U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2020

 

or

 

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

 

For the transition period from _____________ to ______________

 

Commission File Number: 0-30454

 

Enviro Technologies, Inc.
(Exact name of registrant as specified in its charter)

 

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

 

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

 

(954) 958-9968
(Registrant’s telephone number, including area code) 

 

not applicable

(Former name, former address and former fiscal year, if changed since last report.)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange
on which registered
None   not applicable   not applicable

 

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 every Interactive Data File required to be submitted 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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 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, 2020, we had 49,499,497 shares of our Common Stock outstanding.

 

 

  1  
 

INDEX 

 

      Page
PART I.   FINANCIAL INFORMATION 4
Item 1.   Financial Statements 4
           Condensed Consolidated Balance Sheets 4
           Condensed Consolidated Statements of Operations 5
           Condensed Consolidated Statements of Changes in Shareholders’ Equity (deficiency) 6
           Condensed Consolidated Statements of Cash Flows 7
           Notes to Condensed Consolidated Financial Statements   8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 23
Item 4.   Controls and Procedures 23
       
PART II.   OTHER INFORMATION 24
Item 1.   Legal Proceedings 24
Item 1A.   Risk Factors 24
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3.   Defaults Upon Senior Securities 24
Item 4.   Mine Safety Disclosure 24
Item 5.   Other Information 24
Item 6.   Exhibits 25
         
Signatures   26

 

 

 

 

 

 

 

 

 

  2  
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:

 

• our ability to continue as a going concern;
• the impact of the Covid-19 pandemic on the Company;
• our ability to continue to generate revenues and report profitable operations;
• our ability to pay our operating expenses and lack of access to additional capital;
• our ability to satisfy our obligations at they become due;
• our dependence on a limited number of customers;
• market competition;
• our dependence on key personnel;
• failure to comply with government regulations;
• potential product liability claims;
• material weaknesses in our disclosure controls and internal control over financial reporting;
• significant dilution if outstanding stock options are exercised; and
• lack of an active trading market for our common stock and the impact of penny stock rules on a trading market.

 

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing later in this report, Part I, Item 1A. - Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2020 (the "2019 10-K") as well as our other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

 

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, when used in this report the terms “EVTN,” the “Company,” “we,” “our,” “us,” and similar terms refers to Enviro Technologies, Inc., an Idaho corporation, and our subsidiary, Florida Precision Aerospace, Inc., a Florida corporation which we refer to as “FPA.” In addition, “second quarter of 2020” refers to the three months ended June 30, 2020, “second quarter of 2019” refers to the three months ended June 30, 2019, “2019” refers to the year ended December 31, 2019 and “2020” refers to the year ending December 31, 2020. We maintain a corporate website at www.evtn.com. Unless specifically set forth to the contrary, the information which appears on our website at www.evtn.com is not part of this report.  

 

  3  
 
Item 1. Financial Statements.

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30,
2020
(unaudited) 		  December 31,
2019
ASSETS    
CURRENT ASSETS:                
Cash and cash equivalents   $ 507,709     $ 674,844  
Accounts receivable, net     10,595       297,755  
Inventory, net     144,421       117,984  
Prepaid expenses     12,174       20,579  
                 
Total current assets     674,899       1,111,162  
                 
FIXED ASSETS, NET     331,788       349,377  
OTHER ASSETS                
Operating lease asset     221,914       243,039  
Security deposit     10,143       10,143  
Total other assets     232,057       253,182  
                 
Total assets   $ 1,238,744     $ 1,713,721  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 323,639     $ 416,992  
Accrued Expenses – related parties     580,815       621,465  
Operating lease liability, current portion     44,444       42,973  
Equipment note payable, current portion     70,613       68,276  
Loan Payable, current portion     46,752       —    
Total current liabilities     1,066,263       1,149,706  
                 
LONG-TERM LIABILITIES:                
Operating lease liabilities, less current portion     177,470       200,066  
Equipment note payable, less current portion     121,995       157,896  
Loan Payable, less current portion     65,219       —    
Total long-term liabilities     364,684       357,962  
Total liabilities     1,430,947       1,507,668  
                 
COMMITMENTS AND CONTINGENCIES (See Note G)     —         —    
                 
SHAREHOLDERS’ EQUITY (DEFICIENCY):                
Common stock, $.001 par value, 250,000,000 shares authorized; 49,499,497 and 35,784,497 shares issued and outstanding as of June 30, 2020 and December 31, 2019     49,500       35,785  
Additional paid-in capital     15,191,624       15,061,889  
Accumulated deficit     (15,433,327 )     (14,891,621 )
Total shareholders’ equity (deficiency)     (192,203 )     206,053  
                 
