U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x☒UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
2021
or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission File Number: 0-30454
Enviro Technologies U.S., Inc.
(Exact name of registrant as specified in its charter)
82-0266517 | ||
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
821 NW 57th57th Place, Fort Lauderdale, Florida33309
(Address of principal executive offices) (Zip Code)
(954)958-9968
(Registrant’s telephone number, including area code)
not applicable
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | not applicable | not applicable |
Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No☒
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: August 14, 2020,6, 2021, we had 49,499,497 shares of our Common Stock outstanding.
INDEX
2 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:
· Financial risks, including: | ||
· | our ability to continue as a going concern; |
· | the adverse impact of Covid-19 on our company; |
· | our ability to generate revenues and report profitable operations; |
· | our ability to pay our operating expenses; and |
· | our ability to raise working capital. |
· Business risks, including: | ||
· | reliance on a limited number of customers and the Grant Back License; |
· | our ability to compete; and |
· | our dependence on our sole executive officer. |
· Risks related to our common stock, including: | ||
· | continuing material weaknesses in our disclosure controls and internal control over financial reporting; |
· | the illiquid nature of the market for our common stock; and |
· | the impact of penny stock rules on our shareholders. |
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, 20192020 as filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2020March 31, 2021 (the "2019 10-K"“2020 10-K”) as well asand our other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “EVTN,” the “Company,” “we,” “our,” “us,” and similar terms refers to Enviro Technologies U.S., Inc., an Idahoa Florida corporation, and our subsidiary, Florida Precision Aerospace, Inc., a Florida corporation which we refer to as “FPA.” In addition, “second quarter of 2021” refers to the three months ended June 30, 2021, “second quarter of 2020” refers to the three months ended June 30, 2020, “second quarter of 2019” refers to the three months ended June 30, 2019, “2019”“2020” refers to the year ended December 31, 20192020 and “2020”“2021” refers to the year ending December 31, 2020.2021. We maintain a corporate website at www.evtn.com. Unless specifically set forth to the contrary, the information which appears on our website at www.evtn.com is not part of this report.
3 |
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements. |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2020 (unaudited) | December 31, 2019 | June 30, 2021 (unaudited) | December 31, 2020 | |||||||||||||
ASSETS | ASSETS | |||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 507,709 | $ | 674,844 | $ | 271,659 | $ | 336,564 | ||||||||
Accounts receivable, net | 10,595 | 297,755 | 11,687 | 1,176 | ||||||||||||
Inventory, net | 144,421 | 117,984 | 116,234 | 113,335 | ||||||||||||
Prepaid expenses | 12,174 | 20,579 | 3,691 | 12,174 | ||||||||||||
Total current assets | 674,899 | 1,111,162 | 403,271 | 463,249 | ||||||||||||
FIXED ASSETS, NET | 331,788 | 349,377 | 7,159 | 312,468 | ||||||||||||
OTHER ASSETS | ||||||||||||||||
Operating lease asset | 221,914 | 243,039 | 177,470 | 200,066 | ||||||||||||
Security deposit | 10,143 | 10,143 | 10,143 | 10,143 | ||||||||||||
Total other assets | 232,057 | 253,182 | 187,613 | 210,209 | ||||||||||||
Total assets | $ | 1,238,744 | $ | 1,713,721 | $ | 598,043 | $ | 985,926 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIENCY) | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 323,639 | $ | 416,992 | $ | 373,839 | $ | 323,481 | ||||||||
Accrued Expenses – related parties | 580,815 | 621,465 | ||||||||||||||
Accrued Expenses – related party | 806,565 | 706,315 | ||||||||||||||
Loans payable, current portion | 111,971 | 65,867 | ||||||||||||||
Equipment note payable, current portion | — | 71,812 | ||||||||||||||
Operating lease liability, current portion | 44,444 | 42,973 | 48,715 | 46,255 | ||||||||||||
Equipment note payable, current portion | 70,613 | 68,276 | ||||||||||||||
Loan Payable, current portion | 46,752 | — | ||||||||||||||
Total current liabilities | 1,066,263 | 1,149,706 | 1,341,090 | 1,213,730 | ||||||||||||
LONG-TERM LIABILITIES: | ||||||||||||||||
Operating lease liabilities, less current portion | 177,470 | 200,066 | 128,755 | 153,811 | ||||||||||||
Equipment note payable, less current portion | 121,995 | 157,896 | — | 103,586 | ||||||||||||
Loan Payable, less current portion | 65,219 | — | ||||||||||||||
Loans payable, less current portion | 225,085 | 196,104 | ||||||||||||||
Total long-term liabilities | 364,684 | 357,962 | 353,840 | 453,501 | ||||||||||||
Total liabilities | 1,430,947 | 1,507,668 | 1,694,930 | 1,667,231 | ||||||||||||
COMMITMENTS AND CONTINGENCIES (See Note G) | — | — | ||||||||||||||
COMMITMENTS AND CONTINGENCIES (See Note H) | — | — | ||||||||||||||
SHAREHOLDERS’ EQUITY (DEFICIENCY): | ||||||||||||||||
Common stock, $.001 par value, 250,000,000 shares authorized; 49,499,497 and 35,784,497 shares issued and outstanding as of June 30, 2020 and December 31, 2019 | 49,500 | 35,785 | ||||||||||||||
SHAREHOLDERS’ (DEFICIENCY): | ||||||||||||||||
Common stock, par value, shares authorized;and shares issued and outstanding as of June 30, 2021 and December 31, 2020 | 4,951 | 4,951 | ||||||||||||||
Additional paid-in capital | 15,191,624 | 15,061,889 | 15,236,173 | 15,236,173 | ||||||||||||
Accumulated deficit | (15,433,327 | ) | (14,891,621 | ) | (16,338,011 | ) | (15,922,429 | ) | ||||||||
Total shareholders’ equity (deficiency) | (192,203 | ) | 206,053 | |||||||||||||
Total shareholders’ (deficiency) | (1,096,887 | ) | (681,305 | ) | ||||||||||||
Total liabilities and shareholders’ equity (deficiency) | $ | 1,238,744 | $ | 1,713,721 | ||||||||||||
Total liabilities and shareholders’ (deficiency) | $ | 598,043 | $ | 985,926 |
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)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues, net | $ | 22,790 | $ | 147,333 | $ | 27,318 | $ | 152,196 | ||||||||
Cost of goods sold | 14,434 | 106,192 | 15,199 | 108,658 | ||||||||||||
Gross profit | 8,356 | 41,141 | 12,119 | 43,538 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Selling, general and administrative | 101,108 | 77,868 | 185,316 | 153,932 | ||||||||||||
Professional Fees | 57,892 | 93,191 | 113,104 | 149,008 | ||||||||||||
Payroll expenses | 124,871 | 80,842 | 256,241 | 198,382 | ||||||||||||
Total costs and expenses | 283,871 | 251,901 | 554,661 | 501,322 | ||||||||||||
Loss from operations | (275,515 | ) | (210,760 | ) | (542,542 | ) | (457,784 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Other Income | 8,000 | — | 8,000 | — | ||||||||||||
Interest expense | (3,441 | ) | (4,542 | ) | (7,164 | ) | (9,349 | ) | ||||||||
Total other income (expense) | 4,559 | (4,542 | ) | 836 | (9,349 | ) | ||||||||||
Net loss before provisions for income taxes | (270,956 | ) | (215,302 | ) | (541,706 | ) | (467,133 | ) | ||||||||
Provisions for income taxes | — | — | — | — | ||||||||||||
NET LOSS | $ | (270,956 | ) | $ | (215,302 | ) | $ | (541,706 | ) | $ | (467,133 | ) | ||||
Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Weighted average number of common shares outstanding - basic and diluted | 38,949,497 | 35,784,497 | 37,366,997 | 35,784,497 |
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY (DEFICIENCY)
(Unaudited)
For the three months ended June 30, 2020 and 2019
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance – March 31, 2019 (unaudited) | 35,784,497 | $ | 35,785 | $ | 15,061,889 | $ | (15,737,489 | ) | $ | (639,815 | ) | |||||||||
Net Loss for the three months ended June 30, 2019 | — | — | — | (215,302 | ) | (215,302 | ) | |||||||||||||
Balance – June 30, 2019 (unaudited) | 35,784,497 | $ | 35,785 | $ | 15,061,889 | $ | (15,952,791 | ) | $ | (855,117 | ) | |||||||||
Balance – March 31, 2020 (unaudited) | 35,784,497 | $ | 35,785 | $ | 15,061,889 | $ | (15,162,371 | ) | $ | (64,697 | ) | |||||||||
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable | 13,365,000 | 13,365 | 120,285 | — | 133,650 | |||||||||||||||
Stock issued for services to employees | 350,000 | 350 | 9,450 | — | 9,800 | |||||||||||||||
Net Loss for the three months ended June 30, 2020 | — | — | — | (270,956 | ) | (270,956 | ) | |||||||||||||
Balance – June 30, 2020 (unaudited) | 49,499,497 | $ | 49,500 | $ | 15,191,624 | $ | (15,433,327 | ) | $ | (192,203 | ) |
For the six months ended June 30, 2020 and 2019
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance - December 31, 2018 | 35,784,497 | $ | 35,785 | $ | 15,061,889 | $ | (15,485,658 | ) | $ | (387,984 | ) | |||||||||
