U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
Commission file number 0-27445
Idaho 83-0266517
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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Securities registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None
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Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year. $3,000
State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days ($.84 as of December 31, 2003). $4,440,214.80.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: December 31, 2003: 15,402,636 Shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
- None -
Transitional Small Business Disclosure Format (Check One)
Yes [ ] No [X]
Table of Contents
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Page
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PART I
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Item 1. Description of Business 3
Item 2. Description of Property 12
Item 3. Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
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Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities 13
Item 6. Management Discussion and Analysis of Financial Condition and Plan
of Operations 15
Item 7. Financial Statements 21
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 21
Item 8A. Controls and Procedures 21
PART III
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Item 9. Directors and Executive Officers 22
Item 10. Executive Compensation 23
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters 26
Item 12. Certain Relationships and Related Transactions 27
Item 13. Exhibits, Lists and Reports on Form 8-K 27
Item 14. Principal Accountant Fees and Services 28
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Item 1. Description of Business
Our history
Enviro Voraxial Technology, Inc. (the "Company") was incorporated in Idaho on October 19, 1964, under the name Idaho Silver, Inc. From our inception through 1994, we were engaged in acquiring mining claims and exploring for silver and lead in Idaho. In May of 1996, we entered into an agreement and plan of reorganization with a privately held Florida corporation, Florida Precision Aerospace, Inc. ("FPA"), and its shareholders. FPA was incorporated on February 26, 1993. We exchanged 10,000,000 newly-issued post-split shares of our common stock, or approximately 97% of our shares then issued and outstanding for all of the issued and outstanding shares of FPA. As a result of this reorganization, the shareholders of FPA gained control of our company and FPA became our wholly-owned subsidiary. Because FPA's management was more qualified to focus our business on that of FPA, our officers and directors resigned and were replaced by FPA's designees. At the close of the transaction, we changed our name to Enviro Voraxial Technology, Inc.
Pursuant to the reorganization, we reverse split our common stock on a one share for ten share basis and amended our articles of incorporation to increase our authorized common stock to 50,000,000 shares, $.001 par value.
General
We believe we are emerging as a potential leader in the rapidly growing environmental and industrial separation industries. The Company has developed and patented the Voraxial Separator ("Voraxial Separator" or "VAS"); a proprietary technology that efficiently separates large volumes of liquid/liquid, liquid/solids or liquid/liquid/solids 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 efficient and energy efficient machine than any comparable product on the market today. The Voraxial Separator operates in-line and is scaleable. It is capable of processing volumes as low as 3 gallons per minute as well as volumes over 10,000 gallons per minute with only one moving part. The Company believes that the VAS technology can help protect the environment and its natural resources while simultaneously making numerous industries more productive and cost effective.
The size and efficiency advantages provided by the Voraxial Separator to the end-user have provided us with a variety of market opportunities. We have generated limited revenues to date partially because of insufficient funds to adequately market our product; however, we have received inquiries from parties in various industries, including the energy drilling, sewage, pulp and paper, food processing, shipping, machine shops, and marine/oil-spill industries. The Company believes the Voraxial Separator will enable companies in these industries to develop greater advantages or differentiators, by substantially increasing their efficiency.
The Company is presently researching and developing VAS solutions for various applications and markets including pre-treatment (headworks/entrance to municipal wastewater plant) of wastewater, grit/sand separation, oil-water
separation, oil exploration and production, oil refineries, marine/oil-spill clean up, and food processing and manufacturing waste treatment.
We have shipped units of the Voraxial Separator on a trial basis to a number of different companies that include a wide range of industrial applications. Additional requests have been made by some of these businesses for delivery of larger models to conduct additional testing. We have also discussed the benefits of the Voraxial Separator with various government agencies. We have installed several Voraxial Separators to date including units to the Alaska Department of Environmental Conservation, the US Navy and to REGS, an environmental service company.
Further we have initiated a demonstration project at one of seven wastewater treatment facilities operated by the Hillsborough County Water Department which services greater Tampa, Florida. The system at Hillsborough incorporates a Model 4000 Voraxial Grit Separator at the head-works of the 5 million gallons per day (MGD) wastewater treatment plant. This installation initiates the sales and marketing campaign for the Voraxial Grit Separator into the multi-billion dollar municipal wastewater treatment market place.
We have formed an Advisory Committee to assist the Company with the implementation of its corporate objectives. The members include high-level individuals with experience in the wastewater and oil industry and in sales and marketing.
We manufacture and assemble our separators at our facility located in Ft. Lauderdale, FL. We operate a high-precision engineering machine facility, which has designed, manufactured and assembled specialized parts and components for the aerospace and automotive industries. Historically we have performed contract-manufacturing services to both small and large customers.
The Company also expects market opportunities to present themselves because of increased governmental regulation and standards enforcement by the U.S. Environmental Protection Agency ("EPA"), and the European Union Commission on the Environment. Additionally, emerging markets worldwide are opening as growing nations recognize the need and benefit of addressing the environmental issues faced by population growth and industrialization, such as China, Mexico, and South America.
Business
The Company has shifted its focus from the high precision manufacturing business to the opportunity presented by the Voraxial Separator as management believes that is where significant growth for the Company will occur. We will continue to utilize our engineering expertise to manufacture the Voraxial Separator in-house. Although revenues from the Voraxial Separator have been nominal since inception, we believe that the in the near future substantial revenues will begin to be generated from the Voraxial Separator.
In the past, the Company has delivered or installed Voraxial Separators to companies that need liquid/liquid and liquid/solid separation, including the Alaska Department of Environmental Conservation, US Navy, Resource Environmental Group of Colorado.
The Company has concentrated its efforts on the Voraxial Separator and has begun marketing to major equipment manufacturers and end-users throughout various industrial sectors. In the past year, the Company has been involved in discussions with several multi-national companies and government agencies that are involved in the development, manufacture, and sale of cutting-edge separation technology to a wide range of end-users throughout various industrial sectors. The Company has received a great deal of interest from a variety of industries. Although management believes many different industries can utilize and benefit from the Voraxial Separator, the Company is focusing its efforts on a few key opportunities, including municipal wastewater, oil exploration & production, oil refineries, marine/oil-spill clean up and manufacturing.
During the past fiscal year, we announced the completion of the Voraxial Grit Separator for the specific use in the municipal wastewater industry. The Voraxial Grit Separator utilizes a Voraxial Separator configured for operation in the headworks of a municipal wastewater treatment plant (WWTP). A single Voraxial Grit Separator is designed to provide for the continuous removal of grit from screened wastewater at rates up to eight thousand (8000) gallons per minute (11.5 mgd). We currently have designs for two Voraxial Grit Separators. The Voraxial Grit Separator Model 4000 has an operating range of three-tenths to one and three-tenths (0.3 to 1.3) million gallons per day (mgd), powered by a ten (10) HP TEFC motor. The Voraxial Grit Separator Model 8000 has an operating range of three to eleven and five-tenths (3.0 to 11.5) mgd, powered by a fifty (50) HP TEFC motor.
To demonstrate the efficiency of the Voraxial Grit Separator, the Company has initiated a demonstration project at one of seven wastewater treatment facilities operated by the Hillsborough County Water Department which services greater Tampa, Florida. Plans for this demonstration program were developed with the invaluable assistance and support of the Hillsborough Water Department. The system at Hillsborough incorporates a Model 4000 Voraxial Grit Separator at the head-works of the 5 million gallons per day (MGD) wastewater treatment plant.
This demonstration initiates the sales and marketing program for the Voraxial Grit Separator in the municipal wastewater industry. With over 16,000 publicly owned wastewater treatment facilities in the United States serving approximately 190 million people, Management believes that the municipal wastewater industry can potentially be profitable for the Company. We believe that the savings from the eliminated construction alone will more than justify the cost to install a Voraxial Separator system.
In the fourth quarter, the Company delivered a Voraxial Separator Model 2000 to Resource Environmental Group Services ("REGS") after they viewed the unit operate at the WEFTEC trade show in Los Angeles. REGS conducted several weeks of testing the Voraxial Separator on refinery waste-oil separation at a refinery. The objective of the testing was to identify applications for the Voraxial Separator for both regular refinery maintenance and as a permanently installed waste reduction system for the facility. In late December 2003, REGS purchased a Voraxial Separator 4000.
Until recently, the Company had operated a high-precision engineering machine facility, which designed, manufactured and assembled specialized parts and components for the aerospace and automotive industries. Historically, revenues have been generated from contract manufacturing of specialized
components for use in both the private and government sectors. Although the Company continues to have the expertise in this area, the primary focus is on the VAS.
Previous projects have involved the production of specialized space navigational and guidance components for Allied Signal Aerospace and The Department of Defense; gears for General Motors Corporation and New Venture Gear to be used in design and assembly of automotive transmissions; and specialty components for Hughes Electronics. The Company has also provided engineering services to the General Motors/Volvo Heavy Truck Division and machines and assembled components such as high precision castings, precision tools and fixtures, beryllium and ceramics, deep brazing, Computer Numerical Control (CNC) machining and tuning and precision jig boring and assembly.
