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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

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

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 

JuneJUNE 30, 20192020

(unaudited) 

NOTE A - ORGANIZATION AND OPERATIONS

Organization

Enviro Technologies, Inc., an Idaho corporation (the “Company”), is a high precision manufacturer ofthat developed a proprietary environmental and industrial separation technology. Thetechnology called the Voraxial® Separator (the “Separation Technology”). Historically we sold this technology mainly in the oil and gas industry. In 2017, the Company developed, and now manufactures thesold its patented Voraxial^® Separator under a Supply Agreement forto Cameron Solutions, Inc., an affiliate of Schlumberger Technology Corporation.Corporation pursuant to a Technology Purchase Agreement and received a three-year Supply Agreement to manufacture the separator for Cameron. The Voraxial is a patented technology that was soldagreement expired in June 2020 and the Company decided not to Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V.,pursue Cameron for an entity organized underextension as the lawsagreement did not generate sufficient revenues. As part of the Netherlands (collectively, “Schlumberger”) on June 8, 2017. Theagreement, 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 mining, sewage, manufacturing, waste-to-energy, and food processing industry.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 VoraxialV-Inline Separator. Effective November 10, 2017 the Company filed Articles of AmendmentFPA is also transitioning 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.manufacture high precision parts for other customers.

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 Schlumbergerin June 2017, we have generated limited revenues under the Supply Agreement and Grant Back License. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for the sale of thean extension in its current state. However, we have had discussions to develop a modified agreement. The Company’s intellectual property in consideration of up to $4,000,000, of which $3,000,000 was paid at closing and the balance was paid in August, 2018 upon the completion of both: (i) the complete transfer of the intellectually property to Schlumberger; and (ii) the provision to transfer information, assets and services to Schlumberger. In addition, at closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston, Texas-based company engaged in the development, manufacture and sale of equipment usednon-compete agreement in the oil and gas industry. Under the terms of the three-yearindustry 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 FPA isand/or the exclusive supplierGrant Back License will ever generate any material revenues. However, we intend to Cameron Solutionscontinue to seek opportunities for the V-Inline Separator. Our ability to generate future revenues will depend on a number of certain Voraxial series products for usefactors, 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. PursuantRegardless of our ability to enter into a new Supply Agreement, the Technology Purchase Agreement, Schlumberger also granted us non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”)oil industry will potentially be challenging as the price of oil futures has decreased significantly during the past six months and reached all-time low of negative $40 per barrel during the first six months of 2020. Further, with the current economic condition impacted by the Covid-19 virus, including weak oil prices, this may have a negative effect on the potential for sales of V-Inline Separators.

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

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the saleprotection of our employees and customers, we temporarily reduced non-essential staffing at our corporate office and altered work schedules at our manufacturing and warehouse facilities. In addition, our senior management and our office personnel began working remotely and maintaining full capabilities to serve our customers. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the technology outside the oil and gas industry. We rebranded the technology and it is now called V-Inline. Our management believes that the Grant Back License will provide us the opportunityState of Florida began.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes 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.Condensed Consolidated Financial Statements

JUNE 30, 2020

(unaudited) 

We believe that includingIn an effort to conserve our current 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 anticipated revenuehave begun marketing our machining capabilities 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,local manufactures; however, we have not yet generated significantmaterial revenues from this focus as of June 30, 2020. In April 2020, we began pursuing the manufacturing and selling of face shields for the general public and medical industry. To date we have generated limited revenues from the Supply Agreement or Grant Back License.sales of face shields. There isare no assuranceassurances, however, that the Supply Agreement will generate sufficient revenues and income, nor is there any assurance that wethese efforts will be ablesufficient to leverage the Grant Back License and generate sufficient revenues from other industries.

At June 30, 2019, we had an accumulated deficit of $15,952,791 including a net loss of $467,133 for the six months ended June 30, 2019. We may not be ablepermit us to achieve profitability on a quarterly or annual basis. If we fail to sustain or increasepay our profitability on a quarterly or annual basis, or to raise additional funds when needed, or do not have sufficient cash flows from sales,operating expenses. In that event, we may be required to further scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection.

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

As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

june 30, 2019

(unaudited) 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, 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, 2019,2020, 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2020

(unaudited) 

Revenue Recognition

The Company derives most of 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 its V-Inline Separator.selling face shields during the quarantine period and are constantly seeking other sources of revenues. We account for revenue in accordance with ASC Topic 606, 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 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited)

Revenues that are generated from sales of V-Inline separators, auxiliary equipment and parts and face shields are typically recognized upon shipment. Our standard agreements generally do not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been complied with. As of June 30, 20192020, and December 31, 2018,2019, respectively, there was $1,496,219$0 and $1,035,706$0, respectively, of deposits from customers. During the three and six months ended June 30, 2020, we derived 24% and 37% of our revenues, respectively, from high precision manufacturing projects. The increase in deposits from customer is attributedbalance was due to the purchase order we received from a utility customer for a wastewater treatment system that is comprisedsales 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.face shields.

