Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John A. DiBella
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
We have audited the accompanying consolidated balance sheets of Enviro Voraxial Technology, Inc. and subsidiary (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in shareholders' deficiency and cash flows for each of the years then ended. 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 conducted our audits 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. 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 consolidated financial statements referred to above present fairly in all material respects, the financial position of Enviro Voraxial Technology, Inc. and subsidiary as of December 31, 2015 and 2014 the results of its operations and its cash flows for each of the years then ended December 31, 2015 and 2014, 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 B to the financial statements, the Company has a net loss of $275,420 for the year ended December 31, 2015 and a working capital deficit of $1,586,075 and stockholders' deficit of $1,542,997 as of December 31, 2015. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE A - ORGANIZATION AND OPERATIONS
Enviro Voraxial Technology, Inc. (the "Company") is a provider of environmental and industrial separation technology. The Company has developed, and now manufactures and sells its patented technology, the Voraxial
®
Separator, a technology that efficiently separates liquid/liquid, liquid/solid or liquid/liquid/solid fluid streams with distinct specific gravities. Current and potential commercial applications and markets include oil exploration and production, oil refineries, oil spill, mining, manufacturing, waste-to-energy and food processing industry.
Florida Precision Aerospace, Inc. (FPA) is the wholly- owned subsidiary of the Company and is used to manufacture, assemble and test the Voraxial Separator.
NOTE B - GOING CONCERN
The Company has experienced recurring losses and a working capital and stockholders' deficit as of December 31, 2015. The Company has a net loss of $275,420 for the year ended December 31, 2015 and a working capital deficit of $1,586,075 and shareholders' deficiency of $1,542,997 as of December 31, 2015. There is a substantial doubt about the Company's ability to continue as a going concern. There is no assurance that the Company's sales and marketing efforts will be successful enough to achieve a level of revenue sufficient to provide cash inflows to sustain operations; however the Company has begun commercializing the Voraxial and is experiencing an increase in customer interest that management believes will continue in 2016. The Company will continue to require the infusion of capital until operations become profitable. During the remainder of 2016 the Company may seek capital for growth and increasing sales of the Voraxial Separator. As a result of the above, there is substantial doubt about the entities ability to continue as a going concern and the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we fail to raise additional funds when needed, or do not have sufficient cash flows from sales, we may be required to scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the parent company, Enviro Voraxial Technology, Inc., and its wholly-owned subsidiary, Florida Precision Aerospace, Inc. All significant intercompany accounts and transactions have been eliminated.
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the valuation of deferred tax assets, the allowances for doubtful accounts, allowance for inventory impairment and estimated warranty costs. Actual results may differ.
Revenue Recognition
The Company derives its revenue from the sale and short-term rental of the Voraxial Separator. The Company presents revenue in accordance with FASB new codification of "Revenue Recognition in Financial Statements". Under Revenue Recognition in Financial Statements, revenue is realized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.
Revenues that are generated from sales of equipment are typically recognized upon shipment. Our standard agreements generally do not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been complied with. As of December 31, 2015 there was $249,228 of deposits from customers.
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
The Company recognizes revenue from the short term rental of equipment, ratably over the life of the agreement, which is usually three to twelve months.
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The company maintains allowances for doubtful accounts for estimated losses. The company reviews the accounts receivable on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer's historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collections. At December 31, 2015 and 2014, the Company has $60,254 in the allowance for doubtful accounts.
Fair Value of Instruments
The carrying amounts of the Company's financial instruments, including cash and cash equivalents, inventory, accounts payable and accrued expenses at December 31, 2015 and 2014, approximate their fair value because of their relatively short-term nature.
ASC 820 "Disclosures about Fair Value of Financial Instruments," requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value is observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of December 31, 2015 and 2014.
Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of December 31, 2015 and 2014.
Level 3—inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We have no Level 3 instruments as of December 31, 2015 and 2014.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various financial institutions. Balances at these institutions may at times exceed the Federal Deposit Insurance Corporate limits.
