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AMENDMENT NO. 1
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO
SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ECO-Rx, Inc.
(Exact name of registrant as specified in its charter)
Florida
(State of Incorporation)
65-0569329
(IRS Employer Identification Number)
2051 Northeast 191 Drive, North Miami Beach, Florida 33179
(Address of Principal Executive Offices)
(305) 937-1862
(Registrant's Telephone Number, Including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act:
Title of each class to be registered
NONE
Name of each exchange on each class to be registered
NOT APPLICABLE
Securities to be Registered Pursuant to Section 12(g)(1) of the Act:
Common Stock, $.001 par value per share
(Title of Class)
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ECO-Rx, Inc.
AMENDMENT NO. 1
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Table of Contents
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Part I
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Item 1. Description of Business............................................ 4
Item 2. Management's Discussion and Analysis or Plan of Operation..........
Item 3. Description of Property............................................ 15
Item 4. Security Ownership of Certain Beneficial Owners and Management..... 15
Item 5. Directors, Executive Officers, Promoters and Control Persons....... 17
Item 6. Executive Compensation............................................. 18
Item 7. Certain Relationships and Related Transactions..................... 18
Item 8. Description of Securities.......................................... 19
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters....................... 21
Item 2. Legal Proceedings.................................................. 22
Item 3. Changes in and Disagreements with Accountants...................... 22
Item 4. Recent Sales of Unregistered Securities............................ 22
Item 5. Indemnification of Directors and Officers.......................... 23
Part F/S
Financial Statements........................................................ 28
Part III
Item 1. Index to Exhibits.................................................. 58
Item 2. Description of Exhibits............................................ 58
Signatures.................................................................. 59
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This Registration Statement contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward looking statements include statements regarding (i) the
Registrant's research and development plans, marketing plans, capital and
operations expenditures, and results of operations; (ii) potential financing
arrangements; (iii) potential utility and acceptance of the Registrant's
existing and proposed products; and (iv) the need for, and availability of,
additional financing.
The forward-looking statements included herein are based on current
expectations and involve a number of risks and uncertainties. These forward-
looking statements are based on assumptions regarding the Registrant's business
which involve judgments with respect to, among other things, future economic and
competitive conditions and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control of
the Registrant. Although the Registrant believes that the assumptions
underlying the forward- looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, actual results may differ
materially from those set forth in the forward-looking statements.
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PART I
Item 1. Description of Business
History and Development of the Company
The Company
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ECO-Rx, Inc. (the "Company") was originally incorporated as Eco-Aire
Company, Inc. in the State of Florida on February 27, 1995. The Company changed
its name to ECO-Rx, Inc. on July 27, 1999. The Company is engaged in the
business of developing, manufacturing and marketing air purification systems for
use by both the general public and commercial consumers. The Company has been
in the development stage since its incorporation. The Company's mission is to
pioneer the technology, design and manufacturing of air purification equipment
for the destruction of pathogens and for the efficient and effective removal of
odors, allergy and asthma causing agents, pollutants and certain gasses from
indoor air environments.
The Company's air purification system is unique and protected under
patent application. The system employed in the air purification process
utilizes state of the art technology which allows the Company to offer a product
that eliminates fungus, spores, germs, and other allergens from the air without
the use of conventional filter systems. At present, there is one configuration
offered by the Company: a portable system that can be mounted on a wall, sit on
a floor stand, or be placed on a shelf. The Company believes its system is
superior to any air purification system available in the marketplace today. Its
applications range from household use for removal of germs, odors and allergens
from the air, to commercial applications that include the possibility of
removing all germs and some noxious odors from aircraft while in flight,
eliminating smoking odors from vehicles, removing germs, odors, and allergens
from hospital and other medical environments.
Over the past four years, the Company has engaged the following
independent testing laboratories which have verified the performance of its air
purification system: (a) 1995 test by Allergy and Indoor Air Quality Lab, Inc.,
McAllen, Texas, testing the original prototype unit in an office and garage over
a period of days to determine if the unit would successfully reduce the
microbial population in "real world" situations where the testing rooms were
relatively closed to activities; (b) continued first prototype testing in 1996
by Applied Consumer Services, Inc., Hialeah Gardens, Florida; (c) 1996 test by
Allergy and Indoor Air Quality Lab, Inc., McCallen, Texas, of prototype units in
a series of nursing homes to evaluate the potential to reduce microbial
populations in "real world" situations where air conditioning remained on and
rooms were not sealed; (d) 1997 test by Applied Consumer Services, Inc., Hialeah
Gardens, Florida, on different pathogens to determine kill results under various
conditions; (e) testing in 1998 by Intertek Testing Laboratory (ETL Testing
Laboratories), Cortland, New York, of the effectiveness of the prototype on
various pathogens; and (f) similar testing in 1998 by Northeast Laboratories,
Inc., Connecticut. In these last two laboratory tests, the Company's system
eliminated substantially all of the tested pathogens and molds. In addition,
the Company has
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placed prototype units in commercial facilities to test the concept in actual
working environments. The test sites included doctors' offices, banks, kennels,
"drive-up" windows with pneumatic tubes, homes, warehouse offices and cigar
lounges. Acceptance of the units was overwhelmingly positive. Due to the
effectiveness of the units, operators at the test sites asked to keep the units
at the end of the in-field tests, indicating their satisfaction with the units.
The Company receives no revenues from the prototype units. The units were placed
in working environments with the understanding with the users that the Company
would incorporate their comments in the final production version of the units,
and that when production units were available for purchase that the Company
would take back the prototype units, if they had not already been returned, and
then, if requested to do so by the users, the Company would ship the users the
production units and bill them at that time for the production units. The
Company's financial statements will not be affected when it abandons the
prototype units since they have all been fully expensed.
Management
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The Company's management team consists of Jerrold M. Nelson, Chairman
of the Board, President and Chief Executive Officer, Gary Arnold, Vice Chairman,
Joseph M. Peiken, Vice President and Chief Financial Officer, and Roger A.
Nelsen, Vice President/Sales and Marketing.
Jerrold M. Nelson, Chairman of the Board, President and Chief
Executive Officer. Mr. Nelson has over 27 years of experience in the health
care industry. He has worked for a number of major firms, including Bionomics,
OBI Corporation, and Tuttnauer. He is a former Vice President of Sales for the
Singer Corporation.
Gary Arnold, Vice Chairman. Dr. Arnold has served as an officer and a
board member of the Company since June 1998. He has been CEO of Windhorse
Corporation, an organizational consulting company. Prior to his service with
Windhorse, Dr. was CEO of International Commercial Collections at Cook, Arnold
and Associates in New Orleans.
Joseph M. Peiken, Vice President and Chief Financial Officer. Mr.
Peiken is a certified public accountant and a former Partner of the Certified
Public Accounting firm of Pannell Kerr Foster.
Roger A. Nelsen, Vice President/Sales and Marketing. Mr. Nelsen is the
founder of Nelsen & Associates, a manufacturing representative organization
specializing in the medical products and health care industry. Before founding
Nelsen & Associated, Mr. Nelsen held various positions with Johnson & Johnson
and Everest & Jennings.
Air Purification Product
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The Company has submitted five patent applications to the United
States Patent and Trademark Office ("USPTO") for its proprietary technology. In
addition, five corresponding international patent applications are pending. The
first applications (U.S. and international) were filed in 1997, followed by
three applications in 1998 and one application in 1999. Of the U.S.
applications, only one application has received a first action from the USPTO.
Based on that
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action, the Company is confident that it will obtain meaningful patent
protection. Since there is no regulatory schedule dictating when USPTO examiners
must act on applications and on responses filed by applicants, and since the
Company has no control over when such actions will be taken, the Company cannot
predict when patents will be issued on the pending applications. Although
issuance of the official patents will certainly be helpful to the Company's
marketing efforts, the Company does not believe its receipt of the final patents
is or will be material to the Company's financial results or results of
operations.
The Company's technology uses two basic concepts of sterilization,
Ultraviolet Radiation and Ozone Gas, to destroy airborne bacteria, viruses,
spores and mold. In addition, the Ozone will oxidize some organic odors. Both
components are contained in a closed housing (the "cartridge") which encompasses
a powerful Energy Cell in which the ultraviolet radiation and ozone continually
function. There is no danger involved in exposure to either the machine or the
environment it creates. The system generates different wavelengths of energy
along the air stream within the cartridge. High levels of ozone are created
first and mixed in turbulent fashion with the incoming air. As the air travels
through the cartridge, it comes in contact with ultraviolet radiation. As the
air stream nears the exit of the cartridge, the ozone gas has been reduced and
the air stream emitted contains ozone that is well below (60% below) the levels
recommended by OSHA and the EPA. In addition, the air stream is germ free.
The Cartridge
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The most fundamental element of the Eco-Rx product is the proprietary
replacement cartridge. It provides a safe, simple way for the end user to
maintain the unit. The user never comes in contact with the bulbs or the killing
chamber because these reside inside the sealed cartridge. This disposable
cartridge of foam actually holds the "killing chamber" for the unit. Since the
"killing chamber" is, in essence, the key to the unit, the Company will attempt
to market the cartridges with an "Eco-Rx Inside" trademark. Since the cartridge
must be replaced annually, the "Eco-Rx Inside" will assist the user in
identifying the appropriate replacement. As the number of installed units grows,
the Company should be able to generate an ongoing revenue stream which will be
driven by the demand for replacement cartridges that only Eco-Rx can
supply.
The Eco-Rx cartridge utilizes a special lamp (within the cartridge)
that has a one year life. The Company is developing a base for the lamp, unique
to it, which it intends to patent.
This use of foam improves the product in several ways. Because the
foam is an excellent packing material, the bulbs can be shipped already set into
the chamber, eliminating the need for additional packing materials, and also
eliminating the need for the end-user to come in contact with the germicidal UV
lamp, when the bulb needs replacing. In addition, the material is very light,
lowering shipping costs of the original unit as well as the replacement
cartridge.
Air Cleaner Market
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Over the past decade, indoor air quality ("IAQ") has become one of the
key environmental issues in the U.S. In 1995, the EPA declared poor IAQ as one
of the top five
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health risks, based on the growing body of scientific research supporting the
conclusion that air inside homes and other buildings can be more seriously
polluted than outdoor air. The World Health Organization estimates that 30% of
all new buildings worldwide will suffer from poor IAQ. As people are spending
approximately 90% of their time indoors, the health risk from poor IAQ is
significant, and continues to grow. Estimates suggest that more people die each
year from causes attributable to particulate air pollution than are killed in
car accidents.
There is a wide variety of health effects from poor IAQ, ranging from
increased incidence of asthma and allergic illnesses to Sick Building Syndrome
(SBS) and Building Related Illness (BRI). The incidence of asthma has grown by
more than 65% in the past fifteen years. The economic impact of poor IAQ is
staggering. Studies from the American Lung Association and the International
Journal of Indoor Air Quality have estimated that poor IAQ is costing American
business between $30 and $170 billion dollars annually in lost employee
productivity due to sickness, absenteeism and diminished job performance.
