UNITED STATES

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

☐ 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)

 

IDAHOFLORIDA 65-074289082-0266517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

821 NW 57th 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:

 

Title of

each class

Trading

Symbol(s)

Name of each exchange on which registered
None not applicablenot applicable

 

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.

 

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

 

  
 

INDEX

 

Page
PART I.FINANCIAL INFORMATION4
 
Item 1.Financial Statements4
 
      Condensed Consolidated Balance Sheets4
 Condensed Consolidated Statements of Operations5
 
      Condensed Consolidated Statements of Changes Inin Shareholders’ Equity (deficiency)6
 Condensed Consolidated Statements of Cash Flows7
 
      Notes to Condensed Consolidated Financial Statements8
 
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1917
Item 3.Quantitative and Qualitative Disclosures About Market Risk2321
Item 4.Controls and Procedures2321
    
PART II.OTHER INFORMATION24
 23 
Item 1.Legal Proceedings2423
Item 1A.Risk Factors2423
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2423
Item 3.Defaults Upon Senior Securities2423
Item 4.Mine Safety Disclosure2423
Item 5.Other Information2423
Item 6.Exhibits24
    
Signatures 25

 

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:

our ability to continue as a going concern;
the impact of the Covid-19 pandemic on the Company;
our ability to continue to generate revenues and report profitable operations;
our ability to pay our operating expenses and lack of access to additional capital;
our ability to satisfy our obligations at they become due;
our dependence on a limited number of customers;
market competition;
our dependence on key personnel;
failure to comply with government regulations;
potential product liability claims;
material weaknesses in our disclosure controls and internal control over financial reporting;
significant dilution if outstanding stock options are exercised; and
lack of an active trading market for our common stock and the impact of penny stock rules on a trading market.

·           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 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.

 

 3 
 
PART I.FINANCIAL INFORMATION

Item 1.Financial Statements.

 

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  September 30,
2020
(unaudited)
 December 31,
2019
ASSETS  
CURRENT ASSETS:        
Cash and cash equivalents $480,845  $674,844 
Accounts receivable, net  11,899   297,755 
Inventory, net  141,760   117,984 
Prepaid expenses  12,174   20,579 
         
Total current assets  646,678   1,111,162 
         
FIXED ASSETS, NET  320,460   349,377 
OTHER ASSETS        
Operating lease asset  211,082   243,039 
Security deposit  10,143   10,143 
Total other assets  221,225   253,182 
         
Total assets $1,188,363  $1,713,721 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)        
         
CURRENT LIABILITIES:        
Accounts payable and accrued expenses $334,138  $416,992 
Accrued Expenses – related parties  611,815   621,465 
Operating lease liability, current portion  45,199   42,973 
Equipment note payable, current portion  70,613   68,276 
Loans Payable, current portion  65,867   —   
Total current liabilities  1,127,632   1,149,706 
         
LONG-TERM LIABILITIES:        
Operating lease liabilities, less current portion  165,883   200,066 
Equipment note payable, less current portion  121,995   157,896 
Loans Payable, less current portion  196,104   —   
Total long-term liabilities  483,982   357,962 
Total liabilities  1,611,614   1,507,668 
         
COMMITMENTS AND CONTINGENCIES (See Note G)  —     —   
         
SHAREHOLDERS’ EQUITY (DEFICIENCY):        
Common stock, $.001 par value, 250,000,000 shares authorized; 4,950,125 and 3,578,625 shares issued and outstanding as of September 30, 2020 and December 31, 2019  4,951   3,579 
Additional paid-in capital  15,236,173   15,094,095 
Accumulated deficit  (15,664,375)  (14,891,621)
Total shareholders’ equity (deficiency)  (423,251)  206,053 
         
Total liabilities and shareholders’ equity (deficiency) $1,188,363  $1,713,721 

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

4

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
         
Revenues, net $14,197  $3,587  $41,515  $155,783 
                 
Cost of goods sold  2,947   1,111   18,146��  109,769 
                 
Gross profit  11,250   2,476   23,369   46,014 
                 
Costs and expenses:                
Selling, general and administrative  71,668   88,001   256,984   241,933 
Professional Fees  47,698   34,688   160,802   183,696 
Payroll expenses  122,832   123,498   379,073   321,880 
                 
