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AMENDMENT NO. 3
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. 3
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Table of Contents
Part I
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Item 1. Description of Business................................................ 4
Item 2. Management's Discussion and Analysis or Plan of Operation.............. 9
Item 3. Description of Property................................................ 14
Item 4. Security Ownership of Certain Beneficial Owners and Management........ 14
Item 5. Directors, Executive Officers, Promoters and Control Persons........... 15
Item 6. Executive Compensation................................................. 16
Item 7. Certain Relationships and Related Transactions......................... 17
Item 8. Description of Securities.............................................. 18
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters.......................... 19
Item 2. Legal Proceedings...................................................... 20
Item 3. Changes in and Disagreements with Accountants.......................... 20
Item 4. Recent Sales of Unregistered Securities................................ 20
Item 5. Indemnification of Directors and Officers.............................. 21
Part F/S
Financial Statements.............................................................. 26
Part III
Item 1. Index to Exhibits...................................................... 64
Item 2. Description of Exhibits................................................ 64
Signatures........................................................................ 65
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This Registration Statement contains certain forward-looking statements,
including 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
-----------
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 some
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, some odors and other allergens from the air
without the use of conventional filter systems. At present, there are five
configurations offered by the Company. They are all portable; three floor
models and two table top models. 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, some 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, some 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., McAllen, 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 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
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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
----------
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.
Mr. Nelson is presently undergoing chemotherapy for leukemia, and the prognosis
for his recovery is unknown.
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. Arnold 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 was a
certified public accountant and a former Partner of the accounting firm of
Pannell Kerr Foster; however, his accounting license is no longer active.
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 &
Associates, Mr. Nelsen held various positions with Johnson & Johnson and Everest
& Jennings.
During 2000, the Company hopes to complete the final production drawings for its
air purification system, arrange for the delivery of component parts from
suppliers when needed for production, complete the construction of its plastic
injection molds, and begin assembly and shipment of the completed
products.
Air Purification Product
------------------------
The Company's technology utilizes either or both of two basic embodiments of
sterilization: Germicidal Ultraviolet Radiation and Germicidal Ultraviolet in
combination with Ozone, to destroy bacteria, viruses, spores and mold.
Both of these embodiments use a sealed housing (the "cartridge") encompassing
the powerful Energy Cell where the Germicidal Ultraviolet or the Germicidal
Ultraviolet/Ozone function. There is no danger involved in exposure to either
the machine or the environment it creates. The system(s) generate different
wavelengths of energy along the air stream within the cartridge. Where ozone is
used, it is generated first and is turbulently mixed with the incoming air.
Next, as the air travels through the cartridge, it comes in contact with
Ultraviolet Radiation. The air stream exiting the cartridge, has been
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substantially purified. In laboratory tests conducted in 1998 by Intertek
Testing Laboratory and Northeast Laboratories, the air stream was substantially
free (99.99%) of the tested pathogens and molds.
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, to
date only one application has received a response from the USPTO. While the
USPTO did find prior air purification systems using ozone, none of the prior art
used the Company's cartridge concept or its sleeve concept. The Eco-Rx ultra
violet application is also covered in its patent applications. For that reason,
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 by
allowing the Company to represent that its technology is proprietary and has
patent protection, 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 believes it will be able to market the Eco-Rx system,
even without patent protection, since the Company's research has disclosed no
other system on the market which uses the Company's cartridge or sleeve
concepts. The Company believes these improvements in its system over existing
systems will enable the Company to compete effectively in the marketplace.
The Cartridge
-------------
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 lamp because it
resides inside the sealed cartridge. This disposable cartridge 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. In addition to seeking patent protection for its technology, which
must be used by any supplier of cartridges for use in the Company's system, the
Company will seek separate patent protection for its cartridge.
The lamp contained within the Eco-Rx cartridge has up to a one-year life, based
on continual service.
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 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
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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 has 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
------------
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 contract this airborne
disease. In 1996 the World Health Organization (WHO) said 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. The Company's
machine can be installed in almost any environment and smaller versions, when
developed, will be capable of operating on low voltage(batteries), which will
enhance marketability to the transportation industry in addition to normal
facility uses.
Small Particulate Filter
------------------------
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.
This system requires regular 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 ECO-Rx machine are
oxidized leaving nothing dangerous for disposal. Eco-Rx eliminates the problem,
while conventional systems concentrate it. Eco-Rx has a small course filter to
catch the remaining "sterile dust" particulates that could remain in the air
stream. In laboratory testing, over two-thirds of that particulate was
destroyed. Additional filters will come with the replacement cartridges.
Manufacturing/Assembly
----------------------
Eco-Rx is establishing its own assembly capability and has signed a lease for a
facility to house offices, assembly and shipping operations. The intention is to
work with suppliers who can provide assistance
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during the final design, engineering and tooling phases of product development.
Future Applications
--------------------
In future applications the Company will expand the use of the Eco-Rx technology
by designing applications in water purification, food sterilization and use in
other medical and home health care products.
Design and Consulting Agreement
-------------------------------
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. The royalty period is fifty years, commencing
on the date of the Company's first sale. The agreement covers all sales of the
original product made by the Company to any 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.
Competition
-----------
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 four forms of airborne contaminants (molds, spores,
viruses and airborne bacteria). 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. While masking odors, 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 products. The Company believes that companies,
currently supplying air purification 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
distributors, due to on-going replacement cartridge sales volume into a growing
installed user base.
The predominant air cleansing product forms are HEPA type air cleaners and
filtration devices built into HVAC systems. Filtration 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 regular filter replacement and maintenance,
which ultimately impacts their level of effectiveness. Filters connected to
central HVAC systems represent significant sales potential because of the
sizable installed base of such systems.
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
expensive (from $1,000 to $10,000 per unit). Since design and technology of
custom units exposes the environment to the UV radiation or ozone, to be
effective either (1) they require evacuation of room or house to run safely at
high concentrations of ozone or risk of eye damage to the uv lamp or (2) 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 settlement of loans made to these employees
during 1996 and 1997. While the Company has no formal or informal agreements
with any of its employees for compensation, the Company's four full-time
employees will be paid for future services when funds are available. In
addition, the Board of Directors of the Company, in its discretion, may pay
bonuses to 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. It is anticipated that salaries will be paid to the four
employees during 2000, 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
------------------
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.
