PART I.
Our History
Enviro Technologies,
Inc. (the “Company”) was incorporated in Idaho on October 19, 1964, under the name Idaho Silver, Inc. Our wholly owned
subsidiary, Florida Precision Aerospace, Inc., a Florida corporation (“FPA”), was incorporated on February 26, 1993.
Effective November 13, 2017 we filed Articles of Amendment to our Articles of Incorporation changing the Company’s name
from Enviro Voraxial Technology, Inc. to “Enviro Technologies, Inc.”.
General
The Company developed
and currently manufactures and sells the patented Voraxial
®
Separator (“Voraxial
®
Separator”
or “Voraxial
®
”) pursuant to the agreements discussed below. The Voraxial
®
Separator
is a proprietary technology now owned by Schlumberger (as defined below) that efficiently separates large volumes of liquid/liquid,
liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. Per the agreements we signed with Schlumberger,
we continue to manufacture the technology for Schlumberger for the oil and gas industry and have a non-exclusive license to pursue
other industries independent of Schlumberger, which include mining, sewage, wastewater as well as other markets.
On March 13,
2017, we entered into a Technology Purchase Agreement with Schlumberger Technology Corporation, a Texas corporation, Schlumberger
Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively,
“Schlumberger”) which was approved by the Company’s shareholders on May 31, 2017 and completed on June 8, 2017.
Under the agreement we sold our intellectual property (the “Purchased Intellectual Property”), substantially consisting
of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of up to $4,000,000, of which $3,000,000
was paid to us at closing. The remaining $1,000,000 is payable upon the completion of both: (i) the complete transfer of the Purchased
Intellectual Property to Schlumberger; and (ii) the provision to transfer information, assets and services to Schlumberger, which
is estimated to be approximately 12 months from the closing date. We recognized a gain on the sale of our intellectual property
of $3,000,000 less direct cost of $80,000, which include a termination fee and consulting fees.
We utilized a
portion of the proceeds from this transaction to pay some of our outstanding debt and are using the balance for general working
capital. We are also using some of the proceeds to buy additional manufacturing equipment to meet potential future sales; this
includes the $85,661 deposit to purchase the CNC machining equipment and approximately $25,000 in installation costs.
As part of the
agreement, Schlumberger granted us a non-exclusive, non-transferable, worldwide, royalty-free licenses (the “Grant Back
Licenses”), to make, use, sell, offer for sale, and import products and processes embodying the Purchase Intellectual Property
outside the oil and gas market. Our management believes that the Grant Back Licenses will provide for potential revenues through
the sale of Voraxial Separators outside the oil and gas industry, including, but not limited to mining, sewage and wastewater.
In addition,
pursuant to the Technology Purchase Agreement FPA entered into a Framework Agreement on June 8, 2017 (the “Supply Agreement”)
with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston, Texas-based company engaged in the development, manufacture
and sale of equipment used in the oil and gas industry. Under the terms of the three-year Supply Agreement, FPA is the exclusive
supplier to Cameron Solutions of certain Voraxial series products for use in the oil and gas industry. Sales will be made from
time to time in accordance with the terms of purchase orders. The Supply Agreement is cancellable by Cameron Solutions upon 15
days’ notice if we fail to meet delivery or performance schedules or breaches any of the terms of the agreement, including
the warranties. Cameron Solutions may also cancel the Supply Agreement without notice in the event we become insolvent or commit
any act of bankruptcy. The Supply Agreement contains customary indemnification and confidentiality provisions. There are no assurances
that we will generate revenues under the Grant Back Licenses or Supply Agreement. There are no minimum purchase requirements for
Cameron Solutions under the Supply Agreement.
For a period
of three years following the closing of the Technology Purchase Agreement, the Company and our officers and directors (Raynard
Veldman and John Di Bella), have agreed to not participate or cause participation in the oil-and-gas market in relation to phase
or constituent sensing or separation which is defined as, liquid-liquid, liquid-solid or liquid-gas separation and
gas or liquid
sensing, including all product lines and services
related thereto and including the Voraxial product line and services, except to the extent necessary to: (i) repair or service,
but not remanufacture, any goods the Company sold to third persons prior to closing; (ii) fulfill, on or after closing, any customer
obligation; or (iii) comply with any term or condition of the agreement.
Separation Technology - The
Grant Back License and Supply Agreement
Pursuant to the
Technology Purchase Agreement, the Company signed a Supply Agreement to manufacture the Voraxial Separator for Schlumberger for
a period of 3 years and a Grant Back License to sell the Voraxial Separator in other markets outside of the oil and gas markets.
The Voraxial Separator is a continuous flow turbo machine that generates a strong centrifugal force, a vortex, capable of separating
light and heavy liquids, such as oil and water, or any other combination of liquids and solids at extremely high flow rates. As
the fluid passes through the machine, the Voraxial Separator accomplishes this separation through the creation of a vortex. In
liquid/liquid and liquid/solid mixtures, this vortex causes the heavier compounds to gravitate to the outside of the flow and
the lighter elements to move to the center where an inner core is formed. The liquid stream processed by the machine is divided
into separate streams of heavier and lighter liquids and solids. As a result of this process, separation is achieved.
The benefits
of the Voraxial Separator include:
|
-
|
High
volume / small footprint
|
|
-
|
No
Pressure drop requirement
|
|
-
|
Treats
a wide range of flows, even slugging flows
|
|
-
|
Handles
fluctuation in flow rates without any adjustments
|
|
-
|
Handles
fluctuation in contaminates without any adjustments
|
|
-
|
Separation
of 2 or 3 components simultaneously
|
|
-
|
Non-clogging
- open rotor assembly
|
|
-
|
Low
maintenance with ease of operation and installation
|
|
-
|
Since
there is no pressure drop, there is very little wear caused by sand
|
The Voraxial
Separator is a self-contained, non-clogging device that can be powered by an electric motor, diesel engine or by hydraulic power
generation. Further, its scalability allows it to be utilized in a variety of industries and to process various amounts of liquid.
