Notes
to Condensed Consolidated Financial Statements
June
30, 2019
(unaudited)
NOTE
A - ORGANIZATION AND OPERATIONS
Organization
Enviro
Technologies, Inc., an Idaho corporation (the “Company”), is a manufacturer of environmental and industrial separation
technology. The Company developed, and now manufactures the Voraxial
®
Separator under a Supply Agreement for Cameron
Solutions, Inc., an affiliate of Schlumberger Technology Corporation. The Voraxial is a patented technology that was sold to 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”) on June 8, 2017. The Company received a
grant back license to sell the separation technology in markets outside of the oil and gas markets, which include mining, sewage,
manufacturing, waste-to-energy and food processing industry.
Florida
Precision Aerospace, Inc., a Florida corporation (“FPA”), is the wholly-owned subsidiary of the Company and is used
to manufacture, assemble and test the Voraxial Separator. Effective November 10, 2017 the Company filed Articles of Amendment
to its Articles of Incorporation changing the Company’s name from “Enviro Voraxial Technology, Inc.” to “Enviro
Technologies, Inc.” and increasing its authorized common stock to 250,000,000 shares.
NOTE
B – GOING CONCERN
While
the Company has historically experienced recurring net losses, on June 8, 2017, the Company completed a Technology Purchase Agreement
with Schlumberger for the sale of the Company’s intellectual property in consideration of up to $4,000,000, of which $3,000,000
was paid at closing and the balance was paid in August, 2018 upon the completion of both: (i) the complete transfer of the intellectually
property to Schlumberger; and (ii) the provision to transfer information, assets and services to Schlumberger. In addition, at
closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron
Solutions”), a Houston, Texas-based company engaged in the development, manufacture and sale of equipment used in the oil
and gas industry. Under the terms of the three-year Supply Agreement, FPA is the exclusive supplier to Cameron Solutions of certain
Voraxial series products for use in the oil and gas industry. Pursuant to the Technology Purchase Agreement, Schlumberger also
granted us non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”) for the sale of the technology
outside the oil and gas industry. We rebranded the technology and it is now called V-Inline. Our management believes that the
Grant Back License will provide us the opportunity to possibly leverage future Schlumberger sales in the oil and gas market to
penetrate the sale and use of licensed V-Inline products to other industries, including, but not limited to mining, sewage and
industrial wastewater.
We
believe that including our current cash resources and anticipated revenue to be generated under the Grant Back Licenses and Supply
Agreement, we will have sufficient resources to continue business operations in excess of 12 months. However, we have not yet
generated significant revenues from the Supply Agreement or Grant Back License. There is no assurance that the Supply Agreement
will generate sufficient revenues and income, nor is there any assurance that we will be able to leverage the Grant Back License
and generate sufficient revenues from other industries.
At
June 30, 2019, we had an accumulated deficit of $15,952,791 including a net loss of $467,133 for the six months ended June 30,
2019. We may not be able to achieve profitability on a quarterly or annual basis. If we fail to sustain or increase our 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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
june
30, 2019
(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, 2018, as filed with the SEC on April 1, 2019. In the opinion of management,
all adjustments, which are necessary to provide a fair presentation of financial position as of June 30, 2019, 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, 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. Actual results may differ. Significant estimates include allowance for doubtful accounts,
deferred tax asset, allowance for inventory obsolescence and valuation of stock-based compensation.
Revenue
Recognition
The
Company derives most of its revenue from the sale of the Voraxial Separator and its V-Inline Separator. We account for revenue
in accordance with ASC Topic 606, which we adopted on January 1, 2018, using the modified retrospective method. The adoption of
ASC Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our consolidated financial statements
and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the
adoption date or for the three and six months ended June 30, 2018. We did not recognize any cumulative-effect adjustment to retained
earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to
be reported under the accounting standards in effect for those periods.
Revenues
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.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
JUNE
30, 2019
(unaudited)
Revenues
that are generated from sales of equipment 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, 2019 and December 31, 2018, there was $1,496,219 and $1,035,706 respectively, of deposits from customers.
The increase in deposits from customer is attributed to the purchase order we received from a utility customer for a wastewater
treatment system that is comprised of multiple V-Inline Separators. As of June 30, 2019 we have received $1,496,219 from this
customer. We anticipate that the project will be completed by the fourth quarter of 2019.