Voraxial Separator
The Voraxial Separator is a continuous flow turbo machine that generates a strong centrifugal force, or 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 Voraxial 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 Voraxial Separator is a self-contained, non-clogging device that can be powered by an electric motor, diesel engine or by hydraulic power generation. Further, the Voraxial Separator's 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:
Product and Capacity Range -------------------------- Model Diameter Capacity Range Number Size Gallons Per Minute ------ ------------ ------------------ VAS1000 1 inch 3 - 10 VAS2000 2 inches 25 - 80 VAS4000 4 inches 250 - 900 VAS8000 8 inches 2,000 - 6,000 |
The Voraxial Separator can transfer various liquids in either direction by reversing the machine's rotation. We currently maintain an inventory of various models of the Voraxial Separator. During fiscal year 2003, we have furthered tested, demonstrated and delivered on a trial basis the Voraxial Separator units to companies within various industries including energy production, wastewater and manufacturing. During 2003 the Company sold and delivered one unit for refinery application. The Company has also provided the Voraxial Separator unit to several firms on a trial basis and is engaged in discussions to deliver additional Voraxial Separator units on an income-producing basis.
Management believes that our Voraxial Separator offers substantial applications on a cost-effective basis, including: oil exploration & production, oil remediation services, municipal wastewater treatment, bilge water purification, metal finishing, machining and manufacturing, food processing waste treatment and numerous other industrial production and environmental remediation processes. We also believe that the quality of the water separated from the contaminant is good enough to recycle back into the process stream (back into the plant) or discharge to the environment. As clean water becomes less available to the ever-increasing world population, this technology may become more valuable.
The Voraxial Separator is now manufactured and assembled at our Fort Lauderdale, Florida location by our wholly-owned subsidiary, Florida Precision Aerospace.
Voraxial Separator products, services and the market
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 VAS technology has applications in most, if not all major separation industries. The unique characteristics of the VAS 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.
If, as we expect, environmental regulations, both domestically and internationally, become more stringent, companies will be required to more effectively treat their wastewater prior to discharge. We believe this offers a great opportunity for the Company as the Voraxial Separator can be utilized in most separation applications to significantly increase the efficiency of the separation processes while simultaneously reduce the cost to the end-user.
Further, management will only pursue the industries whereby the customer will either see a decrease in cost or an increase in revenues. As the Voraxial Separator can provide an efficient means to separate contaminants from water, it also enables the customer to conduct such operations while utilizing less energy and a smaller footprint than conventional equipment in the market today.
The Company has developed a comprehensive sales and marketing program to stimulate awareness of the Voraxial Separator to companies in several key industries which management believes have the ability to establish its Voraxial Separator technology as an industry-wide standard. Management believes this visibility will result in increase sales.
To assist the Company to enter the Oil industry, the company has added Henry Schlesinger, the former president of Marshall Petroleum to its Advisory Committee. Further, Kevin Mulshine, Partner and Managing Director at Prager, Sealy & Co., LLC a prominent investment banking firm, with water and wastewater investment expertise was added to the Advisory Committee to compliment the Company's efforts in the municipal wastewater industry.
To demonstrate the efficiency of the Voraxial Grit Separator, the Company has initiated a demonstration project at one of seven wastewater treatment facilities operated by the Hillsborough County Water Department which services greater Tampa, Florida. Plans for this demonstration program were developed with the invaluable assistance and support of the Hillsborough Water Department. The system at Hillsborough incorporates a Model 4000 Voraxial Grit Separator at the head-works of the 5 million gallons per day (MGD) wastewater treatment plant.
This demonstration initiates the sales and marketing program for the Voraxial Grit Separator in the municipal wastewater industry. With over 16,000 publicly owned wastewater treatment facilities in the United States serving approximately 190 million people, Management believes that the municipal wastewater industry can potentially be profitable for the Company. We believe that the savings from the eliminated construction alone will more than justify the cost to install a Voraxial Separator system.
Anticipated Business of the Company
In fiscal year 2004 management intends to continue to concentrate its marketing efforts in the following industrial sectors: municipal wastewater treatment, oil/water separation, oil exploration and production, and industrial wastewater. Industry-wide acceptance in any of these specific sectors could imply extensive marketing and sales opportunities on a global scale. The Company anticipates hiring additional management and staff to support the sales and marketing program. Currently, interests have been expressed by companies, which collectively have operations in North America, South America, Europe, the Middle East, Australia, and Asia.
Inventory
Other than our Voraxial Separators, we maintain no inventory of finished parts until we receive a customer order. We currently have various models of the Voraxial Separator in inventory, which includes certain models located at third party facilities on a trial basis.
FPA contract manufacturing is not initiated until corresponding specifications have been obtained from a customer. Typically, a customer seeking the manufacture of components will provide us with diagrams and specifications. We complete any remaining design services and begin manufacturing the components pursuant to the specific contract or purchase order.
Competition
We are subject to competition from a number of companies who have greater experience, research abilities, engineering capability and financial resources than we have.
Although we believe our Voraxial Separator 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. These competitors include, but are not limited to Westfalia and AlfaLaval.
We believe the Voraxial Separator can improve a company's technology and in many ways result in a cost savings and other benefits to the customer. These benefits result in and include:
o A reduction in water and energy usage,
o Less space needed to implement the Voraxial Separator; the
Voraxial Separator weighs less than current systems,
o A reduction in time to process and separate the fluids, allowing
the customer to be more efficient,
o Creation of a more efficient and faster process to treat water to
increase the overall productivity of the end-user,
o A reduction in the amount of disposable liquids,
o Fewer employees needed to operate the system, and
o Reduction of ongoing maintenance and servicing costs.
We believe that we are the only 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.
Marketing
The Company's products and services are marketed through our existing staff and specific manufacturers representatives. To assist the Company in developing and penetrating the municipal wastewater and oil industry, the Company has formed an Advisory Committee consisting of John Combs, Barry Gafner, Kevin Mulshine and Henry Schlesinger.
The Company hired additional management and staff to further assist and support the sales and marketing program which was initiated in fiscal year 2003. The program consists of signing vendor representatives and/or distributors to carry the Voraxial Separator and attending trade shows to build technology awareness, among others.
We have presented the Voraxial Separator at two prominent trade shows in the past fiscal year. In October 2003, we demonstrated the Voraxial Separator at WEFTEC (Water Environment Federation's Technical Exhibition and Conference) tradeshow in Los Angeles. The Water Environment Federation's Technical Exhibition and Conference draws thousands of water and wastewater professionals from around the world to view cutting-edge technologies in the water quality field while learning about the latest practices, solutions, and regulations in their industry.
In November, we showcased the Voraxial Separator at CLEAN GULF 2003. Clean Gulf exhibition and conference provides a forum through which professionals from regulatory agencies, the federal government, and the private sector can address the real issues of cooperation, regulation, preparedness, prevention, and response for today's energy industry.
The Company has received a great response by potential clients and manufacturers representatives from both tradeshows and is still pursuing some of these opportunities. We anticipate presenting the Voraxial Separator at tradeshows in 2004, including WEFTEC and Clean Gulf.
Sources and availability of raw materials
The materials needed to manufacture our Voraxial Separator have been provided by Baldor Electric Co., Hughes Supply Inc. and SKF USA Inc., among other suppliers. We do not anticipate any shortage of component parts.
Intellectual property
We currently hold several patents pertaining to the Voraxial Separator and are continually working on developing other patents. The Company owns United States Patent #6,248,231, #5,904,840 and #5,084,189. The latest patent, Patent #6,248,231 was registered in 2001 for Apparatus with Voraxial Separator and Analyzer. Patent #5,904,840 is for Apparatus for Accurate Centrifugal Separation of Miscible and Immiscible Media, which is for technology invented by our president and sole director, Alberto DiBella, and registered in 1999. The other is for the Method and Apparatus for Separating Fluids having Different Specific Gravities. This is for technology invented by Harvey Richter and registered in 1992 to Richter Systems, Inc. In 1996, we acquired assets, including this patent from Richter Systems, Inc. The method and apparatus for each of these is applied in our Voraxial Separator.
In addition, on December 16, 2003, we received trademark protection for the word "Voraxial".
Governmental approvals and regulations; environmental compliance
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.
In addition, we may become liable for the costs of removal or remediation of certain hazardous substances released on or in our facilities without regard to whether or not we knew of, or caused, the release of such substances. We believe that we are currently in material compliance with applicable laws and regulations and are not aware of any material environmental violations at any of our current or former facilities. We are unaware of any handling by us of hazardous substances. There can be no assurance, however, that our prior activities did not create a material environmental situation for which we could be responsible or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulation, or an increase in the amount of hazardous substances generated or used by our operations) will not result in any material environmental liability to us or result in a material adverse effect to our financial condition and results of operations.
We are subject to various federal, state, and local environmental requirements, including those relating to discharges to air, water and land. We believe that we have not previously and do not currently handle any hazardous waste. However, in the future we may be subject to regulation involving the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. In addition, certain environmental laws, such as The Comprehensive Response, Compensation and Liability Act (CERCLA) and similar state laws, impose strict, retroactive, and joint and several liability upon persons responsible for releases or potential releases of hazardous substances. We have not incurred, nor do we expect to incur, significant costs to address any releases or potential releases of such substances. It is possible, however, given the retroactive nature of CERCLA liability, that we will, from time to time, receive notices of potential liability relating to current or former activities.
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.
The aerospace industry is highly regulated in the U.S. by the FAA and is regulated in other countries by similar agencies to ensure that aviation products and services meet stringent safety and performance standards. The FAA prescribes standards and licensing requirements for aircraft components. Because we assemble to meet specifications and designs created by our customers, we are not required to obtain any licenses or approvals from the FAA.