The following are the various sizes and the corresponding capacity range:
Model
|
|
Diameter
|
|
Capacity Range
|
Number
|
|
Size
|
|
Gallons Per Minute
|
|
V1000
|
|
1 inch
|
3
- 5
|
|
V2000
|
|
2 inches
|
20
- 70
|
|
V4000
|
|
4 inches
|
100
- 500
|
|
V8000
|
|
8 inches
|
|
1,000 - 3,500
|
We believe that
if sales of this technology by Schlumberger materialize in the oil and gas markets, we will have the resources and opportunity
under the Grant Back Licenses to pursue other industries on a cost-effective basis, including: mining, municipal wastewater treatment,
industrial wastewater, and numerous other industrial production and environmental remediation processes. As clean water becomes
less available to the ever-increasing world population, this technology may become more valuable.
The Market
The need for
effective and cost efficient wastewater treatment and separation technology is global in scale. Moreover, virtually every industry
requires some type of separation process either during the manufacturing process, prior to treatment or discharge of wastewater
into the environment, for general clean up, or emergency response capability. Separation processes, however, are largely unknown
to the average consumer. These processes are deeply integrated in almost all industrial processes from oil to wastewater to manufacturing.
Management believes that the separation technology has applications in most, if not all major separation industries. The unique
characteristics of the technology allow it to be utilized either as a stand-alone unit or within an existing system
to provide
a more efficient and cost effective way to handle the separation needs of the customer.
We believe the separation technology can result in a cost savings and other benefits to the customer. These benefits result in
and include:
|
●
|
A
reduction in water and energy usage,
|
|
●
|
Requires
no pressure drop to perform separation,
|
|
●
|
Less
space needed to implement the Voraxial Separator, the Voraxial Separator weights less
than existing systems,
|
|
●
|
A
reduction time to process and separate the fluids, allowing the customer to be more efficient,
|
|
●
|
Creation
of more efficient and faster process to treat water to increase the overall productivity
of the end-user,
|
|
●
|
Fewer
employees needed to operate the system, and
|
|
●
|
Reduction
of ongoing maintenance and servicing costs.
|
We believe that
this separation technology is a unique front-end solution for the separation industry that can offer increased productivity while
reducing the physical space and energy required to operate the unit. These advantages translate into the potential for substantial
operating cost efficiencies that would increase the profitability of the solution’s end user. The unique characteristic
to conduct separation without a pressure loss allows the unit to be installed in locations other technologies cannot. For instance,
another separation technology called a hydrocyclone requires a significant pressure loss to perform separation.
As environmental
regulations, both domestically and internationally, have become more stringent, companies have been required to more effectively
treat their wastewater prior to discharge. We believe the Grant Back License offers a great opportunity for the Company as the
separation technology can be utilized in most separation applications to significantly increase the efficiency of the separation
processes while simultaneously reduce the cost to the end-user.
Manufacturing
We manufacture
and assemble the products at our Fort Lauderdale, Florida facilities.
Sources and availability of
raw materials
The materials
needed to manufacture the components of the products we sell, including the Separation Technology, have been provided by leading
companies in the precision equipment industry. We do not have any long term contracts with any supplier. We do not anticipate
any shortage of component parts.
Inventory
We maintain a
limited inventory of finished parts until we receive a customer order. We currently have various models of the Voraxial Separator
in inventory, which may include certain models located at third party facilities on a trial basis.
Marketing
Prior to the
Technology Purchase Agreement, management developed relationships with oil service companies and representatives to promote the
Voraxial to oil industry customers. Since the Technology Purchase Agreement, we started to develop a marketing program that will
include independent sales representatives and relationships with engineering firms to stimulate awareness of the technology for
industries outside of the oil and gas market. The Company does not currently have plans to present at tradeshows in 2018.
Intellectual property
Under the Technology
Purchase Agreement we sold the Purchased Intellectual Property. We currently hold no patents.
Product liability
Our business
exposes us to possible claims of personal injury, death or property damage, which may result from the failure, or malfunction
of any component or subassembly manufactured or assembled by us. We have product liability insurance. However, any product liability
claim made against us may have a material adverse effect on our business, financial condition or results of operations in light
of our poor financial condition, losses and limited revenues. We have also obtained directors and officers, and general insurance
coverage.
Competition
We are subject
to competition from other manufacturing facilities who have greater manufacturing capacity which allows them to utilize economy
of scale to reduce cost. We are also subject to competition from a number of companies who have greater experience, research abilities,
engineering capability and financial resources than we have to market and sell separation technology. Although we believe the
separation technology offers applications which accomplish better or similar results on a more cost-effective basis than existing
products, other products have, in some instances, attained greater market and regulatory acceptance.
Employees
We currently
have seven employees. All of our employees work full-time. None of our employees are members of a union. We believe that our relationship
with our employees is favorable. We intend to add additional employees in the upcoming year related to manufacturing and sales.
Our independent auditors
have raised substantial doubt about our ability to continue as a going concern.
Our independent
auditors have included in their audit report an explanatory paragraph that states that our continuing losses from operations raises
substantial doubt about our ability to continue as a going concern. We have not yet generated significant revenues from the Supply
Agreement or Grant Back License. There is no assurance that these agreements will generate sufficient revenues
and income, nor is there any assurance that we will be able to leverage the Grant Back License and generate sufficient revenues
from other industries. You have limited historical financial data and operating results with which to evaluate our business and
our prospects under these agreements. Although we achieved operating income in 2017 due to the sale of our proprietary technology,
we will continue to incur net losses until we can produce sufficient revenues to cover our costs. At December 31, 2017, we
had an accumulated deficit of $14,988,794 including a net income of $2,070,670 for the year ended December 31, 2017, substantially
due to the sale of the Purchased Intellectual Property. In addition, we have a working capital deficiency of $166,137 as of December
31, 2017. Although we achieved profitability in 2017, we may not be able to sustain or increase our profitability on a quarterly
or annual basis.
Our ability to
generate future revenues will depend on a number of factors, many of which are beyond our control, including competitive efforts
and general economic trends. In addition, there are no assurances that we will generate any or significant revenues under the
Supply Agreement or Grant Back License. Due to these factors, we cannot anticipate with any degree of certainty that we will be
able to sustain or increase our profitability on a quarterly or annual basis.
