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 September 30, 2006
------------------
[ ] 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
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(Address of principal executive offices)
(954) 958-9968
--------------
(Issuer's telephone number)
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(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: September 30, 2006, we had 21,492,235
shares of our Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
INDEX
PART I. CONSOLIDATED CONDENSED FINANCIAL INFORMATION
------- --------------------------------------------
Item 1. Consolidated Condensed Financial Statements.............................................. 3
Condensed Consolidated Balance Sheet - September 30, 2006 (Unaudited).................... 3
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 2006 and 2005 (Unaudited).................. 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2006 and 2005 (Unaudited)............................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited)......................... 6
Item 2. Management's Discussion and Analysis and Plan of Operation............................... 9
Item 3. Controls and Procedures.................................................................. 12
PART II. OTHER INFORMATION
-------- -----------------
Item 1. Legal Proceedings........................................................................ 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.............................. 13
Item 3. Default Upon Senior Securities........................................................... 13
Item 4. Submission of Matters to a Vote of Securities............................................ 13
Item 5. Other Information........................................................................ 13
Item 6. Exhibits................................................................................. 13
Signatures ......................................................................................... 14
2
PART I. CONSOLIDATED FINANCIAL INFORMATION
------- ----------------------------------
Item 1. Financial Statements.
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
30-Sep
2006
----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 381,492
Accounts receivable 41,430
Inventory 197,132
Prepaid expenses 8,997
---------------
Total current assets 629,051
FIXED ASSETS, NET 4,897
OTHER ASSETS 10,000
---------------
Total assets $ 643,948
===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 589,515
---------------
Total current liabilities 589,515
---------------
Total liabilities 589,515
---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, $.001 par value, 42,750,000 shares authorized
21,492,235 shares issued and oustanding 21,492
Additional paid-in capital 6,520,330
Deferred consulting (20,000)
Accumulated deficit (6,467,389)
---------------
Total shareholders' deficit 54,433
---------------
Total liabilities and shareholders' deficit $ 643,948
===============
The accompanying notes are an integral part of the consolidated financial
statements.
3
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------- -------------------------------------
2006 2005 2006 2005
----------------- ------------------ ----------------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues, net $ 46,261 $ 8,000 $ 208,425 $ 128,000
Cost of goods sold 6,423 - 71,410 34,000
---------------- ----------------- ---------------- ----------------
Gross Profit 39,838 8,000 $ 137,015 94,000
Costs and expenses:
General and administrative 135,748 106,000 441,257 359,000
Research and development 102,408 260,000 281,124 588,000
---------------- ----------------- ---------------- ----------------
Total costs and expenses 238,156 366,000 722,381 947,000
---------------- ----------------- ---------------- ----------------
Loss from operations (198,318) (358,000) $ (585,366) (853,000)
---------------- ----------------- ---------------- ----------------
Other income
Gain on sale of equipment - - - 2,000
---------------- ----------------- ---------------- ----------------
Total other income - - - 2,000
---------------- ----------------- ---------------- ----------------
NET LOSS $ (198,318) $ (358,000) $ (585,366) $ (851,000)
================ ================= ================ ================
Weighted average number of common shares
outstanding-basic & diluted 20,751,262 18,279,323 20,067,888 18,291,356
================ ================= ================ ================
Basic and diluted loss per common share $ (0.01) $ (0.02) $ (0.03) $ (0.05)
================ ================= ================ ================
The accompanying notes are an integral part of the consolidated financial
statements.
4
ENVIRO VORAXIAL TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
-----------------------------------------------
2006 2005
---------------------- ----------------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net loss $ (585,384) $ (851,000)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 531 3,000
Gain on sale of equipment - (2,000)
Common stock issued for services 60,000 -
Amortization of deferred compensation 33,367 84,000
Deferred compensation 20,000 -
Changes in assets and liabilities:
Accounts receivable (41,430) -
Inventory (71,098) (47,000)
Prepaid insurance (8,997) (5,000)
Accounts payable and accrued expenses 164,812 214,000
Deposits from customers - (7,000)
--------------------- ---------------------
Net cash used in operating activities (428,199) (611,000)
--------------------- ---------------------
Cash Flows From Investing Activities:
Purchase of equipment - (6,000)
Proceeds from sale of equipment, net - 35,000
--------------------- ---------------------
Net cash provided by investing activities - 29,000
--------------------- ---------------------
Cash Flows From Financing Activities:
Proceeds from sales of common stock 733,000 487,000
--------------------- ---------------------
Net cash provided by financing activities 733,000 487,000
--------------------- ---------------------
Net increase in cash and cash equivalents 304,801 (95,000)
Cash and cash equivalents, beginning of period 76,691 221,000
--------------------- ---------------------
Cash and cash equivalents, end of period $ 381,492 $ 126,000
===================== =====================
Supplemental Disclosures
Cash paid during the year for interest $ - $ -
===================== =====================
Cash paid during the year for taxes $ - $ -
===================== =====================
Common stock issued for deferred consulting $ 20,000 $ -
===================== =====================
Common stock issued for consulting services $ 60,000 $ 57,000
===================== =====================
Warrants issued for services $ - $ 21,000
===================== =====================
The accompanying notes are an integral part of the consolidated financial
statements.
