Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission File Number: 0-27445
Enviro Voraxial Technology, Inc.
(Exact name of Small Business Issuer as specified in its Charter)
| IDAHO | 82-0266517 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
821 NW 57th Place, Fort Lauderdale, Florida 33309
(Address of principal executive offices)
(954) 958-9968
(Issuer's telephone number)
_________________________________________
(Former Name, former address and former fiscal year, if changed since last Report.)
Check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No£
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No x
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: May 15, 2013, we had 33,464,497 shares of our Common Stock outstanding.
INDEX
| PART I. CONSOLIDATED FINANCIAL INFORMATION | 3 | |
|
Item 1.
|
Financial Statements.
|
3 |
| Condensed Consolidated Balance Sheets | 3 | |
| Condensed Consolidated Statements of Operations | 4 | |
|
Condensed Consolidated Statements of Changes in Shareholders’ Deficit
|
5 | |
| Condensed Consolidated Statements of Cash Flows | 6 | |
| Notes to Condensed Consolidated Financial Statements | 7 | |
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Plan of Operations
|
15 |
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
18 |
|
Item 4.
|
Controls and Procedures
|
18 |
| PART II. OTHER INFORMATION | 20 | |
|
Item 1.
|
Legal Proceedings
|
20 |
|
Item 1A.
|
Risk Factors
|
20 |
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
20 |
|
Item 3.
|
Defaults Upon Senior Securities
|
20 |
|
Item 4.
|
Mine Safety Disclosure
|
20 |
|
Item 5.
|
Other Information
|
20 |
|
Item 6.
|
Exhibits
|
20 |
|
Signatures
|
21 | |
2
|
PART I.
|
CONSOLIDATED FINANCIAL INFORMATION
|
|
Item 1.
|
Financial Statements.
|
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
March 31,
2013
|
December 31,
2012
|
||||
|
(unaudited)
|
|||||
|
ASSETS
|
|||||
|
CURRENT ASSETS:
|
|||||
|
Cash and cash equivalents
|
$ 505,566
|
$ 425,309
|
|||
|
Accounts receivable
|
58,200
|
41,580
|
|||
|
Inventory
|
335,598
|
315,755
|
|||
|
Prepaid Stock Compensation
|
9,500
|
21,000
|
|||
|
Total current assets
|
908,864
|
803,644
|
|||
|
FIXED ASSETS, NET
|
94,726
|
100,380
|
|||
|
OTHER ASSETS
|
10,026
|
10,026
|
|||
|
Total assets
|
$ 1,013,616
|
$ 914,050
|
|||
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|||||
|
CURRENT LIABILITIES:
|
|||||
|
Accounts payable and accrued expenses
|
$ 772,117
|
$ 631,685
|
|||
| Accrued expenses-related party | 718,187 | 641,937 | |||
|
Total liabilities
|
1,490,304
|
1,273,622
|
|||
|
COMMITMENTS AND CONTINGENCIES (See Note G)
|
-
|
-
|
|||
|
SHAREHOLDERS' DEFICIT:
|
|||||
|
Common stock, $.001 par value, 42,750,000 shares authorized; 33,464,497 and 33,464,497 shares issued and outstanding as of March 31, 2013 and December 31, 2012
|
33,465
|
33,465
|
|||
|
Additional paid-in capital
|
14,781,916
|
14,762,931
|
|||
|
Accumulated deficit
|
(15,292,069)
|
(15,155,968)
|
|||
|
Total shareholders' deficit
|
(476,688)
|
(359,572)
|
|||
|
Total liabilities and shareholders' deficit
|
$ 1,013,616
|
$ 914,050
|
|||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months Ended March 31,
|
|||||
|
2013
|
2012
|
||||
|
Revenues, net
|
$ 296,789
|
$ 324,363
|
|||
|
Cost of goods sold
|
164,531
|
91,607
|
|||
|
Gross profit (loss)
|
132,258
|
232,756
|
|||
|
Costs and expenses:
|
|||||
|
General and administrative
|
126,383
|
111,648
|
|||
| Consulting expense | 30,486 | 777,568 | |||
| Payroll expense | 109,687 | 114,729 | |||
|
Research and development
|
-
|
53,433
|
|||
|
Total costs and expenses
|
266,556
|
1,057,378
|
|||
|
Loss from operations
|
(134,298)
|
(824,622)
|
|||
|
Other (income) expenses:
|
|||||
|
Interest expense
|
(1,803)
|
(608)
|
|||
|
Total other expense
|
(1,803)
|
(608)
|
|||
|
NET LOSS
|
$ (136,101)
|
$ (825,230)
|
|||
|
Weighted average number of common shares outstanding-basic and diluted