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 currently do not have product liability insurance. Any product liability claim made against us will 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 have plans to obtain product liability insurance in the near future.
In 2003, we did not possess any third party insurance coverage and were, therefore, effectively self-insured with respect to product liability, directors and officers, and general insurance coverage. We have obtained directors and officers, and general insurance coverage in 2004. We currently do not have product liability insurance.
Research and development
In our past two fiscal years, we have spent approximately $884,000 on product research and development. The Company has finalized the development of the Voraxial Separator. Although we will continually work on advancing the technology and applications whereby the technology can be used, we do not anticipate devoting a significant portion of our funds to this area of the business.
Employees
We have five employees. All of these employees work full-time. We have two administrative employees, Alberto DiBella and John A. DiBella. The balance of our employees participate in the manufacturing and engineering of our products. None of our employees are members of a union. We believe that our relationship with our employees is favorable. We intend to add additional employees in the upcoming year, including managers, sales representatives and engineers.
Item 2. Description of Property
During October 2002, the Company entered into a three (3) year lease for an office and manufacturing facility located at 821 NW 57th Place, Fort Lauderdale, FL 33309. The lease is approximately $4,700 per month. The Company has the option to renew the lease at the end of the three-year term.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Over-The-Counter Bulletin Board ("OTCBB") under the symbol EVTN. The bid quotations below, as provided by Interactive Data, have been reported for the period ending March 31, 2002 through the period ending December 31, 2003. On April 8, 2004, the closing price for our common stock was $1.16. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Bid Quotations
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Quarter Ended High Low
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March 31, 2002 $0.30 $0.15
June 30, 2002 $1.06 $0.20
September 30, 2002 $1.05 $0.46
December 31, 2002 $1.09 $0.46
March 31, 2003 $1.95 $1.00
June 30, 2003 $1.62 $0.96
September 30, 2003 $1.12 $0.55
December 31, 2003 $1.10 $0.61
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We have been advised that seven member firms of the NASD are currently acting as market makers for our common stock. There is no assurance that an active trading market will develop which will provide liquidity for our existing shareholders or for persons who may acquire common stock through the exercise of warrants.
Holders
As of December 31, 2003, there were over 750 holders of record of our common stock outstanding. Our transfer agent is Jersey Transfer & Trust Company, Inc., Post Office Box 36, Verona, New Jersey 07044.
No prediction can be made as to the effect, if any, that future sales of shares of common stock or the availability of common stock for future sale will have on the market price of the common stock prevailing from time-to-time. Sales of substantial amounts of common stock on the public market could adversely affect the prevailing market price of the 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.
Other Stockholders Matters
Effective January 1, 2003, we issued warrants to purchase 300,000 shares of our common stock exercisable at $1.00 per share to Frank DeMicco pursuant to Mr. DeMicco's five-year employment contract with our company. Warrants to purchase 100,000 shares vested during year ended December 31, 2003 and the remaining warrants vest periodically over the term of the agreement. The warrants issued to Mr. DeMicco were exempt from registration under Section 4(2) of the Securities Act. The warrants contain the appropriate restrictive legend restricting their transferability absent registration or applicable exemption. Mr. DeMicco received information concerning our company and had the opportunity to ask questions about the viability of our company.
During January of 2003 we issued options to purchase 10,000 shares of our common stock exercisable at $1.00 per share to an individual pursuant to a two-year employment agreement with our company. The options vest periodically over the term of the agreement, of which options to purchase 5,000 shares vested during year ended December 31, 2003. The options issued to the employee were exempt from registration under Section 4(2) of the Securities Act. The options contain the appropriate restrictive legend restricting their transferability absent registration or applicable exemption. The employee received information concerning our company and had the opportunity to ask questions about the viability of our company.
In the beginning of May 2003, we closed the private placement which
commenced in the first quarter of 2003. Under the private placement we sold an
aggregate of 1.25 units of securities to 8 investors for proceeds of $125,000.
Each unit consisted of 100,000 shares of restricted common stock at $1.00 per
share and 100,000 warrants to purchase 100,000 shares of common stock at $1.50
per share. The warrants are exercisable for a period of five years from the date
of closing. Due to market conditions and the proximity to the private placement
disclosed below, management determined to revise the terms of the private
placement during the three months ended September 30, 2003. As such, these
investors subsequently received an additional aggregate of 83,333 shares of
common stock and the exercise price of the previously issued warrants was
reduced to $1.00 per share. The transactions were exempt from registration under
Section 4(2) of the Securities Act. The securities issues contain the
appropriate restrictive legend restricting their transferability absent
registration or applicable exemption. The investors received information
concerning our company and had the opportunity to ask questions to the viability
of our company.
In May 2003, we commenced a second private placement and have sold an aggregate of 7.71 units of securities to 14 investors for proceeds of $646,000. Each unit consisted of 166,666 shares of restricted common stock at $0.60 per share and 166,666 warrants to purchase 166,666 shares of common stock at $1.00 per share. The warrants are exercisable for a period of five years from the date of closing. The securities issues contain the appropriate restrictive legend restricting their transferability absent registration or applicable exemption. The transaction was exempt from registration under Section 4(2) of the Securities Act. The investors received information concerning our company and had the opportunity to ask questions to the viability of our company.
Small Business Issuer Purchase of Equity Securities
None.
Item 6. Management's Discussion and Analysis of Financial Condition and Plan of Operations
General
Management's discussion and analysis contains various forward-looking statements. These statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" or "continue" or use of negative or other variations or comparable terminology.
We caution that these statements are further qualified by important factors that could cause actual results to differ materially from those contained in the forward-looking statements, that these forward-looking statements are necessarily speculative, and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements.
Year ended December 31, 2003 compared to year ended December 31, 2002
Revenue
Our contract revenue decreased by 100% to $0 for the year ended December 31, 2003 from $46,000 for the year ended December 31, 2002. The change was due to no manufacturing contracts in 2003. The Company does not solicit high precision manufacturing contracts but does receive orders from previous clients. We have focused our efforts and resources to the manufacturing, assembling, marketing and selling of the Voraxial Separator. Product sales decreased 92% to $3,000 for year ended December 31, 2003 as compared to $37,000 for the year ended December 31, 2002. We do expect revenues from the Voraxial Separator to increase in 2004 with the sales and marketing program.
General and administrative expenses
General and Administrative expenses increased by 124% to $751,000 for the year ended December 31, 2003 from $335,000 for the year ended December 31, 2002. The increase was due to an increase in personnel related to the applications and marketing of the Voraxial Separator. We have reduced the expense allocated towards high precision machining and focused all of our efforts on the marketing of the Voraxial Separator. As such, the general and administrative overhead typically experienced with the high precision machining was reduced and consolidated with the marketing activities supporting the Voraxial Separator.
Research and development expenses
Research and Development expenses increased 99% to $589,000 for the year ended December 31, 2003 from $295,000 for the year ended December 31, 2002. This increase was due to our continuing efforts to expand the applications of the Voraxial Separator for specific industries.
Liquidity and capital resources
At December 31, 2003, we had an accumulated deficit of $3,049,000. In the year ended December 31, 2003 our working capital decreased by $353,000 from December 31, 2002. Operating at a loss for the year negatively impacted our cash position; however funds received from the private placement of our securities added to our working capital position. We believe that including our current cash resources and anticipated revenue to be generated by our Voraxial Separators, we will have sufficient resources to continue business operations for the next twelve months. To the extent that these resources are not sufficient to sustain current operating activities, we may need to seek additional capital, or adjust our operating plan accordingly.
During the year ended December 31, 2003, we issued an aggregate of 1,285,002 shares at $0.60 per share in connection with two private placement transactions. In connection with these transactions, we also issued warrants to purchase an aggregate of 1,285,002 shares of our common stock exercisable at $1.00 per share. The warrants are exercisable for a period of five years from the date of issuance. We received gross proceeds of approximately $771,000 from these private placements.
Continuing losses
We may be unable to continue as a going concern, given our limited operations and revenues and our significant losses to date. Consequently, our working capital may not be sufficient and our operating costs may exceed those experienced in our prior years. In light of these recent developments, we may be unable to continue as a going concern.
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. If the Company is unable to successfully commercialize its Voraxial Separator, it is unlikely that the Company could continue its business. The Company will continue to require the infusion of capital until operations become profitable. During 2004, the Company anticipates seeking additional capital, increasing sales of the voraxial separator and continuing to restrict expenses. Substantial doubt exists about the ability of the Company to continue as a going concern.
Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The Company's adoption of SFAS No. 146 on January 1, 2003 did not have any material effect on the financial statements of the Company.
In December 2003, the FASB issued Interpretation No. 46R, "Consolidation of Variable Interest Entities" in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of variable interest entities, including special-purpose entities or off-balance sheet structures. The consolidation requirements of FIN No. 46R have a variety of implementation dates. The Company believes the impact of FIN No. 46R on its financial position and results of operations will not be material, but the Company will continue to evaluate the impact of FIN No. 46R during the first quarter of 2004.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement affects the issuer's accounting for three types of freestanding financial statements: mandatorily redeemable shares, put and forward purchase contracts that require the issuer to buy back some of its shares in exchange for cash or other assets, and certain obligations that can be settled in shares. This statement is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The impact of adopting FASB No. 150 was not material to the Company's financial position and results of operations.
