WOLF ENERGY SERVICES INC. - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2020

or

For the transition period from __________________ to __________________________

Commission file number: 000-30454

Enviro Technologies U.S., Inc.

(Exact name of registrant as specified in its charter)

Securities registered under Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act:

Common stock, par value $0.001 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes   ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 

☐ Yes    ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act 915 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes     ☒ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed fiscal year. $557,959 on June 30, 2020.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 4,950,125 shares of common stock are issued and outstanding as of March 31, 2021.

DOCUMENTS INCORPORATED BY REFERENCE5

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in Part I. Item 1A. Risk Factors appearing elsewhere in this report. Other sections of this report include additional factors, which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 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. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

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

Unless specifically set forth to the contrary, when used in this report the terms “EVTN,” the “Company,” “we,” “our,” “us,” and similar terms refers to Enviro Technologies U.S., Inc., a Florida corporation, and our subsidiary, Florida Precision Aerospace, Inc., a Florida corporation which we refer to as “FPA”. In addition, “2019” refers to the year ended December 31, 2019, “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.

 PART I

The Company developed and manufactured the Voraxial Separator and currently manufactures and sells the V-Inline Separator, a unique separation technology that efficiently separates large volumes of liquid/liquid, liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. Current and potential commercial applications and markets for the V-Inline Separator include mining, utilities, manufacturing, utilities, waste-to-energy among other industries.

On March 13, 2017, we entered into a Technology Purchase Agreement 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”) pursuant to which we sold our intellectual property, substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of $4,000,000. As part of the agreement, Schlumberger granted us a non-exclusive, non-transferable, worldwide, royalty-free licenses (the “Grant Back Licenses”), to make, use, sell, offer for sale, and import products and processes embodying the Voraxial intellectual property outside the oil and gas market. Under the terms of the agreement, we can no longer use the tradename Voraxial and we subsequently branded the technology licensed to us as the “V-Inline”. Our management believes that the Grant Back Licenses can potentially provide additional revenues through the sale of V-Inline Separators outside the oil and gas industry, including, but not limited to mining, utilities, sewage and industrial wastewater. In the fourth quarter of 2019 we shipped a wastewater system comprised of multiple V-Inline Separators to a utility company to separate solids and oil from their wastewater stream. Due to Covid-19, the installation of the system was delayed. The system, successfully commissioned in February 2021, 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. Management believes there are many opportunities similar to this installation available for the V-Inline Separator not only in the utilities industry but other industries as well including those previously mentioned.

The V-Inline Separator is a continuous flow turbo machine that generates a strong centrifugal force, a vortex, capable of separating light and heavy liquids, such as oil and water, or any other combination of liquids and solids at extremely high flow rates. As the fluid passes through the machine, the V-Inline Separator accomplishes this separation through the creation of a vortex. In liquid/liquid and liquid/solid mixtures, this vortex causes the heavier compounds to gravitate to the outside of the flow and the lighter elements to move to the center where an inner core is formed. The liquid stream processed by the machine is divided into separate streams of heavier and lighter liquids and solids. As a result of this process, separation is achieved.

The benefits of the V-Inline Separator include:            

The V-Inline Separator is a self-contained, non-clogging device that can be powered by an electric motor, diesel engine or by hydraulic power generation. Further, its scalability allows it to be utilized in a variety of industries and to process

various amounts of liquid. The following are the various sizes and the corresponding capacity range:

While our net revenues in 2020 declined substantially from 2019, we remain firm in our belief that the need for effective and cost efficient wastewater treatment and separation technology is global in scale. Moreover, virtually every industry requires some type of separation process either during the manufacturing process, prior to treatment or discharge of wastewater into the environment, for general clean up, or emergency response capability. Separation processes, however, are largely unknown to the average consumer. These processes are deeply integrated in almost all industrial processes from oil to wastewater to manufacturing. Management believes that the separation technology has applications in most, if not all major separation industries. The unique characteristics of the technology allow it to be utilized either as a stand-alone unit or within an existing system to provide a more efficient and cost effective way to handle the separation needs of the customer. We believe the separation technology can result in a cost savings and other benefits to the customer. These benefits result in and include:

We believe that this separation technology is a unique front-end solution for the separation industry that can offer increased productivity while reducing the physical space and energy required to operate the unit. These advantages translate into the potential for substantial operating cost efficiencies that would increase the profitability of the solution’s end user. The unique characteristic to conduct separation without a pressure loss allows the unit to be installed in locations other technologies cannot. For instance, another separation technology called a hydrocyclone requires a significant pressure loss to perform separation.

Manufacturing

We manufacture and assemble our products at our Fort Lauderdale, Florida facilities. The materials needed to manufacture the components of the products we sell, including the separation technology, have been provided by leading companies in the precision equipment industry. We do not have any long term contracts with any supplier. We do not anticipate any shortage of component parts. We maintain a limited inventory of finished parts until we receive a customer order. Most of our inventory is comprised of raw materials and finished Separator components that can be used for future sales.

Marketing

During 2020 we limited our marketing and advertising due to COVID-19 and the downturn in the oil and gas markets and lack of available working capital. We anticipate increasing spending on marketing efforts, such as tradeshows, when, and if, our cash flow and market conditions improve. From June 2017 through June 2020, we primarily focused our marketing resources to develop a strong rapport with Schlumberger, which included scaling up our manufacturing capabilities. In addition, we started to pursue projects in industries outside of the oil and gas market, and primarily marketed our products by

developing relationships within the separation markets. Our marketing efforts were compromised as we anticipated using the revenues from the Schlumberger Supply Agreement to invest in new applications and industries for the V-Inline Separator unit sales. However, sales from Schlumberger were lower than management anticipated and the Supply Agreement has expired.