Total liabilities and shareholders’ equity (deficiency)   $ 1,238,744     $ 1,713,721  

 

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

  4  
 


ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2020   2019   2020   2019
                 
Revenues, net   $ 22,790     $ 147,333     $ 27,318     $ 152,196  
                                 
Cost of goods sold     14,434       106,192       15,199       108,658  
                                 
Gross profit     8,356       41,141       12,119       43,538  
                                 
Costs and expenses:                                
Selling, general and administrative     101,108       77,868       185,316       153,932  
Professional Fees     57,892       93,191       113,104       149,008  
Payroll expenses     124,871       80,842       256,241       198,382  
                                 
Total costs and expenses     283,871       251,901       554,661       501,322  
                                 
Loss from operations     (275,515 )     (210,760 )     (542,542 )     (457,784 )
                                 
Other income (expenses):                                
Other Income     8,000       —         8,000       —    
Interest expense     (3,441 )     (4,542 )     (7,164 )     (9,349 )
                                 
Total other income (expense)     4,559       (4,542 )     836       (9,349 )
                                 
Net loss before provisions for income taxes     (270,956 )     (215,302 )     (541,706 )     (467,133 )
Provisions for income taxes     —         —         —         —    
NET LOSS   $ (270,956 )   $ (215,302 )   $ (541,706 )   $ (467,133 )
                                 
Net loss per common share - basic and diluted   $ (0.01 )   $ (0.01 )   $ (0.01 )   $ (0.01 )
Weighted average number of common shares outstanding - basic and diluted     38,949,497       35,784,497       37,366,997       35,784,497  

 

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

 

  5  
 

 ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (DEFICIENCY)

(Unaudited)

 

For the three months ended June 30, 2020 and 2019 

 

    Common Stock   Additional
Paid-in 		  Accumulated    
    Shares   Amount   Capital   Deficit   Total
                     
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 – March 31, 2020 (unaudited)

    35,784,497     $ 35,785     $ 15,061,889     $ (15,162,371 )   $ (64,697 )
                                         
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable     13,365,000       13,365       120,285       —         133,650  
                                         
Stock issued for services to employees     350,000       350       9,450       —         9,800  
                                         
Net Loss for the three months ended June 30, 2020     —         —         —         (270,956 )     (270,956 )
                                         
Balance – June 30, 2020 (unaudited)     49,499,497     $ 49,500     $ 15,191,624     $ (15,433,327 )   $ (192,203 )

 

For the six months ended June 30, 2020 and 2019

 

        Additional        
    Common Stock   Paid-in   Accumulated    
    Shares   Amount   Capital   Deficit   Total
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, 2020     —         —         —         (467,133 )     (467,133 )
                                         
Balance – June 30, 2019 (unaudited)     35,784,497     $ 35,785     $ 15,061,889     $ (15,952,791 )   $ (855,117 )

 

Balance - December 31, 2019

    35,784,497     $ 35,785     $ 15,061,889     $ (14,891,621 )   $ 206,053  
                                         
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable     13,365,000       13,365       120,285       —         133,650  
                                         
Stock issued for services to employees     350,000       350       9,450       —         9,800  
                                         
Net Loss for the six months ended June 30, 2020     —         —         —         (541,706 )     (541,706 )
                                         
Balance – June 30, 2020 (unaudited)     49,499,497     $ 49,500     $ 15,191,624     $ (15,433,327 )   $ (192,203 )

 

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

  6  
 

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

    Six Months Ended June 30,
    2020   2019
         
Cash Flows from Operating Activities:                
Net loss   $ (541,706 )   $ (467,133 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     22,656       22,529  
Amortization of operating lease asset     21,125       21,343  
Stock issued for services     9,800       —    
Changes in assets and liabilities:                
Accounts receivable     287,160       (68,372 )
Inventory     (26,437 )     (131,981 )
Prepaid expenses     8,405       (179,978 )
Accounts payable and accrued expenses     (30,353 )     14,978  
Deposit from customers     —         460,513  
Operating lease liability     (21,125 )     (21,343 )
Accrued expenses – related parties     30,000       (255,000 )
Net cash used in operating activities     (240,475 )     (604,444 )
                 
Cash Flows from Investing Activities:                
Purchase of equipment     (5,067 )     —    
Net cash used in Investing activities     (5,067 )     —    
                 