Inventory
Inventory consists of components for the Voraxial Separator and is priced at lower of cost or market. Inventory may include units being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of December 31, 2015, there was 1 unit held by third parties.
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. The cost of maintenance and repairs is expensed to operations as incurred. Depreciation is computed by the straight-line method over the estimated economic useful life of the assets (5-10 years). Gains and losses recognized from the sales or disposal of assets is the difference between the sales price and the recorded cost less accumulated depreciation less costs of disposal.
Net Loss Per Share
The Company follows ASC 260 "Earnings per share" to calculate its net loss per share. Basic and diluted loss per share has been computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding. The warrants and stock options have been excluded from the calculation since they would be anti-dilutive.
Such equity instruments may have a dilutive effect in the future and include the following potential common shares:
|
2015
|
2014
|
Stock options
|
13,465,000
|
13,465,000
|
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Research and Development Expenses
Research and development costs, which includes travel expenses, consulting fees, subcontractors and salaries are expensed as incurred. There was $0 and $0 in research and development costs during December 31, 2015 and 2014, respectively.
Advertising Costs
Advertising costs are expensed as incurred and are included in general and administrative expenses. There was $18,375 and $21,083 in advertising costs during December 31, 2015 and 2014, respectively.
Stock-Based Compensation
The Company adopted ASC Topic 718 formerly Statement of Financial Account Standard (SFAS) No. 123(R) effective January 1, 2006. This statement requires compensation expense relating to share-based payments to be recognized in net income using a fair-value measurement method. Under the fair value method, the estimated fair value of awards is charged to income on a straight-line basis over the requisite service period, which is generally the vesting period.
Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.
Accounting for the Impairment of Long-Lived Assets
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company did not have any impairments of long-lived assets in December 31, 2015 and 2014.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss or cash flows.
NOTE D – RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued new accounting guidance regarding revenue recognition under GAAP. This new guidance will supersede nearly all existing revenue recognition guidance, and is effective for public entities for annual and interim periods beginning after December 31, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of this new guidance on the Company's condensed consolidated financial statements.
In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements - Going Concern", which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on the condensed consolidated financial statements.
NOTE E- INVENTORY
Inventory as of December 31 consists of:
|
|
|
|
2015
|
|
|
2014
|
Raw Materials
|
$
|
89,771
|
|
$
|
156,668
|
Work in Progress
|
|
6,464
|
|
|
227,442
|
Finished Goods
|
|
0
|
|
|
36,000
|
Total
|
$
|
96,235
|
|
$
|
420,110
|
NOTE F - FIXED ASSETS
Fixed assets as of December 31 consists of:
|
|
2015
|
|
2014
|
Machinery and equipment
|
$
|
482,659
|
|
$
|
495,372
|
Furniture and fixtures
|
|
14,498
|
|
|
14,498
|
Autos and Trucks
|
|
5,294
|
|
|
5,294
|
Total
|
|
502,451
|
|
|
515,164
|
Less: accumulated depreciation
|
|
(469,399)
|
|
|
(460,019)
|
Fixed Assets, net
|
$
|
33,052
|
|
$
|
55,145
|
Depreciation expense was $22,093 and $22,618 for the years ended December 31, 2015 and 2014 respectively.
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE G – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Significant components of accounts payable and accrued expenses at December 31, consists of:
|
|
|
|
2015
|
|
|
2014
|
Trade payables and accrued expenses
|
$
|
274,913
|
|
$
|
406,873
|
Customer deposits
|
|
249,228
|
|
|
465,290
|
|
|
$
|
524,141
|
|
$
|
872,163
|
NOTE H - RELATED PARTY TRANSACTIONS
For the years ended December 31, 2015 and 2014, the Company incurred salary expenses from the Chief Executive Officer of the Company of $305,000. For December 31, 2015, 90,000 has been paid for the year. The unpaid balance has been included in accrued expenses- related party. As of December 31, 2015 and 2014, the accrued salary is $1,173,270 and $943,270, respectively.