The Company remains a development stage company with no revenues and substantial
general and administrative expenses. The Company's cash has been provided from
its capital placement/stock sales activities. All stock sales have been
conducted on a private basis, and all financing has come from the stock sales
and from loans from shareholders and others. The notes payable by the Company
to stockholders and others at July 15, 2000 are as follows:
Notes Payable to Stockholders
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David Mack Note accruing interest at 10%; all unpaid interest and $100,000
principal became 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 July 15, 2000, this note was payable on demand and was
accruing interest at the default rate of 18%. Mr. Mack was
paid $5,000 in interest during February 2000 to extend the
note.
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David Mack Unsecured loan, interest accruing at 8.75% payable annually 80,000
commencing December 1996. The loan became due in December
1998. As of July 15, 2000, this note was accruing interest
at the default rate of 18%. In consideration of the $5,000
payment described above, Mr. Mack agreed to extend this note,
which is now payable upon demand.
Virginia Levitt Various unsecured loans, interest accruing at 15%, with 202,100
Eddie Levitt maturity dates ranging from July 31, 2000 to December 31,
Morris Levitt 2000. Some of these loans were extended in July 2000, after
Alan Douglas, completion of the auditor's report dated June 14, 2000
Dan Glaviano, and Note 7 contained in the Company's financial statements
Gary Levitt, for the year ended December 31, 1999.
Leslie Peiken
Michael Diguilo Various unsecured loans, interest accruing at 12%, with 87,300
William Lee maturity dates ranging from August 24, 2000 to
Aaron Levitt September 30, 2000. Some of these loans were extended
David Levitt in July 2000, after completion of the auditor's report dated
Daniel Orsini June 14, 2000 and Note 7 contained in the Company's financial
Leslie Peiken statements for the year ended December 31, 1999.
Notes Payable to Others
-----------------------
Rozel International Unsecured, bearing interest at 12%. This note matured on 50,000
Holdings December 31, 1999. The holder of this note was paid $50,000
in February 2000 and the note is currently in default. The
Company plans to pay the balance of this note from the
proceeds of future borrowings. Since the Company cannot
arrange for its own credit at this time, any such borrowings
will likely require the guarantees of the Company's
principals.
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Total: $ 519,400
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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
----------------------------------------
Following is the Company's plan of operation for the next 12 months:
. Complete the design of five air purification units; two room table
top units, as well as
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one for a medium sized room and two for larger rooms, and have
them tested at an independent laboratory to insure that they meet
the Company's requirements;
. Complete the design and testing of two drop in ceiling units.
. Have the production molds for manufacturing the units designed
and built;
. Commence the work necessary to submit the finished unit for a
5-10 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
-------------------------------------------------------
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.
Expenditures for the Next 12 Months
-----------------------------------
The Company anticipates that its expenditures over the next 12 months will total
approximately $2,5000,000, including the cost of production molds, hiring a new
chief executive officer and a new chief financial officer, a
secretary/receptionist, a plant manager and plant assembly and shipping workers
depending upon need. To fund these expenditures, the Company intends to raise
funds in a nonpublic offering to accredited investors only.
Results of Operations
---------------------
The Company had no revenues from its date of organization (February 27, 1995)
through December 31, 1999 and no revenues for the three months ended March 31,
2000. The Company had a net loss of $230,302 for the year ended December 31,
1999, compared to a net loss of $731,814 for the year ended December 31, 1998,
and a net loss of $81,227 for the three months ended March 31, 2000, compared to
a net loss of $65,885 for the three months ended March 31, 1999. The Company had
a net loss of $1,931,321 from February 27, 1995, the date of inception, through
December 31, 1999, and a net loss of $1,782,246 from the date of inception
through March 31, 2000. As of March 31, 2000, current liabilities exceeded
current assets by $765,219, compared to $677,478 at December 31, 1999.
The Company's general and administrative expenses totaled $158,781 for the year
ended December 31, 1999, compared to $728,382 for the year ended December 31,
1998, and $59,052 for the three months ended March 31, 2000, compared to $42,130
for the three months ended March 31, 1999. General and administrative expenses
include telephone, travel, legal fees (including patent fees and legal fees
related to patent applications), testing expenses, insurance expenses and
consulting fees. While telephone expenses have been fairly consistent over the
reported 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, $164,494 in 1998 and $65,101 in 1999.
The increasing expenses in 1997 and 1998 is related to the Company's patent
applications. During 1998, the increase in
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the Company's general and administrative expenses was also due to consulting
fees of $205,587 which were paid to officer shareholders, compared to none in
1997, as a result of canceling loans from these individuals. In addition,
$61,061 was paid to these individuals which was recorded as consulting expense
during 1998 and $28,900 in 1999. Further, $25,001 was paid to another
shareholder and charged to consulting expense during 1998 and $4000 in 1999. In
total, $291,649 was paid to related parties as consulting expense during the
year ended December 31, 1998. Legal expenses incurred in 1998 and 1999 are not
recurring. Some testing expenses and certain patent expenses are also not
recurring.
During the year ended December 31, 1997, the Company incurred a charge of
$384,917 for the abandonment of property. This charge resulted from the
Company's closing of a factory which had been established by the Company in
Bohemia, New York. All of the charges were cash items, with one exception
which related to the unpaid portion of an equipment lease obligation. The lease
obligation is recorded as a liability on the Company's balance sheet and
payments of $868 per month are due through February 2002. The balance of the
lease was $24,626 at December 31, 1999. The reduction in the amount is due to
monthly payments. The balance of the lease at March 31, 2000 was $19,976.
Management does not believe that the Company will develop any material revenues
until the Company is able to sell and distribute its products or license its
technology. 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
-------------------------------
The Company had cash of $26,761 at December 31, 1999, compared to $836 at
December 31, 1998, $21,291 at March 31, 2000 and $2,704 at March 31, 1999. From
its organization through December 31, 1999, and also through the current date,
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 and others (who had loans outstanding to the Company of
$417,300 in the aggregate as of December 31, 1999 and $519,400 at July 15, March
31, 2000). 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 during 2000 will be a minimum of $13,000 and a
maximum of $25,000 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 during 2000, provided that the Company obtains sufficient cash from
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 card merchant equipment costs and fees of $97, office expenses of
approximately $835, legal expenses of approximately $1,000, interim payroll and
consulting expenses of $6,000 and interest expense of $5000.
12
<PAGE>
Development Stage Operations and Going Concern
----------------------------------------------
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 shareholders 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
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 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 years ended December 31, 1999 and 1998 of $230,302
and $731,814, respectively, and $81,227 and $65,885 for the three months ended
March 31, 2000 and 1999, respectively. As of December 31, 1999 and
13
<PAGE>
March 31, 2000, total liabilities exceeded total assets by $678,102 and
$759,327, respectively.
