Quarterly Report (10-q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _____________ to ______________

Commission File Number: 0-27445

Enviro Technologies, Inc.
(Exact name of Small Business Issuer as specified in its Charter)

IDAHO		82-0266517
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

821 NW 57 ^th Place, Fort Lauderdale, Florida 33309
(Address of principal executive offices)

(954) 958-9968
(Issuer’s telephone number)

______________________________________________________________

(Former Name, former address and former fiscal year, if changed since last Report.)

Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging growth company ☐

If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act: ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: August 14, 2019, we had 35,784,497 shares of our Common Stock outstanding.

INDEX

PART I.		CONDENSED CONSOLIDATED FINANCIAL INFORMATION	2

	Item 1.	Financial Statements	2
		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Changes in Shareholders’ Deficiency	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
	Item 4.	Controls and Procedures	21

PART II.		OTHER INFORMATION	22

	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 3.	Defaults Upon Senior Securities	22
	Item 4.	Mine Safety Disclosure	22
	Item 5.	Other Information	22
	Item 6.	Exhibits	22

Signatures			24

PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Item 1.

Financial Statements .

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2019 (unaudited)			December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	588,040		$	1,223,863
Accounts receivable, net		72,411			4,039
Inventory, net		508,299			376,318
Prepaid expenses		387,228			207,250

Total current assets		1,555,978			1,811,470

FIXED ASSETS, NET		371,907			394,436
OTHER ASSETS
Operating lease asset		263,465			--
Security deposit		10,143			10,143
Total other assets		273,608			10,143

Total assets	$	2,201,493		$	2,216,049

LIABILITIES AND SHAREHOLDERS’ DEFICIENCY

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	479,540		$	464,562
Accrued Expenses – related party		558,761			813,761
Deposits from customers		1,496,219			1,035,706
Equipment note payable, current portion		66,017			63,832
Operating lease liability, current portion		41,551			--

Total current liabilities		2,642,088			2,377,861

LONG-TERM LIABILITIES:
Operating lease liabilities, less current portion		221,914			--
Equipment note payable, less current portion		192,608			226,172
Total long-term liabilities		414,522			226,172
Total liabilities		3,056,610			2,604,033

COMMITMENTS AND CONTINGENCIES (See Note G)		-			-

SHAREHOLDERS’ DEFICIENCY :
Common stock, $.001 par value, 250,000,000 shares authorized; 35,784,497 and 35,784,497 shares issued and outstanding as of June 30, 2019 and December 31, 2018		35,785			35,785
Additional paid-in capital		15,061,889			15,061,889
Accumulated deficit		(15,952,791	)		(15,485,658	)
Total shareholders’ deficiency		(855,117	)		(387,984	)

Total liabilities and shareholders’ deficiency	$	2,201,493		$	2,216,049

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018

Revenues, net	$	147,333		$	12,063		$	152,196		$	125,990

Cost of goods sold		106,192			3,091			108,658			70,288

Gross profit		41,141			8,972			43,538			55,702

Costs and expenses:
Selling, general and administrative		77,868			77,052			153,932			158,103
Professional Fees		93,191			134,874			149,008			196,026
Payroll expenses		80,842			205,001			198,382			312,775

Total costs and expenses		251,901			416,927			501,322			666,904

Loss from operations		(210,760	)		(407,955	)		(457,784	)		(611,202	)

Other expenses:
Interest expense		(4,542	)		(5,572	)		(9,349	)		(13,640	)

Total other expense		(4,542	)		(5,572	)		(9,349	)		(13,640	)

Net loss before provisions for income taxes		(215,302	)		(413,527	)		(467,133	)		(624,842	)

Provisions for income taxes		—			—			—			—
NET LOSS	$	(215,302	)	$	(413,527	)	$	(467,133	)	$	(624,842	)

Net loss per common share - basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.02	)

Weighted average number of common shares outstanding - basic and diluted		35,784,497			34,531,750			35,784,497			34,035,878

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 and 2018
(Unaudited)

	Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total

Balance – March 31, 2018 (unaudited)		33,534,497	$	33,535	$	14,949,139	$	(15,200,109	)	$	(217,435	)
Issuance of common stock for services		2,250,000		2,250		112,750		--			115,000
Net loss for the three months ended June 30, 2018		--		--		--		(413,527	)		(413,527	)

Balance – June 30, 2018, (unaudited)		35,784,497	$	35,785	$	15,061,889	$	(15,613,636	)	$	(515,962	)

Balance – March 31, 2019 (unaudited)		35,784,497	$	35,785	$	15,061,889	$	(15,737,489	)	$	(639,815	)
Net loss for the three months ended June 30, 2019		--		--		--		(215,302	)		(215,302	)

Balance - June 30, 2019, (unaudited)		35,784,497	$	35,785	$	15,061,889	$	(15,952,791	)	$	(855,117	)

Balance - December 31, 2017		33,534,497	$	33,535	$	14,949,139	$	(14,988,794	)	$	(6,120	)
Issuance of common stock for services		2,250,000		2,250		112,750		--			115,000
Net loss for the six months ended June 30, 2018		--		--		--		(624,842	)		(624,842	)

Balance – June 30, 2018, (unaudited)		35,784,497	$	35,785	$	15,061,889	$	(15,613,636	)	$	(515,962	)

Balance - December 31, 2018		35,784,497	$	35,785	$	15,061,889	$	(15,485,658	)	$	(387,984	)
Net loss for the six months ended June 30, 2019		--		--		--		(467,133	)		(467,133	)

Balance - June 30, 2019, (unaudited)		35,784,497	$	35,785	$	15,061,889	$	(15,952,791	)	$	(855,117	)

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended June 30,
	2019			2018

Cash Flows from Operating Activities:
Net loss	$	(467,133	)	$	(624,842	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		22,529			22,529
Amortization of operating lease asset		21,343			--
Stock issued for services to consultants		--			15,000
Stock issued for services to officers and directors		--			100,000
Changes in assets and liabilities:
Accounts receivable		(68,372	)		22,187
Inventory		(131,981	)		(359,754	)
Prepaid expenses		(179,978	)		(9,574	)
Deposit from customers		460,513			658,381
Operating lease liability		(21,343	)		--
Accounts payable and accrued expenses		14,978			93,656
Accrued expenses – related party		(255,000	)		45,338

Net cash used in operating activities		(604,444	)		(37,079	)

Cash Flows from Financing Activities:
Repayment of equipment note payable		(31,379	)		(20,300	)
Net cash used in financing activities		(31,379	)		(20,300	)

Net decrease in cash and cash equivalents		(635,823	)		(57,379	)

Cash and cash equivalents, beginning of period		1,223,863			1,010,434

Cash and cash equivalents, end of period	$	588,040		$	953,055

Supplemental Disclosures
Cash paid during the period for interest	$	9,349		$	13,640
Cash paid during the period for taxes	$	-		$	-

Supplemental Disclosure of non-cash activities
Operating lease asset obtained in exchange for operating lease liability	$	284,808		$	--

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

June 30, 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 under a Supply Agreement 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 June 30, 2019, we had an accumulated deficit of $15,952,791 including a net loss of $467,133 for the six months ended June 30, 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 condensed 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

june 30, 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 June 30, 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 most of its revenue from the sale of the Voraxial Separator and its V-Inline 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 and six months ended June 30, 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

JUNE 30, 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 June 30, 2019 and December 31, 2018, there was $1,496,219 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 June 30, 2019 we have received $1,496,219 from this customer. We anticipate that the project will be completed by the fourth quarter of 2019.

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 June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018.

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 June 30, 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 June 30, 2019 and December 31, 2018.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

june 30, 2019

(unaudited)

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 June 30, 2019 and December 31, 2018 the Company has a cash concentration of $342,999 and $957,717, respectively, 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 June 30, 2019 and December 31, 2018:

	June 30, 2019		December 31, 2018
Raw materials	$	90,960	$	90,656
Work in process		241,532		80,609
Finished goods		175,807		205,053
Total	$	508,299	$	376,318

Inventory amounts are presented net of impairment of $42,752 and $42,752 as of June 30, 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.