As the economy improves we expect to market the V-Inline Separator to companies outside of the oil and gas industry by attending tradeshows and developing relationships with sales representatives. The Company has also begun marketing its manufacturing capabilities to companies located in South Florida through networking, reaching out to old customers and attending tradeshows. Due to the economic conditions presented by the Covid-19, the Company does not currently have plans to present at any tradeshows in 2021.

Regulation

Our operations are subject to extensive and frequently changing federal, state, and local laws and substantial regulation by government agencies, including the United States Environmental Protection Agency (EPA), the United States Occupational Safety and Health administration (OSHA) and the Federal Aviation Administration (FAA). Among other matters, these agencies regulate the operation, handling, transportation and disposal of hazardous materials used by us during the normal course of our operations, govern the health and safety of our employees and certain standards and licensing requirements for our aerospace components that we contract manufacture. We are subject to significant compliance burden from this extensive regulatory framework, which may substantially increase our operational costs.

We believe that we have been and are in compliance with environmental requirements and believe that we have no liabilities under environmental requirements. Further, we have not spent any funds specifically on compliance with environmental laws. However, some risk of environmental liability is inherent in the nature of our business, and we might incur substantial costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental requirements in the future. This could result in a material adverse effect to our results of operations and financial condition.

Product Liability

Our business exposes us to possible claims of personal injury, death or property damage, which may result from the failure, or malfunction of any component or subassembly manufactured or assembled by us. We have product liability insurance. However, any product liability claim made against us may have a material adverse effect on our business, financial condition or results of operations in light of our poor financial condition, losses and limited revenues. We also maintain general insurance coverage.

Competition

We are subject to competition from other manufacturing facilities who have greater manufacturing capacity, which allows them to utilize economy of scale to reduce cost. We are also subject to competition from a number of companies who have greater experience, research abilities, engineering capability and financial resources than we have to market and sell separation technology. Although we believe the separation technology offers applications which accomplish better or similar results on a more cost-effective basis than existing products, other products have, in some instances, attained greater market and regulatory acceptance.

Human Capital

As of the date of this report we have five employees, including Mr. John A. DiBella, our sole executive officer, one individual who provides administrative and support services to us and three individuals who are involved in the manufacturing, shipping and installation, if required, of our products. All of our employees work from our principal offices in Fort Lauderdale, Florida, other than Mr. DiBella who works from time to time remotely from his home. All of our employees are full-time and none are covered by collective bargaining agreements. Our non-executive employees have been employed “at will” by our company from 2 years to 13 years.

Our executive officer receives an annual salary and may receive bonuses at the discretion of the board of directors. Information regarding Mr. DiBella’s compensation appear later in this report. All of our employees receive health insurance

and one week paid leave. Our employees are compensated based on their responsibilities as such, some are hourly while others are salaried. Our hourly employees may also receive overtime pay. At the discretion of our management, the non-executive employees may receive bonus paid either at the end of the year or after completion of certain projects.

Our History

The Company was incorporated in Idaho on October 19, 1964 under the name Idaho Silver, Inc. In June 1996 we changed our corporate name to Enviro Voraxial Technology, Inc. and in June 2017 we changed our corporate name to Enviro Technologies, Inc. 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.”

Additional Information

We file annual and quarterly reports on Forms 10-K and 10-Q, current reports on Form 8-K and other information with the Securities and Exchange Commission (“SEC” or the “Commission”). The Commission also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.

Other information about EVTN can be found on our website www.evtn.com. Reference in this document to that website address does not constitute incorporation by reference of the information contained on the website.

Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.

FINANCIAL RISKS

Our independent auditors have raised substantial doubt about our ability to continue as a going concern.

Our consolidated financial statements have been prepared assuming we will continue as a going concern. At December 31, 2020 we have a working capital deficit of $750,481 and an accumulated deficit of $15,922,429. Our revenues declined approximately 97% in 2020 from 2019 and for 2020 we reported a net loss of ($1,030,808). In addition, we used $541,249 in net cash in our operations during 2020. 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.

We expect the impact of the Covid-19 pandemic on our company to continue to materially impact our results of operations in 2021.

The decline in oil prices and overall economic activity as a result of the Covid-19 pandemic has materially adversely impact our operations during 2020 and we believe the ongoing effects of Covid-19 pandemic will negatively impact our operations in 2021. Specifically, the decrease in the price of oil (West Texas Intermediate – WTI) from approximately $60 per barrel in the beginning of January 2020 to a low of approximately negative $37 per barrel in April 2020 and then staying at approximately $40 per barrel until early November 2020 had a negative effect on the potential for sales of our products. During 2020 we experienced a significant slowdown from customer’s inquiries from other industries as well that lasted the majority of the year. Although we are starting to experience some inquiries from customers in 2021, we expect this trend to continue until such

time as the full impact of the virus passes, travel restrictions are lifted and corporate capital expenditures are normalized. We are unable to predict the overall impact on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not 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 ability to generate revenues or profitable operations in the future is not assured.