Net Loss for the six months ended June 30, 2020 | — | — | — | (467,133 | ) | (467,133 | ) | |||||||||||||
Balance – June 30, 2019 (unaudited) | 35,784,497 | $ | 35,785 | $ | 15,061,889 | $ | (15,952,791 | ) | $ | (855,117 | ) | |||||||||
Balance - December 31, 2019 | 35,784,497 | $ | 35,785 | $ | 15,061,889 | $ | (14,891,621 | ) | $ | 206,053 | ||||||||||
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable | 13,365,000 | 13,365 | 120,285 | — | 133,650 | |||||||||||||||
Stock issued for services to employees | 350,000 | 350 | 9,450 | — | 9,800 | |||||||||||||||
Net Loss for the six months ended June 30, 2020 | — | — | — | (541,706 | ) | (541,706 | ) | |||||||||||||
Balance – June 30, 2020 (unaudited) | 49,499,497 | $ | 49,500 | $ | 15,191,624 | $ | (15,433,327 | ) | $ | (192,203 | ) |
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
4 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues, net | $ | 29,108 | $ | 22,790 | $ | 66,864 | $ | 27,318 | ||||||||
Cost of goods sold | 13,368 | 14,434 | 28,212 | 15,199 | ||||||||||||
Gross profit | 15,740 | 8,356 | 38,652 | 12,119 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Selling, general and administrative | 56,210 | 101,108 | 133,557 | 185,316 | ||||||||||||
Professional Fees | 37,570 | 57,892 | 76,397 | 113,104 | ||||||||||||
Payroll expenses | 123,886 | 124,871 | 214,594 | 256,241 | ||||||||||||
Total costs and expenses | 217,666 | 283,871 | 424,548 | 554,661 | ||||||||||||
Loss from operations | (201,926 | ) | (275,515 | ) | (385,896 | ) | (542,542 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Other Income | — | 8,000 | — | 8,000 | ||||||||||||
Loss on sale of assets | (15,011 | ) | — | (15,011 | ) | — | ||||||||||
Interest expense | (7,771 | ) | (3,441 | ) | (14,675 | ) | (7,164 | ) | ||||||||
Total other income (expense) | (22,782 | ) | 4,559 | (29,686 | ) | 836 | ||||||||||
Net loss before provisions for income taxes | (224,708 | ) | (270,956 | ) | (415,582 | ) | (541,706 | ) | ||||||||
Provisions for income taxes | — | — | — | — | ||||||||||||
NET LOSS | $ | (224,708 | ) | $ | (270,956 | ) | $ | (415,582 | ) | $ | (541,706 | ) | ||||
Net loss per common share - basic and diluted | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.08 | ) | $ | (0.14 | ) | ||||
Weighted average number of common shares outstanding - basic and diluted | 4,950,125 | 3,895,125 | 4,950,125 | 3,736,875 |
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
5 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (DEFICIENCY)
(Unaudited)
For the three months ended June 30, 2021 and 2020
Common Stock | Additional | |||||||||||||||||||
Shares | Par Value | Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
Balance – March 31, 2020 (unaudited) | 3,578,625 | $ | 3,579 | $ | 15,094,095 | (15,162,371 | ) | $ | (64,697 | ) | ||||||||||
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable | 1,336,500 | 1,337 | 132,313 | — | 133,650 | |||||||||||||||
Stock issued for services to employees | 35,000 | 35 | 9,765 | 9,800 | ||||||||||||||||
Net loss | — | — | — | (270,956 | ) | (270,956 | ) | |||||||||||||
Balance-June 30, 2020 (unaudited) | 4,950,125 | $ | 4,951 | $ | 15,236,173 | (15,433,327 | ) | $ | (192,203 | ) | ||||||||||
Balance – March 31, 2021 (unaudited) | 4,950,125 | $4,951 | $ | 15,236,173 | (16,113,303 | ) | $ | (872,179 | ) | |||||||||||
Net loss | — | — | — | (224,708 | ) | (224,708 | ) | |||||||||||||
Balance – June 30, 2021 (unaudited) | 4,950,125 | $ | 4,951 | $ | 15,236,173 | (16,338,011 | ) | $ | (1,096,887 | ) | ||||||||||
For the six months ended June 30, 2021 and 2020
Common Stock | Additional | |||||||||||||||||||
Shares | Par Value | Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
Balance - December 31, 2019 | 3,578,625 | $ | 3,579 | $ | 15,094,095 | $ | (14,891,621 | ) | $ | 206,053 | ||||||||||
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable | 1,336,500 | 1,337 | 132,313 | — | 133,650 | |||||||||||||||
Stock issued for services to employees | 35,000 | 35 | 9,765 | 9,800 | ||||||||||||||||
Net loss | — | — | — | (541,706 | ) | (541,706 | ) | |||||||||||||
Balance-June 30, 2020 (unaudited) | 4,950,125 | $ | 4,951 | $ | 15,236,173 | $ | (15,433,327 | ) | $ | (192,203 | ) | |||||||||
Balance - December 31, 2020 | 4,950,125 | $ | 4,951 | $ | 15,236,173 | $ | (15,922,429 | ) | $ | (681,305 | ) | |||||||||
Net loss | — | — | — | (415,582 | ) | (415,582 | ) | |||||||||||||
Balance – June 30, 2021 (unaudited) | 4,950,125 | $ | 4,951 | $ | 15,236,173 | $ | (16,338,011 | ) | $ | (1,096,887 | ) | |||||||||
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
6 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (541,706 | ) | $ | (467,133 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 22,656 | 22,529 | ||||||
Amortization of operating lease asset | 21,125 | 21,343 | ||||||
Stock issued for services | 9,800 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 287,160 | (68,372 | ) | |||||
Inventory | (26,437 | ) | (131,981 | ) | ||||
Prepaid expenses | 8,405 | (179,978 | ) | |||||
Accounts payable and accrued expenses | (30,353 | ) | 14,978 | |||||
Deposit from customers | — | 460,513 | ||||||
Operating lease liability | (21,125 | ) | (21,343 | ) | ||||
Accrued expenses – related parties | 30,000 | (255,000 | ) | |||||
Net cash used in operating activities | (240,475 | ) | (604,444 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of equipment | (5,067 | ) | — | |||||
Net cash used in Investing activities | (5,067 | ) | — | |||||
Cash Flows from Financing Activities: | ||||||||
Repayment of equipment note payable | (33,564 | ) | (31,379 | ) | ||||
Loan payable issuance | 111,971 | — | ||||||
Net cash (used in) provided by financing activities | 78,407 | (31,379 | ) | |||||
Net decrease in cash and cash equivalents | (167,135 | ) | (635,823 | ) | ||||
Cash and cash equivalents, beginning of period | 674,844 | 1,223,863 | ||||||
Cash and cash equivalents, end of period | $ | 507,709 | $ | 588,040 | ||||
Supplemental Disclosures | ||||||||
Cash paid during the period for interest | $ | 7,164 | $ | 9,349 | ||||
Cash paid during the period for taxes | $ | — | $ | — | ||||
Supplemental Disclosure of non-cash activities | ||||||||
Operating lease asset obtained in exchange for operating lease liability | $ | — | $ | 284,808 | ||||
Stock issued for exercise of options in exchange for accounts payable | $ | 42,000 | $ | — | ||||
Stock issued for exercise of options in exchange for accrued expenses - related parties | $ | 91,650 | $ | — |
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (415,582 | ) | $ | (541,706 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 15,298 | 22,656 | ||||||
Amortization of operating lease asset | 22,596 | 21,125 | ||||||
Stock issued for services | — | 9,800 | ||||||
Loss on sale of equipment | 15,011 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (10,511 | ) | 287,160 | |||||
Inventory | (2,899 | ) | (26,437 | ) | ||||
Prepaid expenses | 8,483 | 8,405 | ||||||
Accounts payable and accrued expenses | 50,358 | (30,353 | ) | |||||
Operating lease liability | (22,596 | ) | (21,125 | ) | ||||
Accrued expenses – related parties | 100,250 | 30,000 | ||||||
Net cash used in operating activities | (239,592 | ) | (240,475 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Sale of equipment | 275,000 | (5,067 | ) | |||||
Net cash provided by (used in) Investing activities | 275,000 | (5,067 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Repayment of equipment note payable | (175,398 | ) | (33,564 | ) | ||||
Loan payable issuance | 75,085 | 111,971 | ||||||
Net cash (used in) provided by financing activities | (100,313 | ) | 78,407 | |||||
Net decrease in cash and cash equivalents | (64,905 | ) | (167,135 | ) | ||||
Cash and cash equivalents, beginning of period | 336,564 | 674,844 | ||||||
Cash and cash equivalents, end of period | $ | 271,659 | $ | 507,709 | ||||
Supplemental Disclosures | ||||||||
Cash paid during the period for interest | $ | 10,403 | $ | 7,164 | ||||
Cash paid during the period for taxes | $ | — | $ | — | ||||
Supplemental Disclosure of non-cash investing and financing activities | ||||||||
Operating lease asset obtained in exchange for operating lease liability | $ | — | $ | — | ||||
Stock issued for exercise of options in exchange for accounts payable | $ | — | $ | 42,000 | ||||
Stock issued for exercise of options in exchange for accrued expenses - related parties | $ | — | $ | 91,650 |
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
7 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 20202021
(unaudited) (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
Organization
