Exhibit 10.1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from _____________ to ______________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
_________________________________________________
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | not applicable | not applicable |
Indicate by check mark whether the Issuer (1) has
filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
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).
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 ☐ |
| 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 ☐
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: August 6, 2021, we had shares of our Common Stock outstanding.
INDEX
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STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:
| · Financial risks, including: | ||
| · | our ability to continue as a going concern; | |
| · | the adverse impact of Covid-19 on our company; |
| · | our ability to generate revenues and report profitable operations; |
| · | our ability to pay our operating expenses; and |
| · | our ability to raise working capital. |
| · Business risks, including: | ||
| · | reliance on a limited number of customers and the Grant Back License; | |
| · | our ability to compete; and |
| · | our dependence on our sole executive officer. |
| · Risks related to our common stock, including: | ||
| · | continuing material weaknesses in our disclosure controls and internal control over financial reporting; | |
| · | the illiquid nature of the market for our common stock; and |
| · | the impact of penny stock rules on our shareholders. |
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, Part I, Item 1A. - Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021 (the “2020 10-K”) 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
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., a Florida corporation, and our subsidiary, Florida Precision Aerospace, Inc., a Florida corporation which we refer to as “FPA.” In addition, “second quarter of 2021” refers to the three months ended June 30, 2021, “second quarter of 2020” refers to the three months ended June 30, 2020, “2020” refers to the year ended December 31, 2020 and “2021” refers to the year ending December 31, 2021. We maintain a corporate website at www.evtn.com. Unless specifically set forth to the contrary, the information which appears on our website at www.evtn.com is not part of this report.
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| PART I. | FINANCIAL INFORMATION |
| Item 1. | Financial Statements. |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2021 (unaudited) |
December 31, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | |
|||||||
| FIXED ASSETS, NET | ||||||||
| OTHER ASSETS | ||||||||
| Operating lease asset | ||||||||
| Security deposit | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ (DEFICIENCY) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued Expenses – related party | ||||||||
| Loans payable, current portion | ||||||||
| Equipment note payable, current portion | ||||||||
| Operating lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Equipment note payable, less current portion | ||||||||
| Loans payable, less current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (See Note H) | ||||||||
| SHAREHOLDERS’ (DEFICIENCY): | ||||||||
|
Common stock, par value, shares authorized; and shares issued and outstanding as of June 30, 2021 and December 31, 2020 |
||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total shareholders’ (deficiency) | ( |
) | ( |
) | ||||
| Total liabilities and shareholders’ (deficiency) | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Professional Fees | ||||||||||||||||
| Payroll expenses | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Other Income | ||||||||||||||||
| Loss on sale of assets | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss before provisions for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provisions for income taxes | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’
EQUITY (DEFICIENCY)
(Unaudited)
For the three months ended June 30, 2021 and 2020
| Common Stock | Additional | |||||||||||||||||||
| Shares | Par Value | Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance – March 31, 2020 (unaudited) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable | ||||||||||||||||||||
| Stock issued for services to employees | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance-June 30, 2020 (unaudited) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| Balance – March 31, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – June 30, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
For the six months ended June 30, 2021 and 2020
| Common Stock | Additional | |||||||||||||||||||
| Shares | Par Value | Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance - December 31, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable | ||||||||||||||||||||
| Stock issued for services to employees | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance-June 30, 2020 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – June 30, 2021 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of operating lease asset | ||||||||
| Stock issued for services | ||||||||
| Loss on sale of equipment | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Accrued expenses – related parties | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Sale of equipment | ( | ) | ||||||
| Net cash provided by (used in) Investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Repayment of equipment note payable | ( | ) | ( | ) | ||||
| Loan payable issuance | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental Disclosures | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for taxes | $ | $ | ||||||
| Supplemental Disclosure of non-cash investing and financing activities | ||||||||
| Operating lease asset obtained in exchange for operating lease liability | $ | $ | ||||||
| Stock issued for exercise of options in exchange for accounts payable | $ | $ | ||||||
| Stock issued for exercise of options in exchange for accrued expenses - related parties | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
Enviro Technologies U.S., Inc., a Florida corporation (the “Company”), is a manufacturer and provider of environmental and industrial separation technology. The Company developed, and now manufactures and sells the V-Inline Separator, a technology that efficiently separates liquid/liquid, liquid/solid or liquid/liquid/solid fluid streams with distinct specific gravities. On June 8, 2017, the Company and Florida Precision Aerospace, Inc., a Florida corporation (“FPA”), a wholly-owned subsidiary of the Company, closed the Technology Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”) for the sale of our intellectual property, substantially consisting of Voraxial patents, marks, software and copyrights (the “Intellectual Property”). As part of the agreement, Schlumberger granted us a non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”), to make, use, sell, offer for sale, and import products and processes embodying the Intellectual Property outside the oil and gas market and we entered into a Supply Agreement. Current and potential commercial applications and markets include mining, utilities, manufacturing, waste-to-energy among other industries.
