U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2007
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 0-27445
Enviro Voraxial Technology, Inc.
--------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
IDAHO 82-0266517
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
821 NW 57th Place, Fort Lauderdale, Florida 33309
-------------------------------------------------
(Address of principal executive offices)
(954) 958-9968
--------------
(Issuer's telephone number)
_______________________________________________________________
(Former Name, former address and former fiscal year, if changed
since last Report.)
Check mark whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: March 31, 2007, we had 22,092,235
shares of our Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
INDEX
Page
----
PART I. CONSOLIDATED CONDENSED FINANCIAL INFORMATION
------- --------------------------------------------
Item 1. Consolidated Condensed Financial Statements.............................................. 3
Condensed Consolidated Balance Sheet - March 31, 2007 (Unaudited)........................ 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2007 and 2006 (Unaudited)................................ 4
Consolidated Statements of Changes in Shareholders' Deficiency
Three Months Ended March 31, 2007 and 2006 (Unaudited)................................ 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2007 and 2006 (Unaudited)................................ 6
Notes to Condensed Consolidated Financial Statements (Unaudited)......................... 7
Item 2. Management's Discussion and Analysis and Plan of
Operation.............................................................................. 11
Item 3. Controls and Procedures.................................................................. 13
PART II. OTHER INFORMATION
-------- -----------------
Item 1. Legal Proceedings........................................................................ 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.............................. 14
Item 3. Default Upon Senior Securities........................................................... 14
Item 4. Submission of Matters to a Vote of Securities............................................ 15
Item 5. Other Information........................................................................ 15
Item 6. Exhibits................................................................................. 15
Signatures ......................................................................................... 16
2
PART I: CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements.
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31,
2007
----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 225,235
Accounts receivable, net 185,207
Inventory 289,163
----------------------
Total current assets 699,605
FIXED ASSETS, NET 9,771
OTHER ASSETS 10,000
----------------------
Total assets $ 719,376
======================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 649,411
----------------------
Total current liabilities 649,411
----------------------
Total liabilities 649,411
----------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY:
Common stock, $.001 par value, 42,750,000 shares authorized
22,092,235 shares issued and oustanding 22,191
Additional paid-in capital 7,146,287
Deferred compensation (13,333)
Accumulated deficit (7,085,180)
----------------------
Total shareholders' deficit 69,965
----------------------
Total liabilities and shareholders' deficit $ 719,376
======================
The accompanying notes are an integral part of the consolidated financial
statements.
3
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
---------------------------------------------------------
2007 2006
------------------------- ---------------------------
Revenues, net $ 53,631 $ 22,164
Cost of goods sold 11,686 4,778
------------------------- ---------------------------
Gross profit 41,945 17,386
Costs and operating expenses:
Research and development 82,595 145,696
General and administrative 328,994 88,409
------------------------- ---------------------------
Total costs and operating expenses 411,589 234,105
------------------------- ---------------------------
Loss from operations (369,644) (216,719)
Provision for income taxes -- --
------------------------- ---------------------------
NET LOSS $ (369,644) $ (216,719)
========================= ===========================
Weighted average number of common shares
outstanding-basic & diluted 21,125,568 19,662,797
========================= ===========================
Basic and diluted loss per common share $ (0.01) $ (0.01)
========================= ===========================
The accompanying notes are an integral part of the consolidated financial
statements.