|
33,464,497
|
33,114,497
|
|||
|
Loss per common share - basic and diluted
|
$ (0.00)
|
$ (0.02)
|
|||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ DEFICIT
(Unaudited)
|
Common Stock
|
Additional
|
||||||||||||||
|
|
Shares
|
Amount
|
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
||||||||||
|
Balance - December 31, 2012
|
33,464,497
|
$
|
33,465
|
$
|
14,762,931
|
$
|
(15,155,968)
|
$
|
(359,572)
|
||||||
|
Amortization of stock issued for
deferred compensation
|
18,985 | 18,985 | |||||||||||||
|
Net loss
|
(136,101)
|
(136,101)
|
|||||||||||||
|
Balance - March 31, 2013
|
33,464,497
|
$
|
33,465
|
$
|
14,781,916
|
$
|
(15,292,069)
|
$
|
(476,688)
|
||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Three Months Ended March 31,
|
||||
|
2013
|
2012
|
|||
|
Cash Flows From Operating Activities:
|
||||
|
Net loss
|
$ (136,101)
|
$ (825,230)
|
||
|
Adjustments to reconcile net loss to net
|
||||
|
cash provided by operating activities:
|
||||
|
Depreciation
|
5,654
|
5,662
|
||
|
Issuance of common stock for consulting services
|
30,485
|
233,000
|
||
|
Options and warrants
|
544,568
|
|||
|
Changes in assets and liabilities:
|
||||
|
Accounts receivable
|
(16,620)
|
281,215
|
||
|
Inventory
|
(19,843)
|
40,567
|
||
| Accrued expenses-related party | 76,250 | 76,250 | ||
|
Accounts payable and accrued expenses
|
140,432
|
(75,145)
|
||
|
Net cash provided by operating activities
|
80,257
|
280,887
|
||
|
Cash Flows From Investing Activities:
|
-
|
-
|
||
|
Cash Flows From Financing Activities:
|
||||
|
Repayments toward notes payable
|
(10,476)
|
|||
|
Net cash used in financing activities
|
-
|
(10,476)
|
||
|
Net increase in cash and cash equivalents
|
80,257
|
270,411
|
||
|
Cash and cash equivalents, beginning of period
|
425,309
|
147,198
|
||
|
Cash and cash equivalents, end of period
|
$ 505,566
|
$ 417,609
|
||
|
Supplemental Disclosures
|
||||
|
Cash paid during the year for interest
|
$ 1,803
|
$ 608
|
||
|
Cash paid during the year for taxes
|
$ -
|
$ -
|
||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
Organization
Enviro Voraxial Technology, Inc. (the "Company") is a provider of environmental and industrial separation technology. The Company has developed, and now manufactures and sells its patented technology, the Voraxial® 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 oil exploration and production, oil refineries, mining, manufacturing, waste-to-energy and food processing industry.
Florida Precision Aerospace, Inc. is the wholly-owned subsidiary of the Company and is used to manufacture, assemble and test the Voraxial Separator.
NOTE B - GOING CONCERN
The Company has experienced net losses and a working capital deficiency. There is no assurance that the Company's sales and marketing efforts will be successful enough to achieve a level of revenue sufficient to provide cash inflows to sustain operations; however, the Company has begun commercializing the Voraxial and is forecast to increase revenues in 2013. The Company may continue to require the infusion of capital until operations become profitable. As a result of the above, there is a substantial doubt about our ability to continue as a going concern and the accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The interim financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The interim financial statements should be read in conjunction with the Company’s annual financial statements, notes and accounting policies included in the Company’s annual report on Form 10-K for the year ended December 31, 2012, as filed with the SEC. In the opinion of management, all adjustments which are necessary to provide a fair presentation of financial position as of March 31, 2013 and the related operating results and cash flows for the interim period presented have been made. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year.
