10QSB 1 doc1.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission File Number: 0-27445 Enviro Voraxial Technology, Inc. [Exact name of Small Business Issuer as specified in its Charter) IDAHO 83-0266517 (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) (954) 958-9968 (Issuer's telephone number) (Former Name, former address and former fiscal year, if changed since last Report.) Check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X 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: March 31, 2003, we had 13,987,634 shares of our Common Stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes___ No_X___ INDEX PART 1. CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements................................ Basis of Presentation............................................ Consolidated Balance Sheet (unaudited) - March 31, 2003.......... Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2003 and 2002.................... Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2003 and 2002.......................... Notes to Consolidated Financial Statements....................... Item 2. Management's Discussion and Analysis and Plan of Operation........................................................ Item 3. Controls and Procedures.......................................... PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ Item 2. Changes in Securities and Use of Proceeds........................ Item 3. Default Upon Senior Securities................................... Item 4. Submission of Matters to a Vote of Securities.................... Item 5. Other Information................................................ Item 6. Exhibits and Reports on Form 8-K................................. Signatures .............................................................. PART I. CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) Basis of Presentation The accompanying unaudited consolidated financial statements of Enviro Voraxial Technology, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2002 found in the Company's Form 10-KSB. We may be unable to continue as a going concern, given our limited operations and revenues and our significant losses to date. Since 2001 we have encountered greater expenses in the development of our Voraxial Separators and have had limited sales income for the Voraxial Separators from this development. Consequently, our working capital may not be sufficient and our operating costs may exceed those experienced in our prior years. In light of these recent developments, we may be unable to continue as a going concern. However, we believe that the exposure received in the past year for the Voraxial Separator has positioned the Company to continue generating sales which may supply us with sufficient working capital. 1 ENVIRO VORAXIAL TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS
March 31, 2003 Current Assets: Cash and cash equivalents $ 129,000 Inventory 71,000 Other current assets 5,000 ----------- Total current assets 205,000 Property, plant and equipment, net 70,000 Other assets 5,000 ----------- $ 280,000 =========== LIABILITIES Current Liabilities: Current portion of obligations under capital Leases $ 35,000 Accounts payable and accrued expenses 273,000 ----------- Total current liabilities 308,000 Noncurrent liabilities: Obligations under capital leases 5,000 ----------- Total Liabilities 313,000 Commitments and Contingencies Stockholders' Deficit: Capital stock, par value $.001 par value; Common stock, authorized 42,750,000 shares, 13,987,634 shares issued and outstanding, 205,000 shares issuable 14,000 Additional paid-in capital 1,890,000 Deferred Compensation (39,000) Accumulated deficit ( 1,898,000) ----------- Total Stockholders' Deficit (33,000) ----------- Total Liabilities and Stockholders' Deficit $ 280,000 ===========
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ENVIRO VORAXIAL TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 ---- ---- Net sales $ - $ 11,000 Cost of goods sold - 4,000 -------- -------- Gross profit - 7,000 -------- -------- Other (income) and expenses: Research and development 81,000 51,000 General and administrative 108,000 52,000 Interest expense 1,000 3,000 -------- -------- Total costs and expenses 190,000 106,000 -------- -------- Net Loss $ (190,000) $ (99,000) =========== ========= Basic and diluted (loss)per common share $ (.01) $ (.01) =========== ========= Weighted average number of common shares outstanding 14,119,912 7,470,968 =========== ==========
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ENVIRO VORAXIAL TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31 2003 2002 ---- ---- Cash flows from operating activities: Net Loss $ (190,000) $ (99,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 8,000 11,000 Deferred Compensation 6,000 - Changes in: Accounts receivable 10,000 6,000 Inventory - - Accounts payable and accrued expenses 28,000 15,000 Deferred revenue - 2,000 ----------- ------------ Net cash used in operating activities (138,000) (65,000) ----------- ------------ Cash flows from financing activities: Net proceeds from issuance of common stock 105,000 - Payments of obligations under capital leases (5,000) (10,000) ----------- ----------- Net cash provided by financing activities 100,000 (10,000) ----------- ----------- Decrease in cash and cash equivalents (38,000) (75,000) Cash and cash equivalents, beginning of period 167,000 323,000 ----------- ----------- Cash and cash, equivalents, end of period $ 129,000 $ 248,000 =========== ===========