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, 2019
and December 31, 2018, the Company has $60,254 and $60,254 in the allowance for doubtful accounts, respectively.
Fair
Value of Instruments
The
carrying amounts of the Company’s financial instruments, including cash and cash equivalents, inventory, accounts payable
and accrued expenses at June 30, 2019 and December 31, 2018, 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, 2019 and December 31, 2018.
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, 2019 and December 31, 2018.
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, 2019 and December 31, 2018.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
june
30, 2019
(unaudited)
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, 2019 and December 31, 2018 the Company has
a cash concentration of $342,999 and $957,717, respectively, in excess of FDIC limits.
Inventory
Inventory
consists of components for the Voraxial Separator 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 and a normal profit margin. Inventory may include
units being rented on a short term basis or components held by third parties in connection with pilot programs as part of the
continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their
respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains
the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of June 30, 2019 and December
31, 2018:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Raw materials
|
|
$
|
90,960
|
|
|
$
|
90,656
|
|
Work in process
|
|
|
241,532
|
|
|
|
80,609
|
|
Finished goods
|
|
|
175,807
|
|
|
|
205,053
|
|
Total
|
|
$
|
508,299
|
|
|
$
|
376,318
|
|
Inventory
amounts are presented net of impairment of $42,752 and $42,752 as of June 30, 2019 and December 31, 2018, respectively.
Fixed
Assets
Fixed
assets are stated at cost less accumulated depreciation. The cost of maintenance and repairs is expensed to operations as incurred.
Depreciation is computed by the straight-line method over the estimated economic useful life of the assets (5-10 years). Gains
and losses recognized from the sales or disposal of assets is the difference between the sales price and the recorded cost less
accumulated depreciation less costs of disposal.
LEASES
In
connection with our lease agreement for our facility located in Fort Lauderdale, FL, the Company elected to adopt the provision
of ASU 2016-02, “Leases” as of January 1, 2019. The Company recorded an operating lease asset and operating lease
liability as of June 30, 2019 (refer to Note H).
Net
Loss Per Share
In
accordance with the accounting guidance now codified as FASB ASC Topic 260, “
Earnings per Share”
basic earnings
(loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during
each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares
of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
JUNE
30, 2019
(unaudited)
Due
to the Company had net loss for the three and six month period ended June 30, 2019 and 2018, the effect of 13,465,000 and 13,465,000
options, respectively are anti-dilutive. A separate computation of diluted loss per share is not presented.
INCOME
TAXES
The
Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC
740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
BUSINESS
SEGMENTS
The
Company operates in one segment and therefore segment information is not presented.
Research
and Development Expenses
Research
and development costs, which includes travel expenses, consulting fees, subcontractors and salaries are expensed as incurred.
Advertising
Costs
Advertising
costs are expensed as incurred and are included in general and administrative expenses.
Stock-Based
Compensation
The
Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock
Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock
options and other equity based compensation issued. The value of the portion of a stock award that is ultimately expected to vest
is recognized as an expense over the requisite service periods using the straight-line attribution method.
RECLASSIFICATIONS
Certain
amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no
impact on the Company’s net loss or cashflows.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
june
30, 2019
(unaudited)
Recent
Accounting Pronouncements
In
February 2016, Financial Accounting Standards Board Accounting Standards Certification (“FASB”) issued Accounting
Standards Update (“ASU”) 2016-02, “
Leases
”, which will amend current lease accounting to require
lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease,
measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use,
or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements
applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting
model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. The Company adopted this standard on January 1, 2019. The Company elected the optional transition method to apply
this standard as of the effective date and therefore, the Company has not applied the standard to the comparative period presented
on our condensed consolidated financial statements. (refer to Note H).
In
June 2018, FASB issued ASU 2018-07 “
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting
.” This ASU relates to the accounting for non-employee share-based payments. The amendment
in this Update expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods
or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes
share-based payment awards that relate to (1) financing to the issuer or (2) awards granted in conjunction with selling goods
or services to customers as part of a contract accounted for under Topic 606, revenue from Contracts from Customers. The share-based
payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the
good or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity
instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after
December 15, 2018, including interim periods within that fiscal year. The Company adopted the standard on January 1, 2019.
