U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x       UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

or

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from _____________ to ______________

 

Commission File Number: 0-30454

 

Enviro Technologies, Inc.
(Exact name of registrant as specified in its charter)

 

IDAHO 82-0266517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

821 NW 57th Place, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)

 

(954) 958-9968
(Registrant’s telephone number, including area code) 

 

not applicable

(Former name, former address and former fiscal year, if changed since last report.)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange
on which registered
None   not applicable   not applicable

 

Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

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

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒  Smaller reporting company ☒
Emerging growth company ☐  

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: August 14, 2020, we had 49,499,497 shares of our Common Stock outstanding.

 

 

  1  
 

INDEX 

 

      Page
PART I.   FINANCIAL INFORMATION 4
Item 1.   Financial Statements 4
           Condensed Consolidated Balance Sheets 4
           Condensed Consolidated Statements of Operations 5
           Condensed Consolidated Statements of Changes in Shareholders’ Equity (deficiency) 6
           Condensed Consolidated Statements of Cash Flows 7
           Notes to Condensed Consolidated Financial Statements   8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 23
Item 4.   Controls and Procedures 23
       
PART II.   OTHER INFORMATION 24
Item 1.   Legal Proceedings 24
Item 1A.   Risk Factors 24
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3.   Defaults Upon Senior Securities 24
Item 4.   Mine Safety Disclosure 24
Item 5.   Other Information 24
Item 6.   Exhibits 25
         
Signatures   26

 

 

 

 

 

 

 

 

 

  2  
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

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

 

• our ability to continue as a going concern;
• the impact of the Covid-19 pandemic on the Company;
• our ability to continue to generate revenues and report profitable operations;
• our ability to pay our operating expenses and lack of access to additional capital;
• our ability to satisfy our obligations at they become due;
• our dependence on a limited number of customers;
• market competition;
• our dependence on key personnel;
• failure to comply with government regulations;
• potential product liability claims;
• material weaknesses in our disclosure controls and internal control over financial reporting;
• significant dilution if outstanding stock options are exercised; and
• lack of an active trading market for our common stock and the impact of penny stock rules on a trading market.

 

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing later in this report, Part I, Item 1A. - Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2020 (the "2019 10-K") as well as our other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

 

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, when used in this report the terms “EVTN,” the “Company,” “we,” “our,” “us,” and similar terms refers to Enviro Technologies, Inc., an Idaho corporation, and our subsidiary, Florida Precision Aerospace, Inc., a Florida corporation which we refer to as “FPA.” In addition, “second quarter of 2020” refers to the three months ended June 30, 2020, “second quarter of 2019” refers to the three months ended June 30, 2019, “2019” refers to the year ended December 31, 2019 and “2020” refers to the year ending December 31, 2020. We maintain a corporate website at www.evtn.com. Unless specifically set forth to the contrary, the information which appears on our website at www.evtn.com is not part of this report.  

 

  3  
 
Item 1. Financial Statements.

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30,
2020
(unaudited) 		  December 31,
2019
ASSETS    
CURRENT ASSETS:                
Cash and cash equivalents   $ 507,709     $ 674,844  
Accounts receivable, net     10,595       297,755  
Inventory, net     144,421       117,984  
Prepaid expenses     12,174       20,579  
                 
Total current assets     674,899       1,111,162  
                 
FIXED ASSETS, NET     331,788       349,377  
OTHER ASSETS                
Operating lease asset     221,914       243,039  
Security deposit     10,143       10,143  
Total other assets     232,057       253,182  
                 
Total assets   $ 1,238,744     $ 1,713,721  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 323,639     $ 416,992  
Accrued Expenses – related parties     580,815       621,465  
Operating lease liability, current portion     44,444       42,973  
Equipment note payable, current portion     70,613       68,276  
Loan Payable, current portion     46,752       —    
Total current liabilities     1,066,263       1,149,706  
                 
LONG-TERM LIABILITIES:                
Operating lease liabilities, less current portion     177,470       200,066  
Equipment note payable, less current portion     121,995       157,896  
Loan Payable, less current portion     65,219       —    
Total long-term liabilities     364,684       357,962  
Total liabilities     1,430,947       1,507,668  
                 
COMMITMENTS AND CONTINGENCIES (See Note G)     —         —    
                 
SHAREHOLDERS’ EQUITY (DEFICIENCY):                
Common stock, $.001 par value, 250,000,000 shares authorized; 49,499,497 and 35,784,497 shares issued and outstanding as of June 30, 2020 and December 31, 2019     49,500       35,785  
Additional paid-in capital     15,191,624       15,061,889  
Accumulated deficit     (15,433,327 )     (14,891,621 )
Total shareholders’ equity (deficiency)     (192,203 )     206,053  
                 
Total liabilities and shareholders’ equity (deficiency)   $ 1,238,744     $ 1,713,721  

 

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

  4  
 


ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

    Three Months Ended June 30,   Six Months Ended June 30,
    2020   2019   2020   2019
                 
Revenues, net   $ 22,790     $ 147,333     $ 27,318     $ 152,196  
                                 
Cost of goods sold     14,434       106,192       15,199       108,658  
                                 
Gross profit     8,356       41,141       12,119       43,538  
                                 
Costs and expenses:                                
Selling, general and administrative     101,108       77,868       185,316       153,932  
Professional Fees     57,892       93,191       113,104       149,008  
Payroll expenses     124,871       80,842       256,241       198,382  
                                 
Total costs and expenses     283,871       251,901       554,661       501,322  
                                 
Loss from operations     (275,515 )     (210,760 )     (542,542 )     (457,784 )
                                 
Other income (expenses):                                
Other Income     8,000       —         8,000       —    
Interest expense     (3,441 )     (4,542 )     (7,164 )     (9,349 )
                                 
Total other income (expense)     4,559       (4,542 )     836       (9,349 )
                                 
Net loss before provisions for income taxes     (270,956 )     (215,302 )     (541,706 )     (467,133 )
Provisions for income taxes     —         —         —         —    
NET LOSS   $ (270,956 )   $ (215,302 )   $ (541,706 )   $ (467,133 )
                                 
Net loss per common share - basic and diluted   $ (0.01 )   $ (0.01 )   $ (0.01 )   $ (0.01 )
Weighted average number of common shares outstanding - basic and diluted     38,949,497       35,784,497       37,366,997       35,784,497  

 

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

 

  5  
 

 ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (DEFICIENCY)

(Unaudited)

 

For the three months ended June 30, 2020 and 2019 

 

    Common Stock   Additional
Paid-in 		  Accumulated    
    Shares   Amount   Capital   Deficit   Total
                     
Balance – March 31, 2019 (unaudited)     35,784,497     $ 35,785     $ 15,061,889     $ (15,737,489 )   $ (639,815 )
                                         
Net Loss for the three months ended June 30, 2019     —         —         —         (215,302 )     (215,302 )
                                         
Balance – June 30, 2019 (unaudited)     35,784,497     $ 35,785     $ 15,061,889     $ (15,952,791 )   $ (855,117 )

 

Balance – March 31, 2020 (unaudited)

    35,784,497     $ 35,785     $ 15,061,889     $ (15,162,371 )   $ (64,697 )
                                         
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable     13,365,000       13,365       120,285       —         133,650  
                                         
Stock issued for services to employees     350,000       350       9,450       —         9,800  
                                         
Net Loss for the three months ended June 30, 2020     —         —         —         (270,956 )     (270,956 )
                                         
Balance – June 30, 2020 (unaudited)     49,499,497     $ 49,500     $ 15,191,624     $ (15,433,327 )   $ (192,203 )

 

For the six months ended June 30, 2020 and 2019

 

        Additional        
    Common Stock   Paid-in   Accumulated    
    Shares   Amount   Capital   Deficit   Total
Balance - December 31, 2018     35,784,497     $ 35,785     $ 15,061,889     $ (15,485,658 )   $ (387,984 )
                                         
Net Loss for the six months ended June 30, 2020     —         —         —         (467,133 )     (467,133 )
                                         
Balance – June 30, 2019 (unaudited)     35,784,497     $ 35,785     $ 15,061,889     $ (15,952,791 )   $ (855,117 )

 

Balance - December 31, 2019

    35,784,497     $ 35,785     $ 15,061,889     $ (14,891,621 )   $ 206,053  
                                         
Stock issued for exercise of options in exchange for accrued expenses - related parties and accounts payable     13,365,000       13,365       120,285       —         133,650  
                                         
Stock issued for services to employees     350,000       350       9,450       —         9,800  
                                         
Net Loss for the six months ended June 30, 2020     —         —         —         (541,706 )     (541,706 )
                                         
Balance – June 30, 2020 (unaudited)     49,499,497     $ 49,500     $ 15,191,624     $ (15,433,327 )   $ (192,203 )

 

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

  6  
 

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

    Six Months Ended June 30,
    2020   2019
         
Cash Flows from Operating Activities:                
Net loss   $ (541,706 )   $ (467,133 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     22,656       22,529  
Amortization of operating lease asset     21,125       21,343  
Stock issued for services     9,800       —    
Changes in assets and liabilities:                
Accounts receivable     287,160       (68,372 )
Inventory     (26,437 )     (131,981 )
Prepaid expenses     8,405       (179,978 )
Accounts payable and accrued expenses     (30,353 )     14,978  
Deposit from customers     —         460,513  
Operating lease liability     (21,125 )     (21,343 )
Accrued expenses – related parties     30,000       (255,000 )
Net cash used in operating activities     (240,475 )     (604,444 )
                 
Cash Flows from Investing Activities:                
Purchase of equipment     (5,067 )     —    
Net cash used in Investing activities     (5,067 )     —    
                 
Cash Flows from Financing Activities:                
Repayment of equipment note payable     (33,564 )     (31,379 )
Loan payable issuance     111,971       —    
Net cash (used in) provided by financing activities     78,407       (31,379 )
                 
Net decrease in cash and cash equivalents     (167,135 )     (635,823 )
                 
