U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019March 31, 2020

or

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

For the transition period from _____________ to ______________

Commission File Number: 0-274450-30454

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

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

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

 ______________________________________________________________

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

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

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: August 14, 2019,May 15, 2020, we had 35,784,497 shares of our Common Stock outstanding.

INDEX

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:

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.

PART I.   CONDENSED CONSOLIDATED FINANCIALOTHER 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, “first quarter of 2020” refers to the three months ended March 31, 2020, “first quarter of 2019” refers to the three months ended March 31, 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

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

FOR THE THREE AND SIX MONTHS ENDED JUNE 30,MARCH 31, 2020 and 2019 and 2018
(Unaudited)

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements 

June 30, 2019MARCH  31, 2020

(unaudited) 

NOTE A - ORGANIZATION AND OPERATIONS

Organization

Enviro Technologies, Inc., an Idaho corporation (the “Company”), is a manufacturer of environmental and industrial separation technology. The Company developed, and now manufactures the Voraxial^®Voraxial® Separator under a Supply Agreement for Cameron Solutions, Inc., an affiliate of Schlumberger Technology Corporation.Corporation for a period of 3 years. The Voraxial is a patented technology that was sold to Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”) on June 8, 2017. The Company received a grant back licenseGrant Back License to sell the separation technologySeparation Technology in markets outside of the oil and gas markets, which include oil exploration and production, oil refineries, oil spill, mining, sewage, manufacturing, waste-to-energy and food processing industry.

Florida Precision Aerospace, Inc., a Florida corporation (“FPA”), is the wholly-owned subsidiary of the Company and is used to manufacture, assemble and test the Voraxial Separator. Effective November 10, 2017 the Company filed Articles of Amendment to its Articles of Incorporation changing the Company’s name from “Enviro Voraxial Technology, Inc.” to “Enviro Technologies, Inc.” and increasing its authorized common stock to 250,000,000 shares.

NOTE B – GOING CONCERN

WhileSince entering into the Company has historically experienced recurring net losses, on June 8, 2017, the Company completed a Technology Purchase Agreement, with Schlumberger forSupply Agreement and Grant Back License in June 2017, we have generated limited revenues under the saleterms of any of these agreements. There are no assurances that the Company’s intellectual property in considerationTechnology Purchase Agreement, the Supply Agreement and/or the Grant Back License will ever generate any material revenues. Our ability to generate future revenues will depend on a number of up to $4,000,000,factors, many of which $3,000,000 was paid at closingare beyond our control, including the impact of Covid-19, competitive efforts and the balance was paid in August, 2018 upon the completion of both: (i) the complete transfer of the intellectually propertygeneral economic trends. There are no assurances we will be able to Schlumberger; and (ii) the provisioncontinue to transfer information, assets and services to Schlumberger. In addition, at closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston, Texas-based company engagedgenerate revenues or report profitable operations in the development, manufacturefuture. The Supply Agreement expires in June 2020 and sale of equipment usedthere is no certainty that Cameron Industries will seek to renew the agreement. If the Supply Agreement is not renewed or renegotiated, we will potentially lose additional sales from Schlumberger. Without a Supply Agreement, we would have to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. Under the terms of the three-yearHowever, with or without a new Supply Agreement, FPA is the exclusive supplier to Cameron Solutions of certain Voraxial series products for use in the oil and gas industry. Pursuantindustry will potentially be challenging as the price of oil has decreased by approximately 60% from approximately $60 per barrel in January 2020 to approximately $24 per barrel by May 11, 2020. Further, with the Technology Purchasecurrent economic condition impacted by the Covid-19 virus, including weak oil prices, this may have a negative effect on the potential for sales of Voraxial under the Supply Agreement Schlumberger also granted us non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”) for the saleor sales of the technologyV-inline Separators outside the oil and gas industry. We rebranded the technology and it is now called V-Inline. Our management believes that the Grant Back License will provide us the opportunity to possibly leverage future Schlumberger sales in the oil and gas market to penetrate the sale and use of licensed V-Inline products to other industries, including, but not limited to mining, sewage and industrial wastewater.