Since entering into the Grant Back License in June 2017, we have generated limited revenues under the terms of this agreement, nor are there any guarantees that we will be able to generate any meaningful revenues in the future. Our ability to generate future revenues will depend on a number of factors, many of which are beyond our control, including the impact of Covid-19, competitive efforts and general economic trends. In addition, we reported a net loss of approximately $1.03 million for 2020. There are no assurances we will be able to continue to generate revenues or report profitable operations in the future.

If our revenues continue to decline, we do not have sufficient funds to pay our operating expenses.

While we reported net income of $594,037 in 2019, we reported a net loss of $(1,030,808) in 2020. At December 31, 2020 we had $336,564 of cash and a working capital deficit of $750,481. We used $541,249 in net cash in our operations in 2020. We do not have any external sources of liquidity. Although we believe our revenues will increase in 2021 from 2020, there are no assurances this is correct or that any increase in our revenues in 2021 will be sufficient to pay our operating expenses. In an effort to conserve our cash resources to sustain our operations until such time as the economy begins returning to pre-Covid-19 pandemic activity levels, we have reduced employee hours, accrued a portion of management’s salary and have begun marketing our machining capabilities to local manufactures. 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. There are no assurances, however, that these efforts will be sufficient to permit us to pay our operating expenses. In that event, our ability to continue as a going concern is in jeopardy.

We have been limited by insufficient capital, and we may continue to be so limited.

In the past, we have lacked the required capital to market the V-Inline Separator. Our inability to raise the funding or to otherwise finance our capital needs could adversely affect our financial condition and our results of operations, and could prevent us from implementing our business plan. We may seek to raise capital through public and private equity offerings, debt financing or collaboration, and strategic alliances. Such financing may not be available when we need it or may not be available on terms that are favorable to us. If we raise additional capital through the sale of our equity securities, your ownership interest will be diluted and the terms of the financing may adversely affect your holdings or rights as a stockholder. If we fail 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.

BUSINESS RISKS

We currently rely on a limited number of customers and the Grant Back License for our revenues.

Revenues from two customers accounted for approximately 20% and 10% of total revenues, respectively, during 2020 and revenues from one customer accounted for approximately 93% of total revenues during 2019. We do not have any contracts with minimum guaranteed orders with these customers. Furthermore, we currently rely on the Grant Back License. If these customers fail to order additional products or we are unable to attract new customers or we do not comply with the terms of the Grant Back License, it could have an adverse effect on our financial condition and results of operations.

Our market is subject to intense competition. If we are unable to compete effectively, our product may be rendered non-competitive or obsolete.

We are engaged in a segment of the water filtration industry that is highly competitive and rapidly changing. Many large companies, academic institutions, governmental agencies, and other public and private research organizations are pursuing the development of technology that can be used for the same purposes as the V-Inline Separator. We face, and expect to continue to face, intense and increasing competition, as new products enter the market and advanced technologies become available. We believe that a significant number of products are currently under development and will become available in the future that may address the water filtration segment of the market. If other products are successfully developed, it may be better received by the market or introduced before the V-Inline Separator. Our competitors' products may be more effective, or more effectively marketed and sold, than any of our products. Many of our competitors have significantly greater financial, technical and human resources than we have and may be better equipped to discover, develop, manufacture and commercialize products; and more extensive experience in marketing water treatment products. Competitive products may render the V-Line Separator obsolete or noncompetitive.

We are dependent on key personnel.

We are dependent upon the availability and the continued performance of the services of John A. DiBella, our Chief Executive Officer. We are not a party to any employment agreement with him. The loss of the services of Mr. DiBella could have a material adverse effect on us.

RISKS RELATED TO OUR COMMON STOCK

We have material weaknesses in our disclosure controls and our internal control over financial reporting. If we fail to remediate any material weaknesses or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Historically we have reported material weaknesses in our disclosure controls and internal control over financial reporting. As required by the rules and regulations of the SEC, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. Based on this assessment, and as described later is this report, our management concluded that as of December 31, 2020, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP as a result of material weaknesses. Our failure to remediate the material weaknesses or the identification of additional material weaknesses in the future could adversely affect our ability to report financial information, including our filing of quarterly or annual reports with the SEC on a timely and accurate basis. Moreover, our failure to remediate the material weaknesses identified above or the identification of additional material weaknesses could prohibit us from producing timely and accurate financial statements, which may adversely affect the market price of shares of our common stock.

We do not know whether an active, liquid and orderly trading market will develop for our common stock and as a result it may be difficult for you to sell your shares of our common stock.

Our common stock is quoted on the Pink tier of the OTC Markets and is thinly traded. An active trading market in our common stock may never develop or, if developed, sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into business combinations with other companies by using our shares of common stock as consideration. The market price of our common stock may be volatile, and you could lose all or part of your investment.

Because our stock currently trades below $5.00 per share, and is quoted on the Pink tier of the OTC Markets, our stock is considered a "penny stock" which can adversely affect its liquidity.

As the trading price of our common stock is less than $5.00 per share, our common stock is considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction. SEC regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of our common stock in the secondary market because few brokers or dealers are likely to undertake these compliance activities. Purchasers of our common stock may find it difficult to resell the shares in the secondary market.

None.

In December 2018, the Company entered into a three year lease for an office and manufacturing facility located at 821 NW 57 Place, Fort Lauderdale, FL 33309. The lease is approximately $4,839 per month. 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.

Please see Note I to the notes to consolidated financial statements appears later in this report for a discussion of the pending or threatened litigation involving the Company.

