UNITED STATES

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

March 31, 2021

or

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

For the transition period from _____________ to ______________

Commission File Number: 000-304540-30454

Enviro Technologies U.S., Inc.
(Exact name of registrant as specified in its charter)

821 NW 57^th Place, Fort Lauderdale, Florida 33309
(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:

Indicate by check mark whether the registrantIssuer (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.

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: On November 9, 2020, the issuerMay 17, 2021, we had 4,950,125 shares of our Common Stock outstanding.

INDEX

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part 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”), our Quarterly Report on Form 10-Q for the period ended June 30, 2020 as filed with the SEC on August 14, 2020, as well as and 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

All share data contained herein gives pro forma effect to the 10:1 reverse stock split of our common stock which was effective on September 10, 2020.

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, “third“first quarter of 2021” refers to the three months ended March 31, 2021, “first quarter of 2020” refers to the three months ended September 30,March 31, 2020, “third quarter of 2019” refers to the three months ended September 30, 2019, “2019”“2020” refers to the year ended December 31, 20192020 and “2020”“2019” refers to the year ending December 31, 2020.2019. We maintain a corporate website at www.evtn.com. Unless specifically set forth to the contrary, the information which appears on our website at www.evtn.com is not part of this report.

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

 ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Unaudited)

For the three months ended September 30, 2020 and 2019

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

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(Unaudited)

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

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2021 and 2020
(Unaudited)

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

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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 Topic 842.

Advertising Costs

Advertising costs are expensed as incurred and are included in general and administrative expenses. There was $168 and $1,863 in advertising costs during the periods ended March 31, 2021 and March 31, 2020, respectively.

Stock-Based Compensation

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

Reclassification

Certain amounts from prior periods have been reclassified to conform to the current period presentation. The reclassification had no impact on the Company’s new loss of cash flow.

Recent Accounting Pronouncements

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

NOTE D - RELATED PARTY TRANSACTIONS

Effective January 1, 2018For the annual compensation ofthree months ended March 31, 2021, the Company’sCompany incurred salary expenses for the Chief Executive Officer of the Company of $52,500. During the three months ended March 31, 2021, a total of $26,250 of salary and accrued salary have been paid. The total unpaid balance as of March 31, 2021 is $210,000.$690,565 and is included in accrued expenses – related party. For the three and nine monthsmonth ended September 30,March 31, 2020, the Company incurred salary expenses for the Chief Executive Officer of the Company of $52,500 and $157,500, respectively. During$52,500. Of these amounts, $0 had been paid for the ninethree months ended September 30, 2020, a total of $75,000 of salary have been paid and $81,650 of accrued salary were used to exercise the options for Mr. DiBella, Adele DiBella, and two employees of the Company (See Note F).March 31, 2020. The total unpaid balance as of September 30,March 31, 2021 and December 31, 2020 is $611,815are $663,465 and is$664,315, respectively, which are included in accrued expenses – related party.

During the three and nine months ended September 30, 2019, the Company incurred salary expenses from the Chief Executive OfficerMarch 31, 2021 and 2020, Mr. Veldman, received compensation for being a member of the CompanyCompany’s board of $52,500directors of $3,000 and $157,500,$3,000, respectively. During the nine months ended September 30, 2019, a total of $400,000 of salary and accrued salary have been paid. The total unpaid balance as of September 30, 2019 is $571,261 and ishas 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 per month for consulting services. During the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, Mr. Veldman received consulting fees of $7,500 and $22,500,$7,500, respectively.

During the three and nine months ended September 30, 2020 and 2019, Mr. Veldman, received compensation for being a member of the Company’s board of directors of $3,000 and $9,000, respectively. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.

During the three months ended September 30, 2020, Mr. Veldman reduced his The unpaid balance has been included in accrued expense by $10,000 to exercise his options (See Note F).expenses- related party. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the total unpaid balance is $32,000accrued compensation and $10,500,consulting services are $53,000 and $42,500 respectively.

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

On June 9, 2020, the Company issued 380,000 shares of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $0.10. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2021

(UNAUDITED) 

NOTE E – FIXED ASSETS

Fixed assets as of September 30, 2020March 31, 2021 and December 31, 20192020 consist of:

Depreciation expense was $11,328$11,471 and $11,265$11,328 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively.

