The following discussion of our financial condition and results of operations
for the three and six months ending
Overview
The Covid-19 pandemic and current economic conditions have hurt our operations significantly. Prior to the Covid-19 pandemic, we experienced significant revenue growth in 2019 mainly through the sale of Voraxial Separator and V-Inline Separators. However, 2020, 2021 and early 2022 proved to be an extremely challenging and disappointing period due to the Covid-19 pandemic and slow economic recovery. The drop in capital expenditures from the overall market, both from the oil industry and industries outside of oil and gas, coupled with the lack of a sales and marketing budget, hindered sales opportunities for the V-Inline Separator. During this period, we drastically decreased our sales and marketing efforts which has resulted in fewer customer inquiries in the current period. We are still experiencing the ramifications of a nominal sales and marketing budget. As such, customer inquiries have not rebounded. As we have reduced our marketing budget for the V-Inline Separator, we have shifted our near-term focus on machining work to help stabilize our cash flow.
We believe there is a market for the V-Inline Separator in the mining, utilities, sewage and industrial wastewater industries, among others. We intend to continue to seek opportunities for the V-Inline Separator through our rights under our Grant Back License. We have branded our licensed products as the V-Inline Separator. In 2021, our customer commissioned a wastewater system at a nuclear facility that consisted of multiple V-Inline Separators to separate solids and oil from their wastewater stream. The system is being used to process and separate oil and solids from a flow of about 100 gallons per minute. The system includes different technologies with the heart of the system being comprised of twoV-Inline 2000 Separators working in parallel with a third V-Inline Separator being utilized to further dewater the reject lines from the System.
Going Concern
For the six months ended
Results of Operations for the Three Months and Six Months ended
Revenue
While our revenues were nominal for the three and six months ended
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The majority of our sales in the six months ended
Cost of Goods
Our cost of goods increased by approximately 42% and 41%, respectively, for the
three and six months ended
Costs and Expenses
Total costs and expenses decreased by approximately 19% and 30%, respectively,
for the second quarter and first six months of 2022 from the comparable period
2021 as we continue to reduce expenditures as a result of Covid-19 pandemic and
current economic conditions. Included in this decrease was a decrease of
approximately 36% and 44%, respectively, in general and administrative expenses
in the three and six months ended
Liquidity and Capital Resources:
Cash at
From
We do not have any external sources of liquidity and we do not have any capital commitments.
17 Summary of cash flows
The following table summarizes our cash flows:
Six Months Ended June 30, 2022 2021 (Unaudited) Cash flow data: Cash used in operating activities$ (112,004 ) $ (239,592 ) Cash provided by investing activities $ -$ 275,000
Cash provided by (used in) financing activities
Net cash used in operating activities in the six months ended
Net cash used in operating activities in the six months ended
Net cash used in investing activities during the six months ended
Net cash provided by financing activities during the six months ended
In
Looking Forward
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 2022 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.
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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 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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with accounting
principles generally accepted in
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be
determined with certainty. We base our estimates on historical experience and on
various other assumptions believed to be applicable and reasonable under the
circumstances. These estimates may change as new events occur, as additional
information is obtained and as our operating environment changes. These changes
have historically been minor and have been included in the consolidated
financial statements as soon as they became known. Based on a critical
assessment of our accounting policies and the underlying judgments and
uncertainties affecting the application of those policies, management believes
that our consolidated financial statements are fairly stated in accordance with
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.
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. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
19 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.
Recent Accounting Pronouncements
All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
Off Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
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