Not applicable.

PART II

Our common stock is quoted on the Pink tier of OTC Markets under the symbol “EVTN”.

The last sale price of our common stock as reported on the Pink tier of the OTC Markets on March 29, 2021, was $0.25 per share. As of March 29, 2021, there were approximately 800 record owners of our common stock.

Dividends

We have not paid a cash dividend on the common stock since current management joined our company in 1996. The payment of dividends may be made at the discretion of our board of directors and will depend upon, among other things, our operations, our capital requirements and our overall financial condition. As of the date of this report, we have no intention to declare dividends.

Recent Sales of Unregistered Securities

Except for those unregistered securities previously disclosed in reports filed with the Commission during the period covered by this report, we have not sold any securities without registration under the Securities Act of 1933, as amended, during the period covered by this report.

Issuer Purchase of Equity Securities

None.

This information not required for a smaller reporting company.

The following discussion of our financial condition and results of operations for 2020 and 2019 and should be read in conjunction with the 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, Item 1A. Business and Item 1A. Risk Factors 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. Our revenues were mainly derived from machining, face guards and auxiliary parts for the V-Inline Separators. The demand from the oil industry dried up as we saw a significant decline in oil prices and a drop in capital expenditures from the overall market, both the oil industry and industries outside of oil and gas hindered sales opportunities for the V-Inline Separator. Customer inquiries decreased significantly as well. 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 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. 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. We shipped a wastewater system to a utility company that consisted of multiple V-Inline Separators to separate solids and oil from their wastewater stream. The system is being used to process and separate oil and solids from a flow of about 100 gallons per minute. The system includes different technologies with the heart of the system being comprised of two V-Inline 2000 Separators working in parallel with a third V-Inline Separator being utilized to further dewater the reject lines from the System. We shipped the wastewater system in the fourth quarter of 2019. Due to Covid-19, the system installation was delayed. The system was commissioned in February 2021 and meeting all the required discharge requirements.

Going Concern 

For 2020 we reported a net loss of  $(1,030,808) and net cash used in operations of $541,249. At December 31, 2020 we had cash on hand of $336,564, a working capital deficit of $750,481 and an accumulated deficit of $15,922,429. 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.

Results of Operations

Revenues

Revenues for 2020 decreased by approximately 97% from 2019. The decrease in revenues were a result of the harsh economic climate we faced in 2020 due to Covid-19 pandemic. Although we achieved significant revenue growth in 2019 from the sale of Voraxial Separator to the oil industry and the sale of a wastewater system that included multiple V-Inline Separators to a nuclear facility, the damage experienced from the 2020 pandemic may hinder our ability to generate sales and increase revenues quickly. As discussed earlier in this report, we expect that our revenues in 2021 from the sale of Voraxial and V-Inline Separators will be adversely impacted by the Covid-19 pandemic. 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 in 2021.

Cost of goods

Cost of goods sold decreased approximately 96% in 2020 from 2019, and reflects the decrease in the number of units sold during the year. Our cost of goods sold as a percentage of revenues, however, increased to approximately 60% in 2020 from approximately 42% in 2019 as a result of the lower margin projects we completed via machining, including the manufacturing of face shields, and the auxiliary parts for the V-Inline Separators as compared to the higher margin products of the V-Inline Separators and Voraxial Separators. Further, we experience inventory impairment as a result of extra face shields we have in inventory. 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 increased by approximately 2% for 2020 as compared to 2019. The increase was due to increase in payroll expense, partially offset by decreases in selling, general and administrative expenses and professional fees.

Selling, general and administrative expenses

Selling, general and administrative expenses in 2020 decreased by 1% for 2020 as compared to 2019. Our SG&A remained fairly consistent year over year. We experienced decreases in our insurance expense of $15,717 and interest expense of $7,206 as the interest on the principal owed on our equipment note payable decreased. Furthermore, travel expense decreased $16,837 as a result of reduced travel due to Covid-19. This was offset by an increase in healthcare benefits to our staff of $10,952.

Payroll Expenses

Payroll expense in 2020 increased by approximately 14% as compared to 2019. The increase in payroll expense was due to a lower utilization and absorption of labor cost into cost of goods sold as compared to 2019.

Professional Fees

Professional fees decreased by approximately 20% for 2020 from 2019. The decrease was primarily due to a decrease in advisory and consulting services as a result of our cost cutting measure to conserve cash. A reduction in such fees may have a negative effect on future sales opportunities.

                Interest Expense

Interest expense, which represents interest we pay on an equipment note payable, decreased approximately 41% in 2020 from 2019 as a result of a decrease in the principal owed.

Liquidity and Capital Resources

At December 31, 2020, cash was $336,564 as compared to $674,844 at December 31, 2019. Working capital deficit at December 31, 2020 was $750,481 as compared to a working capital deficit at December 31, 2019 of $38,544. At December 31, 2020, we had an accumulated deficit of $15,922,429. Our current assets decreased by 58% at December 31, 2020 as compared to December 31, 2019, which reflects decreases in our cash and cash equivalents and accounts receivable. Our current liabilities increased 6% at December 31, 2020 as compared to December 31, 2019, which is primarily attributable to an increase accrued expense-related party and Loans Payable – current portion as a result of the SBA loans and PPP loans we received. We expect that such loans will be forgiven but we cannot provide any assurances.