Total costs and expenses  242,198   246,187   796,859   747,509 
                 
Loss from operations  (230,948)  (243,711)  (773,490)  (701,495)
                 
Other income (expenses):                
Other Income  —     —     8,000   —   
Interest expense  (100)  (4,274)  (7,264)  (13,623)
                 
Total other expense  (100)  (4,274)  736   (13,623)
                 
Net loss before provisions for income taxes  (231,048)  (247,985)  (772,754)  (715,118)
Provisions for income taxes  —     —     —     —   
NET LOSS $(231,048) $(247,985) $(772,754) $(715,118)
                 
Net loss per common share - basic and diluted $(0.05) $(0.07) $(0.19) $(0.20)
 Weighted average number of common shares   outstanding - basic and diluted  4,950,125   3,578,625   4,144,244   3,578,625 
                 

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

5

 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

  Common Stock Additional
Paid-in
 Accumulated  
  Shares Amount Capital Deficit Total
           
Balance – June 30, 2019 (unaudited) 3,578,625  $3,579  $15,094,095  $(15,952,791) $(855,117)
Net Loss for the three months ended
September 30, 2019
 —     —     —     (247,985)  (247,985)
                    
Balance – September 30, 2019 (unaudited) 3,578,625  $3,579  $15,094,095  $(16,200,776) $(1,103,102)

 

Balance – June 30, 2020 (unaudited)

 4,950,125  $4,951  $15,236,173  $(15,433,327) $(192,203)
                    
Net Loss for the three months ended
September 30, 2020
 —     —     —     (231,048)  (231,048)
                    
Balance – September 30, 2020 (unaudited) 4,950,125  $4,951  15, 236,173  $(15,664,375) $(423,251)

 

For the nine months ended September 30, 2020 and 2019 

 

Balance - December 31, 2018 3,578,625  $3,579  $15,094,095  $(15,485,658) $(387,984)
Net Loss for the nine months ended
September 30, 2020
 —     —     —     (715,118)  (715,118)
                    
Balance – September 30, 2019 (unaudited) 3,578,625  $3,579  $15,094,095  $(16,200,776) $(1,103,102)

 

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 for the nine months ended
September 30, 2020
 —     —     —     (772,754)  (772,754)
                    
Balance – September 30, 2020 (unaudited) 4,950,125  $4,951  15, 236,173  $(15,664,375) $(423,251)

  March 31,
2021
(unaudited)
 December 31,
2020
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents $173,337   336,564 
Accounts receivable, net  35,473   1,176 
Inventory, net  113,719   113,335 
Prepaid expenses  13,939   12,174 
Total current assets   336,468   463,249 
         
FIXED ASSETS, NET  300,997   312,468 
         
OTHER ASSETS        
Operating lease asset  188,863   200,066 
Security deposit  10,143   10,143 
Total other assets  199,006   210,209 
Total assets  $836,471   985,926 
         
LIABILITIES AND SHAREHOLDERS’ (DEFICIENCY)        
         
CURRENT LIABILITIES:        
Accounts payable and accrued expenses  $356,586   323,481 
Accrued Expenses – related party  743,565   706,315 
Loans payable, current portion  102,545   65,867 
Equipment note payable, current portion  72,800   71,812 
Operating lease liability, current portion  47,474   46,255 
Total current liabilities  1,322,970   1,213,730 
         
LONG-TERM LIABILITIES:        
      Operating lease liabilities, less current portion  141,389   153,811 
Equipment note payable, less current portion  84,865   103,586 
Loans payable, less current portion  159,426   196,104 
Total long-term liabilities  385,680   453,501 
Total liabilities  1,708,650   1,667,231 
         
COMMITMENTS AND CONTINGENCIES (See Note H)  —     —   
         
SHAREHOLDERS’ (DEFICIENCY):        