FPA is used to manufacture, assemble and test the V-Inline Separator. On August 20, 2020, the Company’s shareholders approved a change of domicile of the Company from Idaho to Florida. On December 28, 2020, the Company received the file stamped Certificate of Domestication and Articles of Incorporation from the Secretary of State of Florida, which was effective on December 18, 2020, thereby completing the change in domicile from Idaho to Florida. In connection with the change in domicile from Idaho to Florida, the Company’s name changed to “Enviro Technologies U.S., Inc.”.
NOTE B – GOING CONCERN
Since entering into the Technology Purchase Agreement, the Grant Back License and a supply agreement in June 2017, we have generated limited revenues; significantly less than we anticipated, under the terms of any of these agreements. Although the supply agreement expired in June 2020, we continue to have a relationship with Schlumberger. The Grant Back License did not expire. There are no assurances that the Grant Back License will ever generate any material ongoing revenues. We intend to continue to seek opportunities for the V-Inline Separator. Our ability to increase our revenues in future periods 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 return to the pre-Covid revenue and profitability levels of 2019 or report profitable operations in the future. Further, the lingering economic impact of the Covid-19 pandemic may have a continued negative effect on the potential for sales of V-inline Separators.
At June 30, 2021, we had a working capital deficit
of $
As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the company’s annual consolidated financial statements, notes and accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 31, 2021. In the opinion of management, all adjustments, which are necessary to provide a fair presentation of financial position as of June 30, 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.
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 pursued designing, manufacturing and selling face shields during the Covid-19 quarantine period and are constantly seeking other sources of revenues.
Revenues that are generated from high precision manufacturing projects are recognized when we satisfy a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition.
Revenues that are generated from sales of V-Inline
separators, auxiliary equipment and parts and face shields are typically recognized upon shipment. Our standard agreements generally do
not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an
uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been
complied with. As of June 30, 2021, and December 31, 2020, respectively, there was $
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance
for doubtful accounts. The company maintains allowances for doubtful accounts for estimated losses. The company reviews the accounts receivable
on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In
evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance,
customer’s historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after
exhaustive efforts at collections. At June 30, 2021 and December 31, 2020, the Company has $
Fair Value of Instruments
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, inventory, accounts payable and accrued expenses at June 30, 2021 and December 31, 2020, approximate their fair value because of their relatively short-term nature.
ASC 820 “Disclosures about Fair Value of Financial Instruments,” requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value is observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of June 30, 2021 and December 31, 2020.
Level 2— inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of June 30, 2021 and December 31, 2020.
Level 3— inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We have no Level 3 instruments as of June 30, 2021 and December 31, 2020.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various
financial institutions. Balances at these institutions may at times exceed the Federal Deposit Insurance Corporate (“FDIC”)
limits. As of June 30, 2021 and December 31, 2020, the Company has a cash concentration in excess of FDIC limits of $
Inventory
Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator 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. Inventory may include units
| 10 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of June 30, 2021 and December 31, 2020:
| June 30, 2021 (unaudited) |
December 31, 2020 | |||||
| Raw materials | $ | $ | ||||
| Work in process | ||||||
| Finished goods | ||||||
| Total | $ | $ | ||||
Inventory amounts are presented net of allowance for
inventory reserves of $
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 (- 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.
In accordance with the accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
As of June 30, 2021 and 2020, there were and shares issuable upon the exercise of options, respectively. The Company had a net loss for three and six months ended June 30, 2021 and 2020; therefore, common stock equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.
INCOME TAXES
The Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
BUSINESS SEGMENTS
The Company operates in segment and therefore segment information is not presented.
LEASES
The Company accounts for leases in accordance with Accounting Standard Codification (ASC) Topic 842. Operating lease assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases.