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 June 30, 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

Due to the Company had net loss for the three and six month period ended June 30, 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

june 30, 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 and six months ended June 30, 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500 and $105,000, respectively. During the six months ended June 30, 2019, a total of $360,000 of salary and accrued salary have been paid. The total unpaid balance as of June 30, 2019 is $558,761 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 and six months ended June 30, 2018, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500 and $105,000, respectively. Of these amounts, $36,000 had been paid for the six months ended June 30, 2018. The total unpaid balance as of June 30, 2018 is $1,258,761 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 and six months ended June 30, 2019 and 2018, Mr. Veldman received consulting fees of $7,500 and $15,000, respectively.

During the three and six months ended June 30, 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 $6,000, respectively. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

NOTE E – FIXED ASSETS

Fixed assets as of June 30, 2019 and December 31, 2018 consist of:

	June 30, 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		(581,130	)		(558,601	)
Fixed Assets, net	$	371,907		$	394,436

Depreciation expense was $11,265 and $11,265 for the three months ended June 30, 2019 and 2018, respectively.

Depreciation expense was $22,529 and $22,529 for the six months ended June 30, 2019 and 2018, 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

JUNE 30, 2019

(unaudited)

Information with respect to options outstanding and exercisable at June 30, 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, June 30, 2019	13,465,000	$0.01	13,465,000

Exercise

Price

Number
Outstanding at
June 30, 2019

Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise Price

Number
Exercisable at
June 30, 2019

Weighted
Average
Exercise Price

0.01

13,465,000

4.38

0.01

13,465,000

0.01

Total

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 June 30, 2019 is $215,440.

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 June 30, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. As of June 30, 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 June 30, 2019 and December 31, 2018, the amount owed is $258,625 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 damages in the amount of $310,820. We are defending this action, as we believe this claim is without merit. The Company has accrued legal fees to defend the case.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

jUNE 30, 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.

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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

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:


Operating Leases	Classification	June 30,2019
Right-of-use assets	Operating lease assets	$	263,465

Current lease liability	Current operating lease liability		41,551
Non-current lease liability	Long-term operating lease liability		221,914
Total lease liabilities		$	263,465

Lease term and discount rate were as follows:
	June 30,2019
Weighted average remaining lease term (years)		5.26
Weighted average discount rate		6.75	%

The components of lease cost were as follows:

	Three months ended		Six months ended
	March 31,		June 30,
	2019		2019
Operating lease cost	$	13,500	$	29,033
Variable lease cost (1)		4,294		9,436
Total lease cost	$	17,794	$	38,469

(1) Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate.

Supplemental disclosures of cash flow information related to leases were as follows:

	Six months ended
	June 30, 2019
Cash paid for operating lease liabilities	$	21,343
Operating lease assets obtained in exchange for operating lease liabilities		284,808

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

Maturities of lease liabilities were as follows as of June 30, 2019:

	Operating Leases
Remainder of 2019	$	29,033
2020		58,065
2021		58,353
2022		59,795
2023		59,795
Thereafter		49,829
Total lease payments		314,870

Less: imputed interest		(51,405)
Present value of lease liabilities	$	263,465

As of June 30, 2019, operating lease payments of $263,465 include the options to extend lease terms that are reasonably certain of being exercised.

NOTE I – MAJOR CUSTOMERS

During the three and six months ended June 30, 2019, we recorded 100% and 98% of our revenue from one customer.

During the three and six months ended June 30, 2018, we recorded 99% and 99% of our revenue from one customer.

As of June 30, 2019, one of the Company’s customers represents 98% 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 June 30, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. As of June 30, 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.

Item 2.