Common stock, $.001 par value, 250,000,000 shares authorized;

4,950,125 and 4,950,125 shares issued and outstanding as of

March 31, 2021 and December 31, 2020

  4,951   4,951 
Additional paid-in capital  15,236,173   15,236,173 
Accumulated deficit   (16,113,303)  (15,922,429)
Total shareholders’ (deficiency)  (872,179)  (681,305)
         
Total liabilities and shareholders’ (deficiency) $836,471  $985,926 

 

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

 64 
 

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(Unaudited)

 

  Nine Months Ended
September 30,
  2020 2019
     
Cash Flows from Operating Activities:        
Net loss $(772,754) $(715,118)
Adjustments to reconcile net loss to net cash used in operating activities:        
Amortization of operating lease asset  31,957   31,470 
Depreciation  33,984   33,794 
Stock issued for services  9,800   —   
Changes in assets and liabilities:        
Accounts receivable  285,856   1,279 
Inventory  (23,776)  (192,821)
Prepaid expenses  8,405   (319,430)
Deposit from customers  —     460,513 
Accounts payable and accrued expenses  (41,354)  (30,291)
Operating lease liability  (31,957)  (31,470)
Accrued expenses – related parties  82,500   (242,500)
Net cash used in operating activities  (417,339)  (1,004,574)
         
Cash Flows from Investing Activities:        
Purchase of fixed assets  (5,067)  —   
Net cash used in Investing activities  (5,067)  —   
         
Cash Flows from Financing Activities:        
Repayment of equipment note payable  (33,564)  (47,469)
Loan payable issuance – PPP & EIDL  261,971   —   
Net cash (used in) provided by financing activities  228,407   (47,469)
         
Net decrease in cash and cash equivalents  (193,999)  (1,052,043)
         
Cash and cash equivalents, beginning of period  674,844   1,223,863 
         
Cash and cash equivalents, end of period $480,845  $171,820 
         
Supplemental Disclosures        
Cash paid during the period for interest $7,264  $13,623 
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  $—   
  Three Months Ended March 31,
  2021 2020
Revenues, net $37,755  $4,528 
Cost of goods sold  14,844   765 
Gross profit  22,911   3,763 
         
Costs and expenses:        
General and administrative  77,347   84,208 
Professional fees  38,827   55,212 
Payroll expense  90,708   131,370 
Total costs and expenses  206,882   270,790 
         
Loss from operations  (183,971)  (267,027)
         
Other expenses:        
Interest expense  (6,903)  (3,723)
Total other expense  (6,903)  (3,723)
         
Net loss before provisions for income taxes  (190,874)  (270,750)
Provisions for income taxes     
NET LOSS $(190,874) $(270,750)
         

Weighted average number of common shares

outstanding - basic and diluted

  4,950,125   3,578,625 
Loss per common share - basic and diluted $(0.04)  $(0.08)

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)

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

 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 
                    
Net (loss)  —    —    —    (270,750)  (270,750)
                    
Balance-March 31, 2020 (unaudited)   3,578,625   3,579  $15,094,095  $(15,162,371) $(64,697)
                    
Balance - December 31, 2020  4,950,125  $4,951   $15,236,173  $(15,922,429) $(681,305)
                    
Net (loss)   —     —     —     (190,874)  (190,874)
                    
Balance – March 31, 2021 (unaudited)  4,950,125  $4,951  $15,236,173  $(16,113,303) $(872,179)
                     

 

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

 

 

 76 
 

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Three Months Ended March 31,
  2021 2020
Cash Flows from Operating Activities:        
Net loss $(190,874)  $(270,750)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
        
Depreciation  11,471   11,328 
Amortization of operating lease asset  11,203   10,474 
Changes in assets and liabilities:        
Accounts receivable  (34,297)  296,662 
Inventory  (384)  (19,629)
Prepaid expenses  (1,765)  (4,900)
Accounts payable and accrued expenses  33,105   (62,853)
Operating lease liability  (11,203)  (10,474)
Accrued expenses – related party  37,250   52,500 
Net cash (used in) provided by operating activities  (145,494)  2,358 
         
