The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
NOTE A - ORGANIZATION
AND OPERATIONS
Organization
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 Cameron Solutions, Inc., an affiliate of Schlumberger Technology Corporation.
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 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 the
balance was paid in August, 2018 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. 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 the technology outside the oil and gas industry.
We rebranded the technology and it is now called V-Inline. 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
V-Inline products to other industries, including, but not limited to mining, sewage and industrial 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 March 31, 2019, we had an accumulated
deficit of $15,737,489 including a net loss of $251,831 for the three months ended March 31, 2019. We may not be able to achieve
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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
NOTE C - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The
condensed consolidated 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 condensed consolidated financial statements should be read in conjunction with the
company’s annual consolidated financial statements, notes and accounting policies included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on April 1, 2019. In the opinion of management,
all adjustments, which are necessary to provide a fair presentation of financial position as of March 31, 2019, 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 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 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. We account for revenue in accordance with ASC Topic 606, which we adopted
on January 1, 2018, using the modified retrospective method. The adoption of ASC Topic 606 did not have a material impact on the
timing or amounts of revenue recognized in our consolidated financial statements and therefore did not have a material impact on
our financial position, results of operations, equity or cash flows as of the adoption date or for the three months ended March
31, 2018. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial.
Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for
those periods.
Revenues are recognized when we satisfy
a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount
specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those
goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of
factors including our customer’s historical payment experience and financial condition.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
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, 2019 and December 31, 2018, there was $1,574,819 and $1,035,706 respectively, of deposits from customers. The increase
in deposits from customer is attributed to the purchase order we received from a utility customer for a wastewater treatment system
that is comprised of multiple V-Inline Separators. As of March 31, 2019 we have received $1,496,219 from this customer. We anticipate
that the project will be completed by the fourth quarter of 2019. We also received a purchase order under the Supply Agreement
with Cameron in the first quarter of 2019. Deposits from this order is also reflected on our balance sheet as 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.
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 March 31, 2019 and December 31, 2018, the Company
has $60,254 and $60,254 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 March 31, 2019 and December
31, 2018, 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 March 31, 2019 and December 31,
2018.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
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, 2019 and December 31, 2018.
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, 2019 and December 31, 2018.
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, 2019 the Company has a cash concentration of $886,884 in excess of FDIC
limits.
Inventory
Inventory consists of components for the
Voraxial Separator and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less
cost of completion, disposable and transportation and a normal profit margin. 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, 2019 and December 31, 2018:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Raw materials
|
|
$
|
90,961
|
|
|
$
|
90,656
|
|
Work in process
|
|
|
215,638
|
|
|
|
80,609
|
|
Finished goods
|
|
|
207,383
|
|
|
|
205,053
|
|
Total
|
|
$
|
513,982
|
|
|
$
|
376,318
|
|
Inventory amounts are presented net of
impairment of $42,752 and $42,752 as of March 31, 2019 and December 31, 2018, respectively.
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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
LEASES
In connection with our lease agreement
for our facility located in Fort Lauderdale, FL, the Company elected to adopt the provision of ASU 2016-02, “Leases”
as of January 1, 2019. The Company recorded an operating lease asset and operating lease liability as of March 31, 2019 (refer
to Note H).
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.
Due to the Company had net loss for the
three-month period ended March 31, 2019 and 2018, the effect of 13,465,000 and 13,465,000 options, respectively are anti-dilutive.
A separate computation of diluted loss per share is not presented.
INCOME TAXES
The Company accounts for income taxes under
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 accounts for stock-based instruments
issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies
to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued.
The value of the portion of a stock award that is ultimately expected to vest is recognized as an expense over the requisite service
periods using the straight-line attribution method.
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
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
Recent Accounting
Pronouncements
In February 2016, Financial
Accounting Standards Board Accounting Standards Certification (“FASB”) issued Accounting Standards Update
(“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. The Company adopted this standard on January 1, 2019. The Company elected the
optional transition method to apply this standard as of the effective date and therefore, the Company has not applied the
standard to the comparative period presented on our condensed consolidated financial statements. (refer to Note H).