We do not have any external sources of liquidity, and have been dependent upon the funds we received under the SBA and PPP loans, and limited customer’s revenues to provide working capital for our company. We do not have any commitment for capital expenditures. We anticipate we will need approximately $1 million to operate the business over the next twelve months. 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. 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.

Summary of cash flows

The following table summarizes our cash flows:

Net cash used in operating activities in 2020 was primarily attributable to a decrease in accounts payable and accrued expenses, offset in part by a decrease in accounts receivable and an increase in accrued expenses – related party. Decrease in accounts receivable are a result of some parts we manufactured and shipped in 2020 in fulfillment of orders we received in 2019. Decreases in deposit from customer is primarily attributable to deposit recognized as revenues as a result of the shipment of the wastewater system to the utility company.

Net cash used in operating activities in 2019 was primarily attributable to an increase in accounts receivable, and decreases in accrued expenses – related party and deposit from customer, offset in part by decreases in inventory and prepaid expenses. Decreases in inventory and prepaid expenses are a result of the units we manufactured and shipped in fulfillment of orders we received. Decreases in deposit from customer is primarily attributable to deposit recognized as revenues as a result of the shipment of the wastewater system to the utility company. Increase in accrued expenses related party is due to payments made to our chief executive office for his accrued salary.

Net cash used in investing activities in 2020 was primarily attributable to an increase in manufacturing equipment we purchased for machining projects we pursued.

Net cash used in financing activities during each of 2020 and 2019 was primarily attributable to the repayment of the equipment note payable.

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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying 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 Consolidated Financial Statements appearing later in this report describes the significant accounting policies used in the preparation of the 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 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 consolidated financial statements:

Accounts Receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The company maintains allowances for doubtful accounts for estimated losses. The company reviews the accounts receivable on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collections.

Inventory

Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.

Income Taxes

The Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of 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

Recent accounting pronouncements issued by the FASB, the AICPA and the SEC, did not, or are not believed by management, to have a material impact on the Company's present or future financial statements, except as follows:

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.

This information is not required by smaller reporting company.

The financial statements required by this report are included, commencing on F-1.

None.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer who also serves as our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2020. Based upon that evaluation at the end of the period covered by this annual report our Chief Executive Officer concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our SEC Reports (i) is recorded, processed,

summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communications to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the 2013 criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our Chief Executive Officer who also serves as our Chief Financial Officer has concluded that as of December 31, 2020, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP as a result of material weaknesses. A “material weakness” is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statement will not be presented or detected by our employees. The specific material weaknesses that management identified in our internal controls as of December 31, 2020 that persist are as follows:

These listed material weaknesses in our internal control over financial reporting are legacy issues dating back many years. In order to remediate these material weaknesses in our internal control over financial reporting, we will need to:

●           hire experienced independent third parties or consultants to provide additional expert advice as needed.

We made efforts to improve these weaknesses in our internal control over financial reporting results by focusing on upgrading our internal accounting processes and managing the daily accounting responsibilities, maintaining the new accounting software and modifying the inventory system we implemented in the past to manage inventory and having duplicity in reviewing our accounting records by retaining an outside CPA to review our financials on a quarterly and annual basis. We believe these steps have helped and will continue to further mitigate issues that may arise from a limited staff. In 2021 we plan to further improve our financial controls. Until such time, however, as we remediate the material weaknesses in our internal control over financial reporting, there is a likelihood that our financial statements in future periods may contain errors which will require a restatement.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer who also serves as our 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 our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

PART III

Directors and executive officers

The following sets forth the names and ages of our officers and directors.

John A. DiBella has served as a member of the board of directors since August 2006 and Chief Executive Officer and Chief Financial Officer since November 2011. From 2000 through January 2002 Mr. DiBella provided consulting services to our Company. In January 2002 we hired him to serve as a Vice President and Director of Business Development, and thereafter prior to be named Chief Executive Officer Mr. DiBella served as our Chief Operating Officer. Mr. DiBella co-founded and served as President of PBCM, a financial management company located in New Jersey from 1997 to 1999. Prior to co-founding PBCM, Mr. DiBella worked for Donaldson, Lufkin and Jenrette, a NYSE member firm. Mr. DiBella’s operational experience with our company were factors considered by our board of directors in concluding that he should be serving as a director of our company.

Raynard Veldman has served as a director of the Company since August 2014. Since 2014, Mr. Veldman has operated Veldman Consulting Corporation which provides consulting services, commission sales, and has made investments in the oil and gas and chemical industries where he is an active participant in the businesses. He served as vice president for Magnablend, Inc., a custom chemical blending and manufacturing company from February 2012 to July 2014. From April 2001 through February 2012 he served as business and product manager for Weatherford, Inc. in their Engineered Chemistry Division. He has over 30 years of experience in the domestic and international oil and gas industry. Mr. Veldman has a M.S. in Chemical Engineering from the University of Houston and a B.S. in Chemical Engineering from the University of Texas. He has also periodically served as a consultant to the Company since 2009. Mr. Veldman’s professional background as an engineer and his professional experience in the oil and gas industry were factors considered by our board of directors in concluding that he should be serving as a director of our company.

There are no family relationships between any of the executive officers and directors.

Board of Directors

Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified. If any director resigns, dies or is otherwise unable to serve out

his or her term, or if the Board increases the number of directors, the Board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. Vacancies occurring by reason of the removal of directors without cause may only be filled by vote of the stockholders.