As of December 31, 2015 and 2014, the Company owes the estate of its former Chief Executive Officer $158,898, which is also included in accrued expenses- related party. During 2014, the Company repriced and extended the expiration date of stock options to November 15, 2023 and an exercise price of $.05 per share with a fair value of $44,224. During 2015, the Company repriced the exercise price of stock options to $.01 per share with a fair value of $0.
NOTE I - CAPITAL TRANSACTIONS
Common stock
Effective April 30, 2010, the Company issued restricted stock grants to acquire an aggregate of 1,100,000 shares of restricted common stock to John DiBella and 300,000 restricted shares to an employee. The shares subject to the grant to Mr. DiBella were initially subject to forfeiture by Mr. DiBella as follows: 300,000 shares on April 30, 2013, 400,000 shares on April 30, 2014 and 200,000 shares on April 30, 2015, in the event Mr. DiBella was no longer a full-time employee on such dates. The 300,000 stock grants issued to the employee are subject to forfeiture as follows: (1) 100,000 shares on April 30, 2012, (2) 100,000 shares on April 30, 2013, and (3) 100,000 shares on April 30, 2014 in the event such employee is no longer a full time employee on such date. The stock grants were valued at $0.38 per share and are amortized over the term of the stock grant. The securities may not be transferred absent registration or applicable exemption. On January 1, 2012, the Company vested 100% of the remaining unvested shares to John DiBella and recorded an expense of $209,000. In September 2014, the Company further modified the terms of the stock options, see below.
Options
In September 2014, the Company extended the exercisable life and reduced the exercise price of options issued to employees and consultants to purchase an aggregate of 13,465,000 shares of common stock issued since 2002. The options now expire in November 2023 and the exercise price is $0.05 per share. The Company calculated the fair value of the extended options by using the Black-Scholes option-pricing model with the following weighted average assumptions: no dividend yield for all the years; expected volatility of 187%; risk-free interest rates of 0.08% - 2.04% and expected lives of 240 days to six years. The Company recorded a charge of $125,354 related to the option repricing for the three and nine months ended September 30, 2014.
In December 2015, the Company reduced the exercise price of options issued to employees and consultants to purchase an aggregate of 13,465,000 shares of common stock issued since 2002 to an exercise price of $0.01 per share. The Company calculated the fair value of the extended options by using the Black-Scholes option-pricing model with the following weighted average assumptions: no dividend yield for all the years; expected volatility
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
of 347%; risk-free interest rates of 2.09% and expected lives of eight years. The Company recorded a charge of $0 related to the option repricing for the year ended December 31, 2015.
We used the following assumptions for options granted during the year ended December 31, 2015:
Expected volatility: 347%
Expected lives: 8 Years
Risk-free interest rate: 2.09%
Expected dividend yield: None
Information with respect to options outstanding and exercisable at December 31, 2015 and 2014 is as follows:
|
|
Number
|
Range of Exercise
|
Number
|
|
|
Outstanding
|
|
Price
|
Exercisable
|
|
|
|
|
|
Balance, December 31, 2014
|
|
13,465,000
|
$0.05
|
13,465,000
|
Issued
|
|
-
|
|
-
|
-
|
Expired
|
|
-
|
|
-
|
-
|
Balance, December 31, 2015
|
|
13,465,000
|
|
$0.01
|
13,465,000
|
Number
Outstanding
December 31, 2015
|
Weighted Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December 31, 2015
|
Weighted
Average
Exercise Price
|
13,465,000
|
8.0
|
|
0.01
|
13,465,000
|
$0.01
|
13,465,000
|
-
|
|
-
|
13,465,000
|
|
The following table summarizes information about the stock options outstanding at December 31, 2014:
|
|
Exercise
Price
|
Number
Outstanding at
December 31, 2014
|
Weighted Average
Remaining
Contractual Life
|
Weighted Average
Exercise Price
|
Number
Exercisable at
December 31, 2014
|
Weighted Average
Exercise Price
|
$0.05
|
13,465,000
|
8.73
|
0.05
|
13,465,000
|
$0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,465,000
|
-
|
-
|
13,465,000
|
|
NOTE J - COMMITMENTS AND CONTINGENCIES
Litigation
On or about November 17, 2011, a claim was filed in the Broward County Circuit Court in Fort Lauderdale, Florida against the company by Raw Energy Tech, LLC. The plaintiff alleges oral contract between the parties for the alleged design, fabrication and construction of a prototype power pack. Amount of damages sought are approximately $58,000. We have moved to dismiss the complaint and intend to vigorously defend this action as we believe this claim is without merit. There has been no progress in resolving this claim. We have accrued an amount in the financial statements to cover our legal expenses as of December 31, 2015 and 2014.