We have been limited by insufficient
capital, and we may continue to be so limited.
In the past,
we have lacked the required capital to market the Voraxial Separator. Our inability to raise the funding or to otherwise finance
our capital needs could adversely affect our financial condition and our results of operations, and could prevent us from implementing
our business plan. We may seek to raise capital through public and private equity offerings, debt financing or collaboration,
and strategic alliances. Such financing may not be available when we need it or may not be available on terms that are favorable
to us. If we raise additional capital through the sale of our equity securities, your ownership interest will be diluted and the
terms of the financing may adversely affect your holdings or rights as a stockholder. 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.
We currently rely on
a limited number of customers for our revenues.
Revenues from
two customers accounted for approximately 85% of total revenues during 2016 and revenues from two customers accounted for approximately
92% of total revenues during 2017. We do not have any contracts with these customers. If these customers fail to order additional
products or we are unable to attract new customers, it could have an adverse effect on our financial condition and results of
operations.
We are dependent upon the Supply Agreement and Grant
Back License Agreement which have generated limited revenues to date.
Our
Supply
Agreement and Grant Back License Agreement are
important to our future success. To date we have limited revenues under such agreements. Furthermore, these agreements are
non-exclusive and may be terminated if we fail to comply with the terms of such agreements. Failure to generate significant revenues
under these agreements or termination of either agreement could have a material adverse effect on our business, financial position
and results of operations.
Our market is
subject to intense competition. If we are unable to compete effectively, our product may be rendered non-competitive or obsolete.
We are engaged
in a segment of the water filtration industry that is highly competitive and rapidly changing. Many large companies, academic
institutions, governmental agencies, and other public and private research organizations are pursuing the development of technology
that can be used for the same purposes as the Voraxial. We face, and expect to continue to face, intense and increasing competition,
as new products enter the market and advanced technologies become available. We believe that a significant number of products
are currently under development and will become available in the future that may address the water filtration segment of the market.
If other products are successfully developed, it may be better received by the market or introduced before the Voraxial.
Our competitors'
products may be more effective, or more effectively marketed and sold, than any of our products. Many of our competitors have:
|
●
|
significantly
greater financial, technical and human resources than we have and may be better equipped
to discover, develop, manufacture and commercialize products; and
|
|
●
|
more
extensive experience in marketing water treatment products.
|
Competitive products
may render the Voraxial obsolete or noncompetitive.
We are dependent on key
personnel.
We are dependent
upon the availability and the continued performance of the services of John A. DiBella. The loss of the services of John A. DiBella
could have a material adverse effect on us. In addition, the availability of skilled personnel is extremely important to our growth
strategy and our failure to attract and retain such personnel could have a material, adverse effect on us. We do not currently
maintain any key man life insurance covering Mr. DiBella or any of our employees.
Our operations are subject
to governmental approvals and regulations and environmental compliance.
Our operations
are subject to extensive and frequently changing federal, state, and local laws and substantial regulation by government agencies,
including the United States Environmental Protection Agency (EPA), the United States Occupational Safety and Health administration
(OSHA) and the Federal Aviation Administration (FAA). Among other matters, these agencies regulate the operation, handling, transportation
and disposal of hazardous materials used by us during the normal course of our operations, govern the health and safety of our
employees and certain standards and licensing requirements for our aerospace components that we contract manufacture. We are subject
to significant compliance burden from this extensive regulatory framework, which may substantially increase our operational costs.
We believe that
we have been and are in compliance with environmental requirements and believe that we have no liabilities under environmental
requirements. Further, we have not spent any funds specifically on compliance with environmental laws. However, some risk of environmental
liability is inherent in the nature of our business, and we might incur substantial costs to meet current or more stringent compliance,
cleanup, or other obligations pursuant to environmental requirements in the future. This could result in a material adverse effect
to our results of operations and financial condition.
Our business
has a substantial risk of product liability claims. If we are unable to obtain appropriate levels of insurance, a product liability
claim against us could adversely affect our business.
Our business
exposes us to possible claims of personal injury, death, or property damage, which may result from the failure, or malfunction
of any component or subassembly manufactured or assembled by us. While we have product liability insurance, any
product liability
claim made against us may have a material adverse effect
on our business, financial condition, or results of operations in light of our poor financial condition, losses and limited revenues.
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
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 approximately $6,100 per month
.
|
Item 3.
|
Legal
Proceedings.
|
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 alleged breach of an oral contract between the parties for the alleged design, fabrication and construction
of a prototype power pack. Amount of damages sought were approximately $58,000. Effective October 5, 2017, the lawsuit by
Raw Energy Tech, LLC against the Company was settled and voluntarily dismissed by the plaintiff. See Footnote J to the Consolidated
Financial Statements.
On or
about October 23, 2017, a claim was filed in the 17
th
Judicial Circuit Court in and for Broward County in Fort Lauderdale,
Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an
alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff
has demanded a refund and damages. We are defending this action, as we believe this claim is without merit.
|
Item 4.
|
Mine
Safety Disclosures.
|
Not applicable.
PART II.
|
Item 5.
|
Market
for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
Our common stock
is quoted on the OTC Markets under the symbol “EVTN”. The range of high and low bid quotations below are provided
by the OTC Markets. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.
Quarter Ended
|
|
High
|
|
Low
|
March 31, 2016
|
$0.03
|
$0.02
|
June 30, 2016
|
$0.04
|
$0.03
|
September 30, 2016
|
$0.03
|
$0.03
|
December 31, 2016
|
$0.03
|
$0.02
|
|
|
|
March 31, 2017
|
$0.04
|
$0.02
|
June 30, 2017
|
$0.08
|
$0.04
|
September 30, 2017
|
$0.07
|
$0.03
|
December 31, 2017
|
$0.07
|
$0.04
|
The last sale
price of our common stock as reported on the OTCPink on March 29, 2018, the last reported transaction, was $0.10 per share. As
of March 31, 2018, there were approximately 800 record owners of our common stock.
Dividends
We have not paid
a cash dividend on the common stock since current management joined our company in 1996. The payment of dividends may be made
at the discretion of our board of directors and will depend upon, among other things, our operations, our capital requirements
and our overall financial condition. As of the date of this report, we have no intention to declare dividends.