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  (17,733)  (16,640)
Net cash used in financing activities  (17,733)  (16,640)
         
Net decrease in cash and cash equivalents  (163,227)  (19,349)
         
Cash and cash equivalents, beginning of period  336,564   674,844 
         
Cash and cash equivalents, end of period $173,337  $655,495 
         
Supplemental Disclosures        
Cash paid during the period for interest $2,631  $3,723 
Cash paid during the period for taxes $  $—   
         

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

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020MARCH 31, 2021

(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 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”) 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. 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, Supply Agreement and Grant Back License in June 2017, we have generated limited revenues, significantly less than we anticipated, under the terms of any of these agreements. TheAlthough 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, we have had discussions to develop a modified agreement and believe until such time a new agreement is reached, if at all, we can continue to work together onhave a project by project basis. 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. Regardless of our ability to enter into a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures has decreased significantly during the past nine months and reached all-time low of negative $40 per barrel during the first nine months of 2020. The effectslingering economic impact of the low oil prices continue to weigh on the industry as many oil companies are still laying off employees and reducing capital expenditures. Further, with the current economic condition impacted by the Covid-19 virus, including weak oil prices and potential future lockdowns, thispandemic may have a continued negative effect on the potential for sales of V-InlineV-inline Separators.

 

OnAt March 11, 2020,31, 2021, we had a working capital deficit of $986,502, an accumulated deficit of $16,113,303. 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.very challenging economic condition for our company. 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 begunconserve our cash resources to have a significant adverse impact upon many sectors ofsustain our operations until such time as the economy including our industry.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notesbegins returning to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

Due to Covid-19,pre-Covid-19 pandemic activity levels, we have modified ourreduced employee hours and limited travel.accrued a portion of management’s salary. We continue to pursue water treatment projects for the Voraxial and V-Inline Separator andalso have begun marketing our machining capabilities to local manufactures. We believe that a market exists for the V-Inline separator. Unfortunately, due to the Covid-19 pandemic, we have not generated material revenues from this focus as of September 30, 2020. We also are pursuing various projects that may generate cash flow, such as selling face shields for the general public and medical industry. To date we have generated limited revenues from the sales of face shields. There are no assurances, however, that these efforts will be sufficient to permit us to pay our operating expenses. In 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 September 30, 2020, we had a working capital deficit of $480,954, an accumulated deficit of $15,664,375. We do not have any external sources of liquidity. Our revenues have declined for the first three quarters of 2020 from the fourth quarter of 2019 as a result of the impact of the Covid-19 pandemic and the significant drop in oil prices. We were able to supplement some of the lost revenue stream we historically experienced from the sale of Voraxial and V-Inline separator, which was significantly impacted by the drop of oil prices and Covid-19 pandemic, by increasing our high precision manufacturing activities and selling face shields, which were predominately sold in the second quarter due to market demand. We stopped pursuing revenues from face shields as the inconsistent supply chain and influx of competitors make the market challenging. We will continue to market our manufacturing capabilities and the V-Inline Separator.

 

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

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 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’scompany’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 September 30, 2020,March 31, 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

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

 

Revenue 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 customers 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 thisthe 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 September 30, 2020,March 31, 2021, and December 31, 2019,2020, respectively, there was $0 of deposits from customers. During the three and nine months ended September 30, 2020, we derived 100% and 58% of our revenues, respectively, from high precision manufacturing projects. The balance was generated from the sales of face shields.

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 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 September 30, 2020March 31, 2021 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 September 30, 2020March 31, 2021 and December 31, 2019,2020, approximate their fair value because of their relatively short-term nature.

 

Accounting Standards Codification (“ASC”)ASC 820 “Disclosures about Fair Value of Financial Instruments,” requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.