We believe that including our current cash resources and anticipated revenue to be generated under the Grant Back Licenses and Supply Agreement, we will have sufficient resources to continue business operations in excess of 12 months. However, we have not yet generated significant revenues from the Supply Agreement or Grant Back License. There is no assurance that the Supply Agreement will generate sufficient revenues and income, nor is there any assurance that we will be able to leverage the Grant Back License and generate sufficient revenues from other industries.

At June 30, 2019,March 31, 2020, we had a working capital deficit of $321,562, an accumulated deficit of $15,952,791 including a net loss of $467,133 for the six months ended June 30, 2019.$15,162,371. We may not be able to achieve profitability on a quarterly or annual basis. If we fail to sustain or increase our profitability on a quarterly or annual basis, or to raise additional funds when needed, or do not have any external sources of liquidity. Our revenues have declined for the first quarter 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. 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. In addition, we reorganized our manufacturing in order to supply face guards to the community, including the medical industry starting in April 2020. To date we have generated limited revenues from the sales of face guards. There are no assurances, however, that these efforts will be sufficient cash flows from sales,to permit us to pay our operating expenses. In that event, 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

june 30, 2019MARCH  31, 2020 

(unaudited)

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The condensed consolidated financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the company’s annual consolidated financial statements, notes and accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the SEC on April 1, 2019.14, 2020. In the opinion of management, all adjustments, which are necessary to provide a fair presentation of financial position as of June 30, 2019,March 31, 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. Actual results may differ. Significant estimates include valuation of deferred tax assets, allowance for doubtful accounts deferred tax asset,and allowance for inventory obsolescence and valuation of stock-based compensation.obsolescence. Actual results may differ.

Revenue Recognition

The Company derives most of its revenue from the sale of the Voraxial Separator, V-Inline Separators and its V-Inline Separator.some manufacturing projects. We account for revenue in accordance with ASC Topic 606, which we adopted on January 1, 2018, using the modified retrospective method. The adoption of ASC Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the three and six months ended June 30, 2018. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.606.

Revenues are recognized when we satisfy a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019MARCH  31, 2020

(unaudited)

Revenues that are generated from sales of equipment are typically recognized upon shipment. Our standard agreements generally do not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been complied with. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, there was $1,496,219$0 and $1,035,706$0, respectively, of deposits from customers. The increase in deposits from customer is attributed to the purchase order we received from a utility customer for a wastewater treatment system that is comprised of multiple V-Inline Separators. As of June 30, 2019 we have received $1,496,219 from this customer. We anticipate that the project will be completed by the fourth quarter of 2019.

ACCOUNTS RECEIVABLE

Accounts receivable are presented net of an allowance for doubtful accounts. The company maintains allowances for doubtful accounts for estimated losses. The company reviews the accounts receivable on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collections. At June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company has $60,254$254 and $60,254$254 in the allowance for doubtful accounts, respectively.

Fair Value of Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, inventory, accounts payable and accrued expenses at June 30, 2019March 31, 2020 and December 31, 2018,2019, approximate their fair value because of their relatively short-term nature.

ASC 820 “Disclosures“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, 2019March 31, 2020 and December 31, 2018.2019.

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, 2019March 31, 2020 and December 31, 2018.2019.

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, 2019March 31, 2020 and December 31, 2018.2019.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

june 30, 2019MARCH  31, 2020

(unaudited) 

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various financial institutions. Balances at these institutions may at times exceed the Federal Deposit Insurance Corporate (“FDIC”) limits. As of June 30, 2019 and DecemberMarch 31, 20182020 the Company has a cash concentration of $342,999 and $957,717, respectively,$365,268 in excess of FDIC limits.

Inventory

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Inventory consists of components for the Voraxial Separator and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation and a normal profit margin. Inventory may include units being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of June 30, 2019March 31, 2020 and December 31, 2018:2019:

Inventory amounts are presented net of impairmentallowance for inventory reserves of $42,752$66,937 and $42,752$66,937 as of June 30, 2019March 31, 2020 and December 31, 2018,2019, 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.

LEASES

In connection with our lease agreement for our facility located in Fort Lauderdale, FL, the Company electedENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to adopt the provision of ASU 2016-02, “Leases” as of January 1, 2019. The Company recorded an operating lease asset and operating lease liability as of June 30, 2019 (refer to Note H).Condensed Consolidated Financial Statements

MARCH  31, 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited) 

Due to the Company had net loss for the threethree-month periods ended March 31, 2020 and six month period ended June 30, 2019, and 2018, the effect of 13,465,000 and 13,465,000 options, respectively are anti-dilutive. A separate computation of diluted loss per share is not presented.