There are several factors that are influencing the continued increase
in health risk from poor IAQ. First, energy conservation measures from the
1970's have created tighter buildings. This has both reduced the number of air
exchanges inside buildings (outside air getting inside) and also increased
moisture build-up inside, which facilitates microorganism growth. Secondly, the
use of heat pumps, which recycle indoor air, have further reduced the amount of
outside "fresh" air being introduced into buildings and have helped increase the
concentration of airborne particulates and microorganisms. Thirdly, reduced
preventative maintenance on HVAC systems and reduced housekeeping have also
increased the levels of airborne contaminants. Finally, the newer building
materials being used in construction have been causing an increase in volatile
organic compounds (VOC's) found in the air. It is important to note that these
trends are not expected to change in the future, suggesting there will be a
continually increasing demand for products that improve the quality of indoor
air.
Tuberculosis
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Tuberculosis is again a growing worldwide medical concern, with the
number of cases increasing in recent years at an alarming rate. In 1990 there
were an estimated 7.5 million cases worldwide and an estimated 2.5 million
deaths from the disease. Documentation exists to substantiate the fact that
health care workers and airline passengers are at a high risk to contact this
airborne disease. In 1996 the World Health Organization (WHO) said that 3.8
million new cases were reported but estimated that nearly eight million cases
might have occurred worldwide. In 1998 the Center for Disease Control (CDC)
reported approximately 8 million new cases and 2 million deaths.
A major cause for the spread of the disease is that it is widespread
in Russia and third world countries. Airlines have made this a much "smaller"
world and, coupled with the population as mobile as it is today and aircraft
recirculating its air more than ever, the disease is spreading once again.
Documentation exists to substantiate the fact that health care workers
and airline passengers are at high risk to contact this airborne disease. The
Company's machine can be
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installed in almost any environment and smaller versions can be operated on low
voltage systems making them candidates for the transportation industry in
addition to normal facility uses.
Small Particulate Filter
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Almost without exception all existing air treatment systems available
in the marketplace today use expensive replaceable filters. The "high end" of
this filter technique is the High-Efficiency-Particulate Air Filter (HEPA)
system. These systems require constant maintenance and, if used in an
environment where airborne germs exist, must be disposed of under the guidelines
of infectious waste, referred to as "red bag" waste. All germs entering the
machine are oxidized leaving nothing dangerous for disposal. Eco-Rx eliminates
the problem, while conventional systems concentrate it. Eco-Rx will have a
small particulate filter to catch "sterile dust" particulates that could remain.
In laboratory testing, over two-thirds of that particulate was destroyed. The
particulate filter will trap the remaining "sterile dust" particulate.
Additional filters will come with the replacement cartridges.
Manufacturing/Assembly
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Eco-Rx does not plan to establish its own manufacturing capability.
The intention is to work with a contract manufacturer, who can also provide
assistance during the final design, engineering and tooling phases of product
development.
Recently, the Company began discussions with six different component
manufacturers in order to identify potential major parts suppliers. Discussions
with one company, Tuscarora Plastics, headquartered in Pittsburgh, Pennsylvania,
have resulted in a trial period during which Tuscarora will produce some key
components as well as provide final assembly and warehousing at its facility in
Putnam, Connecticut. Tuscarora has over 35 manufacturing sites worldwide. An
expert in plastics molding, it has specific expertise in injection molding,
rotocasting and thermo-forming. The Company hopes that its relationship with
Tuscarora will eliminate the need for its own manufacturing facility.
Future Applications
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In future applications the Company will further expand the usage of
the technology by designing applications in water purification, food
sterilization and usage in other medical and home health care products.
Design and Consulting Agreement
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During 1997, the Company entered into a design and consulting services
agreement with Fitch, Inc. of Columbus, Ohio ("Fitch"). The Company agreed to
pay Fitch a royalty of $1 for each unit sold for a period of fifty years,
commencing on the date of first sale, for all sales made by the Company of the
original product to any potential customer introduced to the Company by Fitch.
Royalties are not due to Fitch for sales to any company or potential customer
already known to the Company or obtained by the Company through its own efforts
and not by Fitch. Those companies and customers for which royalties will not be
paid are required to be identified in a "Disclaimer Notice" from the Company to
Fitch.
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Competition
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Almost without exception, existing air treatment systems available in
the marketplace today use expensive replaceable filters. The "high end" of this
filter technique is the High-Efficiency-Particulate Air Filter (HEPA) System.
These systems require constant maintenance, and, if used in an environment where
airborne pathogens exist, must be disposed of under the guidelines of infectious
waste, referred to as "red bag" waste with special clothing and breathing
apparatus.
The Company has made comparisons of competitive air masking and
filtration products to determine the extent to which they achieve their
advertising claims. Based upon these comparisons, the Company does not believe
there is any existing product that can provide safe, effective operation and
still deliver high levels of purification against all three forms of airborne
contaminants. At one end of the product spectrum, the market includes the
replaceable air freshening devices found in restrooms that are intended to mask
lavatory and other odors. As has been discussed, while masking the odor, these
products are not capable of attacking the source of the odor. The products also
require frequent and costly replacement.
Awareness of the effects of poor IAQ continues to grow and will drive
customer's to look for more efficacious product. The Company believes that
companies which currently supply masking products to commercial accounts will be
looking for additional products to sell and new sources of on-going revenue.
The Company believes its Eco-Rx product represents a significant opportunity to
them, due to on-going replacement cartridge sales volume against a growing
installed user base.
The predominant product forms are freestanding HEPA type air cleaners
and filtration devices built into HVAC systems. These products have some
effectiveness against airborne particulates, but they do little to combat odors
or pollutants like smoke, bacteria and viruses. Many of these filtering systems
are out-of-date; they all require frequent filter replacement and maintenance,
which ultimately drives their level of effectiveness. Because the filter's are
typically connected to in-line HVAC systems, this market represents enormous
sales potential.
At the other end of the spectrum are custom-designed air purification
devices, which include large freestanding germicidal UV or ozone generating
machines. These machines, which represent a very small portion of the market,
are extremely expensive (from $1,000 to $10,000 per unit). Since their
design/technology exposes the UV radiation or ozone to the environment, they
either require evacuation to run safely at levels with high enough
concentrations to be effective, or their performance against airborne
contaminants is relatively poor.
Employees
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The Company has four full-time employees. The Company retains the
services of Jerrold M. Nelson, Gary Arnold, Joseph M. Peiken and Roger A. Nelsen
on a full time basis. While these employees are not currently salaried, during
1998 the Company entered into agreements with each of them for consulting
services which were paid during 1998 through the
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settlement of loans made to these employees during 1996 and 1997. See Item 7 of
this Part I. While the Company has no formal agreements with any of its
employees for compensation during 1999, it is anticipated that the Company's
four full-time employees will be paid deferred salaries, when funds are
available, commencing with the fourth quarter of 1999. In addition to, or in
lieu of such deferred salaries, the Board of Directors of the Company, in its
discretion, may pay bonuses to the four employees in amounts to be determined by
the Board after the Board determines that funds are reasonably available to the
Company for such purpose. No employee has any agreement, written or oral, which
would require the payment of any compensation to the employee for any services
rendered to the Company during 1998 or 1999, or during 2000. It is anticipated
that deferred and continuing salaries will be paid to the four employees after
the Board determines that funds are reasonably available to the Company for such
purpose, and not before such determination.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Registration
Statement.
Plan of Operations
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The Company has been in the development stage since its incorporation
in the State of Florida on February 27, 1995. The Company's mission is to
pioneer the technology, design and manufacturing of air purification equipment
for the destruction of pathogens and for the efficient and effective removal of
odors, allergy and asthma causing agents, pollutants and certain gases from
indoor air environments. The Company has a wholly owned subsidiary, Eco-Aire
Marketing, Inc., which is inactive.
Although the Company is in its development stage and does not have
sophisticated computer equipment, its principal corporate computer is new and is
Year 2000 compliant. The accounting software which will be used by the Company
is Year 2000 compliant, and its word processing software and spreadsheet
software are Year 2000 compliant. There is no anticipated remediation, and no
future cost is anticipated for Year 2000 compliance.
The Company remains a development stage company with immaterial
revenues and substantial general and administrative expenses. The Company's
cash has been provided from its fund-raising activities, all of which have been
conducted on a private basis, and from loans from shareholders. The notes
payable by the Company to stockholders and others at September 30, 1999 are as
follows:
Notes Payable to Shareholders
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David Mack Note accruing interest at 10%; all unpaid interest and principal became $100,000
due during June 1998, and is personally guaranteed by Jerrold M. Nelson,
Joseph M. Peiken and Theodore M. Shlisky, three of the Company's
stockholders. As of December 31, 1998, this note was payable on demand
and was
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accruing interest at 18%. Mr. Mack has agreed to accept $5,000 as
payment in full of all interest due under this note if the note is
paid in full in 1999.
David Mack Unsecured loan, interest accruing at 8.75% payable annually commencing 80,000
December 1996. The loan became due during December 1998. As of December
31, 1998, this note was payable on demand and was accruing interest at
18%. Mr. Mack has agreed to accept $5,000 as payment in full of all
interest due under this note if the note is paid in full in 1999.
Virginia Levitt Various unsecured loans, interest accruing at 15%, with maturity dates 50,000
Eddie Levitt ranging from January 31, 1999 to March 12, 999. These notes were renewed
Morris Levitt and now have maturity dates ranging from November 30, 1999 to December
Alan Douglas 31, 1999.
Eddie Levitt Unsecured, bearing interest at 15%, due on demand. 20,000
Jerrold M. Nelson
Dan Glaviano
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Notes Payable to Others
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Rozel International Unsecured, bearing interest at 12%. The maturity date of this note is 100,000
Holdings the earlier of: (a) the infusion of gross proceeds of $300,000 in
additional debt or equity capital, (b) the closing of an initial public
offering or "reverse merger" of the Company into a publicly traded entity
or (c) December 31, 1999.
________
Total: $350,000
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The Company's plan of business is more particularly described in Item
1 of this Registration Statement under the caption "Description of Business."
The information which follows is a narrative description of the Company's plan
of operation for the next 12 months, anticipated product research and
development for the next 12 months, planned capital expenditures for the next 12
months, and the Company's results of operations, liquidity and capital
resources.
Plan of Operation for the Next 12 Months
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Following is the Company's plan of operation for the next 12
months:
. Complete the design of three air purification units; small
room, medium room and larger room, and have them tested at an
independent laboratory to see that they meet the Company's
requirements;
. Have the production molds for manufacturing the units
designed and built;
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. Commence the work necessary to submit the finished unit for a
510-K medical device rating from the Food and Drug
Administration;
. Ascertain that the Company's patent applications comply with
the final design criteria;
. Finalize the list of suppliers;
. Acquire and inventory the component parts that the Company
does not intend to manufacture;
. Design and print sales materials and packaging materials;
. Sell and ship finished products;
. Fill in product line with additional air purification
products;
. Begin development and design of new products; and
. Pursue licensing agreements for the Company's technology.
Product Research and Development for the Next 12 Months
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Over the next 12 months, the Company anticipates its product research
and development will be for (a) air purification products for automobiles and
trucks and home central air conditioning systems, and (b) water purification
applications utilizing the technology.