5
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 and water separation,
environmental cleanup and pre-treatment of wastewater at municipal wastewater
(headworks) facilities.
Florida Precision Aerospace, Inc. (FPA) is the wholly owned subsidiary of the
Company and is used to do contract work with the aerospace, automotive and
defense contracting activity.
In March 2006, a Voraxial(R) 4000 Separator was sold to ConocoPhillips for
produced water separation. The machine will be used to enhance the handling of
large volumes of produced water and water injection at a production facility.
In September 2006, the Company received an order to supply Transocean Inc.
semisubmersible rig Sedco 702 with a Voraxial 2000 Offshore Deck Water Drainage
System. The System will be utilized to handle and separate contaminated drill
floor run-off water containing solids and drilling fluids.
NOTE B - GOING CONCERN
The Company has experienced net losses and negative cash flows from operating
activities. They will need to raise capital to sustain operations. There is no
assurance that the Company will ever have commercially accepted products, that
their developmental and marketing efforts will be successful or that they will
achieve a level of revenue sufficient to provide cash inflows to sustain
operations. The Company will continue to require the infusion of capital until
operations become profitable. During 2006, the Company anticipates seeking
additional capital, increasing sales of the Voraxial(R) Separator and continuing
to restrict expenditures. As a result of the above, the accompanying
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
----------------------------
The interim financial statements presented herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. The interim financial statements should be read in
conjunction with the Company's annual financial statements, notes and accounting
policies included in the Company's annual report on Form 10-KSB for the year
ended December 31, 2005 as filed with the SEC. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) which are
necessary to provide a fair presentation of financial position as of September
30, 2006 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.
6
NOTE D - CAPITAL TRANSACTIONS
Common stock
------------
In January 2006, the Company extended the exercisable life of certain warrants
issued to investors to purchase an aggregate of 243,200 shares of common stock
issued in 2000 for a period of one year. The warrants now expire in February
2007.
In January 2006, the Company extended the exercisable life of certain warrants
issued to investors to purchase an aggregate of 200,000 shares of common stock
issued in 2001 for a period of one year. The warrants now expire in April 2007.
In January 2006, the Company issued 100,000 shares of common stock to a
consultant, valued at $40,000, which is based on the closing market price of the
Company's common stock on the date of the agreement.
During the six months ended June 30, 2006 the Company sold 720,000 shares of
common stock for $0.40 per share in a private placement offering. Total proceeds
from the sale were $288,000.
In August 2006, the Company issued 100,000 shares of common stock to a
consultant, valued at $40,000, which is based on the closing market price of the
Company's common stock on the date of the agreement.
During the three months ended September 30, 2006 the Company sold 1,112,500
shares of common stock for $.40 per share in a private placement offering. Total
proceeds from the sale were $445,000.
Options
-------
Information with respect to employee stock options outstanding and employee
stock options exercisable at September 30, 2006 is as follows:
Weighted Average
Exercise Price Exercise Price
Options Vested Per Per Option
Outstanding Shares Common Share Outstanding
----------------- ----------------- ----------------- -------------------
Balance, December 31, 2005 3,729,666 3,709,666 $0.15-$1.00 $0.52
Granted/vested during the quarter - - - -
Balance, March 31, 2006 3,729,666 3,709,666 $0.15-$1.00 $0.52
Granted/vested during the quarter - - - -
Balance, September 30, 2006 3,729,666 3,709,666 $0.15-$1.00 $0.52
7
The following table summarizes information about the stock options outstanding
at September 30, 2006:
Weighted
Number Average
Outstanding at Remaining Weighted Number Exercisable
Exercise September 30, Contractual Average at September 30, Weighted Average
Price 2006 Life Exercise Price 2006 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 10,000 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 1.17 0.71 30,000 0.71
--------- ---------
3,729,666 3,729,666
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Warrants
--------
Information with respect to warrants outstanding and exercisable at September
30, 2006 is as follows:
Number Range of Exercise Number
Outstanding Price Exercisable
---------------- --------------------- -------------------
Balance, December 31, 2005 5,589,367 $0.75 - $9.00 5,389,367
Issued
Balance, March 31, 2006 5,589,367 $0.75 - $9.00 5,389,367
Issued
--------- ---------
Balance, September 30, 2006 5,589,367 $0.75 - $9.00 5,389,367
--------- ---------
NOTE E - CONCENTRATION
Revenues
--------
For the nine months ended September 30, 2006, the Company generated over 80% of
its revenues from one customer.