INCOME TAXES

The Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

BUSINESS SEGMENTS

The Company operates in one segment and therefore segment information is not presented.

Research and Development Expenses

Research and development costs, which includes travel expenses, consulting fees, subcontractors and salaries are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred and are included in general and administrative expenses.

Stock-Based Compensation

The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation“Compensation – Stock Compensation.Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a stock award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.

RECLASSIFICATIONS

Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company’s net loss or cashflows.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements

june 30, 2019MARCH  31, 2020

(unaudited) 

Recent Accounting Pronouncements

In February 2016, Financial Accounting Standards Board Accounting Standards Certification (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases”, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2019. The Company elected the optional transition method to apply this standard as of the effective date and therefore, the Company has not applied the standard to the comparative period presented on our condensed consolidated financial statements. (refer to Note H).

In June 2018, FASB issued ASU 2018-07 “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU relates to the accounting for non-employee share-based payments. The amendment in this Update expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted the standard on January 1, 2019. The adoption has no impact on our condensed consolidated financial statements.

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

NOTE D - RELATED PARTY TRANSACTIONS

OnEffective January 4,1, 2018 the Company’s board of directors reduced the annual compensation of the Company’s chief executive officer from $305,000 to $210,000, effective as of January 1, 2018.is $210,000. For the three and six months ended June 30, 2019,March 31, 2020, the Company incurred salary expenses fromfor the Chief Executive Officer of the Company of $52,500 and $105,000, respectively.$52,500. During the sixthree months ended June 30, 2019,March 31, 2020, a total of $360,000$0 of salary and accrued salary have been paid. The total unpaid balance as of June 30, 2019March 31, 2020 is $558,761$663,465 and is included in accrued expenses – related party. In November, 2018, the Board of Directors also approved the health insurance benefit for our CEO. For the three and six monthsmonth ended June 30, 2018,March 31, 2019, the Company incurred salary expenses fromfor the Chief Executive Officer of the Company of $52,500 and $105,000, respectively.$52,500. Of these amounts, $36,000$180,000 had been paid for the sixthree months ended June 30, 2018.March 31, 2019. The total unpaid balance as of June 30, 2018March 31, 2019 is $1,258,761$686,261 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 six months ended June 30,March 31, 2020 and 2019, and 2018, Mr. Veldman received consulting fees of $7,500 and $15,000,$7,500, respectively.

During the three and six months ended June 30,March 31, 2020 and 2019, and 2018, RaynardMr. Veldman, a member of the Company’s board of directors, received compensation for being a member of the Company’s board of directors of $3,000 and $6,000,$3,000, respectively. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited) 

NOTE E – FIXED ASSETS

Fixed assets as of June 30, 2019March 31, 2020 and December 31, 20182019 consist of:

Depreciation expense was $11,265$11,328 and $11,265$11,264 for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively.

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

In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation of potential future orders under the Supply Agreement and sales pursuant to the Grant Back Licenses. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the amount owed is $258,625$209,531 and $290,004$226,172 respectively.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

MARCH  31, 2020

(unaudited) 

note f – shareholders’ equity

Options

The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation“Compensation – Stock Compensation.Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a share award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method for employees and officers.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

Information with respect to options outstanding and exercisable at June 30, 2019March 31, 2020 is as follows:

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, 2019March 31, 2020 is $215,440.$444,345.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

MARCH  31, 2020

(unaudited) 

NOTE G – COMMITMENTS AND CONTINGENCIES

Customer Deposit

The Company received a substantial deposit from a customer in the utility industry, which has filed for bankruptcy protection. The customer has paid multiple deposits totaling $1,496,219 as of June 30, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. As of June 30, 2019, we do not believe this bankruptcy filing will negatively affect the purchase order we received. However, if the customer was to cancel the order or under bankruptcy law we were required to return the deposit, then our operations would be adversely affected.