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

Forward-Looking Statements

The following discussion of the financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto. The following discussion contains forward-looking statements. Enviro Technologies, Inc. is referred to herein as “the Company”, “we” or “our.” The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements”. Such statements include those concerning our expected financial performance, our corporate strategy and operational plans. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on April 1, 2019, and our subsequent filings with the SEC. All information in this section for the three and six months ended June 30, 2019 and 2018 is unaudited and derived from the unaudited condensed consolidated financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, 2018 is derived from our audited consolidated financial statements appearing in the Annual Report on Form 10-K for the year ended December 31, 2018.

Application of Critical Accounting Policies

The Company’s condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain accounting policies have a significant impact on amounts reported in the financial statements. A summary of these significant accounting policies can be found in Note C to the Company’s financial statements in the Company’s 2018 Annual Report on Form 10-K. The Company has adopted Topic 842 to account for leases during the period ended June 30, 2019. Refer to Note C.

Among the significant judgments made in preparation of the Company’s financial statements are the determination of the allowance for doubtful accounts, value of equity instruments and adjustments of inventory valuations. These adjustments are made each quarter in the ordinary course of accounting.

Overview

The Company developed and currently manufactures 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 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. We have rebranded the technology as V-Inline for other industries.

On March 13, 2017, we entered into a Technology Purchase Agreement with Schlumberger which was completed on June 8, 2017. Under the agreement we sold our intellectual property, substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of $4,000,000.

As part of the agreement, Schlumberger granted us Grant Back Licenses, to make, use, sell, offer for sale, and import products and processes embodying the intellectual property outside the oil and gas market. Under the terms of the agreement, we can no longer use the tradename Voraxial. We branded the technology licensed to us the “V-Inline”. Our management believes that the Grant Back Licenses can potentially provide additional revenues through the sale of V-inline Separators outside the oil and gas industry, including, but not limited to mining, sewage and industrial wastewater.

In addition, pursuant to the Technology Purchase Agreement FPA entered into the Supply Agreement with Cameron Solutions, Inc. 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 material revenues under the Grant Back Licenses or Supply Agreement. There are no minimum purchase requirements for Cameron Solutions under the 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 technology (branded as V-Inline) in other markets outside of the oil and gas markets. The V-Inline 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 V-Inline 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 V-Inline Separator include:

High volume / small footprint

No Pressure drop requirement

High G force

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

Can operate dry

Since there is no pressure drop, there is very little wear caused by sand

We received an order from a utility company for multiple V-Inline Separators to separate solids and oil from their wastewater stream at a rate of 120 gallons per minute. The System will include different technologies with the heart of the system being comprised of two V 2000 Separators working in parallel with a third V-Inline being utilized to further dewater the reject lines from the System. We anticipate shipping the system in the fourth quarter 2019. The deposits from this order are reflected on our balance sheet as deposits from customers.

Results of Operations for the Three Months ended June 30, 2019 and 2018:

Revenue

Our revenues increased by $135,270 to $147,333 for the three months ended June 30, 2019 as compared to $12,063 for the three months ended June 30, 2018. Our revenues increased substantially from last year. The majority of our revenues in the second quarter of 2019 is a result of a purchase order we received for the Voraxial Separator under the Supply Agreement. Although we believe there is a market for the Voraxial Separator and that the Supply Agreement will provide us with the opportunity to increase revenues in the future in the oil and gas industry, there is no assurance that this will occur. We continue to allocate resources toward developing this relationship. We also believe the Grant Back Licenses can potentially generate additional revenues in other industries that require the separation technology, such as mining, industrial and sewage. We received a purchase order from a utility company for a wastewater system that includes multiple V-Inline Separators. The customer has paid multiple deposits in 2018 and during the first six months of 2019 totaling approximately $1.5 million that is reflected on our balance sheet as “Deposits from customers” at June 30, 2019. Due to customer delays, the project has been extended beyond the September 21, 2018 due date. We anticipate delivering this system by the fourth quarter of 2019.

The majority of revenues in 2019 were a result of Voraxial Separator sales. The majority of our sales in 2018 were a result of sales of the Voraxial Separator and auxiliary equipment and parts.