Capital Expenditures for the Next 12 Months
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The Company anticipates that its capital expenditures over the next 12
months will total approximately $250,000, excluding the cost of production molds
which the Company anticipates will be paid by the manufacturers of the
molds.
Results of Operations
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The Company had total revenues of $58,227 from its date of
organization (February 27, 1995) through September 30, 1999, comprised of
Interest Income of $8,227 and Other Income of $50,000. The $50,000 in Other
Income, received by the Company during the year ended December 31, 1998, was a
good faith payment received by the Company from Sunbeam while an agreement was
being negotiated. Subsequently the parties failed to enter an agreement and the
Company was entitled to retain the fee it had received from Sunbeam. The Company
had no revenues for the nine months ended September 30, 1999. The Company had a
net loss of $112,688 for the nine months ended September 30, 1999, a net loss of
$503,365 for the nine months ended September 30, 1998, and a net loss of
$1,813,707 since February 27, 1995, the date of inception. As of September 30,
1999, total liabilities exceeded total assets by $558,037.
The Company's general and administrative expenses totaled $94,586 and
$474,383 for the nine months ended September 30, 1999 and 1998, respectively,
$686,425 for the year ended December 31, 1998, and $1,189,508 from inception
through September 30, 1999. General and administrative expenses include
telephone, travel, legal fees (including patent fees and legal fees related to
patent applications), interest, testing expenses, insurance, consulting and
depreciation. While telephone expenses have been fairly consistent over the
reported
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periods, legal fees, travel expenses and testing expenses have varied
considerably over the reported periods. For example, legal and accounting fees
totaled $27,035 in 1996, $70,780 in 1997 and $164,494 in 1998, due to the
increasing expenses in 1997 and 1998 relating to the Company's patent
applications. During 1998, the increase in the Company's general and
administrative expenses was also due to $291,649 in consulting fees during 1998,
compared to none in 1997 and 1996. Legal expenses incurred in 1998 and 1999 are
not recurring. Testing expenses and certain patent expenses are also not
recurring.
During the year ended December 31, 1997, the Company incurred a charge
of $444,855 for the abandonment of property. This charge resulted from the
Company's closing of a factory which had been established by the Company on Long
Island, New York. The charge included the loss on equipment, both heavy metal
bending, punching, and shearing equipment, and small tools, payroll, materials,
utilities, rent, telephone and leasehold improvements for a six-month
period.
Management does not believe that the Company will develop any material
revenues until the Company is able to license its technology or sell and
distribute its products. Management is presently involved in preliminary
negotiations for a licensing agreement which, if successfully completed, may
result in substantial profits to the Company. No assurances can be given,
however, that such negotiations will be successful. Until the Company is able
to arrange licensing agreements or sell its own products, it must depend upon
continued private sales of its securities and loans from its shareholders to
fund its losses.
Liquidity and Capital Resources
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The Company had cash of $1,037 at September 30, 1998, $836 at December
31, 1998, and $499 at September 30, 1999. From its organization through
September 30, 1999, the Company has been substantially dependent on the proceeds
of various private offerings of its equity securities and loans from
stockholders to fund its operating expenses. The Company has principally
engaged in borrowing activity from its shareholders (who have loans outstanding
to the Company of $250,000 in the aggregate as of September 30, 1999) and one
unrelated party for $100,000. It is anticipated that the Company's shareholders
will continue to loan funds to the Company to fund its expenses over the next 12
to 18 months, at which time the Company will consider additional private
placements or a public offering of its securities. The Company has no loan
arrangement with any commercial lending institution and is unlikely to receive
traditional commercial debt financing in the foreseeable future. Management
estimates the Company's present operating expenses to be a minimum of $13,000
and a maximum of $20,000 per month, depending upon the Company's payments to
outside research consultants and other consultants.
The Company continues to explore opportunities with various investors,
joint venture candidates, and prospective licensees. As of the date of this
Registration Statement, the Company has not received any binding commitment for
equity or debt financing, nor has it entered into any joint venture or licensing
agreement with respect to its air machine. Management believes that the Company
can continue to operate on a maintenance basis at a cost of no more than $13,000
per month over the next 12 months, provided that the Company obtains sufficient
cash from shareholder loans, as described above, to meet its operating expenses.
The $13,000 required by the Company is allocated as follows: minimum lease
payments of $868, telephone expenses of approximately $2,000, insurance expenses
of approximately $2,200, credit
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card merchant equipment costs and fees of $97, office expenses of approximately
$835, legal expenses of approximately $1,000, and interim payroll and consulting
expenses of $6,000.
Development Stage Operations and Going Concern
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Since formation, the Company's operations have been devoted
primarily to:
. Raising capital - largely by arranging for loans, but also by
arranging for an initial stock sale in 1997 and then beginning
the steps necessary to implement its plan to register the
Company's securities in order to make future sales of securities
more attractive to possible investors;
. Developing its product - with improved designs and testing, and
further development of its proprietary technology that combines
ozone gas and ultraviolet radiation inside a "killing chamber"
that will destroy airborne bacteria, deactivate allergens,
viruses, spores and mold, and oxidize odors and gases;
. Obtaining financing - from directors and outside parties, as
described above;
. Developing its marketing plan - to create a growing awareness of
the increasingly poor indoor air quality which causes increased
asthma and allergy related symptoms, as well as contributes to
the spread of diseases; the Company is attempting to develop and
market products which will improve indoor air quality
effectively, efficiently and economically, and do so in an
environmentally friendly way.
Accordingly, the Company is considered to be in the development
stage, as its planned production and sales have not yet commenced.
Management's plans include the following:
. Commencement of production and development of new products - in
addition to the Company's Eco-Rx system, the Company intends to
develop additional products to improve indoor air quality;
. Implementation of sales and leasing of commercial units - efforts
are continuing to arrange for the sale and leasing of the
Company's Eco-Rx units, once production ready, to commercial
users;
. Pursuing licensing agreements for the technology - the Company
believes it may be able to utilize its technology in various
markets by entering into licensing agreements with manufacturers
and distributors, rather than attempt to manufacture and
distribute its Eco-Rx system for all possible industries, markets
and geographical areas, and is beginning the task of exploring
such agreements for implementation after the Company's initial
patent has issued.
The Company has worked with its patent counsel to modify its pending
patent applications to provide broader protection, so that the patents, when
issued, will be more helpful to the Company's strategy to market its indoor air
purification units to various types of markets for different uses; however, the
Company can make no assurances that its patent
14
<PAGE>
applications will be approved or that the patents, when and if issued, will
provide the broad coverage and protection sought for the Company for its indoor
air purification system.
The Company has been in the development stage since its inception on
February 27, 1995. The financial statements included as part of this
registration statement are presented on the basis that the Company will continue
as a going concern. This contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. As shown in the Company's consolidated financial statements, the
Company has incurred net losses for the nine months ended September 30, 1999 and
1998. As of September 30, 1999, total liabilities exceeded total assets by
$558,037.
The Company's ongoing losses, as well as the Company's ability to
obtain additional long-term financing, adequate stockholder capital
contributions, and future equity funding, create an uncertainty about the
Company's ability to continue as a going concern. The Company's financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
Item 3. Description of the Property
To reduce current expenses, the Company's executive office is
currently located in the residence of Joseph M. Peiken, the Chief Financial
Officer of the Company, at 2051 Northeast 191 Drive, North Miami Beach, Florida
33179. The Company also maintains temporary office space at 511 South 21st
Avenue, Hollywood, Florida 33020, within space located within the offices of
Alarm Trust of Florida, Inc., a company owned by certain shareholders of the
Company. As of September 30, 1999, the Company was not paying any rent for the
use of either of these premises. As of September 30, 1999, the Company had no
laboratory, research or manufacturing facilities. The Company leased a factory
on a month-to-month basis at $1,000 per month through February 27, 1997, at
which time a one year lease was executed at a different location providing for a
monthly rental of $1,375. The factory was subsequently abandoned. Rental
expense for all operating leases amounted to approximately $41,000 during 1998.
As of September 30, 1999, the Company had no rent commitments.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The table on the next following page sets forth information with
respect to the anticipated beneficial ownership of the Common Stock by (i) each
of the officers and directors of the Company, (ii) each person known by the
Company to be the beneficial owner of five percent or more of the outstanding
Common Stock, and (iii) all executive officers and directors as a group, as of
January 31, 2000. Unless otherwise indicated, the Company believes that the
beneficial owner has sole voting and investment power over such shares.
15
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership of Class/(1)/
- ----------------------------- ------------------ -----------------------
<S> <C> <C>
Gary Arnold/(3)/(4)/ 440,000 7.53%
4929 Toby Lane
Kenner, LA 70065
Roger A. Nelsen/(2)/(3)/ 150,328 2.57%
103 Lawlor Drive
Tolland, CT 06084
Dorothy Nelson/(4)/(5)/ 1,127,233 19.29%
68 Zachariah Place
Warwick, RI 02889
Jerrold M. Nelson/(2)/(3)/ 0 0.00%
68 Zachariah Place
Warwick, RI 02889
Joseph M. Peiken/(2)/(3)/(4)/ 1,127,232 19.29%
2051 Northeast 191 Drive
North Miami Beach, FL 33179
Kevin S. Waltzer(4) 654,956 11.40%
2865 S. Gable Rd., PMB 393
New Town, PA 18940
All officers, directors and
principal shareholders
as a group (6 persons) 3,499,749 59.90%
</TABLE>
________________
(1) Calculated on the basis of 5,842,939 shares of Common Stock issued and
outstanding.
(2) Officer of the Company.
(3) Director of the Company.
(4) Includes, in accordance with Rule 13d-3, shares of which the named person
is the beneficial owner.
(5) Ms. Nelson is the spouse of Jerrold M. Nelson, Chairman, President and
Chief Executive Officer of the Company.
16
<PAGE>
Item 5. Directors, Executive Officers, Promoters, and Control Persons
The following table sets forth the directors, executive officers and
other significant employees of the Company, their ages, and all offices and
positions with the Company. Officers and other employees serve at the will of
the Board of Directors. The term of each director shall continue until the 2000
Annual Meeting of Shareholders of the Company, to be held in May 2000, and until
their successors have been duly elected and qualified.
<TABLE>
<CAPTION>
Term Served as
Name of Director Age Director/Officer Positions With Company
- ---------------- --- ---------------- ----------------------
<S> <C> <C> <C>
Gary Arnold 45 Since June 1998 Director, Vice Chairman
Roger A. Nelsen 52 Since September 1997 Director, Vice President of
Sales and Marketing
Jerrold M. Nelson 57 Since February 1995 Director, Chairman, President
and Chief Executive Officer
Joseph M. Peiken 59 Since February 1995 Vice President/Chief Financial
Officer and Secretary
</TABLE>
Jerrold M. Nelson, Chairman of the Board of Directors, President and
Chief Executive Officer. Mr. Nelson has over 27 years of experience in the
health care industry, where he worked at such major firms as Bionomics, OBI
Corporation, and Tuttnauer USA Co. Ltd. (Vice President/Sales, 1994-1995), where
he successfully marketed and sold existing product lines in addition to founding
a subsidiary for OBI Corporation to market new products. For the past five
years, Mr. Nelson has been involved with the formation and operation of the
Company. He is a former Vice President of Sales for the Singer
Corporation.