EQUIPMENT FINANCING

In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation of potential future orders under the Supply Agreement and sales of the V-Inline Separators pursuant to the Grant Back Licenses. Under the terms of the agreement the Company made an initial down payment of $85,661 and financed the remaining balance of $340,644. The Company is required to make monthly payments of $6,788 through January 2023. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the amount owed is $258,625$209,531 and $290,004$226,172 respectively.

Litigation

On or about October 23, 2017, a claim was filed in the 17^th17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded damages in the amount of $310,820.a refund and damages. We are defending this action, as we believe this claim is without merit. The Company has accrued legal fees to defend the case.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

jUNE 30, 2019

(unaudited)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.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 20182019 upon the completionsatisfaction of both: (i) the complete transfer of the intellectually property to Schlumberger; and (ii) the provision to transfer information, assets and services to Schlumberger.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 to the proceeds from the sale of our intellectual property, our management believes that the Grant Back License will provide for the potential increase of revenues through the sale of the intellectual technology, possibly leveraging future sales by Schlumberger in the oil and gas market to penetrate the sale and use of licensed products to other industries, including, but not limited to mining, sewage and wastewater.

In addition, at closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston, Texas-based company engaged in the development, manufacture and sale of equipment used in the oil and gas industry. Under the terms of the three-year Supply Agreement, which ends in June 2020, FPA is the exclusive supplier to Cameron Solutions of certain Voraxial series products for use in the oil and gas industry. Sales will be made from time to time in accordance with the terms of purchase orders. The Supply Agreement is cancellable by Cameron Solutions upon 15 days’ notice if FPA fails to meet delivery or performance schedules or breaches any of the terms of the agreement, including the warranties. Cameron Solutions may also cancel the Supply Agreement without notice in the event FPA becomes insolvent or commits any act of bankruptcy. The Supply Agreement contains customary indemnification and confidentiality provisions.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

MARCH  31, 2020

(unaudited)

For a period of three years following the closing of the Agreement, which expires 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.

NOTE H - LEASE

The Company elected to adopt the provision of ASU 2016-02, “Leases” as of the effective date. The Company recorded an operating right of use assets and operating lease liability on January 1, 2019 related to our lease agreement for our facility in Fort Lauderdale, Florida.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

In December 2018, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57^thPlace, Fort Lauderdale, FL 33309. The lease is $4,839 per month, which includes common area maintenance, taxes and insurance and expires in October 2021. The lease has a one-time renewal option for three years and an increased base rent of 3%. The Company has the option to terminate the lease with three months’ notice.

Operating right of use asset and operating lease liability are recognized at the lease commencement date. Operating lease liability represents the present value of lease payments not yet paid. Operating right of use asset represent our right to use an underlying asset and are based upon the operating lease liability adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. The Company used our incremental borrowing rate to determineaccounts for lease in accordance with ASC Topic 842. For the present value of lease payments not yet paid.

Supplemental balance sheet information related to leases was as follows:

(1)was $19,510 and $19,510, respectively, which includes variable lease cost of $4,771 and $4,771, respectively. Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate. For the three months ended March 31, 2020 and 2019, cash paid for operating lease liabilities was $14,516 and $14,516, respectively.

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019MARCH  31, 2020

(unaudited)

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

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

NOTE I – MAJOR CUSTOMERS

During the three and six months ended June 30, 2019,March 31, 2020, we recorded 100% and 98%96% of our revenue from one customer.two customers, with each representing 57% and 39% of total revenues.

During the three and six months ended June 30, 2018,March 31, 2019, we recorded 99% and 99%100% of our revenue from one customer.three customers with each representing 64%, 22% and 14% of total revenues.

As of June 30,March 31, 2020, two of the Company’s customers represents 71% and 14%, respectively, of the total accounts receivable.

For the year ended December 31, 2019, one of the Company’s customers represents 98%93% of the total accounts receivable.

revenues.

As of December 31, 2018, two2019, one of the Company’s customers represents 98%99% of the total accounts receivable.receivables.