7
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
Principles of Consolidation
The consolidated financial statements include the accounts of the parent company, Enviro Voraxial Technology, Inc., and its wholly-owned subsidiary, Florida Precision Aerospace, Inc. All significant intercompany accounts and transactions have been eliminated.
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ. Significant estimates include allowance for doubtful accounts, allowance for inventory obsolescence and valuation of stock-based compensation.
Revenue Recognition
The Company derives its revenue from the sale and short-term rental of the Voraxial Separator. The Company presents revenue in accordance with FASB new codification of "Revenue Recognition in Financial Statements". Under Revenue Recognition in Financial Statements, revenue is realized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.
Revenues that are generated from sales of equipment are typically recognized upon shipment. Our standard agreements generally do not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been complied with. There were no agreements with such provisions as of March 31, 2013.
The Company recognizes revenue from the short term rental of equipment, ratably over the life of the agreement, which is usually three to twelve months.
Fair Value of Instruments
“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
8
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of March 31, 2013.
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 March 31, 2013.
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 March 31, 2013.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various financial institutions. Balances at these institutions may at times exceed the Federal Deposit Insurance Corporate (“FDIC”) limits. As of March 31, 2013, the Company exceeded the FDIC insurance limits by approximately $255,566.
Inventory
Inventory consists of components for the Voraxial Separator and is priced at lower of cost or market. Inventory may include units being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of March 31, 2013, there were such components held by third parties.
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.
9
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
Net Loss Per Share
Basic and diluted loss per share has been computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding. The warrants and stock options have been excluded from the calculation since they would be anti-dilutive.
As of March 31, 2013, such equity instruments may have a dilutive effect in the future and include the following potential common shares:
| Stock options | 12,965,000 | ||
| 12,965,000 | |||
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Research and Development Expenses
Research and development costs, which includes travel expenses, consulting fees, subcontractors and salaries are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred and are included in general and administrative expenses.
Stock-Based Compensation
The Company follows ASC Topic 718 for stock and stock options issued to employees. This statement requires compensation expense relating to share-based payments to be recognized in net income using a fair-value measurement method. Under the fair value method, the estimated fair value of awards is charged to income on a straight-line basis over the requisite service period, which is generally the vesting period.
Accounting for the Impairment of Long-Lived Assets
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be
10
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company has no such assets and, therefore, no impairments of long-lived assets were recorded as of March 31, 2013.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to current period presentation. These reclassifications had no impact on the Company's net loss or cash flows.
Recent Accounting Pronouncements
In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such; we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.
In February 2013, FASB issued Accounting Standards Update 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This stipulates that (1) it will include the amount the entity agreed to pay for the arrangement between them and the other entities that are also obligated to the liability and (2) any additional amount the entity expects to pay on behalf of the other entities. The objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The amendments in this update are effective for fiscal periods (and interim reporting periods within those years) beginning after December 15, 2013. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
In February 2013, FASB issued Accounting standards update 2013-02, Comprehensive Income Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update requires an entity to provide information amount the amount reclassified out of accumulated other comprehensive income by component. The entity is also required to disclose significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting periods. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other discourses required under U.S. GAAP that
11
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
provide additional detail about those amounts. The objective in this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update should be applied prospectively for reporting periods beginning after December 15, 2013. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
NOTE E - RELATED PARTY TRANSACTIONS
For the three March 31, 2013, the Company incurred salary expenses from the Chief Executive Officer of the Company of $76,250. Of these amounts, $0 has been paid for the three months ended March 31, 2013. The total unpaid balance as of March 31, 2013, is $552,357 and is included in accrued expenses-related party.