Cash and cash equivalents, beginning of period     674,844       1,223,863  
                 
Cash and cash equivalents, end of period   $ 507,709     $ 588,040  
                 
Supplemental Disclosures                
Cash paid during the period for interest   $ 7,164     $ 9,349  
Cash paid during the period for taxes   $ —       $ —    
                 
Supplemental Disclosure of non-cash activities                
Operating lease asset obtained in exchange for operating lease liability   $ —       $ 284,808  
Stock issued for exercise of options in exchange for accounts payable   $ 42,000     $ —    
Stock issued for exercise of options in exchange for
accrued expenses - related parties 		  $ 91,650     $ —    

 

  

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

 

  7  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020

(unaudited) 

 

NOTE A - ORGANIZATION AND OPERATIONS

 

Organization

 

Enviro Technologies, Inc., an Idaho corporation (the “Company”), is a high precision manufacturer that developed a proprietary environmental and industrial separation technology called the Voraxial® Separator (the “Separation Technology”). Historically we sold this technology mainly in the oil and gas industry. In 2017, the Company sold its patented Voraxial Separator to Cameron Solutions, Inc., an affiliate of Schlumberger Technology Corporation pursuant to a Technology Purchase Agreement and received a three-year Supply Agreement to manufacture the separator for Cameron. The agreement expired in June 2020 and the Company decided not to pursue Cameron for an extension as the agreement did not generate sufficient revenues. As part of the agreement, the Company received a Grant Back License to sell the Separation Technology in markets outside of the oil and gas markets, which include mining, sewage, manufacturing, waste-to-energy, food processing industry, among others. The Company rebranded the technology as the V-Inline Separator and is continuing to pursue these opportunities.

 

Florida Precision Aerospace, Inc., a Florida corporation (“FPA”), is the wholly-owned subsidiary of the Company and is used to manufacture, assemble and test the V-Inline Separator. FPA is also transitioning to manufacture high precision parts for other customers.

 

NOTE B – GOING CONCERN

 

Since entering into the Technology Purchase Agreement in June 2017, we have generated limited revenues under the Supply Agreement and Grant Back License. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension in its current state. However, we have had discussions to develop a modified agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020. The Grant Back License did not expire. There are no assurances that we will enter into a new Supply Agreement and/or the Grant Back License will ever generate any material revenues. However, we intend to continue to seek opportunities for the V-Inline Separator. Our ability to generate future revenues will depend on a number of factors, many of which are beyond our control, including the impact of Covid-19, competitive efforts and general economic trends. There are no assurances we will be able to continue to generate revenues or report profitable operations in the future. Without a new Supply Agreement, we will need to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. Regardless of our ability to enter into a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures has decreased significantly during the past six months and reached all-time low of negative $40 per barrel during the first six months of 2020. Further, with the current economic condition impacted by the Covid-19 virus, including weak oil prices, this may have a negative effect on the potential for sales of V-Inline Separators.

 

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including our industry.

 

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we temporarily reduced non-essential staffing at our corporate office and altered work schedules at our manufacturing and warehouse facilities. In addition, our senior management and our office personnel began working remotely and maintaining full capabilities to serve our customers. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began.

 

  8  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

In an effort to conserve our cash resources to sustain our operations until such time as the economy begins returning to pre-Covid-19 pandemic activity levels, we have reduced employee hours and have begun marketing our machining capabilities to local manufactures; however, we have not generated material revenues from this focus as of June 30, 2020. In April 2020, we began pursuing the manufacturing and selling of face shields for the general public and medical industry. To date we have generated limited revenues from the sales of face shields. There are no assurances, however, that these efforts will be sufficient to permit us to pay our operating expenses. In that event, we may be required to further scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection.

 

At June 30, 2020, we had a working capital deficit of $391,364, an accumulated deficit of $15,433,327. We do not have any external sources of liquidity. Our revenues have declined for the first two quarters of 2020 from the fourth quarter of 2019 as a result of the impact of the Covid-19 pandemic and the significant drop in oil prices. We were able to supplement some of the lost revenue stream we historically experienced from the sale of Voraxial and V-Inline separator, which was significantly impacted by the drop of oil prices and Covid-19 pandemic, by increasing our high precision manufacturing activities and selling face shields. Sales of Face shields represented 63% of revenues generated during the six months ended June 30, 2020. We do not anticipate generating significant revenues from face shields for the balance of 2020 as the inconsistent supply chain and influx of competitors make the market challenging. We will continue to market our manufacturing capabilities and the V-Inline Separator.

 

As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The condensed consolidated financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the company’s annual consolidated financial statements, notes and accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on April 14, 2020. In the opinion of management, all adjustments, which are necessary to provide a fair presentation of financial position as of June 30, 2020, and the related operating results and cash flows for the interim period presented, have been made. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of the parent company, Enviro Technologies, Inc., and its wholly-owned subsidiary, Florida Precision Aerospace, Inc. All significant intercompany accounts and transactions have been eliminated.

 

Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include valuation of deferred tax assets, allowance for doubtful accounts and allowance for inventory obsolescence. Actual results may differ.

 

  9  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

Revenue Recognition

 

The Company derives its revenue from the sale of the V-Inline Separators and some high precision manufacturing projects. We have also generated revenues from the sale of the Voraxial Separator to one customer, Schlumberger, through the Supply Agreement which expired in June 2020. We pursued designing, manufacturing and selling face shields during the quarantine period and are constantly seeking other sources of revenues. We account for revenue in accordance with ASC Topic 606.

 

Revenues that are generated from high precision manufacturing projects are recognized when we satisfy a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition.

 

Revenues that are generated from sales of V-Inline separators, auxiliary equipment and parts and face shields are typically recognized upon shipment. Our standard agreements generally do not include customer acceptance or post shipment installation provisions. However, if such provisions have been included or there is an uncertainty about customer order, revenue is deferred until we have evidence of customer order and all terms of the agreement have been complied with. As of June 30, 2020, and December 31, 2019, respectively, there was $0 and $0, respectively, of deposits from customers. During the three and six months ended June 30, 2020, we derived 24% and 37% of our revenues, respectively, from high precision manufacturing projects. The balance was due to the sales of face shields.

 

ACCOUNTS RECEIVABLE

 

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowance when there is a doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, and its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collections. At June 30, 2020 and December 31, 2019, the Company has $254 and $254 in the allowance for doubtful accounts, respectively.

 

Fair Value of Instruments

 

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses at June 30, 2020 and December 31, 2019, approximate their fair value because of their relatively short-term nature.

 

ASC 820 “Disclosures about Fair Value of Financial Instruments,” requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.

 

The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value is observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of June 30, 2020 and December 31, 2019.

 

  10  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

Level 2— inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of June 30, 2020 and December 31, 2019.

 

Level 3— inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We have no Level 3 instruments as of June 30, 2020 and December 31, 2019.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances with various financial institutions. Balances at these institutions may at times exceed the Federal Deposit Insurance Corporate (“FDIC”) limits. As of June 30, 2020, the Company has a cash concentration of $237,267 in excess of FDIC limits.

 

Inventory

 

Inventory primarily consists of components, including raw material and finished parts for the V-Inline Separator and face shields and is priced at lower of cost or net realizable value. Net realizable value is defined as sales price less cost of completion, disposable and transportation and a normal profit margin. Inventory may include units being rented on a short term basis or components held by third parties in connection with pilot programs as part of the continuing evaluation by such third parties as to the effectiveness and usefulness of the service to be incorporated into their respective operations. The third parties do not have a contractual obligation to purchase the equipment. The Company maintains the title and risk of loss. Therefore, these units are included in the inventory of the Company. As of June 30, 2020, and December 31, 2019:

 

    June 30, 2020   December 31, 2019
Raw materials   $ 58,564     $ 38,935  
Work in process     12,907       —    
Finished goods     72,950       79,049  
  Total   $ 144,421     $ 117,984  

 

Inventory amounts are presented net of allowance for inventory reserves of $66,937 and $66,937 as of June 30, 2020 and December 31, 2019, respectively.

 

Fixed Assets

 

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

 

  11  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

Net Loss Per Share

 

In accordance with the accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. As of June 30, 2020 and 2019 the Company has 100,000 and 13,465,000 shares issuable upon the exercise of options, respectively, which are anti-dilutive. A separate computation of diluted loss per share is not presented.

 

INCOME TAXES

 

The Company accounts for income taxes under ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

BUSINESS SEGMENTS

 

The Company operates in one segment and therefore segment information is not presented.

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in general and administrative expenses.

 

Stock-Based Compensation

 

The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a stock award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.

 

Reclassification

 

Certain amounts from prior periods have been reclassified to conform to the current period presentation. The reclassification had no impact on the Company’s new loss of cash flow.

 

Recent Accounting Pronouncements

 

All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

 

  12  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

NOTE D - RELATED PARTY TRANSACTIONS

 

Effective January 1, 2018 the annual compensation of the Company’s chief executive officer is $210,000. For the three months ended June 30, 2020, the Company incurred salary expenses for the Chief Executive Officer of the Company of $52,500. During the six months ended June 30, 2020, a total of $75,000 of salary have been paid and $81,650 of accrued salary were used to exercise the options for Mr. DiBella, Adele DiBella, and two employees of the Company (See Note F). The total unpaid balance as of June 30, 2020 is $559,315 and is included in accrued expenses – related party. During the three months ended June 30, 2019, the Company incurred salary expenses from the Chief Executive Officer of the Company of $52,500. During the six months ended June 30, 2019, a total of $360,000 of salary and accrued salary have been paid. The total unpaid balance as of June 30, 2019 is $558,761 and is included in accrued expenses – related party.

 

Effective July 1, 2017, Raynard Veldman, a member of the Company’s board of directors, receives a fee of $2,500 per month for consulting services. During the three and six months ended June 30, 2020 and 2019, Mr. Veldman received consulting fees of $7,500 and $15,000, respectively.

 

During the three and six months ended June 30, 2020 and 2019, Mr. Veldman, received compensation for being a member of the Company’s board of directors of $3,000 and $6,000, respectively. Mr. John DiBella does not receive compensation for being a member of the Company’s board of directors.