We receivedNOTE M – SUBSEQUENT EVENTS

Impact of the Covid-19 pandemic on our company. The Company’s operations are located in Broward County, Florida which implemented a substantial depositstay at home order on March 27, 2020. Broward County was excluded from a customer in the utility industry, which has filed for bankruptcy protection. The customer has paid multiple deposits totaling $1,496,219 as of June 30, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. As of June 30, 2019,Florida Governor’s recent Phase One reopening schedule and we do not believeknow when the stay at home order will be lifted. The Company is unable to predict the overall impact on our company at this bankruptcy filing will negatively affecttime. Starting in April 2020, we reorganized our manufacturing capabilities to manufacture face guards for the purchase ordercommunity, including the medical community. To date, we received. However,have generated limited revenues from the sales of face guards.

On May 4, 2020, FPA (the “Borrower”) 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 the Borrower, matures on May 4, 2022 and bears interest at a rate of 0.98% per annum, payable monthly commencing on November 6, 2020. The Note may be prepaid by the Borrower 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 Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the customer was to cancelCARES Act.

On May 5, 2020, FPA also received an $8,000 grant from the order or under bankruptcy law we were required to return the deposit, then our operations would be adversely affected.U.S. Small Business Administration.

Forward-Looking Statements

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

Application of Critical Accounting Policies

The Company’s condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain accounting policies have a significant impact on amounts reported in the financial statements. A summary of these significant accounting policies can be found in Note C to the Company’s financial statements in the Company’s 2018 Annual Report on Form2019 10-K. The Company has adopted Topic 842 to account for leases during the period ended June 30, 2019. Refer to Note C.

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

Overview

The Company developedHistorically, our business was the development, manufacture and currently manufacturessale of the patented Voraxial^® Separator, (“Voraxial^® Separator” or “Voraxial^®”) pursuant to the agreements discussed below. The Voraxial^®Separator is a proprietary technology now owned by Schlumberger that efficiently separates large volumes of liquid/liquid, liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. Per the agreements we signed with Schlumberger, we continue to manufacture the technology for Schlumberger for the oil and gas industry and have a non-exclusive license to pursue other industries independent of Schlumberger, which include mining, sewage, wastewater as well as other markets. We have rebranded the technology as V-Inline for other industries.

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

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

Schlumberger. In addition, pursuant to the Technology Purchase Agreement FPA entered into thea three year Supply Agreement with Cameron Solutions, Inc. Under the terms of the three-year Supply Agreement,which expires in June 2020, pursuant to which FPA is the exclusive supplier to Cameron Solutions, Inc. of certain Voraxial series products for use in the oil and gas industry. Sales will be made from timeWe continued to time in accordance with the terms of purchase orders. The Supply Agreement is cancellable by Cameron Solutions upon 15 days’ notice if we fail to meet delivery or performance schedules or breaches any of the terms of the agreement, including the warranties. Cameron Solutions may also cancelsupport Schlumberger under the Supply Agreement without noticewe signed in June 2017 as part of the event we become insolvent or commit any act of bankruptcy. The Supply Agreement contains customary indemnification and confidentiality provisions. There are no assurances that we will generate material revenues under the Grant Back Licenses or SupplyTechnology Purchase Agreement. There are no minimum purchase requirements for Cameron Solutions under the Supply Agreement.

Pursuant toUnder the Technology Purchase Agreement, the Company signed a Supply Agreement to manufacture the Voraxial Separator for Schlumberger for a period of 3 years andwe were also granted a Grant Back License to sellmarket the technology (branded as V-Inline) ininto other markets outside of the oil and gas markets. market which we plan to pursue. We have branded our licensed products as V-Inline.

The Supply Agreement with Cameron Solutions, Inc. expires in June 2020. In 2019 we reported sales in the aggregate amount of $146,783 under this agreement, and sales of $0 during the first quarter of 2020. As of the date of this report we have not received a renewal notice from Cameron Solutions, Inc. and do not know if the agreement will be renewed or renegotiated prior to its expiration. Without a Supply Agreement, we would have to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. However, with or without a new Supply Agreement, the oil industry will potentially be challenging as the price of oil has decreased by approximately 60% from approximately $60 per barrel in January 2020 to approximately $24 per barrel by May 11, 2020. Further, with the current economic landscape defined by the COVID-19 virus, sales in 2020 may suffer as previously discussed in the overview.