In December 2003, the Securities and Exchange Commission (SEC), published Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition." This SAB updates portions of the Securities and Exchange Commission (SEC) staff's interpretive guidance provided in SAB 101 and included in Topic 13 of the Codification of Staff Accounting Bulletins. SAB 104 deletes interpretative material no longer necessary, and conforms the interpretive material retained, because of pronouncements issued by the FASB's Emerging Issues Task Force (EITF) on various revenue recognition topics, including EITF 00-21, "Revenue Arrangements with Multiple Deliverables." SAB No. 104 also incorporates into the SAB Codification certain sections of the SEC staff's "Revenue Recognition in Financial Statements - Frequently Asked Questions and Answers." SAB No. 104 does not have a material impact on the Company's financial position and results of operations since the Company's revenue recognition practices previously conformed to the interpretations codified by SAB No. 104.
Management does not expect these statements to have a material impact on the consolidated financial statements.
Risk Factors
Our independent auditors have raised substantial doubt about our ability to continue as a going concern.
Although we operated as a precision machine shop for a number of years, we have only recently completed the development of the Voraxial Separator, and we have not yet generated significant revenues from that product. As a result, we have limited operating history in our planned business upon which you may evaluate our business and prospects. The revenues and income potential of our business and the markets of our separation technology are unproven. Our business plan must be considered in light of risks, expenses, delays, problems, and difficulties frequently encountered by development stage companies.
We have incurred operating losses since our inception, and we will continue to incur net losses until we can produce sufficient revenues to cover our costs. At December 31, 2003, we had an accumulated deficit of $3,049,000, including a net loss of $1,340,000 for the year ended December 31, 2003. Even if we achieve profitability, we may not be able to sustain or increase our profitability on a quarterly or annual basis. Based on historic cash flow and projected expenditures, management believes that proceeds from the sale of the minimum number of Units could enable us to pursue our basic business plan for at least the next twelve months.
Our ability to generate future revenues will depend on a number of factors, many of which are beyond our control. These factors include the rate of market acceptance of our products, competitive efforts, and general economic trends. Due to these factors, we cannot anticipate with any degree of certainty what our revenues will be in future periods. You have limited historical financial data and operating results with which to evaluate our business and our prospects. As a result, you should consider our prospects in light of the early stage of our business in a new and rapidly evolving market.
Our independent auditors have included in their audit report an explanatory paragraph that states that our continuing losses from operations raises substantial doubt about our ability to continue as a going concern.
We have been limited by insufficient capital, and we may continue to be so limited.
In the past, we have lacked the capital to market the Voraxial Separator as we would have liked. 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.
Our business model is unproven.
Our business model is currently unproven and in the early stages of development and we have not yet undertaken any substantial marketing activities. The technological, marketing, and other aspects of our business will require substantial resources and will undergo constant developmental change. Our ability to develop a successful business model will be dependent upon the relative success or failure of these respective aspects of our operations and how effectively they work in concert with one another. If we expend significant financial and management resources attempting to market the Voraxial Separator to a specific industry segment, and we subsequently are unsuccessful in generating sales from that segment, we may not have enough resources to market to other industry segments. There are no assurances that we will successfully develop our business model from the standpoint of successfully implementing an efficient and effective marketing plan.
If our products do not achieve and maintain market acceptance, our business will not be successful.
Even though our product is successfully developed, our success and growth will depend upon its acceptance by various potential users of our product. Acceptance will be a function of our product being more cost effective as compared to currently existing or future technologies. If our product does not achieve market acceptance, our business will not be successful. In addition, even if our product achieves market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our product or render our products obsolete.
If we do not develop sales and marketing capabilities or arrangements successfully, we will not be able to commercialize our product successfully.
We have limited sales and marketing experience. We may market and sell our product through a direct sales force or through other arrangements with third parties, including co-promotion arrangements. Since we may market and sell any product we successfully develop through a direct sales force, we will need to hire and train qualified sales personnel.
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 our product. 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 marketed before our product.
Our competitors' products may be more effective, or more effectively marketed and sold, than any of our products. Many of our competitors have:
o significantly greater financial, technical and human resources than we have and may be better equipped to discover, develop, manufacture and commercialize products; and
o more extensive experience in marketing water treatment products.
Competitive products may render our products obsolete or noncompetitive before we can recover the expenses of developing and commercializing our product. Furthermore, the development of new technologies and products could render our product noncompetitive, obsolete, or uneconomical.
As we evolve from a company primarily involved in design and development to one also involved in commercialization, we may encounter difficulties in managing our growth and expanding our operations successfully.
We may experience a period of rapid and substantial growth that may place a strain on our administrative and operational infrastructure, and we
anticipate that continued growth could have a similar impact. As our product continues to enter and advance in the market, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various collaborative partners, suppliers, and other third parties.
If we are unable to adequately protect our technology, or if we infringe the rights of others, we may not be able to defend our markets or to sell our product.
Our success may depend in part on our ability to continue and expand our patent protection both in the United States and in other countries for our product. Due to evolving legal standards relating to the patentability, validity, and enforceability of patents covering our product and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any issued patents may not provide us with sufficient protection for our product or provide sufficient protection to afford us a commercial advantage against competitive products or processes.
Our success may also depend in part on our ability to operate without infringing the proprietary rights of third parties. The manufacture, use, or sale of our product may infringe on the patent rights of others. Likewise, third parties may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications or those of others could result in adverse decisions regarding:
o the patentability of our inventions relating to our product; and/or
o the enforceability, validity, or scope of protection offered by our patents relating to our product.
Litigation may be necessary to enforce the patents we own and have applied for (if they are awarded), copyrights, or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement. This type of litigation could result in the expenditure of significant financial and managerial resources and could result in injunctions preventing us from distributing certain products. Such claims could materially adversely affect our business, financial condition, and results of operations.
We are dependent on key personnel.
We are dependent upon the availability and the continued performance of the services of key personnel. The loss of the services of any such personnel could have a material adverse effect on us. In addition, the availability of skilled personnel is extremely important to our growth strategy and our failure to attract and retain such personnel could have a material, adverse effect on us. We do not currently maintain any key man life insurance covering these persons.
Our operations are subject to governmental approvals and regulations and environmental compliance.
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.
Our business has a substantial risk of product liability claims. If we are unable to obtain appropriate levels of insurance, a product liability claim against us could aversely affect our business.
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 currently do not have product liability insurance. Any product liability claim made against us will 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 have plans to obtain product liability insurance in the near future. We do not possess third party insurance coverage and are, therefore, effectively, self-insured with respect to product liability, directors and officers, and general insurance coverage. We have plans to obtain third party insurance coverage in the near future.
Item 7. Financial Statements
The financial statements required by this report are included, commencing on F-1.
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 8A. Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in our internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.
Item 9. Directors and Executive Officers
Directors and executive officers
The following sets forth the names and ages of our officers and directors. Our directors are elected annually by our shareholders, and the officers are appointed annually by our board of directors.
Name Age Position
---- --- --------
Alberto DiBella 72 President and Director
Frank J. DeMicco 55 Chief Operating Officer
John A. DiBella 32 Executive Vice President
of Business Development
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Alberto DiBella is a graduate of the Florence Technical Institute, Italy, where he obtained a degree in mechanical engineering in 1952. After immigrating to the United States in 1962, Mr. DiBella worked in New Jersey for a major tool manufacturer. From 1988 to 1993, he was the President of E.T.P., Inc, a machining business, where he was responsible for day to day operations of the company. In 1993, he relocated to Florida and founded FPA, our wholly owned subsidiary. Since our inception he has worked in the day to day operations of FPA. He has been our president and chairman since June 1996 and president and chairman of our subsidiary, FPA, since its organization in February 1993.
Frank J. DeMicco has been employed by our Company since January 2003. He previously served as President of United Water New Jersey and Senior Vice-President of Operations for United Water Resources from 1996 to 2000. DeMicco, a licensed professional engineer in NY, NJ, PA, VA and Puerto Rico, has over 35 years of senior executive management experience in the fields of heavy construction, consulting engineering and utility design, construction, and management. As the former senior technical and operations executive within United Water executive management, DeMicco assisted that company in increasing its market capitalization from $400 Million in 1991 to $1.8 Billion in 2000. In July 2000, United Water was acquired by the French utility giant, Suez Lyonnaise des Eaux (NYSE: SZE), the world's largest provider of water and wastewater services. Prior to his tenure at United Water, DeMicco was the President and Chief Technical Officer of Buck, Seifert & Jost, Consulting Engineers ("BS&J"). DeMicco's responsibilities have included responsible charge of design and/or construction inspection for water and sewage treatment plants, pumping stations, gravity dams, water and sewage pipelines, filter plant expansions, computerized process control systems and control systems software development for the water treatment industry.
John A. DiBella has served as an employee of our Company since January 2002. From 2000 through January 2002 Mr. DiBella provided consulting services to our Company. Mr. DiBella serves as the Company's Director of Business Development. Mr. DiBella co-founded and served as President of PBCM, a financial
management company located in New Jersey from 1997 to 1999. While at PBCM, Mr. DiBella was involved in various consulting services regarding the development of publicly traded companies, including establishing a management team, negotiating partnerships, licensing agreements and investigating merger and acquisition opportunities. Prior to co-founding PBCM, Mr. DiBella served as a Securities Analyst in the Equities and Derivatives Department for Donaldson, Lufkin and Jenrette, a NYSE member firm. Mr. DiBella holds a Bachelor of Science Degree in Finance and Economics from Rutgers University. Mr. DiBella is the nephew of Alberto DiBella.