Board leadership structure and board’s role in risk oversight

The board of directors is comprised of one member of our management and one independent director. Given the size of our company, our Board believes the current leadership structure is appropriate for our company. As our company grows, we expect to expand our board of directors through the appointment of independent directors.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of the risks we face and have responsibility for the oversight of risk management in their dual roles as directors.

Committees of the board of directors; stockholder nominations; audit committee financial expert

We have not established any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing similar functions. The functions of those committees are being undertaken by our board of directors as a whole.

We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our board of directors established a process for identifying and evaluating director nominees, nor do we have a policy regarding director diversity. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our board of directors. While there have been no nominations of additional directors proposed by our shareholders, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our Board.

None of our directors is an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or board of directors who: 

Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our board of directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our board of directors.

Code of Ethics

During the year ended December 31, 2003 we adopted a code of ethics. The code of ethics was filed with the Company’s Form 10-KSB annual report for the year ended December 31, 2003. The code of ethics may be obtained by contacting the Company’s executive offices. The code applies to our officers and directors. The code provides written standards that are designed to deter wrongdoing and promote: (i) honest and ethical conduct; (ii) full, fair, accurate, timely and understandable disclosure; (iii) compliance with applicable laws and regulations; (iv) promote reporting of internal violations of the code; and (v) accountability for the adherence to the code.

Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act during the year ended December 31, 2020 and Forms 5 and amendments thereto furnished to us with respect to the year ended December 31, 2020, as well as any written representation from a reporting person that no Form 5 is required, we are not aware that any officer, director or 10% or greater stockholder failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act of during the year ended December 31, 2020.

The following table summarizes all compensation recorded by us in the past two years for:

For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”

(1) Represents healthcare benefits.

Outstanding Equity Awards at December 31, 2020

There are no outstanding equity awards held by our named executive officers at December 31, 2020.

How Mr. DiBella’s Compensation is Determined

We are not a party to an employment agreement with Mr. DiBella. His compensation is determined by the board of directors of which he is one of the two members. Effective For 2020 and 2019, the Company incurred salary expenses for Mr. DiBella of $210,000 and $210,000, respectively. For 2020 and 2019, the Company paid Mr. DiBella $156,650 and $412,796, respectively, including accrued salary which was owed to him from prior years. Of the salary received in 2020, only $75,000 was paid in cash. The balance was a reduction of his accrued salary to pay for the exercise of his options and those of certain of the Company’s employees. The unpaid accrued salary balances as of December 31, 2020 and 2019, are $664,315 and $610,965, respectively. The timing of the payment of any of the accrued but unpaid compensation due Mr. DiBella may be determined by the board of directors at any time. In addition, Mr. DiBella’s compensation may be changed at any time by the board of directors.

Consulting Fees Paid to Mr. Veldman

In addition to his compensation for serving as a member of the Company’s board of directors set forth below, since July 1, 2017, the Company has paid Mr. Veldman a fee of $2,500 per month for consulting services. For 2020 and 2019, he received consulting fees of $30,000 and $30,000, respectively. Mr. Veldman accrued his consulting fees in 2020.

Director Compensation

Our board compensation plan effective for non-management directors consists of a $1,000 monthly cash payment. In addition, board members may be reimbursed for out-of-pocket expenses related to participation in board and committee meetings. No reimbursable payments were made during 2020. The table below provides information concerning the compensation paid in 2020 to our non-management director for his services as a member of our board of directors 2020. The information in the following table excludes the consulting fees paid to Mr. Veldman as described earlier in this section.

At March 29, 2021, we had 4,950,125 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of that date by:

●           each person known by us to be the beneficial owner of more than 5% of our common stock;

●           each of our directors;

●           each of our named executive officers; and

●           our named executive officers and directors as a group.

Unless specified below, the business address of each shareholder is c/o 821 NW 57 Place, Fort Lauderdale, FL 33309. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

(1)       The number of shares of common stock beneficially owned by Mr. DiBella includes 15,000 shares held by his minor children.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2020.

During 2020 and 2019, Raynard Veldman, a member of the Company’s board of directors, received total consulting fees of $30,000 and $30,000, respectively. The Company currently pays Mr. Veldman $2,500 per month for consulting services. Mr. Veldman accrued his consulting fees in 2020. During 2020, Mr. Veldman reduced his accrued expense by $10,000 to exercise his options.

Director Independence

The Company has one independent director, Raynard Veldman. Mr. Veldman is considered “independent” as defined under Rule 5605 of the Nasdaq Marketplace Rules.

PART IV

The following table shows the fees that were billed for the audit and other services provided by Liggett & Webb, P.A. for 2020 and 2019.

Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.

Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of the Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to 2020 were pre-approved by the board of directors.

The Company has elected not to provide a summary of the information required by this form.

 SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

INDEX TO FINANCIAL STATEMENTS
ENVIRO TECHNOLOGIES U.S., INC.
CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of:

Enviro Technologies U.S., Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Enviro Technologies U.S., Inc. and Subsidiary (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in shareholders’ equity (deficiency) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the two years ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

    Explanatory Paragraph – Going concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, the Company has a working capital deficit, an accumulated deficit and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters are described in Note B of the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

    Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Accordingly, we express no such opinion. 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures including examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits include evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 

Contingencies

As described in Note I to the consolidated financial statements, the Company is involved in a legal proceeding. Management assessed the probability of occurrence and whether any loss or range of loss can be reasonably estimated for the legal proceeding.