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
Advertising Costs
Advertising costs are expensed as incurred and are
included in general and administrative expenses. There was $
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.
Recent Accounting Pronouncements
All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
NOTE D - RELATED PARTY TRANSACTIONS
For the three months ended June 30, 2021, the Company
incurred salary expenses for the Chief Executive Officer of the Company of $
Effective July 1, 2017, our non-employee directors
receive a monthly fee of $
Effective July 1, 2017, Raynard Veldman, a member
of the Company’s board of directors, receives a fee of $
During the three months ended June 30, 2020, Mr. Veldman
reduced his accrued fees by $
On June 9, 2020, the Company issued shares
of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $. Mr. DiBella agreed
reduce his accrued salary in the amount of $
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ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE E – FIXED ASSETS
Fixed assets as of June 30, 2021 and December 31, 2020 consist of:
| June 30, 2021 (unaudited) |
December 31, 2020 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Autos and Trucks | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||||
| Fixed Assets, net | $ | $ | ||||||
Depreciation expense was $
Depreciation expense was $
The Company sold its CNC machining equipment for a
sales price of $
NOTE F – EQUIPMENT NOTE PAYABLE
In July 2017, the Company entered into a financing
agreement for the purchase of CNC machining equipment valued at approximately $
June 30, 2021 (unaudited) | December 31, 2020 | |||||||
| Equipment note payable | $ | $ | ||||||
| Less: current portion | ||||||||
| Long-term equipment note payable | $ | $ | ||||||
NOTE G – SHAREHOLDERS’ EQUITY
COMMON STOCK
On June 9, 2020, the Company issued to shares
of its common stock to employees at $ per share, or $
On June 9, 2020, the Company issued shares of its common stock to our Chief Executive Officer in connection with the exercise of a stock option at an exercise price of $. Mr. DiBella reduced his accrued salary in the amount of $ for the exercise of options.
On June 9, 2020, the Company issued shares of its common stock to Mr. Veldman in connection with the exercise of a stock option at an exercise price of $. Mr. Veldman reduced his accrued consulting and Board of Director fees in the amount of $ for the exercise of options.
On June 9, 2020, the Company issued shares of its common stock to a consultant in connection with the exercise of a stock option at an exercise price of $. The consultant agreed to reduce her payable in the amount of $ for the exercise of options.
| 13 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
On June 9, 2020, the Company issued shares of its common stock to two employees in connection with the exercise of a stock option at an exercise price of $. Mr. DiBella agreed to reduce his accrued salary in the amount of $ for the exercise of options.
On June 9, 2020, the Company issued shares
of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $. Mr. DiBella agreed
reduce his accrued salary in the amount of $
Options
|
Number Outstanding |
Exercise Price |
Number Exercisable | |
| Balance, December 31, 2020 | $ |
||
| Issued | |||
| Expired | |||
| Forfeited | |||
| Balance, June 30, 2021 | $ |
|
Exercise Price |
Number Outstanding at June 30, 2021 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price |
Number Exercisable at June 30, 2021 |
Weighted Average Exercise Price |
| 0.10 | $ |
$ | |||
| Total | — |
The aggregate intrinsic value represents the excess amount over the exercise price optionees would have received if all the options have been exercised on the last business day of the period indicated based on the Company’s closing stock price of for such day. The aggregate intrinsic value as of June 30, 2021 is $ as the stock price is higher than the exercise price.
The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a share award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method.
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”):
| 14 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
| • | effected a ten for one (10:1) reverse stock split of our outstanding common stock (“Reverse Stock Split”); and |
| • | eliminated the existing class of preferred stock and create a new class of blank check preferred stock consisting of shares. |
These actions were approved by our shareholders at our 2020 Annual Meeting held on August 20, 2020.
As a 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.
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.
NOTE H – COMMITMENTS AND CONTINGENCIES
SBA AND PPP LOANS
On
The 2020 PPP Loan, which was in the form of a
promissory note dated May 4, 2020 issued by FPA, matures on May 4, 2022 and bears interest at a rate of 1% per annum. The Note
may be prepaid by FPA at any time prior to maturity with no prepayment penalties.
On
On June 23, 2020, FPA executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of
| 15 |
ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
|
June 30, 2021 (unaudited) |
December 31, 2020 | |||||||
| Loans payable | $ | $ | ||||||
| Less: current portion | ( |
) | ( |
) | ||||
| Long-term loans payable | $ | $ | ||||||
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.