Enviro Technologies U.S., Inc., an Idahoa Florida corporation (the “Company”), is a high precision manufacturer that developed a proprietaryand provider of environmental and industrial separation technology. The Company developed, and now manufactures and sells the V-Inline Separator, a technology called the Voraxial® Separator (the “Separation Technology”). Historically we sold this technology mainly in the oil and gas industry. Inthat efficiently separates liquid/liquid, liquid/solid or liquid/liquid/solid fluid streams with distinct specific gravities. On June 8, 2017, the Company sold its patented Voraxial Separator to Cameron Solutions, Inc., an affiliate of Schlumberger Technology Corporation pursuant to a Technology Purchase Agreement and received a three-year Supply Agreement to manufacture the separator for Cameron. The agreement expired in June 2020 and the Company decided not to pursue Cameron for an extension as the agreement did not generate sufficient revenues. As part of the agreement, the Company received a Grant Back License to sell the Separation Technology in markets outside of the oil and gas markets, which include mining, sewage, manufacturing, waste-to-energy, food processing industry, among others. The Company rebranded the technology as the V-Inline Separator and is continuing to pursue these opportunities.
Florida Precision Aerospace, Inc., a Florida corporation (“FPA”), is thea wholly-owned subsidiary of the Company, closed the Technology Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”) for the sale of our intellectual property, substantially consisting of Voraxial patents, marks, software and copyrights (the “Intellectual Property”). 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 Intellectual Property outside the oil and gas market and we entered into a Supply Agreement. Current and potential commercial applications and markets include mining, utilities, manufacturing, waste-to-energy among other industries.
FPA is used to manufacture, assemble and test the V-Inline Separator. FPA is also transitioningOn August 20, 2020, the Company’s shareholders approved a change of domicile of the Company from Idaho to manufacture high precision parts for other customers.Florida. On December 28, 2020, the Company received the file stamped Certificate of Domestication and Articles of Incorporation from the Secretary of State of Florida, which was effective on December 18, 2020, thereby completing the change in domicile from Idaho to Florida. In connection with the change in domicile from Idaho to Florida, the Company’s name changed to “Enviro Technologies U.S., Inc.”.
NOTE B – GOING CONCERN
Since entering into the Technology Purchase Agreement, the Grant Back License and a supply agreement in June 2017, we have generated limited revenuesrevenues; significantly less than we anticipated, under the Supply Agreement and Grant Back License. The Supply Agreementterms of any of these agreements. Although the supply agreement expired in June 2020. As2020, we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension in its current state. However, wecontinue to have had discussions to develop a modified agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020.relationship with Schlumberger. The Grant Back License did not expire. There are no assurances that we will enter into a new Supply Agreement and/or the Grant Back License will ever generate any material ongoing revenues. However, weWe intend to continue to seek opportunities for the V-Inline Separator. Our ability to generateincrease our revenues in future revenuesperiods will depend on a number of factors, many of which are beyond our control, including our ability to generate sales of the V-Inline Separator, our ability to leverage the Grant Back License to generate additional revenues, the continuing impact of the Covid-19 pandemic on the economy in general and the Company in particular, competitive efforts and other general economic trends. There are no assurances we will be ablereturn to continue to generate revenuesthe pre-Covid revenue and profitability levels of 2019 or report profitable operations in the future. Without a new Supply Agreement, we will need to redevelop our relationships with customers inFurther, the oil and gas industry to generate revenues from this industry. Regardlesslingering economic impact of our ability to enter into a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures has decreased significantly during the past six months and reached all-time low of negative $40 per barrel during the first six months of 2020. Further, with the current economic condition impacted by the Covid-19 virus, including weak oil prices, thispandemic may have a continued negative effect on the potential for sales of V-InlineV-inline Separators.
On March 11, 2020,At June 30, 2021, we had a working capital deficit of $937,819, an accumulated deficit of $16,338,011. We do not have any external sources of liquidity. Our revenues have declined significantly from quarter ended and year ended December 31, 2019, our last full reporting period prior to the World Health Organization declared the COVID-19 outbreakstart of Covid-19 pandemic and has yet to berecover. Covid-19 pandemic has created 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, includingvery challenging economic condition for our industry.
In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we temporarily reduced non-essential staffing at our corporate office and altered work schedules at our manufacturing and warehouse facilities. In addition, our senior management and our office personnel began working remotely and maintaining full capabilities to serve our customers. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited)
company. 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, continue to accrue a portion of management’s salary, and sold under-utilized equipment. We also have begun marketing our machining capabilities to local manufactures; however, we have not generated material revenues from this focus as of June 30, 2020. In April 2020, we began pursuing the manufacturing and selling of face shields for the general public and medical industry. To date we have generated limited revenues from the sales of face shields.manufactures. There are no assurances, however, that these efforts will be sufficient to permit us to pay our operating expenses. In thatthe event we cannot increase our revenues, we may be required to further scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection.
At June 30, 2020, we had a working capital deficit of $391,364, an accumulated deficit of $15,433,327. We do not have any external sources of liquidity. Our revenues have declined for the first two quarters of 2020 from the fourth quarter of 2019 as a result of the impact of the Covid-19 pandemic and the significant drop in oil prices. We were able to supplement some of the lost revenue stream we historically experienced from the sale of Voraxial and V-Inline separator, which was significantly impacted by the drop of oil prices and Covid-19 pandemic, by increasing our high precision manufacturing activities and selling face shields. Sales of Face shields represented 63% of revenues generated during the six months ended June 30, 2020. We do not anticipate generating significant revenues from face shields for the balance of 2020 as the inconsistent supply chain and influx of competitors make the market challenging. We will continue to market our manufacturing capabilities and the V-Inline Separator.
As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(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, 2019,2020, as filed with the SEC on April 14, 2020.March 31, 2021. In the opinion of management, all adjustments, which are necessary to provide a fair presentation of financial position as of June 30, 2020,2021, 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 U.S., Inc., and its wholly-owned subsidiary, Florida Precision Aerospace, Inc. All significant intercompany accounts and transactions have been eliminated.
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include valuation of deferred tax assets, allowance for doubtful accounts and allowance for inventory obsolescence. Actual results may differ.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
NotesRevenue Recognition
We account for our revenues in accordance with the Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers” and all the related amendments. This standards core principal is that a company should recognize revenue when it transfers promised goods or services to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited)
Revenue Recognitioncustomers in an amount that reflects the consideration to which the company expects to receive.
The Company derives its revenue from the sale of the V-Inline Separators and some high precision manufacturing projects. We have also generated revenues from the sale of the Voraxial Separator to one customer, Schlumberger, through the Supply Agreement which expired in June 2020. We pursued designing, manufacturing and selling face shields during the Covid-19 quarantine period and are constantly seeking other sources of revenues. We account for revenue in accordance with ASC Topic 606.