4
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
Common Stock Additional
-------------------------- Paid-in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
------------ --------- -------------- ------------- ------------ ------------
Balance at December 31, 2004 17,676,402 $ 18,000 $ 4,953,000 $ (11,000) $ (4,791,000) $ 169,000
Issuance of common stock for
consulting services 300,000 300 141,519 (56,875) -- 84,944
Issuance of options for services -- -- 21,000 -- -- 21,000
Issuance of restricted common stock
at $.40 per share 1,468,333 1,144 586,189 -- -- 587,333
Issuance of common stock for
consulting services 15,000 15 7,635 -- -- 7,650
Amortization of
deferred compensation -- -- -- 14,438 -- 14,438
Net loss -- -- -- -- (1,091,005) (1,091,005)
------------ ---------- -------------- ------------ -------------- ------------
Balance - December 31, 2005 19,459,735 $ 19,459 $ 5,709,343 $ (53,437) $ (5,882,005) $ (206,640)
Issuance of common stock
for investments 2,232,500 2,232 890,768 -- -- 893,000
Issuance of restricted common
stock at $.40 per share 300,000 300 119,700 (13,333) -- 106,667
Amortization of
deferred compensation -- -- -- 53,437 -- 53,437
Net loss -- -- -- -- (833,531) (833,531)
------------ ---------- -------------- ------------ -------------- ------------
Balance - December 31, 2006 21,992,235 $ 21,991 $ 6,719,811 $ (13,333) $ (6,715,536) $ 12,933
Issuance of options for
accrued salaries 300,000 300,000
Issuance of options for services -- -- 86,676 -- -- 86,676
Issuance of common stock for
consulting services 100,000 100 39,900 (13,333) 26,667
Amortization of
deferred compensation -- -- -- 13,333 -- 13,333
Net loss -- -- -- -- (369,644) (369,644)
------------ ---------- -------------- ------------ -------------- ------------
Balance - March 31, 2007 22,092,235 $ 22,091 $ 7,146,387 $ (13,333) $ (7,085,180) $ 69,965
============ ========== ============== ============ ============== ============
The accompanying notes are an integral part of the consolidated financial
statements.
5
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
For the Quarter Ending March 31,
2007 2006
---------- -----------
Cash Flows From Operating Activities:
Net loss $(369,644) $(216,719)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 278 147
Common stock issued for services 99 40,000
Amortization of deferred compensation 13,333 --
Deferred compensation 26,667 12,062
Issuance of options for services 86,676 --
Changes in operating assets and liabilities:
Accounts receivable (123,866) (22,164)
Inventory (91,017) (10,988)
Prepaid insurance -- (26,991)
Accounts payable and accrued expenses (2,289) 108,297
Deposits from customers -- 78,750
--------- ---------
Net cash used in operating activities (499,763) (37,606)
--------- ---------
Cash Flows From Investing Activities:
Purchase of equipment (5,294) --
Sale of equipment -- --
--------- ---------
Net cash used in investing activities (5,294) --
--------- ---------
Cash Flows From Financing Activities:
Issuance of options for reduction in accrued salaries 300,000
Proceeds from sales of common stock -- 122,000
--------- ---------
Net cash provided by financing activities 300,000 122,000
--------- ---------
Net increase (decrease) in cash and cash equivalents (165,057) 84,394
Cash and cash equivalents, beginning of period 390,393 76,691
--------- ---------
Cash and cash equivalents, end of period $ 225,336 $ 161,085
========= =========
Supplemental Disclosures
Cash paid during the year for interest $ -- $ --
========= =========
Cash paid during the year for taxes $ -- $ --
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
NOTE A - ORGANIZATION AND OPERATIONS
Organization
------------
Enviro Voraxial Technology, Inc. (the "Company") is a provider of environmental
and industrial separation technology. The Company has developed and patented the
Voraxial(R) Separator, which is a technology that efficiently separates solids
and liquids with distinct specific gravities. Potential commercial applications
and markets include oil exploration and production, oil refineries, mining,
manufacturing and municipal wastewater industry.
The Company currently operates within two segments: the sales and marketing of
the Voraxial(R) Separator and the manufacture of the Voraxial(R) Separator.
Florida Precision Aerospace, Inc. (FPA) is the wholly-owned subsidiary of the
Company and is used to manufacture, assemble and test the Voraxial Separator.
NOTE B - INTERIM REPORTING
Interim Reporting
-----------------
While the information presented in the accompanying interim three and nine
months financial statements is unaudited, it includes all adjustments, which
are, in the opinion of management, necessary to present fairly the financial
position, results of operations and cash flows for the interim periods presented
in accordance with accounting principles generally accepted in the United States
of America. These interim financial statements follow the same accounting
policies and methods of their application as the December 31, 2006 audited
annual financial statements of Enviro Voraxial Technology, Inc. All adjustments
are of a normal recurring nature. It is suggested that these interim financial
statements be read in conjunction with the Company's audited December 31, 2006
annual financial statements.