4 ENVIRO VORAXIAL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - ORGANIZATION AND OPERATIONS Enviro Voraxial Technology, Inc. (the "Company" or "Us") is the owner and manufacturer of the patented Voraxial Separator. The Voraxial Separator is a continuous flow turbo machine that efficiently separates a mixture of fluids or fluids and solids at extremely high flow rates while achieving very high levels of purity through the utilization of a strong centrifugal force or vortex. The scalability, efficiency and effectiveness of the Voraxial Separator make the technology universal to any industry requiring the separation of liquids and/or liquids and solids, regardless of the quantity needed to be processed. Prior to 1999, the Company performed contract-manufacturing services to the aerospace and automotive industries through the operation of its high precision engineering machine shop, which designed, manufactured and assembled specialized parts and components. Since 1999, the Company has been focusing its efforts on developing and marketing the Voraxial Separator. The Company has received a great deal of interest from a variety of industries. Although many different industries can utilize and benefit from the Voraxial Separator, the Company is focusing its efforts on a few key opportunities, including wastewater, grit/sand separation, oil-water separation, marine/oil-spill clean up, bilge and ballast treatment, stormwater treatment, and food processing waste treatment markets. We may be unable to continue as a going concern, given our limited operations and revenues and our significant losses to date. Since 2001, we have encountered greater expenses attributed to the development of our Voraxial Separators and have had limited sales revenues from this development. Consequently, our working capital may be insufficient and our operating costs may exceed those experienced in our prior years. In light of these recent developments, we may be unable to continue as a going concern. However, we believe that the exposure received in the past year for the Voraxial Separator has positioned the Company to continue generating sales and that will provide us with sufficient working capital. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [1] Principles of consolidation: The consolidated financial statements as of March 31, 2003 include the accounts of the parent company, Enviro Voraxial Technology, Inc., and its wholly owned subsidiary, Florida Precision Aerospace, Inc. All significant intercompany accounts and transactions have been eliminated. [2] 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. [3] Property, plant and equipment: Property, plant and equipment are stated at cost. The cost of maintenance and repairs is charged against results of operations as incurred. Depreciation is computed by the straight-line method over the estimated economic useful life of the assets (5 - 20 years). [4] Net loss per share: Basic and diluted loss per share has been computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding. The warrants and options have been excluded from the calculation since it would be anti-dilutive. Such equity instruments may have a dilutive effect in the future and include the following potential common shares: Warrants 1,691,531 Stock options 2,245,000 --------- 3,936,531 5 ENVIRO VORAXIAL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The stock option amount above does not include 375,000 stock options contingently issuable upon the achievement of milestones under a consulting agreement. The timetable to achieve the specified milestones expires in the third quarter of 2003. [5] Inventory: Inventory, which consists of components for the Voraxial Separator, is priced at lower of first-in, first-out cost or market. Inventory includes components held by third parties in connection with pilot programs. As indicated in Note B [6], a significant estimate involves the value of the company's inventory. The value of the inventory was reduced to estimated market value in prior periods. As this inventory is reduced through product sales, the Company may experience profit margins in excess of what normally may be expected to be achieved. [6] Use of estimates: The preparation of 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 amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ. A significant estimate involves the value of the Company's inventory. [7] Income taxes: Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. [8] Research and development expenses: Research and development costs are expensed as incurred. [9] Revenue recognition: The Company recognizes contract revenue when earned. Revenues from Voraxial Separators for non-pilot programs are earned when shipped. Shipments to third parties in connection with pilot programs are not recognized as revenue and such components are included in inventory as of March 31, 2003. [10] Fair value of financial instruments: Obligations under capital leases approximate fair value as the interest rates applicable to these debt instruments are comparable to quoted market prices for similar leases. [11] Interim financial statements Financial statements as of March 31, 2003 are unaudited but in the opinion of management the financial statements include all adjustments consisting of normal recurring accruals necessary for a fair presentation of financial position and the comparative results of operation. Results of operations for interim periods are not necessarily indicative of those to be achieved or expected for the entire year. 6 ENVIRO VORAXIAL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) [12] Stock-based compensation: The Company accounts for stock-based employee compensation under Accounting Principles Board ("APB" Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which was released in December 2002 as an amendment to SFAS No. 123. The following table illustrates the effect on net loss and loss per share if the fair value based method had been applied to all awards.