Revenues that are generated from high precision manufacturing projects are recognized when we satisfy a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition.
Revenues that are generated from sales of V-Inline separators, auxiliary equipment and parts and face shields are typically recognized upon shipment. Our standard agreements generally do not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been complied with. As of June 30, 2020,2021, and December 31, 2019,2020, respectively, there was $0 and $0, respectively,$0 of deposits from customers. During the three and six months ended June
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020, we derived 24% and 37% of our revenues, respectively, from high precision manufacturing projects. The balance was due to the sales of face shields.2021
(UNAUDITED)
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, 20202021 and December 31, 2019,2020, the Company has $254$7,044 and $254$7,044 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, 20202021 and December 31, 2019,2020, approximate their fair value because of their relatively short-term nature.
ASC 820 “Disclosures about Fair Value of Financial Instruments,” requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value is observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of June 30, 20202021 and December 31, 2019.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited) 2020.
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, 20202021 and December 31, 2019.2020.
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, 20202021 and December 31, 2019.2020.
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, 2021 and December 31, 2020, the Company has a cash concentration of $237,267 in excess of FDIC limits.limits of $0 and $80,014, respectively.
Inventory
Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion and disposable and transportation and a normal profit margin.transportation. Inventory may include units
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of June 30, 2020,2021 and December 31, 2019:2020:
June 30, 2020 | December 31, 2019 | |||||||
Raw materials | $ | 58,564 | $ | 38,935 | ||||
Work in process | 12,907 | — | ||||||
Finished goods | 72,950 | 79,049 | ||||||
Total | $ | 144,421 | $ | 117,984 |
June 30, 2021 (unaudited) | December 31, 2020 | |||||
Raw materials | $ | 24,142 | $ | 30,145 | ||
Work in process | 19,142 | 10,240 | ||||
Finished goods | 72,950 | 72,950 | ||||
Total | $ | 116,234 | $ | 113,335 |
Inventory amounts are presented net of allowance for inventory reserves of $66,937$75,785 and $66,937$75,785 as of June 30, 20202021 and December 31, 2019,2020, 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(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
JUNE 30, 2020
(unaudited)
Net Loss Per Share
In accordance with the accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
As of June 30, 2021 and 2020, there were 2019 the Company has 100,000 and 13,465,000 shares issuable upon the exercise of options, respectively, whichrespectively. The Company had a net loss for three and six months ended June 30, 2021 and 2020; therefore, common stock equivalent shares are anti-dilutive. A separateexcluded from the computation of dilutednet loss per share if their effect is not presented.anti-dilutive.
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.
LEASES
The Company accounts for leases in accordance with Accounting Standard Codification (ASC) Topic 842. Operating lease assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
Advertising Costs
Advertising costs are expensed as incurred and are included in general and administrative expenses. There was $320 and $1,434 in advertising costs during the three months ended June 30, 2021 and June 30, 2020, respectively. There was $484 and $3,297 in advertising costs during the six months ended June 30, 2021 and June 30, 2020, respectively.
The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a stock award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation. The reclassification had no impact on the Company’s new loss of cash flow.
Recent Accounting Pronouncements
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited)
NOTE D - RELATED PARTY TRANSACTIONS
Effective January 1, 2018For the annual compensationthree months ended June 30, 2021, the Company incurred salary expenses for the Chief Executive Officer of the Company’s chief executive officerCompany of $52,500, of which a total of $0 of salary and accrued salary have been paid. During the six months ended June 30, 2021, the Company incurred salary expenses for the Chief Executive Officer of the Company of $105,000, of which a total of $26,250 salary has been paid. The total unpaid balance as of June 30, 2021 is $210,000. For$743,065 and is included in accrued expenses – related party. During the three and six months ended June 30, 2020, the Company incurred salary expenses for the Chief Executive Officer of the Company of $52,500.$52,500 and $105,000, respectively. During the six months ended June 30, 2020, a total of $75,000$75,000 of salary have beenwas paid and $81,650$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)G). The total unpaid balance as of June 30, 2020 is $559,315 and iswas 559,315, which were included in accrued expenses – related party.
Effective July 1, 2017, our non-employee directors receive a monthly fee of $1,000 for serving on the board of directors. During the three months ended June 30, 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500. During theand six months ended June 30, 2019,2021 and 2020, Raynard Veldman, received compensation for being a totalmember of $360,000the Company’s board of salarydirectors of $3,000 and accrued salary have been paid.$6,000, respectively. The total unpaid balance as of June 30, 2019 is $558,761 and is$18,000 has been included in accrued expenses – relatedexpenses-related party. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.
Effective July 1, 2017, Raynard Veldman, a member of the Company’s board of directors, receives a fee of $2,500 $2,500 per month for consulting services. During the three and six months ended June 30, 20202021 and 2019,2020, Mr. Veldman received consulting fees of $7,500$7,500 and $15,000,$15,000, respectively.
During the three and six months ended June 30, 2020 and 2019, Mr. Veldman, received compensation for being a member The unpaid balance 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.$45,500 has been included in accrued expenses- related party.
During the three months ended June 30, 2020, Mr. Veldman reduced his accrued expensefees by $10,000$10,000 to exercise his options (See Note F)G). As of June 30, 20202021 and December 31, 2019,2020, the total unpaid balance is $21,500accrued compensation and $10,500,consulting services are $63,500 and $42,500 respectively.
On June 9, 2020, the Company issued $0.01.$ . Mr. DiBella agreed reduce his accrued salary in the amount of $3,000$3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000$35,000 for the exercise of options.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE E – FIXED ASSETS
Fixed assets as of June 30, 20202021 and December 31, 20192020 consist of:
June 30, 2020 | December 31, 2019 | June 30, 2021 (unaudited) | December 31, 2020 | |||||||||||||
Machinery and equipment | $ | 938,312 | $ | 933,245 | $ | 490,927 | $ | 941,473 | ||||||||
Furniture and fixtures | 14,498 | 14,498 | 14,498 | 14,498 | ||||||||||||
Autos and Trucks | 5,294 | 5,294 | 5,294 | 5,294 | ||||||||||||
Total | 958,104 | 953,037 | 510,719 | 961,265 | ||||||||||||
Less: accumulated depreciation | (626,316 | ) | (603,660 | ) | (503,560 | ) | (648,797 | ) | ||||||||
Fixed Assets, net | $ | 331,788 | $ | 349,377 | $ | 7,159 | $ | 312,468 |
Depreciation expense was $11,328$3,827 and $11,265$11,328 for the three months ended June 30, 20202021 and 2019,2020, respectively.
Depreciation expense was $22,656$15,298 and $22,529$22,656 for the six months ended June 30, 2021 and 2020, and 2019, respectively.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited) The Company sold its CNC machining equipment for a sales price of $275,000 and incurred a loss of $15,011 from the sale of equipment. See Note F below.
note fNOTE F – shareholders’ equityEQUIPMENT NOTE PAYABLE
In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and was used for the manufacture of Voraxial Separators under the Supply Agreement and sales of the V-Inline Separators. Under the terms of the agreement the Company made an initial down payment of $85,661 and is required to make monthly payments of $6,788 through January 2023. In addition, the Company incurred $24,281 of installation costs. In April 2021, the Company entered into a purchase agreement to sell its CNC machining equipment for $275,000. The Company sold the equipment as the utilization of the CNC machining equipment for customer specific projects and the separation equipment decreased due to the Covid-19 pandemic. The Company can still manufacture the Voraxial and V-Inline Separators and manufacture customer specific projects with its current manufacturing equipment. As of June 30, 2021 and December 31, 2020 the amount owed is $0 and $175,398, respectively.
Schedule of equipment note payable
June 30, 2021 (unaudited) | December 31, 2020 | |||||||
Equipment note payable | $ | 0 | $ | 175,398 | ||||
Less: current portion | — | 71,812 | ||||||
Long-term equipment note payable | $ | — | $ | 103,586 |
NOTE G – SHAREHOLDERS’ EQUITY
COMMON STOCK
On June 9, 2020, the Company issued to 350,000 shares of its common stock to employees at $0.028$ per share, or $9,800,$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 RaynardMr. 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 outsidea 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.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
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 to 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$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
Number Outstanding | Exercise Price | Number Exercisable | |
Balance, December 31, 2020 | 10,000 | $0.10 | 10,000 |
Issued | — | — | 0 |
Expired | — | — | 0 |
Forfeited | — | — | 0 |
Balance, June 30, 2021 | 10,000 | $0.10 | 10,000 |
Exercise Price | Number Outstanding at June 30, 2021 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at June 30, 2021 | Weighted Average Exercise Price |
0.10 | 10,000 | 2.38 | $0.10 | 10,000 | $0.10 |
Total | 10,000 | — | 0 | 10,000 | 0 |
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, 2021 is $
as the stock price is higher than the exercise price.The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a share award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method for employees and officers.method.