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, space located within the offices of Alarm Trust of
Florida, Inc., a company owned by certain shareholders of the Company. As of
March 31, 2000, the Company was not paying any rent for the use of either of
these premises. Effective June 1, 2000, the Company leased approximately 6,400
square feet of space located at 3420 and 3430 North 29th Avenue, Hollywood,
Florida, for a term of five years with an option to extend for an additional
five years. Rent is $4,434 per month during the first year, with annual
increases resulting in rent of $4,892 per month in the fifth year. This lease
will provide additional office space and serve as the Company's factory facility
for assembly and shipping of completed machines. As of July 15, 2000, the
Company had no laboratory or research facilities.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the
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 July 15, 2000.
Unless otherwise indicated, the Company believes that the beneficial owner has
sole voting and investment power over such shares.
<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)/ 1,127,233 19.29%
2051 Northeast 191 Drive
North Miami Beach, FL 33179
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
Kevin S. Waltzer/(4)/ 612,456 11.05%
2865 S. Gable Rd., PMB 393
New Town, PA 18940
All officers, directors and
principal shareholders
as a group (6 persons) 3,457,749 59.55%
</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.
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 2001
Annual Meeting of Shareholders of the Company, to be held in May 2001, 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>
Jerrold M. Nelson 58 Since February 1995 Director, Chairman, President
and Chief Executive Officer
Gary Arnold 46 Since June 1998 Director, Vice Chairman
Roger A. Nelsen 53 Since September 1997 Director, Vice President of
Sales and Marketing
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 firms such as Bionomics, OBI
Corporation, and Tuttnauer USA Co. Ltd. (Vice President/Sales, 1994-1995), where
he 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. Mr. Nelson is
presently undergoing chemotherapy for leukemia, and the prognosis for his
15
<PAGE>
recovery is unknown.
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 was a Certified Public Accountant until his
license became inactive. 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
experience in the operations of both large and small business entities. 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.
Mr. Nelsen joined the Company in 1995. Prior to joining the Company, Mr. Nelsen
owned and operated Nelsen & Associates, a manufacturing representative
organization specializing in the medical products and health care industry, for
over 5 years. He has experience in the development and management of sales
organizations, including experience with Johnson & Johnson and Everest &
Jennings.
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 consulting firm
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, 1999,
the compensation paid by the Company to the Company's Chief Executive Officer
("CEO") and to the Company's four most-highly compensated executive officers,
other than the CEO, who were serving at December 31, 1999 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 1999 -0- -- --
Chairman of the Board,
President and CEO
1998 -0- -- --
</TABLE>
16
<PAGE>
Item 7. Certain Relationships and Related Transactions
As of December 31, 1999 and at March 31, 2000, there were no loans or advances
to officers, directors or stockholders on the Company's books. As of December
31, 1999 and at March 31, 2000, there were no contracts between the Company and
any insiders.
During 1997, the Company issued 10,000 restricted shares to Gary Arnold, a
Director of the Company, in consideration of his loans to the Company.
During 1996 and 1997, the Company loaned funds, at 7% interest, to certain
stockholders who were also serving as officers of the Company. As of December
31, 1997, the total loans outstanding to such individuals were as follows:
Jerrold M. Nelson $ 45,351
Joseph M. Peiken 55,775
Roger A. Nelsen 45,322
Theodore M. Shlisky 49,106
Others 10,033
------
Total: $205,587
Funds were loaned to the officers of the Company during 1996 and 1997 because
the Company, rather than pay salaries, required as a condition to providing
funds to its officers that the officers agree to repay the borrowed funds. In
that way, to the extent funds were needed by the Company, the Company could
require a prorata repayment of funds from the borrowers. During 1998, the
Company entered into agreements with these same individuals for consulting
services which were paid during 1998 through the settlement of the open
advances. General and administrative expenses included $205,587 in the year
ended December 31, 1998 relating to consulting services charged to operations as
a result of canceling the loans to these individuals. In addition, $61,061 was
paid to these individuals which was also recorded as consulting expense during
1998. In total, $291,649 was paid to related parties as consulting expense
during 1998.
The amounts which were expensed as consulting fees during 1998 are as follows:
Jerrold M. Nelson $ 65,411
Joseph M. Peiken 71,275
Roger A. Nelsen 68,322
Theodore M. Shlisky 49,106
Others 37,535
--------
Total: $ 291,649
During 1999, the Company paid approximately $33,000 in consulting fees to
related parties.
17
<PAGE>
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 July 15, 2000, 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.
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.
Preferred Stock
The Company is presently authorized to issue 5,000,000 shares of $.001 par value
Preferred Stock. As of July 15, 2000, 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.
18
<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. There has been no market, and currently there is no
market for the Company's Common Stock. The Company is not aware of any public
trades which occurred prior to July 15, 2000.
As of July 15, 2000, there were 74 holders of record of the Company's common
stock, and 5,842,939 shares of common stock issued and outstanding. Of those
shares, 5,546,076 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.
Dividends
---------
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
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.
Penny Stock Rules
-----------------
19
<PAGE>
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
On May 1, 2000 the Company dismissed Morrison, Brown, Argiz & Company as its
certifying accountants. Effective May 3, 2000 the Company retained the firm of
Perez-Abreu, Aguerrebere, Sueiro LLC as its certifying accountant. Perez-Abreu,
Aguerrebere, Sueiro LLC audited the Company's financial statements as of and for
the years ended December 31, 1999 and 1998. Although the Company has dismissed
Morrison, Brown, Argiz & Company as its certifying accountant, there was no
disagreement with that firm on any accounting or financial disclosure issues.
Form 8-K's describing the change in independent accounting firms were filed on
May 5 and May 10, 2000.
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 nonpublic sales for an aggregate of $60,000
(average price of approximately $0.64 per share). The sales were made to
accredited investors only under the exemption from registration of securities
provided by Section 4(2) of the Securities Act of 1933 (the "Securities Act")
for transactions not involving a public offering.
During the year ended December 31, 1997, the Company issued a total of 956,727
shares of common stock. During January 1997, the Company sold 654,956 shares of
common stock to Kevin S. Waltzer and 11,250 shares to Lee Waltzer, both
accredited investors, for cash in the aggregate amount of $397,500. These sales
were made under the exemption from registration provided by Section 4(2) of the
Securities Act for transactions not involving a public offering. Also during the
year ended December 31, 1997, the Company issued 280,521 restricted shares of
common stock for cash, in a private placement under Rule 506 of Regulation D, in
the aggregate amount of $362,250 (average price of approximately $1.29 per
share), and 10,000 restricted shares of common stock were issued to Gary Arnold
in consideration of his making a loan to the Company. Mr. Arnold, who assisted
the Company with information regarding the application of the Company's products
to hospital environments, later became an executive officer of the Company.