The adoption has no impact on our condensed consolidated financial statements.
All
other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
NOTE
D - RELATED PARTY TRANSACTIONS
On
January 4, 2018 the Company’s board of directors reduced the annual compensation of the Company’s chief executive
officer from $305,000 to $210,000, effective as of January 1, 2018. For the three and six months ended June 30, 2019, the Company
incurred salary expenses from the Chief Executive Officer of the Company of $52,500 and $105,000, respectively. During the six
months ended June 30, 2019, a total of $360,000 of salary and accrued salary have been paid. The total unpaid balance as of June
30, 2019 is $558,761 and is included in accrued expenses – related party. In November 2018, the Board of Directors also
approved the health insurance benefit for our CEO. For the three and six months ended June 30, 2018, the Company incurred salary
expenses from the Chief Executive Officer of the Company of $52,500 and $105,000, respectively. Of these amounts, $36,000 had
been paid for the six months ended June 30, 2018. The total unpaid balance as of June 30, 2018 is $1,258,761 and is included in
accrued expenses – related party.
Effective
July 1, 2017, Raynard Veldman, a member of the Company’s board of directors receives a fee of $2,500 per month for consulting
services. During the three and six months ended June 30, 2019 and 2018, Mr. Veldman received consulting fees of $7,500 and $15,000,
respectively.
During
the three and six months ended June 30, 2019 and 2018, Raynard Veldman, a member of the Company’s board of directors, received
compensation for being a member of the Company’s board of directors of $3,000 and $6,000, respectively. Mr. John DiBella
does not receive compensation for being a member of the Company’s board of directors.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
JUNE
30, 2019
(unaudited)
NOTE
E – FIXED ASSETS
Fixed
assets as of June 30, 2019 and December 31, 2018 consist of:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Machinery and equipment
|
|
$
|
933,245
|
|
|
$
|
933,245
|
|
Furniture and fixtures
|
|
|
14,498
|
|
|
|
14,498
|
|
Autos and Trucks
|
|
|
5,294
|
|
|
|
5,294
|
|
Total
|
|
|
953,037
|
|
|
|
953,037
|
|
Less: accumulated depreciation
|
|
|
(581,130
|
)
|
|
|
(558,601
|
)
|
Fixed Assets, net
|
|
$
|
371,907
|
|
|
$
|
394,436
|
|
Depreciation
expense was $11,265 and $11,265 for the three months ended June 30, 2019 and 2018, respectively.
Depreciation
expense was $22,529 and $22,529 for the six months ended June 30, 2019 and 2018, respectively.
In
July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately
$426,000. The machining equipment was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation
of potential future orders under the Supply Agreement and sales pursuant to the Grant Back Licenses. As of June 30, 2019 and December 31,
2018, the amount owed is $258,625 and $290,004 respectively.
note
f – shareholders’ equity
Options
The
Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock
Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock
options and other equity based compensation issued. The value of the portion of a share award that is ultimately expected to vest
is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates
the fair value of stock options by using the Black-Scholes option-pricing model.
The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different
from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate,
in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such
stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with
a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued
a dividend and management’s current expectation of future action surrounding dividends. Expected volatility was based on
historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified
method for employees and officers.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
JUNE
30, 2019
(unaudited)
Information
with respect to options outstanding and exercisable at June 30, 2019 is as follows:
|
Number
Outstanding
|
Exercise
Price
|
Number
Exercisable
|
Balance,
December 31, 2018
|
13,465,000
|
$0.01
|
13,465,000
|
Issued
|
-
|
-
|
-
|
Expired
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
Balance,
June 30, 2019
|
13,465,000
|
$0.01
|
13,465,000
|
Exercise
Price
|
Number
Outstanding at
June 30, 2019
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
June 30, 2019
|
Weighted
Average
Exercise Price
|
0.01
|
13,465,000
|
4.38
|
0.01
|
13,465,000
|
0.01
|
Total
|
13,465,000
|
|
|
13,465,000
|
|
The
aggregate intrinsic value represents the excess amount over the exercise price optionees would have received if all the options
have been exercised on the last business day of the period indicated based on the Company’s closing stock price of for such
day. The aggregate intrinsic value as of June 30, 2019 is $215,440.
