to the taxing authorities is recorded on a net basis into
operations.





Advertising
Expenses





Advertising
expenses are expensed as incurred.  Total advertising expenses
amounted to $nil and $12,161 for the fiscal years ended February 28, 2009 and
February 29, 2008, respectively, and are included in selling and marketing
expenses in the accompanying consolidated statements of operations.





Research and
Development





Research
and development costs are expensed as incurred and amounted to $3,101 and $1,940
for the fiscal years ended February 28, 2009 and February 29, 2008,
respectively. These costs are included in general and administrative expenses in
the accompanying consolidated statements of operations.


-
29 -







SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008










Share Based
Payment





On March
1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share Based Payment, (SFAS
No. 123(R)) which establishes standards for the accounting of transactions in
which an entity exchanges its equity instruments for goods or services,
primarily focusing on accounting for transactions where an entity obtains
services in share based payment transactions. SFAS No. 123(R) requires entities
to measure the cost of services received in exchange for an award of equity
instruments, including stock options and warrants, based on the grant date fair
value of the award and to recognize it as compensation expense over the period
required to provide service in exchange for the award, usually the vesting
period. SFAS No. 123(R) superseded the Company’s previous accounting under
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees.




The
Company adopted SFAS No. 123(R) on March 1, 2006 using the modified prospective
transition method. Consequently, the Company’s consolidated financial statements
as of and for the fiscal years ended February 28, 2009 and February 29, 2008
reflect the impact of SFAS No. 123(R).





In
accordance with SFAS No. 123(R), the fair value of share based awards is
calculated using the Black Scholes option-pricing model. This model was
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions. As such, the values derived from using
that model can differ significantly from other methods of valuing the Company’s
share based payment arrangements. The Black Scholes model also requires
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values.  These
factors could change in the future, affecting the determination of share based
payment expense in future periods.





The
weighted average fair value of stock based compensation is based on the single
option valuation approach.  The Company applied an estimated
forfeiture rate of 0% for officer grants, as the vesting periods are
substantially complete.  As of February 28, 2009 and February 29,
2008, there were no warrants granted to non-officers of the Company and
therefore, no forfeiture rate was utilized.  The estimated fair value
of share based compensation awards is amortized using the straight line method
over the vesting period of the warrants or restricted common shares, as such
method is consistent with the officer's contractual obligation.  The
Company’s fair value calculations for share based compensation awards for the
fiscal years ended February 28, 2009 and February 29, 2008 were based on the
following assumptions.





Years
      EndedFebruary
      28,
                          
                          February
      29,2009
                          
                          2008Expected
      life in years
                          
                          
                          2
                          
                          2Stock
      price volatility
                          
                          
                          139-161%
                          
                          167%Risk
      free interest rate
                          
                          
                          2.3
      - 3.1%
                          
                          2.3
      - 3.1%Expected
      dividends
                          
                          
                          None
                          
                          NoneForfeiture
      rate
                          
                          
                          0%
                          
                          0%





The
assumptions used in the Black Scholes models referred to above are based upon
the following data: (1) The expected life of the warrant is estimated by
considering the contractual term of the warrant, the vesting period of the
warrant, the officer’s expected exercise behavior and the officer’s post-vesting
turnover rate, if any. (2) The expected stock price volatility of the
underlying shares over the expected term of the warrants is based upon
historical share price data. (3) The risk free interest rate is based on
published U.S. Treasury Department interest rates for the expected terms of the
underlying warrants. (4) Expected dividends are based on historical dividend
data and expected future dividend activity. (5) The expected forfeiture rate is
based on historical forfeiture activity and assumptions regarding future
forfeitures based on the composition of current grantees.


-
30 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008







Income
Taxes





Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Beginning with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes(FIN 48) as of March 1, 2007, the Company recognizes the effect of income
tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs.
Prior to the adoption of FIN 48, the Company recognized the effect of income tax
positions only if such positions were probable of being sustained.




The
Company records interest related to unrecognized tax benefits in interest
expense and penalties in selling, general, and administrative
expenses.





Loss Per Common
Share





Basic net
loss per common share is computed by dividing the net loss by the weighted
average number of outstanding common shares (restricted and free trading) during
the periods presented. Basic loss per share and diluted loss per share are the
same amount because the impact of additional common shares that might have been
issued under the Company’s outstanding and exercisable warrants would be
anti-dilutive.





There
were 6,215,642 potentially dilutive shares that were excluded from the shares
used to calculate diluted loss per share for the years ended February 28, 2009
and February 29, 2008, respectively, as their inclusion would dilute the net
loss per share.




Concentrations





The
Company has an agreement for a third party to manufacture the Company’s
component parts in China. As of February 28, 2009 and February 29, 2008, the
Company had prepaid inventory in China of approximately $12,084 and $2,000,
respectively. For the fiscal years ended February 28, 2009 and February 29,
2008, this vendor accounted for approximately 42% and 77%, respectively, of
total raw material purchases.





Reclassifications




Certain
amounts in fiscal 2008 consolidated financial statements have been reclassified
to conform to the fiscal 2009 presentation.  Specifically, compensation to
executive officers was reclassified from general and administrative expenses and
interest expense-related parties was reclassified from interest
expense-other.





Recent Accounting
Pronouncements




In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore need to be included in the computation of earnings per share under
the two-class method as described in FASB Statement of Financial Accounting
Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning on or after
December 15, 2008 and earlier adoption is prohibited. We are not required
to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have
material effect on our consolidated financial positionand results of
operations if adopted.


-
31 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008











In
May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial
Guarantee Insurance Contracts-and interpretation of FASB Statement No.
60”.SFAS
No. 163 clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement of  premium
revenue and claims liabilities. This statement also requires expanded
disclosures about financial guarantee insurance contracts. SFAS No. 163 is
effective for fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.





In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162,
“The Hierarchy of Generally
Accepted Accounting Principles”.SFAS No. 162 sets forth
the level of authority to a given accounting pronouncement or document by
category. Where there might be conflicting guidance between two categories, the
more authoritative category will prevail. SFAS No. 162 will become effective 60
days after the SEC approves the PCAOB’s amendments to AU Section 411 of the
AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.





In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.This standard requires companies to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company has not yet adopted the
provisions of SFAS No. 161, but does not expect it to have a material impact on
its financial position, results of operations or cash flows.





In
December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding
the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with SFAS No. 123 (R), Share-Based
Payment.  In particular, the staff indicated in SAB 107 that it
will accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined estimates of
expected term. At the time SAB 107 was issued, the staff believed that more
detailed external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would, over
time, become readily available to companies. Therefore, the staff stated in SAB
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31, 2007. The
Company currently uses the simplified method for “plain vanilla” share options
and warrants.  Implementation of SAB 110 did not have an impact on our
consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No.
51.  This statement amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. Before this
statement was issued, limited guidance existed for reporting noncontrolling
interests. As a result, considerable diversity in practice existed. So-called
minority interests were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and
equity. This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009,
for entities with calendar year-ends). Earlier adoption is prohibited. The
effective date of this statement is the same as that of the related Statement
141 (revised 2007). The Company will adopt this Statement beginning March 1,
2009. It is not believed that this will have an impact on the Company’s
financial position, results of operations or cash flows.







-
32 -






SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 February
28, 2009 and February 29, 2008







In
December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations.’ This
Statement replaces FASB Statement No. 141, Business Combinations, but
retains the fundamental requirements in Statement 141.  This
Statement establishes principles and requirements for how the acquirer: (a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This statement
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. The
effective date of this statement is the same as that of the related FASB
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements.  The Company will adopt this
statement beginning March 1, 2009. It is not believed that this will have an
impact on the Company’s financial position, results of operations or cash
flows.