During the year ended December 31, 1998, the Company continued to sell shares of
its common stock under its private placement under Rule 506 of Regulation D. In
its private placement, the Company sold
20
<PAGE>
112,000 restricted shares of common stock for a stock subscription receivable of
$15,000 and $199,000 in cash (average price of approximately $1.91 per share).
During 1998, the Company also issued 75,000 shares of common stock in repayment
of a previously outstanding $150,000 loan, valuing the shares at $2.00 per
share, and issued 897,987 shares of common stock to 20 persons in consideration
of services provided to the Company. These shares were issued and recorded at
$86,530, the market value of the services received. This amount includes 737,487
shares issued for services related to costs of fees for placing the common
stock. The market value of the placement fees totaled $70,480 and are reflected
as a direct reduction of additional paid-in capital in the Consolidated
Statements of Stockholders' Deficit in the Company's financial statements. The
shares issued as payment of a previously outstanding loan and the shares issued
for services during 1998 were issued under the exemption from registration
provided by Section 4(2) of the Securities Act for transactions not involving a
public offering.
On September 22, 1999, under its Regulation D, Rule 506 private placement, the
Company issued 6,500 restricted shares of the Company, for cash, in private
sales to 9 accredited investors for aggregate gross proceeds of $32,500 (average
price of $5.00 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 July 15, 2000, there were 74 holders of record of the Company's common
stock. Since the inception of the Company, securities of the Company have been
issued to 67 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
21
<PAGE>
that his or her conduct was unlawful.
(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
(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
22
<PAGE>
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.
(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;
23
<PAGE>
(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;
(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."
24
<PAGE>
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."
25
<PAGE>
PART F/S
<TABLE>
<S> <C>
Index to Financial Statements.................................................... 26
Consolidated Financial Statements................................................ 27
Report of Independent Auditor............................................... 28
Consolidated Balance Sheet as of December 31, 1999.......................... 29
Consolidated Statements of Operations from Inception (02/27/95)
through December 31, 1999 (unaudited) and for the Years Ended
December 31, 1999 and 1998.................................................. 30
Consolidated Statements of Stockholders' Deficit from Inception (02/27/95)
through December 31, 1999 (unaudited) and for the Years Ended
December 31, 1999, 1998, 1997, 1996 and 1995 (unaudited).................... 31-32
Consolidated Statements of Cash Flows from Inception (02/27/95)
through December 31, 1999 (unaudited) and for the Years Ended
December 31, 1999 and 1998.................................................. 33-34
Notes to Consolidated Financial Statements.................................. 35-45
Consolidated Interim Financial Statements (unaudited)............................ 46
Consolidated Balance Sheets (unaudited) as of
March 31, 2000 and 1999..................................................... 47
Consolidated Statements of Operations (unaudited) for
the Three Months Ended March 31, 2000 and 1999............................. 48
Consolidated Statements of Stockholder's Deficit (unaudited)
for the Three months ended March 31, 2000 and 1999.......................... 49-50
Consolidated Statement of Cash Flows (unaudited) for
the Three months ended March 31, 2000 and 1999 and for the
period from Inception (02/27/95) through March 31, 2000 (unaudited)......... 51-52
Notes to Consolidated Financial Statements.................................. 53-64
</TABLE>
26
<PAGE>
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
(A Development Stage Company)
Consolidated Financial Statements
December 31, 1999
27
<PAGE>
PEREZ-ABREU, AGUERREBERE, SUEIRO LLC
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
Eco-Rx, Inc. f/k/a Eco-Aire Company, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Eco-Rx, Inc.
f/k/a Eco-Aire Company, Inc. (a development stage company) and subsidiary (the
"Company") as of December 31, 1999, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the two 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, 1999 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, 1999, and the results
of their operations and their cash flows for the two 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 3 to the
financial statements, the Company is in the development stage as of December 31,
1999 and its ability to continue in the normal course of business is dependent
upon its ability to raise capital and the successful completion of the Company's
development program and, ultimately, the attainment of profitable operations.
Management's plans in regard to these matters are also described in NOTE 3.
The Company's ability to achieve the foregoing elements of its business plan,
which may be necessary to permit the realization of assets and satisfaction of
liabilities in the ordinary course of business, is uncertain. Those conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Perez-Abreu, Aguerrebere, Sueiro LLC
Certified Public Accountants
Coral Gables, Florida
June 14, 2000
220 Miracle Mile, Suite 203 Coral Gables, Florida 33134 Telephone (305)
567-0150
28
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
--------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 26,761
-----------
TOTAL CURRENT ASSETS 26,761
FURNITURE AND EQUIPMENT, NET 8,775
OTHER ASSETS 2,755
-----------
TOTAL ASSETS $ 38,291
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of lease obligation $ 12,472
Accounts payable and accrued expenses 274,467
Notes payable to stockholders 417,300
-----------
TOTAL CURRENT LIABILITIES 704,239
LEASE OBLIGATION 12,154
-----------
TOTAL LIABILITIES 716,393
-----------
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; 5,842,939 shares issued
and outstanding 5,843
Additional paid-in capital 1,247,376
Deficit accumulated during the development stage (1,931,321)
-----------
TOTAL STOCKHOLDERS' DEFICIT (678,102)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 38,291
===========
The accompanying notes are an integral part of these consolidated financial
statements.