 

During the three months ended June 30, 2020, Mr. Veldman reduced his accrued expense by $10,000 to exercise his options (See Note F). As of June 30, 2020 and December 31, 2019, the total unpaid balance is $21,500 and $10,500, respectively.

 

On June 9, 2020, the Company issued 3,800,000 shares of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.

 

NOTE E – FIXED ASSETS

 

Fixed assets as of June 30, 2020 and December 31, 2019 consist of:

 

    June 30, 2020   December 31, 2019
Machinery and equipment   $ 938,312     $ 933,245  
Furniture and fixtures     14,498       14,498  
Autos and Trucks     5,294       5,294  
Total     958,104       953,037  
Less: accumulated depreciation     (626,316 )     (603,660 )
Fixed Assets, net   $ 331,788     $ 349,377  

 

Depreciation expense was $11,328 and $11,265 for the three months ended June 30, 2020 and 2019, respectively.

 

Depreciation expense was $22,656 and $22,529 for the six months ended June 30, 2020 and 2019, respectively. 

  13  
 

 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

note f – shareholders’ equity

 

COMMON STOCK

 

On June 9, 2020, the Company issued to 350,000 shares of its common stock to employees at $0.028 per share, or $9,800, for services rendered. The Company valued these common shares based on the fair value at the date of grant.

 

On June 9, 2020, the Company issued 7,700,000 shares of its common stock to our Chief Executive Officer in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella reduced his accrued salary in the amount of $77,000 for the exercise of options.

 

On June 9, 2020, the Company issued 1,000,000 shares of its common stock to Raynard Veldman, a member of the Company’s board of directors in connection with the exercise of a stock option at an exercise price of $0.01. Mr. Veldman reduced his accrued consulting and Board of Director fees in the amount of $10,000 for the exercise of options.

 

On June 9, 2020, the Company issued 700,000 shares of its common stock to an outside consultant in connection with the exercise of a stock option at an exercise price of $0.01. The consultant agreed to reduce her payable in the amount of $7,000 for the exercise of options.

 

On June 9, 2020, the Company issued 165,000 shares of its common stock to two employees in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $1,650 for the exercise of options.

 

On June 9, 2020, the Company issued 3,800,000 shares of its common stock to a related party in connection with the exercise of a stock option at an exercise price of $0.01. Mr. DiBella agreed reduce his accrued salary in the amount of $3,000 for the exercise of options and an outside consultant agreed to reduce her payable in the amount of $35,000 for the exercise of options.

 

Options

 

The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a share award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model.

 

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method for employees and officers.

 

  14  
 

On June 9, 2020, our Chief Executive Officer exercised 7,700,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $77,000 for the exercise of options.

 

On June 9, 2020, Raynard Veldman, a member of the Company’s board of directors exercised 1,000,000 stock options at an exercise price of $0.01 per share. Mr. Veldman agreed to reduce his accrued consulting fees in the amount of $10,000 for the exercise of options.

 

On June 9, 2020, an outside consultant exercised 700,000 stock options at an exercise price of $0.01 per share. The consultant agreed to reduce the payables due in the amount of $7,000 for the exercise of options. In addition, a related party exercised 3,800,000 stock options at an exercise price of $0.01 per share. The consultant agreed to reduce the payables due in the amount of $35,000 for the exercise of options for the related party. In addition, Mr. DiBella agreed to reduce his accrued salary in the amount of $3,000 for the exercise of options for the related party.

 

On June 9, 2020, two employees exercised 165,000 stock options at an exercise price of $0.01 per share. Mr. DiBella agreed to reduce his accrued salary in the amount of $1,650 for the exercise of options for these three employees.

 

Information with respect to options outstanding and exercisable at June 30, 2020 is as follows:

 

Number

Outstanding

Exercise

Price

Number

Exercisable

Balance, December 31, 2019 13,465,000 $0.01 13,465,000
Issued - - -
Expired - - -
Exercised (13,365,000) $0.01 (13,365,000)
Forfeited - - -
Balance, June 30, 2020 100,000 $0.01 100,000

 

Exercise

Price

Number
Outstanding at
June 30, 2020 		Weighted
Average
Remaining
Contractual Life 		Weighted
Average
Exercise Price 		Number
Exercisable at
June 30, 2020 		Weighted
Average
Exercise Price
0.01 100,000 3.38 0.01 100,000 0.01
Total 100,000 - - 100,000 -

 

The aggregate intrinsic value represents the excess amount over the exercise price optionees would have received if all the options have been exercised on the last business day of the period indicated based on the Company’s closing stock price of for such day. The aggregate intrinsic value as of June 30, 2020 is $1,490. 

 

  15  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

NOTE G – COMMITMENTS AND CONTINGENCIES

 

LOAN PAYABLE

 

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

 

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

 

    June 30, 2020   December 31, 2019
     
Loan payable   $ 111,971     $ —    
 Less: current portion     (46,752 )     —    
Long-term loan payable   $ 65,219     $ —    

 

On May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. The Company recognized the grant as other income during the six months ended June 30, 2020.

 

EQUIPMENT NOTE PAYABLE

 

In July 2017, the Company entered into a financing agreement for the purchase of CNC machining equipment valued at approximately $426,000. The machining equipment was received in July 2017 and is used for the manufacture of Voraxial and V-Inline Separators, as well as for the manufacturing of high precision parts for customers. Under the terms of the agreement the Company made an initial down payment of $85,661 and financed the remaining balance of $340,644. The Company is required to make monthly payments of $6,788 through January 2023. As of June 30, 2020, and December 31, 2019, the amount owed is $192,608 and $226,172 respectively.

 

    June 30, 2020   December 31, 2019
     
 Equipment note payable   $ 192,608     $ 226,172  
Less: current portion     (70,613 )     (68,276 )
 Long-term equipment note payable   $ 121,995     $ 157,896  

 

Litigation

 

On or about October 23, 2017, a claim was filed in the 17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company. The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and damages. We are defending the case vigorously.

 

SALE OF INTELLECTUAL PROPERTY

 

On June 8, 2017, the Company and FPA, our wholly owned subsidiary, closed the transactions contemplated by  

 

  16  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

 

the Technology Purchase Agreement dated March 13, 2017 with Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a Canadian entity, and Schlumberger B.V., an entity organized under the laws of the Netherlands (collectively, “Schlumberger”).

 

At closing, we sold our intellectual property (the “Purchased Intellectual Property”), substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger in consideration of up to $4,000,000, of which $3,000,000 was paid to us at closing and the balance of $1,000,000 was paid in August 2019 upon satisfaction of certain post-closing conditions.

 

We utilized a portion of the proceeds from this transaction to pay most of our outstanding debt and are using the balance for general working capital. We used some of the proceeds to buy additional manufacturing equipment to meet potential future sales.

 

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

 

In addition, at closing FPA entered into a Framework Agreement (the “Supply Agreement”) with Cameron Solutions, Inc. (“Cameron Solutions”), a Houston, Texas-based company engaged in the development, manufacture and sale of equipment used in the oil and gas industry. The Supply Agreement expired in June 2020. As we did not generate significant revenues from this agreement, we did not pursue Cameron for an extension under the original terms. However, we have had discussions to develop a new agreement. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020.

 

For a period of three years following the closing of the Technology Purchase Agreement, which expired in June 2020, the Company and Raynard Veldman and John Di Bella have agreed to not participate or cause participation in the oil-and-gas market in relation to phase or constituent sensing or separation which is defined as, liquid-liquid, liquid-solid or liquid-gas separation and gas or liquid sensing, including all product lines and services related thereto and including the Voraxial product line and services, except to the extent necessary to: (i) repair or service, but not remanufacture, any goods the Company sold to third persons prior to closing; (ii) fulfill, on or after closing, any customer obligation; or (iii) comply with any term or condition of the Agreement. In addition, the Company shall take all reasonable measures to ensure the confidentiality and prevent the improper use of all trade secrets. As the term has expired, the Company may review opportunities in the oil and gas industry.

 

NOTE H - LEASE

 

In December 2018, 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 $4,839 per month, which includes common area maintenance, taxes and insurance and expires in October 2021. The lease has a one-time renewal option for three years and an increased base rent of 3%. The Company has the option to terminate the lease with three months’ notice. The Company accounts for lease in accordance with ASC Topic 842. For the three months and six months ended June 30, 2020 and 2019, the total lease cost was approximately $14,700 and $29,400, respectively which included variable cost of approximately $4,500 and $9,000 respectively. For the six months ended June 30, 2020 and 2019, cash paid for operating liabilities was approximately $24,000 and $29,000, respectively.

 

    June 30, 2020   December 31, 2019
     
Operating lease liability   $ 221,914     $ 243,039  
 Less: current portion     (44,444 )     (42,973 )
Long-term operating lease liability   $ 177,470     $ 200,066  

 

  17  
 

ENVIRO TECHNOLOGIES, INC. AND SUBSIDIARY 

Notes to Condensed Consolidated Financial Statements  

JUNE 30, 2020 

(unaudited) 

  

NOTE I – MAJOR CUSTOMERS

 

During the six months ended June 30, 2020, we recorded 72% of our revenue from two customers, with each representing 60% and 12% of total revenues.

 

During the three months ended June 30, 2020, we recorded 86% of our revenue from two customers, with each representing 73% and 13% of total revenues.

 

During the three and six months ended June 30, 2019, we recorded 100% and 98% of our revenue from one customer.

 

As of June 30, 2020, three of the Company’s customers represents 62%, 15% and 11%, respectively, of the total accounts receivable.

 

As of December 31, 2019, one of the Company’s customers represents 99% of the total accounts receivables.

 

NOTE M – SUBSEQUENT EVENTS

 

On June 23, 2020, FPA executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the Covid-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement, the principal amount of the EIDL Loan is up to $150,000, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If FPA does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA will lose the ability to draw the funds. On July 16, 2020, the Company has requested $150,000 in disbursements under the EIDL Loan. The funds were received on July 20, 2020. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning June 23, 2021 (12 months from the date of the SBA note) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA Note. In connection therewith, FPA executed (i) a note for the benefit of the SBA, which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of FPA, which also contains customary events of default.