Cost of Goods

Our cost of goods increased by $103,101 to $106,192 for the three months ended June 30, 2019 as compared to $3,091 for the three months ended June 30, 2018. This increase is mainly due to the increase in sales we experienced during the three months ended June 30, 2019. Our cost of goods continues to be reviewed by management in effort to obtain the best available pricing while maintaining high quality standards.

Costs and Expenses

Total costs and expenses decreased by $165,026 to $251,901 for the three months ended June 30, 2019 as compared to $416,927 for the three months ended June 30, 2018. Our professional fees decreased by approximately $41,000, primarily due to a $65,000 non-cash expense associated with the restricted stock issuance to consultants for services pursuant to the terms of a business advisory consulting agreement in the three months ended June 30, 2018 and partially offset by an increase in legal fees in the three months ended June 30, 2019. Our payroll expenses decreased by $125,000, primarily due to a $50,000 non-cash expense associated with the restricted stock issuance to Messrs. DiBella in the three months ended June 30, 2018. The balance of the reduction in payroll expenses is due to the increase overtime hours during the three months ended June 30, 2018. Our selling, general and administrative costs

and expenses remained fairly consistent from the previous year. We expect our costs and expenses to remain fairly consistent during the balance of 2019.

Results of Operations for the Six Months ended June 30, 2019 and 2018:

Revenue

Our revenues increased by $26,206 to $152,196 for the six months ended June 30, 2019 as compared to $125,990 for the six months ended June 30, 2018. Our revenues increased from last year. The majority of our revenues in the second quarter of 2019 is a result of a purchase order we received for the Voraxial Separator under the Supply Agreement. Although we believe there is a market for the Voraxial Separator and that the Supply Agreement will provide us with the opportunity to increase revenues in the future in the oil and gas industry, there is no assurance that this will occur. We continue to allocate resources toward developing this relationship. We also believe the Grant Back Licenses can potentially generate additional revenues in other industries that require the separation technology, such as mining, industrial and sewage. We received a purchase order from a utility company for a wastewater system that includes multiple V-Inline Separators. The customer has paid multiple deposits in 2018 and during the first six months of 2019 totaling approximately $1.5 million that is reflected on our balance sheet as “Deposits from customers” at June 30, 2019. Due to customer delays, the project has been extended beyond the September 21, 2018 due date. We anticipate delivering this system by the fourth quarter of 2019.

The majority of revenues in 2019 were a result of Voraxial Separator sales. The majority of our sales in 2018 were a result of sales of the Voraxial Separator and auxiliary equipment and parts.

Cost of Goods

Our cost of goods increased by $38,370 to $108,658 for the six months ended June 30, 2019 as compared to $70,288 for the six months ended June 30, 2018. This increase is due to the different Voraxial models and parts sold during the six months ended June 30, 2018. Our cost of goods continues to be reviewed by management to guarantee the best available pricing while maintaining high quality standards.

Costs and Expenses

Total costs and expenses decreased by $165,582 or approximately 25% to $501,322 for the six months ended June 30, 2019 from $666,904 for the six months ended June 30, 2018. Our professional fees decreased by approximately $47,000, primarily due to a $65,000 non-cash expenses associated with the restricted stock issuance to consultant for services pursuant to the terms of a business advisory consulting agreement in the six months ended June 30, 2018 and partially offset by an increase in legal fees in the six months ended June 30, 2019. Our payroll expenses decreased by $114,000, primarily due to a $50,000 non-cash expense associated with the restricted stock issuance to Messrs. DiBella in the three months ended June 30, 2018. The balance of the reduction in payroll expenses is due to the increase overtime hours during the three months ended June 30, 2018. Our selling, general and administrative costs and expenses remained fairly consistent from the previous year. We expect our costs and expenses to remain fairly consistent during the balance of 2019.

Liquidity and Capital Resources:

Cash at June 30, 2019 was $588,040 as compared to $1,223,863 at December 31, 2018. Working capital deficit at June 30, 2019 was $1,086,110 as compared to a working capital deficit at December 31, 2018 of $566,391. At June 30, 2019, we had an accumulated deficit of $15,952,791. Our current assets decreased by 14% at June 30, 2019 as compared to December 31, 2018, which reflects a decrease in our cash and cash equivalents that was offset by an increase in our accounts receivable, inventory and prepaid expenses. Our current liabilities increased 11% at June 30, 2019 as compared to December 31, 2018, which is primarily attributable to an increase in deposits from customers as a result of the purchase order we received from a utility company in 2018. This was offset by a decrease in accrued expenses-related party.