29
<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)
Year Ended Year Ended thru December
December 31, December 31, 31, 1999
1999 1998 (Unaudited)
----------- ----------- -----------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
---------- ----------- ------------
COSTS AND EXPENSES
General and administrative 158,781 728,382 1,355,598
Depreciation and amortization 5,151 11,682 55,214
Interest 55,857 40,708 127,922
Research and development 10,513 - 64,855
Abandonment of property - - 384,917
---------- ----------- ------------
TOTAL EXPENSES (230,302) (780,772) (1,988,506)
INTEREST INCOME - - 8,227
OTHER INCOME - 50,000 50,000
---------- ----------- ------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (230,302) (730,772) (1,930,279)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - (1,042) (1,042)
---------- ----------- ------------
NET LOSS $ (230,302) $ (731,814) $ (1,931,321)
========== =========== ============
BASIC AND DILUTED NET LOSS PER
SHARE OF COMMON STOCK:
Loss before cumulative effect of change in
accounting principle $ (0.04) $ (0.12) $ (0.33)
Cumulative effect of change in accounting
principle - - -
---------- ----------- ------------
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (0.12) $ (0.33)
========== =========== ============
SHARES USED IN THE CALCULATION
OF BASIC AND DILUTED NET LOSS PER SHARE 5,838,606 5,836,439 5,838,606
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<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 3,700,497 3,700 89,015 - 92,715
(unaudited) ---------- --------- ---------- ----------- ----------
Balances at December 31, 1995 3,700,497 3,700 89,015 - 92,715
(unaudited)
Common stock issued for cash 94,228 94 59,906 - 60,000
(unaudited)
Net loss (unaudited) - - - (168,096) (168,096)
---------- --------- ---------- ----------- ----------
Balances at December 31, 1996 3,794,725 3,794 148,921 (168,096) (15,381)
(unaudited)
Common stock issued for cash 946,727 947 698,208 - 699,155
Common stock issued in
connection with loan
payable 10,000 10 (10) - -
Net loss - - - (801,109) (801,109)
---------- --------- ---------- ----------- ----------
Balances at December 31,
1997 4,751,452 4,751 847,119 (969,205) (117,335)
</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 STOCKHOLDERS' DEFICIT (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION> Deficit
Common Stock Accumulated
-------------------------------- Additional During the
paid-in Development
Shares Par Value Capital Stage Total
-------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash
and stock subscription
receivable 112,000 112 213,888 - 214,000
Conversion of loan
payable to
common stock 75,000 75 149,925 - 150,000
Common stock issued
for services 897,987 898 85,632 - 86,530
Less: Cost of services (paid
with common stock above)
related to issuing common stock - - (70,480) - (70,480)
Net loss - - - (731,814) (731,814)
--------- ----------- ---------- ----------- -----------
Balances at December 31, 1998 5,836,439 5,836 1,226,084 (1,701,019) (469,099)
Common stock issued for cash 6,500 7 32,493 32,500
Less: Cost of services related to
registration (11,201) (11,201)
Net Loss - - - (230,302) (230,302)
--------- ----------- ---------- ----------- -----------
Balances at December 31, 1999 5,842,939 $ 5,843 $1,247,376 $(1,931,321) $ (678,102)
========= =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement
32
<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)
thru
Year Ended Year Ended December 31,
December 31, December 31, 1999
1999 1998 (Unaudited)
------------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (230,302) $ (731,814) $ (1,931,321)
--------- --------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,151 11,682 55,214
Abandonment of property - - 384,917
Adjustment to inventory for impairment 5,307 - 35,384
Services received in exchange for stock - 16,050 16,050
Consulting fee paid by reclassifying
advances to stockholders - 205,587 205,587
Cumulative effect of change in
accounting principle - 1,042 1,042
Changes in operating assets and liabilities:
Inventory - - (120,791)
Advances to stockholders - - (205,587)
Other assets - 47,234 (77,578)
Accounts payable and accrued expenses 40,535 112,032 274,467
--------- --------- -----------
TOTAL ADJUSTMENTS 50,993 393,627 568,705
--------- --------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (179,309) (338,187) (1,362,616)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - 16,000 16,000
Capital expenditures - (4,678) (253,630)
--------- --------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES - 11,322 (237,630)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans 194,100 60,000 584,100
Proceeds from issuance of common stock 47,500 199,000 1,098,370
Expense related to registration (11,201) - (11,201)
Repayment of stockholder loan (16,800) - (16,800)
Payment of lease obligation (8,365) (10,417) (27,462)
--------- --------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 205,234 248,583 1,627,007
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement
33
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1999
1999 1998 (Unaudited)
------------ ------------- ---------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH 25,925 (78,282) 26,761
CASH AT BEGINNING OF YEAR 836 79,118 -
------------ ------------ -------------
CASH AT END OF PERIOD $ 26,761 $ 836 $ 26,761
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 23,404 $ 22,063 $ 56,994
============ ============ =============
Cash paid for income taxes $ - $ - $ -
============ ============ =============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Leased equipment $ - $ - $ 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 (net of
$70,480 charged to additional-paid-in
capital as expenses of placing common
stock) $ - $ 16,050 $ 16,050
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement
34
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) 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. During 1999, the
Company wrote off $5,307 of items previously included in
inventory, as they believed that these items may not have any
value in future operations.
(B) 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.
(C) ASSET IMPAIRMENT
Assets are considered impaired when, based upon current
information and events, it is probable that the Company will not
realize an economic benefit on the recorded assets. Impairment is
measured on an asset specific basis based upon the fair value of
the assets or the discounted expected future cash flows. During
1998, the Company wrote-off approximately $40,000 due to
impairment, relating to patents and prepaid royalties.
(D) ORGANIZATIONAL COSTS
Organizational costs have been expensed in accordance with
Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on 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. During 1998, the Company expensed $1,042
of organization costs, as a result of SOP 98-5, which is
reflected as a cumulative effect of change in accounting
principle in the consolidated statement of operations.
35
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 this election, federal and state
income taxes are payable by the individual stockholders rather
than the Company. Accordingly, no provision or liability for
income taxes had been included in the consolidated financial
statements through 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 in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. Deferred tax liabilities and assets are determined
based on temporary differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to
reverse. The effect on deferred tax liabilities and assets of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(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. Common stock issued for nominal
consideration is deemed outstanding for all historical periods.
36
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) EARNINGS PER SHARE (CONTINUED)
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 number of shares used to compute EPS was 5,838,606 and
5,836,439 for the years ended December 31, 1999 and 1998,
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) 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, as well as, the enforceability of its
patent.
(I) 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.
(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 flow, since the Company does not have any
components of comprehensive income, other than net income/(loss)
from operations.
37
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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. There are no assurances that the patents will be
granted. During 1998, the total patent costs charged to expense
was $137,703 (including $122,000 for legal fees related to the
patents).
(L) OTHER INCOME
The Company received $50,000 as part of a letter of intent to
enter into an agreement with a third-party to produce air
purification machines to be sold by the third-party. The letter
of intent expired in 90 days, without the consummation of the
contract. The $50,000 is reflected as other income in the
consolidated statement of operations for 1998.
NOTE 3 - 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 and sell or distribute its products.
38
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 3 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN (CONTINUED)
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 since its inception and no revenues. As of
December 31, 1999, current liabilities exceeded current assets by
approximately $678,000.