On June 9, 2020, our Chief Executive Officer exercised 7,700,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $77,000 for the exercise of options.
REVERSE SPLIT
On June 9,August 27, 2020 Raynard Veldman,the Company filed Articles of Amendment to its Articles of Incorporation which, on the effective date of September 10, 2020 (the “Effective Date”):
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
• | effected a ten for one (10:1) reverse stock split of our outstanding common stock (“Reverse Stock Split”); and |
• | eliminated the existing class of preferred stock and create a new class of blank check preferred stock consisting of | shares.
These actions were approved by our shareholders at our 2020 Annual Meeting held on August 20, 2020.
As a memberresult of the Reverse Stock Split, on the Effective Date each 10 shares of our common stock issued and outstanding immediately prior to the Effective Date became one share of our common stock on the Effective Date. No fractional shares of common stock were issued to any shareholder in connection with the Reverse Stock Split and all fractional shares which might otherwise be issuable as a result of the Reverse Stock Split were rounded up to the nearest whole share. On the Effective Date, each certificate representing shares of pre-Reverse Stock Split common stock was deemed to represent one-tenth of a share of our post-Reverse Stock Split common stock, subject to rounding for fractional shares.
The Reverse Stock Split also affected the Company’s board of directors exercised 1,000,000outstanding stock options at anwhich resulted in the underlying shares of such instruments being reduced and exercise price being increased proportionally to the Reverse Stock Split ratio. All shares and per share data have been retroactively adjusted for all periods presented to reflect the effects of $0.01 per share. Mr. Veldman agreed to reduce his accrued consulting fees in the amount of $10,000 for the exercise of options.Reverse Stock Split.
NOTE H – COMMITMENTS AND CONTINGENCIES
SBA AND PPP LOANS
On June 9, 2020, an outside consultant exercised 700,000 stock options at an exercise price of $0.01 per share. The consultant agreed to reduce the payables due in the amount of $7,000 for the exercise of options. In addition, a related party exercised 3,800,000 stock options at an exercise price of $0.01 per share. The consultant agreed to reduce the payables due in the amount of $35,000 for the exercise of options for the related party. In addition, Mr. DiBella agreed to reduce his accrued salary in the amount of $3,000 for the exercise of options for the related party.
On June 9, 2020, two employees exercised 165,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $1,650 for the exercise of options for these three employees.
Information with respect to options outstanding and exercisable at June 30, 2020 is as follows:
Number Outstanding | Exercise Price | Number Exercisable | |
Balance, December 31, 2019 | 13,465,000 | $0.01 | 13,465,000 |
Issued | - | - | - |
Expired | - | - | - |
Exercised | (13,365,000) | $0.01 | (13,365,000) |
Forfeited | - | - | - |
Balance, June 30, 2020 | 100,000 | $0.01 | 100,000 |
Exercise Price | Number Outstanding at June 30, 2020 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at June 30, 2020 | Weighted Average Exercise Price |
0.01 | 100,000 | 3.38 | 0.01 | 100,000 | 0.01 |
Total | 100,000 | - | - | 100,000 | - |
The aggregate intrinsic value represents the excess amount over the exercise price optionees would have received if all the options have been exercised on the last business day of the period indicated based on the Company’s closing stock price of for such day. The aggregate intrinsic value as of June 30, 2020 is $1,490.
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited)
NOTE G – COMMITMENTS AND CONTINGENCIES
LOAN PAYABLE
On May 4, 2020, FPA received a loan (the “PPP“2020 PPP Loan”) from Bank of America, N.A. in the aggregate amount of $111,971,$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 2020 PPP Loan, which was in the form of a Notepromissory 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.annum. The Note may be prepaid by FPA at any time prior to maturity with no prepayment penalties. Funds from the 2020 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, 2020.2020. FPA intends to usebelieves it used the entire 2020 PPP Loan amount for qualifying expenses. Under the terms of the 2020 PPP Loan, certain amounts of the 2020 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We intend to applyare applying for forgiveness of the 2020 PPP Loan in accordance with the terms of the CARES Act. Loan payments are deferred for borrowers who apply for loan forgiveness until SBA remits the borrowers loan forgiveness amount to the lender. We have applied for forgiveness of $72,762 of the 2020 PPP loan and are waiting for forgiveness.
June 30, 2020 | December 31, 2019 | |||||||
Loan payable | $ | 111,971 | $ | — | ||||
Less: current portion | (46,752 | ) | — | |||||
Long-term loan payable | $ | 65,219 | $ | — |
On MayApril 5, 2020,2021, FPA also received an $8,000 granta loan (the “2021 PPP Loan”) from Cross River Bank. in the aggregate amount of $75,085, pursuant to the PPP under the CARES Act. The 2021 PPP Loan, which was in the form of a promissory note dated April 5, 2021 issued by FPA, has a 60 month term and matures on April 5, 2026 and bears interest at a rate of 1.00% per annum. The note may be prepaid by FPA at any time prior to maturity with no prepayment penalties. Funds from the U.S. Small Business Administration. The Company recognized the grant as other income during the six months ended June 30, 2020.
EQUIPMENT NOTE PAYABLE
In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and is2021 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. FPA has used the manufacture of Voraxial and V-Inline Separators, as well asentire 2021 PPP Loan amount for the manufacturing of high precision parts for customers.qualifying expenses. Under the terms of the agreementPPP, certain amounts of the 2021 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We have applied for forgiveness of the 2021 PPP Loan in accordance with the terms of the CARES Act and are waiting for forgiveness. Loan payments are deferred for borrowers who apply for loan forgiveness until SBA remits the borrowers loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred to 10 months after the end of the covered period for the borrower’s loan forgiveness (between 8 and 24 weeks).
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. On July 16, 2020, the Company made an initial down paymenthas requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of $85,661
15 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
3.75% per annum. Installment payments, including principal and financedinterest, are due monthly beginning July 16, 2022 in the remainingamount of $731. The balance of $340,644. The Companyprincipal and interest is required to make monthly paymentspayable 30 years from the date of $6,788 through January 2023. Asthe SBA Note. In connection therewith, FPA executed (i) a note for the benefit of June 30, 2020,the SBA, which contains customary events of default and December 31, 2019,(ii) a Security Agreement, granting the amount owed is $192,608SBA a security interest in all tangible and $226,172 respectively.intangible personal property of FPA, which also contains customary events of default.
June 30, 2020 | December 31, 2019 | |||||||
Equipment note payable | $ | 192,608 | $ | 226,172 | ||||
Less: current portion | (70,613 | ) | (68,276 | ) | ||||
Long-term equipment note payable | $ | 121,995 | $ | 157,896 |
June 30, 2021 (unaudited) | December 31, 2020 | |||||||
Loans payable | $ | 337,056 | $ | 261,971 | ||||
Less: current portion | (111,971 | ) | (65,867 | ) | ||||
Long-term loans payable | $ | 225,085 | $ | 196,104 |
Litigation
On or about October 23, 2017, a claim was filed in the 17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and damages. We are defending the case vigorously.
SALE OF INTELLECTUAL PROPERTYNOTE I - LEASE
On June 8, 2017, the Company and FPA, our wholly owned subsidiary, closed the transactions contemplated by
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNE 30, 2020
(unaudited)
the Technology Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”).
At closing, we sold our intellectual property (the “Purchased Intellectual Property”), substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of up to $4,000,000, of which $3,000,000 was paid to us at closing and the balance of $1,000,000 was paid in August 2019 upon satisfaction of certain post-closing conditions.
We utilized a portion of the proceeds from this transaction to pay most of our outstanding debt and are using the balance for general working capital. We used some of the proceeds to buy additional manufacturing equipment to meet potential future sales.
As part of the agreement, Schlumberger granted us a non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”), to make, use, sell, offer for sale, and import products and processes embodying the Purchase Intellectual Property outside the oil and gas market.
In addition, at closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston, Texas-based company engaged in the development, manufacture and sale of equipment used in the oil and gas industry. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension under the original terms. However, we have had discussions to develop a new agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020.