 

The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value is observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of September 30, 2020March 31, 2021 and December 31, 2019.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 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 September 30, 2020March 31, 2021 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 September 30, 2020March 31, 2021 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 September 30,March 31, 2021 and December 31, 2020, the Company has a cash concentration of $212,014 in excess of FDIC limits.limits of $0 and $80,014, respectively.

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2021

(UNAUDITED) 

 

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 being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of September 30, 2020,March 31, 2021 and December 31, 2019:2020:

 

 September 30, 2020 December 31, 2019  

March 31,

2021
(unaudited)

 

December 31,

2020

Raw materials $58,570 $38,935  $30,529 $30,145
Work in process 10,240 --  10,240 10,240
Finished goods  72,950  79,049   72,950  72,950
Total $141,760 $117,984  $113,719 $113,335

 

Inventory amounts are presented net of allowance for inventory reserves of $66,937$75,785 and $66,937$75,785 as of September 30, 2020March 31, 2021 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 years). Gains and losses recognized from the sales or disposal of assets is the difference between the sales price and the recorded cost less accumulated depreciation less costs of disposal.

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

 

Net Loss Per Share

 

In accordance with the accounting guidance now codified as Financial Accounting Standards Board (“FASB”)FASB ASC Topic 260, “Earnings per Share” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

As of September 30,March 31, 2021 and 2020, and 2019 the Company hasthere were 10,000 and 1,346,500 shares issuable upon the exercise of options, respectively, whichrespectively. The Company had a net loss for the periods ended March 31, 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.

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2021

(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:

 

 September 30, 2020 December 31, 2019 March 31, 2021
(unaudited)
 December 31, 2020
Machinery and equipment $938,312  $933,245  $941,473  $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  961,265 961,265 
Less: accumulated depreciation  (637,644)  (603,660)  (660,268)  (648,797)
Fixed Assets, net $320,460  $349,377  $300,997 $312,468 

 

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) 

 

March 31, 2021

(unaudited)

December 31, 2020
Equipment note payable$157,665$175,398
Less: current portion 72,800 71,812
Long-term equipment note payable$84,865$103,586

 

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:

 

Number

Outstanding

Exercise

Price

Number

Exercisable

Balance, December 31, 202010,000$0.1010,000
Issued
Expired
Forfeited
Balance, March 31, 202110,000$0.1010,000

Exercise

Price

Number
Outstanding at
March 31, 2021
Weighted Average
Remaining
Contractual Life
Weighted
Average
Exercise Price
Number
Exercisable at
March 31, 2021
Weighted
Average
Exercise Price
0.1010,0002.63$0.1010,000$0.10
Total10,00010,000

 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.

14

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited)  

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

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

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

  

Number

Outstanding

 

Exercise

Price

 

Number

Exercisable

 Balance, December 31, 2019   1,346,500  $0.10   1,346,500 
 Issued   —     —     —   
 Expired   —     —     —   
 Exercised   (1,336,500) $0.10   (1,336,500)
 Forfeited   —     —     —   
 Balance, September 30, 2020   10,000  $0.10   10,000 

Exercise

Price

 Number
Outstanding at
September 30, 2020
 Weighted
Average
Remaining
Contractual Life
 Weighted
Average
Exercise Price
 Number
Exercisable at
September 30, 2020
 Weighted
Average
Exercise Price
$0.10   10,000   3.13  $0.10   10,000  $0.10 
 Total   10,000   —     —     10,000   —   

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

REVERSE SPLIT

 

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

 

effected a ten for one (10:1) reverse stock split of our outstanding common stock (“Reverse Stock Split”); and
  
eliminated the existing class of preferred stock and create a new class of blank check preferred stock consisting of 5,000,000 shares.

 

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

 

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

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

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

 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.