Operating results for the three months ended March 31, 2007 are not necessarily
indicative of the results that can be expected for the year ended December 31,
2007.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Share
------------------
Basic and diluted loss per share has been computed by dividing the net loss
available to common stockholders by the weighted average number of common shares
outstanding. The warrants and stock options have been excluded from the
calculation since they would be anti-dilutive.
7
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
Such equity instruments may have a dilutive effect in the future and include the
following potential common shares:
Warrants 5,589,367
Stock options 6,710,666
----------
12,300,033
==========
Recent Accounting Pronouncement
-------------------------------
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an amendment
of FASB Statement No. 115" (SFAS 159). SFAS 159 allows companies to choose to
measure many financial instruments and certain other items at fair value. SFAS
159 will become effective for the Company beginning in fiscal 2009. The Company
is currently evaluating what effects the adoption of SFAS 159 will have on the
Company's future results of operations and financial condition.
NOTE D - RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2007, the Company incurred consulting
expenses from the chief executive officer and majority stockholder of the
Company of $48,750. Of these amounts, $19,200 has been paid out for the three
months ended March 31, 2007. The cumulative unpaid balance has been included in
accrued expenses.
NOTE E - CAPITAL TRANSACTIONS
Common stock
------------
In February 2007, the Company entered into a three month consulting agreement
and agreed to issue 100,000 shares for services performed by a consultant, which
were valued at $40,000.
8
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
Options
-------
In January 2007, the Company granted 606,000 stock options to employees or
outside consultants, exercisable at $.40 per share. These options vest equally
over the life of the options, which range from 1 to 5 years. The Company
calculated the fair value of the options at the grant date by using the
Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield for all the years; expected volatility of 25%;
risk-free interest rate of 5% and an expected life of 1 to 5 years, resulting in
a fair value of approximately $86,000.
In January 2007, the Company granted 2,000,000 stock options to officers to
reduce the amount of accrued salaries and consulting fees due to them by
$300,000.
In January 2007, the Company issued 375,000 stock options to consultants,
exercisable at $.80 - $1.00 per share. These options are fully vested and expire
on October 31, 2007. The Company calculated the fair value of the options at the
grant date by using the Black-Scholes option-pricing model with the following
weighted average assumptions: no dividend yield for all the years; expected
volatility of 25%; risk-free interest rate of 5% and an expected life of 10
months. Based on the above, the options were not considered to have a fair value
associated with them.
Information with respect to employee stock options outstanding and employee
stock options exercisable at March 31, 2007 is as follows:
Weighted Average Exercise
Options Vested Exercise Price Per Price Per
Outstanding Shares Common Share Option Outstanding
----------- ------ ------------ ------------------
Balance, December 31, 2002 2,245,000 1,115,000 $0.15-$0.77 $0.21
Granted/vested during the year 10,000 1,120,000 $1.00
Balance, December 31, 2003 2,255,000 2,235,000 $0.15-$1.00 $0.21
Granted/vested during the year 1,424,666 1,424,666 $0.15-$1.00 $0.79
Balance, December 31, 2004 3,679,666 3,659,666 $0.15-$1.00 $0.52
Granted/vested during the year 50,000 50,000 $1.00
Balance, December 31, 2005 3,729,666 3,709,666 $0.15-$1.00 $0.52
Balance, December 31, 2006 3,729,666 3,709,666 $0.15-$1.00 $0.52
Granted/vested during the quarter 2,981,000 2,981,000 $0.40-$1.00 $0.47
Balance, March 31, 2007 6,710,666 6,690,666 $0.15-$1.00 $0.46
9
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
The following table summarizes information about the stock options outstanding
at March 31, 2007
Number Weighted Average
Exercise Outstanding at Remaining Weighted Average Number Exercisable at Weighted Average
Price March 31, 2007 Contractual Life Exercise Price March 31, 2007 Exercise Price