Recent Sales of Unregistered
Securities
Except for those
unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission, during the period covered
by this report, we have not sold any securities without registration under the Securities Act of 1933, as amended, during the
period covered by this report.
Issuer Purchase of Equity Securities
None.
|
Item 6.
|
Selected
Financial Data.
|
Information not
required by small reporting company.
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
|
General
Management's
discussion and analysis contains various forward-looking statements. These statements consist of any statement other than a recitation
of historical fact and can be identified by the use of forward-looking terminology such as “may,” “expect,”
“anticipate,” “estimate” or “continue” or use of negative or other variations or comparable
terminology. We caution that these statements are further qualified by important factors that could cause actual results to differ
materially from those contained in the forward-looking statements that these forward-looking statements are necessarily speculative,
and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred
to in such forward-looking statements.
Year ended December 31, 2017
compared to year ended December 31, 2016
Overview
2017 was a transitional
year for us as we finalized the sale of our intellectual property to Schlumberger through the Technology Purchase Agreement. We
are focusing our efforts and resources to the manufacturing and assembling of the Voraxial Separator for Schlumberger under the
Supply Agreement. We were also granted a Grant Back License to market the Voraxial Separator into other markets outside of the
oil and gas market which we plan to pursue. To date we have earned limited revenues under the Grant Back Licenses and Supply Agreement.
Revenue
Revenues for
the year ended December 31, 2017 decreased by $296,899 to $265,160 or approximately 53% from $562,059 for the year ended December
31, 2016. The decrease in revenues reflects the decrease in Voraxial sales. The decrease corresponds with the transition we are
experiencing due to the Technology Purchase Agreement we consummated with Schlumberger and related transactions. We believe there
is a market for the Voraxial Separator and that the Grant Back Licenses and Supply Agreement will provide us with the opportunity
to increase revenues in the future in both the oil and gas industry and potentially other industries as well, such as mining,
industrial and sewage through the Grant Back Licenses.
The majority
of revenues in 2017 and 2016 were a result of sales of the Voraxial Separator and auxiliary equipment and parts.
Cost of goods
sold increased to $112,193 for the year ended December 31, 2017 from $45,474 during the year ended December 31, 2016 or an increase
of $66,719 or approximately 146%. The increase in our cost of goods sold was related to the use of previously written off inventory
and increase in pass-through expenses.
Costs and expenses
Total costs and
expenses increased by approximately 3% or $32,387 to $968,972 for the year ended December 31, 2017 as compared to $936,585 for
the year ended December 31, 2016. The increase was due to a $132,494 increase in payroll expense, which was partially offset by
decreases in general and administrative expenses and professional fees.
General and administrative
expenses
General and Administrative
expenses decreased by 1% or $1,284 to $223,695 for the year ended December 31, 2017 from $222,411 for the year ended December
31, 2016. We reduced our sales and marketing expenditures as we entered into the Technology Purchase Agreement with Schlumberger.
Our general and administrative expenses primarily consist of sales and marketing, rent, travel, insurance and other general overhead
expenses.
Professional Fees and Payroll
Expenses
Professional
fees decreased by approximately 52% or $101,391 to $94,964 for the year ended December 31, 2017 from $196,355 for the year ended
December 31, 2016. The decrease was primarily due to the decrease in our legal, professional and investment banking fees associated
with discussions, negotiations and due diligence with various companies interested in entering into strategic relationships and
material transactions with our Company, including but not limited to the Technology Purchase Agreement, which primarily occurred
in 2016. Payroll expense increased $132,494 or 26% to $650,313 the year ended December 31, 2017 as compared to $517,819 for the
year ended December 31, 2016. The increase in 2017 payroll primarily relates to the addition of personnel both full-time and part-time
and increased overtime as our manufacturing activity increased to comply with the production of Voraxial Separators under the
Technology Purchase Agreement.
Liquidity and capital resources
At December 31,
2017, we had a working capital deficiency of $166,137, cash of $1,010,434 and an accumulated deficit of $14,988,794. For the year
ended December 31, 2017, we had a net income of $2,070,670 due to the sale of our intellectual property.
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 Company paid the inventor $45,000 (the “Termination Fee”) on May 6, 2017.
During 2017 the
Company’s chief executive officer advanced the Company $46,354 for working capital. These advances were non-interest bearing
and due on demand. The loans were repaid as of December 31, 2017.
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. The note was repaid as of December 31, 2017. As additional consideration for
the advance, the Company issued the third party 50,000 shares of the Company’s common stock with a fair value of $1,000.
Proceeds from the advance have been used to satisfy working capital requirements.
On May 25, 2017,
the Company received advances in the aggregate of $70,000 from two third party investors pursuant to two $37,000 discounted promissory
notes. The Company shall pay interest to the noteholder on the principal face amount of $37,000 at a rate of 2.5% per month in
the event the note is not repaid on or before May 31, 2018. The notes were repaid as of December 31, 2017. As additional consideration
for the advance, the Company issued each investor 10,000 shares of the Company’s common stock with a total fair value of
$1,000. Proceeds from the advance have been used to satisfy working capital requirements.
One June 8,
2017, we completed the Technology Purchase Agreement and recognized a gain on the sale of our intellectual property of $3,000,000
less direct costs of $80,000, which include the Termination Fee and consulting fees.
In July 2017,
the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The
machining equipment was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation of potential
future orders under the Supply Agreement and sales pursuant to the Grant Back Licenses. Under the terms of the agreement the Company
made an initial down payment of $85,661 and is required to make monthly payments of $6,788 through January 2023.
Continuing losses
While the Company
has historically experienced recurring net losses, on June 8, 2017, the Company completed the Technology Purchase Agreement and
entered into the Supply Agreement with Cameron Solutions. In addition, Schlumberger granted us the Grant Back Licenses for the
sale of Voraxial products outside the oil and gas industry. Our management believes that the Grant Back License will provide us
the opportunity to possibly leverage future Schlumberger sales in the oil and gas market to penetrate the sale and use of licensed
Voraxial products to other industries, including, but not limited to mining, sewage and wastewater. We believe that including
our current cash resources and anticipated revenue to be generated under the Grant Back Licenses and Supply Agreement, we will
have sufficient resources to continue business operations in excess of 12 months. However, there are no assurances that we will
generate any or significant revenues under the Supply Agreement or Grant Back License and there is limited historical financial
data and operating results with which to evaluate our business and our prospects under the new agreements.