In
February 2007, the FASB, issued SFAS No. 159,The Fair Value Option for Financial
Assets and Liabilities—Including an Amendment of FASB Statement No.
115.  This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option is
available to all entities. Most of the provisions in FAS 159 are elective;
however, an amendment to FAS 115 Accounting for Certain Investments
in Debt and Equity Securities applies to all entities with available for
sale or trading securities. Some requirements apply differently to entities that
do not report net income. SFAS No. 159 is effective as of the beginning of an
entities first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the previous fiscal year provided that the
entity makes that choice in the first 120 days of that fiscal year and also
elects to apply the provisions of SFAS No. 157 Fair Value
Measurements.  The Company adopted SFAS No. 159 beginning March
1, 2008. The adoption of this pronouncement did not have an impact on the
Company’s financial position, results of operations or cash flows.





In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements  This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements.
However, for some entities, the application of this statement will change
current practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including financial statements for an interim period within that fiscal year.
The Company adopted this statement March 1, 2008. The adoption of this
pronouncement did not have an impact on the Company’s financial position,
results of operations or cash flows.


-
33 -


SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008














NOTE
3:   INVENTORY





The
Company’s inventory consisted of the following at February 28, 2009
and  February 29, 2008:





2009
                        
                        
                        2008Raw
      materials
                        
                        $
                        230,018
                        
                        
                        $
                        210,417Work
      in Progress
                        
                        
                        53,187
                        
                        
                        
                        -Finished
      goods
                        
                        
                        260,461
                        
                        
                        
                        366,600543,666
                        
                        
                        
                        577,017Reserve
      for obsolete and slow moving inventory
                        
                        
                        (134,313
                        )
                        
                        
                        (193,645
                        )$
                        409,353
                        
                        
                        $
                        383,372








NOTE
4:   PROPERTY AND EQUIPMENT





The
following is a summary of property and equipment at February 28, 2009 and
February 29, 2008:





2009
                      
                      
                      2008Tooling
                      
                      $
                      311,918
                      
                      
                      $
                      285,242Equipment
                      
                      
                      56,654
                      
                      
                      
                      26,654Vehicles
                      
                      
                      10,000
                      
                      
                      
                      10,000Furniture
      and fixtures
                      
                      
                      15,775
                      
                      
                      
                      15,775Computer
      equipment
                      
                      
                      16,520
                      
                      
                      
                      15,124Leasehold
      equipment
                      
                      
                      4,710
                      
                      
                      
                      4,710415,577
                      
                      
                      
                      357,505Less:
      accumulated depreciationand
      amortization
                      
                      
                      (285,613
                      )
                      
                      
                      (245,410
                      )$
                      129,964
                      
                      
                      $
                      112,095





Fixed
assets outside the United States included $115,415 and $88,739 in tooling costs
located in China at February 28, 2009 and February 28, 2008,
respectively. Depreciation expense for the fiscal years ended February 28,
2009 and February 29, 2008 was $24,271 and $43,229,
respectively.


-
34 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008








NOTE
5:    INTANGIBLE ASSETS





The
following is a summary of intangible assets at February 28, 2009 and February
28, 2009:





2009
                      
                      
                      2008Redi
      Chlor brand name and trademark
                      
                      $
                      16,100
                      
                      
                      $
                      16,100Hand
      pump
                      
                      
                      8,000
                      
                      
                      
                      8,000Patents
                      
                      
                      13,052
                      
                      
                      
                      12,72737,152
                      
                      
                      
                      36,825Less:
      accumulated amortization
                      
                      
                      (20,778
                      )
                      
                      
                      (13,359
                      )$
                      16,374
                      
                      
                      $
                      23,468





The
patents expire in nine to ten years; however they and the other intangible
assets are amortized over their estimated useful economic lives of five years.
Amortization expense related to intangibles was $7,420 and $7,160 during the
years ended February 28, 2009 and February 29, 2008, respectively. Amortization
expense for the next four years is estimated as follows.





Year
      EndingFebruary
      28,$2010
                                
                                
                                5,6062011
                                
                                
                                5,1452012
                                
                                
                                5,1452013
                                
                                
                                478Total
                                
                                $
                                16,374







-
35 -






SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008











NOTE
6:    NOTES PAYBLE




Notes
payable outstanding as of February 28, 2009 and February 29, 2008 consisted of
the following:





2009
                          
                          
                          2008Line
      of credit with a bank with a maximum borrowing of $100,000 is
      collateralized by all business assets. Any principal amounts outstanding
      accrue interest at the bank's index rate (5.785% as of February 28, 2009)
      plus 2% per annum.  There were no available borrowings as of
      February 28, 2009. This line of credit is due in June 2009.  The
      line of credit does not contain any restrictive financial covenants and
      the Company intends to renew the line of credit for another year when it
      becomes due.
                          
                          $
                          100,000
                          
                          
                          $
                          80,000Bridge
      note payable received from an individual in February 2008, due within six
      months after issuance and earning no interest.  The outstanding
      amount has been converted to common stock subsequent to February 29, 2008
      (see Note 8).
                          
                          
                          -
                          
                          
                          
                          40,000Note
      payable due to a financial institution, collateralized by the Company's
      airplane, with interest at 7.375% per annum and due in monthly payments
      through September 2032. As the Company expected to dispose of the airplane
      within 2008 and use the proceeds to pay off the balance of the note
      payable, the amounts were classified as a current liability on the
      accompanying consolidated balance sheet.  The Company defaulted
      on this loan in July 2008 which held the Company’s airplane as
      collateral.  A contingent liability exists due to this
      default.
                          
                          
                          -
                          
                          
                          
                          138,446Bagging
      machine financed for production from Capital Network Leasing
      Corporation.  Lease term  is 27 months at an annual
      interest rate of 32.575%.
                          
                          
                          26,802
                          
                          
                          
                          -$
                          126,802
                          
                          
                          $
                          258,446




All of
the above notes payable are classified as current liabilities as of February 28,
2009 and February 29, 2008.







NOTE
7:   RELATED PARTY NOTES PAYABLE AND ACCRUED
INTEREST




At
February 28, 2009 and February 29, 2008, the Company had outstanding notes
payable from the Company’s primary investor (the TAM Trust)
totaling  $471,088 and $396,088, respectively. These notes bear
interest at 10% per annum.  The advances are not repayable until after
March 1, 2011 and the repayment of is subordinate to the Company’s line of
credit and note payable to a financial institution (see Note 6).





As of
February 28, 2009 and February 29, 2008, accrued interest on the related party
notes payable amounted to $76,359 and $221,170, respectively, which is included
in accrued interest due to related party on the accompanying consolidated
balance sheets.





On
December 19, 2007, the Company granted 250,000 warrants to purchase the
Company’s common stock at an exercise price of $0.19 per share as partial
payment of accrued interest.  On January 24, 2008, the Company granted
an additional 107,221 warrants to purchase the Company’s common stock at an
exercise price of $0.29 per share as payment of accrued interest. The total
value of the warrants amounted to $60,509 using the Black Scholes option pricing
model, which has been recorded as a reduction of the accrued interest due to
related party.




During
June 2007, the TAM Trust committed to providing up to $250,000 in additional
funding, if required, to help fund the operations of the
Company.  Through February 29, 2008, approximately $22,000 of the
original $250,000 was still available to the Company.


-
36 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008






NOTE
8:   EQUITY TRANSACTIONS





Restricted Stock
Grants





On June
27, 2007, the Company granted 42,500 restricted shares of common stock to
employees as payment for services over the next 24 months.  The shares
vest and will be distributed in equal installments over the two-year service
period ended June 2009.  As of the grant date, the market value of the
shares granted amounted to $17,000.  The Company is amortizing the
fair market value of the shares as compensation expense over the two-year
vesting period.  Total compensation expense relating to these shares
recorded for the year ended February 29, 2008 amounted to $5,667.





On
October 23, 2007, the Company granted 41,000 restricted shares of common stock
to employees as a bonus.  As of the grant date, the market value of
the shares granted amounted to $15,170.  The shares vested immediately
and the fair market value of the shares was recorded as compensation expense
during the year ended February 29, 2008.





During
the year ended February 29, 2008, the Company recognized compensation expense of
$3,792 relating to restricted shares of common stock granted to employees during
the year ended February 28, 2007.  These restricted shares were all
fully vested and expensed as of February 29, 2008.