Cash Flows from Financing Activities:                
Repayment of equipment note payable     (33,564 )     (31,379 )
Loan payable issuance     111,971       —    
Net cash (used in) provided by financing activities     78,407       (31,379 )
                 
Net decrease in cash and cash equivalents     (167,135 )     (635,823 )
                 
Cash and cash equivalents, beginning of period     674,844       1,223,863  
                 
Cash and cash equivalents, end of period   $ 507,709     $ 588,040  
                 
Supplemental Disclosures                
Cash paid during the period for interest   $ 7,164     $ 9,349  
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  
Stock issued for exercise of options in exchange for accounts payable   $ 42,000     $ —    
Stock issued for exercise of options in exchange for
accrued expenses - related parties 		  $ 91,650     $ —    

 

  

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

 

  7  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020

(unaudited) 

 

NOTE A - ORGANIZATION AND OPERATIONS

 

Organization

 

Enviro Technologies, Inc., an Idaho corporation (the “Company”), is a high precision manufacturer that developed a proprietary environmental and industrial separation technology called the Voraxial® Separator (the “Separation Technology”). Historically we sold this technology mainly in the oil and gas industry. In 2017, the Company sold its patented Voraxial Separator to Cameron Solutions, Inc., an affiliate of Schlumberger Technology Corporation pursuant to a Technology Purchase Agreement and received a three-year Supply Agreement to manufacture the separator for Cameron. The agreement expired in June 2020 and the Company decided not to pursue Cameron for an extension as the agreement did not generate sufficient revenues. As part of the agreement, 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, food processing industry, among others. The Company rebranded the technology as the V-Inline Separator and is continuing to pursue these opportunities.

 

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 V-Inline Separator. FPA is also transitioning to manufacture high precision parts for other customers.

 

NOTE B – GOING CONCERN

 

Since entering into the Technology Purchase Agreement in June 2017, we have generated limited revenues under the Supply Agreement and Grant Back License. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension in its current state. However, we have had discussions to develop a modified agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020. The Grant Back License did not expire. There are no assurances that we will enter into a new Supply Agreement and/or the Grant Back License will ever generate any material revenues. However, we intend to continue to seek opportunities for the V-Inline Separator. Our ability to generate future revenues will depend on a number of factors, many of which are beyond our control, including the impact of Covid-19, competitive efforts and general economic trends. There are no assurances we will be able to continue to generate revenues or report profitable operations in the future. Without a new Supply Agreement, we will need to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. Regardless of our ability to enter into a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures has decreased significantly during the past six months and reached all-time low of negative $40 per barrel during the first six months of 2020. Further, with the current economic condition impacted by the Covid-19 virus, including weak oil prices, this may have a negative effect on the potential for sales of V-Inline Separators.

 

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including our industry.

 

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we temporarily reduced non-essential staffing at our corporate office and altered work schedules at our manufacturing and warehouse facilities. In addition, our senior management and our office personnel began working remotely and maintaining full capabilities to serve our customers. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began.

 

  8  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

In an effort to conserve our cash resources to sustain our operations until such time as the economy begins returning to pre-Covid-19 pandemic activity levels, we have reduced employee hours and have begun marketing our machining capabilities to local manufactures; however, we have not generated material revenues from this focus as of June 30, 2020. In April 2020, we began pursuing the manufacturing and selling of face shields for the general public and medical industry. To date we have generated limited revenues from the sales of face shields. There are no assurances, however, that these efforts will be sufficient to permit us to pay our operating expenses. In that event, we may be required to further scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection.

 

At June 30, 2020, we had a working capital deficit of $391,364, an accumulated deficit of $15,433,327. We do not have any external sources of liquidity. Our revenues have declined for the first two quarters of 2020 from the fourth quarter of 2019 as a result of the impact of the Covid-19 pandemic and the significant drop in oil prices. We were able to supplement some of the lost revenue stream we historically experienced from the sale of Voraxial and V-Inline separator, which was significantly impacted by the drop of oil prices and Covid-19 pandemic, by increasing our high precision manufacturing activities and selling face shields. Sales of Face shields represented 63% of revenues generated during the six months ended June 30, 2020. We do not anticipate generating significant revenues from face shields for the balance of 2020 as the inconsistent supply chain and influx of competitors make the market challenging. We will continue to market our manufacturing capabilities and the V-Inline Separator.

 

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 condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

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, 2019, as filed with the SEC on April 14, 2020. In the opinion of management, all adjustments, which are necessary to provide a fair presentation of financial position as of June 30, 2020, 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. Significant estimates include valuation of deferred tax assets, allowance for doubtful accounts and allowance for inventory obsolescence. Actual results may differ.