8
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 2005 Annual Report on Form 10-KSB. The Company has not adopted any
significant new policies during the quarter ended September 30, 2006.
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 September 30, 2006 and 2005:
Revenue
Our revenues increased 478% to $46,261 for the three months ended September 30,
2006 as compared to $8,000 for the three months ended September 30, 2005.
Revenues from both periods relate to the sales of Voraxial(R) Separator
Equipment. The Company continues to focus on its sales and marketing program for
the Voraxial(R) Separator, specifically in the oil exploration and production
market. Management believes such efforts will result in more clients and
continuing increasing revenues in 2006.
Research and Development Expenses
Research and Development expenses decreased by 60% $102,408 for the three months
ended September 30, 2006, as compared to $260,000 for the previous three months
9
ended September 30, 2005. 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
September 30, 2006.
General and Administrative Expenses
General and Administrative expenses increased by 28% to 135,478 for the three
months ended September 30, 2006 up from $106,000 for the three months ended
September 30, 2005. The increase was primarily due to the increase in sales and
marketing activity in the oil exploration and production industry. We continue
to focus our efforts on marketing the Voraxial(R) Separator in the oil industry.
Results of Operations for the Nine Months ended September 30, 2006 and 2005:
Revenue
Our revenues increased 62% to $208,425 for the nine months ended September 30,
2006 as compared to $128,000 for the nine months ended September 30, 2005. The
increase in revenue was due to the sales of Voraxial(R) Separator equipment. The
Company continues to focus on its sales and marketing program for the
Voraxial(R) Separator, specifically in the oil exploration and production
market. Interest in the Voraxial Separator has increased significantly in the
past several quarters, as such, Management believes such efforts will continue
to result in additional clients and increasing revenues in 2006.
Research and Development Expenses
Research and Development expenses decreased by 52% to $281,124 for the nine
months ended September 30, 2006, as compared to $588,000 for the previous nine
months ended September 30, 2005. The Company has finalized the development of
the Voraxial(R) Separator and has begun the sales and marketing of the product.
However, we continue to seek improvements to the product, specifically within
the oil industry.
General and Administrative Expenses
General and Administrative expenses increased by 22% to $441,257 for the nine
months ended September 30, 2006 up from $359,000 for the nine months ended
September 30, 2005. The increase was due to various overhead expenses,
including, but not limited to sales and marketing in the oil exploration and
production industry. We continue to focus our efforts on marketing of the
Voraxial(R) Separator.
Liquidity and Capital Resources:
Cash at September 30, 2006 was $381,492. Working capital surplus at September
30, 2006 was $39,536 as compared to a working capital deficit at December 31,
2005 of $221,978. The increase in the working capital was primarily due to a
$304,801 increase in cash, an increase in inventory of $71,098, an increase in
Accounts Receivable of $41,430 and increase in prepaid expenses of $8,997. These
amounts were partially offset by an increase in Accounts Payable and Accrued
Expenses of $163,812.
At September 30, 2006 the Company had an accumulated deficit of $6,467,389. We
anticipate generating positive cash flow from the Voraxial(R) Separator by the
10
end of 2007. To the extent such revenues and corresponding cash flows do not
materialize, we will continue to 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. During the three months ended September 30, 2006, the
Company received $445,000 from four accredited investors that purchased an
aggregate of 1,112,500 shares of the Company's restricted common stock at $0.40
per share.
The Company has expanded its sales and marketing efforts for produced water
separation in the oil exploration and production market. During the nine months
ended September 30, 2006 the Company sold and delivered a Voraxial 4000
Separator for produced water separation to ConocoPhillips. ConocoPhillips is
among the largest five integrated energy companies and refiners in the United
States. The machine will be used to enhance the handling of large volumes of
produced water and water injection at a production facility. The Company also
received a purchase order to provide Transocean Inc. semisubmersible rig Sedco
702 with a Voraxial 2000 Offshore Deck Water Drainage System. The System will be
utilized to handle and separate contaminated drill floor run-off water
containing solids and drilling fluids on their offshore rig.
In July 2006, the Company received a Letter of Intent from OMV Austria
Exploration and Production GmbH, a leading integrated oil and gas group in
Central and Eastern Europe, to evaluate the use of a Voraxial Separator to
handle its 300,000-barrel per day produced water system.
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
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.
11
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.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three month period ended September 30 2006, the Company
received $445,000 from four accredited investors that purchase an aggregate of
1,112,500 shares of the Company's restricted common stock at $0.40 per share.
The issuances were exempt from registration under Section 4(2) of the Securities
Act. The investors received information concerning the Company and had the
opportunity to ask questions concerning the viability of the Company. The shares
contain legends restricting their transferability absent registration or
applicable exemption.
In August 2006, 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. The shares were issued pursuant to the
exemption 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 Company. The shares issued contain a legend
restricting transferability absent registration or applicable exemption.
Item 3. Default Upon Senior Securities
None.
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
13
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: November 10, 2006
14