NOTE I - LEASE
For the three months ended June 30, 2021 and 2020,
the total lease cost was $
NOTE J – MAJOR CUSTOMERS
During the six months ended June 30, 2021, we recorded
During the three months ended June 30, 2021, we recorded
During the six months ended June 30, 2020, we recorded
During the three months ended June 30, 2020, we recorded
As of June 30, 2021, two of the Company’s customers
represents
As of December 31, 2020, three of the Company’s
customers represents
NOTE K – SUBSEQUENT EVENTS
Subsequent to June 30, 2021, FPA received a $
| 16 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations for the three and six months ending June 30, 2021 and 2020 and should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Statement Regarding Forward Looking Information in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
Although we experienced significant revenue growth in 2019 mainly through the sale of Voraxial Separator and V-Inline Separators, 2020 proved to be an extremely challenging and disappointing year due to the Covid-19 pandemic and the challenge to generate revenues has continued into 2021. In the first six months of 2021, our revenues were mainly derived from machining and auxiliary parts for the V-Inline and Voraxial Separators. The demand from the oil industry dried up in 2020 as we saw a significant decline in oil prices and a drop in capital expenditures from the overall market. The decrease in capital expenditures and travel restrictions hindered sales opportunities for the V-Inline Separator. Customer inquiries decreased significantly as well during this period. The overhang from these disruptions have continued to create challenges for our company to generate revenues in 2021. The supply agreement we signed with Schlumberger in June 2017 as part of the Technology Purchase Agreement expired 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 project by project basis with Cameron Solutions until such time a new agreement is reached, if at all.
We believe there is a market for the V-Inline Separator in the mining, utilities, sewage and industrial wastewater industries, among others, which we continue to market under our Grant Back License. We intend to continue to seek opportunities for the V-Inline Separator through our rights under our Grant Back License. We have branded our licensed products as the V-Inline Separator. In the fourth quarter of 2019 we shipped a wastewater system to a utility company that consisted of multiple V-Inline Separators to separate solids and oil from their wastewater stream. The system is being used to process and separate oil and solids from a flow of about 100 gallons per minute. The system includes different technologies with the heart of the system being comprised of two V-Inline 2000 Separators working in parallel with a third V-Inline Separator being utilized to further dewater the reject lines from the System.
Going Concern
For the six months ended June 30, 2021, we reported a net loss of $415,582 and net cash used in operations of $239,592. At June 30, 2021, we had cash on hand of $271,659, a working capital deficit of $937,819 and an accumulated deficit of $16,338,011. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2020 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our working capital deficit, accumulated deficit and negative cash flows from operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company. We estimate we require approximately $800,000 to maintain our operations over the next 12 months.
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Results of Operations for the Three Months and Six Months ended June 30, 2021 and 2020:
Revenue
While our revenues were nominal for the three and six months ended June 30, 2021, our revenues increased by approximately 28% and 145%, respectively for the three and six months ended June 30, 2021 from the comparable period in 2020. There are no assurances we will be able to increase our revenues to the profitability levels we experienced in fiscal year 2019 before the Covid-19 pandemic or report profitable operations in the future. Further, the lingering economic impact of the Covid-19 pandemic may have a continued negative effect on the potential for sales of V-inline Separators. Our revenues are dependent upon our ability to develop a consistent sales channel for the V-Inline Separators and potentially additional sales of the Voraxial Separator from Schlumberger. Although we received a purchase order from Schlumberger in the first quarter of 2021 for some auxiliary parts, there are no assurances that we will receive additional orders in the future. As discussed earlier in this report, we believe that our revenues for the six months ended June 30, 2021 and fiscal year 2020 have been adversely impacted by the Covid-19 pandemic and the significant drop in oil prices in 2020. Even once the effects of the pandemic on our business subsides, it may take longer than expected for business in our target markets to resume normal operations. Accordingly, at this time we are unable to predict the ultimate impact to our revenues for the remaining 2021.
The majority of our sales in the six months ended June 30, 2021 were a result of manufacturing specific machine parts for our customers, sales to Schlumberger related to the Voraxial Separator, and sales of auxiliary equipment and parts of the V-Inline Separator. The majority of revenues in the first half of 2020 were a result of manufacturing specific machine parts for our customers and face masks. We ceased manufacturing facemasks in the third quarter of 2020, as it was not profitable to our Company.