 

  9  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

Revenue Recognition

 

The Company derives its revenue from the sale of the V-Inline Separators and some high precision manufacturing projects. We have also generated revenues from the sale of the Voraxial Separator to one customer, Schlumberger, through the Supply Agreement which expired in June 2020. We pursued designing, manufacturing and selling face shields during the quarantine period and are constantly seeking other sources of revenues. We account for revenue in accordance with ASC Topic 606.

 

Revenues that are generated from high precision manufacturing projects 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.

 

Revenues that are generated from sales of V-Inline separators, auxiliary equipment and parts and face shields 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, 2020, and December 31, 2019, respectively, there was $0 and $0, respectively, of deposits from customers. During the three and six months ended June 30, 2020, we derived 24% and 37% of our revenues, respectively, from high precision manufacturing projects. The balance was due to the sales of face shields.

 

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, 2020 and December 31, 2019, the Company has $254 and $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, accounts receivable, inventory, accounts payable and accrued expenses at June 30, 2020 and December 31, 2019, 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, 2020 and December 31, 2019.

 

  10  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(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 June 30, 2020 and December 31, 2019.

 

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, 2020 and December 31, 2019.

 

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, 2020, the Company has a cash concentration of $237,267 in excess of FDIC limits.

 

Inventory

 

Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields 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, 2020, and December 31, 2019:

 

    June 30, 2020   December 31, 2019
Raw materials   $ 58,564     $ 38,935  
Work in process     12,907       —    
Finished goods     72,950       79,049  
  Total   $ 144,421     $ 117,984  

 

Inventory amounts are presented net of allowance for inventory reserves of $66,937 and $66,937 as of June 30, 2020 and December 31, 2019, 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.

 

  11  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

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. As of June 30, 2020 and 2019 the Company has 100,000 and 13,465,000 shares issuable upon the exercise of options, respectively, which 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.

 

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.

 

Reclassification

 

Certain amounts from prior periods have been reclassified to conform to the current period presentation. The reclassification had no impact on the Company’s new loss of cash flow.

 

Recent Accounting Pronouncements

 

All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

 

  12  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

NOTE D - RELATED PARTY TRANSACTIONS

 

Effective January 1, 2018 the annual compensation of the Company’s chief executive officer is $210,000. For the three months ended June 30, 2020, the Company incurred salary expenses for the Chief Executive Officer of the Company of $52,500. During the six months ended June 30, 2020, a total of $75,000 of salary have been paid and $81,650 of accrued salary were used to exercise the options for Mr. DiBella, Adele DiBella, and two employees of the Company (See Note F). The total unpaid balance as of June 30, 2020 is $559,315 and is included in accrued expenses – related party. During the three months ended June 30, 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500. 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.

 

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, 2020 and 2019, Mr. Veldman received consulting fees of $7,500 and $15,000, respectively.

 

During the three and six months ended June 30, 2020 and 2019, Mr. Veldman, 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.

 

During the three months ended June 30, 2020, Mr. Veldman reduced his accrued expense by $10,000 to exercise his options (See Note F). As of June 30, 2020 and December 31, 2019, the total unpaid balance is $21,500 and $10,500, respectively.

 

On June 9, 2020, the Company issued 3,800,000 shares of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.

 

NOTE E – FIXED ASSETS

 

Fixed assets as of June 30, 2020 and December 31, 2019 consist of:

 

    June 30, 2020   December 31, 2019
Machinery and equipment   $ 938,312     $ 933,245  
Furniture and fixtures     14,498       14,498  
Autos and Trucks     5,294       5,294  
Total     958,104       953,037  
Less: accumulated depreciation     (626,316 )     (603,660 )
Fixed Assets, net   $ 331,788     $ 349,377  

 

Depreciation expense was $11,328 and $11,265 for the three months ended June 30, 2020 and 2019, respectively.

 

Depreciation expense was $22,656 and $22,529 for the six months ended June 30, 2020 and 2019, respectively. 

  13  
 

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

note f – shareholders’ equity

 

COMMON STOCK

 

On June 9, 2020, the Company issued to 350,000 shares of its common stock to employees at $0.028 per share, or $9,800, for services rendered. The Company valued these common shares based on the fair value at the date of grant.

 

On June 9, 2020, the Company issued 7,700,000 shares of its common stock to our Chief Executive Officer in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella reduced his accrued salary in the amount of $77,000 for the exercise of options.