Joseph M. Peiken, Director, Vice President, Chief Financial Officer
and Secretary. Mr. Peiken received a Bachelor of Business Administration degree
from the University of Miami and is a Certified Public Accountant. He is a
former Partner of the Certified Public Accounting firm of Pannell Kerr Foster
and has taught continuing education classes for the certified public accounting
profession. Mr. Peiken has extensive experience in the operations of both large
and small business entities with an emphasis on business involved in medical and
medical service disciplines. For the past five years, he has been the Chief
Financial Officer and Secretary of the Company.
Roger A. Nelsen, Director, Vice President/Sales and Marketing. Mr.
Nelsen received a B.S.B.A. degree from the University of Connecticut at Storrs.
For over five years, Mr. Nelsen has owned and operated Nelsen & Associates, a
manufacturing representative organization specializing in the medical products
and health care industry. He has extensive experience in the development and
management of sales organizations and has demonstrated
17
<PAGE>
those abilities with such well known business entities as Johnson & Johnson, and
Everest & Jennings. Mr. Nelsen joined the Company in 1995.
Gary Arnold, Vice Chairman of the Board. Dr. Arnold has served as an
officer and a board member of the Company since June 1998. Since 1993, Dr.
Arnold has been CEO of Windhorse Corporation, an organizational consultancy
providing corporations with direction in all phases of expanding capital
markets, business evaluation and corporate planning. Windhorse designs, develops
and publishes educational, motivational and management courses. From 1991 to
1993, Dr. Arnold was CEO of International Commercial Collections and Cook,
Arnold and Associates in New Orleans, where he developed asset and liability
searches, employment screening and credit investigations and collections for the
Federal Government and private industry. Prior to this he served as executive
vice president of Capital Resources, Inc., as a financial analyst with Shearson,
Lehman, Hutton and Paine-Webber and with various other financial and human
resources companies.
Item 6. Executive Compensation
The following table and notes present for the two years ended December
31, 1998, the compensation paid by the Company to the Company's Chief Executive
Officer and to the Company's four most-highly compensated executive officers,
other than the Company's Chief Executive Officer, who were serving at December
31, 1998 and whose total annual salary and bonus exceeded $100,000 (none).
<TABLE>
<CAPTION>
Restricted Securities
Name and Stock Underlying
Principal Position Year Salary ($) Award(s)($) Options/SARs($)
(a) (b) (c) (f) (g)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerrold M. Nelson 1998 -0- -- --
Chairman of the Board,
President
1997 -0- -- --
</TABLE>
Item 7. Certain Relationships and Related Transactions
During 1997, the Company issued 10,000 restricted shares to Gary
Arnold, a Director of the Company, in consideration of his services to the
Company.
During 1996 and 1997, the Company loaned funds, at 7% interest, to
certain stockholders and others. As of December 31, 1997, the total loans
outstanding to such individuals were as follows:
18
<PAGE>
<TABLE>
<S> <C>
Jerrold M. Nelson $ 45,351.00
Joseph M. Peiken 55,775.00
Roger A. Nelsen 45,322.00
Theodore M. Shlisky 49,106.82
Others 10,033.00
-----------
Total: $205,587.82
The foregoing loans and additional amounts were expensed as consulting fees during 1998 as follows:
Jerrold M. Nelson $ 65,411.91
Joseph M. Peiken 71,275.00
Roger A. Nelsen 68,322.01
Theodore M. Shlisky 49,106.83
Others 12,533.00
-----------
Total: $266,648.75
</TABLE>
There are no other loans or advances to officers, directors or
stockholders. There are no other contracts between the Company and any
insiders. The Company believes that all the foregoing transactions with its
officers, directors or shareholders were on terms that were substantially the
same as, and as favorable as, those that the Company could have obtained from
unaffiliated parties.
Item 8. Description of Securities
Common Stock
The Company is presently authorized to issue 10,000,000 Shares of
$.001 par value Common Stock. As of September 30, 1999, the Company had
5,842,939 shares issued and outstanding.
The holders of Shares are entitled to equal dividends and
distributions per share with respect to the Common Stock when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares has a pre-emptive right to subscribe for any securities of
the Company nor are any common shares subject to redemption or convertible into
other securities of the Company. Upon liquidation, dissolution or winding up of
the Company, and after payment of creditors and preferred stockholders, if any,
the assets will be divided pro-rata on a share-for-share basis among the holders
of the shares. All shares now outstanding are fully paid, validly issued and
non-assessable. Each share is entitled to one vote with respect to the election
of any director or any other matter upon which shareholders are required or
permitted to vote. Holders of the Company's shares do not have cumulative
voting rights, so that the holders of more than 50% of the combined shares
voting for the election of directors may elect all of the directors, if they
choose to do so and, in that event, the holders of the remaining shares will not
be able to elect any members to the Board of Directors.
19
<PAGE>
Preferred Stock
The Company is presently authorized to issue 5,000,000 shares of $.001
par value Preferred Stock. As of September 30, 1999, the Company has issued no
shares of Preferred Stock.
The Articles of Incorporation of the Company authorize the Board of
Directors to issue from time to time all or any shares of Preferred Stock, in
one or more series, and to fix for each such series such voting powers, full or
limited, or not voting powers, and such designations, preferences (including
seniority upon liquidation), relative participating optional or other special
rights, redemption rights, conversion privileges and such qualifications,
limitations, or restrictions thereof, as shall be stated and expressed in
resolutions adopted by the Board providing for the issuance of such series of
Preferred Stock.
20
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's Common Stock has been authorized to trade by the NASD on
the OTC Pink Sheets under the symbol "ECRX" as of September 22, 1999. The
Market Maker for the Common Stock of the Company is National Capital LLC, 6801
Broadway Extension, Oklahoma City, Oklahoma 73116 ("National Capital"). In a
letter to National Capital dated September 27, 1999, the NASD cleared National
Capital's request to submit a quote of $5.00 Bid, $5.50 Ask on the OTC Pink
Sheets for the Common Stock of the Company. Prior to September 1999, there was
no market for the Company's Common Stock. The Company is not aware of any
trades which occurred prior to September 30, 1999.
As of September 30, 1999, there were 60 holders of record of the
Company's common stock, and 5,836,439 shares of common stock issued and
outstanding. Of those shares, 5,497,326 shares are "restricted" securities of
the Company within the meaning of Rule 144(a)(3) promulgated under the
Securities Act of 1933, as amended, because such shares were issued and sold by
the Company in private transactions not involving a public offering. Of these
restricted securities, 2,887,990 shares held by affiliates may be sold pursuant
to a registration statement or pursuant to Rule 144.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (in general, a person who has a control relationship with the
company) who has owned restricted securities of common stock beneficially for at
least one year is entitled to sell, within any three-month period, that number
of shares of a class of securities that does not exceed the greater of (i) one
percent (1%) of the shares of that class then outstanding or, if the common
stock is quoted on NASDAQ, (ii) the average weekly trading volume of that class
during the four calendar weeks preceding such sale. A person who has not been
an affiliate of the Company for at least the three months immediately preceding
the sale and has beneficially owned shares of common stock for at least two (2)
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
No prediction can be made as to the effect, if any, that future sales
of shares of common stock or the availability of common stock for future sale
will have on the market price of the common stock prevailing from time to time.
Sales of substantial amounts of common stock on the public market could
adversely affect the prevailing market price of the common stock.
The Company has never paid a cash dividend on its common stock. The
payment of dividends may be made at the discretion of the Board of Directors of
the Company and will depend upon, among other things, the Company's operations,
its capital requirements, and its overall financial condition. Although none of
the Company's current debt obligations would prohibit or restrict the payment of
dividends, under Florida law no dividend may be made if, after giving effect to
the dividend, (a) the corporation would not be able to pay its debts as they
21
<PAGE>
become due in the usual course of business, or (b) the corporation's total
assets would be less than the sum of its total liabilities plus the amount which
would be needed, if the corporation were to be dissolved at the time of the
payment of the dividend, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights, if any, are superior to those receiving
the distribution.
The shares of common stock of the Company are subject to the "penny
stock" rules, as defined in Rule 3a51-1 of the Securities Exchange Act of 1934.
The "penny stock" disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market, resulting in large spreads
and a lower market price. Pursuant to the Penny Stock Reform Act of 1990, the
Securities and Exchange Commission (the "Commission") adopted a number of penny
stock transaction disclosure rules. Rule 15g-9, which became effective on
January 1, 1990, requires broker-dealers recommending penny stocks to document
the suitability of the investment for the specific customer and to obtain the
written agreement of the customer to purchase the penny stock. The Penny Stock
Disclosure Rules adopted by the Commission require a broker-dealer prior to
opening an account for a customer to whom it recommends the purchase or sale of
penny stocks to deliver to the customer a standardized Risk Disclosure Document,
to make specified disclosures in connection with each transaction in a penny
stock, and to deliver a specifically tailored monthly statement to customers
holding in their account penny stocks, the purchase of which was recommended by
the dealer.
Item 2. Legal Proceedings
None.
Item 3. Changes In and Disagreements With Accountants
None.
Item 4. Recent Sales of Unregistered Securities
During the year ended December 31, 1996, 94,228 restricted shares of
common stock were issued for cash in private sales for an aggregate of $60,000
(average price of approximately $0.64 per share).
During the year ended December 31, 1997, the Company issued 947,180
restricted shares of common stock for cash, in a private placement under Rule
506 of Regulation D, in the aggregate amount of $699,155 (average price of
approximately $0.75 per share), and 19,567 restricted shares of common stock
were issued for services.
During the year ended December 31, 1998, the Company issued 112,000
restricted shares of common stock for cash, in the aggregate amount of $214,000
(average price of approximately $1.91 per share), 75,000 restricted shares of
common stock in exchange for forgiveness of debt in the aggregate amount of
$150,000 ($2.00 per share), and 897,987 restricted shares of common stock for
services. Of the 897,829 shares of common stock issued
22
<PAGE>
in exchange for services provided to the Company, 160,500 shares were issued and
recorded at $16,050, the market value of the services received. The remaining
737,487 shares were issued for services performed in connection with the sale of
stock and the cost of these services are reflected in the Company's consolidated
financial statements as a direct reduction of additional paid-in capital.
On September 22, 1999, the Company issued 6,500 restricted shares of
the Company in private sales for an aggregate of $23,750 (average price of
approximately $3.65 per share).
None of the sales of unregistered securities described above were sold
through National Association of Securities Dealers, Inc. (NASD) broker-dealers,
nor were any commissions paid for these shares. None of the shares issued for
services have been issued for future sales of stock.
As of January 31, 2000, there were 60 holders of record of the
Company's common stock. Since the inception of the Company, securities of the
Company have been sold to 53 accredited investors and 7 non-accredited
investors.
