ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(Unaudited)
|
Common Stock
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2016
|
33,464,497
|
|
$
|
33,465
|
|
$
|
14,947,209
|
|
|
$
|
(17,059,464)
|
|
$
|
(2,078,790)
|
Issuance of common stock for interest
|
50,000
|
|
|
50
|
|
|
950
|
|
|
|
--
|
|
|
1,000
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(137,986)
|
|
|
(137,986)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2017
|
33,514,497
|
|
$
|
33,515
|
|
$
|
14,948,159
|
|
|
$
|
(17,197,450)
|
|
$
|
(2,215,776)
|
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Three months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(137,986)
|
|
$
|
(145,885)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
cash provided by(used in) operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
|
5,509
|
|
|
5,509
|
Issuance of Common Stock for interest
|
|
|
1,000
|
|
|
--
|
Amortization of debt discount
|
|
|
7,179
|
|
|
--
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(22,907)
|
|
|
(15,300)
|
Inventory
|
|
|
-
|
|
|
(4,499)
|
Accounts payable and accrued expenses and deposits
|
|
|
42,878
|
|
|
219,612
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
(104,327)
|
|
|
59,437
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
--
|
|
|
--
|
Advances from related party
|
|
|
7,000
|
|
|
--
|
Note payable
|
|
|
150,000
|
|
|
--
|
Net cash provided by financing activities
|
|
|
157,000
|
|
|
--
|
Net increase in cash and cash equivalents
|
|
|
52,673
|
|
|
59,437
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
40,973
|
|
|
73,713
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
93,646
|
|
$
|
133,150
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
7,867
|
|
$
|
5,000
|
Cash paid during the period for taxes
|
|
$
|
-
|
|
$
|
-
|
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
ORGANIZATION
Enviro Voraxial Technology, Inc., an Idaho corporation (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., a Florida corporation ("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 net losses and a working capital deficiency as of March 31, 2017. 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 continues to experience customer interest and forecast revenues to increase in 2017. While the Company anticipates increase in sales of the Voraxial Separator during 2017, the Company may continue to require the infusion of capital until operations become profitable. As a result of the above, there is a substantial doubt about our ability to continue as a going concern and the accompanying condensed unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
We believe that including our current cash resources and anticipated revenue to be generated by sales and/or leases of our Voraxial Separators, including the completion of the Technology Purchase Agreement, we will have sufficient resources to continue business operations for the next twelve months. To the extent that these resources are not sufficient to sustain current operating activities and we do not complete the Technology Purchase Agreement, we may need to seek additional capital, or adjust our operating plan accordingly. 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
INTERIM FINANCIAL STATEMENTS
The interim financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The interim financial statements should be read in conjunction with the company's annual financial statements, notes and accounting policies included in the company's annual report on Form 10-K for the year ended December 31, 2016, as filed with the SEC. In the opinion of management, all adjustments, which are necessary to provide a fair presentation of financial position as of March 31, 2017,
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
and the related operating results and cash flows for the interim period presented, have been made. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year.
PRINCIPLES OF CONSOLIDATION
The unaudited condensed 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. Actual results may differ. Significant estimates include allowance for doubtful accounts, deferred tax asset, allowance for inventory obsolescence and valuation of stock-based compensation.
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 March 31, 2017 and December 31, 2016, there was $32,090 and $95,690, respectively, of deposits from customers.
The Company recognizes revenue from the short term rental of equipment, ratably over the life of the agreement, which is usually one to twelve months.
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 March 31, 2017 and December 31, 2016, approximate their fair value because of their relatively short-term nature.
"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.
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
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 March 31, 2017 and December 31, 2016.
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 March 31, 2017 and December 31, 2016.
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 March 31, 2017 and December 31, 2016.
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 ("FDIC") limits. As of March 31, 2017 and December 31, 2016, balances did not exceed the FDIC 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 March 31, 2017 and December 31, 2016:
|
March 31, 2017
|
|
December 31, 2016
|
Raw materials
|
$
|
64,847
|
|
$
|
64,847
|
Work in process
|
|
--
|
|
|
--
|
Finished goods
|
|
12,050
|
|
|
12,050
|
Total
|
$
|
76,897
|
|
$
|
76,897
|
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
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
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
In accordance with the accounting guidance now codified as FASB ASC Topic 260, "
Earnings per Share"
basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
Since the Company reflected a net loss for the three months ended March 31, 2017 and 2016, the effect of 13,465,000 and 13,465,000 options, respectively, is anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 ("ASC 740-10-25"). Under ASC 740-10-25, 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. 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. Under ASC 740-10-25, 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.