In June 2018, FASB issued ASU 2018-07 “
Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
.” This ASU relates
to the accounting for non-employee share-based payments. The amendment in this Update expands the scope of Topic 718 to include
all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s
own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing
to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted
for under Topic 606, revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value
of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all
other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be
effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within
that fiscal year. The Company adopted the standard on January 1, 2019. The adoption has no impact on our condensed consolidated
financial statements.
All other newly issued accounting pronouncements,
but not yet effective, have been deemed either immaterial or not applicable.
NOTE D - RELATED
PARTY TRANSACTIONS
On January 4, 2018 the Company’s
board of directors reduced the annual compensation of the Company’s chief executive officer from $305,000 to $210,000, effective
as of January 1, 2018. For the three months ended March 31, 2019, the Company incurred salary expenses from the Chief Executive
Officer of the Company of $52,500. During the three months ended March 31, 2019, a total of $180,000 of salary and accrued salary
have been paid. The total unpaid balance as of March 31, 2019 is $686,261 and is included in accrued expenses – related party.
In November, 2018, the Board of Directors also approved the health insurance benefit for our CEO. For the Three Months ended March
31, 2018, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500. Of these amounts, $0
had been paid for the three months ended March 31, 2018. The total unpaid balance as of March 31, 2018 is $1,242,261 and is included
in accrued expenses – related party.
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. During the three
months ended March 31, 2019 and 2018, Mr. Veldman received consulting fees of $7,500 and $7,500, respectively.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
During the
three months ended March 31, 2019 and 2018, Raynard Veldman, a member of the Company’s board of directors, received compensation
for being a member of the Company’s board of directors of $3,000 and $3,000, respectively. Mr. John DiBella does not receive
compensation for being a member of the Company’s board of directors.
NOTE E – FIXED ASSETS
Fixed assets as of March 31, 2019 and December
31, 2018 consist of:
|
|
March 31, 2019
|
|
December 31, 2018
|
Machinery and equipment
|
|
$
|
933,245
|
|
|
$
|
933,245
|
Furniture and fixtures
|
|
|
14,498
|
|
|
|
14,498
|
Autos and Trucks
|
|
|
5,294
|
|
|
|
5,294
|
Total
|
|
|
953,037
|
|
|
|
953,037
|
Less: accumulated depreciation
|
|
|
(569,865
|
)
|
|
|
(558,601)
|
Fixed Assets, net
|
|
$
|
383,172
|
|
|
$
|
394,436
|
Depreciation expense was $11,264 and $11,264 for the three months
ended March 31, 2019 and 2018, 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. As of March 31, 2019 and December
31,
2018, the amount owed is $274,447 and $290,004 respectively.
note f –
shareholders’ equity
Options
The Company accounts for stock-based instruments
issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies
to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued.
The value of the portion of a share award that is ultimately expected to vest is recognized as an expense over the requisite service
periods using the straight-line attribution method. The Company estimates the fair value of stock options by using the Black-Scholes
option-pricing model.
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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
Information with respect to options outstanding
and exercisable at March 31, 2019 is as follows:
|
Number
Outstanding
|
Exercise
Price
|
Number
Exercisable
|
Balance, December 31, 2018
|
13,465,000
|
$0.01
|
13,465,000
|
Issued
|
-
|
-
|
-
|
Expired
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
Balance, March 31, 2019
|
13,465,000
|
$0.01
|
13,465,000
|
Exercise
Price
|
Number
Outstanding at
March 31, 2019
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
March 31, 2019
|
Weighted
Average
Exercise Price
|
0.01
|
13,465,000
|
4.63
|
0.01
|
13,465,000
|
0.01
|
Total
|
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 March 31, 2019 is $403,950.
NOTE G –
COMMITMENTS AND CONTINGENCIES
Customer Deposit
The Company received a substantial deposit
from a customer in the utility industry, which has filed for bankruptcy protection. The customer has paid multiple deposits totaling
$1,496,219 as of March 31, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January
2019, our customer filed for bankruptcy protection. As of
March 31, 2019, we do not believe this bankruptcy filing will negatively affect the purchase order we received. However,
if the customer was to cancel the order or under bankruptcy law we were required to return the deposit, then our operations would
be adversely affected.
EQUIPMENT FINANCING
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 of the V-Inline Separators 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. As of March 31, 2019 and December 31, 2018, the amount owed is $274,447 and
$290,004 respectively.