Cost of Goods SOLD
Our cost of goods sold decreased by approximately 7% and increased by approximately 86%, respectively, for the three and six months ended June 30, 2021 from the comparable period 2020. As COVID-19 disrupted our business, we are selling different components and products in our pursuit to develop a consistent sales channel. The changes in our COGS is mainly due to a fluctuation in revenues we experienced and the different manufacturing projects we completed during the three and six months ended June 30, 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 23% for each of the second quarter and first six months of 2021 from the comparable period 2020 as we continue to reduce expenditures as a result of Covid-19 pandemic. Included in this decrease was a decrease of approximately 44% and 28%, respectively, in general and administrative expenses in the three and six months ended June 30, 2021 from the comparable period in 2020. The decrease is attributable to a decrease in repair and maintenance and insurance expense during the three and six months ended June 30, 2021. In addition, payroll expense decreased approximately 1% and 16% in the three and six months ended June 30, 2021 from the comparable period in 2020 as we reduced the number of employees and overtime hours due to slower economic activity. Professional fees decreased by approximately 35% and 32%, respectively, in the three and six months ended June 30, 2021 from the comparable period in 2020 as we continue to reduce expenses due to the Covid-19 pandemic.
Liquidity and Capital Resources:
Cash at June 30, 2021 was $271,659 as compared to $336,564 at December 31, 2020. Our working capital deficit at June 30, 2021 was $937,819 as compared to a working capital deficit at December 31, 2020 of $750,481. At June 30, 2021, we had an accumulated deficit of $16,338,011. Our current assets decreased by 13% at June 30, 2021 as compared to December 31, 2020, which reflects decreases in our cash and cash equivalents, partially offset by increase in our accounts receivables. Increase in accounts receivable is due to an increase in manufacturing projects completed during the period. Our current liabilities increased by 10% at June 30, 2021 as compared to December 31, 2020, which reflects an increase in accounts payable, loans payable – current portion and
| 18 |
accrued expenses and accrued expenses – related party. Increase in accrued expenses – related party is due to the accrual of management’s salary, consulting and board fees for one of our members of board of directors. Accounts payable and accrued expenses increased due to professional fees. Increases in loans payable, current portion is due to the 2020 PPP Loan becoming current during the period. FPA believes it used the 2020 PPP Loan amount for qualifying expenses. Under the terms of the 2020 PPP Loan, certain amounts of the 2020 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We have applied for forgiveness of $72,762 of the 2020 PPP loan in accordance with the terms of the CARES Act and are waiting for forgiveness.
On April 5, 2021, FPA received a loan (the “2021 PPP Loan”) from Cross River Bank. in the aggregate amount of $75,085, pursuant to the PPP under Division A, Title I of the CARES Act. FPA has used the entire 2021 PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the 2021 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. We have applied for forgiveness of the 2021 PPP Loan in accordance with the terms of the CARES Act and are waiting for forgiveness.
We do not have any external sources of liquidity and we do not have any capital commitments.
Summary of cash flows
| The following table summarizes our cash flows: | ||||||||
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Cash flow data: | ||||||||
| Cash used in operating activities | $ | (239,592 | ) | $ | (240,475 | ) | ||
| Cash used in investing activities | $ | 275,000 | $ | (5,067 | ) | |||
| Cash used in financing activities | $ | (100,313 | ) | $ | 78,407 | |||
Net cash used in operating activities in the six months ended June 30, 2021 was primarily attributable to our net loss for the period, increases in accrued expenses – related party and accounts payable and accrued expenses offset in part by increases in accounts receivable and inventory.
Net cash used in operating activities in the six months ended June 30, 2020 was primarily attributable to our net loss for the period, increase in inventory and decrease in accounts payable and accrued expenses. These were offset by decreases in accounts receivable and accrued expenses- related parties.
Net cash used in investing activities during the six months ended June 30, 2021 was primarily attributable to the sale of equipment. Net cash used in investing activities during six months ended June 30, 2020 was attributable to the purchase of equipment.
Net cash used in financing activities during the six months ended June 30, 2021 was primarily attributable to the repayment of the equipment note payable offset by the proceeds from the 2021 PPP loan. Net cash provided by financing activities during the six months ended June 30, 2020 was primarily attributable to proceeds from the 2020 PPP loan offset by the repayment of the equipment note payable.
