Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
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, Supply Agreement and Grant Back License in June 2017, we have generated limited
revenues under the terms of any of these agreements. 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 and believe until such time a new agreement is reached, if at all, we can continue to work together
on a project by project basis. 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 nine months and reached all-time low of negative $40 per barrel during the first nine months of 2020. The effects
of the low oil prices continue to weigh on the industry as many oil companies are still laying off employees and reducing capital
expenditures. Further, with the current economic condition impacted by the Covid-19 virus, including weak oil prices and potential
future lockdowns, 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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
30, 2020
(unaudited)
Due
to Covid-19, we have modified our employee hours and limited travel. We continue to pursue water treatment projects for the Voraxial
and V-Inline Separator and have begun marketing our machining capabilities to local manufactures. We believe that a market exists
for the V-Inline separator. Unfortunately, due to the Covid-19 pandemic, we have not generated material revenues from this focus
as of September 30, 2020. We also are pursuing various projects that may generate cash flow, such as selling 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
September 30, 2020, we had a working capital deficit of $480,954, an accumulated deficit of $15,664,375. We do not have any external
sources of liquidity. Our revenues have declined for the first three 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, which
were predominately sold in the second quarter due to market demand. We stopped pursuing revenues from face shields 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 September 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
SEPTEMBER
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 this 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 September 30, 2020, and December 31,
2019, respectively, there was $0 of deposits from customers. During the three and nine months ended September 30, 2020, we derived
100% and 58% of our revenues, respectively, from high precision manufacturing projects. The balance was generated from 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 September
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 September 30, 2020 and December 31, 2019, approximate their fair value because of their
relatively short-term nature.
Accounting
Standards Codification (“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 September 30, 2020 and December 31, 2019.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
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 September 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 September 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 September 30, 2020, the Company has a cash concentration
of $212,014 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 September 30, 2020, and December 31, 2019:
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Raw
materials
|
|
$
|
58,570
|
|
|
$
|
38,935
|
|
Work
in process
|
|
|
10,240
|
|
|
|
--
|
|
Finished
goods
|
|
|
72,950
|
|
|
|
79,049
|
|
Total
|
|
$
|
141,760
|
|
|
$
|
117,984
|
|
Inventory
amounts are presented net of allowance for inventory reserves of $66,937 and $66,937 as of September 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
SEPTEMBER
30, 2020
(unaudited)
Net
Loss Per Share
In
accordance with the accounting guidance now codified as Financial Accounting Standards Board (“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 September 30, 2020 and 2019 the Company has 10,000 and 1,346,500 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
SEPTEMBER
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 and nine months
ended September 30, 2020, the Company incurred salary expenses for the Chief Executive Officer of the Company of $52,500 and $157,500,
respectively. During the nine months ended September 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 September 30, 2020 is $611,815 and is included in accrued expenses – related party. During the three
and nine months ended September 30, 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company
of $52,500 and $157,500, respectively. During the nine months ended September 30, 2019, a total of $400,000 of salary and accrued
salary have been paid. The total unpaid balance as of September 30, 2019 is $571,261 and is included in accrued expenses –
related party.
Effective
July 1, 2017, Raynard Veldman, a member of the Company’s board of directors, receives a fee of $2,500 per month for consulting
services. During the three and nine months ended September 30, 2020 and 2019, Mr. Veldman received consulting fees of $7,500 and
$22,500, respectively.
During
the three and nine months ended September 30, 2020 and 2019, Mr. Veldman, received compensation for being a member of the Company’s
board of directors of $3,000 and $9,000, respectively. Mr. John DiBella does not receive compensation for being a member of the
Company’s board of directors.
During
the three months ended September 30, 2020, Mr. Veldman reduced his accrued expense by $10,000 to exercise his options (See Note
F). As of September 30, 2020 and December 31, 2019, the total unpaid balance is $32,000 and $10,500, respectively.
On
June 9, 2020, the Company issued 380,000 shares of its common stock to a related party in connection with the exercise of a stock
option at an exercise price of $0.10. 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 September 30, 2020 and December 31, 2019 consist of:
|
|
September
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
|
|
|
(637,644
|
)
|
|
|
(603,660
|
)
|
Fixed
Assets, net
|
|
$
|
320,460
|
|
|
$
|
349,377
|
|
Depreciation
expense was $11,328 and $11,265 for the three months ended September 30, 2020 and 2019, respectively.
Depreciation
expense was $33,984 and $33,794 for the nine months ended September 30, 2020 and 2019, respectively.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
30, 2020
(unaudited)
note
f – shareholders’ equity
COMMON
STOCK
On
June 9, 2020, the Company issued to 35,000 shares of its common stock to employees at $0.28 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 770,000 shares of its common stock to our Chief Executive Officer in connection with the exercise
of a stock option at an exercise price of $0.10. Mr. DiBella reduced his accrued salary in the amount of $77,000 for the exercise
of options.