During
the year ended February, 29, 2008, the Company granted 389,274 restricted shares
of common stock to a vendor as payment of accounts payable.  The total
value of the services provided amounted to $173,448.  The market value
of the shares granted amounted to $126,173.  The gain on the shares
issued as payment for services amounted to $47,276 was recorded as a reduction
of general and administrative expenses in the consolidated statement of
operations for the year ended February 29, 2008.





In 2009,
the Company issued 133,333 shares of restricted common stock as repayment of a
bridge note payable outstanding in the amount of $40,000 (Note 6). The Company
also issued 97,143 shares of restricted common stock for $26,734 of accounts
payable.





In 2009,
the Company issued 40,000 shares of restricted common stock for service valued
at $12,000.





A summary
of restricted stock grant activity is as follows.





Weighted-AverageRestricted
                
                
                Grant
      DateShares
                
                
                Fair
      ValueOutstanding
      at March 1, 2007
                
                
                -
                
                
                $
                -Granted
                
                
                472,774
                
                
                
                0.33Forfeited
                
                
                -
                
                
                
                -Vested
                
                
                (444,441
                )
                
                
                0.33Outstanding
      at February 29, 2008
                
                
                28,333Granted
                
                
                271,476
                
                
                
                0.29Forfeited
                
                
                (61,000)
                
                
                
                0.26Vested
                
                
                -
                
                
                
                0.00Outstanding
      at February 28, 2009
                
                
                238,809
                
                
                $
                0.40





-
37 -


SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008








As of
February 28, 2009, the Company had a total of 238,809 unvested restricted shares
outstanding.  As of February 29, 2008, the Company had a total of
28,333 unvested restricted shares outstanding, which vest through June
2009.  The total unrecognized compensation expense as of February 28,
2009 to be recognized over this period amounted to $11,333.





Warrants





On July
25, 2006, the Company granted a consultant 100,000 warrants to purchase
restricted shares of the Company’s common stock at an exercise price of $0.40
per share for services rendered.  The warrants become fully vested
August 1, 2008 and expire August 1, 2010.  The grant date fair value
of the warrants was $39,320 using the Black Scholes option pricing model. The
warrants resulted in expense of $21,818 during the fiscal year ended February
29, 2008.





On
December 19, 2007, the Company granted two of its officers an aggregate total of
350,000 warrants to purchase restricted common stock of the Company at an
exercise price of $0.19 per share for management services
provided.  These warrants become fully vested on December 1, 2008 and
expire December 1, 2010.  The grant date fair value of the warrants
was $51,250 using the Black Scholes option valuation model. The warrants
resulted in compensation expense of $10,604 during the fiscal year ended
February 29, 2008.





On
December 19, 2007 and January 24, 2008, the Company granted an aggregate total
of 357,221 warrants to purchase restricted common stock of the Company as
payment of accrued interest (see Note 7).  These warrants become fully
vested on December 1, 2008 and expire December 1, 2010.





In April
2008, the Company issued 1,000,000 warrants with an exercise price of $0.33 in
payment of accrued interest. The total grant date fair value of the warrants was
$224,970 which was calculated using the Black Scholes option pricing
model.





In April
2008, the Company issued 700,000 warrants to two executives with an exercise
price of $0.33 for payment of expanded management services. The total grant date
fair value of the warrants was $287,208 which was calculated using the Black
Scholes option pricing model and will be amortized over the two year service
period for which the warrants were granted.








As of
February 29, 2008, total unrecognized compensation expenses related to unvested
stock warrants was approximately $41,000, which was recognized as an expense
over the period ending December 2008.


-
38 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and  February 29, 2008








A summary
of warrant activity for the fiscal years ended February 28, 2009 and February
29, 2008 are as follows.




Weighted-AverageWarrants
                
                
                ExerciseOutstanding
                
                
                PriceOutstanding
      at March 1, 2007
                
                
                6,100,000
                
                
                $
                0.23Granted
                
                
                707,221
                
                
                
                0.40Exercised
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -Outstanding
      at February 29, 2008
                
                
                6,807,221
                
                
                
                0.23Granted
                
                
                1,730,000
                
                
                
                0.33Exercised
                
                
                -
                
                
                
                -Forfeited
                
                
                2,000,000
                
                
                
                -Outstanding
      at February 28, 2009
                
                
                6,537,221
                
                
                
                0.25Vested
      or expected to vest at February 28, 2009
                
                
                5,700,000
                
                
                
                0.25Exercisable
      at February 28, 2009
                
                
                5,700,000
                
                
                
                0.25




The
following table summarizes significant ranges of outstanding warrants as of
February 28, 2009:





Warrants
      Outstanding
                              
                              
                              Warrants
      ExercisableWeighted
                              
                              
                              Weighted
                              
                              
                              
                              
                              
                              WeightedAverage
                              
                              
                              Average
                              
                              
                              
                              
                              
                              AverageRemaining
                              
                              
                              Exercise
                              
                              
                              Number
                              
                              
                              ExerciseExercise
                              
                              
                              Number
                              
                              
                              Life (Years)
                              
                              
                              Price
                              
                              
                              Outstanding
                              
                              
                              Price$
                              0.19
                              
                              
                              
                              600,000
                              
                              
                              
                              2.51
                              
                              
                              $
                              0.19
                              
                              
                              
                              -
                              
                              
                              $
                              0.190.23
                              
                              
                              
                              4,000,000
                              
                              
                              
                              0.50
                              
                              
                              
                              0.23
                              
                              
                              
                              4,000,000
                              
                              
                              
                              0.230.29
                              
                              
                              
                              107,221
                              
                              
                              
                              2.51
                              
                              
                              
                              0.29
                              
                              
                              
                              -
                              
                              
                              
                              0.290.40
                              
                              
                              
                              100,000
                              
                              
                              
                              2.17
                              
                              
                              
                              0.40
                              
                              
                              
                              -
                              
                              
                              
                              0.400.33
                              
                              
                              
                              1,700,000
                              
                              
                              
                              2.51
                              
                              
                              
                              0.33
                              
                              
                              
                              1,700,000
                              
                              
                              
                              0.330.16
                              
                              
                              
                              30,000
                              
                              
                              
                              2.17
                              
                              
                              
                              0.16
                              
                              
                              
                              
                              
                              
                              
                              0.160.25
                              
                              
                              
                              10,000
                              
                              
                              
                              2.29
                              
                              
                              
                              0.25
                              
                              
                              
                              
                              
                              
                              
                              0.250.40
                              
                              
                              
                              2,500
                              
                              
                              
                              2.19
                              
                              
                              
                              0.40
                              
                              
                              
                              
                              
                              
                              
                              0.406,549,721
                              
                              
                              
                              
                              
                              
                              $
                              0.25
                              
                              
                              
                              5,700,000
                              
                              
                              $
                              0.25




-
39 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008










Contributed Executive
Services




As the
President of the Company has decided not to accept his salary until the Company
has become profitable, the Company recorded $10,000, the contractual value of
these services, as additional paid in capital in the accompanying consolidated
statements of changes in stockholders’ deficit for the fiscal years ended
February 28, 2009 and February 29, 2008, respectively.