NOTE F - CAPITAL TRANSACTIONS
Common stock
On April 30, 2010, the Company issued an aggregate of 300,000 shares of common stock to consultants in consideration of services to be provided for 36 months with a fair value of $114,000. The expense will be amortized over the life of the agreement. The securities were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. The securities may not be transferred absent registration or applicable exemption. During the three months ended March 31, 2013, the Company recognized $11,500 of stock compensation expense related to these shares.
Warrants and Stock Options
The Company follows the provisions of ASC Topic 718, “Compensation – Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.
On January 10, 2012, the Company granted 950,000 stock options with a total fair value of $69,549 to an employee and a consultant. The shares vested immediately and were valued using the Black-Scholes option pricing model. We used the following assumptions for options granted during the three months ended March 31, 2012:
Expected volatility: 115.31%
Expected lives: 5 Years
Risk-free interest rate: 0.86%
Expected dividend yield: None
In January 2012, the Company modified the terms of 8,050,000 previously issued stock options to officers and employees. Per ASC Topic 718, this exchange of stock options was treated as a modification. The incremental value of $475,019, measured as the excess of the fair value of the
12
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
modified award over the fair value of the original award immediately before the modification, and using the Black-Scholes option pricing model, was expensed immediately as all the options vested on the date of the exchange.
On February 15, 2013 the Company issued options to purchase up to an aggregate of 165,000 shares of common stock to two employees of the Company in consideration for services performed. The options are exercisable at $0.20 per share and may be exercised on a cashless basis. The options shall expire at the earlier of (1) February 15, 2018 or (2) the upon the expiration of three calendar months from the date of which employee’s continuous employment by the Company or any of its subsidiaries is terminated, provided that in the event of employee’s death while in the employ of the Company his personal representatives may exercise the option as to any of the vested shares not previously exercised during his lifetime within three months following the date of his death. We used the following assumptions for options for the three months ended March 31, 2013:
Expected volatility: 128%
Expected lives: 5 Years
Risk-free interest rate: 0.87%
Expected dividend yield: None
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.
Information with respect to options outstanding and exercisable at March 31, 2013 is as follows:
|
Number
Outstanding
|
Exercise Price
|
Number
Exercisable
|
|
|
Balance, December 31, 2012
|
12,800,000
|
-
|
12,800,000
|
|
Issued
|
165,000
|
$0.20
|
165,000
|
|
Expired
|
-
|
-
|
-
|
|
Forfeited
|
-
|
-
|
-
|
|
Balance, March 31, 2013
|
12,965,000
|
12,965,000
|
13
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED)
The following table summarizes information about the stock options outstanding at March 31, 2013:
|
Exercise
Price
|
Number Outstanding at March 31, 2013
|
Weighted Average Remaining Contractual Life
|
Weighted Average Exercise Price
|
Number Exercisable at March 31, 2013
|
Weighted Average Exercise Price
|
|
0.15
|
5,800,000
|
5.34
|
0.15
|
5,800,000
|
0.15
|
|
0.18
|
6,050,000
|
3.93
|
0.18
|
6,050,000
|
0.18
|
|
0.20
|
1,115,000
|
3.95
|
0.20
|
1,115,000
|
0.20
|
|
Total
|
12,965,000
|
12,965,000
|
NOTE G – COMMITMENTS AND CONTINGENCIES
Litigation
On or about November 17, 2011, a claim was filed in the Broward County Circuit Court in Fort Lauderdale, Florida against the company by Raw Energy Tech, LLC. The plaintiff alleges oral contract between the parties for the alleged design, fabrication and construction of a prototype power pack. Amount of damages sought are approximately $58,000. We have moved to dismiss the complaint and intend to vigorously defend this action as we believe this claim is without merit. We have accrued an amount in the financial statements to cover our legal expenses as of March 31, 2013.
NOTE H – MAJOR CUSTOMERS
During the three months ended March 31, 2013, we recorded 72% of our revenue from Customer A and 20% from Customer B. As of March 31, 2013, 43% of our accounts receivable was due from Customer B and 57% was due from Customer C.