Three months ended March 31, 2003 2002 ---- ---- Reported net loss $(190,000) $( 99,000) Stock-based employee compensation expense included in reported net loss, net of related tax effects (6,000) - Stock-based employee compensation determined under the fair value based method (36,000) (28,000) --------- --------- Pro forma net loss $(232,000) $(127,000) ========= ========= Basic and diluted loss per common share: As reported $ (.01) $ (.01) ========= ========= Pro forma $ (.02) $ (.02) ========= =========
7 ENVIRO VORAXIAL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations General Forward-Looking Statements: The following discussion of the financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto. The following discussion contains forward-looking statements. Enviro Voraxial Technology is referred to herein as "the Company", "we" or "our." The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements". Such statements include those concerning our expected financial performance, our corporate strategy and operational plans. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. Statements made herein are as of the date of the filing of this Form 10-QSB with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. Three Months ended March 31, 2003 and 2002 Net Sales. Our net sales were zero for the three months ended March 31, 2003 as compared to $11,000 for the previous three months ended March 31, 2002. We anticipate that the marketing efforts for the Voraxial Separator will begin to generate revenues in 2003, We do not expect revenues in 2003 from high precision machining as all of our efforts will continue to be focused on building, assembling, marketing and selling the Voraxial Separator. Research and Development expenses Research and Development expenses increased by 59% to $81,000 for the three months ended March 31, 2003, up from $51,000 for the previous three months ended March 31, 2002. Although the Company has finalized the development of the Voraxial Separator, we increased expenditures for specific industry applications for the technology. General and Administrative expenses General and Administrative expenses increased by 107% to $108,000 for the three months ended March 31, 2003 up from $52,000 for the previous three months ended March 31, 2002. We are focusing our efforts on marketing of the Voraxial Separator. As such, the general and administrative activities supporting the Voraxial Separator have been intensified by the addition of personnel. Liquidity and capital resources For the three months ended March 31, 2003 our working capital deficiency increased by $75,000 from December 31, 2002. This increase was represented by a decrease in cash of $38,000, decrease in accounts receivable of $10,000 and an increase in current liabilities of $28,000. Operating at a loss for the three months ended March 31, 2003, negatively impacted our cash position. We anticipate that we will begin generating revenues and positive cash flow from the Voraxial Separator in 2003. To the extent such revenues and corresponding cash flows do not materialize, we will require infusion of capital to sustain our operations. We cannot be assured that the level of revenues will be self sustaining or that required capital will be able to be obtained or if terms of such required capital may be acceptable to us. 8 Continuing losses We may be unable to continue as a going concern, given our limited operations and revenues and our significant losses to date. Since 2001 we have encountered greater expenses in the development of our Voraxial Separators and have had limited sales income from this development. Consequently, our working capital may not be sufficient and our operating costs may exceed those experienced in our prior years. In light of these recent developments, we may be unable to continue as a going concern. However, we believe that the exposure received in the past year for the Voraxial Separator has positioned the Company to begin generating sales and supply us with sufficient working capital. In February and March of 2003, we sold 1.05 units of securities for proceeds of $105,000. Each unit consisting of 100,000 shares of restricted common stock at $1.00 per share and 100,000 warrants to purchase 100,000 shares of common stock at $1.50 per share. The warrants are exercisable for a period of five years from the date of closing. Item 3. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer evaluated the Company's disclosure controls and procedures within the 90 days preceding the filing date of this quarterly report. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission. There were no significant changes in the Company's internal controls or, to the knowledge of the management of the Company, in other factors that could significantly affect these controls subsequent to the evaluation date. PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds In January 2003, we issued warrants to purchase an aggregate of 310,000 shares of common stock exercisable at $1.00 per share. The warrants were issued pursuant to two separate employment agreements. In February 2003, we extended the exercisable life of certain warrants issued in 2000 for a period of one year. The warrants now expire in February 2004. In February and March of 2003, we sold 1.05 units of securities to 5 investors for proceeds of $105,000. Each unit consisted of 100,000 shares of restricted common stock at $1.00 per share and 100,000 warrants to purchase 100,000 shares of common stock at $1.50 per share. The warrants are exercisable for a period of five years from the date of closing. The transaction was exempt from registration under Section 4(2) of the Securities Act. The investors received information concerning the Company and had the opportunity to ask questions to the viability of the Company. Item 3. Default Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Securities None. Item 5. Other Information On January 1, 2003, we entered into a five year employment agreement with Mr. Frank J. DeMicco to serve as operating officer of our Company. Pursuant to the agreement, Mr. DeMicco receives an annual base salary of $150,000 per year, payable in monthly installments. In addition, Mr. DeMicco shall receive an 9 annual increase in base salary equal to a minimum of ten percent of his prior base salary. Pursuant to the agreement, Mr. DeMicco also has received warrants to purchase 100,000 shares of common stock exercisable at $1.00 per share commencing on the one year anniversary of the agreement. In addition, at the end of each subsequent year of the agreement, Mr. DeMicco shall be issued warrants to purchase $50,000 shares of common stock exercisable at $1.00 per share. The common stock as of January 2, 2003 closed at $1.15. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-B 99.1 Certification (b) Reports on Form 8-K None. 10 SIGNATURE 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 duly authorized officers of the Registrant. Enviro Voraxial Technology, Inc. By: /S/ Alberto Dibella ----------------------------------- Alberto DiBella Chairman of the Board of Directors and President DATED: May 16, 2003 11 CERTIFICATION ACCOMPANYING PERIODIC REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Alberto DiBella, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Enviro Voraxial Technology, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Enviro Voraxial Technology, Inc. as of, and for, the periods presented in this quarterly report. 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for Enviro Voraxial Technology, Inc. and have: a) designed such disclosure controls and procedures to ensure that material information relating to Enviro Voraxial Technology, Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of Enviro Voraxial Technology, Inc.'s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to Enviro Voraxial Technology, Inc.'s auditors and the audit committee of Enviro Voraxial Technology, Inc.'s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect Enviro Voraxial Technology, Inc.'s ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Enviro Voraxial Technology, Inc.'s internal controls; and 6. I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 16, 2003 /S/ Alberto Dibella ----------------------------- Alberto DiBella Principal Executive Officer, Principal Financial Officer