 

  18  
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Historically, our business was the development, manufacture and sale of the Voraxial® Separator, proprietary technology now owned by Schlumberger that efficiently separates large volumes of liquid/liquid, liquid/solids or liquid/liquid/solids fluid mixtures with distinct specific gravities. As described earlier in this report, in March 2017 we entered into a Technology Purchase Agreement with Schlumberger pursuant to which we sold our intellectual property, substantially consisting of the Voraxial patents, marks, software and copyrights, to Schlumberger. In addition, pursuant to the Technology Purchase Agreement FPA entered into a three year Supply Agreement with Cameron Solutions, Inc. which expired in June 2020. We have had discussions to develop a new agreement; however there is no assurances that a new agreement will be finalized. The Company’s non-compete agreement in the oil and gas industry also expired in June 2020. Without a Supply Agreement, we will have to redevelop our relationships with customers in the oil and gas industry to generate revenues from this industry. Regardless of our ability to negotiate a new Supply Agreement, the oil industry will potentially be challenging as the price of oil futures reached a negative $40 per barrel in 2020. Further, with the current economic landscape defined by the COVID19 virus, sales in 2020 may continue to suffer. We plan to continue to support Schlumberger under new terms on a per project basis.

 

Under the Technology Purchase Agreement, we were also granted a Grant Back License to market the technology into other markets outside of the oil and gas market which we plan to pursue. We have branded our licensed products as V-Inline.

 

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

 

The benefits of the V-Inline Separator include:

 

  - High volume / small footprint

 

  - No Pressure drop requirement

 

  - High G force

 

  - Treats a wide range of flows, even slugging flows

 

  - Handles fluctuation in flow rates without any adjustments

 

  - Handles fluctuation in contaminates without any adjustments

 

  - Separation of 2 or 3 components simultaneously

 

  - Non-clogging - open rotor assembly

 

  - Low maintenance with ease of operation and installation

 

  - Can operate dry

 

  - Since there is no pressure drop, there is very little wear caused by sand

 

Manufacturing

 

With the softening for high end capital expenditures projects in markets that can utilize the Voraxial and V-Inline  

  19  
 

separator, we are exploring leveraging our manufacturing capabilities to pursue high precision manufacturing projects. Further, we designed our version of a face shield which we manufactured and sold during the quarter ended June 30, 2020 to the medical industry and general public. Although we achieved 63% of our revenues in the quarter ended June 30, 2020 from the sale of face shields, we do not anticipate this market opportunity to continue as the supply chain and margins are challenging with many companies entering this market. We continue to market our manufacturing capabilities.

 

Impact of Covid-19 on our Company

 

As described elsewhere herein, we are materially dependent on revenues from a limited number of customers. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including our industry.

 

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we eliminated non-essential travel, and altered work schedules at our manufacturing facility. In addition, our senior management began working remotely. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began.

 

Even before the “stay at home” order was issued, we were experiencing a significant decline in orders from our customers because of disruptions in our customers’ businesses as a result of the Covid-19 pandemic. In addition, as a result of our historic concentration on sales to customers in the oil and gas industry, the decline in oil prices has had a materially adverse impact our sales beginning with the first quarter of 2020 and continuing through the second quarter of 2020. During the first six months of 2020 we experienced a slowdown from customer’s inquiries in all industries and we expect that trend to continue until such time as the full impact of the virus is known, travel restrictions are lifted and corporate capital expenditures are normalized. We also expect delays in our supply chain, including delivery of raw materials and component products as companies throughout the country are affected by local quarantines and disruptions.

 

While we are able to continue operations as a non-consumer facing company that can fulfill shipments with a minimal staff that can maintain social distancing, we have reduced manufacturing hours. Our senior management are working remotely, and we have curtailed non-essential travel, and are seeking alternative strategies for the continuation of our company.

 

While the foregoing are some of the immediate impacts we are witnessing, this list is not exhaustive and we are unable to predict the overall impact on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not know if we have sufficient access to working capital from historic sources to continue as a going concern. Our senior management will continue to monitor our situation on a daily basis. However, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future.

 

Results of Operations for the Three Months and Six Months ended June 30, 2020 and 2019:

 

Revenue

 

Our revenues decreased by approximately 85% and approximately 82%, respectively, for the three and six months ended June 30, 2020 from the comparable periods in 2019. Our revenues have been dependent in the past few years on sales to Schlumberger and our ability to develop a consistent sales channel for the V-Inline Separators. As discussed earlier in this report, we believe that our revenues for the three months ended June 30, 2020 were adversely impacted by the Covid-19 pandemic and the attendant significant drop in oil prices. Even once the effects of the pandemic on our business subsides, which at this moment we do not know when this may occur, it may take longer than expected for business in our target markets to resume normal operations. Accordingly, at this time we are unable to predict the ultimate impact to our revenues for the remaining 2020. We continue to try to leverage our manufacturing capabilities by exploring different opportunities, such as high precision manufacturing and manufacturing of face shields. In the three and six months ended June 30, 2020, we derived 

  20  
 

76% and 63%, respectively, of our revenues from the sale of face shields to the medical industry and general public. We do not expect additional sales of face shields as the supply chain and margins proved to be challenging.

 

The majority of revenues in the second quarter and first six months of 2020 were a result of high precision manufacturing for our customers and the sale of face shields. The majority of our sales in the second quarter and first six months of 2019 were a result of Voraxial sales and sales of auxiliary equipment and parts

 

Cost of Goods

 

Our cost of goods decreased by approximately 86% for each of the second quarter and first six months of 2020 from the comparable periods 2019. This decrease is mainly due to the significant decline in revenues and shift in revenues to manufacturing high precision components and face shields we experienced during the three and six months ended June 30, 2020 as compared to Voraxial Separator in 2019. Our cost of goods continues to be reviewed by management in effort to obtain the best available pricing while maintaining high quality standards.

 

Costs and Expenses

 

Total costs and expenses increased by approximately 13% and approximately 11%, respectively, for the second quarter and first six months of 2020 from the comparable periods 2019. Included in this increase was an increase in general and administrative expenses, including increases in insurance which reflects the commencement of paid health benefits for our employees in July 2019, and repair and maintenance, which reflects basic manufacturing upkeep. In addition, payroll expense increased during the 2020 periods as compared to the 2019 periods as we experienced a higher absorption costs into our manufacturing activities of Voraxial Separator in 2019 which was offset by a non-cash expense for issuance of stock to our employees in 2020. Professional fees decreased as we continue to minimize expenses.

 

TOTAL OTHER INCOME (EXPENSE)

 

During the second quarter of 2020 we received a $8,000 grant from the Small Business Association for working capital which is reflected as other income during the period. We did not have comparable income during the 2019 period. Interest expense represents the amounts due under the financing agreement for the CNC machine.

 

Liquidity and Capital Resources:

 

Cash at June 30, 2020 was $507,709 as compared to $674,844 at December 31, 2019. Our working capital deficit at June 30, 2020 was $391,364 as compared to a working capital deficit at December 31, 2019 of $38,544. At June 30, 2020, we had an accumulated deficit of $15,433,327. Our current assets decreased by 39% at June 30, 2020 as compared to December 31, 2019, which reflects decreases in cash, accounts receivables and prepaid expenses offset by increases in our inventory. Our current liabilities decreased by 7% at June 30, 2020 as compared to December 31, 2019, which reflects a decrease in accounts payable and accrued expenses and accrued expenses – related party, offset by the note payable issued during the quarter.

 

We do not have any external sources of liquidity and we do not have any capital commitments. On May 4, 2020, FPA received a $111,971 PPP Loan as described in Note G to the unaudited condensed consolidated financial statements appearing earlier in this report. We are using the proceeds from the PPP Loan for qualifying expenses under the CARES Act. In addition, on May 5, 2020, FPA also received an $8,000 grant from the U.S. Small Business Administration. We are using those proceeds for working capital. Lastly, in July, 2020 FPA also received a $150,000 EIDL Loan from the SBA at a per annum interest rate of 3.75%. Installment payments, including principal and interest, of $731.00 monthly, will begin 12 months from the date of the promissory note. The proceeds from the EIDL Loan may be used for our general operating expenses.

 

  21  
 

Summary of cash flows

 

The following table summarizes our cash flows: 

 

    Six Months Ended
June 30,
    2020     2019
    (Unaudited)
Cash flow data:              
Net cash (used) in operating activities $ (240,975 )   $ (604,444 )
Net cash (used) in investing activities $ (5,067 )   $ —    
Net cash (used in) provided by financing activities $ 78,407     $ (31,379 )

 

Net cash used in operating activities in the six months ended June 30, 2020 was primarily attributable to our net loss for the period, increase in inventory and decrease in accounts payable and accrued expenses. These were offset by decreases in accounts receivable and accrued expenses- related parties.

 

Net cash used in operating activities in the six months ended June 30, 2019 was primarily attributable to our net loss for the period, a decrease in accrued expenses – related party and increases in inventory and prepaid expenses offset in part by an increase in deposit from customer. Increase in deposit from customer is primarily attributable to deposit received on a purchase order we received from a utility company.

 

Net cash used in investing activities during six months ended June 30, 2020 was attributable to the purchase of equipment. We did not have a comparable expense in the 2019 period.

 

Net cash provided by financing activities during the six months ended June 30, 2020 was primarily attributable to proceeds from the PPP loan offset by the repayment of the equipment note payable. Net cash used in financing activities during the 2019 period reflected the repayment of the equipment note payable.