Depreciation expense was $33,984 and $33,794NOTE F – EQUIPMENT NOTE PAYABLE

In July 2017, the Company entered into a financing agreement for the nine months ended September 30,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. As of March 31, 2021 and December 31, 2020 the amount owed is $157,665 and 2019,$175,398, respectively. See NOTE K “SUBSEQUENT EVENTS”.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

note fG – shareholders’ equity

COMMON STOCK

On June 9, 2020, the Company issued to 35,000 shares of its common stock to employees at $0.28 per share, or $9,800, for services rendered. The Company valued these common shares based on the fair value at the date of grant.

On June 9, 2020, the Company issued 770,000 shares of its common stock to our Chief Executive Officer in connection with the exercise of a stock option at an exercise price of $0.10. Mr. DiBella reduced his accrued salary in the amount of $77,000 for the exercise of options.

On June 9, 2020, the Company issued 100,000 shares of its common stock to Mr. Veldman in connection with the exercise of a stock option at an exercise price of $0.10. Mr. Veldman reduced his accrued consulting and Board of Director fees in the amount of $10,000 for the exercise of options.

On June 9, 2020, the Company issued 70,000 shares of its common stock to a consultant in connection with the exercise of a stock option at an exercise price of $0.10. The consultant agreed to reduce her payable in the amount of $7,000 for the exercise of options.

On June 9, 2020, the Company issued 16,500 shares of its common stock to two employees in connection with the exercise of a stock option at an exercise price of $0.10. Mr. DiBella agreed reduce his accrued salary in the amount of $1,650 for the exercise of options.

On June 9, 2020, the Company issued 380,000 shares of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $0.10. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.

Options

 Information with respect to options outstanding and exercisable at March 31, 2021 is as follows:

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2021

(UNAUDITED) 

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 March 31, 2021 is $1,500.

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 770,000 stock options at an exercise price of $0.10 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $77,000 for the exercise of options.

On June 9, 2020, Mr. Veldman exercised 100,000 stock options at an exercise price of $0.10 per share. Mr. Veldman agreed to reduce his accrued consulting fees in the amount of $10,000 for the exercise of options.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited)  

On June 9, 2020, a consultant exercised 70,000 stock options at an exercise price of $0.10 per share. The consultant agreed to reduce the payables due in the amount of $7,000 for the exercise of options. In addition, a related party exercised 380,000stock options at an exercise price of $0.10per share. The consultant agreed to reduce the payables due in the amount of $35,000 for the exercise of options for the related party. In addition, Mr. DiBella agreed to reduce his accrued salary in the amount of $3,000 for the exercise of options for the related party. 

On June 9, 2020, two employees exercised 16,500 stock options at an exercise price of $0.10 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $1,650 for the exercise of options for these three employees.

Information with respect to options outstanding and exercisable at September 30, 2020 is as follows:

The aggregate intrinsic value represents the excess amount over the exercise price optionees would have received if all the options have been exercised on the last business day of the period indicated based on the Company’s closing stock price of for such day. The aggregate intrinsic value as of September 30, 2020 is $260. 

REVERSE SPLIT

On August 27, 2020 the Company filed Articles of Amendment to its Articles of Incorporation which, on the effective date of September 10, 2020 (the “Effective Date”):

These actions were approved by our shareholders at our 2020 Annual Meeting held on August 20, 2020.

As a result of the Reverse Stock Split, on the Effective Date each 10 shares of our common stock issued and outstanding immediately prior to the Effective Date became one share of our common stock on the Effective Date. No fractional shares of common stock were issued to any shareholder in connection with the Reverse Stock Split and all fractional shares which might otherwise be issuable as a result of the Reverse Stock Split were rounded up to the nearest whole share. On the Effective Date, each certificate representing shares of pre-Reverse Stock Split common stock was deemed to represent one-tenth of a share of our post-Reverse Stock Split common stock, subject to rounding for fractional shares.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

The Reverse Stock Split also affected the Company’s outstanding stock options which resulted in the underlying shares of such instruments being reduced and exercise price being increased proportionally to the Reverse Stock Split ratio. All shares and per share data have been retroactively adjusted for all periods presented to reflect the effects of the Reverse Stock Split.