ACCOUNTS RECEIVABLE

Accounts receivable are presented net of an allowance for doubtful accounts. The companyCompany maintains allowances for doubtful accounts for estimated losses. The companyCompany 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, 20192020 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, accounts receivable, inventory, accounts payable and accrued expenses at June 30, 20192020 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, 20192020 and December 31, 2018.2019.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2020

(unaudited) 

Level 2— inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of June 30, 20192020 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, 20192020 and December 31, 2018.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

june 30, 2019

(unaudited) 2019.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various financial institutions. Balances at these institutions may at times exceed the Federal Deposit Insurance Corporate (“FDIC”) limits. As of June 30, 2019 and December 31, 20182020, the Company has a cash concentration of $342,999 and $957,717, respectively,$237,267 in excess of FDIC limits.

Inventory

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Inventory primarily consists of components, including raw material and finished parts for the VoraxialV-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation and a normal profit margin. Inventory may include units being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of June 30, 20192020, 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, 20192020 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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

LEASESNotes to Condensed Consolidated Financial Statements

JUNE 30, 2020 

In connection with our lease agreement for our facility located in Fort Lauderdale, FL, the Company elected to adopt the provision of ASU 2016-02, “Leases” as of January 1, 2019. The Company recorded an operating lease asset and operating lease liability as of June 30, 2019 (refer to Note H).(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 As of June 30, 2020 and 2019

(unaudited) 

Due to the Company had net loss for the three and six month period ended June 30, 2019 and 2018, the effect of 13,465,000has 100,000 and 13,465,000 shares issuable upon the exercise of options, respectively, which are anti-dilutive. A separate computation of diluted loss per share is not presented.

INCOME TAXES

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

BUSINESS SEGMENTS

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

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.

RECLASSIFICATIONSReclassification

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

june 30, 2019

(unaudited) of cash flow.

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.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2020

(unaudited) 

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 months ended June 30, 2020, the Company incurred salary expenses for the Chief Executive Officer of the Company of $52,500. During the six months ended June 30, 2020, a total of $75,000 of salary have been paid and six$81,650 of accrued salary were used to exercise the options for Mr. DiBella, Adele DiBella, and two employees of the Company (See Note F). The total unpaid balance as of June 30, 2020 is $559,315 and is included in accrued expenses – related party. During the three months ended June 30, 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500 and $105,000, respectively.$52,500. During the six months ended June 30, 2019, a total of $360,000 of salary and accrued salary have been paid. The total unpaid balance as of June 30, 2019 is $558,761 and is included in accrued expenses – related party. In November 2018, the Board of Directors also approved the health insurance benefit for our CEO. For the three and six months ended June 30, 2018, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500 and $105,000, respectively. Of these amounts, $36,000 had been paid for the six months ended June 30, 2018. The total unpaid balance as of June 30, 2018 is $1,258,761 and is included in accrued expenses – related party.

Effective July 1, 2017, Raynard Veldman, a member of the Company’s board of directors, receives a fee of $2,500 per month for consulting services. During the three and six months ended June 30, 20192020 and 2018,2019, Mr. Veldman received consulting fees of $7,500 and $15,000, respectively.

During the three and six months ended June 30, 2020 and 2019, 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, respectively. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.

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

Notes

On June 9, 2020, the Company issued 3,800,000 shares of its common stock to Condensed Consolidated Financial Statements

JUNE 30, 2019

(unaudited) a related party in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.

NOTE E – FIXED ASSETS

Fixed assets as of June 30, 20192020 and December 31, 20182019 consist of:

Depreciation expense was $11,265$11,328 and $11,265 for the three months ended June 30, 20192020 and 2018,2019, respectively.

Depreciation expense was $22,529$22,656 and $22,529 for the six months ended June 30, 2020 and 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 pursuantENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to the Grant Back Licenses. As of JuneCondensed Consolidated Financial Statements

JUNE 30, 2019 and December 31, 2018, the amount owed is $258,625 and $290,004 respectively.2020

(unaudited) 

note f – shareholders’ equity

OptionsCOMMON STOCK

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

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

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

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

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

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

Options

The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation“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 SUBSIDIARYOn June 9, 2020, our Chief Executive Officer exercised 7,700,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $77,000 for the exercise of options.