Business Segments
The Company operates in one segment and therefore segment information is not presented.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs, which includes travel expenses, consulting fees, subcontractors and salaries are expensed as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in general and administrative expenses.
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.
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 cashflows.
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements issued by the FASB, the AICPA and the SEC, did not, or are not believed by management, to have a material impact on the Company's present or future financial statements, except as follows:
In August 2015, FASB issued Accounting Standards Update ("ASU") No. 2015-14, "
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date"
defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09.
We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
NOTE D - RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2017, the Company incurred salary expenses from the Chief Executive Officer of the Company of $76,250. Of these amounts, $0 has been paid for the three months ended March 31, 2017. The total unpaid balance as of March 31, 2017 is $1,541,011 and is included in accrued expenses – related party. For the three months ended March 31, 2016, the Company incurred salary expenses from the Chief Executive Officer of the Company of $76,250. Of these amounts, $7,500 had been paid for the three months ended March 31, 2016. The total unpaid balance as of March 31, 2016 is $1,242,020 and is included in accrued expenses – related party.
During the three months ended March 31, 2017, the CEO advanced $7,000 to the company for working capital. This advance is non-interest bearing and due on demand.
During the year ending December 31, 2016 the Company's CEO paid certain Company business expenses for the Company in the aggregate amount of $20,748.58 and during the three months ending March 31, 2017 the Company's CEO paid Company business expenses in the amount of $2,175.15. These amounts are non interest bearing and payable on demand.
NOTE E – NOTE PAYABLE
On February 3, 2017, the Company received an advance of $150,000 from a third party investor pursuant to a $165,000 discounted promissory note. The company shall pay interest to the noteholder on the principal face amount of $165,000 at a rate of 2.5% per month in the event the note is not repaid on or before May 31, 2017. As additional consideration for the advance, the Company issued the third party 50,000 shares of the Company's common stock. See Note F.
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
NOTE F -- CAPITAL TRANSACTIONS
As disclosed under Note E, on February 3, 2017, the Company received an advance of $150,000 from a third party investor pursuant to a $165,000 discounted promissory note. As additional consideration for the advance, the Company issued the third party 50,000 shares of the Company's common stock. The shares were recorded at their fair value on the date of issuance.
WARRANTS AND STOCK OPTIONS
The Company follows the provisions of ASC Topic 718, "Compensation – Stock Compensation." ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company's history of having never issued a dividend and management's current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method for employees and officers.
Information with respect to options outstanding and exercisable at March 31, 2017 is as follows:
|
Number
Outstanding
|
Exercise
Price
|
Number
Exercisable
|
Balance, December 31, 2016
|
13,465,000
|
$0.01
|
13,465,000
|
Issued
|
-
|
-
|
-
|
Expired
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
Balance, March 31, 2017
|
13,465,000
|
$0.01
|
13,465,000
|
Exercise
Price
|
Number Outstanding at
March 31, 2017
|
Weighted Average
Remaining
Contractual Life
|
Weighted Average
Exercise Price
|
Number Exercisable at
March 31, 2017
|
Weighted Average
Exercise Price
|
0.01
|
13,465,000
|
7.5
|
0.01
|
13,465,000
|
0.01
|
Total
|
13,465,000
|
-
|
-
|
13,465,000
|
-
|
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED)
The following table summarizes information about the stock options outstanding at December 31, 2016:
Exercise
Price
|
Number
Outstanding
December 31, 2016
|
Weighted Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December 31, 2016
|
Weighted
Average
Exercise Price
|
$0.01
|
13,465,000
|
8.0
|
|
0.01
|
13,465,000
|
$0.01
|
Total
|
13,465,000
|
-
|
|
-
|
13,465,000
|
|
NOTE G – COMMITMENTS AND CONTINGENCIES
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.
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 breach of an 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. We have accrued an amount in the financial statements to cover our legal expenses as of March 31, 2017.
Termination of Use Agreement
On December 29, 2016, the Company entered into a termination, assignment, settlement and general release agreement with an inventor named on certain Company patents and party to a use agreement with the Company. Under the release agreement the parties agreed to mutual releases and the inventor agreed to (1) terminate the use agreement and all rights to the patents and (2) assign any remaining rights to the patents to the Company (the "Termination, Release and Assignment"). In the event the Company fails to pay the inventor $45,000 on or before June 29, 2017, the inventor may void the Termination, Release and Assignment.
NOTE H – MAJOR CUSTOMERS
During the three months ended March 31, 2017, we recorded 87% of our revenue from one customer.
During the three months ended March 31, 2016, we recorded 98% of our revenue from one customer.