 

  September 30, 2020 December 31, 2019
Loan payable $261,971  $—   
Less: current portion  (65,867)  —   
Long-term loan payable $196,104  $—   
  

March 31, 2021

(unaudited)

 December 31, 2020
Loans payable $261,971  $261,971 
Less: current portion  (102,545)  (65,867)
Long-term loans payable $159,426  $196,104 

 

EQUIPMENT FINANCING

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

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

  September 30, 2020 December 31, 2019
Equipment note payable $192,608  $226,172 
Less: current portion  (70,613)  (68,276)
Long-term equipment note payable $121,995  $157,896 

Litigation

 

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

 

SALE OF INTELLECTUAL PROPERTY

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

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

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

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

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

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

SEPTEMBER 30, 2020

(unaudited) 

NOTE HI - LEASE

 

In December 2018, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57thPlace, 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.

16
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 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:

-High volume / small footprint

-No Pressure drop requirement

-High G force

-Treats a wide range of flows, even slugging flows

-Handles fluctuation in flow rates without any adjustments

-Handles fluctuation in contaminates without any adjustments

-Separation of 2 or 3 components simultaneously

-Non-clogging - open rotor assembly

-Low maintenance with ease of operation and installation

-Can operate dry

-Since there is no pressure drop, there is very little wear caused by sand

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.

 

 2118 
 

Summary of cash flows

 

The following table summarizes our cash flows:
 
  Nine months Ended
June 30,
 
  2020  2019 
  (Unaudited) 
Cash flow data:        
Net cash (used) in operating activities $(417,339) $(1,004,574)
Net cash (used) in investing activities $(5,067) $-- 
Net cash (used in) provided by financing activities $228,407  $(47,469)
The following table summarizes our cash flows:
 
  Three Months Ended
March 31,
  2021 2020
  (Unaudited)
Cash flow data:        
Cash (used in) provided by operating activities $(145,494) $2,358 
Cash used in investing activities $—    $(5,067)
Cash used in financing activities $(17,733) $(16,640)

 

Net cash used in operating activities in the ninethree months ended September 30, 2020March 31, 2021 was primarily attributable to our net loss for the period,an increase in inventory and decreaseaccounts receivable offset in accounts payable and accrued expenses. These were offsetpart by decreases in accounts receivable.

Net cash used in operating activities in the nine months ended September 30, 2019 was primarily attributable to our net loss for the period, a decreaseincreases in accrued expenses – related party and increasesaccounts payable and accrued expenses.

Net cash provided by operating activities in inventorythe three months ended March 31, 2020 was primarily attributable to a decrease in accounts receivable and prepaidan increase in accrued expenses – related party offset in part by an increasedecreases in deposit from customer. Increaseaccounts payable and accrued expenses.

Net cash used in deposit from customer isfinancing activities during the three months ended March 31, 2021 and 2020 was primarily attributable to deposit received on a purchase order we received from a utility company.the repayment of the equipment note payable.

 

Net cash used in investing activities during ninethe three months ended September 30,March 31, 2020 was primarily attributable to the purchase of equipment. We did not have aThere were no comparable expense inactivity during the 2019 period.three months ended March 31, 2021.

 

Net cash provided by financing activities during the nine months ended September 30, 2020 was primarily attributable to proceeds from the PPP and EIDL loan offset by the repayment of the equipment note payable. Net cash used in financing activities during the 2019 period reflected the repayment of the equipment note payable.

Continuing Losses and Going ConcernLooking 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 haswill materially impactedimpact 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 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 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 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 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.

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 equity instrumentscompletion, disposable and adjustmentstransportation. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.

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 inventory valuations. These adjustmentsexisting assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are made each quartermeasured 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.

 

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 September 30, 2020.March 31, 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.

 

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Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.      OTHER INFORMATION

 

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 2019 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.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosure

 

Not applicable to our company.

 

Item 5.Other Information

 

None.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 the 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 the 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.

Item 6.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  
3(iv) Articles of Amendment to the Articles of Incorporation 8-K 9/9/20 3(iv)  
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 XBR 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

24
    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)  
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

 

SIGNATURES

 

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

 

Enviro Technologies U.S., Inc.
 
   
By:/s/ John A. Di Bella 
 John A. Di Bella 
 Chief Executive Officer and Chief Financial Officer 

DATED: November 12, 2020

May 17, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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