Our ability to
generate future revenues will depend on a number of factors, many of which are beyond our control. These factors include competitive
efforts and general economic trends. Due to these factors, we cannot anticipate with any degree of certainty what our revenues
will be in future periods. Our independent auditors have included in their audit report an explanatory paragraph that states that
our continuing losses from operations raises substantial doubt about our ability to continue as a going concern. Although we achieved
profitability in 2017, such profit was due to the closing of the Technology Purchase Agreement and we may not be able to sustain
or increase our profitability on a quarterly or annual basis. If we fail to sustain or increase our profitability on a quarterly
or annual basis, or 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. As a result of the above,
there is substantial doubt about the ability of the Company 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 accompanying consolidated financial
statements do not include any adjustments that may result from the outcome of this uncertainty.
Critical Accounting Policies
Our financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Note C of the Notes to Financial Statements describes the significant accounting
policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are
considered to be critical accounting policies, as defined below.
A critical accounting
policy is defined as one that is both material to the presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations.
Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters
that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in
the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and
assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience
and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change
as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically
been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment
of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management
believes that our consolidated financial statements are fairly stated in accordance with
accounting
principles generally accepted in the United States, and present a meaningful presentation of our financial condition
and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions
used in the preparation of our consolidated financial statements:
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 Financial
Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 605 "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.
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.
Income Taxes
On December 22,
2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant
changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of
21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net
operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses
arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying
or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses
incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”;
and repeal of the federal Alternative Minimum Tax (“AMT”).
The staff
of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations
when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable
detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact
of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse
in the future, which is generally 21%. The remeasurement of the Company's deferred tax assets and liabilities was offset by a
change in the valuation allowance.
The Company
is still in the process of analyzing the impact to the Company of the TCJA. Where the Company has been able to make reasonable
estimates of the effects related to which its analysis is not yet complete, the Company has recorded provisional amounts. The
ultimate impact to the Company’s consolidated financial statements of the TCJA may differ from the provisional amounts due
to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory
guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete
when the Company’s 2017 U.S. corporate income tax return is filed in 2018.
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 February
2016, the FASB issued ASU 2016-02 “
Leases
,” which will amend current lease accounting to require lessees to
recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on
a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable
to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model.
This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. 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.
In March
2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting
,
which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for
share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity
or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning
after December 15, 2016, including interim periods within those fiscal years. We do not believe this ASU will have an impact on
our results of operation, cash flows, other than presentation, or financial condition.
In April 2016,
the FASB issued ASU 2016–10
“Revenue from Contract with Customers (Topic 606): Identifying Performance Obligations
and Licensing.”
The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather,
the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing
implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on
(a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s
promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied
at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments
in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgment
necessary to comply with Topic 606. 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.
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Information not
required by smaller reporting company.
|
Item 8.
|
Financial
Statements and Supplementing Data
|
The financial
statements required by this report are included, commencing on F-1.
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial Disclosure.
|
None.
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation of Disclosure Controls
and Procedures
We maintain disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our
reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding
required disclosure.
The Company’s
management, under the supervision and with the participation of the Company's Chief Executive Officer who also serves as our principal
financial and accounting officer, carried out an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2017. Based
upon that evaluation at the end of the period covered by this annual report our Chief Executive Officer concluded that our disclosure
controls and procedures were not effective to ensure that the information relating to our company,
required to be
disclosed in our Securities and Exchange Reports (i) is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and (ii) is accumulated and communications to our management, including our Chief Executive
Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control
over financial reporting.
Management’s Report
on Internal Control over Financial Reporting
Our management
is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures
that:
|
·
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our assets;
|
|
·
|
provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;
and
|
|
·
|
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 financial
statements.
|
Because of the
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
Our management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the 2013 criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the
operational effectiveness of these controls. Based on this assessment, our management has concluded that as of December 31, 2017,
our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles as a result of material weaknesses. These material weaknesses in our internal control over financial reporting result
from no segregation of duties, no multiple level of review in the financial close process and lack of experienced accounting staff
with expertise in the application of GAAP.
In order
to remediate these material weaknesses in our internal control over financial reporting, we will need to:
|
·
|
create a position to segregate duties consistent
with control objectives and will increase our personnel resources; and
|
|
·
|
hire experienced independent third parties or consultants to
provide additional expert advice as needed.
|
Until such time
as we remediate the material weaknesses in our internal control over financial reporting, there is a likelihood that our financial
statements in future periods may contain errors which will require a restatement.
Limitations on Effectiveness
of Controls and Procedures
Our management,
including our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will
prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited
to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Over
time,
controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Changes in Internal Control
over Financial Reporting
There were no
changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
|
Item 9B.
|
Other
Information.
|
None.
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
NOTE A - ORGANIZATION AND OPERATIONS
Enviro Technologies, Inc., an
Idaho corporation (the “Company”), is a manufacturer of environmental and industrial separation technology. The Company
developed, and now manufactures the Voraxial
®
Separator for Schlumberger for a period of 3 years. The Voraxial
is a patented technology that was sold to Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited,
a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”)
on June 8, 2017. The Company received a Grant Back License to sell the Separation Technology in markets outside of the oil and
gas markets, which include oil exploration and production, oil refineries, oil spill, mining, sewage, 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. Effective November 10, 2017 the Company filed Articles of Amendment to its Articles of Incorporation
changing the Company’s name from “Enviro Voraxial Technology, Inc.” to “Enviro Technologies, Inc.”
and increasing its authorized common stock to 250,000,000 shares.