 

On June 9, 2020, the Company issued 1,000,000 shares of its common stock to Raynard Veldman, a member of the Company’s board of directors in connection with the exercise of a stock option at an exercise price of $0.01. Mr. Veldman reduced his accrued consulting and Board of Director fees in the amount of $10,000 for the exercise of options.

 

On June 9, 2020, the Company issued 700,000 shares of its common stock to an outside consultant in connection with the exercise of a stock option at an exercise price of $0.01. The consultant agreed to reduce her payable in the amount of $7,000 for the exercise of options.

 

On June 9, 2020, the Company issued 165,000 shares of its common stock to two employees in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $1,650 for the exercise of options.

 

On June 9, 2020, the Company issued 3,800,000 shares of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.

 

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.

 

  14  
 

On June 9, 2020, our Chief Executive Officer exercised 7,700,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $77,000 for the exercise of options.

 

On June 9, 2020, Raynard Veldman, a member of the Company’s board of directors exercised 1,000,000 stock options at an exercise price of $0.01 per share. Mr. Veldman agreed to reduce his accrued consulting fees in the amount of $10,000 for the exercise of options.

 

On June 9, 2020, an outside consultant exercised 700,000 stock options at an exercise price of $0.01 per share. The consultant agreed to reduce the payables due in the amount of $7,000 for the exercise of options. In addition, a related party exercised 3,800,000 stock options at an exercise price of $0.01 per share. The consultant agreed to reduce the payables due in the amount of $35,000 for the exercise of options for the related party. In addition, Mr. DiBella agreed to reduce his accrued salary in the amount of $3,000 for the exercise of options for the related party.

 

On June 9, 2020, two employees exercised 165,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $1,650 for the exercise of options for these three employees.

 

Information with respect to options outstanding and exercisable at June 30, 2020 is as follows:

 

Number

Outstanding

Exercise

Price

Number

Exercisable

Balance, December 31, 2019 13,465,000 $0.01 13,465,000
Issued - - -
Expired - - -
Exercised (13,365,000) $0.01 (13,365,000)
Forfeited - - -
Balance, June 30, 2020 100,000 $0.01 100,000

 

Exercise

Price

Number
Outstanding at
June 30, 2020 		Weighted
Average
Remaining
Contractual Life 		Weighted
Average
Exercise Price 		Number
Exercisable at
June 30, 2020 		Weighted
Average
Exercise Price
0.01 100,000 3.38 0.01 100,000 0.01
Total 100,000 - - 100,000 -

 

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, 2020 is $1,490. 

 

  15  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

NOTE G – COMMITMENTS AND CONTINGENCIES

 

LOAN PAYABLE

 

On May 4, 2020, FPA received a loan (the “PPP Loan”) from Bank of America, N.A. in the aggregate amount of $111,971, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

 

The PPP Loan, which was in the form of a Note dated May 4, 2020 issued by FPA, matures on May 4, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 6, 2020. The Note may be prepaid by FPA at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. FPA intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP Loan, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We intend to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. 

 

    June 30, 2020   December 31, 2019
     
Loan payable   $ 111,971     $ —    
 Less: current portion     (46,752 )     —    
Long-term loan payable   $ 65,219     $ —    

 

On May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. The Company recognized the grant as other income during the six months ended June 30, 2020.

 

EQUIPMENT NOTE PAYABLE

 

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 is used for the manufacture of Voraxial and V-Inline Separators, as well as for the manufacturing of high precision parts for customers. 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, 2020, and December 31, 2019, the amount owed is $192,608 and $226,172 respectively.

 

    June 30, 2020   December 31, 2019
     
 Equipment note payable   $ 192,608     $ 226,172  
Less: current portion     (70,613 )     (68,276 )
 Long-term equipment note payable   $ 121,995     $ 157,896  

 

Litigation

 

On or about October 23, 2017, a claim was filed in the 17th 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 the case vigorously.

 

SALE OF INTELLECTUAL PROPERTY

 

On June 8, 2017, the Company and FPA, our wholly owned subsidiary, closed the transactions contemplated by  

 

  16  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

the Technology Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”).

 

At closing, we sold our intellectual property (the “Purchased Intellectual Property”), substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of up to $4,000,000, of which $3,000,000 was paid to us at closing and the balance of $1,000,000 was paid in August 2019 upon satisfaction of certain post-closing conditions.

 

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, 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. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension under the original terms. However, we have had discussions to develop a new agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020.

 

For a period of three years following the closing of the Technology Purchase Agreement, which expired in June 2020, 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. As the term has expired, the Company may review opportunities in the oil and gas industry.