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:

We received an orderImpact of Covid-19 on our Company

As described elsewhere herein, we are materially dependent on revenues from a utility company for multiple V-Inline Separatorslimited number of customers. Our company’s manufacturing operations are located in Broward County, Florida which is subject to separate solidsa “stay at home” order. 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 from their wastewater stream atprices has had a rate of 120 gallons per minute. The System will include different technologiesmaterially adverse impact our sales beginning with the heartfirst quarter of 2020 and continuing through the second quarter of 2020. During the first quarter of 2020 we experienced a slowdown from customer’s inquiries and we expect that trend to continue until such time as the full impact of the system being comprisedvirus is known, travel restrictions are lifted and corporate capital expenditures are normalized. We also expect delays in our supply chain, including delivery of two V 2000 Separators working in parallelraw 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 third V-Inline being utilizedminimal staff that can maintain social distancing, we have reduced manufacturing hours. However, starting in April 2020, we slowly increased the manufacturing hours while taking necessary precautions for the safety of our employees in our pursuit to further dewater the reject linesgenerate sales from the System.manufacturing of face guards for the medical industry and the general public. We anticipate shippingare not certain at this time if sales generated will be sufficient. To date we have generated limited revenues. Our senior management are working remotely, and we have curtailed non-essential travel, and are seeking alternative strategies for the system incontinuation of our company.

While the fourth quarter 2019. The deposits fromforegoing are some of the immediate impacts we are witnessing, this orderlist is not exhaustive and we are reflectedunable to predict the overall impact on our balance sheetcompany 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 deposits from customers.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 ended June 30, 2019March 31, 2020 and 2018:2019:

Revenue

Our revenues increaseddecreased by $135,270 to $147,333approximately 7% for the three months ended June 30, 2019 as comparedMarch 31, 2020 from the comparable period in 2019. Our revenues are dependent upon sales to $12,063Schlumberger 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, 2018. Our revenues increased substantially from last year. The majorityMarch 31, 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, 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 in the second quarter of 2019 is a result of a purchase order we received for the Voraxial Separator underremaining 2020. Further, we have reorganized our manufacturing to explore the Supply Agreement.opportunity of selling face shields to the medical industry and general public starting in April 2020. Although we believe there is a market formay generate revenues from the Voraxial Separator and that the Supply Agreementsale of face shields, at this time we cannot predict how successful we will provide us with the opportunity to increase revenuesbe in the future in the oil and gas industry, there is no assurance thatpenetrating this will occur. We continue to allocate resources toward developing this relationship. We also believe the Grant Back Licenses can potentially generate additional revenues in other industries that require the separation technology, such as mining, industrial and sewage. We received a purchase order from a utility company for a wastewater system that includes multiple V-Inline Separators. The customer has paid multiple deposits in 2018 and during the first six months of 2019 totaling approximately $1.5 million that is reflected on our balance sheet as “Deposits from customers” at June 30, 2019. Due to customer delays, the project has been extended beyond the September 21, 2018 due date. We anticipate delivering this system by the fourth quarter of 2019.market.

The majority of revenues in 2019the first quarter of 2020 were a result of Voraxial Separator sales.manufacturing specific machine parts for our customers. The majority of our sales in 2018the first quarter of 2019 were a result of sales of the Voraxial Separator and auxiliary equipment and parts.

Cost of Goods

Our cost of goods increaseddecreased by $103,101 to $106,192approximately 69% for the three months ended June 30, 2019 as compared to $3,091 forMarch 31, 2020 from the three months ended June 30, 2018.comparable period 2019. This increasedecrease is mainly due to the increaseshift in salesrevenues to manufacturing we experienced during the three months ended June 30, 2019.March 31, 2020 and some of the customers supplying the raw material for these projects. 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 decreasedincreased by $165,026 to $251,901approximately 9% for the three months ended June 30,March 31, 2020 from the comparable period 2019. Included in this increase was an increase of approximately 11% in general and administrative expenses in the first quarter of 2020 from the first quarter of 2019, 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 approximately 12% during the first quarter of 2020 as compared to $416,927 for the three months ended June 30, 2018. Our professional fees decreased by approximately $41,000, primarily due to a $65,000 non-cash expense associated with the restricted stock issuance to consultants for services pursuant to the terms of a business advisory consulting agreement in the three months ended June 30, 2018 and partially offset by an increase in legal fees in the three months ended June 30, 2019. Our payroll expenses decreased by $125,000, primarily due to a $50,000 non-cash expense associated with the restricted stock issuance to Messrs. DiBella in the three months ended June 30, 2018. The balance of the reduction in payroll expenses is due to the increase overtime hours during the three months ended June 30,2018. Our selling, general and administrative costs

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

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

Revenue

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

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

Cost of Goods

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

Costs and Expenses

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

period.