 

Continuing Losses and Going Concern

 

As a result of the uncertainties facing our company as discussed elsewhere in this report, including the impact of the Covid-19 pandemic, we are unable to predict the overall impact in 2020 and beyond on our company at this time. Our loss of revenues will materially impact our liquidity, and we do not expect to be able to access the capital markets for additional working capital in the near future. Our senior management will continue to monitor our situation on a daily basis, however, we expect that these factors and others we have yet to experience will materially adversely impact our company, its business and operations for the foreseeable future. Our management has also begun exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. We are not currently a party to any agreement or understandings with any third parties, and there are no assurances even if our management locates an opportunity which it believes will be in the best interests of our shareholders what we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.

 

Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on a number of factors, many of which are beyond our control. Our independent auditors have included in their audit report included in our 2019 10-K an explanatory paragraph that states that our working capital deficits and accumulated deficit raises substantial doubt about our ability to continue as a going concern. If we fail to achieve profitability on a quarterly or annual basis, or to raise additional funds when needed, or do not have sufficient cash flows from sales, we may be required to scale back or cease operations, sell or liquidate our assets and possibly seek bankruptcy protection. As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

Application of Critical Accounting Policies

 

The Company’s condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain accounting policies have a  

  22  
 

significant impact on amounts reported in the financial statements. A summary of these significant accounting policies can be found in Note C to the Company’s financial statements in the Company’s 2019 10-K.  Among the significant judgments made in preparation of the Company’s financial statements are the determination of the allowance for doubtful accounts, value of equity instruments and adjustments of inventory valuations. These adjustments are made each quarter in the ordinary course of accounting.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable to smaller reporting company.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer who also serves as our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2020. Based upon continuing material weakness in the Company’s internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2019, our management concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

 

We will continue to monitor our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added additional personnel, including additional accounting and administrative staff, allowing improved internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

  23  
 

PART II.      OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On or about October 23, 2017, a claim was filed in the 17th Judicial Circuit Court in and for Broward County in Fort Lauderdale, Florida, by the plaintiff, Industrial and Oilfield Procurement Services, LLC, against our company.  The case involves an alleged breach of contract between the parties relating to the purchase and sale of a Voraxial unit in 2015. The plaintiff has demanded a refund and damages. We are defending this action, as we believe this claim is without merit.

 

Item 1A. Risk Factors

 

We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2019 Form 10-K, and our subsequent filings with the SEC, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings. We expect that these risks will continue to be exacerbated by the impact of the Covid-19 pandemic on our company and any worsening of the economic environment.

 

Our loan under the Paycheck Protection Program may not be forgiven.

 

We have received loan proceeds in the amount of approximately $111,971 under the PPP. Under the terms of the CARES Act, PPP loan recipients can apply for loan forgiveness. The potential loan forgiveness for all or a portion of the PPP Loan is determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The amount of loan forgiveness will be reduced if PPP loan recipients terminate employees or reduce salaries during the covered period. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loan, there can be no assurance that forgiveness for any portion of the PPP Loan will be obtained.

 

We have granted the SBA a blanket security interest in our assets under the terms of the EIDL Loan.

 

Under the terms of the EIDL Loan, FPA granted the SBA in blanket security interest in its assets which represent substantially all of our assets. In the event we should default under the EIDL Loan it is possible that the SBA may foreclose on all our assets. In that event, our ability to continue our business and operations as presently conducted would cease and investors would likely loose their entire investment in our company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On June 9, 2020, the Company issued 350,000 shares of its common stock to five employees at $0.028 per share, or $9,800, for services rendered. The shares were issued pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended.  The shares contain a legend restricting their transferability absent registration or applicable exemption. The employees are sophisticated investors and had access to business and financial information concerning the company.

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable to our company.

 

Item 5. Other Information

 

On June 23, 2020, FPA executed the standard loan documents required for securing a $150,000 EIDL Loan from the SBA. Pursuant to that certain Loan Authorization and Agreement, with proceeds to be used for working capital purposes. The EIDL Loan requires all requests for disbursements be made by December 23, 2020 (six months after the date of the EIDL Loan), unless the SBA, in its sole discretion, extends the disbursement period. If the Company does not request disbursements by such date, the EIDL Loan commitment will terminate and FPA

  24  
 

will lose the ability to draw the funds. On July 16, FPA has accepted to receive the loan amount of $150,000 under the EIDL Loan. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning July 16, 2021 (12 months from the date of the SBA note) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA note. In connection therewith, FPA executed (i) a note for the benefit of the SBA which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of FPA, which also contains customary events of default.

 

Item 6. Exhibits

 

 

Incorporated by Reference Filed or
No. Exhibit Description Form Date Filed

Exhibit

Number

Furnished

Herewith

2 Agreement and Plan of Reorganization Form 10 11/03/99 2
3(i) Articles of Incorporation Form 10 11/03/99 3(i)
3(ii) Bylaws Form 10 11/03/99 3(ii)
3(iii) Articles of Amendment to the Articles of Incorporation 8-K 11/13/17 3.2
10.1 Note dated May 4, 2020 by and between Florida Precision Aerospace, Inc. and Bank of America 8-K 5/14/20 10.1
10.2 Loan Authorization and Agreement dated June 23, 2020 Filed
31.1 Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer Filed
31.2 Rule 13a-14(a)/15d-4(a) Certification of Chief Financial Officer Filed
32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer Filed
101.INS XBRL Instance Document Filed
101.SCH XBRL Taxonomy Extension Schema Document Filed
101.CAL XBRL Taxonomy Calculation Linkbase Document Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed

 

  

  25  
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned as a duly authorized.

 

Enviro Technologies, Inc.
     
By: /s/ John A. Di Bella
John A. Di Bella
Chief Executive Officer and Chief Financial Officer

  

 

DATED: August 14, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  26  

 

Exhibit 10.2

 

LOAN AUTHORIZATION AND AGREEMENT (LA&A)

A PROPERLY SIGNED DOCUMENT IS

REQUIRED PRIOR TO ANY DISBURSEMENT

CAREFULLY READ THE LA&A:  
This document describes the terms and conditions of your loan. It is your responsibility to comply with ALL the terms and conditions of your loan.
     

SIGNING THE LA&A:
All borrowers must sign the LA&A.
     
· Sign your name exactly as it appears on the LA&A. If typed incorrectly, you should sign with the correct spelling.
· If your middle initial appears on the signature line, sign with your middle initial.
· If a suffix appears on the signature line, such as Sr. or Jr., sign with your suffix.
· Corporate Signatories: Authorized representatives should sign the signature page.
     
Your signature represents your agreement to comply with the terms and conditions of the loan.

 

   
 

 

U.S. Small Business Administration

Economic Injury Disaster Loan

LOAN AUTHORIZATION AND AGREEMENT

Date: 06.23.2020 (Effective Date)

On the above date, this Administration (SBA) authorized (under Section 7(b) of the Small Business Act, as amended) a Loan (SBA Loan #XXX) to Florida Precision Aerospace, Inc. (Borrower) of 821 NW 57 Place Fort Lauderdale Florida 33309 in the amount of one hundred and fifty thousand and 00/100 Dollars ($150,000.00), upon the following conditions:

PAYMENT
· Installment payments, including principal and interest, of $731.00 Monthly, will begin Twelve (12) months from the date of the promissory Note. The balance of principal and interest will be payable Thirty (30) years from the date of the promissory Note.

 

INTEREST
· Interest will accrue at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date(s) of each advance.

 

PAYMENT TERMS

· Each payment will be applied first to interest accrued to the date of receipt of each payment, and the balance, if any, will be applied to principal.
· Each payment will be made when due even if at that time the full amount of the Loan has not yet been advanced or the authorized amount of the Loan has been reduced.

 

COLLATERAL
· For loan amounts of greater than $25,000, Borrower hereby grants to SBA, the secured party hereunder, a continuing security interest in and to any and all “Collateral” as described herein to secure payment and performance of all debts, liabilities and obligations of Borrower to SBA hereunder without limitation, including but not limited to all interest, other fees and expenses (all hereinafter called “Obligations”). The Collateral includes the following property that Borrower now owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest Borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the Collateral, all products, proceeds and collections thereof and all records and data relating thereto.
· For loan amounts of $25,000 or less, SBA is not taking a security interest in any collateral.
  Page 2 of 11  
 

REQUIREMENTS RELATIVE TO COLLATERAL

· Borrower will not sell or transfer any collateral (except normal inventory turnover in the ordinary course of business) described in the "Collateral" paragraph hereof without the prior written consent of SBA.

 

USE OF LOAN PROCEEDS

· Borrower will use all the proceeds of this Loan solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter and to pay Uniform Commercial Code (UCC) lien filing fees and a third-party UCC handling charge of $100 which will be deducted from the Loan amount stated above.

REQUIREMENTS FOR USE OF LOAN PROCEEDS AND RECEIPTS

· Borrower will obtain and itemize receipts (paid receipts, paid invoices or cancelled checks) and contracts for all Loan funds spent and retain these receipts for 3 years from the date of the final disbursement. Prior to each subsequent disbursement (if any) and whenever requested by SBA, Borrower will submit to SBA such itemization together with copies of the receipts.
· Borrower will not use, directly or indirectly, any portion of the proceeds of this Loan to relocate without the prior written permission of SBA. The law prohibits the use of any portion of the proceeds of this Loan for voluntary relocation from the business area in which the disaster occurred. To request SBA's prior written permission to relocate, Borrower will present to SBA the reasons therefore and a description or address of the relocation site. Determinations of (1) whether a relocation is voluntary or otherwise, and (2) whether any site other than the disaster-affected location is within the business area in which the disaster occurred, will be made solely by SBA.
· Borrower will, to the extent feasible, purchase only American-made equipment and products with the proceeds of this Loan.
· Borrower will make any request for a loan increase for additional disaster-related damages as soon as possible after the need for a loan increase is discovered. The SBA will not consider a request for a loan increase received more than two (2) years from the date of loan approval unless, in the sole discretion of the SBA, there are extraordinary and unforeseeable circumstances beyond the control of the borrower.