Summary of cash flows

The following table summarizes our cash flows:

	Six Months Ended June 30,
	2019			2018
	(Unaudited)
Cash flow data:
Cash used in operating activities	$	(604,444	)	$	(37,079	)
Cash used in investing activities	$	--		$	--
Cash used in financing activities	$	(31,379	)	$	(20,300	)

Net cash used in operating activities in the six months ended June 30, 2019 was primarily attributable to a decrease in accrued expenses – related party and increases in inventory and prepaid expenses offset in part by an increase in deposit from customer. Increases in our prepaid expenses and inventory are a result of the units we are manufacturing in fulfillment of orders we received. Increase in deposit from customer is primarily attributable to deposit received on a purchase order we received from a utility company. This was partially offset by a decrease in our accrued expenses-related party.

Net cash used in operating activities during the six months ended June 30, 2018 was primarily attributable to an increase in inventory offset by increases in accounts payable, accrued expenses and deposits from customers.

Net cash used in financing activities during the six months ended June 30, 2019 and 2018 was primarily attributable to the repayment of the equipment note payable.

Continuing Losses

While the Company has historically experienced recurring net losses, our management believes that the Grant Back Licenses 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 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 Licenses 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.

If we fail to achieve 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.

We received a substantial deposit from a customer in the utility industry. The customer has paid multiple deposits totaling $1,496,219 as of June 30, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. We do not currently 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.

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 condensed 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.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements affecting the Company, refer to Note C to the Condensed Financial Statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting company.

Item 4.

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 Chief Financial (and principal 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 June 30, 2019. Based upon continuing material weakness in the Company’s internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2018, our management concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

We will continue to monitor our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added additional personnel, including additional accounting and administrative staff, allowing improved internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial 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.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

As previously discussed, 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 damages in the amount of $310,820. We are defending this action, as we believe this claim is without merit. The Company has accrued legal fees to defend the case. See Note G (Litigation) to the financial statements included in this report.

Item 1A.

Risk Factors

Smaller reporting companies are not required to provide the information required by this item.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

Exhibits required by Item 601 of Regulation S-K

		Incorporated by Reference			Filed or
No.	Exhibit Description	Form	Date Filed	Exhibit Number	Furnished Herewith

2	Agreement and Plan of Reorganization (incorporated by reference to Exhibit 2 to the Registration Statement on Form 10, filed November 3, 1999, as amended	Form 10	11/03/99	2
3(i)	Articles of Incorporation	Form 10	11/03/99	3(i)
3(ii)	Bylaws	Form 10	11/03/99	3(ii)
3(iii)	Articles of Amendment to the Articles of Incorporation	8-K	11/13/17	3.2
10.1	Technology Purchase Agreement between Schlumberger Technology Corporation, Schlumberger Canada Limited, and Schlumberger B.V. And Enviro Voraxial Technology, Inc. and Florida Precision Aerospace, Inc. dated as of March 13, 2017	8-K	3/15/17	10.1
10.2	Lease Agreement dated December 14, 2018	10-K	4/1/19	10.2	Filed
10.3	Grant Back License effective June 8, 2017				*
10.4	Supply Agreement effective June 8, 2017				*
31.1	Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer				Filed
31.2	Rule 13a-14(a)/15d-4(a) Certification of principal financial and accounting officer				Filed
32.1	Section 1350 Certification of Chief Executive Officer and principal financial and accounting officer				Filed
101.INS	XBRL Instance Document				Filed
101.SCH	XBRL Taxonomy Extension Schema Document				Filed

101.CAL	XBRL Taxonomy Calculation Linkbase Document	Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed

*To be filed.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned as a duly authorized officer of the Registrant.