Item 5. Indemnification of Officers and Directors
The statutes, charter provisions, bylaws, contracts or other
arrangements under which controlling persons, directors or officers of the
registrant are insured or indemnified in any manner against any liability which
they may incur in such capacity are as follows:
Florida Statute
- ---------------
Section 607.0850 of the Florida Statutes ("Indemnification of
Officers, Directors, Employees, and Agents") provides that each Florida
corporation shall have the following powers:
"(1) A corporation shall have power to indemnify any person who was
or is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof, if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, or conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the corporation or, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
23
<PAGE>
(2) A corporation shall have power to indemnify any person, who was or
is a party to any proceeding by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made under
this subsection in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable unless, and only to the extent
that, the court in which such proceeding was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsection (1) or subsection (2), or in defense of any
claim, issue, or matter therein, he or she shall be indemnified against expenses
actually and reasonably incurred by him or her in connection therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in subsection (1) or
subsection (2). Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in which
directors who are parties may participate) consisting solely of two or more
directors not at the time parties to the proceeding;
(c) By independent legal counsel:
1. Selected by the board of directors prescribed in
paragraph (a) or the committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtained for
paragraph (a) and the committee cannot be designated under paragraph (b),
selected by majority vote of the full board of directors (in which directors who
are parties may participate); or
24
<PAGE>
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who were not parties to such proceeding or, if no such quorum is
obtainable, by a majority vote of shareholders who were not parties to such
proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil
or criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he or she is ultimately found
not to be entitled to indemnification by the corporation pursuant to this
section. Expenses incurred by other employees and agents may be paid in advance
upon such terms or conditions that the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and a corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office. However, indemnification or advancement of expenses shall not be made to
or on behalf of any director, officer, employee, or agent if a judgment or other
final adjudication establishes that his or her actions, or emissions to act,
were material to the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his or her conduct was lawful
or had no reasonable cause to believe his or her conduct was unlawful;
(b) A transaction from which the director, officer, employee, or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of s. 607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person, unless otherwise provided when authorized or ratified.
25
<PAGE>
(9) Unless the corporation's articles of incorporation provide
otherwise, notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2), or
subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
or she would have with respect to such constituent corporation if its separate
existence had continued.
(11) For purposes of this section:
(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to any
employee benefit plan), and expenses actually and reasonably incurred with
respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit, or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
26
<PAGE>
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes
any service as a director, officer, employee, or agent of the corporation that
imposes duties on such persons, including duties relating to an employee benefit
plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner he or
she reasonably believes to be in the best interests of the participants and
beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against the
person and incurred by him or her in any such capacity or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify the person against such liability under the provisions of this
section. "
Bylaw Provision
- ---------------
Article VIII of the registrant's bylaws provides as follows:
"Each person (including here and hereinafter, the heirs, executors,
administrators, or estate of such person): (I) who is or was a Director or
officer of the Corporation; (ii) who is or was an agent or employee of the
Corporation other than an officer and as to whom the Corporation has agreed to
grant such indemnity; or (iii) who is or was serving at the request of the
Corporation as its representative in the position of a Director, officer, agent
or employee of another corporation, partnership, joint venture, trust or other
enterprise and as to whom the Corporation has agreed to grant such indemnity;
shall be indemnified by the corporation as of right to the fullest extent
permitted or authorized by current or future legislation or by current or future
judicial or administrative decision, against any fine, liability, cost or
expense, including attorneys' fees, asserted against him or incurred by him in
his capacity as such Director, officer, agent, employee, or representative, or
arising out of his status as such Director, officer, agent, employee, or
representative, or arising out of his status as such Director, officer, agent,
employee or representative. The foregoing right of indemnification shall not be
exclusive of other rights to which those seeking an indemnification may be
entitled. The Corporation may maintain insurance, at its expense, to protect
itself and any such person against any such fine, liability, cost or expense,
whether or not the corporation would have the legal power to directly indemnify
him against such liability."
27
<PAGE>
PART F/S
Index to Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Consolidated Financial Statements (Audited)...................................... 29
Report of Independent Auditor............................................... 30
Consolidated Balance Sheets as of December 31, 1998 and 1997................ 31
Consolidated Statements of Operations from Inception (02/27/95)
and for the Years Ended December 31, 1998 and 1997.......................... 32
Consolidated Statements of Stockholders' Deficit from Inception (02/27/95)
and the Years Ended December 31, 1998, 1997, 1996 (unaudited)
and 1995 (unaudited)........................................................ 33
Consolidated Statements of Cash Flows from Inception (02/27/95)
and for the Years Ended December 31, 1998 and 1997.......................... 34-35
Notes to Consolidated Financial Statements.................................. 36-43
Consolidated Interim Financial Statements (unaudited)............................ 44
Consolidated Balance Sheets (unaudited) as of
September 30, 1999 and 1998................................................. 45
Consolidated Statements of Operations (unaudited) for
the Quarter Ended September 30, 1999 and 1998............................... 46-47
Consolidated Statements of Stockholder's Deficit (unaudited)
for the Nine Months Ended September 30, 1999 and 1998....................... 48
Consolidated Statement of Cash Flows (unaudited) for
the Nine Months Ended September 30, 1999 and 1998 and for the
period from Inception (02/27/95) through December 31, 1999.................. 49-50
Notes to Consolidated Financial Statements.................................. 51-57
</TABLE>
28
<PAGE>
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
(A Development Stage Company)
Consolidated Financial Statements
For the Years Ended
December 31, 1998 and 1997
-29-
<PAGE>
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Stockholders
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
We have audited the accompanying consolidated balance sheets of ECO-Rx, Inc.
f/k/a Eco-Aire Company, Inc. (a development stage company) and subsidiary (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
statements of operations, stockholders' deficit and cash flows for the period
February 27, 1995 (inception) through December 31, 1998 are unaudited and we
express no opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ECO-Rx, Inc. f/k/a
Eco-Aire Company, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and its ability to
continue in the normal course of business is dependent upon its ability to raise
capital and the success of future operations. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ Morrison, Brown, Argiz & Company
- -------------------------------------
Certified Public Accountants
Miami, Florida
July 29, 1999
1001 Brickell Bay Drive, 9/th/ Floor, Miami, Florida 33131
phone 305.373.5500 fax 305.373.0056 http://www.mba-cpa.com
1600 Stout Street, 11/th/ Floor, Denver, Colorado 80202 phone 303-615-9500 fax
303-615-9572
-30-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 836 $ 79,118
Inventory 5,307 5,307
Accounts receivable - 16,000
Stock subscription receivable 15,000 -
----------- ---------
TOTAL CURRENT ASSETS 21,143 100,425
ADVANCES TO STOCKHOLDERS - 205,587
FURNITURE AND EQUIPMENT, NET 13,926 18,251
OTHER ASSETS, NET 2,755 53,710
----------- ---------
TOTAL ASSETS $ 37,824 $ 377,973
=========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of lease obligation $ 10,418 $ 6,710
Accounts payable and accrued expenses 233,932 121,900
Notes payable to stockholders 240,000 330,000
----------- ---------
TOTAL CURRENT LIABILITIES 484,350 458,610
LEASE OBLIGATION 22,573 36,698
----------- ---------
TOTAL LIABILITIES 506,923 495,308
----------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock - $.001 par value, 5,000,000 shares
authorized; none issued and outstanding
Common stock - $.001 par value, 10,000,000 shares
authorized; 5,836,439 and 4,751,452 shares issued
and outstanding at December 31, 1998 and 1997,
respectively 5,836 4,751
Additional paid-in capital 1,226,084 847,119
Deficit accumulated during the development stage (1,701,019) (969,205)
----------- ---------
TOTAL STOCKHOLDERS' DEFICIT (469,099) (117,335)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 37,824 $ 377,973
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-31-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1998
1998 1997 (Unaudited)
------------- ------------- ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative $ 686,425 $ 296,881 $ 1,094,922
Amortization and depreciation 11,682 18,128 50,063
Interest 40,708 21,147 72,065
Research and development - 28,325 54,342
Abandonment of property - 444,855 444,855
--------- --------- -----------
TOTAL EXPENSES 738,815 809,336 1,716,247
INTEREST INCOME - 8,227 8,227
OTHER INCOME 50,000 - 50,000
--------- --------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (688,815) (801,109) (1,658,020)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (42,999) - (42,999)
--------- --------- -----------
NET LOSS $(731,814) $(801,109) $(1,701,019)
========= ========= ===========
NET LOSS PER SHARE OF COMMON STOCK:
Loss before cumulative effect of change in
accounting principle $ (.11) $ (.17) $ (.28)
Cumulative effect of change in accounting
principle (.01) - (.01)
--------- --------- -----------
NET LOSS $ (.12) $ (.17) $ (.29)
========= ========= ===========
SHARES USED IN THE CALCULATION
OF NET LOSS PER SHARE 5,836,439 4,751,452 5,836,439
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-32-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------ paid-in Development
Shares Par Value Capital Stage Total
------------------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances at February 27, 1995
(inception) (unaudited) - $ - $ - $ - $ -
Common stock issued for cash
(unaudited) 2,812,376 2,812 89,903 - 92,715
Common stock issued for
services (unaudited) 888,121 888 (888) - -
--------- ------ ---------- ----------- ---------
Balances at December 31, 1995
(unaudited) 3,700,497 3,700 89,015 - 92,715
Common stock issued for cash
(unaudited) 94,228 94 59,906 - 60,000
Net loss (unaudited) - - - (168,096) (168,096)
--------- ------ ---------- ----------- ---------
Balances at December 31, 1996
(unaudited) 3,794,725 3,794 148,921 (168,096) (15,381)
Common stock issued for cash 937,160 937 698,218 - 699,155
Common stock issued for services 19,567 20 (20) - -
Net loss - - - (801,109) (801,109)
--------- ------ ---------- ----------- ---------
Balances at December 31, 1997 4,751,452 4,751 847,119 (969,205) (117,335)
Common stock issued for cash
and stock subscription receivable 112,000 112 213,888 - 214,000
Common stock issued in
exchange for forgiveness of debt 75,000 75 149,925 - 150,000
Common stock issued
for services 897,987 898 15,152 - 16,050
Net loss - - - (731,814) (731,814)
--------- ------ ---------- ----------- ---------
Balances at December 31, 1998 5,836,439 $5,836 $1,226,084 $(1,701,019) $(469,099)
========= ====== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-33-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1998
1998 1997 (Unaudited)
------------- ------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(731,814) $(801,109) $(1,701,019)
--------- --------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 11,682 18,128 23,608
Abandonment of property - 444,855 52,088
Services received in exchange for stock 16,050 - -
Cumulative effect of change in accounting principle 42,999 - -
Changes in operating assets and liabilities:
Inventory - (91,671) (5,307)
Accounts receivable 16,000 13,160 (15,000)
Advances to stockholders - interest - (8,227) -
Advances to stockholders 205,587 - -
Other assets 5,277 (57,840) (2,755)
Accounts payable and accrued expenses 112,032 58,974 233,932
--------- --------- -----------
TOTAL ADJUSTMENTS 409,627 377,379 286,566
--------- --------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (322,187) (423,730) (1,414,453)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to stockholders - (197,360) -
Purchase of fixed assets and capital expenditures (4,678) (160,202) (37,534)
--------- --------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (4,678) (357,562) (37,534)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans 60,000 150,000 240,000
Proceeds from issuance of common stock 199,000 699,155 1,231,920
Payment of lease obligation (10,417) (8,680) (19,097)
--------- --------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 248,583 840,475 1,452,823
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH (78,282) 59,183 836
CASH AT BEGINNING OF YEAR 79,118 19,935 -
--------- --------- -----------
CASH AT END OF YEAR $ 836 $ 79,118 $ 836
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-34-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1998
1998 1997 (Unaudited)
------------ ------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 22,063 $11,527 $ 33,590
============ ============ =================
SUPPLEMENTAL SCHEDULE OF
NON-CASH ACTIVITY:
Leased equipment $ - $52,088 $ 52,088
============ ============ =================
75,000 shares of common stock issued
in exchange for settlement of outstanding
note to a stockholder $150,000 $ - $150,000
============ ============ =================
897,987 shares of common stock issued
in exchange for services received $ 16,050 $ - $ 16,050
============ ============ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-35-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc. has been in the
development stage since its incorporation in the State of Florida
on February 27, 1995. The Company's mission is to pioneer the
technology, design and manufacturing of air purification equipment
for the destruction of pathogens and for the efficient and
effective removal of odors, allergy and asthma causing agents,
pollutants and certain gases from indoor air environments.