Notes

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

JUNE 30, 2019

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

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

Information with respect to options outstanding and exercisable at June 30, 20192020 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, 20192020 is $215,440.$1,490. 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2020

(unaudited) 

NOTE G – COMMITMENTS AND CONTINGENCIES

Customer DepositLOAN PAYABLE

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

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

On May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. The Company received a substantial deposit from a customer inrecognized the utility industry, which has filed for bankruptcy protection. The customer has paid multiple deposits totaling $1,496,219grant as ofother income during the six months ended 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.2020.

EQUIPMENT FINANCINGNOTE PAYABLE

In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and will beis 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 toas well as for the Grant Back Licenses.manufacturing of high precision parts for customers. Under the terms of the agreement the Company made an initial down payment of $85,661 and financed the remaining balance of $340,644. The Company is required to make monthly payments of $6,788 through January 2023. As of June 30, 20192020, and December 31, 2018,2019, the amount owed is $258,625$192,608 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  

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 2020

(unaudited) 

the Technology Purchase Agreement dated March 13, 2017 with Schlumberger.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-yearThe Supply Agreement FPA isexpired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension under the exclusive supplieroriginal terms. However, we have had discussions to Cameron Solutions of certain Voraxial series products for usedevelop a new agreement. The Company’s non-compete agreement in the oil and gas industry. Sales will be made from time to timeindustry also expired 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.June 2020.

For a period of three years following the closing of the Technology Purchase Agreement, which expired in June 2020, the Company and Raynard Veldman and John Di Bella have agreed to not participate or cause participation in the oil-and-gas market in relation to phase or constituent sensing or separation which is defined as, liquid-liquid, liquid-solid or liquid-gas separation and gas or liquid sensing, including all product lines and services related thereto and including the Voraxial product line and services, except to the extent necessary to: (i) repair or service, but not remanufacture, any goods the Company sold to third persons prior to closing; (ii) fulfill, on or after closing, any customer obligation; or (iii) comply with any term or condition of the Agreement. In addition, the Company shall take all reasonable measures to ensure the confidentiality and prevent the improper use of all trade secrets. As the term has expired, the Company may review opportunities in the oil and gas industry.

NOTE H - LEASE

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. The Company accounts for lease in accordance with ASC Topic 842. For the three months and six months ended June 30, 2020 and 2019, the total lease cost was approximately $14,700 and $29,400, respectively which included variable cost of approximately $4,500 and $9,000 respectively. For the six months ended June 30, 2020 and 2019, cash paid for operating liabilities was approximately $24,000 and $29,000, respectively.

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

Supplemental balance sheet information related to leases was as follows:

The components of lease cost were as follows:

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

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

JUNE 30, 20192020

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

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

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

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

As of June 30, 2019, one2020, three of the Company’s customers represents 98%62%, 15% and 11%, respectively, of the total accounts receivable.

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

WeNOTE M – SUBSEQUENT EVENTS

On June 23, 2020, FPA executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If FPA does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA will lose the ability to draw the funds. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received a substantial depositon July 20, 2020. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from a customerthe 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 utility industry, which has filed for bankruptcy protection. The customer has paid multiple deposits totaling $1,496,219 asamount of June 30, 2019.$731. The balance of principal and interest is includedpayable 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 our balance sheet as “Deposits from customers”. In January 2019, our customer filed for bankruptcy protection. Asall tangible and intangible personal property 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.FPA, which also contains customary events of default.

Forward-Looking Statements

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

Application of Critical Accounting Policies

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

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

Overview

The Company 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, FPAwhich expired in June 2020. We have had discussions to develop a new agreement; however there is the exclusive supplier to Cameron Solutions of certain Voraxial series products for useno assurances that a new agreement will be finalized. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020. Without a Supply Agreement, we will have to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. SalesRegardless of our ability to negotiate a new Supply Agreement, the oil industry will potentially be made from time to timechallenging as the price of oil futures reached a negative $40 per barrel in accordance2020. Further, with the current economic landscape defined by the COVID19 virus, sales in 2020 may continue to suffer. We plan to continue to support Schlumberger under new terms of purchase orders. The Supply Agreement is cancellable by Cameron Solutions upon 15 days’ notice if we fail to meet delivery or performance schedules or breaches any of the terms of the agreement, including the warranties. Cameron Solutions may also cancel the Supply Agreement without notice in the event we become insolvent or commit any act of bankruptcy. The Supply Agreement contains customary indemnification and confidentiality provisions. There are no assurances that we will generate material revenues under the Grant Back Licenses or Supply Agreement. There are no minimum purchase requirements for Cameron Solutions under the Supply Agreement.on a per project basis.