Board of Directors and Committees
During the year ended December 31, 2003, our board of directors held six meetings.
To date, we have not established an audit committee. Our board of directors, solely consisting of Alberto DiBella, reviews the professional services provided by our independent auditors, the independence of our auditors from our management, our annual financial statements and our system of internal accounting controls. Mr. DiBella is not considered a "financial expert."
We have not established a compensation committee nor nominating committee.
Code of Ethics
During the year ended December 31, 2003 we adopted a code of ethics. The code applies to our officers and directors. The code provides written standards that are designed to deter wrong-doing 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 o the code; and (v) accountability for the adherence to the code.
Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than ten percent of our outstanding common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock. These persons are required by SEC regulation to furnish us with copies of these reports they file.
To our knowledge, based solely on a review of the copies of reports
furnished to us and written representations that no other reports were required,
Section 16(a) filing requirements applicable to our officers, directors and
greater than ten percent beneficial owners were not complied with on a timely
basis for the period which this report relates.
Item 10. Executive compensation
The table below sets forth compensation for the past two years awarded to, earned by or paid to our chief executive officer and each executive officer whose compensation exceeded $100,000 for the year ended December 31, 2003.
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
Shares of Common Stock
Underlying Option
Name and Position Year Salary Bonus Compensation Other
----------------- ---- ------ ----- ------------ -----
Alberto DiBella, CEO 2003 $150,000(4) --- --- ---
2002 $ 12,000(4) --- --- (1)
Frank J. DeMicco, COO 2003 $150,000 --- 300,000(2) (2)
John A. DiBella, EVP 2003 $150,000(5) --- --- ---
2002 $ 60,000 $60,000 2,000,000(3) (3)
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(1) For services rendered during 1997, Mr. DiBella was paid cash compensation of $50,000 together with 1,000,000 voting convertible, non-cumulative 8% preferred shares, $0.001 par value. In 1997 Mr. DiBella also exchanged 5,000,000 shares of common stock for 5,000,000 shares of voting convertible, non-cumulative 8% preferred shares, $.001 par value. Effective December 31, 2002, pursuant to its terms, the preferred stock converted into shares of common stock on a one for one basis. Mr. DiBella had 6,000,000 shares of preferred stock at the time of conversion.
(2) Pursuant to Mr. DeMicco's employment agreement, Mr. DeMicco received warrants to purchase 300,000 shares of the Company's common stock exercisable at $1.00 per share. The warrants vest periodically over the term of the agreement.
(3) Pursuant to Mr. DiBella's employment agreement, Mr. DiBella received options to purchase 2,000,000 shares of the Company's common stock exercisable at $.15 per share.
(4) Salary has been deferred.
(5) $133,000 has been deferred.
Options granted in the Year Ended December 31, 2003 to Executives and Directors
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise of
SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share) Date
---- ------- ----------- --------- ----
Frank DeMicco 300,000 97% $1.00 1/1/08
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There were 10,000 options granted to executive employees for the year ended December 31, 2003, 2,200,000 for the year ended December 31, 2002.
Aggregated Fiscal Year-End Option Value Table
The following table sets forth certain information concerning unexercised stock options as of December 31, 2003.
Number Of Value Of Unexercised
Unexercised Options In-the-Money
Held at 12/31/03 Options at 12/31/03 (1)
---------------- -----------------------
Shares Shares Acquired Shares
Name Exercisable On Exercise Unexercisable Exercisable Unexercisable
---- ----------- ----------- ------------- ----------- -------------
Frank DeMicco 100,000 100,000 200,000 $ 0 $0
John A. DiBella 2,000,000 2,000,000 0 $1,380,000 $0
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(1) The closing sale price of the Common Stock on December 31, 2003 as reported by OTCBB was $0.84 per share. Value is calculated by multiplying (a) the difference between $0.84 and the option exercisable price by (b) the number of shares of Common Stock underlying the options.
Employment agreements
Alberto DiBella, our chief executive officer, president and chairman does not have an employment contract. However, the Company has recorded a charge $12,000 to reflect the fair value of services rendered to the Company in 2002 and Mr. DiBella accrued a salary of $150,000 in 2003.
Frank DeMicco. On January 1, 2003, we entered into a five year employment agreement with Mr. DeMicco to serve as operating officer of our Company. Pursuant to the agreement, Mr. DeMicco receives an annual base salary of $150,000 per year, payable in monthly installments. In addition, Mr. DeMicco shall receive an annual increase in base salary equal to a minimum of ten percent of his prior base salary. Pursuant to the agreement, Mr. DeMicco also has received warrants to purchase 100,000 shares of common stock exercisable at $1.00 per share commencing on the one year anniversary of the agreement. In addition, at the end of each subsequent year of the agreement, Mr. DeMicco shall be issued warrants to purchase 50,000 shares of common stock exercisable at $1.00 per share.
John A. DiBella. On January 17, 2002, our Company entered into a one year employment agreement with John A. DiBella to serve as vice president and director of business development. Pursuant to the agreement, Mr. DiBella receives a base salary of $60,000 with a bonus provision for $60,000. Such bonus and salary were earned and accrued in 2002. Mr. DiBella was also granted stock options to purchase 2,000,000 shares of our common stock at an exercise price of $.15 per share. The agreement further provides that until a new employment agreement is negotiated, Mr. DiBella's salary shall increase to $150,000 per year, payable monthly.
Director Compensation
Directors are not compensated by our company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Beneficial Ownership
The table below sets forth information with respect to the beneficial ownership of our securities as of December 31, 2003 by:
1) each person known by us to be the beneficial owner of five percent or more of our outstanding securities, and
2) executive officers and directors, individually and as a group.
Unless otherwise indicated, we believe that the beneficial owner has sole voting and investment power over such shares.
Name and Address of Number of Shares Percentage of Beneficial Owner Beneficially Owned Ownership ---------------- ------------------ --------- Alberto DiBella 9,050,000(1) 63% 3500 Bayview Drive Fort Lauderdale, FL 33308 Frank DeMicco 100,000(3) * 821 N.W. 57th Place Fort Lauderdale, FL 33309 John DiBella 3,066,666(2) 17.2% 821 N.W. 57th Place Fort Lauderdale, FL 33309 All officers and directors 12,216,666 75.9% as a group (3 persons) |
* less than 1%
(1) Alberto DiBella's beneficial share ownership includes 10,000 shares of common stock owned by his wife.
(2) Includes 2,000,000 shares of common stock underlying warrants exercisable at $.15 per share.
(3) Includes 100,000 shares of common stock underlying warrants exercisable at $1.00 per share which are exercisable immediately, but excludes 200,000 shares of common stock underlying warrants exercisable at $1.00 per share which vest periodically over the next four years.
Securities Authorized for Issuance Under Equity Compensation Plans
The table below provides information pertaining to all compensation plans under which equity securities of our company are authorized for issuance as of the end of the most recent fiscal year.
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation
outstanding options, outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in 1st column
------------------- ------------------- -----------------------
Equity compensation plans
approved by security holders 0 N/A 0
Equity compensation plans not
approved by security holders 2,555,000 $0.30 0
Total 2,555,000 0
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Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits, Lists and Reports on Form 8-K
Exhibit No. Description of Exhibit
----------- ----------------------
2 Plan of Merger*
3(i) Articles of Incorporation*
3(ii) Bylaws*
4 Share Certificate*
14 Code of Ethics
21 Subsidiaries*
31.1 Rule 13a-14(a)/15d-4(a) Certification of Principal
Financial Officer
31.2 Rule 13a-14(a)/15d-4(a) Certification of Principal
Financial Officer
32.1 Section 1350 Certification of Principal Executive Officer
32.2 Section 1350 Certification of Principal Financial Officer
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*Previously filed
Item 14. Principal Accountant Fees and Services
Year ended December 31, 2003
Audit Fees: The aggregate fees, including expenses, billed by our principal accountant in connection with the audit of our consolidated financial statements for the most recent fiscal year and for the review of our financial information included in our Annual Report on Form 10-KSB; and our quarterly reports on Form 10-QSB during the fiscal year ending December 31, 2003 was $30,000.
Audit Related Fees: The aggregate fees, including expenses, billed by our principal accountant for services reasonably related to the audit for the year ended December 31, 2003 were $-0-.
All Other Fees: The aggregate fees, including expenses, billed for all other services rendered to us by our principal accountant during year 2003 was $-0-.
Year ended December 31, 2002
Audit Fees: The aggregate fees, including expenses, billed by our principal accountant in connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2002 and for the review of our financial information included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002; and our quarterly reports on Form 10-QSB during the fiscal year ending December 31, 2002 was $27,050.
Audit Related Fees: The aggregate fees, including expenses, billed by our principal accountant for services reasonably related to the audit for the year ended December 31, 2002 were $-0-.
All Other Fees: The aggregate fees, including expenses, billed for all other services rendered to us by our principal accountant during year 2002 was $-0-.
The Board of Directors has considered whether the provisions of the services covered above under the captions "Financial Information Systems Design and Implementation Fees" and "All Other Fees" is compatible with maintaining the auditor's independence.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned and duly authorized on April 14, 2004.
ENVIRO VORAXIAL TECHNOLOGY, INC.
