This discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of Seychelle Environmental Technologies, Inc., and subsidiary (the "Company") for the three month periods ended May 31, 2012 and 2011. The discussion and analysis that follows should be read together with the consolidated financial statements of Seychelle Environmental Technologies, Inc. and the notes to the consolidated financial statements included in the Company's annual report on Form 10-K for the fiscal year ended February 29, 2012. Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company's control.

Forward-Looking Statements

Certain statements contained herein are "forward-looking" statements. Forward-looking statements include statements which are predictive in nature; which depend upon or refer to future events or conditions; or which include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statement concerning future financial performance, ongoing business strategies or prospects, and possible future Company actions that may be provided by management are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company; and economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific intentions to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors including, among others:

(1) the portable water filtration industry is in a state of rapid technological change, which can render the Company's products obsolete or unmarketable;

(2) any failure by the Company to anticipate or respond to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on the Company's business, operating results and financial condition;

(3) the Company's cost of sales may be materially affected by increases in the market prices of the raw materials used in the Company's assembly processes;

(4) the Company's water related product sales could be materially affected by weather conditions and government regulations;

(5) The Company is subject to the risks of conducting business internationally; and

(6) the industries in which the Company operates are highly competitive. Additional risks and uncertainties are outlined in the Company's filings with the Securities and Exchange Commission, including its most recent fiscal 2012 Annual Report on Form 10-K.

Description of the Business

We were incorporated under the laws of the State of Nevada on January 23, 1998 as a change of domicile to Royal Net, Inc., a Utah corporation that was originally incorporated on January 24, 1986. Royal Net, Inc. changed its state of domicile to Nevada and its name to Seychelle Environmental Technologies, Inc. effective in January 1998.

On January 30, 1998, we entered into an Exchange Agreement with Seychelle Water Technologies, Inc., a Nevada corporation (SWT), whereby we exchanged our issued and outstanding capital shares with the shareholders of SWT on a one share for one share basis. We became the parent company and SWT became a wholly owned subsidiary. SWT had been formed in 1997 to market water filtration systems of Aqua Vision International.

Our Company is presently comprised of Seychelle Environmental Technologies, Inc., a Nevada corporation, with 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.

Seychelle designs, assembles and distributes water filtration systems. These systems include portable water bottles that can be filled from nearly any available source of water. Patents or trade secrets cover all proprietary products.

Our principal business address is 32963 Calle Perfecto, San Juan Capistrano, California 92675. Our telephone number at this address is 949-234-1999.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Our summary historical financial data is presented in the following table to aid in your analysis. You should read this data in conjunction with this section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations, our condensed consolidated financial statements and the related notes to the condensed consolidated financial statements included elsewhere in this report. The selected condensed consolidated statements of operations data for the three months ended May 31, 2012 and 2011 are derived from our condensed consolidated financial statements included elsewhere in this report.

Three-month period ended May 31, 2012 compared to the corresponding period in 2011

                                                                        Year over
                                          2012           2011          year change         %


Sales                                  $  898,009     $ 1,781,019          (883,010 )        -50 %
Cost of sales                             588,205         978,616          (390,411 )        -40 %
Gross profit                              309,804         802,403          (492,599 )        -61 %
Gross profit %                                 34 %            45 %
Selling general and administrative
expenses                                  467,574         471,379            (3,805 )         -1 %
Depreciation and amortization
expense                                    11,368          11,246               122            1 %
Income (loss) before provision
(benefit) for income taxes               (168,728 )       319,602          (488,330 )       -153 %
 Provision (benefit) for income
taxes                                      71,287        (170,287 )         241,574          142 %

Net Income (Loss)                         (97,441 )       149,315          (246,756 )       -165 %

Sales. The decrease in sales is primarily due to lower sales from two customers who accounted for 61% of sales in the three-month period ended May 31, 2011, who collectively accounted for $876,000 of the decrease in sales while they only accounted for 25% of sales, or $239,800 in the three-month period ended May 31, 2012. The Company experienced a decrease in sales across many product lines.
Sales of pitchers for the three-month period ended May 31, 2012 decreased by $515,000 or 81% from the comparable period in the prior year. This decrease, as well as the overall decrease in sales between the two periods, is largely attributable to lower sales to the top two customers in the period ended May 31, 2012. We anticipate pitcher sales to increase once again in the near future. A new customer has shown interest in purchasing the remaining stock in inventory once we have additional testing approved. In addition, approximately 32,524 plastic bottles were sold during the period ended May 31, 2012 at an average price of $7.51 per bottle compared to the previous year in which 35,229 bottles were sold during the three-month period ended May 31, 2011 at an average price of $9.32 per bottle. The sales price per unit was reduced by management in order to consummate a few significant orders of plastic bottles, which reduced the overall average price. Without these individually significant transactions, the average price per bottle actually increased to $9.95 per bottle for the remainder of the plastic bottle sales. The decrease in price for these significant orders was necessary to effect the sales. The Company expects these sales to rebound in the second quarter. Specifically, the Company has already built an inventory of 9,000 units of the RAD filter bottles that are ready for shipment during the second quarter and the Company anticipates a significant order from a Japanese customer for the RAD filter bottles.