14
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
Forward-Looking Statements
The following discussion of the financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto. The following discussion contains forward-looking statements. Enviro Voraxial Technology, Inc. is referred to herein as “the Company”, “we” or “our.” The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements”. Such statements include those concerning our expected financial performance, our corporate strategy and operational plans. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
Application of Critical Accounting Policies
The Company’s consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain accounting policies have a significant impact on amounts reported in the financial statements. A summary of these significant accounting policies can be found in Note C to the Company’s financial statements in the Company’s 2012 Annual Report on Form 10-K. The Company has not adopted any significant new policies during the quarter ended March 31, 2013.
Among the significant judgments made in preparation of the Company’s financial statements are the determination of the allowance for doubtful accounts, value of equity instruments and adjustments of inventory valuations. These adjustments are made each quarter in the ordinary course of accounting.
Overview
Enviro Voraxial Technology, Inc. (the “Company”) was incorporated in Idaho on October 19, 1964, under the name Idaho Silver, Inc. In May of 1996, we entered into an agreement and plan of reorganization with Florida Precision Aerospace, Inc., a privately held Florida corporation (“FPA”), and its shareholders. FPA was incorporated on February 26, 1993. We believe we are emerging as a potential leader in the rapidly growing environmental and industrial separation industries. The Company has developed, manufactures and sells its patented Voraxial® Separator (“Voraxial® Separator” or “Voraxial®”), a proprietary technology that efficiently separates large volumes of liquid/liquid, liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. Management believes this superior separation quality is achieved in real-time, and in much greater volumes, with a more compact, cost effective and energy efficient machine than any comparable product on the market today. Management believes the Voraxial
15
fills a void in the market; specifically a real-time separation device that separates a large volume of liquids with a small footprints and without the need of a pressure drop. We believe the need for such a separation device overlaps many markets.
The Voraxial is capable of processing volumes as low as 3 gallons per minute as well as volumes over 5,000 gallons per minute with only one moving part. The Company believes that the Voraxial® technology can help protect the environment and its natural resources while simultaneously making numerous industries more productive and cost effective.
Results of Operations for the Three Months ended March 31, 2013 and 2012:
Revenue
Our revenues decreased by $27,574 or approximately 9% to $296,789 for the three months ended March 31, 2013, as compared to $324,363 for the three months ended March 31, 2012. The Company believes the decrease in revenues reflects fluctuation in orders processed and does not represent a decrease in demand, as the Company continues to negotiate with potential customers. We believe there is a continued demand for our Voraxial Separators in the oil exploration and production markets and the Company anticipates achieving greater revenue growth in 2013 than in 2012. We continue to believe the markets for the Voraxial® Separator are developing as companies with high volume water separation problems are becoming aware of the Voraxial. Interest and request for proposals for applications in other markets are also increasing, specifically from the oil spill, bio-fuel, frac water and mining. This may result in more revenue generating opportunities for the Company from various market segments.
The Company is currently working on numerous opportunities with customers for refinery, oil spill and produced water, frac water and oil spill applications. We believe some of these opportunities will result in purchase orders in fiscal year 2013 and 2014. The projects include the Voraxial 2000 Separator, Voraxial 4000 Separator, Voraxial 8000 and multiple versions of the Voraxial Separator Skid. We are in discussions to sign representative agreements with oil service companies to promote the Voraxial. The Company continues to focus on its sales and marketing program for the Voraxial Separator and management believes such efforts will result in increasing revenues in 2013.
Cost of Goods
Our cost of goods increased by $72,924 or approximately 80% to $164,531 for the three months ended March 31, 2013 as compared to $91,607 for the three months ended March 31, 2012. This increase is primarily due to the different models sold during the three months ended March 31, 2013. Our cost of goods continues to be reviewed by management in an effort to obtain the best available pricing while maintaining high quality standards.
Research and Development Expenses
Research and Development expenses decreased by $53,433 or 100% to $0 for the three months ended March 31, 2013, as compared to $53,433 for the previous three months ended March 31, 2012. As the Company has finalized the development of the Voraxial Separator, research and development expenses have decreased.
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General and Administrative Expenses
General and Administrative (“G&A”) expenses increased by $14,735 or approximately 13% to $126,383 for the three months ended March 31, 2013, from $111,648 for the three months ended March 31, 2012. Our G&A expenses primarily increased in 2013 due to additional expenses incurred for promotion and marketing expenses during the quarter.