By: /s/ Alberto DiBella ---------------------------------------- Alberto DiBella President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |
ENVIRO VORAXIAL TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Contents
Page
----
Consolidated Financial Statements
Independent auditors' report F-1
Balance sheet as of December 31, 2003 F-2
Statements of operations for the years ended December 31, 2003 and 2002 F-3
Statements of stockholders' equity (capital deficit) for the years ended December 31, 2003
and 2002 F-4
Statements of cash flows for the years ended December 31, 2003 and 2002 F-5
Notes to consolidated financial statements F-6
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Enviro Voraxial Technology, Inc.
We have audited the accompanying consolidated balance sheet of Enviro Voraxial Technology, Inc. and subsidiary (the "Company") as of December 31, 2003 and the related consolidated statements of operations, stockholders' equity (capital deficit) and cash flows for the years ended December 31, 2003 and 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all material respects, the consolidated financial position of Enviro Voraxial Technology, Inc. and subsidiary as of December 31, 2003 and the consolidated results of their operations and their consolidated cash flows for the years ended December 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has experienced recurring net losses, has a working capital deficit and cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Eisner LLP
Florham Park, New Jersey
April 6, 2004
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Consolidated Balance Sheet
--------------------------
December 31, 2003
-----------------
ASSETS
Current assets:
Cash and cash equivalents $ 150,000
Inventory 70,000
Other current assets 5,000
-------------
Total current assets 225,000
Property, plant and equipment, net 46,000
Other assets 5,000
-------------
$ 276,000
=============
LIABILITIES
Current liabilities:
Current portion of obligations under capital leases $ 15,000
Accounts payable and accrued expenses 591,000
-------------
Total current liabilities 606,000
-------------
Commitments and contingency
CAPITAL DEFICIT
Capital stock $.001 par value:
Preferred stock, voting, 8% noncumulative, convertible, authorized 7,250,000
shares, issued and outstanding - none
Common stock, authorized 42,750,000 shares; 15,402,636 shares issued
and outstanding, 100,000 shares issuable 15,000
Additional paid-in capital 2,725,000
Deferred compensation (21,000)
Accumulated deficit (3,049,000)
-------------
Total capital deficit (330,000)
-------------
$ 276,000
=============
|
See notes to consolidated financial statements
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Consolidated Statements of Operations
-------------------------------------
Year Ended December 31,
-------------------------------
2003 2002
------------- -------------
Revenue:
Contract revenue (Note C) $ 46,000
Product sales (Note C) $ 3,000 37,000
------------- -------------
Total revenue 3,000 83,000
------------- -------------
Costs and expenses:
Cost of contract revenue 4,000
Cost of sales 1,000 14,000
General and administrative 751,000 335,000
Research and development 589,000 295,000
------------- -------------
Total costs and expenses 1,341,000 648,000
------------- -------------
Loss before other expense (1,338,000) (565,000)
------------- -------------
Other expenses (income):
Interest expense 5,000 10,000
Other income (Note G) (3,000) (9,000)
------------- -------------
Total other expense 2,000 1,000
------------- -------------
Net loss $ (1,340,000) $ (566,000)
============= =============
Basic and diluted loss per common share $ (0.09) $ (0.08)
============= =============
Weighted average number of common shares outstanding 14,674,459 7,509,000
============= =============
|
See notes to consolidated financial statements
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Capital Deficit)
-----------------------------------------------------------------
Preferred Stock Common Stock Additional
--------------- ------------ Paid-in Deferred Accumulated
Shares Par Value Shares Par Value Capital Compensation Deficit Total
------ --------- ------ --------- ------- ------------ ------- -----
Balance, December 31, 2001 6,000,000 $ 6,000 7,470,968 $ 7,000 $1,343,000 $(1,143,000) $ 213,000
Issuance of units consisting of
common stock and warrants,
net of issuance costs 516,666 1,000 285,000 286,000
Shares of common stock and
common stock warrants
issuable (Note E) 100,000 100,000 100,000
Services provided by founder
at estimated fair value 12,000 12,000
Issuance of common stock
upon conversion of preferred
stock (Note E) (6,000,000) (6,000) 6,000,000 6,000 0
Net loss for the year ended
December 31, 2002 (566,000) (566,000)
---------- -------- ---------- -------- ---------- --------- ----------- ----------
Balance, December 31, 2002 0 0 14,087,634 14,000 1,740,000 (1,709,000) 45,000
Issuance of units consisting
of common stock and warrants,
net of issuance costs 1,285,002 1,000 769,000 770,000
Issuance of warrants in
accordance with
employment agreement 45,000 $ (45,000) 0
Amortization of deferred
compensation 24,000 24,000
Shares issued for services 130,000 171,000 171,000
Net loss for the year ended
December 31, 2003 (1,340,000) (1,340,000)
---------- -------- ---------- -------- ---------- --------- ----------- ----------
Balance, December 31, 2003 0 $ 0 15,502,636 $ 15,000 $2,725,000 $ (21,000) $(3,049,000) $ (330,000)
========== ======== ========== ======== ========== ========= =========== ==========
|
See notes to consolidated financial statements
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
-------------------------------------
Year Ended December 31,
--------------------------
2003 2002
------------ -----------
Cash flows from operating activities:
Net loss $ (1,340,000) $ (566,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 32,000 45,000
Common stock issued for services 171,000
Deferred compensation 24,000
Services provided by founder without remuneration 12,000
Changes in:
Accounts receivable 10,000 1,000
Inventory 1,000 4,000
Accounts payable and accrued expenses 345,000 93,000
------------ -----------
Net cash used in operating activities (757,000) (411,000)
------------ -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 770,000 286,000
Repayments of obligations under capital leases (30,000) (31,000)
------------ -----------
Net cash provided by financing activities 740,000 255,000
------------ -----------
Net decrease in cash and cash equivalents (17,000) (156,000)
Cash and cash equivalents, beginning of year 167,000 323,000
------------ -----------
Cash and cash equivalents, end of year $ 150,000 $ 167,000
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,000 $ 10,000
Supplemental disclosures of noncash investing and financing activities:
Issuance of 100,000 common shares at $1 per share in settlement of $ 100,000
amount due to investor
Issuance of 6 million common shares upon conversion of 6 million preferred
shares (Note E) $ 0
|
See notes to consolidated financial statements
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE A - ORGANIZATION AND OPERATIONS
Enviro Voraxial Technology, Inc. (the "Company") is a provider of environmental and industrial separation technology. The Company has developed and patented the Voraxial Separator, which is a technology that efficiently separates solids and liquids with distinct specific gravities. Potential commercial applications and markets include pre-treatment of wastewater (headworks) at municipal wastewater facilities, oil/water separation, and environmental cleanup.
Until 1999, the Company focused its operations on a high precision engineering machine shop located in Florida which designs, manufactures and assembles specialized parts and components for the aerospace and automotive industries. The Company currently operates within two segments: the manufacture and distribution of the voraxial separator; and contract manufacturing services to the aerospace and automotive industries. All assets of the Company, except for inventory, are associated with contract manufacturing services. Contract revenue and cost of contract revenue are associated with manufacturing services. Product sales and cost of sales are associated with the voraxial separator. All research and development expenses and primarily all general and administrative expenses are associated with the voraxial separator. Since 1999, the Company has been focusing its efforts on developing and marketing the voraxial separator.
The Company has experienced net losses, has negative cash flows 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 a level of revenue sufficient to provide cash inflows to sustain operations. The Company will continue to require the infusion of capital until operations become profitable. During 2004, the Company anticipates seeking additional capital, increasing sales of the voraxial separator and continuing to restrict expenditures. Substantial doubt exists about the ability of the Company to continue as a going concern. These financial statements make no adjustment to the classification or amount of assets or liabilities that may be necessary if the Company is unable to continue as a going concern.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] 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.
[2] Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various financial institutions. Balances at these institutions may at times exceed the FDIC limits.
[3] Property, plant and equipment:
Property, plant and equipment are stated at cost less accumulated depreciation. The cost of maintenance and repairs is charged against results of operations as incurred. Depreciation is computed by the straight-line method over the estimated economic useful life of the
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] Property, plant and equipment: (Continued)
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.
[4] Net loss per share:
Basic and diluted loss per share has been computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding. The warrants and stock options have been excluded from the calculation since they would be anti-dilutive. Such equity instruments may have a dilutive effect in the future and include the following potential common shares:
Warrants 3,062,202
Stock options 2,255,000
---------
5,317,202
=========
|
The number of stock options above does not include 375,000 stock options contingently issuable upon the achievement of milestones under a consulting agreement. The timetable to achieve the specified milestones has been extended to June 2004.
[5] Inventory:
Inventory consists of components for the voraxial separator and is priced at lower of first-in, first-out cost or market. Inventory includes components held by third parties in connection with pilot programs as 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.
[6] Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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. A significant estimate involves the value of the Company's inventory.
[7] Income taxes:
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts 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.
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] Research and development expenses:
Research and development costs are expensed as incurred.
[9] Revenue recognition:
The Company recognizes contract revenue when earned. Shipments of the
voraxial separator to third parties are recognized as revenue upon
customer acceptance. Shipments to third parties in connection with pilot
programs are not recognized as revenue and such components are included
in inventory as of December 31, 2003.
[10] Fair value of financial instruments:
Obligations under capital leases approximate fair value as the interest
rates applicable to these debt instruments are comparable to current
market rates for similar maturities.