NOTE B
– going concern
While the Company has
historically experienced recurring net losses, on June 8, 2017, the Company completed a Technology Purchase Agreement with
Schlumberger for the sale of the Company’s intellectual property in consideration of up to $4,000,000, of which
$3,000,000 was paid at closing and $1,000,000 is payable upon the completion of both: (i) the complete transfer of the
intellectually property to Schlumberger; and (ii) the provision to transfer information, assets and services to Schlumberger,
which is estimated to be approximately 12 months from the closing date. In addition, at closing FPA entered into a Framework
Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston,
Texas-based company engaged in the development, manufacture and sale of equipment used in the oil and gas industry. Under the
terms of the three-year Supply Agreement, FPA is the exclusive supplier to Cameron Solutions of certain Voraxial series
products for use in the oil and gas industry. Pursuant to the Technology Purchase Agreement, Schlumberger also granted us
non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”) for the sale of Voraxial products
outside the oil and gas industry. Our management believes that the Grant Back License will provide us the opportunity to
possibly leverage future Schlumberger sales in the oil and gas market to penetrate the sale and use of licensed Voraxial
products to other industries, including, but not limited to mining, sewage and wastewater. We believe that including our
current cash resources and anticipated revenue to be generated under the Grant Back Licenses and Supply Agreement, we will
have sufficient resources to continue business operations in excess of 12 months. However, we have not yet generated
significant revenues from the Supply Agreement or Grant Back License. There is no assurance that the Supply Agreement will
generate sufficient revenues and income, nor is there any assurance that we will be able to leverage the Grant Back License
and generate sufficient revenues from other industries. At December 31, 2017, we had an accumulated deficit of
$14,988,794 including a net income of $2,070,670 for the year ended December 31, 2017, substantially due to the sale of the
Purchased Intellectual Property. At December 31, 2017, we had a working capital deficiency of $166,137. Although we
achieved profitability in 2017, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
If we fail to sustain or increase our profitability on a quarterly or annual basis, or 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. As a result of the above, there is substantial doubt about the ability
of the Company 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 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 Technologies, 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
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
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, 2017 there was $32,090 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 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,
2017 and 2016, the Company has $60,254 and $66,332 in the allowance for doubtful accounts, respectively.
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, 2017 and 2016, 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, 2017 and 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 December 31, 2017 and 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 December 31, 2017 and 2016.
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 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 limits. As of December 31, 2017, we have a cash concentration in excess of the FDIC limit of $719,068.
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.
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 Income (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.
Due to the Company reflecting net
income for the year ended December 31, 2017, the effect of 13,465,000 options are dilutive. A separate computation of diluted
earnings (loss) per share is presented using the treasury stock method. Since the Company reflected a net loss for the year ended
December 31, 2016, the 13,465,000 options are anti-dilutive.
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 $12,705
and $0 in research and development costs during December 31, 2017 and 2016, respectively.
Advertising Costs
Advertising costs are
expensed as incurred and are included in general and administrative expenses. There was $1,159 and $6,941 in advertising costs
during December 31, 2017 and 2016, 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 standard 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
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
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 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 impairment
of long-lived assets in December 31, 2017 and 2016.
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
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 February
2016, the FASB issued ASU 2016-02 “
Leases
,” which will amend current lease accounting to require lessees to
recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on
a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable
to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model.
This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. 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.
In March
2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting
,
which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for
share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity
or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning
after December 15, 2016, including interim periods within those fiscal years. We do not believe this ASU will have an impact on
our results of operation, cash flows, other than presentation, or financial condition.
In April 2016,
the FASB issued ASU 2016–10
“Revenue from Contract with Customers (Topic 606): Identifying Performance Obligations
and Licensing.”
The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather,
the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing
implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on
(a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s
promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied
at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments
in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgment
necessary to comply with Topic 606. 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.
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
NOTE E- INVENTORY
Inventory as of December 31 consists
of:
|
|
2017
|
|
2016
|
Raw Materials, net
|
|
$
|
32,074
|
|
|
$
|
64,847
|
|
Work in Progress, net
|
|
|
139,360
|
|
|
|
—
|
|
Finished Goods, net
|
|
|
—
|
|
|
|
12,050
|
|
Total
|
|
$
|
171,434
|
|
|
$
|
76,897
|
|
Inventory amounts are presented
net of impairment of $42,752 and $67,409 as of December 31, 2017 and 2016, respectively.
NOTE F - FIXED ASSETS
Fixed assets as of December 31 consists of:
|
|
|
2017
|
|
2016
|
Machinery and equipment
|
|
$
|
933,245
|
|
|
$
|
482,659
|
|
Furniture and fixtures
|
|
|
14,498
|
|
|
|
14,498
|
|
Autos and Trucks
|
|
|
5,294
|
|
|
|
5,294
|
|
Total
|
|
|
953,037
|
|
|
|
502,451
|
|
Less: accumulated depreciation
|
|
|
(513,542
|
)
|
|
|
(491,434
|
)
|
Fixed Assets, net
|
|
$
|
439,495
|
|
|
$
|
11,017
|
|
Depreciation expense was $22,108
and $22,035 for the years ended December 31, 2017 and 2016, respectively.
In July 2017, the Company entered
into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment
was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation of potential future orders
under the Supply Agreement and sales pursuant to the Grant Back Licenses. Under the terms of the agreement the Company made an
initial down payment of $85,661 and is required to make monthly payments of $6,788 through January 2023. In addition, the Company
incurred $24,281 of installation costs.
NOTE G – NOTES 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 “February 2017 Note”). The Company agreed to 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 February 2017 Note was not repaid on or before May 31, 2017. The February 2017 Note
was repaid as of December 31, 2017. As additional consideration for the February 2017 Note, the Company issued the noteholder
50,000 shares of the Company’s common stock with a fair value of $1,000. See Note I below.
On May 25, 2017,
the Company received advances in the aggregate of $70,000 from two third party investors pursuant to two $37,000 discounted promissory
notes (the “May 2017 Notes”). The Company agreed to pay interest to the noteholders on the principal face amount of
the May 2017 Notes at a rate of 2.5% per month in the event the May 2017 Notes were not repaid on or before May 31, 2018. The
May 2017 Notes were repaid as of December 31, 2017. As additional consideration for the May 2017 Notes, the Company issued each
noteholder 10,000 shares of the Company’s common stock with a total fair value of $1,000. See Note I below.