Auditing management’s accounting for, and disclosure of, loss contingency was highly judgmental as it involved our assessment of the significant judgments made by management when assessing the probability of occurrence or when determining whether an estimate of the loss or range of loss could be made.

To test the Company’s assessment of the probability of occurrence or determination of an estimate of loss, or range of loss, among other procedures, we read the legal documentations, reviewed opinions provided to the Company by outside legal counsel, read letters received directly by us from external counsel, and evaluated the current status of contingencies based on discussions with external legal counsel. We also evaluated the appropriateness of the related disclosures. 

/s/ Liggett & Webb, P.A.

LIGGETT & WEBB, P.A.

Certified Public Accountants

We have served as the Company’s auditor since 2012

Boynton Beach, Florida

March 31, 2021

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

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

 ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

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

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

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

ENVIRO TECHNOLOGIES U.S., INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS 

Supplemental Disclosure of non-cash investing and financing activities:

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

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

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. Current and potential commercial applications and markets include mining, utilities, manufacturing, waste-to-energy among other industries. We also, through a Grant Back License with Cameron Solutions signed in June 2017, can utilize specific patents that were sold to Schlumberger under Technology Purchase Agreement for industries outside of oil and gas.

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 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, Supply Agreement and Grant Back License in June 2017 (see Note I), we have generated limited revenues, significantly less than we anticipated, under the terms of any of these agreements. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension in its current state. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020 which allows us to pursue projects in the oil and gas industry. However, we may continue to work together on a project by project basis with Cameron until such time a new agreement is reached, if at all. 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 revenues declined approximately 97% for the year ended December 31, 2020 as compared to the year ended December 31, 2019. We reported a net loss for 2020 of $1,030,808 as compared to net income of $597,037 in 2019. 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 be able to increase our revenues from 2020 levels or report profitable operations in the future. Further, the lingering economic impact of the Covid-19 pandemic and the weak oil prices during the year 2020 may have a continued negative effect on the potential for sales of V-inline Separators.

At December 31, 2020, we had a working capital deficit of $750,481, an accumulated deficit of $15,922,429 and used $541,249 in net cash in our operations during the year ended December 31, 2020. We do not have any external sources of liquidity. In an effort to conserve our cash resources to sustain our operations until such time as we are able to significantly increase our revenues, we have reduced employee hours and accrued a portion of management’s salary. There are no assurances, however, that these efforts will be sufficient to permit us to pay our operating expenses. In that event, 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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The 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.

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

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 the valuation of deferred tax assets, allowance for doubtful accounts, allowance for inventory obsolescence and valuation of stock-based compensation. 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 have also generated revenues from the sale of the Voraxial Separator to one customer, Schlumberger, through the Supply Agreement which expired in June 2020. We pursued designing, manufacturing and selling face shields during this 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 December 31, 2020, and December 31, 2019, respectively, there was $0 of deposits from customers.

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 December 31, 2020 and 2019, the Company has $7,044 and $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, prepaid expense, accounts payable, accrued expenses and deposits from customers at December 31, 2020 and 2019, 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:

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

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

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 December 31, 2020 and 2019.

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 December 31, 2020 and 2019.

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 limits. As of December 31, 2020 and 2019, we have a cash concentration in excess of the FDIC limit of $80,014 and $398,673, respectively.

Inventory

Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion and disposable and transportation. 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. Provisions have been made to reduce excess or obsolete inventories to their net realizable value. Therefore, these units are included in the inventory of the Company. As of December 31, 2020, and December 31, 2019:

Inventory amounts are presented net of allowance for inventory reserves of $75,785 and $66,937 as of December 31, 2020 and December 31, 2019, respectively.

Fixed Assets

Fixed assets are stated at cost less accumulated depreciation. The cost of maintenance and repairs is expensed to operations as incurred. Depreciation is computed by the straight-line method over the estimated economic useful life of the assets (5-10 years). Gains and losses recognized from the sales or disposal of assets is the difference between the sales price and the recorded cost less accumulated depreciation less costs of disposal. 

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

Net Income (Loss) Per Share

In accordance with the Accounting Standard Codification 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 December 31, 2020 and 2019, there were 10,000 and 1,346,500 shares issuable upon the exercise of options, respectively. The Company had a net loss for the year ended December 31, 2020; therefore, common stock equivalent shares are excluded from the computation of net income per share if their effect is anti-dilutive. The Company had net income for the year ended December 31, 2019. A separate computation of diluted earnings per share is presented using the treasury stock method.

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. There was $2,601 and $0, respectively, in research and development costs during the years ended December 31, 2020 and 2019, respectively.

Leases

Financial Accounting Standards Board Accounting Standards Certification (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases”, which amended 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 primarily related to our corporate office lease in Fort Lauderdale, FL on January 1, 2019. The Company elected the optional transition method to apply this standard as of the effective date and therefore, the Company did not apply the standard to the comparative period presented on our consolidated financial statements. Refer to Note J.

Advertising Costs

Advertising costs are expensed as incurred and are included in general and administrative expenses. There was $5,789 and $2,570 in advertising costs during December 31, 2020 and 2019, respectively.