[11] Advertising costs:
Promotion costs, which amounted to $9,000 in 2003, are expensed as
incurred and are included in general and administrative expenses.
Promotion costs incurred during the year ended December 31, 2002 amounted
to $11,000.
[12] Stock-based compensation:
The Company accounts for stock-based employee compensation under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Company has
adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," and SFAS No. 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure," which was released in December 2002 as an
amendment of SFAS No. 123. The following table illustrates the effect on
net loss and loss per share if the fair value based method had been
applied to all awards.
|
Year Ended December 31,
---------------------------
2003 2002
------------- ----------
Reported net loss $ (1,340,000) $ (566,000)
Stock-based employee compensation expense included in
reported net loss, net of related tax effects 24,000
Stock-based employee compensation determined under the
fair value based method (146,000) (114,000)
------------ ----------
Pro forma net loss $ (1,462,000) $ (680,000)
============ ==========
Basic and diluted loss per common share:
As reported $ (0.09) $ (0.08)
============ ==========
Pro forma $ (0.10) $ (0.09)
============ ==========
|
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] Stock-based compensation: (Continued)
The fair value of each option grant on the date of grant is estimated
using the Black-Scholes option-pricing model with a volatility of 68% for
2003 and 2002, expected life of options of 5 years, risk free interest
rate of 2.9% - 4.3% in 2003 and 2002 and a dividend yield of 0%. The
weighted average fair value of options granted during the years ended
December 31, 2003 and 2002 was $0.60 and $0.09, respectively.
[13] Recent accounting pronouncements:
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The Company's adoption of
SFAS No. 146 on January 1, 2003 did not have any material effect on the
consolidated financial statements of the Company.
In December 2003, the FASB issued Interpretation No. 46R, "Consolidation
of Variable Interest Entities," in an effort to expand upon and
strengthen existing accounting guidance that addresses when a company
should include in its financial statements the assets, liabilities and
activities of variable interest entities, including special-purpose
entities or off-balance sheet structures. The consolidation requirements
of FIN No. 46R have a variety of implementation dates. The Company
believes the impact of FIN No. 46R on its financial position and results
of operations will not be material, but the Company will continue to
evaluate the impact of FIN No. 46R during the first quarter of 2004.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This statement affects the issuer's accounting for three types
of freestanding financial statements: mandatorily redeemable shares, put
and forward purchase contracts that require the issuer to buy back some
of its shares in exchange for cash or other assets, and certain
obligations that can be settled in shares. This statement is effective
for all financial instruments entered into or modified after May 31,
2003, and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The impact of adopting SFAS No. 150
was not material to the Company's financial position and results of
operations.
In December 2003, the Securities and Exchange Commission ("SEC"),
published Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition." This SAB updates portions of the SEC staff's interpretive
guidance provided in SAB No. 101 and included in Topic 13 of the
Codification of Staff Accounting Bulletins. SAB No. 104 deletes
interpretative material no longer necessary, and conforms the
interpretive material retained, because of pronouncements issued by the
FASB's Emerging Issues Task Force ("EITF") on various revenue recognition
topics, including EITF 00-21, "Revenue Arrangements with Multiple
Deliverables." SAB No. 104 also incorporates into the SAB Codification
certain sections of the SEC staff's "Revenue Recognition in Financial
Statements - Frequently Asked Questions and Answers." SAB No. 104 does
not have a material impact on the Company's financial position and
results of operations since the Company's revenue recognition practices
previously conformed to the interpretations codified by SAB No. 104.
F-9
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ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE C - CONCENTRATION OF CREDIT RISK
One customer accounted for 100% of total revenue for the year ended December 31, 2003. Four customers accounted for 35%, 27%, 15% and 13% of total revenue for the year ended December 31, 2002.
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 2003 consists of:
Machinery and equipment $ 351,000
Furniture and fixtures 12,000
Auto 12,000
375,000
Less accumulated depreciation 329,000
----------
Net property, plant and equipment $ 46,000
==========
|
Included in depreciation expense for the year ended December 31, 2003 is amortization of equipment under capital leases of $19,000. Accumulated depreciation relating to equipment under capital leases aggregated $129,000 as of December 31, 2003. Net book value of equipment under capital leases amounted to $46,000 as of December 31, 2003.
NOTE E - CAPITAL TRANSACTIONS
[1] Common stock:
During 2003, the Company issued 1,285,002 shares at $0.60 per share in connection with private placement transactions. In connection with these transactions the Company issued warrants to purchase 1,285,002 shares of common stocks exercisable at $1.00 per share for a period of five years from the date of each closing.
During 2003 the Company issued 130,000 shares of common stock for consulting services valued at $171,000. Such amount has been recorded as a charge to operations in 2003.
During the year ended December 31, 2002, the Company sold 5.17 units of
securities at $60,000 per unit. Each unit consisted of 100,000 shares of
common stock, 100,000 warrants to purchase 100,000 shares of common stock
at an exercise price of $1 per share and 100,000 warrants to purchase
100,000 shares of common stock at an exercise price of $1.25 per share.
The warrants issued at $1 per share are callable at par value provided
the stock trades above $1.50 per share for 20 consecutive trading days.
The warrants issued at $1.25 per share are callable at par value provided
the stock trades above $2 per share for 20 consecutive trading days. Net
proceeds received by the Company aggregated $286,000. The warrants were
exercisable at date of issuance through December 2007. In connection with
this transaction, the Company issued 10,000 warrants exercisable at $1.25
per share to the underwriter. No warrants have been exercised through
December 31, 2002.
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE E - CAPITAL TRANSACTIONS (CONTINUED)
[1] Common stock: (Continued)
During 2001, the Company received $100,000 from an investor. The Company received an executed subscription agreement in December 2002 and will issue 100,000 common shares, 100,000 warrants to purchase 100,000 shares of common stock at $3 per share and 100,000 warrants to purchase 100,000 shares of common stock at $4 per share to this investor in 2004.
[2] Preferred stock:
The preferred stock had voting rights, was convertible and accrued dividends at a rate of 8% per share when and as declared by the Board of Directors. The 6 million shares of preferred stock were convertible into common stock on a one for one basis. Prior to December 31, 2002, for each year revenue increased by $10 million over the preceding year's revenue, 1 million preferred shares would be convertible into 1,200,000 shares of common stock. On December 31, 2002, this provision lapsed and the preferred stock was converted into common stock on a one for one share basis.
[3] Options:
Stock option transactions for employees during 2003 and 2002 were as follows:
Exercise Weighted Average
Price Per Exercise Price
Options Vested Common Per Option
Outstanding Shares Share Outstanding
----------- ------ ----- -----------
Balance, January 1, 2002 45,000 0 $0.30 $0.30
Granted/vested during the year 2,200,000 1,115,000 $0.15 - $0.77 $0.20
---------- ---------
Balance, December 31, 2002 2,245,000 1,115,000 $0.15 - $0.77 $0.21
Granted/vested during the year 10,000 1,120,000 $1.00 $1.00
---------- ---------
Balance, December 31, 2003 2,255,000 2,235,000 $0.15 - $1.00 $0.21
========== =========
|
Information with respect to employee stock options outstanding and employee stock options exercisable at December 31, 2003 is as follows:
Weighted
Number Average Weighted Weighted
Outstanding at Remaining Average Average
Range of December 31, Contractual Exercise Number Exercise
Exercise Prices 2002 Life (in Years) Price Exercisable Price
--------------- ---- --------------- ----- ----------- -----
$0.15 2,000,000 3.55 $0.15 2,000,000 $0.15
$0.30 45,000 1.87 $0.30 30,000 $0.30
$0.77 200,000 4.13 $0.77 200,000 $0.77
$1.00 10,000 1.01 $1.00 5,000 $1.00
|
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE E - CAPITAL TRANSACTIONS (CONTINUED)
[4] Warrants:
Number Range of Number
Outstanding Exercise Price Exercisable
----------- -------------- -----------
Balance, December 31, 2001 243,200 $6.00 - $9.00 243,200
Issued 1,234,000 $1.00 - $1.25 1,234,000
----------- -----------
Balance, December 31, 2002 1,477,200 $1.00 - $9.00 1,477,200
Issued 1,585,002 $1.00 1,385,002
----------- -----------
Balance, December 31, 2003 3,062,202 $1.00 - $9.00 2,862,202
=========== ===========
|
NOTE F - INCOME TAXES
The significant components of the Company's deferred tax asset and liabilities as of December 31, 2003 are as follows:
Deferred income tax assets:
Net operating losses carryforwards $ 1,109,000
Tax credits 79,000
Deferred income tax liabilities:
Depreciation (5,000)
---------------
1,183,000
Valuation allowance (1,183,000)
---------------
Net deferred tax asset $ 0
===============
|
The significant components of the benefit for income taxes for the years ended December 31, 2003 and 2002 are as follows:
2003 2002
---------- -----------
Deferred:
Federal $ 440,000 $ 160,000
State 73,000 22,000
Change in valuation allowance (513,000 (182,000)
---------- -----------
Total deferred income taxes $ 0 $ 0
========== ===========
|
As of December 31, 2003, the Company has net operating loss carryforwards of approximately $2,949,000 for federal income tax purposes, which expire through 2023.
The difference between the statutory federal income tax rate on the Company's pre-tax loss and the Company's effective income tax rate is summarized as follows:
2003 2002
---- ----
Statutory federal income tax rate 34.0 % 34.0 %
Increase in valuation allowance (34.0) (34.0)
Effective income tax rate 0.0 % 0.0 %
|
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE G - OTHER INCOME
For 2003 and 2002, other income consists of rental income from pilot programs relating to the voraxial separator.