 

DEADLINE FOR RETURN OF LOAN CLOSING DOCUMENTS

· Borrower will sign and return the loan closing documents to SBA within 2 months of the date of this Loan Authorization and Agreement. By notifying the Borrower in writing, SBA may cancel this Loan if the Borrower fails to meet this requirement. The Borrower may submit and the SBA may, in its sole discretion, accept documents after 2 months of the date of this Loan Authorization and Agreement.

 

COMPENSATION FROM OTHER SOURCES

· Eligibility for this disaster Loan is limited to disaster losses that are not compensated by other sources. Other sources include but are not limited to: (1) proceeds of policies of insurance or other indemnifications, (2) grants or other reimbursement (including loans) from government agencies or private organizations, (3) claims for civil liability against other individuals, organizations or governmental entities, and (4) salvage (including any sale or re-use) of items of damaged property.

 

  Page 3 of 11  
 

   

 

 

· Borrower will promptly notify SBA of the existence and status of any claim or application for such other compensation, and of the receipt of any such compensation, and Borrower will promptly submit the proceeds of same (not exceeding the outstanding balance of this Loan) to SBA.

 

· Borrower hereby assigns to SBA the proceeds of any such compensation from other sources and authorizes the payor of same to deliver said proceeds to SBA at such time and place as SBA shall designate.
· SBA will in its sole discretion determine whether any such compensation from other sources is a duplication of benefits. SBA will use the proceeds of any such duplication to reduce the outstanding balance of this Loan, and Borrower agrees that such proceeds will not be applied in lieu of scheduled payments.

 

DUTY TO MAINTAIN HAZARD INSURANCE

· Within 12 months from the date of this Loan Authorization and Agreement the Borrower will provide proof of an active and in effect hazard insurance policy including fire, lightning, and extended coverage on all items used to secure this loan to at least 80% of the insurable value. Borrower will not cancel such coverage and will maintain such coverage throughout the entire term of this Loan. BORROWER MAY NOT BE ELIGIBLE FOR EITHER ANY FUTURE DISASTER ASSISTANCE OR SBA FINANCIAL ASSISTANCE IF THIS INSURANCE IS NOT MAINTAINED AS STIPULATED HEREIN THROUGHOUT THE ENTIRE TERM OF THIS LOAN. Please submit proof of insurance to: U.S. Small Business Administration, Office of Disaster Assistance, 14925 Kingsport Rd, Fort Worth, TX. 76155.

 

BOOKS AND RECORDS

· Borrower will maintain current and proper books of account in a manner satisfactory to SBA for the most recent 5 years until 3 years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first. Such books will include Borrower's financial and operating statements, insurance policies, tax returns and related filings, records of earnings distributed and dividends paid and records of compensation to officers, directors, holders of 10% or more of Borrower's capital stock, members, partners and proprietors.
· Borrower authorizes SBA to make or cause to be made, at Borrower's expense and in such a manner and at such times as SBA may require: (1) inspections and audits of any books, records and paper in the custody or control of Borrower or others relating to Borrower's financial or business conditions, including the making of copies thereof and extracts therefrom, and (2) inspections and appraisals of any of Borrower's assets.
· Borrower will furnish to SBA, not later than 3 months following the expiration of Borrower's fiscal year and in such form as SBA may require, Borrower's financial statements.
· Upon written request of SBA, Borrower will accompany such statements with an 'Accountant's Review Report' prepared by an independent public accountant at Borrower's expense.
· Borrower authorizes all Federal, State and municipal authorities to furnish reports of examination, records and other information relating to the conditions and affairs of Borrower and any desired information from such reports, returns, files, and records of such authorities upon request of SBA.

 

 

  Page 4 of 11  
 

LIMITS ON DISTRIBUTION OF ASSETS

· Borrower will not, without the prior written consent of SBA, make any distribution of Borrower’s assets, or give any preferential treatment, make any advance, directly or indirectly, by way of loan, gift, bonus, or otherwise, to any owner or partner or any of its employees, or to any company directly or indirectly controlling or affiliated with or controlled by Borrower, or any other company.

 

EQUAL OPPORTUNITY REQUIREMENT

· If Borrower has or intends to have employees, Borrower will post SBA Form 722, Equal Opportunity Poster (copy attached), in Borrower's place of business where it will be clearly visible to employees, applicants for employment, and the general public.

 

DISCLOSURE OF LOBBYING ACTIVITIES

· Borrower agrees to the attached Certification Regarding Lobbying Activities

 

BORROWER’S CERTIFICATIONS

Borrower certifies that: 

· There has been no substantial adverse change in Borrower's financial condition (and organization, in case of a business borrower) since the date of the application for this Loan. (Adverse changes include, but are not limited to: judgment liens, tax liens, mechanic's liens, bankruptcy, financial reverses, arrest or conviction of felony, etc.)
· No fees have been paid, directly or indirectly, to any representative (attorney, accountant, etc.) for services provided or to be provided in connection with applying for or closing this Loan, other than those reported on SBA Form 5 Business Disaster Loan Application'; SBA Form 3501 COVID-19 Economic Injury Disaster Loan Application; or SBA Form 159, 'Compensation Agreement'. All fees not approved by SBA are prohibited.
· All representations in the Borrower's Loan application (including all supplementary submissions) are true, correct and complete and are offered to induce SBA to make this Loan.
· No claim or application for any other compensation for disaster losses has been submitted to or requested of any source, and no such other compensation has been received, other than that which Borrower has fully disclosed to SBA.
· Neither the Borrower nor, if the Borrower is a business, any principal who owns at least 50% of the Borrower, is delinquent more than 60 days under the terms of any: (a) administrative order; (b) court order; or (c) repayment agreement that requires payment of child support.
· Borrower certifies that no fees have been paid, directly or indirectly, to any representative (attorney, accountant, etc.) for services provided or to be provided in connection with applying for or closing this Loan, other than those reported on the Loan Application. All fees not approved by SBA are prohibited. If an Applicant chooses to employ an Agent, the compensation an Agent charges to and that is paid by the Applicant must bear a necessary and reasonable relationship to the services actually performed and must be comparable to those charged by other Agents in the geographical area. Compensation cannot be contingent on loan approval. In addition, compensation must not include any expenses which are deemed by SBA to be unreasonable for services actually performed or expenses actually incurred. Compensation must not include
  Page 5 of 11  
 

 

charges prohibited in 13 CFR 103 or SOP 50-30, Appendix 1. If the compensation exceeds $500 for a disaster home loan or $2,500 for a disaster business loan, Borrower must fill out the Compensation Agreement Form 159D which will be provided for Borrower upon request or can be found on the SBA website.
· Borrower certifies, to the best of its, his or her knowledge and belief, that the certifications and representations in the attached Certification Regarding Lobbying are true, correct and complete and are offered to induce SBA to make this Loan.


CIVIL AND CRIMINAL PENALTIES

· Whoever wrongfully misapplies the proceeds of an SBA disaster loan shall be civilly liable to the Administrator in an amount equal to one-and-one half times the original principal amount of the loan under 15 U.S.C. 636(b). In addition, any false statement or misrepresentation to SBA may result in criminal, civil or administrative sanctions including, but not limited to: 1) fines, imprisonment or both, under 15 U.S.C. 645, 18 U.S.C. 1001, 18 U.S.C. 1014, 18 U.S.C. 1040, 18 U.S.C. 3571, and any other applicable laws; 2) treble damages and civil penalties under the False Claims Act, 31 U.S.C. 3729; 3) double damages and civil penalties under the Program Fraud Civil Remedies Act, 31 U.S.C. 3802; and 4) suspension and/or debarment from all Federal procurement and non-procurement transactions. Statutory fines may increase if amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

 

RESULT OF VIOLATION OF THIS LOAN AUTHORIZATION AND AGREEMENT

· If Borrower violates any of the terms or conditions of this Loan Authorization and Agreement, the Loan will be in default and SBA may declare all or any part of the indebtedness immediately due and payable. SBA's failure to exercise its rights under this paragraph will not constitute a waiver.
· A default (or any violation of any of the terms and conditions) of any SBA Loan(s) to Borrower and/or its affiliates will be considered a default of all such Loan(s).


DISBURSEMENT OF THE LOAN

· Disbursements will be made by and at the discretion of SBA Counsel, in accordance with this Loan Authorization and Agreement and the general requirements of SBA.

 

· Disbursements may be made in increments as needed.

 

· Other conditions may be imposed by SBA pursuant to general requirements of SBA.

 

· Disbursement may be withheld if, in SBA's sole discretion, there has been an adverse change in Borrower's financial condition or in any other material fact represented in the Loan application, or if Borrower fails to meet any of the terms or conditions of this Loan Authorization and Agreement.

 

· NO DISBURSEMENT WILL BE MADE LATER THAN 6 MONTHS FROM THE DATE OF THIS LOAN AUTHORIZATION AND AGREEMENT UNLESS SBA, IN ITS SOLE DISCRETION, EXTENDS THIS DISBURSEMENT PERIOD.
  Page 6 of 11  
 

PARTIES AFFECTED

· This Loan Authorization and Agreement will be binding upon Borrower and Borrower's successors and assigns and will inure to the benefit of SBA and its successors and assigns.

 

RESOLUTION OF BOARD OF DIRECTORS

· Borrower shall, within 180 days of receiving any disbursement of this Loan, submit the appropriate SBA Certificate and/or Resolution to the U.S. Small Business Administration, Office of Disaster Assistance, 14925 Kingsport Rd, Fort Worth, TX. 76155.

 

ENFORCEABILITY
· This Loan Authorization and Agreement is legally binding, enforceable and approved upon Borrower’s signature, the SBA’s approval and the Loan Proceeds being issued to Borrower by a government issued check or by electronic debit of the Loan Proceeds to Borrower’ banking account provided by Borrower in application for this Loan.

     
     
     
   

James E. Rivera

Associate Administrator

U.S. Small Business Administration

 

 

The undersigned agree(s) to be bound by the terms and conditions herein during the term of this Loan, and further agree(s) that no provision stated herein will be waived without prior written consent of SBA. Under penalty of perjury of the United States of America, I hereby certify that I am authorized to apply for and obtain a disaster loan on behalf of Borrower, in connection with the effects of the COVID-19 emergency.