----- -------------- ---------------- -------------- -------------- --------------
0.30 45,000 0.87 0.30 45,000 0.30
0.77 200,000 1.13 0.77 200,000 0.77
0.15 2,000,000 1.55 0.15 2,000,000 0.15
1.00 235,000 1.00 1.00 10,000 1.00
0.60 697,333 3.13 0.60 697,333 0.60
1.00 697,333 3.13 1.00 697,333 1.00
1.00 50,000 3.00 1.00 50,000 1.00
0.71 30,000 1.7 0.71 30,000 0.71
0.80 150,000 1 0.80 150,000 0.80
0.40 2,606,000 5 0.40 2,606,000 0.40
--------- ---------
6,710,666 6,710,666
--------- ---------
10
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of
Operations
General
Forward-Looking Statements
--------------------------
The following discussion of the financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
related notes thereto. The following discussion contains forward-looking
statements. Enviro Voraxial(R) Technology is referred to herein as "the
Company", "we" or "our." The words or phrases "would be," "will allow," "intends
to," "will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements". Such statements include those concerning our
expected financial performance, our corporate strategy and operational plans.
Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties.
Statements made herein are as of the date of the filing of this Form 10-QSB with
the Securities and Exchange Commission and should not be relied upon as of any
subsequent date. Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
Application of Critical Accounting Policies
-------------------------------------------
The Company's consolidated condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Certain accounting policies have a significant impact on amounts
reported in the financial statements. A summary of these significant accounting
policies can be found in Note B to the Company's financial statements in the
Company's 2006 Annual Report on Form 10-KSB. The Company has not adopted any
significant new policies during the quarter ended March 31, 2007.
Among the significant judgments made in preparation of the Company's financial
statements are the determination of the allowance for doubtful accounts and
adjustments of inventory valuations. These adjustments are made each quarter in
the ordinary course of accounting.
Results of Operations for the Three Months ended March 31, 2007 and 2006:
Revenue
-------
Our revenues were $53,631 for the three months ended March 31, 2007 as compared
to $22,164 for the three months ended March 31, 2006. The $31,467 or 141%
increase is due to additional rental income from the Voraxial(R) Separator and
related equipment during 2007 as compared to 2006. The Company is currently
leasing the Voraxial(R) Separator for a specific project to a customer in the
oil industry. In addition, we rent our Voraxial(R) Separator to potential
clients for trials. Favorable trial results may lead to purchase orders in the
future. The Company continues to focus on its sales and marketing program for
the Voraxial(R) Separator and management believes such efforts will result in
increasing revenues in 2007.
11
Cost of Goods Sold
------------------
Our cost of goods sold increased to $11,686 for the three months ended March 31,
2007 as compared to $4,778 for the three months ended March 31, 2006, an
increase of $6,908, which is a directly related to the increase in revenues
reflected above.
Research and Development Expenses
---------------------------------
Research and Development expenses decreased by 43% to $82,595 for the three
months ended March 31, 2007, as compared to $145,696 for the previous three
months ended March 31, 2006. Although the Company has finalized the development
of the Voraxial(R) Separator, we targeted expenditures for specific applications
for the technology within the oil industry during the three months ended March
31, 2007.
General and Administrative Expenses
-----------------------------------
General and Administrative expenses increased to $328,994 for the three months
ended March 31, 2007 from $88,409 for the three months ended March 31, 2006. The
increase was primarily due to (i) non cash expenses relating to the issuance of
options to employees and consultants; (ii) consulting fees; and (iii) increased
professional fees. We continue to focus our efforts on marketing of the
Voraxial(R) Separator.
Liquidity and Capital Resources:
Cash at March 31, 2007 was $225,235. Working capital at March 31, 2007 was
$50,194 as compared to a working capital deficit at December 31, 2006 of
approximately $1,200.