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2021

(UNAUDITED)

NOTE GH – COMMITMENTS AND CONTINGENCIES

SBA AND PPP LOANS

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

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

On May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. The Company recognized the grant as other income during the nine months ended September 30, 2020.

On June 23, 2020, FPA executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (nine months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If FPA does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA will lose the ability to draw the funds. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance.annum. 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.

EQUIPMENT FINANCING

In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and is used for the manufacture of Voraxial and V-Inline Separators, as well as for the manufacturing of high precision parts for customers. Under the terms of the agreement the Company made an initial down payment of $85,661 and financed the remaining balance of $340,644. The Company is required to make monthly payments of

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

$6,788 through January 2023. As of September 30, 2020, and December 31, 2019, the amount owed is $192,608 and $226,172 respectively.

Litigation

On or about October 23, 2017, a claim was filed in the 17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and damages. We are defending the case vigorously.

SALE OF INTELLECTUAL PROPERTY

On June 8, 2017, the Company and FPA, our wholly owned subsidiary, closed the transactions contemplated by the Technology Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”).

At closing, we sold our intellectual property (the “Purchased Intellectual Property”), substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of up to $4,000,000, of which $3,000,000 was paid to us at closing and the balance of $1,000,000 was paid in August 2019 upon satisfaction of certain post-closing conditions.

We utilized a portion of the proceeds from this transaction to pay most of our outstanding debt and are using the balance for general working capital. We used some of the proceeds to buy additional manufacturing equipment to meet potential future sales.

As part of the agreement, Schlumberger granted us a non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”), to make, use, sell, offer for sale, and import products and processes embodying the Purchase Intellectual Property outside the oil and gas market.

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

NOTE HI - LEASE

In December 2018, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57^thPlace, Fort Lauderdale, FL 33309. The lease is $4,839 per month, which includes common area maintenance, taxes and insurance and expires in October 2021. The lease has a one-time renewal option for three years and an increased base rent of 3%. The Company has the option to terminate the lease with three months’ notice. The Company accounts for lease in accordance with ASC Topic 842.

For the three months ended March 31, 2021 and nine months ended September 30, 2020, and 2019, the total operating lease cost was approximately $14,700$20,220 and $44,100,$19,510, respectively, which includedincludes variable lease cost of approximately $4,500$5,704 and $13,500$4,771, respectively. Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate. For the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, cash paid for operating lease liabilities was approximately $32,000$14,516 and $32,000,$14,516, respectively.

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2021

(UNAUDITED) 

NOTE IJ – MAJOR CUSTOMERS

During the nine months ended September 30, 2020, we recorded 74% of our revenue from three customers, with each representing 39%, 18% and 17% of total revenues.

During the three months ended September 30, 2020,March 31, 2021, we recorded 91% of our revenue from three customers, with each representing 42%, 30% and 19% of total revenues.

During the three months ended September 30, 2019, we recorded 59% and 41% of our revenue from two customers, respectively.

During the nine months ended September 30, 2019, we recorded 96%76% of our revenue from one customer.

During the three months ended March 31, 2020, we recorded 96% of our revenue from two customers, with each representing 57% and 39% of total revenues.

As of September 30, 2020, threeMarch 31, 2021, one of the Company’s customers represents 56%, 22% and 17%, respectively,81% 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 receivable.receivables.

NOTE K – SUBSEQUENT EVENTS

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, which was enacted March 27, 2020. 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, payable monthly commencing on April 5, 2022. The note may be prepaid by FPA at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations. FPA intends to use 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.

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 for the manufacture of customer specific projects along with the largest Voraxial and V-Inline Separators. 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.

OverviewThe following discussion of our financial condition and results of operations for the three months ending March 31, 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. Our revenues were mainly derived from machining, face guards and auxiliary parts for the V-Inline Separators. The demand from the oil industry dried up as we saw a significant decline in oil prices and a drop in capital expenditures from the overall market, both the oil industry and industries outside of liquid/liquid, liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. As described earlier in this report, in March 2017oil and gas hindered sales opportunities for the V-Inline Separator. Customer inquiries decreased significantly as well. 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, oris reached, if finalized, will any revenues be generated as COVID-19 has slowed economic activityat all.

