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.
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.
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.
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.
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.
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.
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.
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.
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
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
|
|
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.