For a period of three years following the closing of the Technology Purchase Agreement, which expired in June 2020, the Company and Raynard Veldman and John Di Bella have agreed to not participate or cause participation in the oil-and-gas market in relation to phase or constituent sensing or separation which is defined as, liquid-liquid, liquid-solid or liquid-gas separation and gas or liquid sensing, including all product lines and services related thereto and including the Voraxial product line and services, except to the extent necessary to: (i) repair or service, but not remanufacture, any goods the Company sold to third persons prior to closing; (ii) fulfill, on or after closing, any customer obligation; or (iii) comply with any term or condition of the Agreement. In addition, the Company shall take all reasonable measures to ensure the confidentiality and prevent the improper use of all trade secrets. As the term has expired, the Company may review opportunities in the oil and gas industry.
NOTE H - LEASE
In December 2018, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57th Place, Fort Lauderdale, FL 33309. The lease is $4,839$4,839 per month, which includes common area maintenance, taxes and insurance and expires in on October 2021.31, 2021. The lease has a one-time renewal option for three years and an increased base rent of 3%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 ended June 30, 2021 and 2020, the total lease cost was $20,126 and $19,510, respectively, which includes variable lease cost of $5,798 and $4,771, respectively. Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate. For the six months ended June 30, 20202021 and 2019,2020, the total lease cost was approximately $14,700$40,440 and $29,400,$39,020, respectively, which includedincludes variable lease cost of approximately $4,500$9,064 and $9,000$9,541, respectively. For the six months ended June 30, 20202021 and 2019,2020, cash paid for operating lease liabilities was approximately $24,000 $22,596 and $29,000,$29,032, respectively.
June 30, 2020 | December 31, 2019 | |||||||
Operating lease liability | $ | 221,914 | $ | 243,039 | ||||
Less: current portion | (44,444 | ) | (42,973 | ) | ||||
Long-term operating lease liability | $ | 177,470 | $ | 200,066 |
NOTE J – MAJOR CUSTOMERS
ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
JUNEDuring the six months ended June 30, 2020
(unaudited) 2021, we recorded 87% of our revenue from two customers, with each representing 71% and 16% of total revenues.
NOTE I – MAJOR CUSTOMERSDuring the three months ended June 30, 2021, we recorded 90% of our revenue from two customers, with each representing 65% and 25% of total revenues.
During the six months ended June 30, 2020, we recorded 72%72% of our revenue from two customers, with each representing 60%60% and 12%12% of total revenues.
During the three months ended June 30, 2020, we recorded 86%86% of our revenue from two customers, with each representing 73%73% and 13%13% of total revenues.
During the three and six months ended June 30, 2019, we recorded 100% and 98% of our revenue from one customer.
As of June 30, 2020, three2021, two of the Company’s customers represents 62%, 15%63% and 11%, respectively,30% of the total accounts receivable.
As of December 31, 2019, one2020, three of the Company’s customers represents 99%68%, 17% and 15% of the total accounts receivables.
NOTE MK – SUBSEQUENT EVENTS
OnSubsequent to June 23, 2020,30, 2021, FPA executed the standard loan documents required for securingreceived a loan (the “EIDL Loan”)$7,000 grant from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If FPA does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA will lose the ability to draw the funds. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning June 23, 2021 (12 months from the date of the SBA note) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA Note. In connection therewith, FPA executed (i) a note for the benefit of the SBA, which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of FPA, which also contains customary events of default.U.S. Small Business Administration.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
OverviewThe following discussion of our financial condition and results of operations for the three and six months ending June 30, 2021 and 2020 and should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. 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 Cautionary Statement Regarding Forward Looking Information in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Historically, our business wasOverview
Although we experienced significant revenue growth in 2019 mainly through the development, manufacture and sale of Voraxial Separator and V-Inline Separators, 2020 proved to be an extremely challenging and disappointing year due to the Voraxial® Separator, proprietary technology now owned by Schlumberger that efficiently separates large volumesCovid-19 pandemic and the challenge to generate revenues has continued into 2021. In the first six months of liquid/liquid, liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. As described earlier2021, our revenues were mainly derived from machining and auxiliary parts for the V-Inline and Voraxial Separators. The demand from the oil industry dried up in 2020 as we saw a significant decline in oil prices and a drop in capital expenditures from the overall market. The decrease in capital expenditures and travel restrictions hindered sales opportunities for the V-Inline Separator. Customer inquiries decreased significantly as well during this report,period. The overhang from these disruptions have continued to create challenges for our company to generate revenues in March 20172021. The supply agreement we entered into a Technology Purchase Agreementsigned with Schlumberger pursuant to which we sold our intellectual property, substantially consistingin June 2017 as part of the Voraxial patents, marks, software and copyrights, to Schlumberger. In addition, pursuant to the Technology Purchase Agreement FPA entered intoexpired in 2020. As we did not generate significant revenues from this agreement, we did not pursue an extension of such agreement under its initial terms. However, we may continue to work together on a three year Supply Agreementproject by project basis with Cameron Solutions Inc. which expired in June 2020. We have had discussions to develop a new agreement; however there is no assurances thatuntil such time a new agreement will be finalized. The Company’s non-compete agreementis reached, if at all.
We believe there is a market for the V-Inline Separator in the oilmining, utilities, sewage and gas industry also expired in June 2020. Without a Supply Agreement,industrial wastewater industries, among others, which we will have to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. Regardless of our ability to negotiate a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures reached a negative $40 per barrel in 2020. Further, with the current economic landscape defined by the COVID19 virus, sales in 2020 may continue to suffer.market under our Grant Back License. We planintend to continue to support Schlumbergerseek opportunities for the V-Inline Separator through our rights under new terms on a per project basis.
Under the Technology Purchase Agreement, we were also granted aour Grant Back License to market the technology into other markets outside of the oil and gas market which we plan to pursue.License. We have branded our licensed products as V-Inline.the V-Inline Separator. In the fourth quarter of 2019 we shipped a wastewater system to a utility company that consisted of multiple V-Inline Separators to separate solids and oil from their wastewater stream. The system is being used to process and separate oil and solids from a flow of about 100 gallons per minute. The system includes different technologies with the heart of the system being comprised of two V-Inline 2000 Separators working in parallel with a third V-Inline Separator being utilized to further dewater the reject lines from the System.
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.Going Concern
The benefits ofFor 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 quartersix months ended June 30, 2020 to the medical industry2021, we reported a net loss of $415,582 and general public. Althoughnet cash used in operations of $239,592. At June 30, 2021, we achieved 63%had cash on hand of $271,659, a working capital deficit of $937,819 and an accumulated deficit of $16,338,011. The report of our revenues inindependent registered public accounting firm on our consolidated financial statements for the quarteryear ended June 30,December 31, 2020 from the sale of face shields, we do not anticipate this market opportunitycontains an explanatory paragraph regarding our ability to continue as the supply chain and margins are challenging with many companies entering this market. We continue to marketa going concern based upon our manufacturing capabilities.
Impact of Covid-19 on our Company
As described elsewhere herein, we are materially dependent on revenues from a limited number of customers. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including our industry.
In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we eliminated non-essential travel, and altered work schedules at our manufacturing facility. In addition, our senior management began working remotely. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began.
Even before the “stay at home” order was issued, we were experiencing a significant decline in orders from our customers because of disruptions in our customers’ businesses as a result of the Covid-19 pandemic. In addition, as a result of our historic concentration on sales to customers in the oil and gas industry, the decline in oil prices has had a materially adverse impact our sales beginning with the first quarter of 2020 and continuing through the second quarter of 2020. During the first six months of 2020 we experienced a slowdown from customer’s inquiries in all industries and we expect that trend to continue until such time as the full impact of the virus is known, travel restrictions are lifted and corporate capital expenditures are normalized. We also expect delays in our supply chain, including delivery of raw materials and component products as companies throughout the country are affected by local quarantines and disruptions.
While we are able to continue operations as a non-consumer facing company that can fulfill shipments with a minimal staff that can maintain social distancing, we have reduced manufacturing hours. Our senior management are working remotely, and we have curtailed non-essential travel, and are seeking alternative strategies for the continuation of our company.
While the foregoing are some of the immediate impacts we are witnessing, this list is not exhaustive and we are unable to predict the overall impact on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not know if we have sufficient access to working capital deficit, accumulated deficit and negative cash flows from historic sourcesoperations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our senior managementconsolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company. We estimate we require approximately $800,000 to monitormaintain 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 forover the foreseeable future.next 12 months.