NOTE
9:   INCOME TAXES





The
components of the provision for income taxes for the fiscal years ended February
28, 2009 and February 29, 2008 are as follows:





Years
      EndedFebruary
      28,
                
                
                February
      29,2009
                
                
                2008DeferredFederal
                
                $
                55,238
                
                
                $
                77,045State
                
                
                (10,488)
                
                
                
                21,97544,750
                
                
                
                99,020Change
      in Valuation Allowance
                
                
                (44,750
                )
                
                
                (99,020
                )Provision
                
                $
                -
                
                
                $
                -





The items
accounting for the difference between income taxes computed at the federal
statutory rate and the provision for income taxes were as follows:





Years
      EndedFebruary
      28,
                    
                    
                    February
      29,2009
                    
                    
                    2008Federal
      statutory rate
                    
                    
                    -34.00
                    %
                    
                    
                    -34.00
                    %State
      taxes - net of federal benefit
                    
                    
                    -5.50
                    %
                    
                    
                    -5.61
                    %Meals
      and entertainment
                    
                    
                    0.00
                    %
                    
                    
                    0.62
                    %Contributed
      Services
                    
                    
                    0.00
                    %
                    
                    
                    0.66
                    %Penalties
                    
                    
                    0.00
                    %
                    
                    
                    0.03
                    %Change
      in valuation allowance
                    
                    
                    39.50
                    %
                    
                    
                    38.31
                    %0.00
                    %
                    
                    
                    0.00
                    %




-
40 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008









Significant
components of deferred tax assets and (liabilities) are as follows:





February
      28,
                        
                        
                        February
      29,2009
                        
                        
                        2008Net
      operating loss
                        
                        $
                        1,875,437
                        
                        
                        $
                        1,745,026Interest
      to related parties
                        
                        
                        85,302
                        
                        
                        
                        94,749Inventory
      reserve
                        
                        
                        59,522
                        
                        
                        
                        82,958Fixed
      assets and intangibles
                        
                        
                        116,019
                        
                        
                        
                        116,019Tax
      credits
                        
                        
                        16,348
                        
                        
                        
                        16,348Accrued
      expenses
                        
                        
                        1,769
                        
                        
                        
                        1,769Warrant
      amortization
                        
                        
                        262,608
                        
                        
                        
                        473,608Other
                        
                        
                        148
                        
                        
                        
                        148Total
      deferred tax assets
                        
                        
                        2,417,153
                        
                        
                        
                        2,530,625Deferred
      tax liabilities - State taxes
                        
                        
                        (109,068
                        )
                        
                        
                        (130,613
                        )Net
      deferred tax asset
                        
                        
                        2,308,085
                        
                        
                        
                        2,400,012Valuation
      Allowance
                        
                        
                        (2,308,085
                        )
                        
                        
                        (2,400,012
                        )Net
                        
                        $
                        -
                        
                        
                        $
                        -





At
February 28, 2009, the Company has net operating loss carry forwards for income
tax reporting purposes of approximately $4,242,000 and $2,232,000 available to
offset future federal and California taxable income, respectively. Based on
current tax law, the Company’s federal and state net operating loss carry
forwards will begin to expire in the year ending February 28, 2013 and 2011,
respectively.





At
February 28, 2009, the Company had available tax credit carry forwards comprised
of federal and state research credits of approximately $10,000 and $6,200,
respectively. The federal research credit carry forwards will begin to expire in
the year ending February 28, 2013 and the state research credit will be carried
forwarded until exhausted.





We
periodically evaluate the likelihood of the realization of deferred tax assets,
and adjust the carrying amount of the deferred tax assets by the valuation
allowance to the extent the future realization of the deferred tax assets is not
judged to be more likely than not. We consider many factors when assessing the
likelihood of future realization of its deferred tax assets, including its
recent cumulative earnings experience by taxing jurisdiction, expectations of
future taxable income or loss, the carry forward periods available to it for tax
reporting purposes, and other relevant factors.





At
February 28, 2009, based on the weight of available evidence, including
cumulative losses in recent years and expectations of future taxable income, the
Company determined that it was not more likely that its deferred tax assets
would not be realized and has recorded a $2.5 million valuation allowance
associated with its deferred tax assets.





On March
1, 2007, the Company adopted Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income taxes (FIN 48).  FIN 48 prescribes a
comprehensive model of how a company should recognize, measure, present, and
disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return.  FIN 48 states that a
tax benefit from an uncertain position may be recognized if it is "more likely
than not" that the position is sustainable, based upon its technical merits. The
tax benefit of a qualifying position is the largest amount of tax benefit that
is greater than 50 percent likely of being realized upon ultimate settlement
with a taxing authority having full knowledge of all relevant
information.


-
41 -








SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008











Upon
adoption of FIN 48, there was no impact to the Company's consolidated financial
statements.  In addition, future changes in the unrecognized tax
benefit will have no impact on the effective tax rate due to the existence of
the valuation allowance.  The Company estimates that the unrecognized
tax benefit will not change significantly within the next twelve
months.  The Company will continue to classify income tax penalties
and interest as part of general and administrative expense in its statements of
operations.  Accrued interest on uncertain tax positions is not
significant.  There are no penalties accrued as of February 28,
2009.  The following table summarizes the open tax years for each
major jurisdiction:





Jurisdiction
                      Open
      Tax YearsFederal
                      2005
      – 2008California
                      2004
      - 2008





As the
Company has significant net operating loss carry forwards, even if certain of
the Company’s tax positions were disallowed, it is not foreseen that the Company
would have to pay any taxes in the near future. Consequently, the Company does
not calculate the impact of interest or penalties on amounts that might be
disallowed.








NOTE
10:    COMMITMENTS AND CONTINGENCIES





The
Company leases an office and production facility under an operating lease that
expires in August 2009.  The Company also leases office equipment
under an operating lease that expires in September 2010.  Total rent
expense amounted to $45,957 and $104,076 for the fiscal years ended February 28,
2009 and February 29, 2008, respectively.





Future
minimum base lease payments are as follows:





Year
      EndingFebruary
      28,2010
                    
                    $
                    43,6682011
                    
                    
                    2,289Total
                    
                    $
                    45,957





Legal
Proceedings





From time
to time, the Company is involved in various claims and legal actions arising in
the ordinary course of business.  In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company’s consolidated financial position, results of operations, or
liquidity.





In May
2007, the Company settled a legal dispute which resulted in the Company
receiving a total cash payment of $168,000.  This was a matter
involving the potential infringement of proprietary rights of the
Company.  No litigation was involved and the settlement was informally
negotiated. Neither party admitted liability and all parties released all claims
with respect to each other.  The cash payment was recorded as other
income in the accompanying consolidated statement of operations for the year
ended February 29, 2008.





Significant
Agreements





Effective
December 1, 2001, the Company entered into an employment agreement with the
President of the Company. The agreement is for five years and provides for a
salary of $10,000 per year plus one percent of the net after tax profits of the
Company as reported in the Company's Form 10-K. The agreement shall be
automatically renewed for successive one-year terms unless the Company or
employee provides written notice of non-renewal.





-
42 -


SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008








In June
2002 the Company entered into a license agreement for a product known as the
“Hand Held Pump Technology.”  The Company licensed all proprietary
rights associated with this technology.  The Company will pay a 2%
royalty on its gross sales for the technology during the term of the license
agreement. The license agreement is for an initial term of five years, with five
successive five-year renewals.  This technology has resulted in a
product called Pump N’ Pure which allows the user to draw filtered water from
virtually any container or location.  The Company has commenced
marketing the Hand Held Pump as part of its Aqua Gear product line to the United
States sporting goods industry.




During
July 2006, the Company signed a second exclusive license agreement for a patent
and ownership of the trademark Aqua Gear. The Company will pay a 2% royalty on
net sales for this technology up to $120,000 and 1% thereafter.  The
license agreement shall continue indefinitely unless terminated due to a default
or breach of the agreement. Products affected include all Aqua Gear trademarked
filter bottles and flip up bottles sold in the product line.  As of
the date of this document, approximately $30,300 in royalties has been paid
under these license agreements.




During
April 2006, the Company issued 50,000 common shares with an approximate value of
$16,100 for the Redi Chlor brand name, trademark and the use of the EPA
Registration Number 55304-4-7126. During the fiscal year ended February 28,
2007, the Company commenced selling the Redi Chlor brand name water chlorine
tablets to consumers, dealers, distributors and manufacturers. In connection
with this agreement, the Company is also obligated to remit a 10% commission on
net sales, as defined, of the existing product, or any new products sold
directly by the Company, and 10% on any product sold by the
counterparty on behalf of Seychelle.  The agreement is for the life of
the Company.  Through February 28, 2009, the Company has paid $4,011
in royalties under this agreement.







NOTE
11:   RELATED PARTY TRANSACTIONS





The
Company has certain notes payable and accrued interest payable to a related
party (see Note 7).