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.
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Looking Forward
As a result of the uncertainties facing our company as discussed elsewhere in this report, including the impact of the Covid-19 pandemic, we are unable to predict the overall impact in 2021 and beyond on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not expect to be able to access the capital markets for additional working capital in the near future. Our senior management will continue to monitor our situation on a daily basis, however, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future. Our management has also begun exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. We are not currently a party to any agreement or understandings with any third parties, and there are no assurances even if our management locates an opportunity which it believes will be in the best interests of our shareholders what we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.
Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on a number of factors, many of which are beyond our control. Our independent auditors have included in their audit report 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.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note C of the Notes to Condensed Consolidated Financial Statements appearing later in this report describes the significant accounting policies used in the preparation of the condensed consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation 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 estimate 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 circumstances. 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 and uncertainties affecting the application of those policies, management believes that our condensed consolidated financial statements are fairly stated in accordance with U.S. GAAP, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements:
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The company reviews the accounts receivable on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collections.
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Inventory
Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
Leases
The Company accounts for leases in accordance with Accounting Standard Codification (ASC) Topic 842. Operating lease assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases.
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.
Contingencies
The Company is involved in a legal proceeding. The Company assessed the probability of occurrence and whether any loss or range of loss can be reasonably estimated for the legal proceeding. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the consolidated financial statements would be material, the Company provides disclosure of the loss contingency in the footnotes to the consolidated financial statements. The Company reviews the status of the legal proceeding at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made.
Recent Accounting Pronouncements
All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
Off Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable to smaller reporting company.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
| 21 |
The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer who also serves as our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 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, 2020, our management concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.
We will continue to monitor our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added additional personnel, including additional accounting and administrative staff, allowing improved internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 22 |
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
None.
| Item 1A. | Risk Factors |
We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2020 Form 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.
| Item 6. | Exhibits |
| Incorporated by Reference | Filed or | |||||||||
| No. | Exhibit Description | Form | Date Filed |
Exhibit Number |
Furnished Herewith | |||||
| 2 | Agreement and Plan of Reorganization | 10 | 11/03/99 | 2 | ||||||
| 3(i) | Articles of Incorporation | 10 | 11/03/99 | 3(i) | ||||||
| 3(ii) | Bylaws | 10-K | 3/31/21 | 3(ii) | ||||||
| 3(iii) | Articles of Amendment to the Articles of Incorporation | 8-K | 11/13/17 | 3.2 | ||||||
| 3(iv) | Articles of Amendment to the Articles of Incorporation | 8-K | 9/9/20 | 3(iv) | ||||||
| 3(v) | Statement of Domestication filed in the State of Idaho | 8-K | 12/28/20 | 3(iv) | ||||||
| 3(vi) | Certificate of Domestication and Articles of Incorporation filed in the State of Florida | 8-K | 12/28/20 | 3(v) | ||||||
| 10.1 | Purchase Order dated April 22, 2021 | Filed | ||||||||
| 31.1 | Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer | Filed | ||||||||
| 31.2 | Rule 13a-14(a)/15d-4(a) Certification of Chief Financial Officer | Filed | ||||||||
| 32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | Filed | ||||||||
| 101.INS | XBRL Instance Document | Filed | ||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 23 |
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: August 9, 2021
| 24 |
Exhibit 10.1
EXHIBIT 31.1
CERTIFICATION
I, John A. Di Bella, certify that:
1. I have reviewed this report on Form 10-Q for the period ended June 30, 2021 of Enviro Technologies U.S., Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2021
| /s/ John A. Di Bella | |
| John A. Di Bella | |
| Chief Executive Officer, principal executive officer |
EXHIBIT 31.2
CERTIFICATION
I, John A. Di Bella, certify that:
1. I have reviewed this report on Form 10-Q for the period ended June 30, 2021 of Enviro Technologies U.S., Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2021
| /s/ John A. Di Bella | |
| John A. Di Bella | |
| Chief Financial Officer, principal financial and accounting officer |
EXHIBIT 32.1
SECTION 1350 CERTIFICATION
CERTIFICATION
PURSUANT TO
13 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Enviro Technologies U.S., Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. Di Bella, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 13 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2021
| /s/ John A. Di Bella | |
| John A. Di Bella | |
| Chief Executive Officer and Chief Financial Officer | |