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Results of Operations for the Three Months and Six Months ended June 30, 20202021 and 2019:2020:
Revenue
OurWhile our revenues decreasedwere nominal for the three and six months ended June 30, 2021, our revenues increased by approximately 85%28% and approximately 82%145%, respectively for the three and six months ended June 30, 20202021 from the comparable periodsperiod in 2019.2020. There are no assurances we will be able to increase our revenues to the profitability levels we experienced in fiscal year 2019 before the Covid-19 pandemic or report profitable operations in the future. Further, the lingering economic impact of the Covid-19 pandemic may have a continued negative effect on the potential for sales of V-inline Separators. Our revenues have beenare dependent in the past few years on sales to Schlumberger andupon our ability to develop a consistent sales channel for the V-Inline Separators.Separators and potentially additional sales of the Voraxial Separator from Schlumberger. Although we received a purchase order from Schlumberger in the first quarter of 2021 for some auxiliary parts, there are no assurances that we will receive additional orders in the future. As discussed earlier in this report, we believe that our revenues for the threesix months ended June 30, 2021 and fiscal year 2020 werehave been adversely impacted by the Covid-19 pandemic and the attendant significant drop in oil prices.prices in 2020. Even once the effects of the pandemic on our business subsides, which at this moment we do not know when this may occur, it may take longer than expected for business in our target markets to resume normal operations. Accordingly, at this time we are unable to predict the ultimate impact to our revenues for the remaining 2020.2021.
The majority of our sales in the six months ended June 30, 2021 were a result of manufacturing specific machine parts for our customers, sales to Schlumberger related to the Voraxial Separator, and sales of auxiliary equipment and parts of the V-Inline Separator. The majority of revenues in the first half of 2020 were a result of manufacturing specific machine parts for our customers and face masks. We continueceased manufacturing facemasks in the third quarter of 2020, as it was not profitable to try to leverage our manufacturing capabilitiesCompany.
Cost of Goods SOLD
Our cost of goods sold decreased by exploring different opportunities, such as high precision manufacturingapproximately 7% and manufacturing of face shields. Inincreased by approximately 86%, respectively, for the three and six months ended June 30, 2020, we derived
76% and 63%, respectively, of our revenues from the sale of face shields to the medical industry and general public. We do not expect additional sales of face shields as the supply chain and margins proved to be challenging.
The majority of revenues in the second quarter and first six months of 2020 were a result of high precision manufacturing for our customers and the sale of face shields. The majority of our sales in the second quarter and first six months of 2019 were a result of Voraxial sales and sales of auxiliary equipment and parts
Cost of Goods
Our cost of goods decreased by approximately 86% for each of the second quarter and first six months of 20202021 from the comparable periods 2019. This decreaseperiod 2020. As COVID-19 disrupted our business, we are selling different components and products in our pursuit to develop a consistent sales channel. The changes in our COGS is mainly due to the significant declinea fluctuation in revenues and shift in revenues to manufacturing high precision components and face shields we experienced and the different manufacturing projects we completed during the three and six months ended June 30, 2020 as compared to Voraxial Separator in 2019.2021. 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 increaseddecreased by approximately 13% and approximately 11%, respectively,23% for each of the second quarter and first six months of 20202021 from the comparable periods 2019.period 2020 as we continue to reduce expenditures as a result of Covid-19 pandemic. Included in this increasedecrease was an increasea decrease of approximately 44% and 28%, respectively, in general and administrative expenses including increases in insurance which reflects the commencement of paid health benefits for our employeesthree and six months ended June 30, 2021 from the comparable period in July 2019, and2020. The decrease is attributable to a decrease in repair and maintenance which reflects basic manufacturing upkeep.and insurance expense during the three and six months ended June 30, 2021. In addition, payroll expense increased duringdecreased approximately 1% and 16% in the 2020 periods as compared tothree and six months ended June 30, 2021 from the 2019 periodscomparable period in 2020 as we experienced a higher absorption costs into our manufacturing activitiesreduced the number of Voraxial Separator in 2019 which was offset by a non-cash expense for issuance of stockemployees and overtime hours due to our employees in 2020.slower economic activity. Professional fees decreased by approximately 35% and 32%, respectively, in the three and six months ended June 30, 2021 from the comparable period in 2020 as we continue to minimize expenses.reduce expenses due to the Covid-19 pandemic.
TOTAL OTHER INCOME (EXPENSE)
During the second quarter of 2020 we received a $8,000 grant from the Small Business Association for working capital which is reflected as other income during the period. We did not have comparable income during the 2019 period. Interest expense represents the amounts due under the financing agreement for the CNC machine.
Liquidity and Capital Resources:
Cash at June 30, 20202021 was $507,709$271,659 as compared to $674,844$336,564 at December 31, 2019.2020. Our working capital deficit at June 30, 20202021 was $391,364$937,819 as compared to a working capital deficit at December 31, 20192020 of $38,544.$750,481. At June 30, 2020,2021, we had an accumulated deficit of $15,433,327.$16,338,011. Our current assets decreased by 39%13% at June 30, 20202021 as compared to December 31, 2019,2020, which reflects decreases in our cash accounts receivables and prepaid expensescash equivalents, partially offset by increasesincrease in our inventory.accounts receivables. Increase in accounts receivable is due to an increase in manufacturing projects completed during the period. Our current liabilities decreasedincreased by 7%10% at June 30, 20202021 as compared to December 31, 2019,2020, which reflects a decreasean increase in accounts payable, loans payable – current portion and
18 |
accrued expenses and accrued expenses – related party. Increase in accrued expenses – related party offset byis due to the noteaccrual of management’s salary, consulting and board fees for one of our members of board of directors. Accounts payable issuedand accrued expenses increased due to professional fees. Increases in loans payable, current portion is due to the 2020 PPP Loan becoming current during the quarter.period. FPA believes it used the 2020 PPP Loan amount for qualifying expenses. Under the terms of the 2020 PPP Loan, certain amounts of the 2020 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We have applied for forgiveness of $72,762 of the 2020 PPP loan in accordance with the terms of the CARES Act and are waiting for forgiveness.
On April 5, 2021, FPA received a loan (the “2021 PPP Loan”) from Cross River Bank. in the aggregate amount of $75,085, pursuant to the PPP under Division A, Title I of the CARES Act. FPA has used the entire 2021 PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the 2021 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We have applied for forgiveness of the 2021 PPP Loan in accordance with the terms of the CARES Act and are waiting for forgiveness.
We do not have any external sources of liquidity and we do not have any capital commitments. On May 4, 2020, FPA received a $111,971 PPP Loan as described in Note G to the unaudited condensed consolidated financial statements appearing earlier in this report. We are using the proceeds from the PPP Loan for qualifying expenses under the CARES Act. In addition, on May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. We are using those proceeds for working capital. Lastly, in July, 2020 FPA also received a $150,000 EIDL Loan from the SBA at a per annum interest rate of 3.75%. Installment payments, including principal and interest, of $731.00 monthly, will begin 12 months from the date of the promissory note. The proceeds from the EIDL Loan may be used for our general operating expenses.
Summary of cash flows
The following table summarizes our cash flows:
The following table summarizes our cash flows: | ||||||||
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
Cash flow data: | ||||||||
Cash used in operating activities | $ | (239,592 | ) | $ | (240,475 | ) | ||
Cash used in investing activities | $ | 275,000 | $ | (5,067 | ) | |||
Cash used in financing activities | $ | (100,313 | ) | $ | 78,407 |
Net cash used in operating activities in the six months ended June 30, 2021 was primarily attributable to our net loss for the period, increases in accrued expenses – related party and accounts payable and accrued expenses offset in part by increases in accounts receivable and inventory.
Six Months Ended June 30, | |||||||
2020 | 2019 | ||||||
(Unaudited) | |||||||
Cash flow data: | |||||||
Net cash (used) in operating activities | $ | (240,975 | ) | $ | (604,444 | ) | |
Net cash (used) in investing activities | $ | (5,067 | ) | $ | — | ||
Net cash (used in) provided by financing activities | $ | 78,407 | $ | (31,379 | ) |
Net cash used in operating activities in the six months ended June 30, 2020 was primarily attributable to our net loss for the period, increase in inventory and decrease in accounts payable and accrued expenses. These were offset by decreases in accounts receivable and accrued expenses- related parties.
Net cash used in operatinginvesting activities induring the six months ended June 30, 20192021 was primarily attributable to our net loss for the period, a decrease in accrued expenses – related party and increases in inventory and prepaid expenses offset in part by an increase in deposit from customer. Increase in deposit from customer is primarily attributable to deposit received on a purchase order we received from a utility company.
sale of equipment. Net cash used in investing activities during six months ended June 30, 2020 was attributable to the purchase of equipment. We did not have a comparable expense in the 2019 period.