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Operating Lease
In October 2015, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57
th
Place, Fort Lauderdale, FL 33309. The lease is $6,100 per month, which includes common area maintenance, taxes and insurance. The Company has the option to terminate the lease with three months' notice.
Future minimum lease payments for operating leases at December 31, 2015 are as follows:
|
|
|
|
|
|
2016
|
$
|
73,200
|
2017
|
|
73,000
|
2018
|
|
61,000
|
Thereafter
|
$
|
207,200
|
NOTE K – MAJOR CUSTOMERS
For the year ended December 31, 2015, four customers accounted for approximately 94% of revenues. For the year ended December 31, 2014, two customers accounted for approximately 83% of revenues.
Major customer concentrations as of and for the year ended December 31, 2015 are as follows:
|
Sales
|
|
Accounts
|
|
Customer
|
Amount
|
Percent
|
Receivable
|
Percent
|
A
|
$422,800
|
39%
|
−
|
−
|
B
|
$294,000
|
27%
|
−
|
−
|
C
|
$147,875
|
13%
|
−
|
−
|
D
|
$158,400
|
15%
|
$88,200
|
94%
|
Major customer concentrations as of and for the year ended December 31, 2014 are as follows:
|
|
|
Sales
|
|
Accounts
|
|
Customer
|
Amount
|
Percent
|
Receivable
|
Percent
|
A
|
$342,800
|
59%
|
-
|
-
|
B
|
$137,881
|
24%
|
-
|
-
|
C
|
-
|
-
|
$24,900
|
29%
|
Enviro Voraxial Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE L – INCOME TAX
At December 31, 2015 and 2014 we had deferred tax assets principally arising from the net operating loss carry forwards for income tax purposes multiplied by an approximate expected rate of 38%. As management of the Company cannot determine that it is more likely than not that we will realize the benefit of the deferred tax assets, a valuation allowance equal to the deferred tax asset has been established at December 31, 2015 and 2014.
The significant components of the deferred tax asset at December 31, 2015 and 2014 were as follows:
|
|
December 31,
|
|
|
2015
|
|
|
2014
|
Current Deferred benefit:
|
$
|
293,576
|
|
$
|
276,631
|
|
|
293,576
|
|
|
276,631
|
Valuation allowance
|
|
(293,576)
|
|
|
(276,631)
|
(Benefit) provision for income taxes, net
|
$
|
-
|
|
$
|
-
|
The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
|
December 31,
|
|
2015
|
|
2014
|
Combined statutory income tax rate
|
38%
|
|
38%
|
Valuation allowance
|
(38%)
|
|
(38%)
|
Effective tax rate
|
-
|
|
-
|
Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The effects of temporary differences that gave rise to deferred tax assets are as follows:
|
|
December 31,
|
|
|
2015
|
|
|
2014
|
Net operating loss carry-forward
|
$
|
4,585,358
|
|
$
|
4,291,782
|
Valuation allowance
|
|
(4,585,358)
|
|
|
(4,291,782)
|
Deferred income tax asset
|
$
|
-
|
|
$
|
-
|
The Company has made a 100% valuation allowance of the deferred income tax asset at December 31, 2015, as it is not expected that the deferred tax assets will be realized. The Company has a net operating loss carryforward of $12,140,349 available to offset future taxable income through 2035.
The Company's federal income tax returns for the three years ended December 31, 2015 remains subject to examination by the Internal Revenue Services as of December 31, 2015.
F-14