NOTE
G – COMMITMENTS AND CONTINGENCIES
Customer
Deposit
The
Company received a substantial deposit from a customer in the utility industry, which has filed for bankruptcy protection. The
customer has paid multiple deposits totaling $1,496,219 as of June 30, 2019. The balance is included in our balance sheet as “Deposits
from customers”. In January 2019, our customer filed for bankruptcy protection. As of June 30, 2019, we do not believe this
bankruptcy filing will negatively affect the purchase order we received. However, if the customer was to cancel the order or under
bankruptcy law we were required to return the deposit, then our operations would be adversely affected.
EQUIPMENT
FINANCING
In
July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately
$426,000. The machining equipment was received in July 2017 and will be used for the manufacture of Voraxial Separators in preparation
of potential future orders under the Supply Agreement and sales of the V-Inline Separators pursuant to the Grant Back Licenses.
Under the terms of the agreement the Company made an initial down payment of $85,661 and financed the remaining balance of $340,644.
The Company is required to make monthly payments of $6,788 through January 2023. As of June 30, 2019 and December 31, 2018, the
amount owed is $258,625 and $290,004 respectively.
Litigation
On
or about October 23, 2017, a claim was filed in the 17
th
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 damages in the amount of $310,820. We are defending this action,
as we believe this claim is without merit. The Company has accrued legal fees to defend the case.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
jUNE
30, 2019
(unaudited)
SALE
OF INTELLECTUAL PROPERTY
On
June 8, 2017, the Company and FPA closed the transactions contemplated by the Technology Purchase Agreement dated March 13, 2017
with Schlumberger.
At
closing, we sold our intellectual property, substantially consisting of the Voraxial patents, marks, software and copyrights,
to Schlumberger in consideration of up to $4,000,000, of which $3,000,000 was paid to us at closing and the balance of $1,000,000
was paid in August 2018 upon the completion of both: (i) the complete transfer of the intellectually property to Schlumberger;
and (ii) the provision to transfer information, assets and services to Schlumberger.
We
utilized a portion of the proceeds from this transaction to pay most of our outstanding debt and are using the balance for general
working capital. We used some of the proceeds to buy additional manufacturing equipment to meet potential future sales.
As
part of the agreement, Schlumberger granted us a non-exclusive, worldwide, royalty-free licenses (the “Grant Back Licenses”),
to make, use, sell, offer for sale, and import products and processes embodying the Purchase Intellectual Property outside the
oil and gas market. In addition to the proceeds from the sale of our intellectual property, our management believes that the Grant
Back License will provide for the potential increase of revenues through the sale of the intellectual technology, possibly leveraging
future sales by Schlumberger in the oil and gas market to penetrate the sale and use of licensed products to other industries,
including, but not limited to mining, sewage and wastewater.
In
addition, at closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc.
(“Cameron Solutions”), a Houston, Texas-based company engaged in the development, manufacture and sale of equipment
used in the oil and gas industry. Under the terms of the three-year Supply Agreement, FPA is the exclusive supplier to Cameron
Solutions of certain Voraxial series products for use in the oil and gas industry. Sales will be made from time to time in accordance
with the terms of purchase orders. The Supply Agreement is cancellable by Cameron Solutions upon 15 days’ notice if FPA
fails to meet delivery or performance schedules or breaches any of the terms of the agreement, including the warranties. Cameron
Solutions may also cancel the Supply Agreement without notice in the event FPA becomes insolvent or commits any act of bankruptcy.
The Supply Agreement contains customary indemnification and confidentiality provisions.
For
a period of three years following the closing of the Agreement, the Company and Raynard Veldman and John Di Bella have agreed
to not participate or cause participation in the oil-and-gas market in relation to phase or constituent sensing or separation
which is defined as, liquid-liquid, liquid-solid or liquid-gas separation and gas or liquid sensing, including all product lines
and services related thereto and including the Voraxial product line and services, except to the extent necessary to: (i) repair
or service, but not remanufacture, any goods the Company sold to third persons prior to closing; (ii) fulfill, on or after closing,
any customer obligation; or (iii) comply with any term or condition of the Agreement. In addition the Company shall take all reasonable
measures to ensure the confidentiality and prevent the improper use of all trade secrets.