The consolidated financial statements include the accounts of ECO-
Rx, Inc. f/k/a Eco-Aire Company, Inc. and its wholly-owned
subsidiary, Eco-Aire Marketing, Inc., collectively referred to as
the "Company". Eco-Aire Marketing, Inc. is inactive and ECO-Rx,
Inc. f/k/a Eco-Aire Company, Inc.'s investment in said company has
been eliminated in consolidation.
(B) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist primarily of metal, bulbs, ballasts,
machines in process and miscellaneous supplies.
(C) READINESS FOR YEAR 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. As a result, those computer programs having time-sensitive
software would recognize a date using "00" as the year 1900 rather
than the year 2000. The Company is in its development stage and
does not have sophisticated computer equipment that may cause the
Year 2000 issue to adversely affect its operations.
(D) INTANGIBLE ASSETS
In April, 1998, the AICPA issued Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP
98-5 provides guidance for the financial reporting of start-up
costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The
Company has adopted SOP 98-5 as of December 31, 1998.
(E) INCOME TAX
Effective January 1, 1996, the Company, with the consent of its
stockholders, elected to be treated as an "S" Corporation for
income tax purposes, under which election federal and state income
taxes are payable by the individual stockholders rather than the
Company. Accordingly, no provision or liability for income taxes
has been included in the consolidated financial statements for the
year ended December 31, 1997.
On September 30, 1998, the Company terminated its election to be
treated as an S Corporation. The Company now accounts for income
taxes under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". As of December 31, 1998, the
Company has an unused net operating loss of approximately
$500,000. Due to the uncertainty relating to the ultimate
utilization
-36-
<PAGE>
of the net operating loss, the Company has provided a valuation
reserve for the entire amount at December 31, 1998.
(F) EARNINGS PER SHARE
Earnings per share is determined in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting
earnings per share ("EPS"). It replaces the presentation of
primary EPS with a presentation of basic EPS. This statement
requires restatement of all prior-period EPS data presented.
The net loss per share is computed by dividing the net loss for
the period by the weighted average number of shares outstanding
(as adjusted retroactively for the dilutive effect of common stock
options) for the period plus the dilutive effect of outstanding
common stock options and warrants considered to be common stock
equivalents. Stock options and other common stock equivalents are
excluded from the calculations as their effect would be anti-
dilutive.
Basic and diluted earnings per share amounts are equal because the
Company has a net loss and consideration of the outstanding
options, warrants and their equivalents would result in anti-
dilutive effects to earnings per share.
The weighted average number of shares used to compute EPS was
5,836,439 and 4,751,452 for the years ended December 31, 1998 and
1997, respectively.
(G) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles 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
related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates
made in preparation of the financial statements.
(H) FURNITURE AND EQUIPMENT
The Company's furniture and equipment is stated at cost.
Depreciation is computed on the straight line method over the
estimated useful lives of the assets, which range from 3 to 5
years.
(I) CONCENTRATIONS OF CREDIT RISK
A major portion of the Company's business is expected to be
conducted using its patented technology. Consequently, the
Company's profitability may be subjected to changes in technology
and its use in commerce.
(J) NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130") effective for the period ending December 31, 1998. SFAS No.
130 requires companies to report by major components and in total,
the change of its net assets during the period from non-owner
sources. The adoption of SFAS No. 130 did not have a significant
effect on the Company's financial position, results of operations,
or cash flows.
-37-
<PAGE>
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way companies report information
about operating segments in annual financial statements and
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company's air
purification business is currently the only segment reportable
under SFAS No. 131.
(K) PATENTS
The Company has applied for several patents in connection with its
technology; however, the Company has elected to expense all costs
associated with obtaining these patents for the year ending
December 31, 1998.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
Since formation, the Company's operations have been devoted primarily
to:
. Raising capital
. Developing its product
. Obtaining financing
. Developing its marketing plan
Accordingly, the Company is considered to be in the development stage,
as its planned production and sales have not yet commenced.
Management's plans include the following:
. Commencement of production and development of new products
. Implementation of sales and leasing of commercial units
. Pursuing licensing agreements for the technology
The Company has made progress expanding the patent coverage and
marketing strategy. The Company has adopted a plan to implement
certain courses of action for raising capital and marketing. The
Company has also held presentations for major companies, to license
the technology, sell or distribute its products.
The Company has been in the development stage since its inception on
February 27, 1995. These statements are presented on the basis that
the Company will continue as a going concern. This contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. As shown
in the accompanying consolidated financial statements, the Company has
incurred net losses during the years ended December 31, 1998 and 1997
of $731,814 and $801,109, respectively. As of December 31, 1998,
current liabilities exceeded current assets by $463,207.
These factors, as well as the Company's ability to obtain additional
long-term financing, adequate stockholder capital contributions and
future equity funding, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of
these uncertainties.
NOTE 3 - RELATED PARTIES
During 1997, several advances were made to certain stockholders which
accrued interest at 7% per annum. During 1998, the Company entered
into agreements with
-38-
<PAGE>
these stockholders for consulting services which were paid during the
year through the settlement of the open advances.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
The Company recorded a stock subscription receivable in the amount of
$15,000 at December 31, 1998. The monies were subsequently collected
by June, 1999. The receivable was recorded as a current asset due to
the short term nature of the repayment period.
NOTE 5 - FURNITURE AND EQUIPMENT
<TABLE>
1998 1997
------- -------
<S> <C> <C>
Furniture and equipment $37,534 $32,855
Less accumulated depreciation 23,608 14,604
------- -------
$13,926 $18,251
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997
was $9,003 and $16,700, respectively.
NOTE 6 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
1998 1997
------- -------
<S> <C> <C>
Patents $ - $ 26,218
Organization costs - 2,500
-------- --------
- 28,718
Less accumulated amortization - 8,074
-------- --------
- 20,644
Developmental costs - 16,031
Deposits 2,755 7,035
Prepaid royalty - 10,000
-------- --------
$ 2,755 $ 53,710
======== ========
</TABLE>
Amortization expense for the years ended December 31, 1998 and 1997
was $2,679 and $1,428, respectively.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These accounts consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accounts payable $205,666 $112,280
Accrued interest 28,266 9,620
-------- --------
$233,932 $121,900
======== ========
</TABLE>
-39-
<PAGE>
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders at December 31, 1998 and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note accruing interest at 10%; all unpaid interest and principal
becomes due June, 1998, and is personally guaranteed by three of
the Company's stockholders. As of December 31, 1998 this note was
payable on demand and was accruing interest at 18%. $100,000 $100,000
Unsecured loan, interest accruing at 8.75% payable annually
commencing December, 1996. Loan matures December, 1998 at which
time all principal and unpaid interest is due. As of December 31,
1998 this note was payable on demand and was accruing interest at 18%. 80,000 80,000
Note accruing interest at 15%, maturing in May, 1998. This note was
converted to 75,000 shares of common stock during 1998. - 150,000
Various unsecured loans, interest accruing at 15%, with maturity
dates ranging from January, 1999 to March, 1999. These notes were
renewed and now have maturity dates ranging from November, 1999 to
December, 1999. 50,000 -
Unsecured, non-interest bearing note payable, due on demand. This note
was repaid in January, 1999. 10,000 -
-------- --------
$240,000 $330,000
======== ========
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company, from time to time, is a defendant in legal actions
arising from normal business activities. Management has reviewed
pending litigation with legal counsel and believes that those actions
are without merit or that the ultimate liability, if any, resulting
from them will not materially affect the Company's financial
position.
OPERATING LEASE
The Company entered into a lease in October, 1997 for a building in
Boston. The annual rent on this building totaled approximately
$47,000. The Company canceled this lease in October, 1998.
The Company leased a factory on a month-to-month basis at $1,000 per
month through February, 1997, at which time a one year lease was
executed at a different location providing for a monthly rental of
$1,375. Although the factory was subsequently abandoned in August,
1997, the Company continued to make payments on this lease until
February, 1998.
-40-
<PAGE>
Rental expense for all operating leases amounted to approximately
$41,000 and $25,000 during 1998 and 1997, respectively. As of
December 31, 1998, the Company had no rent commitments.
LEASE OBLIGATION
In March, 1997, the Company entered into a noncancelable equipment
lease totaling $52,088. The factory in which this equipment was
located was abandoned during 1997. As a result, the equipment was
also abandoned and its net book value is included in the $444,855
amount reported as abandonment of property for the year ended
December 31, 1997 in the Company's consolidated statements of
operations. The Company, however, could not cancel this lease and
therefore, continues to make monthly payments.
Future minimum lease payments under this lease consisted of the
following at December 31, 1998:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1999 $10,418
2000 10,418
2001 10,418
2002 1,737
-------
$32,991
=======
</TABLE>
DESIGN AND CONSULTING AGREEMENT
During 1997, the Company entered into a design and consulting service
agreement with a third party in which it shall pay a royalty of $1
for each unit sold for a period of five years, commencing on the date
of first sale. The Company will pay the same $1 royalty for an
additional 45 years with respect to any and all sales made by the
Company of the original product to any potential customer introduced
to the Company for which a "Disclaimer Notice" was not given.
NOTE 10 - STOCKHOLDERS' DEFICIT
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted
average number of outstanding shares of common stock. Net loss per
share for the periods presented does not include the effects of stock
options and warrants because their effects would be anti-dilutive.