During
October 2006, and continuing through December 2007, the Company paid a monthly
monitoring fee of $5,000 to a related party.  Five payments of $2,500
were made to the related party during fiscal year ended 2009 which were included
in interest expense.  Total fees paid to the related party aggregates
$62,500 and $50,000 during the years ended February 28, 2009 and February 29,
2008, respectively, and are included as a component of general and
administrative expenses on the consolidated statements of
operations.





During
October 2006, the Company commenced paying a monthly stipend of $2,500 to J.
Place and D. Parsons, executive officers of the Company, through December
2007.  The Company has recorded compensation expense for these
services in the accompanying consolidated statements of operations.





The
Company has an employment agreement with the Company President (see Note
10).








NOTE
12:   GEOGRAPHIC AREAS





The
Company sells its products throughout the United States and internationally.
Geographic sales information for the fiscal years ended February 28, 2009 and
February 29, 2008 is as follows:




2009
                
                
                2008Water
      filtration products sold toexternal
      customers (1) in:The
      United States
                
                $
                998,100
                
                
                $
                800,277China
                
                
                3,573
                
                
                
                5,021Asia,
      except China
                
                
                17,101
                
                
                
                27,495United
      Kingdom
                
                
                74,180
                
                
                
                12,808Other
      countries
                
                
                30,416
                
                
                
                13,168Total
                
                $
                1,123,370
                
                
                $
                858,769


_____________________




(1)    Sales to external customers are based on the country
of residence of the customer.


-
43 -


SEYCHELLE
ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


February
28, 2009 and February 29, 2008














Long
lived assets at February 28, 2009 are in the following geographic
areas:





UnitedStates
                
                
                China
                
                
                TotalProperty
      and equipment, net
                
                $
                64,261
                
                
                $
                65,103
                
                
                $
                129,364Intangible
      assets
                
                
                16,373
                
                
                
                -
                
                
                
                16,373Other
      assets
                
                
                6,624
                
                
                
                -
                
                
                
                6,624$
                87,258
                
                
                $
                65,103
                
                
                $
                152,361





Long
lived assets at February 29, 2008 are in the following geographic
areas:





UnitedStates
                
                
                China
                
                
                TotalProperty
      and equipment, net
                
                $
                49,624
                
                
                $
                62,471
                
                
                $
                112,095Intangible
      assets
                
                
                23,468
                
                
                
                -
                
                
                
                23,468Other
      assets
                
                
                6,624
                
                
                
                -
                
                
                
                6,624$
                79,716
                
                
                $
                62,471
                
                
                $
                142,187








-
44 -




ITEM
9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.





We did
not have any disagreements on accounting and financial disclosures with our
present accounting firm during the reporting period.





ITEM
9A(T). CONTROLS AND PROCEDURES.





Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures





Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act).  As a result of this evaluation, we
identified no material weaknesses in our internal control over financial
reporting as of February 29, 2009.  Accordingly, we concluded that our
disclosure controls and procedures were effective as of February 29,
2009.





Our
internal control over financial reporting (ICFR) are designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external purposes in
accordance with U. S. generally accepted accounting principles. Our internal
control over financial reporting includes those policies and procedures
that:




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


ii.            provide
reasonable assurance that transactions are recorded as necessary to permit the
preparation of our  consolidated financial statements in accordance
with U. S. generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations
of our management and directors; and


iii.           provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the consolidated financial statements.





Management’s
Annual Report on Internal Control Over Financial Reporting.





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting.  Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control
— Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on our evaluation,
management has concluded, as of February 29, 2009, we did maintain effective
control over the financial reporting process.





Inherent
Limitations Over Internal Controls





Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations, including
the possibility of human error and circumvention by collusion or overriding of
controls. Accordingly, even an effective internal control system may not prevent
or detect material misstatements on a timely basis. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies or procedures may
deteriorate.




Remediation
of Material Weakness




As
discussed in Management’s
Annual Report on Internal Control over Financial Reporting, as of
February 29, 2008, there were material weaknesses in our internal control over
financial reporting. We authorized the addition of additional information
technology and financial consultants to ensure that there are sufficient
resources within the department to prepare our interim and annual consolidated
financial statements and disclosures in accordance with accounting principles
generally accepted in the United States of America.  We have taken
steps to create more compensating controls in the financial statement close
process to ensure that there is adequate review and approval by
management.




Through
these steps, we believe we have addressed the deficiencies that affected our
internal control over financial reporting as of February 29, 2008. However, the
effectiveness of any system of internal controls is subject to inherent
limitations and there can be no assurance that our internal control over
financial reporting will prevent or detect all errors.  We intend to
continue to evaluate and strengthen our ICFR systems. These efforts require
significant time and resources.  If we are unable to maintain adequate
ICFR systems, we may encounter difficulties in the audit or review of our
consolidated financial statements by our independent registered public
accounting firm which in turn may have a material adverse effect on our ability
to prepare consolidated financial statements in accordance with U. S. GAAP and
to comply with our SEC reporting obligations.


-
45 -






Attestation
Report of the Registered Public Accounting Firm.





This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management's report in this annual
report.





Changes
in Internal Control Over Financial Reporting.





We have
made no change in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.







ITEM
9B. OTHER INFORMATION.





Not
Applicable.








PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE





Our
Directors and Executive Officers, their ages and positions held in the Company
as of February 29, 2008 are as follows:





NAME
                  AGE
                  POSITION
      HELDCarl
      Palmer
                  75
                  President,
      Chief Executive Officer and DirectorRichard
      Parsons
                  75
                  Executive
      Vice President, Secretary and DirectorJames
      Place
                  71
                  Chief
      Operating Officer, Chief Financial Officer, Treasurer and
      Director





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. The Board of
Directors as a whole serves as the audit committee and Mr. Place is the
“financial expert” within the meaning of the rules and regulations of the
SEC.  The Board of Directors has determined that each of its members
is able to read and understand fundamental financial statements and has
substantial business experience that results in that member’s financial
sophistication.  Accordingly, our Board of Directors believes that
each of its members has sufficient knowledge and experience necessary to fulfill
the duties and obligations that an audit committee would have. There are no
family relationships among the Directors or Officers of the Company. None of the
Directors have been involved in the types of litigation specified in Item 401d
of Regulation S-B.




Biographies
of Our Executive Officers and Directors





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 is
an internationally recognized expert in the field for over 35 years and
pioneered the development of the reverse osmosis (RO) home and office pure water
business in the U.S. in the late 1970’s. That company, Aq-Ro-Matic, was later
sold to Coca-Cola in 1973. He developed the cellulose triacetate membrane, a
breakthrough technological development in the industry and subsequently, created
and sold pure water companies to Coca Cola Los Angeles as noted previously,
AMF/Cuno in 1985 and Shaklee in 1989. Also, in the late 1980’s Mr. Palmer
developed the Best Water reverse osmosis business for Shaklee and sold over $53
million in above-the-counter systems. Carl’s 30 years of direct sales experience
has led to many significant business relationships, many of which continue
today. He is the inventor of thirteen patented products related to water
purification. Mr. Palmer received a Bachelors Degree from Whittier
College.





Richard Parsons. Mr.
Parsons has been Secretary, Executive Vice President and a Director of the
Company since November 2004. In March 2005, he assumed additional
responsibilities for international sales activities in Asia, including China and
India. He has over 30 years experience in bottled water, reverse osmosis and
water filtration with major companies such as Coca-Cola, Arrowhead, Shaklee, and
Canadian Glacier. Mr. Parsons was a General Manager at Coca-Cola in 1974, a Vice
President at Arrowhead from 1975 to 1985, a consultant with Shaklee in 1988, and
Vice President of U.S. Operations for Canadian Glacier from 1989 to
1990.


-
46 -




For the
past five years, Mr. Parsons acted as a consultant, and then became chairman of
The Beverage Group, Inc. in 2002. In November 2004, he joined the Company as
Executive Vice President. Mr. Parsons ran his own successful consulting business
in water and related beverages with clients such as General Foods, Coke-USA, The
Beverage Group, Coke-Japan and Mitsubishi Industries for many years. He also has
over 20 years experience in direct sales and multilevel marketing with companies
such as Avon, Holiday Magic, Arrowhead and National Education. Mr. Parsons has a
Bachelors Degree from Principia College.