Net cash used in financing activities during the six months ended June 30, 2021 was primarily attributable to the repayment of the equipment note payable offset by the proceeds from the 2021 PPP loan. Net cash provided by financing activities during the six months ended June 30, 2020 was primarily attributable to proceeds from the 2020 PPP loan offset by the repayment of the equipment note payable. Net cash
In April 2021, the Company entered into a purchase agreement to sell its CNC machining equipment for $275,000. The machining equipment was received in July 2017 and was used in financing activities duringfor the 2019 period reflectedmanufacture of customer specific projects along with the repaymentlargest Voraxial and V-Inline Separators. The Company sold the equipment as the utilization of the CNC machining equipment note payable.for customer specific projects and the separation equipment decreased due to the Covid-19 pandemic.
19 |
Continuing Losses and Going Concern
Looking Forward
As a result of the uncertainties facing our company as discussed elsewhere in this report, including the impact of the Covid-19 pandemic, we are unable to predict the overall impact in 20202021 and beyond on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not expect to be able to access the capital markets for additional working capital in the near future. Our senior management will continue to monitor our situation on a daily basis, however, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future. Our management has also begun exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. We are not currently a party to any agreement or understandings with any third parties, and there are no assurances even if our management locates an opportunity which it believes will be in the best interests of our shareholders what we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.
Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on a number of factors, many of which are beyond our control. Our independent auditors have included in their audit report included in our 2019 10-K an explanatory paragraph that states that our working capital deficits and accumulated deficit raises substantial doubt about our ability to continue as a going concern. If we fail to achieve profitability on a quarterly or annual basis, or to raise additional funds when needed, or do not have sufficient cash flows from sales, we may be required to scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection. As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Application of Critical Accounting PoliciesEstimates
The Company’s condensed consolidated unauditedOur financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. CertainAmerica (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note C of the Notes to Condensed Consolidated Financial Statements appearing later in this report describes the significant accounting policies have a
significant impact on amounts reportedused in the preparation of the condensed consolidated financial statements. A summaryCertain of these significant accounting policies canare considered to be found in Note Ccritical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the Company’spresentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the Company’s 2019 10-K. Amongestimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the significantcircumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments made in preparationand uncertainties affecting the application of the Company’sthose policies, management believes that our condensed consolidated financial statements are fairly stated in accordance with U.S. GAAP, and present a meaningful presentation of our financial condition and results of operations. We believe the determinationfollowing critical accounting policies reflect our more significant estimates and assumptions used in the preparation of theour condensed consolidated financial statements:
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.
20 |
Inventory
Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
Leases
The Company accounts for leases in accordance with Accounting Standard Codification (ASC) Topic 842. Operating lease assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of equity instrumentslease payments not yet paid. Operating lease assets represent our right to use an underlying asset and adjustmentsare based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of inventory valuations. These adjustmentsoperating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases.
Income Taxes
The Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are made each quarterrecognized 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 ordinary courseyears 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 accounting.a change in tax rates is recognized in income in the period that includes the enactment date.
Contingencies
The Company is involved in a legal proceeding. The Company assessed the probability of occurrence and whether any loss or range of loss can be reasonably estimated for the legal proceeding. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the consolidated financial statements would be material, the Company provides disclosure of the loss contingency in the footnotes to the consolidated financial statements. The Company reviews the status of the legal proceeding at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made.
Recent Accounting Pronouncements
All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
Off Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable to smaller reporting company.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
21 |
The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer who also serves as our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2020.2021. Based upon continuing material weakness in the Company’s internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, 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.
Item 1. | Legal Proceedings |
On or about October 23, 2017, a claim was filed in the 17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and damages. We are defending this action, as we believe this claim is without merit.None.
Item 1A. | Risk Factors |
We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 20192020 Form 10-K, and our subsequent filings with the SEC, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings. We expect that these risks will continue to be exacerbated by the impact of the Covid-19 pandemic on our company and any worsening of the economic environment.10-K.
Our loan under the Paycheck Protection Program may not be forgiven.
We have received loan proceeds in the amount of approximately $111,971 under the PPP. Under the terms of the CARES Act, PPP loan recipients can apply for loan forgiveness. The potential loan forgiveness for all or a portion of the PPP Loan is determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The amount of loan forgiveness will be reduced if PPP loan recipients terminate employees or reduce salaries during the covered period. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loan, there can be no assurance that forgiveness for any portion of the PPP Loan will be obtained.
We have granted the SBA a blanket security interest in our assets under the terms of the EIDL Loan.
Under the terms of the EIDL Loan, FPA granted the SBA in blanket security interest in its assets which represent substantially all of our assets. In the event we should default under the EIDL Loan it is possible that the SBA may foreclose on all our assets. In that event, our ability to continue our business and operations as presently conducted would cease and investors would likely loose their entire investment in our company.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On June 9, 2020, the Company issued 350,000 shares of its common stock to five employees at $0.028 per share, or $9,800, for services rendered. The shares were issued pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The shares contain a legend restricting their transferability absent registration or applicable exemption. The employees are sophisticated investors and had access to business and financial information concerning the company.None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosure |
Not applicable to our company.
Item 5. | Other Information |
On June 23, 2020, FPA executed the standard loan documents required for securing a $150,000 EIDL Loan from the SBA. Pursuant to that certain Loan Authorization and Agreement, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If the Company does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA
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.None.
Item | Exhibits |
Incorporated by Reference | Filed or | |||||||||
No. | Exhibit Description | Form | Date Filed | Exhibit Number | Furnished Herewith | |||||
2 | Agreement and Plan of Reorganization | Form 10 | 11/03/99 | 2 | ||||||
3(i) | Articles of Incorporation | Form 10 | 11/03/99 | 3(i) | ||||||
3(ii) | Bylaws | Form 10 | 11/03/99 | 3(ii) | ||||||
3(iii) | Articles of Amendment to the Articles of Incorporation | 8-K | 11/13/17 | 3.2 | ||||||
10.1 | Note dated May 4, 2020 by and between Florida Precision Aerospace, Inc. and Bank of America | 8-K | 5/14/20 | 10.1 | ||||||
10.2 | Loan Authorization and Agreement dated June 23, 2020 | Filed | ||||||||
31.1 | Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer | Filed | ||||||||
31.2 | Rule 13a-14(a)/15d-4(a) Certification of Chief Financial Officer | Filed | ||||||||
32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | Filed | ||||||||
101.INS | XBRL Instance Document | Filed | ||||||||
101.SCH | XBRL Taxonomy Extension Schema Document | Filed | ||||||||
101.CAL | XBRL Taxonomy Calculation Linkbase Document | Filed | ||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed |
Incorporated by Reference | Filed or | |||||||||
No. | Exhibit Description | Form | Date Filed | Exhibit Number | Furnished Herewith | |||||
2 | Agreement and Plan of Reorganization | 10 | 11/03/99 | 2 | ||||||
3(i) | Articles of Incorporation | 10 | 11/03/99 | 3(i) | ||||||
3(ii) | Bylaws | 10-K | 3/31/21 | 3(ii) | ||||||
3(iii) | Articles of Amendment to the Articles of Incorporation | 8-K | 11/13/17 | 3.2 | ||||||
3(iv) | Articles of Amendment to the Articles of Incorporation | 8-K | 9/9/20 | 3(iv) | ||||||
3(v) | Statement of Domestication filed in the State of Idaho | 8-K | 12/28/20 | 3(iv) | ||||||
3(vi) | Certificate of Domestication and Articles of Incorporation filed in the State of Florida | 8-K | 12/28/20 | 3(v) | ||||||
10.1 | Purchase Order dated April 22, 2021 | Filed | ||||||||
31.1 | Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer | Filed | ||||||||
31.2 | Rule 13a-14(a)/15d-4(a) Certification of Chief Financial Officer | Filed | ||||||||
32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | Filed | ||||||||
101.INS | XBRL Instance Document | Filed | ||||||||
101.SCH | XBRL Taxonomy Extension Schema Document | Filed | ||||||||
101.CAL | XBRL Taxonomy Calculation Linkbase Document | Filed | ||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned as a duly authorized.
Enviro Technologies U.S., Inc. | ||
By: | /s/ John A. Di Bella | |
John A. Di Bella | ||
Chief Executive Officer and Chief Financial Officer | ||
DATED: August 14, 20209, 2021