Consulting Expenses
Consulting expenses decreased by $747,082 or approximately 96% for the three months ended March 31, 2013, from $777,568 for the three months ended March 31, 2012. Our consulting expenses decreased primarily due to a one time non-cash expense of $479,019 incurred during the three months ended March 31, 2012 associated with the reduction of exercise prices and extension of exercise terms of previously issued options held by executive officers and consultants and less use of consulting services in the current year.
Payroll Expenses
Payrol expenses decreased by $5,042 or 4% to $109,687 for the three month period ended March 31, 2013 from $114,729 for the three month ended March 31, 2013. Payroll expense decrease was due to normal fluctuations in staffing needs and employee turnover.
Liquidity and Capital Resources:
Cash at March 31, 2013 was $505,566. Working capital deficit at March 31, 2013 was $581,440 as compared to working capital deficit at December 31, 2012 of $469,978.
At March 31, 2013, the Company had an accumulated deficit of $15,292,069. We experienced positive cash flow in the first quarter and anticipate continuing generating positive cash flow from the Voraxial Separator in 2013. To the extent such revenues and corresponding cash flows do not continue, we will require infusion of capital to sustain our operations. We cannot be assured that we will generate revenues that will be self-sustaining. The Company has funded working capital requirements and intends, if necessary, to fund current working capital requirements through third party financing, including the private placement of securities. We cannot provide any assurances that required capital will be obtained or that terms of such required capital may be acceptable to us. If the Company is unable to obtain adequate financing or increase its revenues within the next 12 months, it may reduce its operating activities until sufficient funding is secured or revenues are generated to support operating activities.
Continuing Losses
We have limited operations and revenues and significant losses to date. Since 2001, we have encountered expenses in the development of our Voraxial Separators and have had limited sales income from this development. Consequently, our working capital may not be sufficient and our operating costs may exceed those experienced in our prior years. Therefore, there is substantial doubt about our ability to continue as a going concern. The Company has experienced net losses, has a working capital deficit and sustained cash outflows from operating activities and had to raise capital to sustain operations. There is no assurance that the Company’s developmental and marketing efforts will be successful, that the Company will ever have commercially accepted products, or that the Company will achieve significant revenues. However, we believe that the exposure received in the past year for the Voraxial Separator has positioned the Company to begin generating sales and supply us with sufficient working capital.
As a result of the above, the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The condensed
17
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Recent Accounting Pronouncements
For a discussion of new accounting pronouncements affecting the Company, refer to Note C to the Consolidated Financial Statements.
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Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Not applicable to smaller reporting company.
|
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial (and principal accounting) 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 March 31, 2013. Based upon that evaluation and the identification of the material weakness in the Company’s internal control over financial reporting as described below under “Management’s Report on Internal Control over Financial Reporting,” the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.
Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of March 31, 2013 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles because of the Company’s limited resources, lack of qualified accounting personnel and limited number of employees. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
18
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
19
|
PART II.
|
OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
None.
|
Item 1A.
|
Risk Factors
|
Smaller reporting companies are not required to provide the information required by this item.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
During the period covered by this report the Company did not issued any unregistered equity securities.
|
Item 3.
|
Defaults Upon Senior Securities
|
None.
|
Item 4.
|
Mine Safety Disclosure
|
None.
|
Item 5.
|
Other Information
|
None.
|
Item 6.
|
Exhibits
|
Exhibits required by Item 601 of Regulation S-K
|
31.1
|
Form 302 Certification of Chief Executive Officer
|
|
31.2
|
Form 302 Certification of Principal Financial Officer
|
|
32.1
|
Form 906 Certification of Chief Executive Officer and Principal Financial Officer
|
|
101.INS
|
XBRL Instance Document*
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
* Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text. The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned as a duly authorized officer of the Registrant.
Enviro Voraxial Technology, Inc.
By: /s/ John A. Di Bella
John A. DiBella
Chief Executive Officer and
Principal Financial Officer
DATED: May 15, 2013
21