James Place. Mr.
Place has been Treasurer, COO and a Director of our Company since November 2004.
In March 2005, he assumed additional responsibilities for manufacturing,
operations and became the Chief Financial Officer (CFO). In November 2004, he
joined the Company as Chief Operating Officer.   He has over 30
years experience in food, beverages and bottled water. While at Arrowhead, he
took the liter, still and sparkling water business from $10 million to $75
million in 5 years. Mr. Place also had extensive marketing, new product
development and operating experience with Fortune 100 companies such as
Carnation, Kerr Glass and Hunt-Wesson. Mr. Place was Vice President and General
Manager of the Grocery Products Division at Arrowhead from 1981 to 1988, a Vice
President of Sales/Marketing - New Products at Kerr Glass from 1988 to 1990,
Manager, New Products at Carnation from 1979 to 1981 and Sales/Marketing Manager
at Hunt-Wesson Foods from 1970 to 1976.





Mr. Place
also has substantial experience in business development, mergers and
acquisitions and with the investment community. Mr. Place ran his own consulting
business in consumer products including water and other beverages with small to
medium sized companies from 1990 to 2004. This included working successfully
with these companies on financing plans for both new products and expansion
programs. Mr. Place has an MBA from Michigan State University and a Bachelors
degree from Albion College.





Compliance
with Section 16(a) of the Securities Exchange Act of 1934





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers, and persons who own more than 10% of a
registered class of the Company’s outstanding equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.





To the
Company’s knowledge, based solely on its review of the copies of such reports
furnished to the Company during the fiscal year ended February 28, 2009, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.








Code
of Ethics for Chief Executive Officer and Senior Financial Officers





On May
20, 2006, the Board of Directors of the Company adopted the Code of Ethics for
the Chief Executive Officer and Senior Financial Officers.  The Code
is designed to deter wrong-doing and promote honest and ethical behavior, full,
fair, timely, accurate and understandable disclosure and compliance with
applicable governmental laws, rules and regulations.  It is also
designed to encourage prompt internal reporting of violations of the Code to an
appropriate person and provides for accountability for adherence to the
Code.  We will provide to any person without charge, upon written
request to our principal executive offices, a copy of our Code.  Any
waiver of the Code pertaining to one of our executive officers will be disclosed
in a report on Form 8-K filed with the SEC.





Indemnification
of Directors and Officers.




The
Company's Bylaws provide that it will indemnify its officers and directors to
the full extent permitted by Nevada state law. The Company's bylaws likewise
provide that it will indemnify and hold harmless its officers and directors for
any liability including reasonable costs of defense arising out of any act or
omission taken on behalf of the Company, to the full extent allowed by Nevada
law, if the officer or director acted in good faith and in a manner the officer
or director reasonably believed to be in, or not opposed to, the best interests
of the corporation.




In so far
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has 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 expenses 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.


-
47 -






Item
11. EXECUTIVE COMPENSATION





The
following table sets forth the Summary Compensation Table for the Chief
Executive Officer and the executive officers at the end of the last three
completed fiscal years. Compensation does not include minor business-related and
other expenses paid by us. Such amounts in the aggregate do not exceed
$10,000.




SUMMARY
      COMPENSATION TABLELong
      Term CompensationAnnual
      Compensation
                          
                          Awards
                          
                          Payouts(a)
                          (b)
                          (c)
                          (d)
                          (e)
                          
                          (f)
                          (g)
                          
                          (h)
                          
                          (i)Name
      and Principle Position
                          Fiscal
                            Year
                          Salary
                            ($)
                          Bonus
                            ($)
                          Other
                            Annual
      Compensation
                            ($)
                          
                          Restricted
                            Stock
                            Award(s)
                            ($)(9)
                          Securities
                            Underlying
                            Option/SARs
                            (#)
                          
                          LTIP
                            Payouts
                            ($)
                          
                          All
                            Other
                            Compensation
                            ($)Carl
      Palmer
                            President
      & CEO
                            Director
                          2009
                            2008
                            2007
                          $10,000(2)
                            $10,000(2)
                            $10,000(2)
                          $0.00
                            $0.00
                            $0.00
                          $0.00
                            $0.00
                            $0.00
                          
                          $0.00
                            $0.00
                            $0.00
                          0
                            0
                            0
                          
                          $0.00
                            $0.00
                            $0.00
                          
                          $0.00
                            $0.00
                            $0.00Richard
      Parsons (1)
                            Executive
      VP
                            Director
                          2009
                            2008
                            2007
                          $0.00
                            $0.00
                            $0.00
                          $0.00
                            $0.00
                            $0.00
                          $0.00
                            $0.00
                            $0.00
                          
                          (3)(5)
                            (3)(5)
                            (3)(5)
                          (4)(6)(10)
                            (4)(6)
                            (4)(6)
                          
                          $0.00
                            $0.00
                            $0.00
                          
                          $7,158(8)
                            $23,883(8)
                            $12,500(8)James
      Place (1)
                            COO
      & CFO
                            Director
                          2009
                            2008
                            2007
                          $0.00
                            $0.00
                            $0.00
                          $0.00
                            $0.00
                            $0.00
                          $0.00
                            $0.00
                            $0.00
                          
                          (3)
                            (3)
                            (3)
                          (4)(10)
                            (4)
                            (4)(6)
                          
                          $0.00
                            $0.00
                            $0.00
                          
                          $2,104(8)
                            $14,160(8)
                            $12,500(8)


__________________




(1)
            Elected to Board of Directors
      during November 2004.




(2)
            Effective December 1, 2001, the
      Company entered into an employment agreement with the President of the
      Company.  The President of the Company has decided not to accept
      his salary until the Company becomes
  profitable.




(3)
            During November 2004, Messrs.
      Parsons and Place were granted 240,000 shares of restricted common stock,
      which vest over two years beginning December 1, 2004.  The
      estimated fair market value of the stock as of November 30, 2004 was
      $225,600. The Company amortized the estimated fair market value of the
      unearned compensation over the two-year vesting period.  On
      March 1, 2006, the Company adopted SFAS No. 123(R), which required the
      Company to revalue the non-vested portion of this grant.  As of
      March 1, 2006, the unearned compensation relating to this grant was
      decreased by approximately $50,500.   The Company has
      recorded compensation expense of approximately $4,000 and $75,200 for the
      fiscal years ended February 29, 2007 and 2006,
      respectively.




(4)
            During March 2005, Messrs.
      Parsons and Place were granted warrants to purchase 250,000 shares of
      restricted common stock at $0.225 per share. The first third vested on the
      effective date of the agreement as an enticement to enter into the
      agreement.  The remaining warrants vest in equal installments on
      December 1, 2005 and 2006 but are exercisable through December 1,
      2008.  The fair market value of the warrants as of November 30,
      2004 was estimated at
$55,300.




(5)
            During March 2005, Mr. Parsons
      was granted 316,312 shares of restricted common stock.  The
      first third vested on the effective date of the agreement as an enticement
      to enter into the agreement.  The remaining common stock vests
      in equal installments on December 1, 2005 and 2006.  The fair
      market value of the restricted shares as of November 30, 2004 was
      estimated at $79,100.




(6)
            During July 2005, the Company
      expanded the employment agreements with Messrs. Parsons and Place to
      provide management services for the Company.  As further
      consideration for services to be rendered, the officers were granted
      500,000 warrants redeemable into restricted shares of the Company’s common
      stock at $0.225 per share.  The warrants are exercisable any
      time after December 1, 2006 and expire December 1, 2008.  The
      fair market value of the warrants as of July 27, 2005 was estimated at
      $30,000.




-
48 -








(7)
              During January 2006, the Company
      issued Mr. Parsons 37,500 shares of common stock for services
      rendered.  As the common stock was issued below the Company’s
      market price at date of grant ($nil cost per share), the Company recorded
      compensation expense relating to the estimated value of these shares of
      $8,437.