 

NOTE H - LEASE

 

In December 2018, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57th 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. The Company accounts for lease in accordance with ASC Topic 842. For the three months and six months ended June 30, 2020 and 2019, the total lease cost was approximately $14,700 and $29,400, respectively which included variable cost of approximately $4,500 and $9,000 respectively. For the six months ended June 30, 2020 and 2019, cash paid for operating liabilities was approximately $24,000 and $29,000, respectively.

 

    June 30, 2020   December 31, 2019
     
Operating lease liability   $ 221,914     $ 243,039  
 Less: current portion     (44,444 )     (42,973 )
Long-term operating lease liability   $ 177,470     $ 200,066  

 

  17  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

  

NOTE I – MAJOR CUSTOMERS

 

During the six months ended June 30, 2020, we recorded 72% of our revenue from two customers, with each representing 60% and 12% of total revenues.

 

During the three months ended June 30, 2020, we recorded 86% of our revenue from two customers, with each representing 73% and 13% of total revenues.

 

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

 

As of June 30, 2020, three of the Company’s customers represents 62%, 15% and 11%, respectively, of the total accounts receivable.

 

As of December 31, 2019, one of the Company’s customers represents 99% of the total accounts receivables.

 

NOTE M – SUBSEQUENT EVENTS

 

On June 23, 2020, FPA executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If FPA does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA will lose the ability to draw the funds. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning June 23, 2021 (12 months from the date of the SBA note) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA Note. In connection therewith, FPA executed (i) a note for the benefit of the SBA, which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of FPA, which also contains customary events of default.

 

  18  
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Historically, our business was the development, manufacture and sale of the Voraxial® Separator, 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. As described earlier in this report, in March 2017 we entered into a Technology Purchase Agreement with Schlumberger pursuant to which we sold our intellectual property, substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger. In addition, pursuant to the Technology Purchase Agreement FPA entered into a three year Supply Agreement with Cameron Solutions, Inc. which expired in June 2020. We have had discussions to develop a new agreement; however there is no assurances that a new agreement will be finalized. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020. Without a Supply Agreement, we will have to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. Regardless of our ability to negotiate a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures reached a negative $40 per barrel in 2020. Further, with the current economic landscape defined by the COVID19 virus, sales in 2020 may continue to suffer. We plan to continue to support Schlumberger under new terms on a per project basis.

 

Under the Technology Purchase Agreement, we were also granted a Grant Back License to market the technology into other markets outside of the oil and gas market which we plan to pursue. We have branded our licensed products as V-Inline.

 

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

 

Manufacturing

 

With the softening for high end capital expenditures projects in markets that can utilize the Voraxial and V-Inline  

  19  
 

separator, we are exploring leveraging our manufacturing capabilities to pursue high precision manufacturing projects. Further, we designed our version of a face shield which we manufactured and sold during the quarter ended June 30, 2020 to the medical industry and general public. Although we achieved 63% of our revenues in the quarter ended June 30, 2020 from the sale of face shields, we do not anticipate this market opportunity to continue as the supply chain and margins are challenging with many companies entering this market. We continue to market our manufacturing capabilities.

 

Impact of Covid-19 on our Company

 

As described elsewhere herein, we are materially dependent on revenues from a limited number of customers. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including our industry.

 

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we eliminated non-essential travel, and altered work schedules at our manufacturing facility. In addition, our senior management began working remotely. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began.

 

Even before the “stay at home” order was issued, we were experiencing a significant decline in orders from our customers because of disruptions in our customers’ businesses as a result of the Covid-19 pandemic. In addition, as a result of our historic concentration on sales to customers in the oil and gas industry, the decline in oil prices has had a materially adverse impact our sales beginning with the first quarter of 2020 and continuing through the second quarter of 2020. During the first six months of 2020 we experienced a slowdown from customer’s inquiries in all industries and we expect that trend to continue until such time as the full impact of the virus is known, travel restrictions are lifted and corporate capital expenditures are normalized. We also expect delays in our supply chain, including delivery of raw materials and component products as companies throughout the country are affected by local quarantines and disruptions.

 

While we are able to continue operations as a non-consumer facing company that can fulfill shipments with a minimal staff that can maintain social distancing, we have reduced manufacturing hours. Our senior management are working remotely, and we have curtailed non-essential travel, and are seeking alternative strategies for the continuation of our company.

 

While the foregoing are some of the immediate impacts we are witnessing, this list is not exhaustive and we are unable to predict the overall impact on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not know if we have sufficient access to working capital from historic sources to continue as a going concern. Our senior management will continue to monitor our situation on a daily basis. However, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future.