Florida Precision Aerospace, Inc.    
     
   
Carlos Sanchez, Owner/Officer   Date: 06.23.2020  
     
Note: Corporate Borrowers must execute Loan Authorization and Agreement in corporate name, by a duly authorized officer. Partnership Borrowers must execute in firm name, together with signature of a general partner. Limited Liability entities must execute in the entity name by the signature of the authorized managing person.

  Page 7 of 11  
 

CERTIFICATION REGARDING LOBBYING

For loans over $150,000, Congress requires recipients to agree to the following:

1. Appropriated funds may NOT be used for lobbying.
2. Payment of non-federal funds for lobbying must be reported on Form SF-LLL.
3. Language of this certification must be incorporated into all contracts and subcontracts exceeding $100,000.
4. All contractors and subcontractors with contracts exceeding $100,000 are required to certify and disclose accordingly.
  Page 8 of 11  
 

CERTIFICATION REGARDING LOBBYING

Certification for Contracts, Grants, Loans, and Cooperative Agreements

 

Borrower and all Guarantors (if any) certify, to the best of its, his or her knowledge and belief, that:

(1)          No Federal appropriated funds have been paid or will be paid, by or on behalf of the undersigned, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, or modification of any Federal contract, grant, loan, or cooperative agreement.

(2)          If any funds other than Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this Federal loan, the undersigned shall complete and submit Standard Form LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions.

(3)          The undersigned shall require that the language of this certification be included in the award documents for all sub-awards at all tiers (including subcontracts, sub-grants, and contracts under grants, loans, and co-operative agreements) and that all sub-recipients shall certify and disclose accordingly.

This certification is a material representation of fact upon which reliance was placed when this transaction was made or entered into. Submission of this certification is a prerequisite for making or entering into this transaction imposed by Section 1352, Title 31, U.S. Code. Any person who fails to file the required certification shall be subject to a civil penalty of not less than $10,000.00 and not more than $100,000.00 for each such failure.

 

  Page 9 of 11  
 

 

This Statement of Policy is Posted

In Accordance with Regulations of the

 

Small Business Administration

 

This Organization Practices

 
     
     

  

Equal Employment Opportunity

We do not discriminate on the ground of race, color, religion, sex, age, disability or national origin in the hiring, retention, or promotion of employees; nor in determining their rank, or the compensation or fringe benefits paid them.

This Organization Practices

Equal Treatment of Clients

 

We do not discriminate on the basis of race, color, religion, sex, marital status, disability, age or national origin in services or accommodations offered or provided to our employees, clients or guests.

These policies and this notice comply with regulations of the United States Government.

Please report violations of this policy to:
   
  Administrator
  Small Business Administration
 

Washington, D.C. 20416

 

In order for the public and your employees to know their rights under 13 C.F.R Parts 112, 113, and 117, Small Business Administration Regulations, and to conform with the directions of the Administrator of SBA, this poster must be displayed where it is clearly visible to employees, applicants for employment, and the public.

 

Failure to display the poster as required in accordance with SBA Regulations may be considered evidence of noncompliance and subject you to the penalties contained in those Regulations.

 

This form was electronically produced by Elite Federal Inc.

 

 

  Page 10 of 11  
 

   
   

   

Esta Declaración De Principios Se Publica

De Acuerdo Con Los Reglamentos De La

 

Agencia Federal Para el Desarrollo de la Pequeña Empresa

 

Esta Organización Practica

     
     

  

Igual Oportunidad De Empleo

 

No discriminamos por razón de raza, color, religión, sexo, edad, discapacidad o nacionalidad en el empleo, retención o ascenso de personal ni en la determinación de sus posiciones, salarios o beneficios marginales.

Esta Organización Practica

Igualdad En El Trato A Su Clientela

 

No discriminamos por razón de raza, color, religión, sexo, estado civil, edad, discapacidad o nacionalidad en los servicios o facilidades provistos para nuestros empleados, clientes o visitantes.

Estos principios y este aviso cumplen con los reglamentos del Gobierno de los Estados Unidos de América.

Favor de informar violaciones a lo aquí indicado a:
   
  Administrador
Agencia Federal Para el Desarrollo de la
  Pequeña Empresa
  Washington, D.C. 20416

 

A fin de que el público y sus empleados conozcan sus derechos según lo expresado en las Secciones 112, 113 y 117 del Código de Regulaciaones Federales No. 13, de los Reglamentos de la Agencja Federal Para el Desarrollo de la Pequeña Empresa y de acuerdo con las instrucciones del Administrador de dicha agencia, esta notificación debe fijarse en un lugar claramente visible para los empleados, solicitantes de empleo y público en general.

 

No fijar esta notificación según lo requerido por los reglamentos de la Agencia Federal Para el Desarrollo de la Pequeña Empresa, puede ser interpretado como evidencia de falta de cumplimiento de los mismos y conllevará la ejecución de los castigos impuestos en estos reglamentos.

 

This form was electronically produced by Elite Federal Inc.

 

 

  Page 11 of 11  
 

NOTE

 

A PROPERLY SIGNED NOTE IS

REQUIRED PRIOR TO ANY

DISBURSEMENT

CAREFULLY READ THE NOTE: It is your promise to repay the loan.

· The Note is pre-dated. DO NOT CHANGE THE DATE OF THE NOTE.

 

· LOAN PAYMENTS will be due as stated in the Note.

 

· ANY CORRECTIONS OR UNAUTHORIZED MARKS MAY VOID THIS DOCUMENT.

 

SIGNING THE NOTE: All borrowers must sign the Note.

 

· Sign your name exactly as it appears on the Note. If typed incorrectly, you should sign with the correct spelling.

 

· If your middle initial appears on the signature line, sign with your middle initial.

 

· If a suffix appears on the signature line, such as Sr. or Jr., sign with your suffix.

 

· Corporate Signatories: Authorized representatives should sign the signature page.

 

 

 

 

     

   
 

    U.S. Small Business Administration    Date: 06.23.2020
    NOTE    Loan Amount: $150,000.00
    (SECURED DISASTER LOANS)    Annual Interest Rate: 3.75%

SBA Loan # XXX   Application # XXX

1. PROMISE TO PAY: In return for a loan, Borrower promises to pay to the order of SBA the amount of one hundred and fifty thousand and 00/100 Dollars ($150,000.00), interest on the unpaid principal balance, and all other amounts required by this Note.
2. DEFINITIONS: A) “Collateral” means any property taken as security for payment of this Note or any guarantee of this Note. B) “Guarantor” means each person or entity that signs a guarantee of payment of this Note. C) “Loan Documents” means the documents related to this loan signed by Borrower, any Guarantor, or anyone who pledges collateral.
3. PAYMENT TERMS: Borrower must make all payments at the place SBA designates. Borrower may prepay this Note in part or in full at any time, without notice or penalty. Borrower must pay principal and interest payments of $731.00 every month beginning Twelve (12) months from the date of the Note. SBA will apply each installment payment first to pay interest accrued to the day SBA receives the payment and will then apply any remaining balance to reduce principal. All remaining principal and accrued interest is due and payable Thirty (30) years from the date of the Note.


4. DEFAULT: Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower: A) Fails to comply with any provision of this Note, the Loan Authorization and Agreement, or other Loan Documents; B) Defaults on any other SBA loan; C) Sells or otherwise transfers, or does not preserve or account to SBA’s satisfaction for, any of the Collateral or its proceeds; D) Does not disclose, or anyone acting on their behalf does not disclose, any material fact to SBA; E) Makes, or anyone acting on their behalf makes, a materially false or misleading representation to SBA; F) Defaults on any loan or agreement with another creditor, if SBA believes the default may materially affect Borrower’s ability to pay this Note; G) Fails to pay any taxes when due; H) Becomes the subject of a proceeding under any bankruptcy or insolvency law; I) Has a receiver or liquidator appointed for any part of their business or property; J) Makes an assignment for the benefit of creditors; K) Has any adverse change in financial condition or business operation that SBA believes may materially affect Borrower’s ability to pay this Note; L) Dies; M) Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without SBA’s prior written consent; or, N) Becomes the subject of a civil or criminal action that SBA believes may materially affect Borrower’s ability to pay this Note.
5. SBA’S RIGHTS IF THERE IS A DEFAULT: Without notice or demand and without giving up any of its rights, SBA may: A) Require immediate payment of all amounts owing under this Note; B) Have recourse to collect all amounts owing from any Borrower or Guarantor (if any); C) File suit and obtain judgment; D) Take possession of any Collateral; or E) Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.
6. SBA’S GENERAL POWERS: Without notice and without Borrower’s consent, SBA may: A) Bid on or buy the Collateral at its sale or the sale of another lienholder, at any price it chooses; B) Collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and reasonable attorney’s fees and costs. If SBA incurs such expenses, it may demand immediate reimbursement from Borrower or add the expenses to the principal balance; C) Release anyone obligated to pay this Note; D) Compromise, release, renew, extend or substitute any of the Collateral; and E) Take any action necessary to protect the Collateral or collect amounts owing on this Note.

  Page 2 of 3  
 

7. FEDERAL LAW APPLIES: When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.
8. GENERAL PROVISIONS: A) All individuals and entities signing this Note are jointly and severally liable. B) Borrower waives all suretyship defenses. C) Borrower must sign all documents required at any time to comply with the Loan Documents and to enable SBA to acquire, perfect, or maintain SBA’s liens on Collateral. D) SBA may exercise any of its rights separately or together, as many times and in any order it chooses. SBA may delay or forgo enforcing any of its rights without giving up any of them. E) Borrower may not use an oral statement of SBA to contradict or alter the written terms of this Note. F) If any part of this Note is unenforceable, all other parts remain in effect. G) To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor. Borrower also waives any defenses based upon any claim that SBA did not obtain any guarantee; did not obtain, perfect, or maintain a lien upon Collateral; impaired Collateral; or did not obtain the fair market value of Collateral at a sale. H) SBA may sell or otherwise transfer this Note.