(8)
            During October 2006, the Company
      commenced paying a monthly stipend of $2,500 to J. Place and D. Parsons
      through December 2007.  The Company recorded compensation
      expense of $38,043 and $25,000 for the fiscal year ended February 29, 2008
      and February 28, 2007,
respectively.




(9)
            Restricted Stock (RS)– Awards of
      restricted stock are valued by multiplying the number of shares granted by
      the closing price on the date of grant, minus any consideration paid by
      the named executives.  Holders of restricted stock have voting
      and dividend rights with respect to their restricted shares.  To
      date, the Company has not declared or paid any
      dividends.
              
              Restricted
      Stock – Year End Holdings and Value.  At February 29, 2008, the
      named executive officers held the total number of shares of restricted
      stock indicated in the following chart.  The year-end value of
      the total number of restricted shares, as indicated below, is based on the
      closing price of the Company’s stock on February 29, 2008
      ($0.41).




(10)
            During April 2008, Messr. Parsons
      was granted warrants for expanded management responsibilities to purchase
      500,000 shares and Messr. Place were granted warrants to purchase 200,000
      shares of restricted common stock at $0.33 per share.  The
      warrants are exercisable  any time after December 1, 2008 and
      expire December 1, 2010.  The fair market value of the warrants
      as of April 30, 2008 was estimated at
  $158,174.




Name
                        Grant
      date
                        Type
                        Vesting
                          Schedule
                        Restricted
                          Shares
                          Awarded
                        Grant
                          Date
                          Price
                        Grant
                          Date
                          Value
                        Total
                          Restricted
                          Shares
      at
                          February
      29, 2008
                        Year
                          End
                          ValueRichard
      Parsons
                        11/30/2004
                        RS
                        33.3%
      on 12/1/04;
                          33.3%
      on 12/01/05;
                          33.3%
      on 12/1/06
                        240,000
                        $0.03
                        $112,800
                        240,000
                        $
      46,248Richard
      Parsons
                        03/29/2005
                        RS
                        33.3%
      on 12/1/04;
                          33.3%
      on 12/01/05;
                          33.3%
      on 12/1/06
                        316,312
                        $0.03
                        $
      79,100
                        316,312
                        $129,688James
      Place
                        11/30/2004
                        RS
                        33.3%
      on 12/1/04;
                          33.3%
      on 12/01/05;
                          33.3%
      on 12/1/06
                        240,000
                        $0.03
                        $112,800
                        240,000
                        $
      46,248




OPTION/SAR
GRANTS IN LAST FISCAL YEAR. The Company granted no options during the fiscal
years ended February 29, 2008. The Company had no options outstanding as of the
fiscal year ended February 29, 2008.




AGGREGATED
OPTIONS/SARS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR
VALUES. There were no outstanding options as of the fiscal year ended February
28, 2009.




EMPLOYMENT
CONTRACTS WITH EXECUTIVE OFFICERS.  Effective December 1, 2001, the
Company entered into an employment agreement with the President of the Company.
The agreement is for five years and provides for a salary of $10,000 per year
plus one percent of the net after tax profits of the Company as reported in the
Company's Form 10-K. The agreement shall be automatically renewed for successive
one-year terms unless the Company or employee provides written notice of
non-renewal.




DIRECTOR
COMPENSATION. The Company did not pay any compensation to any of its directors
in fiscal 2009, or 2008.




The Board
of Directors as a whole acts as a compensation committee. We have no retirement,
pension, sharing, stock option, insurance or other similar
programs.





We do not
have a separately designated audit, compensation or nominating committee of our
Board of Directors.  Although we are not a “listed company” under SEC
rules and are therefore not required to have separate committees comprised of
independent directors, we have, however, determined that James Place is
“independent” as that term is defined in Section 4200 of the Marketplace Rules
required by the NASDAQ Stock Market.


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49 -






ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.





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 February 28, 2009, was known by
us to own beneficially more than five percent (5%) of its common stock; (ii) our
individual Directors and (iii) our Officers and Directors as a group. As of
February 28, 2009  there were total of 25,824,146,  common
shares were issued and outstanding and 6,549,721, warrants for a total of
32,373,867 shares.




NAME
      AND ADDRESS
                                                                  AMOUNT
      AND NATURE OF
                                                                  
                                                                  PERCENT
      OFOF
      BENEFICIAL OWNER
                                                                  BENEFICIAL
      OWNERSHIP (1)(2)(4)
                                                                  
                                                                  CLASSThe
      TAM Irrevocable Trust
                                                                  14,097,799
                                                                  (3)
                                                                  43.55%4012
      S. Rainbow #K111Las
      Vegas, NV 80103-2012Carl
      Palmer
                                                                  -0-
                                                                  
                                                                  -0-251
      Jeanell Dr., Ste 3Carson
      City, NV 89703Richard
      Parsons
                                                                  2,109,763
                                                                  
                                                                  6.52%251
      Jeanell Dr., Ste 3Carson
      City, NV 89703James
      Place
                                                                  1,255,000
                                                                  
                                                                  3.88%251
      Jeanell Dr., Ste 3Carson
      City, NV 89703All
      officers and directors as a Group (three persons)
                                                                  3,446,312
                                                                  
                                                                  10.40%


_______________





(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 of certain family members of
      Mr. Carl Palmer. Mr. Palmer disclaims any beneficial ownership or interest
      in this Trust. Cari Beck, his daughter, is the Trustee of the Trust and
      has total beneficiary rights, including all voting rights and investment
      power as the Trustee. The Trust is held in her name (50%) as well as that
      of Lindsay Helvey (25%) and Casey Helvey (25%), both
      granddaughters.





(4)
            There are no other financial
      instruments, including stock warrants, etc. that are issuable within sixty
      days from the filing of this
document.




(5)
            All three officers spend 100% of
      their time managing the affairs of the
  Company.






ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





Effective
December 1, 2001, the Company entered into an employment agreement with Carl
Palmer, the President of the Company. The agreement is for five years and
provides for a salary of $10,000 per year plus one percent of the net after tax
profits of the Company. The agreement shall be automatically renewed for
successive one-year terms unless the Company or employee provides written notice
of non-renewal.





During
November 2004, the Company entered into employment agreements with Messrs.
Parsons and Place to provide management services for the Company as Executive
Vice President and Chief Operating Officer, respectfully. As consideration for
services to be rendered, the Messrs. Parsons and Place received 480,000
restricted shares of the Company’s common stock. The common shares were
distributed in equal installments commencing on December 1, 2004, 2005 and
2006.


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50 -


At
February 28, 2009 and February 29, 2008, the Company had outstanding notes
payable from the Company’s primary investor (the TAM Trust, in which Cari
Beck, is the trustee as well as a daughter of Carl Palmer an officer and Board
member) totaling and $471,088 and $396,088, respectively. These notes bear
interest at 10% per annum.  The advances are not repayable until after
March 1, 2011 and the repayment of is subordinate to the Company’s line of
credit and note payable to a financial institution (see Note 6).





As of
February 28, 2009 and February 29, 2008, accrued interest on the related party
notes payable amounted to $245,087 and $221,170, respectively, which is included
in accrued interest due to related party on the accompanying consolidated
balance sheet.





During
December 2004, the Company granted the TAM Trust restricted common stock of
1,266,667 shares for interest on prior advances of funds. The fair market value
of the restricted shares was estimated at $228,000. During April 2005, the
Company settled this liability through the issuance of common
stock.





On March
29, 2005, the Company expanded the employment agreement with Mr. Parsons to
provide management services for the Company. As consideration for services to be
rendered, the employee received 316,312 restricted shares of the Company’s
common stock.  The first third vested on the effective date of the
agreement as an enticement to enter into the agreement.  The remaining
common stock vested in equal installments on December 1, 2005 and
2006.





On March
29, 2005, the Company expanded the employment agreements with Messrs. Parsons
and Place to provide management services for the Company. As further
consideration for services to be rendered, the employees were granted 1,000,000
warrants redeemable into restricted shares of the Company’s common stock at
$.225 per share.  The first third vested on the effective date of the
agreement as an enticement to enter into the agreement.  The remaining
warrants vested in equal installments on December 1, 2005 and 2006 and are
exercisable through December 1, 2008.