Liquidity and Capital Resources:

Cash at June 30, 2019March 31, 2020 was $588,040$655,495 as compared to $1,223,863$674,844 at December 31, 2018. Working2019. Our working capital deficit at June 30, 2019March 31, 2020 was $1,086,110$321,562 as compared to a working capital deficit at December 31, 20182019 of $566,391.$38,544. At June 30, 2019,March 31, 2020, we had an accumulated deficit of $15,952,791.$15,162,371. Our current assets decreased by 14%26% at June 30, 2019March 31, 2020 as compared to December 31, 2018,2019, which reflects a decreasedecreases in our cashaccounts receivables and cash equivalents that was offset by an increaseincreases in our accounts receivable, inventory and prepaid expenses. Our current liabilities increased 11%decreased by 1% at June 30, 2019March 31, 2020 as compared to December 31, 2018,2019, which is primarily attributable to an increase in deposits from customers as a result of the purchase order we received from a utility company in 2018. This was offset byreflects a decrease in accounts payable and accrued expenses-relatedexpenses offset by increase in accrued expenses – related party.

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 M 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.

Summary of cash flows

Net cash used inprovided by operating activities in the sixthree months ended June 30,March 31, 2020 was primarily attributable to a decrease in accounts receivable and an increase in accrued expenses – related party offset in part by decreases in accounts payable and accrued expenses. ..

Net cash provided by operating activities in the three months ended March 31, 2019 was primarily attributable to a decrease in accrued expenses – related party and increasesan increase in inventory and prepaid expenses offset in part by an increaseincreases in deposit from customer.customer and accounts payable and accrued expense. Increases in our inventory, prepaid expenses, accounts payable and inventoryaccrued expenses are a result of the units we are manufacturing in fulfillment of orders we received. Increase in deposit from customer is primarily attributable to deposit received on a purchase order we received from a utility company. This was partially offset by a decrease in our accrued expenses-related party.

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

Supply Agreement.

Net cash used in financing activities during the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 was primarily attributable to the repayment of the equipment note payable.

Net cash used in investing activities during the three months ended March 31, 2020 was primarily attributable to the purchase of equipment.

Continuing Losses

WhileAs 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 has historically experienced recurring net losses,involving mergers, acquisitions or other business combination transactions in an effort to diversify our management believes that the Grant Back Licenses will provide us the opportunitybusiness. We are not currently a party to possibly leverage future Schlumberger sales in the oilany agreement or understandings with any third parties, and gas market to penetrate the sale and use of licensed products to other industries, including, but not limited to mining, sewage and wastewater. We believe that including our current cash resources and anticipated revenue to be generated under the Grant Back Licenses and Supply Agreement, we will have sufficient resources to continue business operations in excess of 12 months. However, there are no assurances thateven if our management locates an opportunity which it believes will be in the best interests of our shareholders what we will generate any or significant revenues under the Supply Agreement or Grant Back Licenses and there is limited historical financial data and operating results with which to evaluate our business and our prospects under the new agreements.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. These factors include competitive efforts and general economic trends. Due to these factors, we cannot anticipate with any degree of certainty what our revenues will be in future periods. Our independent auditors have included in their audit report included in our 2019 10-K an explanatory paragraph that states that our continuing losses from operationsworking 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.

We received a substantial deposit from a customer in the utility industry. The customer has paid multiple deposits totaling $1,496,219 as of June 30, 2019. The balance is included in our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. We do not currently believe this bankruptcy filing will negatively affect the purchase order we received. However, if the customer was to cancel the order or under bankruptcy law we were required to return the deposit, then our operations would be adversely affected.

As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Recent Accounting Pronouncements

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

Not applicable to smaller reporting company.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer who also serves as our Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2019.March 31, 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, 2018,2019, 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.

DATED: August 14, 2019