We believe there is a market for the V-Inline Separator in the oilmining, utilities, sewage and gas industry. Due to the lower than expected income generated from the Supply Agreement,industrial wastewater industries, among others, which we would require significant changes to the agreement. We continue to communicate with Cameron to work without a Supply Agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020. Without a Supply Agreement, we will have to redevelopmarket under our relationships with customers in the oil and gas industry to generate revenues from this industry. Regardless of our relationship with Cameron, the oil industry will be challenging as and the oil and gas industry is experiencing significantly layoffs and cuts to capital expenditures due to Covid-19 and the weak price of oil. Further, with the current economic landscape defined by the COVID19 virus, sales in 2020 may continue to suffer.Grant Back License. We planintend to continue to support Cameronseek 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. 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. We shipped the wastewater system in the fourth quarter of 2019. 

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. We designed our version of a face shield which we manufactured and sold during the second quarter to the medical industry and general public. Although we achieved 42% net revenues from the sale of face shields in the first sixthree months ended June 30, 2020,March 31, 2021, we discontinued marketing the face shields during the third quarterreported a net loss of 2020 as the supply chain$(190,874) and margins were challenging with many companies entering this market. We continue to marketnet cash used in operations of $145,494. At March 31, 2021, we had cash on hand of $173,337, a working capital deficit of $986,502 and an accumulated deficit of $16,113,303. The report of our manufacturing capabilities and look for opportunities to manufacture and market other products.

Impact of Covid-19independent registered public accounting firm on our Company

As described elsewhere herein, we are materially dependent on revenues from a limited number of customers. On March 11,consolidated financial statements for the year ended December 31, 2020 the World Health Organization declared the COVID-19 outbreakcontains an explanatory paragraph regarding our ability 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 addition,continue as a result ofgoing concern based upon 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 third quarter of 2020. During the first nine 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 has passed, travel restrictions reduced 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 may continue to be 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 as best as we can without reducing our staff. We are making every attempt to keep our employees but may require to further reduce their hours or release them if we do not begin to see any improvements in our revenue growth. 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 management will continue to monitor our situation on a daily basis. However, we expectconsolidated financial statements do not include any adjustments that these factors and others we have yet to experience will materially adversely impact our company, its business and operations formight result from the foreseeable future.

During 2020 our management began exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. While we have engaged in various non-binding discussions with possible targets, we are not currently a party to any agreement or understandings with any third parties, and thereoutcome of this uncertainty. There are no assurances even if our management locates an opportunity which it believeswe 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 maintain our operations over the best interests of our shareholders what we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.next 12 months.

Subsequent to the period covered by this report, in April 2021 we received approximately $75,000 under the 2021 PPP Loan and in April 2021 we received $275,000 in consideration of selling our CNC machining equipment. A portion of the proceeds from the sale of machining equipment will be used to fully pay for the equipment note payable.

Results of Operations for the Three Months and Nine months ended September 30,March 31, 2020 and 2019:

NET Revenue

Our netWhile our revenues were nominal for the three months ended March 31, 2021, our revenues increased by approximately 295% and decreased by approximately 74%734% for the three and nine months ended September 30, 2020March 31, 2021 from the comparable periodsperiod in 2019. Our net2020. There are no assurances we will be able to increase our revenues have been dependentto the profitability levels we experienced in fiscal year 2019 before the Covid-19 pandemic or report profitable operations in the past few yearsfuture. Further, the lingering economic impact of the Covid-19 pandemic may have a continued negative effect on the potential for sales to Schlumberger andof V-inline Separators. Our revenues are dependent upon our ability to develop a consistent sales channel for the V-Inline Separators.Separators and potentially additional sales of the Voraxial Separator from Schlumberger. However, at this time, we have not renewed the supply agreement with Schlumberger, but we have maintained a relationship with Schlumberger and received a purchase order from Schlumberger for some auxiliary parts. As discussed earlier in this report, we believe that our net revenues for the three and nine months ended September 30,March 31, 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 period in 2020 or fiscal year 2021. We continue to try to leverage our manufacturing capabilities by exploring different opportunities, such as high precision manufacturing. In the three and nine months ended September 30, 2020, we derived 100% and 58% of our sales from high precision manufacturing.