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 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:

Manufacturing

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

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

Impact of Covid-19 on our Company

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

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

Even before the “stay at home” order was issued, we were experiencing a significant decline in orders from our customers because of disruptions in our customers’ businesses as a result of the Covid-19 pandemic. In addition, as a result of our historic concentration on sales to separate solidscustomers 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 six months of 2020 we experienced a slowdown from customer’s inquiries in all industries and we expect that trend to continue until such time as the full impact of the 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. Our senior management are working remotely, and we have curtailed non-essential travel, and are seeking alternative strategies for the continuation of our company.

While the foregoing are some of the immediate impacts we are witnessing, this list is not exhaustive and we are unable to further dewaterpredict the reject lines from the System. We anticipate shipping the system in the fourth quarter 2019. The deposits from this order are reflectedoverall 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 and Six Months ended June 30, 20192020 and 2018:2019:

Revenue

Our revenues increaseddecreased by $135,270approximately 85% and approximately 82%, respectively, for the three and six months ended June 30, 2020 from the comparable periods in 2019. Our revenues have been dependent in the past few years on sales to $147,333Schlumberger 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, 2019 as compared2020 were adversely impacted by the Covid-19 pandemic and the attendant significant drop in oil prices. Even once the effects of the pandemic on our business subsides, which at this moment we do not know when this may occur, it may take longer than expected for business in our target markets to $12,063resume normal operations. Accordingly, at this time we are unable to predict the ultimate impact to our revenues for the remaining 2020. We continue to try to leverage our manufacturing capabilities by exploring different opportunities, such as high precision manufacturing and manufacturing of face shields. In the three and six months ended June 30, 2018. Our revenues increased substantially from last year. The majority2020, we derived 

76% and 63%, respectively, of our revenues infrom the second quartersale of 2019 is a resultface shields to the medical industry and general public. We do not expect additional sales of a purchase order we received forface shields as the Voraxial Separator under the Supply Agreement. Although we believe there is a market for the Voraxial Separatorsupply chain and that the Supply Agreement will provide us with the opportunitymargins proved 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.be challenging.

The majority of revenues in the second quarter and first six months of 2020 were a result of high precision manufacturing for our customers and the sale of face shields. The majority of our sales in the second quarter and first six months of 2019 were a result of Voraxial Separator sales. The majority of our sales in 2018 were a result ofand sales of the Voraxial Separator and auxiliary equipment and parts.parts

Cost of Goods

Our cost of goods increaseddecreased by $103,101 to $106,192approximately 86% for each of the threesecond quarter and first six months ended June 30, 2019 as compared to $3,091 forof 2020 from the three months ended June 30, 2018.comparable periods 2019. This increasedecrease is mainly due to the increasesignificant decline in salesrevenues and shift in revenues to manufacturing high precision components and face shields we experienced during the three and six months ended June 30, 2020 as compared to Voraxial Separator in 2019. Our cost of goods continues to be reviewed by management in effort to obtain the best available pricing while maintaining high quality standards.

Costs and Expenses

Total costs and expenses decreasedincreased by $165,026 to $251,901approximately 13% and approximately 11%, respectively, for the threesecond quarter and first six months ended June 30,of 2020 from the comparable periods 2019. Included in this increase was an increase in general and administrative expenses, including increases in insurance which reflects the commencement of paid health benefits for our employees in July 2019, and repair and maintenance, which reflects basic manufacturing upkeep. In addition, payroll expense increased during the 2020 periods as compared to $416,927the 2019 periods as we experienced a higher absorption costs into our manufacturing activities of Voraxial Separator in 2019 which was offset by a non-cash expense for the three months ended June 30, 2018. Our professionalissuance of stock to our employees in 2020. Professional fees decreased by approximately $41,000, primarily dueas we continue 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:minimize expenses.

RevenueTOTAL OTHER INCOME (EXPENSE)

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 inDuring the second quarter of 2019 is a result of a purchase order2020 we received a $8,000 grant from the Small Business Association for working capital which is reflected as other income during the period. We did not have comparable income during the 2019 period. Interest expense represents the amounts due under the financing agreement for the Voraxial Separator under the Supply Agreement. Although we believe there is a market for the Voraxial Separator and that the Supply Agreement will provide us with the opportunity to increase revenues in the future in the oil and gas industry, there is no assurance that this will occur. We continue to allocate resources toward developing this relationship. We also believe the Grant Back Licenses can potentially generate additional revenues in other industries that require the separation technology, such as mining, industrial and sewage. We received a purchase order from a utility company for a wastewater system that includes multiple V-Inline Separators. The customer has paid multiple deposits in 2018 and during the first six months of 2019 totaling approximately $1.5 million that is reflected on our balance sheet as “Deposits from customers” at June 30, 2019. Due to customer delays, the project has been extended beyond the September 21, 2018 due date. We anticipate delivering this system by the fourth quarter of 2019.