 

9. MISUSE OF LOAN FUNDS: Anyone who wrongfully misapplies any proceeds of the loan will be civilly liable to SBA for one and one- half times the proceeds disbursed, in addition to other remedies allowed by law.

 

10. BORROWER’S NAME(S) AND SIGNATURE(S): By signing below, each individual or entity acknowledges and accepts personal obligation and full liability under the Note as Borrower.

 

 

 

  Florida Precision Aerospace, Inc.    
       
       
 

Carlos Sanchez, Owner/Officer

 

 

 

 

 

  Page 3 of 3  
 

 

SECURITY AGREEMENT

Read this document carefully. It grants the SBA a security interest (lien) in all the property described in paragraph 4.

This document is predated. DO NOT CHANGE THE DATE ON THIS DOCUMENT.

 

 

 

 

   
 

   

U.S. Small Business Administration

 

SECURITY AGREEMENT

   
         

SBA Loan #: XXX
Borrower: Florida Precision Aerospace, Inc.
Secured Party: The Small Business Administration, an Agency of the U.S. Government
Date: 06.23.2020
Note Amount: $150,000.00

 

 

1. DEFINITIONS.
     
    Unless otherwise specified, all terms used in this Agreement will have the meanings ascribed to them under the Official Text of the Uniform Commercial Code, as it may be amended from time to time, (“UCC”). “SBA” means the Small Business Administration, an Agency of the U.S. Government.

2. GRANT OF SECURITY INTEREST.
     
    For value received, the Borrower grants to the Secured Party a security interest in the property described below in paragraph 4 (the “Collateral”).

3. OBLIGATIONS SECURED.
     
    This Agreement secures the payment and performance of: (a) all obligations under a Note dated 06.23.2020, made by Florida Precision Aerospace, Inc. , made payable to Secured Lender, in the amount of $150,000.00 (“Note”), including all costs and expenses (including reasonable attorney’s fees), incurred by Secured Party in the disbursement, administration and collection of the loan evidenced by the Note; (b) all costs and expenses (including reasonable attorney’s fees), incurred by Secured Party in the protection, maintenance and enforcement of the security interest hereby granted; (c) all obligations of the Borrower in any other agreement relating to the Note; and (d) any modifications, renewals, refinancings, or extensions of the foregoing obligations.

4. COLLATERAL DESCRIPTION.
     
    The Collateral in which this security interest is granted includes the following property that Borrower now owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible

  Page 2 of 5  
 
    and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest Borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the Collateral, all products, proceeds and collections thereof and all records and data relating thereto.

5. RESTRICTIONS ON COLLATERAL TRANSFER.
     
    Borrower will not sell, lease, license or otherwise transfer (including by granting security interests, liens, or other encumbrances in) all or any part of the Collateral or Borrower’s interest in the Collateral without Secured Party’s written or electronically communicated approval, except that Borrower may sell inventory in the ordinary course of business on customary terms. Borrower may collect and use amounts due on accounts and other rights to payment arising or created in the ordinary course of business, until notified otherwise by Secured Party in writing or by electronic communication.

6. MAINTENANCE AND LOCATION OF COLLATERAL; INSPECTION; INSURANCE.
     
    Borrower must promptly notify Secured Party by written or electronic communication of any change in location of the Collateral, specifying the new location. Borrower hereby grants to Secured Party the right to inspect the Collateral at all reasonable times and upon reasonable notice. Borrower must: (a) maintain the Collateral in good condition; (b) pay promptly all taxes, judgments, or charges of any kind levied or assessed thereon; (c) keep current all rent or mortgage payments due, if any, on premises where the Collateral is located; and (d) maintain hazard insurance on the Collateral, with an insurance company and in an amount approved by Secured Party (but in no event less than the replacement cost of that Collateral), and including such terms as Secured Party may require including a Lender’s Loss Payable Clause in favor of Secured Party. Borrower hereby assigns to Secured Party any proceeds of such policies and all unearned premiums thereon and authorizes and empowers Secured Party to collect such sums and to execute and endorse in Borrower’s name all proofs of loss, drafts, checks and any other documents necessary for Secured Party to obtain such payments.

7. CHANGES TO BORROWER’S LEGAL STRUCTURE, PLACE OF BUSINESS, JURISDICTION OF ORGANIZATION, OR NAME.
     
    Borrower must notify Secured Party by written or electronic communication not less than 30 days before taking any of the following actions: (a) changing or reorganizing the type of organization or form under which it does business; (b) moving, changing its place of business or adding a place of business; (c) changing its jurisdiction of organization; or (d) changing its name. Borrower will pay for the preparation and filing of all documents Secured Party deems necessary to maintain, perfect and continue the perfection of Secured Party’s security interest in the event of any such change.

8. PERFECTION OF SECURITY INTEREST.
     
    Borrower consents, without further notice, to Secured Party’s filing or recording of any documents necessary to perfect, continue, amend or terminate its security interest. Upon request of Secured Party, Borrower must sign or otherwise authenticate all documents that Secured Party deems necessary at any time to allow Secured Party to acquire, perfect, continue or amend its security interest in the Collateral. Borrower will pay the filing and recording costs of any documents relating to Secured Party’s security interest. Borrower ratifies all previous filings and recordings, including financing statements and notations on certificates of title. Borrower will cooperate with Secured Party in obtaining a Control Agreement satisfactory to Secured Party with respect to any Deposit Accounts or Investment Property, or in otherwise obtaining control or possession of that or any other Collateral.

  PAge 3 of 5  
 
9. DEFAULT.
     
    Borrower is in default under this Agreement if: (a) Borrower fails to pay, perform or otherwise comply with any provision of this Agreement; (b) Borrower makes any materially false representation, warranty or certification in, or in connection with, this Agreement, the Note, or any other agreement related to the Note or this Agreement; (c) another secured party or judgment creditor exercises its rights against the Collateral; or (d) an event defined as a “default” under the Obligations occurs. In the event of default and if Secured Party requests, Borrower must assemble and make available all Collateral at a place and time designated by Secured Party. Upon default and at any time thereafter, Secured Party may declare all Obligations secured hereby immediately due and payable, and, in its sole discretion, may proceed to enforce payment of same and exercise any of the rights and remedies available to a secured party by law including those available to it under Article 9 of the UCC that is in effect in the jurisdiction where Borrower or the Collateral is located. Unless otherwise required under applicable law, Secured Party has no obligation to clean or otherwise prepare the Collateral for sale or other disposition and Borrower waives any right it may have to require Secured Party to enforce the security interest or payment or performance of the Obligations against any other person.

10. FEDERAL RIGHTS.
     
    When SBA is the holder of the Note, this Agreement will be construed and enforced under federal law, including SBA regulations. Secured Party or SBA may use state or local procedures for filing papers, recording documents, giving notice, enforcing security interests or liens, and for any other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax or liability. As to this Agreement, Borrower may not claim or assert any local or state law against SBA to deny any obligation, defeat any claim of SBA, or preempt federal law.

 

11. GOVERNING LAW.
     
    Unless SBA is the holder of the Note, in which case federal law will govern, Borrower and Secured Party agree that this Agreement will be governed by the laws of the jurisdiction where the Borrower is located, including the UCC as in effect in such jurisdiction and without reference to its conflicts of laws principles.

 

12. SECURED PARTY RIGHTS.
     
    All rights conferred in this Agreement on Secured Party are in addition to those granted to it by law, and all rights are cumulative and may be exercised simultaneously. Failure of Secured Party to enforce any rights or remedies will not constitute an estoppel or waiver of Secured Party’s ability to exercise such rights or remedies. Unless otherwise required under applicable law, Secured Party is not liable for any loss or damage to Collateral in its possession or under its control, nor will such loss or damage reduce or discharge the Obligations that are due, even if Secured Party’s actions or inactions caused or in any way contributed to such loss or damage.

13. SEVERABILITY.
     
    If any provision of this Agreement is unenforceable, all other provisions remain in effect.

 

  Page 4 of 5  
 

14. BORROWER CERTIFICATIONS.
     
    Borrower certifies that: (a) its Name (or Names) as stated above is correct; (b) all Collateral is owned or titled in the Borrower’s name and not in the name of any other organization or individual; (c) Borrower has the legal authority to grant the security interest in the Collateral; (d) Borrower’s ownership in or title to the Collateral is free of all adverse claims, liens, or security interests (unless expressly permitted by Secured Party); (e) none of the Obligations are or will be primarily for personal, family or household purposes; (f) none of the Collateral is or will be used, or has been or will be bought primarily for personal, family or household purposes; (g) Borrower has read and understands the meaning and effect of all terms of this Agreement.

15. BORROWER NAME(S) AND SIGNATURE(S).
     
    By signing or otherwise authenticating below, each individual and each organization becomes jointly and severally obligated as a Borrower under this Agreement.
     

  Florida Precision Aerospace, Inc.    
       
       
 

Carlos Sanchez, Owner/Officer

 

  Date: 06.23.2020

 

 

 

  Page 5 of 5  

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, John A. Di Bella, certify that:

 

1.                I have reviewed this report on Form 10-Q for the period ended June 30, 2020 of Enviro Technologies, 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(s) 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)) 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)  Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  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;

 

(d)  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 affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect 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: August 14, 2020

 

/s/ John A. Di Bella
John A. Di Bella

Chief Executive Officer, principal executive officer 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, John A. Di Bella, certify that:

 

1.  I have reviewed this report on Form 10-Q for the period ended June 30, 2020 of Enviro Technologies, 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(s) 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)) 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)  Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  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;

 

(d)  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 affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect 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: August 14, 2020

 

/s/ John A. Di Bella
John A. Di Bella
Chief Financial Officer, principal financial and accounting officer

 

EXHIBIT 32.1
SECTION 1350 CERTIFICATION

 

CERTIFICATION PURSUANT TO
13 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Enviro Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. Di Bella, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 13 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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 fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2020

 

/s/ John A. Di Bella
John A. Di Bella
Chief Executive Officer and Chief Financial Officer