The following table sets forth the computation of net loss per share:
-41-
<PAGE>
<TABLE>
<CAPTION>
For the Period
February 27,
1995
(inception)
Year Ended Year Ended through
December 31, December 31, December 31,
1998 1997 (Unaudited)
----------------- ------------------- -----------------
<S> <C> <C> <C>
Net loss $ (731,814) $ (801,109) $ (1,701,019)
================ ================== ================
Weighted average common shares
outstanding used in computing basic
net loss per share 5,836,439 4,751,452 5,836,439
================ ================== ================
Net loss per share of common stock $ (.12) $ (.17) $ (.29)
================ ================== ================
</TABLE>
During 1997, the Company amended its articles of incorporation and
changed the capital structure from common stock authorized of 1,000
shares with a par value of $1, to 10,000,000 shares of common stock
authorized with a par value of $.001 and authorized preferred stock of
5,000,000 shares with a par value of $.001. During 1997, the Company
also effectuated two stock splits, a 2,000 for 1 stock split and a
3.60266 for 1 stock split, for its common stock. The statement of
stockholder's deficit reflects the effect of these stock splits and
change in par value retroactively.
During 1995, the Company issued 2,812,376 shares of common stock for
$92,715 and 888,121 shares of common stock for services rendered by
certain professionals.
During 1996, the Company issued 94,228 shares of common stock for
$60,000. An additional 947,160 shares of common stock was issued
during 1997 for $699,155. Also during 1997, 9,567 shares of common
stock were issued to certain professionals who provided services to
the Company in connection with its attempt to go public.
During 1998, the Company issued 112,000 shares of common stock for a
stock subscription receivable of $15,000 and $199,000 in cash. The
Company also issued 75,000 shares of common stock in exchange for
forgiveness of a $150,000 debt.
During 1998, 897,829 shares of common stock were issued in exchange
for services provided to the Company. 160,500 of these shares were
issued and recorded at $16,050, the market value of the services
received. The remaining 737,487 shares were issued for services
performed in connection with the sale of stock and the cost of these
services are reflected as a direct reduction of additional paid-in
capital in the consolidated financial statements.
None of these shares were sold through National Association of
Securities Dealers, Inc. (NASD) Broker/Dealers, nor were any
commissions paid for these shares. None of the shares issued for
services have been issued for future sales of stock.
NOTE 11 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
at December 31, 1998 and 1997, as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments." The carrying values of cash, accounts
receivable, stock subscription receivable, accounts payable and
accrued expenses and debt are reasonable estimates of their fair
values.
-42-
<PAGE>
NOTE 12 - SUBSEQUENT EVENTS
In January, 1999, the Company obtained a $100,000 loan bearing
interest at 12%. The maturity date of this note is the earlier of: (a)
the infusion of gross proceeds of $300,000 in additional debt or
equity capital, (b) the closing of an initial public offering or
"reverse merger" of the Company into a publicly traded entity or (c)
December 31, 1999.
On July 27, 1999, the Company changed its name to Eco-RX, Inc.
-43-
<PAGE>
ECO-Rx, Inc. f/k/a/ Eco-Aire Company, Inc.
(A Development Stage Company)
Consolidated Financial Statements
For the Nine Months Ended
September 30, 1999 and 1998
And
For the Quarter ended
September 30, 1999 and 1998
(UNAUDITED)
-44-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30.
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 499 $ 1,037
Inventory 5,307 5,307
----------- -----------
TOTAL CURRENT ASSETS 5,806 6,344
----------- -----------
FURNITURE AND EQUIPMENT, NET 7,114 19,961
OTHER ASSETS, NET 2,755 29,320
----------- -----------
TOTAL ASSETS $ 15,675 $ 55,625
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 194,339 $ 99,278
Notes payable - stockholders 250,000 240,000
Notes payable - others 100,000 0
Current portion of lease obligation 10,416 10,416
TOTAL CURRENT LIABILITIES 554,755 349,694
----------- -----------
LEASE OBLIGATION 18,957 27,784
----------- -----------
TOTAL LIABILITIES 573,712 377,478
STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value, 5,000,000 shares
authorized; none issued and outstanding
Common stock - $0.001 par value, 10,000,000 shares
authorized, 5,842,939 and 5,814,106 shares
issued and outstanding. 5,882 5,180
Additional paid-in capital 1,249,788 1,145,537
Deficit accumulated during the development stage (1,813,707) (1,472,570)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (558,037) (321,853)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 15,675 $ 55,625
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30.
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
Nine Months Nine Months (Inception)
Ended Ended Through
September 30, September 30, September 30,
1999 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative 94,586 474,383 1,189,508
Amortization and depreciation 6,813 15,356 56,876
Interest 6,848 16,322 78,913
Research and development 4,441 4,305 58,783
Abandonment of property - - 444,855
------------- ------------- --------------
TOTAL EXPENSES 112,688 510,366 1,828,935
INTEREST INCOME 8,227
OTHER INCOME 50,000 50,000
------------- ------------- --------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 112,688 (460,366) (1,770,708)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - (42,999) (42,999)
------------- ------------- --------------
NET LOSS $ (112,688) (503,365) $ (1,813,707)
============= ============= ==============
Loss per share of common stock before
cumulative effect of change in
accounting principle $ (0.02) $ (0.09) $ (0.31)
============= ============= ==============
Cumulative effect of change in accounting
principle - (0.01) (0.01)
============= ============= ==============
SHARES USED IN THE CALCULATION
OF BASIC AND DILUTED LOSS PER SHARE 5,836,439 5,477,460 5,836,439
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30.
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
COSTS AND EXPENSES
General and administrative 38,340 25,626
Amortization and depreciation 2,271 2,862
Interest 2,468 4,250
Research and development - 6,131
------------- -------------
TOTAL EXPENSES 43,079 38,869
------------- -------------
NET LOSS $ (43,078) $ (38,869)
============= =============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (0.01) $ (0.01)
============= =============
SHARES USED IN THE CALCULATION OF
BASIC AND DILUTED NET LOSS
PER SHARE 5,836,439 5,477,460
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-47-
<PAGE>
Eco-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
--------------------------
Shares Par Value Capital Stage total
--------- ----------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at February 27, 1995
(inception) (unaudited) - - - - -
Common stock issued for cash
(unaudited) 2,812,376 2,812 89,903 - 92,715
--------- ----------- ----------- ----------- ---------
Common stock issued for
services (unaudited) 888,121 888 (888) - -
Balances at December 31, 1995 3,700,497 3,700 89,015 92,715
Common stock issued for cash
(unaudited) 94,228 94 59,906 60,000
Net loss (unaudited) - - - (168,096) (168,096)
--------- ----------- ----------- ----------- ---------
Balances at December 31, 1996
(unaudited) 3,794,725 3,794 148,921 (168,096) (15,381)
Common stock issued for cash
(unaudited) 937,180 937 698,218 - 699,155
Common stock issued for
services (unaudited) 19,567 20 (20) - -
Net loss (801,109) (801,109)
--------- ----------- ----------- ----------- ---------
Balances at December 31, 1997 4,751,452 4,751 847,119 (969,205) (117,335)
Common stock issued for cash
and stock subscription receivable 112,000 112 213,888 214,000
Common stock issued in
exchange for forgiveness of debt 75,000 75 149,925 150,000
Common stock issued for
services 897,987 898 15,152 16,050
Net Loss (731,814) (731,814)
Balances at December 31, 1998 5,836,439 $5,836 $1,226,084 ($1,701,019) ($469,099)
--------- ----------- ----------- ----------- ---------
Issuance of common
Stock 6,500 7 23,743 23,750
Net loss (112,688) (112,688)
--------- ----------- ----------- ----------- ---------
Balances at September 30, 1999 5,842,939 5,843 1,249,827 (1,813,707) (558,037)
--------- ----------- ----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-48-
<PAGE>
Eco-Rx, Inc.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Nine Months Nine Months through
ended ended September 30,
September 30, September 30, 1999
1999 1998 (Unaudited)
------------- ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (112,688) (503,365) (1,813,707)
------------ ------------ ----------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,813 15,356 30,421
Abandonment of property (27,296) 52,088
Services received in exchange for stock
Cumulative effect of change in accounting principle 42,999
Changes in operating assets and liabilities:
Inventory 0 (5,307)
Accounts receivables 15,000 16,000 -
Other assets 8,687 (2,755)
Advances to stockholders 205,587
Accounts payable and accrued expenses (39,594) (22,622) 194,338
------------ ------------ ----------------
TOTAL ADJUSTMENTS (17,781) 238,711 268,785
------------ ------------ ----------------
NET CASH USED IN OPERATING
ACTIVITIES (130,469) (264,654) (1,544,922)
------------ ------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to stockholders
Capital expenditures (17,066) (37,534)
------------ ------------ ----------------
NET CASH USED IN INVESTING
ACTIVITES 0 (17,066) (37,534)
------------ ------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans 10,000 (90,000) 250,000
100,000 100,000
Proceeds from issuance of common stock 23,750 298,847 1,255,670
Proceeds from (payment of) lease obligation (3,618) (5,208) (22,715)
------------ ------------ ----------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 130,132 203,639 1,582,955
------------ ------------ ----------------
NET INCREASE (DECREASE) IN CASH (337) (78,081) 499
CASH AT BEGINNING OF YEAR 836 79,118
CASH AT END OF PERIOD $ 499 $ 1,037 $ 499
============ ============ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-49-
<PAGE>
Eco-Rx, Inc.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Nine Months Nine Months through
ended ended September 30,
September 30, September 30, 1999
1999 1998 (Unaudited)
------------- ------------- -----------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 6,848 $ 16,322 $ 40,438
============= ============= =================
SUPPLEMENTAL SCHEDULE OF
NON-CASH ACTIVITY:
Leased equipment $ - $ - $ 52,088
============= ============= =================
75,000 shares of common stock issued
exchange for settlement of outstanding
note to a stockholder $ - $ 150,000 $ 150,000
============= ============= =================
897,987 shares of common stock issued
in exchange for services received $ - $ 16,050 $ 16,050
============= ============= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-50-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc. has been in the
development stage since its incorporation in the State of Florida
on February 27, 1995. The Company's mission is to pioneer the
technology, design and manufacturing of air purification equipment
for the destruction of pathogens and for the efficient and
effective removal of odors, allergy and asthma causing agents,
pollutants and certain gases from indoor air environments.
The consolidated financial statements include the accounts of ECO-
Rx, Inc. f/k/a Eco-Aire Company, Inc. and its wholly-owned
subsidiary, Eco-Aire Marketing, Inc., collectively referred to as
the "Company". Eco-Aire Marketing, Inc. is inactive and ECO-Rx,
Inc. f/k/a Eco-Aire Company, Inc.'s investment in said company has
been eliminated in consolidation.
(B) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist primarily of metal, bulbs, ballasts,
machines in process and miscellaneous supplies.
(C) READINESS FOR YEAR 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. As a result, those computer programs having time-sensitive
software would recognize a date using "00" as the year 1900 rather
than the year 2000. The Company is in its development stage and
does not have sophisticated computer equipment that may cause the
Year 2000 issue to adversely affect its operations.
(D) INTANGIBLE ASSETS
In April, 1998, the AICPA issued Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP
98-5 provides guidance for the financial reporting of start-up
costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The
Company has adopted SOP 98-5 as of December 31, 1998.