At March 31, 2007 the Company had an accumulated deficit of $7,085,180. We
anticipate generating positive cash flow from the Voraxial(R) Separator by the
end of 2007. To the extent such revenues and corresponding cash flows do not
materialize, we will require infusion of capital to sustain our operations. We
cannot be assured that we will generate revenues or that the level of any future
revenues will be self-sustaining. Furthermore, we cannot provide any assurances
that required capital will be obtained or that terms of such required capital
may be acceptable to us.
The Company has funded working capital requirements and intends to fund current
working capital requirements through third party financing, including the
private placement of securities. However, the Company cannot provide any
assurances that it will be able to obtain adequate financing. If the Company is
unable to obtain adequate financing, it may reduce its operating activities
until sufficient funding is secured or revenues are generated to support
operating activities.
Continuing Losses
-----------------
We may be unable to continue as a going concern, given our limited operations
and revenues and our significant losses to date. Since 2001, we have encountered
greater expenses in the development of our Voraxial(R) Separators and have had
limited sales income from this development. Consequently, our working capital
may not be sufficient and our operating costs may exceed those experienced in
our prior years. In light of these recent developments, we may be unable to
continue as a going concern. However, we believe that the exposure received in
12
the past year for the Voraxial Separator has positioned the Company to begin
generating sales and supply us with sufficient working capital. As a result of
the above, the accompanying condensed consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
condensed consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
------------------------------------------------
As of the end of the period covered by this report, we carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e). This evaluation was done
under the supervision and with the participation of our Principal Executive
Officer and Principal Financial Officer. Based upon that evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that our
disclosure controls and procedures are effective in gathering, analyzing and
disclosing information needed to satisfy our disclosure obligations under the
Exchange Act.
Changes in internal controls
----------------------------
There were no changes in our internal controls or in other factor during the
period covered by this report that have materially affected, or is likely to
materially affect the Company's internal controls over financial reporting.
13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January, the Company issued options to purchase 106,000 shares of
the Company's common stock to two employees of the Company. The options are
exercisable for a period of five years and are exercisable at $0.40 per share.
In addition, the Company issued options to purchase an aggregate of 2,000,000
shares of the Company's common stock to John A. DiBella and Alberto DiBella in
satisfaction of accrued compensation of approximately $300,000. The options are
exercisable for a period of five years and are exercisable at $0.40 per share.
In addition, the Company issued options to purchase 250,000 shares of the
Company's common stock to a consultant. The options are exercisable at $0.40 per
share for a period of one year. The Company issued options to purchase an
additional 250,000 shares of the Company's common stock to a consultant. The
options are exercisable at $0.40 per share for a period of five years. These
options are subject to certain milestones. 375,000 Options were issued to a
consultant based on the achievement of certain milestones. 225,000 Options with
an exercise price at $1.00 and 150,000 Options with an exercise price at $0.80.
These Options have 1 year remaining until expiration. The issuance of the
options were exempt from registration under Section 4(2) of the Securities Act.
The option holders received information concerning the Company and had the
opportunity to ask questions concerning the viability of the Company. The
options contained legends restricting the transferability absent registration or
applicable exemption.
During February 2007 the Company issued 100,000 shares of its common
stock to a consultant for consulting services valued at $40,000. The issuance of
the shares were exempt from registration under Section 4(2) of the Securities
Act. The consultant received information concerning the Company and had the
opportunity to ask questions concerning the viability of the Company. The shares
contained legends restricting the transferability absent registration or
applicable exemption.
Item 3. Default Upon Senior Securities
None.
14
Item 4. Submission of Matters to a Vote of Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-B
31.1 Form 302 Certification of Chief Executive Officer
31.2 Form 302 Certification of Principal Financial Officer
32.1 Form 906 Certification of Chief Executive Officer and
Principal Financial Officer
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as a duly authorized officer of the Registrant.
Enviro Voraxial Technology, Inc.
By: /s/ Alberto DiBella
-------------------
Alberto DiBella
Chief Executive Officer and
Principal Financial Officer
DATED: May 19, 2006
16