In July 2017,
the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The
machining equipment was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation of potential
future orders under the Supply Agreement and sales pursuant to the Grant Back Licenses. Under the terms of the agreement the Company
made an initial down payment of $85,661 and financed the remaining balance of $340,644. The Company is required to make monthly
payments of $6,788 through January 2023.
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
Future
minimum payments at December 31, 2017 are as follows:
2018
|
|
$
|
74,668
|
|
2019
|
|
|
81,456
|
|
2020
|
|
|
81,456
|
|
2021
|
|
|
81,456
|
|
2022 and thereafter
|
|
|
88,244
|
|
Future Minimum Equipment Note Payable Payments
|
|
|
407,280
|
|
Less Amount Representing
Interest
|
|
|
(66,636
|
)
|
Present Value of Minimum Equipment Note Payable
Payments
|
|
|
340,644
|
|
Less
Current Portion
|
|
|
(50,640
|
)
|
Long-Term Obligations
under Equipment Note Payable
|
|
$
|
290,004
|
|
NOTE H - RELATED PARTY TRANSACTIONS
For each of the years
ended December 31, 2017 and 2016, the Company incurred salary expenses from the Chief Executive Officer of the Company of $305,000.
For December 31, 2017, $580,000 of salary and accrued salary has been paid for the year. The unpaid balance has been included
in accrued expenses- related party. As of December 31, 2017 and 2016, the accrued salary is $1,189,761 and $1,464,761, respectively.
As of December 31, 2017
and 2016, the Company owes the estate of its former Chief Executive Officer $0 and $158,898, which is also included in accrued
expenses- related party. The amount was paid in full in 2017.
The CEO advanced $46,354 to the Company
for working capital in 2017. This advance is non-interest bearing and due on demand. The CEO was repaid the full amount in 2017.
Effective July
1, 2017, Raynard Veldman, a member of the Company’s board of directors receives a fee of $2,500 per month
for consulting services through June 30, 2019. From July 1, 2017 through December 31, 2017 Raynard Veldman received consulting
fees of $15,000.
NOTE I – SHAREHOLDERS’
EQUITY
Common Stock
As additional consideration
for the February 2017 Note, the Company issued the noteholder 50,000 shares of the Company’s common stock with a fair value
of $1,000. See Note G above
.
As additional consideration
for the May 2017 Notes, the Company issued each noteholder 10,000 shares of the Company’s common stock with a total fair
value of $1,000. See Note G above.
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 during the year ended December 31, 2014.
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
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 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 during the year ended December 31, 2015.
Information with respect
to options outstanding and exercisable at December 31, 2017 and 2016 is as follows:
|
|
Number
|
Range of Exercise
|
Number
|
|
|
Outstanding
|
|
Price
|
Exercisable
|
|
|
|
|
|
Balance, December 31, 2016
|
|
13,465,000
|
$0.01
|
13,465,000
|
Issued
|
|
-
|
|
-
|
-
|
Expired
|
|
-
|
|
-
|
-
|
Balance, December 31, 2017
|
|
13,465,000
|
|
$0.01
|
13,465,000
|
Number
Outstanding
December 31, 2017
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December 31, 2017
|
Weighted
Average
Exercise Price
|
13,465,000
|
5.88
|
|
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, 2016:
|
Exercise
Price
|
Number
Outstanding
at
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
|
6.88
|
0.01
|
13,465,000
|
$0.01
|
|
13,465,000
|
-
|
-
|
13,465,000
|
|
The aggregate intrinsic value
represents the excess amount over the exercise price optionees would have received if all the options have been exercised on the
last business day of the period indicated based on the Company’s closing stock price of for such day. The aggregate intrinsic
value as of December 31, 2017 is $538,600.
NOTE J - COMMITMENTS
AND CONTINGENCIES
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 in consideration of $45,000 (the “Termination Fee”), which was included as a direct cost of the Technology
Purchase Agreement. The Company satisfied its obligation to the inventor in May, 2017.
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 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. On October 5, 2017 the lawsuit by Raw Energy Tech, LLC against
the Company was settled and voluntarily dismissed by the plaintiff..
On or about October 23, 2017, a claim
was filed in the 17
th
Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff,
Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an alleged breach of contract
between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and
damages. We are defending this action, as we believe this claim is without merit.
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
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, 2017 are
as follows:
|
|
|
|
2018
|
|
|
$
|
54,900
|
|
2019
|
|
|
|
—
|
|
Total
|
|
|
$
|
54,900
|
|
NOTE K
- SALE OF INTELLECTUAL PROPERTY
On June 8, 2017, the Company and
FPA, our wholly owned subsidiary (collectively, the “Sellers”), closed the transactions contemplated by the Technology
Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited,
a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, (“Schlumberger”).
At closing, we sold our intellectual
property (the “Purchased Intellectual Property”), substantially consisting of the Voraxial patents, marks, software
and copyrights, to Schlumberger in consideration of up to $4,000,000, of which $3,000,000 was paid to us at closing and $1,000,000
is payable upon the completion of both: (i) the complete transfer of the Purchased Intellectually Property to Schlumberger; and
(ii) the provision to transfer information, assets and services to Schlumberger, which is estimated to be approximately 12 months
from the closing date. We recognized a gain on the sale of our intellectual property of $3,000,000 less direct costs of $80,000,
consisting of the Termination Fee and consulting fees.
We utilized a portion of the proceeds
from this transaction to pay some of our outstanding debt and are using the balance for general working capital. We are also using
some of the proceeds to buy additional manufacturing equipment to meet potential future sales.
As part of the agreement, Schlumberger
granted us a non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”), to make, use, sell, offer
for sale, and import products and processes embodying the Purchase Intellectual Property outside the oil and gas market. In addition
to the proceeds from the sale of our intellectual property, our management believes that the Grant Back License will provide for
the potential increase of revenues through the sale of Voraxial Separators, possibly leveraging future sales by Schlumberger in
the oil and gas market to penetrate the sale and use of licensed Voraxial products to other industries, including, but not limited
to mining, sewage and wastewater.
In addition, at closing FPA entered
into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”),
a Houston, Texas-based company engaged in the development, manufacture and sale of equipment used in the oil and gas industry.