The sales by product for the period ended May 31, 2012 were $124,000 in pitchers, $244,000 in plastic bottles, $167,000 in mission packs, $52,000 in stainless steel bottles, $23,000 in straw, $2,000 in shower filters, $82,000 in replacement filters, $15,000 in countertop units, $53,000 in pumps, and the remainder in other products including canteens, water bags, inline and aqua mist. The sales by products for the three-month period ended May 31, 2011 were $328,000 in plastic bottles, $171,000 in mission packs, $639,000 in pitchers, $144,000 in stainless steel bottles, $122,000 in replacement filters, $92,000 in straw, $60,000 in shower filter, $43,000 in countertop units, $34,000 in pumps, and the remainder in other products in the product line including canteens, water bags, inline filters, and aqua mist.

Cost of sales and gross profit percentage. A portion of the decrease in cost of sales is a direct result of sales decreasing during the three-month period ended May 31, 2012. As a percentage of sales, the gross profit margin during the three months ended May 31, 2012 decreased to 34% from 45% for the three months ended May 31, 2011. This is largely due to the sales price concessions as discussed above, production being centered on a more diverse product mix and an increase in raw material costs. There was an increase due to additional media being purchased to add to the filter in order to increase its effectiveness. Media, packaging, and smaller components of the products are automatically expensed when purchased due to the difficulty of quantifying their amount at inventory. The product mix was a significant factor in the margin decline as many of the higher cost, lower margin inventory items were sold while inventory built up during the quarter were largely in lower cost, higher margin products, such as the radiological filter and the PH filter, in anticipation of future sales. The Company expects the margin percentages to rebound as these products are ultimately sold in the second quarter, as well as the absence of the price concessions.

Selling, general and administrative expenses. These expenses decreased by 1% during the period ended May 31, 2012 compared to the same period ended in the prior year. The decrease was largely a direct result of the decrease in sales for which sales people are paid commissions. Commission expenses comprised 4% of sales for 2012 compared to 6% of sales for 2011 resulting in a decrease of $70,000. Merchant fees decreased by approximately $10,000 as a direct result of sales decreasing. These decreases were partially offset by a $26,000 increase in accounting fees due to an increase in auditing fees including an annual filing and re-audit billings during the period ended May 31, 2012 which was due to a change in auditors during this period. There was also a $44,000 increase in legal expenses due to pending lawsuits.

Depreciation and amortization expense. Depreciation and amortization expense was relatively flat from period to period, but the slight increase is due to additional tooling being purchased during the period ended May 31, 2012 and the nine-months preceding.

Income tax expense. The Company recorded an income tax benefit of $71,287 due to the pretax loss of approximately $169,000 during the three-month period ended May 31, 2012. This compares to income tax expense of approximately $170,000 on pretax income of $320,000 in the comparable period in the prior year.

Net Income (Loss). Net loss for the three-month period ended May 31, 2012 was $97,441 compared to net income of $149,315 for the three-month period ended May 31, 2011. This was primarily due to a decrease of approximately $493,000 in gross profit during the three-month period ended May 31, 2012 due to 1) lower margin sales, 2) delay of orders for new higher margin products due to administrative issues with the new customers, and 3) price concessions on selected lower margin plastic bottles. We plan to focus on the main factors affecting our bottom line to improve the Company's profitability in the upcoming periods. With our new production space in an adjacent building, this has allowed for the inventory build-up and ultimately more production space as well. Another area we are continuing to consider in reducing the cost of goods and improving gross margins is the out-sourcing of some of our faster moving products to a high volume assembler/fulfillment vendor. Both the new production space and the out-sourcing should have a direct effect on the bottom line and make the move to a more scaleable higher volume business model feasible. Finally, new products previously announced, the radiological filter that removes 100% of major nuclear contaminants in drinking water, and the PH filter increasing the PH level of water filtered through our products to 9.5%, will have higher margins and are ready for shipment in the second quarter. We anticipate that these products will have a positive impact on both sales and net income going forward.

Net cash provided by (used in) operating activities. During the three-month period ended May 31, 2012, cash used in operating activities was $60,324. This was primarily due to the net loss reported for the period after adding noncash expenses for stock based compensation and depreciation and amortization back to the reported net loss, the net of which was cash outflow of approximately $63,000, comprised primarily of decreases resulting from the pay down of payables of $105,841 and the increase in accounts receivable of $65,664, despite decreased sales, offset by the usage of inventories of $139,823.

Net cash provided by (used in) investing activities. During the three-month period ended May 31, 2012, the increase in cash used by investing activities was primarily due to the sale of a Company vehicle resulting in proceeds of $12,000 in the period ended May 31, 2012, offset by the purchase of $3,988 of property and equipment, compared to purchases of property and equipment of $12,021 during the same time period in the prior fiscal year.

Net cash provided by financing activities. The decrease in cash used in financing activities during the three month period ended May 31, 2012 was largely due to repayments totaling $1,053 on capital lease obligations compared to $5,000 in the time period of 2011.

As of May 31, 2012, the Company had approximately $1,096,000 in cash and approximately $500,000 available to borrow under its line of credit. The line of credit does not contain any limitations on borrowing or any restrictive debt covenants. The Company believes it has liquidity to meet its operating needs through the balance of fiscal 2013.

The Company's discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

The Company believes that the estimates, assumptions and judgments involved in the accounting policies described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of its most recent fiscal 2012 Annual Report on Form 10-K have the greatest potential impact on its consolidated financial statements, so it considers these to be its critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates the Company uses in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for inventory reserves and stock-based compensation. These policies require that the Company make estimates in the preparation of its consolidated financial statements as of a given date.

Within the context of these critical accounting policies, the Company is not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.