These factors, as well as the Company's ability to obtain additional
long-term financing, adequate stockholder capital contributions,
future equity funding and achieve and maintain profitable operations,
raise substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
NOTE 4 - 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 these stockholders for consulting services which
were paid during the year through the settlement of the open advances.
General and administrative expenses include $205,587 in the year ended
December 31, 1998 relating to consulting services charged to
operations as a result of canceling the loans from these individuals.
In addition, $61,061 was paid to these individuals which was also
recorded as consulting expense during 1998. Further, $25,001 was paid
to another shareholder and charged to consulting expense during 1998.
In total, $291,649 was paid to related parties as consulting expense
during 1998.
During 1999, the Company paid approximately $33,000 in consulting fees
to related parties.
NOTE 5 - FURNITURE AND EQUIPMENT, NET
These accounts consist of the following as of December 31, 1999:
Furniture and equipment $ 37,534
Less accumulated depreciation 28,759
---------
$ 8,775
=========
Depreciation expense for the years ended December 31, 1999 and 1998
was
39
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
------------------------------------------
$5,151 and $9,003, respectively.
40
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999
------------------------------------------------------------------------------
--------------------------------------------------
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These accounts consist of the following as of December 31, 1999:
<TABLE>
<S> <C>
Accounts payable $214,363
Accrued interest 60,104
--------
$274,467
========
</TABLE>
<TABLE>
<S> <C>
NOTE 7 - NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders as of December 31, 1999 is comprised
of the following:
Note accruing interest at 10%; all unpaid interest and principal
became due June, 1998, and is personally guaranteed by three of the
Company's stockholders. As of December 31, 1999 this note was payable
on demand and was accruing interest at the default rate of 18%. $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. Subsequent to December 31, 1999 the
Company repaid $50,000 of this note. The balance is due on demand
and is accruing interest at the default rate of 18%. 100,000
Unsecured loan, interest accruing at 8.75% payable annually
commencing December, 1996. Loan matured December, 1998 at which
time all principal
</TABLE>
40
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999
------------------------------------------------------------------------------
------------------------------------------------
<TABLE>
<S> <C>
and unpaid interest was due. As of December
31, 1999 this note was payable on demand and was accruing
interest at the default rate of 18%. 80,000
Various unsecured loans, interest accruing at 15%, with original
maturity dates ranging from January, 1999 to March, 1999. These
notes were renewed and now have maturity dates in the year 2000. 65,000
Various unsecured loans, interest accruing at 12%, with maturities
through August 2000. 72,300
--------
$417,300
========
</TABLE>
The Company has committed to issue certain shares of common stock to
certain lenders. The amounts and ratios of shares are to be
determined.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
GOVERNMENTAL REGULATIONS
The Company's operations may be subject to supervision and regulation
by governmental regulatory agencies, which could impact and have a
material adverse effect on the Company's business, financial condition
or results of operations.
LITIGATION
The Company, from time to time, is a defendant in legal actions
arising from normal business activities. Management does not believe
any potential or pending litigation currently exists.
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. The Company, however, could not
cancel this lease and therefore, continues to make monthly payments.
Future minimum lease payments under this lease as of December 31,
1999
41
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999
--------------------------------------------------------------------------------
------------------------------------------------
consisted of the following:
Years ending December 31,
2000 $ 12,472
2001 10,418
2002 1,736
------------------------------------
$ 24,626
==========
Rental expense for all operating leases amounted to approximately
$41,000 during 1998. There was no rental expense during 1999 (NOTE
12).
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 sales of the original product made by the
Company to customers introduced to the Company by this firm.
FINANCIAL CONSULTING SERVICES AGREEMENT
During 1999, the Company entered into a financial consulting services
agreement with a third party in which the third party consultant will
receive 50,000 shares of the Company's common stock in exchange for
services. The consultant has not performed the services as of December
31, 1999 and therefore, the shares have not been issued.
NOTE 9 - STOCKHOLDERS' DEFICIT
LOSS PER SHARE
Loss per share is computed by dividing net loss by the 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:
42
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999
--------------------------------------------------------------------------------
------------------------------------------------
<TABLE>
<CAPTION>
For the Period
February 27,
1995
(inception)
Year Ended Year Ended through
December 31, December 31, December 31,
1999 1998 1999
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net loss $ (230,302) $ (731,814) $(1,931,321)
========== ========== ===========
Weighted average common shares
outstanding used in computing basic
net loss per share 5,838,606 5,836,439 5,838,606
========== ========== ===========
Net loss per share of common stock $ (0.04) $ (0.12) $ (0.33)
========== ========== ===========
</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 3,700,497 shares of common stock for
$92,715.
During 1996, the Company issued 94,228 shares of common stock for
$60,000. An additional 946,727 shares of common stock was issued
during 1997 for $699,155. Also during 1997, 10,000 shares of common
stock were issued to an individual who loaned money to the Company.
During 1998, the Company issued 112,000 shares of common stock for a
stock subscription receivable of $15,000 and $199,000 in cash. Also in
1998, the Company issued 75,000 shares of common stock in repayment of
a previously outstanding $150,000 loan.
43
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999
--------------------------------------------------------------------------------
------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (CONTINUED)
During 1998, 897,987 shares of common stock were issued in exchange
for services provided to the Company. These shares were issued and
recorded at $86,530, the market value of the services received. This
amount includes 737,487 shares issued for services related to costs of
fees for placing the common stock. The market value of the placement
fees totaled $70,480 and are reflected as a direct reduction of
additional paid-in capital in the consolidated statements of
stockholders' deficit.
During 1999, the Company issued 6,500 shares of common stock for
$32,500. Costs related to the registration of the Company were charged
against additional paid-in-capital in the amount of $11,201.
None of these shares were sold through the 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 10 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
as of December 31, 1999, as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments." The carrying values of cash, accounts payable
and accrued expenses, lease obligations and debt are reasonable
estimates of their fair values.
NOTE 11 - INCOME TAXES
The Company has federal and state net operating loss carryforwards as
follows:
<TABLE>
<CAPTION>
Period Ending Federal State Years of Expiration
---------------- --------------- --------------- --------------------
<S> <C> <C> <C>
December 31, 1999 $737,845 $737,845 2018-2019
======== ======== =========
</TABLE>
The deferred tax asset arises from the net operating loss reflected
above.