Under the terms of the three-year Supply Agreement, FPA is the exclusive supplier to Cameron Solutions of certain Voraxial series
products for use in the oil and gas industry. Sales will be made from time to time in accordance with the terms of purchase orders.
The Supply Agreement is cancellable by Cameron Solutions upon 15 days’ notice if FPA fails to meet delivery or performance
schedules or breaches any of the terms of the agreement, including the warranties. Cameron Solutions may also cancel the Supply
Agreement without notice in the event FPA becomes insolvent or commits any act of bankruptcy. The Supply Agreement contains customary
indemnification and confidentiality provisions.
For a period of three
years following the closing of the Agreement, the Company and Raynard Veldman and John Di Bella have agreed to not participate
or cause participation in the oil-and-gas market in relation to phase or constituent sensing or separation which is defined as,
liquid-liquid, liquid-solid or liquid-gas separation and gas or liquid sensing, including all product lines and services related
thereto and including the Voraxial product line and services, except to the extent necessary to: (i) repair or service, but not
remanufacture, any goods the Company sold to third persons prior to closing; (ii) fulfill, on or after closing, any customer obligation;
or (iii) comply with any term or condition of the Agreement. In addition the Company shall take all reasonable measures to ensure
the confidentiality and prevent the improper use of all trade secrets.
NOTE L – MAJOR
CUSTOMERS
For the year ended
December 31, 2017, two customers accounted for approximately 92% of revenues. For the year ended December 31, 2016, two customers
accounted for approximately 85% of revenues.
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
Major customer concentrations
as of and for the year ended December 31, 2017 are as follows:
|
Sales
|
|
Accounts
|
|
Customer
|
Amount
|
Percent
|
Receivable
|
Percent
|
C
|
$ 152,099
|
57%
|
$152,099
|
99%
|
D
|
$ 92,947
|
35%
|
$ −
|
−
|
Major customer concentrations as of and for the year
ended December 31, 2016 are as follows:
|
|
|
|
|
|
|
Sales
|
|
Accounts
|
|
Customer
|
Amount
|
Percent
|
Receivable
|
Percent
|
A
|
$ 360,000
|
64%
|
$
−
|
−
|
B
|
$ 115,985
|
21%
|
$ −
|
−
|
NOTE M – INCOME TAX
On December 22, 2017, President Trump
signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal Revenue Code of 1986,
as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate
taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of
January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to
80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable
years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing
many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred
in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal
of the federal Alternative Minimum Tax (“AMT”).
The staff of the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant
does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete
the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA,
the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the
future, which is generally 21%. The remeasurement of the Company's deferred tax assets and liabilities was offset by a change
in the valuation allowance.
The Company is still in the
process of analyzing the impact to the Company of the TCJA. Where the Company has been able to make reasonable estimates of the
effects related to which its analysis is not yet complete, the Company has recorded provisional amounts. The ultimate impact to
the Company’s consolidated financial statements of the TCJA may differ from the provisional amounts due to, among other
things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that
may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete when the Company’s
2017 U.S. corporate income tax return is filed in 2018.
At December 31, 2017 and 2016 we
had deferred tax assets principally arising from the net operating loss carry forwards for income tax purposes multiplied by the
Federal statutory tax rate of 34%. 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, 2017 and 2016.
The significant components of the
deferred tax asset at December 31, 2017 and 2016 were as follows:
|
|
For the Years Ended December 31
|
|
|
2017
|
|
2016
|
Statutory rate applied to income (loss)
before income taxes
|
|
$
|
779,193
|
|
|
$
|
(203,601
|
)
|
Increase (decrease) in income taxes results from:
|
|
|
|
|
|
|
|
|
Non-deductible expense
|
|
|
753
|
|
|
|
—
|
|
Change in tax rate estimates
|
|
|
1,321,015
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
(2,100,961
|
)
|
|
|
203,601
|
|
Income tax expense (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
Enviro Technologies,
Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31,
2017 and 2016
The difference between income tax
expense computed by applying the federal statutory corporate tax rate and provision for actual income tax is as follows:
|
|
For the Years Ended December 31
|
|
|
2017
|
|
2016
|
Income tax benefit at U.S. statutory
rate of 34%
|
|
|
34.00
|
%
|
|
|
-34.00
|
%
|
Income tax benefit - State
|
|
|
3.63
|
%
|
|
|
-3.63
|
%
|
Non-deductible expense
|
|
|
0.03
|
%
|
|
|
0.00
|
%
|
Change in tax rate estimates
|
|
|
63.80
|
%
|
|
|
0.00
|
%
|
Change in
valuation allowance
|
|
|
-101.46
|
%
|
|
|
37.63
|
%
|
Income tax expense
(benefit)
|
|
|
—
|
|
|
|
—
|
|
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:
|
|
For the Years Ended December 31
|
Deferred tax assets:
|
|
2017
|
|
2016
|
Operating
loss carryforwards
|
|
$
|
2,687,998
|
|
|
$
|
4,788,959
|
|
Gross deferred tax assets
|
|
|
2,687,998
|
|
|
|
4,788,959
|
|
Valuation allowance
|
|
|
(2,687,998
|
)
|
|
|
(4,788,959
|
)
|
Net deferred income
tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
Decrease in the deferred income tax
asset is attributable to the change in tax rate estimates and the estimated deferred income tax benefit of approximately $1,098,000
arising from operating loss carrybacks. The change in valuation allowance for the years ended December 31, 2017 and 2016 was a
(decrease) increase of $(2,100,961) and $203,601, respectively.
The Company has made a 100% valuation
allowance of the deferred income tax asset at December 31, 2017, as it is not expected that the deferred tax assets will be realized.
The Company has a net operating loss carryforward of $10,605,634 available to offset future taxable income.
The Company’s
federal income tax returns for 2015, 2016 and 2017 remain subject to examination by the Internal Revenue Services and state tax
authorities.
NOTE N – SUBSEQUENT EVENTS
On January 4, 2018 the Company’s
board of directors reduced the annual compensation of the Company’s chief executive officer to $210,000, effective as of
January 1, 2018.