(E) INCOME TAX
Effective January 1, 1996, the Company, with the consent of its
stockholders, elected to be treated as an "S" Corporation for
income tax purposes, under which election federal and state income
taxes are payable by the individual stockholders rather than the
Company. Accordingly, no provision or liability for income taxes
has been included in the consolidated financial statements for the
year ended December 31, 1997.
On September 30, 1998, the Company terminated its election to be
treated as an S Corporation. The Company now accounts for income
taxes under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". As of December 31, 1998, the
Company has an unused net operating loss of approximately
$500,000. Due to the uncertainty relating to the ultimate
utilization
51
<PAGE>
of the net operating loss, the Company has provided a valuation
reserve for the entire amount at December 31, 1998.
(F) EARNINGS PER SHARE
Earnings per share is determined in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting
earnings per share ("EPS"). It replaces the presentation of
primary EPS with a presentation of basic EPS. This statement
requires restatement of all prior-period EPS data presented.
The net loss per share is computed by dividing the net loss for
the period by the weighted average number of shares outstanding
(as adjusted retroactively for the dilutive effect of common stock
options) for the period plus the dilutive effect of outstanding
common stock options and warrants considered to be common stock
equivalents. Stock options and other common stock equivalents are
excluded from the calculations as their effect would be anti-
dilutive.
Basic and diluted earnings per share amounts are equal because the
Company has a net loss and consideration of the outstanding
options, warrants and their equivalents would result in anti-
dilutive effects to earnings per share.
The weighted average number of shares used to compute EPS was
5,836,439 and 5,477,460 for nine months ended September 30, 1999
and 1998 respectively.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles 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
related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates
made in preparation of the financial statements.
(H) FURNITURE AND EQUIPMENT
The Company's furniture and equipment is stated at cost.
Depreciation is computed on the straight line method over the
estimated useful lives of the assets, which range from 3 to 5
years.
(I) CONCENTRATIONS OF CREDIT RISK
A major portion of the Company's business is expected to be
conducted using its patented technology. Consequently, the
Company's profitability may be subjected to changes in technology
and its use in commerce.
(J) NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130") effective for the period ending December 31, 1998. SFAS No.
130 requires companies to report by major
52
<PAGE>
components and in total, the change of its net assets during the
period from non-owner sources. The adoption of SFAS No. 130 did
not have a significant effect on the Company's financial position,
results of operations, or cash flows.
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way companies report information
about operating segments in annual financial statements and
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company's air
purification business is currently the only segment reportable
under SFAS No. 131.
(K) PATENTS
The Company has applied for several patents in connection with its
technology; however, the Company has elected to expense all costs
associated with obtaining these patents.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
Since formation, the Company's operations have been devoted primarily
to:
. Raising capital
. Developing its product
. Obtaining financing
. Developing its marketing plan
Accordingly, the Company is considered to be in the development stage,
as its planned production and sales have not yet commenced.
Management's plans include the following:
. Commencement of production and development of new products
. Implementation of sales and leasing of commercial units
. Pursuing licensing agreements for the technology
The Company has made progress expanding the patent coverage and
marketing strategy. The Company has adopted a plan to implement
certain courses of action for raising capital and marketing. The
Company has also held presentations for major companies, to license
the technology, sell or distribute its products.
The Company has been in the development stage since its inception on
February 27, 1995. These statements are presented on the basis that
the Company will continue as a going concern. This contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. As shown
in the accompanying consolidated financial statements, the Company has
incurred net losses for the Nine Months ended September 30, 1999 and
1998. As of September 30, 1999, current liabilities exceeded current
assets by $548,949.
53
<PAGE>
These factors, as well as the Company's ability to obtain additional
long-term financing, adequate stockholder capital contributions, and
future equity funding, create an uncertainty about the Company's
ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
NOTE 3 - RELATED PARTIES
During 1997, several advances were made to certain shareholders which
accrued interest at 7% per annum. During 1998, the Company entered
into agreements with these shareholders for consulting services which
were paid during the year through the settlement of the open advances.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
The Company recorded a stock subscription receivable in the amount of
$15,000 at December 31, 1998. The monies were subsequently collected
by June, 1999. The receivable was recorded as a current asset due to
the short term nature of the repayment period.
NOTE 5 - FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Furniture and equipment $37,534 $38,565
Less accumulated depreciation 30,420 18,604
--------- --------
$ 7,114 $19,961
========= ========
</TABLE>
Depreciation expense for the nine months ended September 30, 1999 and
1998 was $6,813 and $6,162, respectively.
NOTE 6 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Deposits $ 2,755 $ 2,755
Prepaid expenses - 26,565
-------- --------
$ 2,755 $ 29,320
======== ========
</TABLE>
Amortization expense for the nine months ended September 30, 1999 and
1998 was $0 and $9,194, respectively.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These accounts consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Accounts payable $ 182,727 $ 95,028
Accrued interest 11,612 4,250
--------- --------
$ 194,339 $ 99,278
========= ========
</TABLE>
54
<PAGE>
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders at September 30, 1999 and 1998 is
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Note accruing interest at 10%; all unpaid interest and
principal becomes due June, 1998, and is personally
guaranteed by three of the Company's stockholders. As of
December 31, 1998 this note was payable on demand and
was accruing interest at 18%. $ 100,000 $ 100,000
Note accruing interest at 12%; maturing the
Earlier of: (a) the infusing of gross proceeds of
$300,000 in additional debt or equity capital, (b)
the closing of an initial public offering or
"reverse merger" of the Company into a
publicly traded entity or (c) December 31, 1999. $ 100,000
Unsecured loan, interest accruing at 8.75% payable
annually commencing December, 1996. Loan matures December,
1998 at which time all principal and unpaid interest is due.
As of December 31, 1998 this note was payable on demand
and was accruing interest at 18%. 80,000 80,000
Various unsecured loans, interest accruing at 15%, with
maturity dates ranging from January, 1999 to March, 1999.
These notes were renewed and now have maturity dates ranging
from November, 1999 to December, 1999. 70,000 50,000
Unsecured, non-interest bearing note payable,
due on demand. This note was repaid in January, 1999. 10,000
--------- ---------
$ 350,000 $ 240,000
========= =========
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company, from time to time, is a defendant in legal actions
arising from normal business activities. Management has reviewed
pending litigation with legal counsel and believes that those actions
are without merit or that the ultimate liability, if any, resulting
from them will not materially affect the Company's financial position.
OPERATING LEASE
The Company entered into a lease in October, 1977 for a building in
Boston. The annual rent on this building totaled approximately
$47,000. The Company canceled this lease in October, 1998.
The Company leased a factory under a one year lease for a monthly
rental of $1,375. The factory was subsequently abandoned.
55
<PAGE>
Rental expense for all operating leases amounted to approximately
$41,000 during 1998. As of September 30, 1999, the Company had no rent
commitments.
LEASE OBLIGATION
In March, 1997, the Company entered into a noncancelable equipment
lease totaling $52,088. The factory in which this equipment was
located was abandoned during 1997. As a result, the equipment was also
abandoned and its net book value is included in the $444,855 amount
reported as abandonment of property for the year ended December 31,
1997 in the Company's consolidated statements of operations. The
Company, however, could not cancel this lease and therefore, continues
to make monthly payments.
Future minimum lease payments under a noncancelable equipment lease
consisted of the following at September 30, 1999:
<TABLE>
<CAPTION>
Years ending September 30,
<S> <C>
2000 $ 10,418
2001 10,418
2002 8,537
---------
$ 29,373
=========
</TABLE>
DESIGN AND CONSULTING AGREEMENT
During 1997, the Company entered into a design and consulting services
agreement with a third party. The Company shall pay a royalty of $1
for each unit sold for a period of five years, commencing on the date
of first sale. The Company will pay the same $1 royalty for an
additional 45 years with respect to any and all sales made by the
Company of the original product to any potential customer introduced
to the Company for which a "Disclaimer Notice" was not given.
NOTE 10 - STOCKHOLDERS' DEFICIT
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted
average number of outstanding shares of common stock. Net loss per
share for the periods presented does not include the effects of stock
options and warrants because their effects would be anti-dilutive.
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
For the Period
February 27,
1995
Year Ended Year Ended (inception)
September 30, September 30, through
1999 1998 September 30,
----------------- ------------------- -----------------
<S> <C> <C> <C>
Net loss $ (112,688) $ (487,662) $ (1,813,707)
========== ========== =============
5,836,439 5,582,000 5,836,439
Weighted average common shares ========== ========== =============
outstanding used in computing basic
net loss per share
Net loss per share $ (.02) $ (.09) $ (.31)
========== ========== ============
</TABLE>
56
<PAGE>
During 1997, the Company amended its articles of incorporation and
changed the capital structure from common stock authorized of 1,000
shares with a par value of $1, to 10,000,000 shares of common stock
authorized with a par value of $.001 and also authorized preferred
stock of 5,000,000 shares with a par value of $.001. During 1997, the
Company effectuated two stock splits, a 2,000 for 1 stock split and a
3.60266 for 1 stock split, for its common stock. The statement of
stockholder's deficit reflects the effect of these stock splits and
change in par value retroactively.
NOTE 11 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
at December 31, 1998 and 1997, as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments." The carrying values of cash, accounts
receivable, stock subscription receivable, accounts payable and
accrued expenses and debt are reasonable estimates of their fair
values.
NOTE 12 SHARES ISSUED FOR SERVICES
During 1995 the Company issued 2,812,378 shares of common stock for
$92,715 and 888,121 shares of common stock for services rendered by
certain professionals.
During 1996, the Company issued 94,228 shares of common stock for
$80,000. An additional 947,160 shares of common stock was issued
during 1997 for $899,155. Also during 1997, 9,567 shares of common
stock were issued to certain professionals who provided services to
the Company in connection with its attempt to go public.
During 1998, the Company issued 112,000 shares of common stock for a
stock subscription receivable of $15,000 and $199,000 in cash. The
Company also issued 75,000 shares of common stock in exchange for
forgiveness of a $150,000 debt.
During 1998, 897,829 shares of common stock were issued in exchange
for services provided to the Company. 160,500 of these shares were
issued and recorded at $16,050, the market value of the services
received. The remaining 737,487 shares were issued for services
performed in connection with the sale of stock and the cost of these
services are reflected as a direct reduction of additional paid-in
capital in the consolidated financial statements.
None of these shares were sold through National Association of
Securities Dealers, Inc (NASD) Broker/Dealers, nor were any
commissions paid for these shares. None of the shares issued for
services have been issued for future sales of stock.
NOTE 13 - SUBSEQUENT EVENTS
On July 27, 1999, the Company changed its name to Eco-RX, Inc.
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PART III
Item 1. Index to Exhibits
Exhibit No. Description
3.1 Articles of Incorporation, as amended*
3.2 Bylaws*
4.1 Form of common stock certificate*
10.1 Consulting Agreement with Fitch, Inc. dated
January 17, 1997*
* previously filed by ECO-Rx, Inc. in this Registration Statement
(Form 10-SB, 0-28117)
Item 2. Description of Exhibits
None.
58
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ECO-Rx, Inc.
Dated: February 10, 2000 By: /s/ Joseph M. Peiken
-------------------------------
Joseph M. Peiken
Vice President, Chief Financial
Officer and Director
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