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

Stock-Based Compensation

The Company accounts for stock-based instruments issued to employees 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 to employees. The value of the portion of an employee 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 other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

NOTE D - RELATED PARTY TRANSACTIONS

For each of the years ended December 31, 2020 and 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company of $210,000 and $210,000, respectively. During the years ended December 31, 2020 and 2019, $156,650 and $412,796, respectively, of salary and accrued salary have been paid. Of the $156,650 paid to Mr. DiBella in 2020, $81,650 was a reduction of his accrued salary in payment for the exercise of options, including some options of the Company’s employees and a related party. The unpaid balance has been included in accrued expenses- related party. As of December 31, 2020 and 2019, the accrued salary is $664,315 and $610,965, respectively.

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. For the years ended December 31, 2020 and 2019, Raynard Veldman earned consulting fees of $30,000 and $30,000, respectively. The unpaid balance has been included in accrued expenses- related party. As of December 31, 2020 and 2019, the accrued salary is $30,000 and $0, respectively.

During the years ended December 31, 2020 and 2019, Raynard Veldman, a member of the Company’s board of directors, earned compensation for being a member of the Company’s board of directors of $12,000 and $12,000, respectively. The unpaid balance has been included in accrued expenses- related party. As of December 31, 2020 and 2019, the accrued compensation is $12,000 and $0, respectively. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.

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

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

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

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

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

    NOTE E - FIXED ASSETS

Depreciation expense was $45,137 and $45,059 for the years ended December 31, 2020 and 2019, respectively.

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 $426,000. The machining equipment was received in July 2017 and was used for the manufacture of Voraxial Separators under the Supply Agreement and sales of the V-Inline Separators. Under the terms of the agreement the Company made an initial down payment of $85,661 and is required to make monthly payments of $6,788 through January 2023. In addition, the Company incurred $24,281 of installation costs. As of December 31, 2020 and 2019 the amount owed is $175,398 and $226,172, respectively.

    Future minimum payments at December 31, 2020 are as follows:

NOTE H – SHAREHOLDERS’ EQUITY

Common Stock

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

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

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

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

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

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

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

Options

The Company accounts for stock-based instruments issued to employees 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 to employees. The value of the portion of an employee 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 accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50, “Equity-Based Payments to Non-Employees.” 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.

On June 9, 2020, our Chief Executive Officer exercised 770,000 stock options at an exercise price of $0.10 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $77,000 for the exercise of options.

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

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

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

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

Information with respect to options outstanding and exercisable at December 31, 2020 and 2019 is as follows:

The following table summarizes information about the stock options outstanding at December 31, 2020 and 2019:

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 for such day. The aggregate intrinsic value as of December 31, 2020 is $30.

Reverse Split

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

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

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

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

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

NOTE I - COMMITMENTS AND CONTINGENCIES

SBA and PPP Loans

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

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

On May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. The Company recognized the grant as other income during the year ended December 31, 2020.

On June 23, 2020, FPA executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of 3.75% per annum . Installment payments, including principal and interest, are due monthly beginning June 23, 2021 (12 months from the date of the SBA note) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA Note. In connection therewith, FPA executed (i) a note for the benefit of the SBA, which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of FPA, which also contains customary events of default.

Future minimum loans payable at December 31, 2020 are as follows:

 ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

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 contesting the case vigorously.

Sale of Intellectual Property

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

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

For a period of three years following the closing of the Technology Purchase Agreement, which expired in June 2020, the Company and Mr. Veldman and Mr. Di Bella have agreed to not participate or cause participation in the oil-and-gas market in relation to phase or constituent sensing or separation which is defined as, liquid-liquid, liquid-solid or liquid-gas separation and gas or liquid sensing, including all product lines and services related thereto and including the Voraxial product line and services. As the term has expired, the Company may review opportunities in the oil and gas industry.

NOTE J - LEASE

The Company adopted 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.

In December 2018, the Company entered into a three 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. The Company accounts for lease in accordance with ASC Topic 842.

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:

ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

Lease term and discount rate were as follows:

The components of lease cost were as follows:

NOTE K – MAJOR CUSTOMERS

For the year ended December 31, 2020, two customers accounted for approximately 20% and 10% of total revenues, respectively. For the year ended December 31, 2019, one customer accounted for approximately 93% of total revenues. As of December 31, 2020, three customers represented 68%, 17% and 15%, respectively, of total accounts receivables. As of December 31, 2019, one customer represented 99% of total accounts receivables.

NOTE L – INCOME TAX

The Jobs Act (the “TCJA”) significantly revised the US corporate income tax by lowering the corporate federal income tax from 35% to 21%, effective January 1, 2019.

 ENVIRO TECHNOLOGIES U.S., INC. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020 and 2019

The significant components of the deferred tax asset at December 31, 2020 and 2019 were as follows:

The difference between income tax expense computed by applying the federal statutory corporate tax rate and provision for actual income tax is as follows:

Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The effects of temporary differences that gave rise to deferred tax assets are as follows:

Increase in the deferred income tax asset is attributable to the estimated deferred income tax benefit arising from operating loss carry forward. The change in valuation allowance for the years ended December 31, 2020 and 2019 was an increase (decrease) of $181,098 and $(147,517), respectively.

The Company has made a 100% valuation allowance of the deferred income tax asset at December 31, 2020, as it is not expected that the deferred tax assets will be realized. The Company has a net operating loss carryforward of approximately $10,145,000 available to offset future taxable income through 2037. The Company has a net operating loss carryforward of approximately $1,305,000, which can be carried forward indefinitely subject to limitation.

The Company’s federal income tax returns for 2017, 2018, 2019 and 2020 remain subject to examination by the Internal Revenue Services and state tax authorities.