 

Results of Operations for the Three Months and Six Months ended June 30, 2020 and 2019:

 

Revenue

 

Our revenues decreased by approximately 85% and approximately 82%, respectively, for the three and six months ended June 30, 2020 from the comparable periods in 2019. Our revenues have been dependent in the past few years on sales to Schlumberger and our ability to develop a consistent sales channel for the V-Inline Separators. As discussed earlier in this report, we believe that our revenues for the three months ended June 30, 2020 were adversely impacted by the Covid-19 pandemic and the attendant significant drop in oil prices. Even once the effects of the pandemic on our business subsides, which at this moment we do not know when this may occur, it may take longer than expected for business in our target markets to resume normal operations. Accordingly, at this time we are unable to predict the ultimate impact to our revenues for the remaining 2020. We continue to try to leverage our manufacturing capabilities by exploring different opportunities, such as high precision manufacturing and manufacturing of face shields. In the three and six months ended June 30, 2020, we derived 

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76% and 63%, respectively, of our revenues from the sale of face shields to the medical industry and general public. We do not expect additional sales of face shields as the supply chain and margins proved to be challenging.

 

The majority of revenues in the second quarter and first six months of 2020 were a result of high precision manufacturing for our customers and the sale of face shields. The majority of our sales in the second quarter and first six months of 2019 were a result of Voraxial sales and sales of auxiliary equipment and parts

 

Cost of Goods

 

Our cost of goods decreased by approximately 86% for each of the second quarter and first six months of 2020 from the comparable periods 2019. This decrease is mainly due to the significant decline in revenues and shift in revenues to manufacturing high precision components and face shields we experienced during the three and six months ended June 30, 2020 as compared to Voraxial Separator in 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 increased by approximately 13% and approximately 11%, respectively, for the second quarter and first six months of 2020 from the comparable periods 2019. Included in this increase was an increase in general and administrative expenses, including increases in insurance which reflects the commencement of paid health benefits for our employees in July 2019, and repair and maintenance, which reflects basic manufacturing upkeep. In addition, payroll expense increased during the 2020 periods as compared to the 2019 periods as we experienced a higher absorption costs into our manufacturing activities of Voraxial Separator in 2019 which was offset by a non-cash expense for issuance of stock to our employees in 2020. Professional fees decreased as we continue to minimize expenses.

 

TOTAL OTHER INCOME (EXPENSE)

 

During the second quarter of 2020 we received a $8,000 grant from the Small Business Association for working capital which is reflected as other income during the period. We did not have comparable income during the 2019 period. Interest expense represents the amounts due under the financing agreement for the CNC machine.

 

Liquidity and Capital Resources:

 

Cash at June 30, 2020 was $507,709 as compared to $674,844 at December 31, 2019. Our working capital deficit at June 30, 2020 was $391,364 as compared to a working capital deficit at December 31, 2019 of $38,544. At June 30, 2020, we had an accumulated deficit of $15,433,327. Our current assets decreased by 39% at June 30, 2020 as compared to December 31, 2019, which reflects decreases in cash, accounts receivables and prepaid expenses offset by increases in our inventory. Our current liabilities decreased by 7% at June 30, 2020 as compared to December 31, 2019, which reflects a decrease in accounts payable and accrued expenses and accrued expenses – related party, offset by the note payable issued during the quarter.

 

We do not have any external sources of liquidity and we do not have any capital commitments. On May 4, 2020, FPA received a $111,971 PPP Loan as described in Note G to the unaudited condensed consolidated financial statements appearing earlier in this report. We are using the proceeds from the PPP Loan for qualifying expenses under the CARES Act. In addition, on May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. We are using those proceeds for working capital. Lastly, in July, 2020 FPA also received a $150,000 EIDL Loan from the SBA at a per annum interest rate of 3.75%. Installment payments, including principal and interest, of $731.00 monthly, will begin 12 months from the date of the promissory note. The proceeds from the EIDL Loan may be used for our general operating expenses.

 

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Summary of cash flows

 

The following table summarizes our cash flows: 

 

    Six Months Ended
June 30,
    2020     2019
    (Unaudited)
Cash flow data:              
Net cash (used) in operating activities $ (240,975 )   $ (604,444 )
Net cash (used) in investing activities $ (5,067 )   $ —    
Net cash (used in) provided by financing activities $ 78,407     $ (31,379 )

 

Net cash used in operating activities in the six months ended June 30, 2020 was primarily attributable to our net loss for the period, increase in inventory and decrease in accounts payable and accrued expenses. These were offset by decreases in accounts receivable and accrued expenses- related parties.