On March
29, 2005, the Company granted the TAM Trust 500,000 warrants redeemable into
restricted shares of the Company’s common stock at $.225 per share for
additional interest charged to the Company for previous unpaid notes and
continued financial support.  The first third vested on the effective
date of the agreement as an enticement to enter into the
agreement.  The remaining warrants vested in equal installments on
December 1, 2005 and 2006 and are exercisable through December 1,
2008





On July
27, 2005, the Company granted the TAM Trust 2,000,000 warrants redeemable on
restricted shares of the Company’s common stock at $.225 per share. The warrants
are exercisable any time after December 1, 2006 and expire December 1,
2008.





On July
27, 2005, the Company expanded the employment agreements with Messrs. Parsons
and Place to provide management services for the Company. As further
consideration for services to be rendered, the employees were granted
500,000 warrants redeemable on restricted shares of the Company’s stock at $.225
per share. The warrants are exercisable any time after December 1, 2006 and
expire December 1, 2008.





On
January 23, 2006, the Company issued to the TAM Trust 37,500 common shares for
continued financial support.





On
January 23, 2006, the Company issued to the Mr. Parsons 37,500 common shares for
services rendered.





During
October 2006, the Company commenced paying a monthly stipend of $2,500 to J.
Place and D. Parsons through December 2007.





During
October 2006, and continuing through December 2007, the Company paid a monthly
monitoring fee of $5,000 to a related party.  Five payments of $2,500
were made to the related party during fiscal year ended 2009 which were included
in interest expense.  Total fees paid to the related party aggregates
$62,500 and $50,000 during the years ended February 28, 2009 and February 29,
2008, respectively, and are included as a component of general and
administrative expenses on the consolidated statements of
operations.








ITEM
14: PRINCIPAL ACCOUNTANT FEES AND SERVICES





Effective
May 30, 2008, Moore & Associates became our principal independent auditing
firm.  All audit work was performed by the full time employees of
Moore & Associates.  Our Board of Directors does not have an audit
committee.  The functions customarily delegated to an audit committee
are performed by our full Board of Directors.  Our Board of Directors
approves in advance, all services performed by Moore &
Associates.  Our Board of Directors has considered whether the
provision of non-audit services is compatible with maintaining the principal
accountant’s independence, and has approved such
services.





Windes
& McClaughry Accountancy Corporation (Windes & McClaughry) was the
company’s principal independent auditing firm from February 28, 2006 through May
30, 2008.


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51 -






The
following table sets forth fees billed by our auditors during the last two
fiscal years for services rendered for the audit of our annual consolidated
financial statements and the review of our quarterly financial statements,
services by our auditors that are reasonably related to the performance of the
audit or review of our consolidated financial statements and that are not
reported as audit fees, services rendered in connection with tax compliance, tax
advice and tax planning, and all other fees for services rendered.





February
      29,
                        2008
                      
                      
                      February
      29,
                        2008Audit
      fees
                      
                      $
                      24,000
                      
                      
                      $
                      86,837Audit
      related fees
                      
                      
                      -0-
                      
                      
                      $
                      2,632Tax
      fees
                      
                      
                      -0-
                      
                      
                      
                      -0-All
      other fees
                      
                      
                      -0-
                      
                      
                      
                      -0-


The audit
fees in fiscal 2009 include $24,000 of fees billed by Moore & Associates
related to the audit of our consolidated financial statements for the fiscal
year ended February 28, 2009 and to the review of  our quarterly
financial statements.  Audit related fees include $2,632 of fees
billed by Windes & McClaughry for accounting services related to the review
of other SEC filings.








ITEM
15. EXHIBITS FINANCIAL STATEMENT SCHEDULES.




Exhibits





Exhibit
      No.
                Description2A*
                Plan
      of Exchange between Seychelle Environmental Technologies, Inc. and
      Seychelle Water Technologies, Inc. dated January 30, 1998 as filed with
      Form 10-SB 12 G on February 8, 2000.3A*
                Articles
      of Incorporation dated January 23, 1998 as filed with Form 10-SB 12 G on
      February 8, 2000.3B*
                Articles
      of Merger of Royal Net, Inc. into Seychelle Environmental Technologies,
      Inc as filed with Form 10-SB 12 G on February 8, 2000.3C*
                Amendment
      to Articles of Incorporation re: Series "A" Preferred Stock as of January
      31, 1998 as filed with Form 10-SB 12 G on February 8,
  2000.3D*
                Amendment
      to Articles of Incorporation re: Series "AA" Preferred Stock as of June 5,
      1998 as filed with Form 10-SB 12 G on February 8, 2000.3E*
                Amendment
      to Articles of Incorporation re: Series "AAA" Preferred Stock as of
      February 18, 1999 as filed with Form 10-SB 12 G on February 8,
      2000.3F*
                Bylaws
      as filed with Form 10-SB 12 G on February 8, 2000.10A*
                Purchase
      Agreement with Aqua Vision as filed with Form 10-SB 12 G on February 8,
      2000.10B*
                Amended
      Purchase Agreement with Aqua Vision as filed with Form 10-SB 12 G on
      February 8, 2000.10C*
                2000
      Stock Compensation Plan I, dated July 1, 2000 as filed with Registration
      Statement on Form S-8 on August 31, 2000.10D*
                2002
      Stock Compensation Plan I, dated February 12, 2002 as filed with
      Registration Statement on Form S-8 on February 27,
2002.10E*
                Purchase
      Agreement with Aqua Gear as filed with Annual Report on Form 10-K on June
      14, 2002.10F*
                Employment
      Contract with Carl Palmer as filed with Annual Report on Form 10-K on June
      14, 2002.10G*
                Management
      Consulting Contract with Richard Parsons10H*
                Management
      Consulting Contract with James Place10I*
                Joint
      Venture Agreement with Huanghua Plastic Co. Ltd. dated September 1,
      200510J*
                ABMS
      Health Care Pvt. Ltd. Distribution Rights Agreement dated April 1,
      200610K*
                Confident,
      Inc. Exclusive Distribution Rights Agreement dated January 1,
      2006




-
52 -





Exhibit
      No.
              Description10L*
              Continental
      Technologies. Inc., Purchase Agreement dated April 26,
  200610M*
              Promissory
      Note to TAM Irrevocable Trust dated May 1, 200110N*
              Promissory
      Note to TAM Irrevocable Trust dated February 28, 200210O*
              Promissory
      Note to TAM Irrevocable Trust dated February 28, 200310P*
              Promissory
      Note to TAM Irrevocable Trust dated November 1, 200310Q*
              Promissory
      Note to TAM Irrevocable Trust dated February 28, 200410R*
              Food
      For Health Purchase Agreement10S*
              Food
      For Health Distribution Agreement10T*
              Seychelle
      Environmental Technologies, Inc. License Agreement with Mr. Gary
      Hess31.1**
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302 of
      the Sarbanes Oxley Act of 2002)31.1**
              Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 of
      the Sarbanes-Oxley Act of 2002)32.1**
              Certification
      of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 (Section 906
      of the Sarbanes-Oxley Act of 2002)32.2**
              Certification
      of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350 (Section 906
      of the Sarbanes-Oxley Act of 2002)23.1**
              Auditor’s
      Consent99*
              Code
      of Ethics for Chief Executive Officer and Senior Financial
      Officers


___________________




* 
Previously filed with the Securities and Exchange Commission as indicated and
incorporated by reference herein





**
Attached hereto




-
53 -


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




SEYCHELLE
      ENVIRONMENTAL TECHNOLOGIES, INC.Date:May 22, 2009
            By:
            /s/ Carl
      PalmerCarl
      Palmer
              Chief
      Executive Officer






Date:May 22, 2009
            By:
            /s/ Jim
      PlaceJim
      Place
              Chief Financial
      Officer











In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




/s/ Carl
      PalmerCarl
      Palmer, Director
            
            May 22, 2009/s/
       Jim PlaceJim
      Place, Director
            
            May 22, 2009/s/
       Richard ParsonsRichard
      Parsons, Director
            
            May 22, 2009









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