44
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999
--------------------------------------------------------------------------------
------------------------------------------------
The Company's total deferred tax liabilities, deferred tax assets and
deferred tax asset valuation allowances at December 31, 1999 are as
follows:
<TABLE>
<S> <C>
Total Deferred Tax Asset $258,928
Less Valuation Allowance 258,928
--------
Net Deferred Tax Asset $ -0-
========
</TABLE>
The Company provides a 100 percent valuation allowance for any
deferred tax asset which is attributable to unused net operating loss
carryforwards. Generally accepted accounting principles require a
valuation reserve only if it is more likely than not that some portion
or all of a deferred tax asset will not be realized.
NOTE 12 - SUBSEQUENT EVENTS
In April, 2000, the Company executed a five year lease for space in
Hollywood, Florida to house the administrative office, product
assembly and shipping operations. The lease also contains an option to
renew for an additional five years.
Future minimum lease payments under this lease consisted of the
following:
<TABLE>
<S> <C>
Years ending December 31,
2000 $ 31,038
2001 53,208
2002 54,279
2003 55,863
2004 57,764
Thereafter 24,460
---------
$ 276,612
=========
</TABLE>
During 2000, the Company has received $93,000 in loans from
shareholders. These monies have been used to pay down debt and for
working capital needs.
45
<PAGE>
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
(A Development Stage Company)
Consolidated Financial Statements
For the First Quarter Ended
March 31, 2000 and 1999
(UNAUDITED)
46
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31,
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------------ ----------
CURRENT ASSETS
Cash $ 21,291 $ 2,704
Inventory 0 5,307
------------ ----------
TOTAL CURRENT ASSETS 21,291 8,011
FURNITURE AND EQUIPMENT, NET 12,864 11,656
OTHER ASSETS, NET 2,586 2,755
------------ ----------
TOTAL ASSETS $ 36,741 $ 22,422
============ ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of lease obligation $ 10,418 $ 10,418
Accounts payable and accrued expenses 305,792 199,033
Notes payable to stockholders 470,300 330,000
------------ ----------
TOTAL CURRENT LIABILITIES 786,510 539,451
LEASE OBLIGATION 9,558 21,705
------------ ----------
TOTAL LIABILITIES 796,068 561,156
------------ ----------
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; 5,842,939 and 5,836,439 shares issued
and outstanding at December 31, 1998 and 1997,
respectively 5,843 5,836
Additional paid-in capital 1,247,376 1,222,334
Deficit accumulated during the development stage (2,012,546) (1,766,904)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (759,327) (538,734)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 36,741 $ 22,422
=========== ===========
</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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Quarter Ended Quarter Ended through
March 31, March 31, March 31,
2000 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative $ 59,052 $ 42,130 $ 1,255,869
Depreciation 2,080 2,271 52,143
Interest 16,895 17,043 88,960
Research and development 3,200 4,441 57,542
Abandonment of property - - 348,917
TOTAL EXPENSES 81,227 65,885 1,839,431
INTEREST INCOME - 8,227
OTHER INCOME - - 50,000
------------- ------------- -------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (81,227) (65,885) (1,781,204)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - (1,042)
------------- ------------- -------------
NET LOSS $ (81,227) $ (65,885) $ (1,782,246)
============= ============= =============
NET LOSS PER SHARE OF COMMON STOCK:
Loss before cumulative effect of change in
accounting principle $ (0.01) $ (0.01) $ (0.31)
Cumulative effect of change in accounting
principle - - -
------------- ------------- -------------
NET LOSS $ (0.01) $ (0.01) $ (0.31)
============= ============= =============
SHARES USED IN THE CALCULATION OF
NET LOSS PER SHARE 5,842,939 5,836,439 5,842,939
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
<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) 3,700,497 3,700 89,015 - 92,715
--------- --------- ---------- ----------- ---------
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 946,727 947 698,208 - 699,155
Common stock issued in
connection with loan
payable 10,000 10 (10) - -
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
Conversion of loan
payable to
common stock 75,000 75 149,925 - 150,000
Common stock issued
for services 897,987 898 85,632 - 86,530
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------ paid-in Development
Shares Par Value Capital Stage Total
------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Less: Cost of services (paid
with common stock above)
related to issuing common
stock - - (70,480) - (70,480)
Net loss - - - (731,814) (731,814)
--------- ------ ---------- ----------- ---------
Balances at December 31, 1998 5,836,439 $5,836 $1,226,084 $(1,701,019) $(469,099)
Common stock issued for cash 6,500 7 32,500 32,507
Less: Cost of services related
to registration (11,208) (11,208)
Net Loss (230,301) (230,301)
--------- ------ ---------- ----------- ---------
Balances at December 31, 1999 5,842,939 5,843 1,247,376 (1,931,320) (678,101)
Net Loss (81,226) (81,226)
--------- ------ ---------- ----------- ---------
Balances at March 31, 2000 5,842,939 5,843 1,247,376 (2,012,546) (759,327)
========= ====== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
50
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Quarter Ended Quarter Ended through
March31, March 31, March 31,
2000 1999 2000
-------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(81,226) $ (65,885) $(1,782,245)
-------- ---------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,080 2,271 52,143
Abandonment of property - 384,917
Adjustment to inventory for impairment - 30,077
Services received in exchange for stock 16,050
Consulting fee paid by reclassifying
advances to stockholders - - 205,587
Cumulative effect of change in
accounting principle - 1,042
Changes in operating assets and liabilities:
Inventory - (120,791)
Accounts receivable - 15,000 -
Advances to stockholders - (205,587)
Other assets 169 (77,409)
Accounts payable and accrued expenses 31,326 34,900 265,258
-------- ---------- -----------
TOTAL ADJUSTMENTS 33,575 (17,630) 551,287
-------- ---------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (47,651) (83,514) (1,230,958)
-------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - - 16,000
Capital expenditures (6,169) - (259,799)
-------- ---------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (6,169) (83,514) (243,799)
-------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans (net) 53,000 90,000 443,000
Proceeds from issuance of common stock - 1,050,870
Expense related to registration - (3,750) -
Payment of lease obligation (4,650) (868) (23,747)
-------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Quarter Ended Quarter Ended through
March31, March 31, March 31,
2000 1999 2000
------------ ------------- ----------
<S> <C> <C> <C>
NET CASH PROVIDED BY
FINANCING ACTIVITIES 48,350 85,382 1,470,123
------- ------- ----------
NET INCREASE (DECREASE) IN CASH (5,470) 1,868 (4,646)
CASH AT BEGINNING OF YEAR 26,761 836 25,925
------- ------- ----------
CASH AT END OF PERIOD $21,291 $ 2,704 $ 21,291
======= ======= ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ - $ - $ 33,590
======= ======= ==========
SUPPLEMENTAL SCHEDULE OF
NON-CASH ACTIVITY:
Leased equipment $ - $ $ 52,088
======= ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 and 1999
(UNAUDITED)
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) ASSET IMPAIRMENT
Assets are considered impaired when, based upon current
information and events, it is probable that the Corporation will
not realize an economic benefit on the recorded assets.