Litigation
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 Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
SALE OF INTELLECTUAL PROPERTY
On June 8, 2017, the Company and FPA closed
the transactions contemplated by the Technology Purchase Agreement dated March 13, 2017 with Schlumberger.
At closing, we sold our 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 the balance of $1,000,000
was paid in August 2018 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.
We utilized a portion of the proceeds from
this transaction to pay most of our outstanding debt and are using the balance for general working capital. We used 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 the intellectual technology, possibly leveraging future sales by Schlumberger
in the oil and gas market to penetrate the sale and use of licensed 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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
NOTE H - LEASE
The Company elected to adopt the provision of ASU 2016-02, “Leases”
as of the effective date. The Company recorded an operating right of use assets and operating lease liability on January 1, 2019
related to our lease agreement for our facility in Fort Lauderdale, Florida.
In December 2018, 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 $4,839 per month, which includes common area maintenance, taxes and insurance and expires in October 2021. The lease
has a one-time renewal option for three years and an increased base rent of 3%. The Company has the option to terminate the lease
with three months’ notice.
Operating right of use asset and operating
lease liability are recognized at the lease commencement date. Operating lease liability represents the present value of lease
payments not yet paid. Operating right of use asset represent our right to use an underlying asset and are based upon the
operating lease liability adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment
of operating lease assets. The Company used our incremental borrowing rate to determine the present value of lease payments not
yet paid.
Supplemental balance
sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Operating Leases
|
|
Classification
|
|
2019
|
|
Right-of-use assets
|
|
Operating lease assets
|
|
$
|
272,602
|
|
|
|
|
|
|
|
|
Current lease liability
|
|
Current operating lease liability
|
|
|
48,824
|
|
Non-current lease liability
|
|
Long-term operating lease liability
|
|
|
223,778
|
|
Total lease liabilities
|
|
|
|
$
|
272,602
|
|
Lease term and discount rate were as follows:
|
|
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Weighted average remaining lease term (years)
|
|
|
5.59
|
|
Weighted average discount rate
|
|
|
6.75
|
%
|
The components of lease cost were as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Operating lease cost
|
|
$
|
15,533
|
|
Variable lease cost (1)
|
|
|
4,770
|
|
Total lease cost
|
|
$
|
20,303
|
|
(1) Variable lease cost primarily relates to common area
maintenance, property taxes and insurance on leased real estate.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
MARCH
31, 2019
(unaudited)
Supplemental disclosures of cash flow information related
to leases were as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Cash paid for operating lease liabilities
|
|
$
|
14,517
|
|
Operating lease assets obtained in exchange for operating lease liabilities
|
|
|
284,808
|
|
Maturities of lease liabilities were as
follows as of March 31, 2019:
|
|
Operating Leases
|
|
Remainder of 2019
|
|
$
|
43,549
|
|
2020
|
|
|
58,065
|
|
2021
|
|
|
58,353
|
|
2022
|
|
|
59,795
|
|
2023
|
|
|
59.795
|
|
Thereafter
|
|
|
49,829
|
|
Total lease payments
|
|
|
329,386
|
|
|
|
|
|
|
Less: imputed interest
|
|
|
(56,784)
|
|
Present value of lease liabilities
|
|
$
|
272,602
|
|
As of March 31, 2019, operating lease payments of $272,602 include the options to extend
lease terms that are reasonably certain of being exercised.
NOTE I –
MAJOR CUSTOMERS
During the three months ended March 31,
2019, we recorded 100% of our revenue from three customers with each represented 64%, 22% and 14% of total revenues.
During the three months ended March 31,
2018, we recorded 85% of our revenue from one customer.
As of March 31, 2019, two of the Company’s
customers represents 78% and 22% of the total accounts receivable.
As of December 31, 2018, two of the Company’s
customers represents 98% of the total accounts receivable.
We received a substantial deposit from
a customer in the utility industry, which has filed for bankruptcy protection. The customer has paid multiple deposits totaling
$1,496,219 as of March 31, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January
2019, our customer filed for bankruptcy protection. As of
March 31, 2019, we do not believe this bankruptcy filing will negatively affect the purchase order we received. However,
if the customer was to cancel the order or under bankruptcy law we were required to return the deposit, then our operations would
be adversely affected.