 

Net cash used in operating activities in the six months ended June 30, 2019 was primarily attributable to our net loss for the period, a decrease in accrued expenses – related party and increases in inventory and prepaid expenses offset in part by an increase in deposit from customer. Increase in deposit from customer is primarily attributable to deposit received on a purchase order we received from a utility company.

 

Net cash used in investing activities during six months ended June 30, 2020 was attributable to the purchase of equipment. We did not have a comparable expense in the 2019 period.

 

Net cash provided by financing activities during the six months ended June 30, 2020 was primarily attributable to proceeds from the PPP loan offset by the repayment of the equipment note payable. Net cash used in financing activities during the 2019 period reflected the repayment of the equipment note payable.

 

Continuing Losses and Going Concern

 

As a result of the uncertainties facing our company as discussed elsewhere in this report, including the impact of the Covid-19 pandemic, we are unable to predict the overall impact in 2020 and beyond on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not expect to be able to access the capital markets for additional working capital in the near future. Our senior management will continue to monitor our situation on a daily basis, however, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future. Our management has also begun exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. We are not currently a party to any agreement or understandings with any third parties, and there are no assurances even if our management locates an opportunity which it believes will be in the best interests of our shareholders what we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.

 

Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on a number of factors, many of which are beyond our control. Our independent auditors have included in their audit report included in our 2019 10-K an explanatory paragraph that states that our working capital deficits and accumulated deficit 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. 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 condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

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  

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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 2019 10-K.  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.

 

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 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, 2020. 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, 2019, 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. 

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PART II.      OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On or about October 23, 2017, a claim was filed in the 17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company.  The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and damages. We are defending this action, as we believe this claim is without merit.

 

Item 1A. Risk Factors

 

We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2019 Form 10-K, and our subsequent filings with the SEC, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings. We expect that these risks will continue to be exacerbated by the impact of the Covid-19 pandemic on our company and any worsening of the economic environment.

 

Our loan under the Paycheck Protection Program may not be forgiven.

 

We have received loan proceeds in the amount of approximately $111,971 under the PPP. Under the terms of the CARES Act, PPP loan recipients can apply for loan forgiveness. The potential loan forgiveness for all or a portion of the PPP Loan is determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The amount of loan forgiveness will be reduced if PPP loan recipients terminate employees or reduce salaries during the covered period. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loan, there can be no assurance that forgiveness for any portion of the PPP Loan will be obtained.

 

We have granted the SBA a blanket security interest in our assets under the terms of the EIDL Loan.

 

Under the terms of the EIDL Loan, FPA granted the SBA in blanket security interest in its assets which represent substantially all of our assets. In the event we should default under the EIDL Loan it is possible that the SBA may foreclose on all our assets. In that event, our ability to continue our business and operations as presently conducted would cease and investors would likely loose their entire investment in our company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On June 9, 2020, the Company issued 350,000 shares of its common stock to five employees at $0.028 per share, or $9,800, for services rendered. The shares were issued pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended.  The shares contain a legend restricting their transferability absent registration or applicable exemption. The employees are sophisticated investors and had access to business and financial information concerning the company.

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable to our company.

 

Item 5. Other Information

 

On June 23, 2020, FPA executed the standard loan documents required for securing a $150,000 EIDL Loan from the SBA. Pursuant to that certain Loan Authorization and Agreement, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If the Company does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA

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will lose the ability to draw the funds. On July 16, FPA has accepted to receive the loan amount of $150,000 under the EIDL Loan. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning July 16, 2021 (12 months from the date of the SBA note) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA note. In connection therewith, FPA executed (i) a note for the benefit of the SBA which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of FPA, which also contains customary events of default.

 

Item 6. Exhibits

 

 

Incorporated by Reference Filed or
No. Exhibit Description Form Date Filed

Exhibit

Number

Furnished

Herewith

2 Agreement and Plan of Reorganization 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 Note dated May 4, 2020 by and between Florida Precision Aerospace, Inc. and Bank of America 8-K 5/14/20 10.1
10.2 Loan Authorization and Agreement dated June 23, 2020 Filed
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 Chief Financial Officer Filed
32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial 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

 

  

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SIGNATURES

 

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.

 

Enviro Technologies, Inc.
     
By: /s/ John A. Di Bella
John A. Di Bella
Chief Executive Officer and Chief Financial Officer

  

 

DATED: August 14, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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