NOTE H - COMMITMENTS AND CONTINGENCY
[1] Employment agreements:
The Company entered into an employment agreement dated January 17, 2002 with an individual to serve as the Vice President and Director of Business Development. This individual had served as a consultant to the Company since 1999. The term of the agreement is for one year. The base year salary is $60,000 with a bonus provision for $60,000. Such bonus and salary was earned and accrued in 2002. The agreement also provides for a contingent bonus to be paid to this employee in the amount of $300,000 to improve the financial condition of the Company. Such bonus is payable upon the Company obtaining a total of $3 million of financing or when revenue exceeds $1 million. The employee was granted stock options to purchase 2 million shares of common stock with an exercise price of $0.15 per share. The market price at the date of grant was $0.12 per share.
The Company hired two employees under employment agreements that commenced in January 2003. The combined salaries for 2003 are $215,000 subject to annual increases beginning in 2004. Both agreements have a term of 5 years. One agreement provides for the granting of up to 300,000 cashless exercise warrants to purchase common stock at $1 per share which may result in a significant charge to operations in the future. The other agreement provides for the granting of 10,000 stock options to purchase common stock at $1 per share exercisable ratably over two years from the date of grant.
[2] Operating lease:
The Company leases office and warehouse space in Ft. Lauderdale, Florida. Future minimum lease payments, exclusive of common area maintenance charges as of December 31, 2003 are as follows:
Rent expense charged to operations amounted to $60,000 and $63,000 in 2003 and 2002, respectively.
[3] Other matter:
The Company does not possess third party insurance coverage and is, therefore, effectively self-insured with respect to product liability, directors and officers, and general insurance coverage.
NOTE I - SUBSEQUENT EVENTS
[1] Notes payable:
In January 2004, the Company issued promissory notes amounting to $150,000 to third parties. The notes bear interest at 8% per annum with
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003
NOTE I - SUBSEQUENT EVENTS (CONTINUED)
[1] Notes payable: (continued)
principal and accrued interest payable on December 31, 2004. In the event of a default, the interest rate increases to 18%.
The notes are convertible at the option of the holder for any or all of the outstanding principal and interest at a conversion price of $.75 per share. The notes shall automatically convert into units that are sold in the Company's private placement under terms of a term sheet dated October 29, 2003 upon the closing of the minimum private placement of $750,000. If the private placement is not completed by July 31, 2004, the notes will convert into common stock of the Company at the conversion price of $.60 per share and the holders shall also receive one warrant for each share received in the conversion, exercisable at $1.00 per share for a period of five years.
The above notes were issued to the investment bankers engaged to raise the funds under the above mentioned private placement term sheet.
[2] Common stock:
In January 2004, the Company sold .37 units of securities to investors. Each unit consisted of 166,666 shares of restricted common stock at $.60 per share and 166,666 warrants to purchase 166,666 shares of common stock at $1.00 per share. The warrants are exercisable for a period of five years from the date of closing.
[3] Consulting agreement:
In January 2004, the Company entered into a consulting agreement (the "Agreement"). Services will consist of management consulting, business advisory, shareholder information and public relations.
In connection with this Agreement, the Company sold 170,000 shares to the consultant at par value ($0.001 per share). The Company will recognize a charge of approximately $141,000 during the first quarter as a result of this transaction.
[4] Stock options:
In January 2004, three employees settled accrued salaries amounting to $370,000 for 1,394,666 options to purchase shares of common stock of the Company. 697,333 options are exercisable at $.60 per share and 697,333 options are exercisable at $1.00.
[5] Loss:
In April 2004, the Company experiences a casualty loss of certain copies of its technology. Management believes that this will not have a material adverse effect on its future operations.
Exhibit 14
CODE OF ETHICS AND BUSINESS CONDUCT
The Board of Directors (the "Board") of the Company has adopted the following Code of Business Conduct and Ethics (the "Code") for directors and officers of the Company. This Code is intended to focus the Board and each director and officer on areas of ethical risk, provide guidance to directors and officers to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Each director and officer must comply with the letter and spirit of this Code.
No code or policy can anticipate every situation that may arise. Accordingly, this Code is intended to serve as a source of guiding principles for directors and officers. Directors and officers are encouraged to bring questions about particular circumstances that may involve one or more of the provisions of this Code to the attention of the Chair of the Ethics Committee (the "Committee"), who may consult with inside or outside legal counsel as appropriate.
Each director and officer is expected to adhere to a high standard of ethical conduct. The good name of any corporation depends on the way it conducts its business and the way the public perceives that conduct. Unethical actions, or the appearance of unethical actions, are not acceptable. Directors and officers are expected to be guided by the following principles in carrying out their responsibilities:
o Loyalty. No director or officer should be, or appear to be, subject to influences, interests or relationships that conflict with the best interests of the Company.
o Compliance with Applicable Laws. The Company, its directors, officers, and its employees are expected to comply with laws and regulations applicable to the Company's activities.
o Observance of Ethical Standards. In the conduct of their duties, each director and officer must adhere to high ethical standards. These include honesty and fairness.
Directors and officers must avoid any conflicts of interest between the director or officer, as the case may be, and the Company. Any situation that involves, or may involve, a conflict of interest with the Company, should be disclosed promptly to the Chair of the Committee, who may consult with inside or outside legal counsel as appropriate.
A "conflict of interest" can occur when a director's or officer's personal interest is adverse to - or may appear to be adverse to - the interests of the Company as a whole. Conflicts of interest also arise when a director, an officer, or a member of his or her immediate family, receives improper personal benefits as a result of his or her position as a director or officer of the Company. New York Stock Exchange Rule 303A(2)(b) defines "immediate family" to include a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than employees) who share such person's home.
This Code does not attempt to describe all possible conflicts of interest which could develop. Some of the more common conflicts from which directors must refrain, however, are set out below.
o Improper conduct and activities. Directors and officers may not engage in any conduct or activities that are inconsistent with the Company's best interests or that disrupt or impair the Company's relationship with any person or entity with which the Company has or proposes to enter into a business or contractual relationship.
o Compensation from non-Company sources. Directors and officers may not accept compensation (in any form) for services performed for the Company from any source other than the Company.
o Gifts. Directors, officers, and members of their immediate families may not accept gifts from persons or entities where any such gift is being made in order to influence the director's or officer's actions, or where acceptance of the gifts could create the appearance of a conflict of interest.
o Personal use of Company assets. Directors and officers may not use Company assets, labor or information for personal use unless approved by the Chair of the Committee or as part of a compensation or expense reimbursement program available to directors and officers.
Directors and officers are prohibited from: (a) taking for themselves personally opportunities related to the Company's business; (b) using the Company's property, information, or position for personal gain; or (c) competing with the Company for business opportunities, provided, however, if the Company's disinterested directors determine that the Company will not pursue an opportunity that relates to the Company's business, after disclosure of all material facts by the director seeking to pursue the opportunity, the director may do so.
Directors and officers should maintain the confidentiality of information entrusted to them by the Company and any other confidential information about the Company, its business, customers or suppliers that comes to them, from whatever source, in their capacity as a director or officer, as the case may be, except when disclosure is authorized or legally mandated. For purposes of this Code, "confidential information" includes all non-public information relating to the Company, its business, customers or suppliers.
Directors and officers shall comply, and oversee policies designed to promote compliance by employees, officers and other directors, with laws, rules and regulations applicable to the Company, including insider trading laws.
Directors and officers shall oversee policies designed to promote ethical dealing by employees and officers with the Company's customers, suppliers, competitors and employees.
Directors and officers should promote ethical behavior and encourage an
environment in which the Company: (a) encourages employees to talk to
supervisors, managers and other appropriate personnel when in doubt about the
best course of action in a particular situation; (b) encourages employees to
report violations of laws, rules, or regulations to appropriate personnel; and
(c) informs employees that the Company will not allow retaliation for reports
made in good faith.
Directors and officers should communicate any suspected violations of this Code promptly to the Chair of the Committee. Violations will be investigated by the Board or by a person or persons designated by the Board and appropriate action will be taken in the event of any violations of the Code.
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alberto DiBella, certify that:
1. I have reviewed this Report on Form 10-KSB of Enviro Voraxial Technology, Inc.;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
c) Disclosed in this Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially effected, or is reasonably likely to materially effect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely effect the Registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
DATE: April 14, 2004 /s/ Alberto DiBella
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Alberto DiBella, Principal Executive Officer
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Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alberto DiBella, certify that:
1. I have reviewed this Report on Form 10-KSB of Enviro Voraxial Technology, Inc.;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
c) Disclosed in this Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially effected, or is reasonably likely to materially effect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely effect the Registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reportings.
DATE: April 14, 2004 /s/ Alberto DiBella
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Alberto DiBella, Principal Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of Enviro Voraxial Technology, Inc. (the "Company") on Form 10-KSB for the year ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alberto DiBella, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fully presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/Alberto DiBella
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Alberto DiBella
Principal Executive Officer
April 14, 2004
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Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Enviro Voraxial Technology, Inc. (the "Company") on Form 10-KSB for the year ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alberto DiBella, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fully presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Alberto DiBella
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Alberto DiBella
Principal Financial Officer
April 14, 2004
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