The majority of our sales in the thirdfirst quarter and first nine months of 20192021 were a result of manufacturing specific machine parts for our customers, sales to Schlumberger related to the Voraxial salesSeparator, and sales of auxiliary equipment and parts.parts of the V-Inline Separator. The majority of revenues in the first quarter of 2020 were a result of manufacturing specific machine parts for our customers.

Cost of Goods

Our cost of goods as a percentage of net revenues decreasedincreased by approximately 10% and 26.8%, respectively,1,840% for the three and nine months ended September 30, 2020March 31, 2021 from the comparable periods in 2019. These decreases areperiod 2020. This increase is mainly due to the significant declinean increase in revenues and shift in revenues to manufacturing high precision components we experienced and the different manufacturing projects we completed during the three and nine months ended September 30, 2020 as compared to manufacturing activities of the Voraxial Separator in 2019.March 31, 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 decreased by approximately 2% and increased approximately 7%, respectively,24% for the third quarter and first ninethree months of 2020ended March 31, 2021 from the comparable periods 2019.period 2020 as we continue to reduce expenditures as a result of Covid-19 pandemic. Included in this decrease during the three months ended September 30, 2020 was a decrease of approximately 8% in general and administrative expenses (approximately 18.6%) and payroll (approximately 4%), which was offset by an increase in professional feesthe first quarter of approximately 37.5% which was primarily associated with our 2020 annual meeting which was held in August 2020. During2021 from the thirdfirst quarter of 2020, our payroll expense and general and administrative expenses decreased due to the reduction of employee hours,including decrease in repair and maintenance marketing and travel in our attempt to conserve cash due to Covid-19.

Ourinsurance expense. In addition, payroll expense increaseddecreased approximately 17.8%31% during the nine months ended September 30, 2020first quarter of 2021 as compared to the nine months ended September 30, 2019 periods as we experienced a higher absorption costs into our manufacturing activities of Voraxial Separator in the 2019 and incurred a non-cash expense for issuance of stock to our employees. For the nine months ended September 30, 2020 our selling, general and administrative expenses increased approximately 6.2% from the comparable period in 2019 due to an increase in health insurance which reflects the commencement of paid health benefits for our employees in July 2019. Our professional fees decreased approximately 12.5% from the comparable 2019 period as a result of a reduction in consulting fees.

TOTAL OTHER INCOME (EXPENSE)

During the secondfirst quarter of 2020 as we received a $8,000 grant fromreduced the Small Business Association for working capital which is reflectednumber of employees and overtime hours due to slower economic activity. Professional fees decreased by approximately 30% as other income duringwe continue to reduce expenses due to 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 and PPP and EIDL loans.Covid-19 pandemic.

Liquidity and Capital Resources:

Cash at September 30, 2020March 31, 2021 was $480,845$173,337 as compared to $674,844$336,564 at December 31, 2019.2020. Our working capital deficit at September 30, 2020March 31, 2021 was $480,954$986,502 as compared to a working capital deficit at December 31, 20192020 of $38,544.$750,481. At September 30, 2020,March 31, 2021, we had an accumulated deficit of $15,664,375.$16,113,303. Our current assets decreased by 42%27% at September 30, 2020March 31, 2021 as compared to December 31, 2019,2020, which reflects decreases in our cash accounts receivables and prepaid expensescash equivalents, partially offset by increases in our inventory.accounts receivables. Increases in accounts receivable is due to an increase in manufacturing projects completed during the period. Our current liabilities decreasedincreased by 3%9% at September 30, 2020March 31, 2021 as compared to December 31, 2019,2020, which reflects a decreasean increase in accounts payable and accrued expenses offset byand accrued expenses – related party. Increases in accrued expenses – related party is due to the loansaccrual of management’s salary. Accounts payable issued during the quarter.and accrued expenses increased due to professional fees.

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 believed we used 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 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