NOTE
H - LEASE
The
Company elected to adopt the provision of ASU 2016-02, “Leases” as of the effective date. The Company recorded an
operating right of use assets and operating lease liability on January 1, 2019 related to our lease agreement for our facility
in Fort Lauderdale, Florida.
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
JUNE
30, 2019
(unaudited)
In
December 2018, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57
th
Place, Fort Lauderdale, FL 33309. The lease is $4,839 per month, which includes common area maintenance, taxes and insurance
and expires in October 2021. The lease has a one-time renewal option for three years and an increased base rent of 3%. The Company
has the option to terminate the lease with three months’ notice.
Operating
right of use asset and operating lease liability are recognized at the lease commencement date. Operating lease liability represents
the present value of lease payments not yet paid. Operating right of use asset represent our right to use an underlying asset
and are based upon the operating lease liability adjusted for prepayments or accrued lease payments, initial direct costs,
lease incentives, and impairment of operating lease assets. The Company used our incremental borrowing rate to determine the present
value of lease payments not yet paid.
Supplemental
balance sheet information related to leases was as follows:
|
|
|
|
|
|
Operating
Leases
|
|
Classification
|
|
June
30,2019
|
|
Right-of-use
assets
|
|
Operating
lease assets
|
|
$
|
263,465
|
|
|
|
|
|
|
|
|
Current
lease liability
|
|
Current
operating lease liability
|
|
|
41,551
|
|
Non-current
lease liability
|
|
Long-term
operating lease liability
|
|
|
221,914
|
|
Total
lease liabilities
|
|
|
|
$
|
263,465
|
|
Lease term and discount rate were as follows:
|
|
|
|
|
|
June
30,2019
|
|
Weighted average remaining lease term (years)
|
|
|
5.26
|
|
Weighted average discount rate
|
|
|
6.75
|
%
|
The
components of lease cost were as follows:
|
|
Three months
ended
|
|
|
Six months
ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Operating lease cost
|
|
$
|
13,500
|
|
|
$
|
29,033
|
|
Variable lease cost (1)
|
|
|
4,294
|
|
|
|
9,436
|
|
Total lease cost
|
|
$
|
17,794
|
|
|
$
|
38,469
|
|
(1)
Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate.
Supplemental
disclosures of cash flow information related to leases were as follows:
|
|
Six months ended
|
|
|
|
June
30, 2019
|
|
Cash paid for operating lease liabilities
|
|
$
|
21,343
|
|
Operating lease assets obtained in exchange for operating lease
liabilities
|
|
|
284,808
|
|
ENVIRO
TECHNOLOGIES, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
JUNE
30, 2019
(unaudited)
Maturities
of lease liabilities were as follows as of June 30, 2019:
|
|
Operating
Leases
|
|
Remainder
of 2019
|
|
$
|
29,033
|
|
2020
|
|
|
58,065
|
|
2021
|
|
|
58,353
|
|
2022
|
|
|
59,795
|
|
2023
|
|
|
59,795
|
|
Thereafter
|
|
|
49,829
|
|
Total
lease payments
|
|
|
314,870
|
|
|
|
|
|
|
Less:
imputed interest
|
|
|
(51,405)
|
|
Present
value of lease liabilities
|
|
$
|
263,465
|
|
As
of June 30, 2019, operating lease payments of $263,465 include the options to extend lease terms that are reasonably certain of
being exercised.
NOTE
I – MAJOR CUSTOMERS
During
the three and six months ended June 30, 2019, we recorded 100% and 98% of our revenue from one customer.
During
the three and six months ended June 30, 2018, we recorded 99% and 99% of our revenue from one customer.
As
of June 30, 2019, one of the Company’s customers represents 98% of the total accounts receivable.
As
of December 31, 2018, two of the Company’s customers represents 98% of the total accounts receivable.
We
received a substantial deposit from a customer in the utility industry, which has filed for bankruptcy protection. The customer
has paid multiple deposits totaling $1,496,219 as of June 30, 2019. The balance is included in our balance sheet as “Deposits
from customers”. In January 2019, our customer filed for bankruptcy protection. As of June 30, 2019, we do not believe this
bankruptcy filing will negatively affect the purchase order we received. However, if the customer was to cancel the order or under
bankruptcy law we were required to return the deposit, then our operations would be adversely affected.