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

Cost of Goods

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

Costs and Expenses

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

CNC machine.

Liquidity and Capital Resources:

Cash at June 30, 20192020 was $588,040$507,709 as compared to $1,223,863$674,844 at December 31, 2018. Working2019. Our working capital deficit at June 30, 20192020 was $1,086,110$391,364 as compared to a working capital deficit at December 31, 20182019 of $566,391.$38,544. At June 30, 2019,2020, we had an accumulated deficit of $15,952,791.$15,433,327. Our current assets decreased by 14%39% at June 30, 20192020 as compared to December 31, 2018,2019, which reflects decreases in cash, accounts receivables and prepaid expenses offset by increases in our inventory. Our current liabilities decreased by 7% at June 30, 2020 as compared to December 31, 2019, which reflects a decrease in our cashaccounts payable and cash equivalents that wasaccrued expenses and accrued expenses – related party, offset by the note payable issued during the quarter.

We do not have any external sources of liquidity and we do not have any capital commitments. On May 4, 2020, FPA received a $111,971 PPP Loan as described in Note G to the unaudited condensed consolidated financial statements appearing earlier in this report. We are using the proceeds from the PPP Loan for qualifying expenses under the CARES Act. In addition, on May 5, 2020, FPA also received an increase$8,000 grant from the U.S. Small Business Administration. We are using those proceeds for working capital. Lastly, in our accounts receivable, inventoryJuly, 2020 FPA also received a $150,000 EIDL Loan from the SBA at a per annum interest rate of 3.75%. Installment payments, including principal and prepaid expenses. Our current liabilities increased 11% at June 30, 2019 as compared to December 31, 2018, which is primarily attributable to an increase in depositsinterest, of $731.00 monthly, will begin 12 months from customers as a resultthe date of the purchase order we receivedpromissory note. The proceeds from a utility company in 2018. This was offset by a decrease in accrued expenses-related party.the EIDL Loan may be used for our general operating expenses.

Summary of cash flows

The following table summarizes our cash flows: 

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

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

Net cash used in operatinginvesting activities during the six months ended June 30, 20182020 was primarily attributable to an increasethe purchase of equipment. We did not have a comparable expense in inventory offset by increases in accounts payable, accrued expenses and deposits from customers.

the 2019 period.

Net cash used inprovided by financing activities during the six months ended June 30, 2019 and 20182020 was primarily attributable to proceeds from the PPP loan offset by the repayment of the equipment note payable. Net cash used in financing activities during the 2019 period reflected the repayment of the equipment note payable.

Continuing Losses and Going Concern

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.

RecentApplication of Critical Accounting PronouncementsPolicies

ForThe 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  discussion

significant impact on amounts reported in the financial statements. A summary of newthese significant accounting pronouncements affecting the Company, refer topolicies can be found in Note C to the Condensed Financial Statements.Company’s financial statements in the Company’s 2019 10-K.  Among the significant judgments made in preparation of the Company’s financial statements are the determination of the allowance for doubtful accounts, value of equity instruments and adjustments of inventory valuations. These adjustments are made each quarter in the ordinary course of accounting.

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, 2019.2020. 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.

PART II.      OTHER INFORMATION

          As previously discussed, onOn or about October 23, 2017, a claim was filed in the 17^th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company.  The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded damages in the amount of $310,820.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. See Note G (Litigation) to the financial statements included in this report.

          Smaller reporting companies are not requiredWe incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2019 Form 10-K, and our subsequent filings with the SEC, subject to provide the information requirednew or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings. We expect that these risks will continue to be exacerbated by this item.the impact of the Covid-19 pandemic on our company and any worsening of the economic environment.

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

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

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

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

          None.On June 9, 2020, the Company issued 350,000 shares of its common stock to five employees at $0.028 per share, or $9,800, for services rendered. The shares were issued pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended.  The shares contain a legend restricting their transferability absent registration or applicable exemption. The employees are sophisticated investors and had access to business and financial information concerning the company.

None.

          None.Not applicable to our company.

          None.On June 23, 2020, FPA executed the standard loan documents required for securing a $150,000 EIDL Loan from the SBA. Pursuant to that certain Loan Authorization and Agreement, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If the Company does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA

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

 Exhibits required by Item 601 of Regulation S-K

SIGNATURES

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