On
June 9, 2020, the Company issued 100,000 shares of its common stock to Mr. Veldman in connection with the exercise of a stock
option at an exercise price of $0.10. 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 70,000 shares of its common stock to a consultant in connection with the exercise of a stock
option at an exercise price of $0.10. 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 16,500 shares of its common stock to two employees in connection with the exercise of a stock
option at an exercise price of $0.10. 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 380,000 shares of its common stock to a related party in connection with the exercise of a stock
option at an exercise price of $0.10. 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 770,000 stock options at an exercise price of $0.10 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, Mr. Veldman exercised 100,000 stock options at an exercise price of $0.10 per share. Mr. Veldman agreed to reduce
his accrued consulting fees in the amount of $10,000 for the exercise of options.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
30, 2020
(unaudited)
On
June 9, 2020, a consultant exercised 70,000 stock options at an exercise price of $0.10 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 380,000stock options
at an exercise price of $0.10per 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 16,500 stock options at an exercise price of $0.10 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 September 30, 2020 is as follows:
|
|
Number
Outstanding
|
|
Exercise
Price
|
|
Number
Exercisable
|
|
Balance,
December 31, 2019
|
|
|
|
1,346,500
|
|
|
$
|
0.10
|
|
|
|
1,346,500
|
|
|
Issued
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
(1,336,500
|
)
|
|
$
|
0.10
|
|
|
|
(1,336,500
|
)
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance,
September 30, 2020
|
|
|
|
10,000
|
|
|
$
|
0.10
|
|
|
|
10,000
|
|
Exercise
Price
|
|
Number
Outstanding at
September 30, 2020
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Weighted
Average
Exercise Price
|
|
Number
Exercisable at
September 30, 2020
|
|
Weighted
Average
Exercise Price
|
$
|
0.10
|
|
|
|
10,000
|
|
|
|
3.13
|
|
|
$
|
0.10
|
|
|
|
10,000
|
|
|
$
|
0.10
|
|
|
Total
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
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 September 30, 2020 is $260.
REVERSE
SPLIT
On
August 27, 2020 the Company filed Articles of Amendment to its Articles of Incorporation which, on the effective date of September
10, 2020 (the “Effective Date”):
•
|
effected
a ten for one (10:1) reverse stock split of our outstanding common stock (“Reverse Stock Split”); and
|
|
|
•
|
eliminated
the existing class of preferred stock and create a new class of blank check preferred stock consisting of 5,000,000 shares.
|
These
actions were approved by our shareholders at our 2020 Annual Meeting held on August 20, 2020.
As
a result of the Reverse Stock Split, on the Effective Date each 10 shares of our common stock issued and outstanding immediately
prior to the Effective Date became one share of our common stock on the Effective Date. No fractional shares of common stock were
issued to any shareholder in connection with the Reverse Stock Split and all fractional shares which might otherwise be issuable
as a result of the Reverse Stock Split were rounded up to the nearest whole share. On the Effective Date, each certificate representing
shares of pre-Reverse Stock Split common stock was deemed to represent one-tenth of a share of our post-Reverse Stock Split common
stock, subject to rounding for fractional shares.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
30, 2020
(unaudited)
The Reverse Stock Split also affected the Company’s
outstanding stock options which resulted in the underlying shares of such instruments being reduced and exercise price being increased
proportionally to the Reverse Stock Split ratio. All shares and per share data have been retroactively adjusted for all periods
presented to reflect the effects of the Reverse Stock Split.
NOTE
G – COMMITMENTS AND CONTINGENCIES
SBA
LOANS
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
believes it used 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.
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 nine months ended September 30, 2020.
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 (nine 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.
|
|
September
30, 2020
|
|
December
31, 2019
|
Loan
payable
|
|
$
|
261,971
|
|
|
$
|
—
|
|
Less:
current portion
|
|
|
(65,867
|
)
|
|
|
—
|
|
Long-term
loan payable
|
|
$
|
196,104
|
|
|
$
|
—
|
|
EQUIPMENT
FINANCING
In
July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately
$426,000. The machining equipment was received in July 2017 and 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
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
30, 2020
(unaudited)
$6,788
through January 2023. As of September 30, 2020, and December 31, 2019, the amount owed is $192,608 and $226,172 respectively.
|
|
September
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 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.
For
a period of three years following the closing of the Technology Purchase Agreement, which expired in June 2020, the Company and
Mr. Veldman and Mr. 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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
SEPTEMBER
30, 2020
(unaudited)
NOTE
H - LEASE
In
December 2018, the Company entered into a three 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 nine months ended September 30, 2020 and 2019, the total operating lease cost was approximately
$14,700 and $44,100, respectively which included variable cost of approximately $4,500 and $13,500 respectively. For the nine
months ended September 30, 2020 and 2019, cash paid for operating liabilities was approximately $32,000 and $32,000, respectively.
NOTE
I – MAJOR CUSTOMERS
During
the nine months ended September 30, 2020, we recorded 74% of our revenue from three customers, with each representing 39%, 18% and
17% of total revenues.
During
the three months ended September 30, 2020, we recorded 91% of our revenue from three customers, with each representing 42%, 30%
and 19% of total revenues.
During
the three months ended September 30, 2019, we recorded 59% and 41% of our revenue from two customers, respectively.
During
the nine months ended September 30, 2019, we recorded 96% of our revenue from one customer.
As
of September 30, 2020, three of the Company’s customers represents 56%, 22% and 17%, respectively, of the total accounts
receivable.
As
of December 31, 2019, one of the Company’s customers represents 99% of the total accounts receivable.