Impairment is measured on an asset specific basis based upon the
fair value of the assets or the discounted expected future cash
flows.
53
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) 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.
(F) 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 in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. Deferred tax liabilities and assets are determined
based on temporary differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to
reverse. The effect on deferred tax liabilities and assets of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(G) 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.
54
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) EARNINGS PER SHARE (CONTINUED)
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. Common stock issued for nominal
consideration is deemed outstanding for all historical periods.
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 number of shares used to compute EPS was 5,842,939 and
5,836,439 for the quarters ended March 31, 2000 and 1999,
respectively.
(H) 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.
(I) 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.
(J) 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.
55
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) 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 flow, since the Company does not have any
components of comprehensive income, other than net income from
operations.
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.
(L) 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 quarter
ending March 31, 2000. During the first quarter, the total patent
costs charged to expense was $ 5,148.
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
56
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 2 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN (CONTINUED)
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 Quarters ended March 31, 2000 and 1999
of $81,226 and $65,885 respectively. As of March 31, 2000, current
liabilities exceeded current assets by $ 765,219
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
General and administrative expenses include $8,000 and $8,700 in
the quarter ended March 31, 2000 and 1999 relating to consulting
services by shareholders charged to operations.
57
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 4 - FURNITURE AND EQUIPMENT
2000 1999
-------- ---------
Furniture and equipment $ 43,703 $ 37,534
Less accumulated depreciation 30,839 25,878
-------- ---------
$ 12,864 $ 11,656
======== =========
Depreciation expense for the quarters ended March 31, 2000 and 1999
was $2,080 and $2,271, respectively.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These accounts consist of the following:
2000 1999
-------- --------
Accounts payable $234,479 $180,194
Accrued interest 71,313 18,839
-------- --------
$305,792 $199,033
======== ========
NOTE 6 - NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders at March 31, 2000 and 1999 is
comprised of the following:
2000 1999
----------- -----------
Note accruing interest at 10%; all
unpaid interest and principal
became 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 the default rate of 18%. $100,000 $100,000
Note accruing interest at 12%; maturing
the earlier of: (a) the infusing of
gross proceeds of
58
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 6 - NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
The notes payable to stockholders at March 31, 2000 and 1999 is
comprised of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
$300,000 in additional debt or equity
capital, (b) the closing of an initial
public offering or "reverse merger" of the
Company into a publically traded entity
or (c) December 31, 1999. 50,000 100,000
Unsecured loan, interest accruing at 8.75%
payable annually commencing December, 1996.
Loan matured December, 1998 at which time
all principal and unpaid interest was due.
As of December 31, 1998 this note was payable
on demand and was accruing interest at the
default rate of 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 June - July 2000. 163,000 50,000
Various unsecured loans, interest accruing at
12%, with maturity dates ranging through
April 2000. These notes were renewed and now
have maturity dates ranging from, 1999 to
December 1999. 77,300 -
-------- --------
$470,300 $330,000
======== ========
</TABLE>
59
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 7 - 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.
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. 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 March 31, 2000.
Years ending March 31,
2001 10,418
2002 9,558
--------
$ 19,976
========
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 sales of the original product made by the
Company to customers introduced to the Company by this firm.
NOTE 8 - STOCKHOLDERS' DEFICIT
LOSS PER SHARE
Loss per share is computed by dividing net loss by the 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.
60
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' DEFICIT (CONTINUED)
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
For the Period
Quarter Quarter February 27,
------- ------- 1995
Ended Ended (Inception)
----- ----- through
March 31, March 31, March 31,
2000 1999 2000
---------- ---------- ------------
<S> <C> <C> <C>
Net loss $ (81,226) $ (65,885) $(92,012,546)
========== ========== ============
Weighted average common shares
outstanding used in computing basic
net loss per share 5,842,939 5,836,439 5,836,439
========== ========== ============
Net loss per share of common stock $ (0.01) $ (0.01) $ (0.34)
</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 3,700,497 shares of common stock for
$92,715.
During 1996, the Company issued 94,228 shares of common stock for
$60,000. An additional 946,727 shares of common stock was issued
during 1997 for $699,155. Also during 1997, 10,000 shares of common
stock were issued to an individual who loaned money to the Company.
61
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' DEFICIT (CONTINUED)
During 1998, the Company issued 112,000 shares of common stock for a
stock subscription receivable of $15,000 and $199,000 in cash. Also in
1998, the Company issued 75,000 shares of common stock in repayment of
a previously outstanding $150,000 loan.
During 1998, 897,987 shares of common stock were issued in exchange
for services provided to the Company. These shares were issued and
recorded at $86,530, the market value of the services received. This
amount includes 737,487 shares issued for services related to costs of
fees for placing the common stock. The market value of the placement
fees totaled $70,480 and are reflected as a direct reduction of
additional paid-in capital in the consolidated statements of
stockholders' deficit.
During 1999, the Company issued 6,500 shares of common stock for
$32,500. Costs related to the registration of the Company were charged
against Additional paid-in-capital in the amount of $11,208.
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 9 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
at March 31, 2000 and 1999, 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.
62
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
NOTE 10 - INCOME TAXES
The Company has federal and state net operating loss carryforwards as
follows:
<TABLE>
<CAPTION>
Period Ending Federal State Year of Expiration
----------------------- -------- --------- ------------------
<S> <C> <C> <C>
December 31, 1998 $507,543 $ 507,543 2018
======== =========
December 31, 1999 $230,301 $ 230,301 2019
======== =========
March 31, 2000 $ 81,226 $ 81,226 2020
======== =========
</TABLE>
The deferred tax asset arises from the net operating loss reflected
above.
The Company's total deferred tax liabilities, deferred tax assets and
deferred tax asset valuation allowances at March 31, 2000 are as
follows:
Total Deferred Tax Asset $294,865
Less Valuation Allowance 294,865
--------
Net Deferred Tax Asset $ -0-
========
The Company provides a 100 percent valuation allowance for any
deferred tax asset which is attributable to unused net operating loss
carryforwards. Generally accepted accounting principles require a
valuation reserve only if it is more likely than not that some portion
or all of a deferred tax asset will not be realized.
NOTE 11 - SUBSEQUENT EVENTS
In April, 2000, the Company executed a five year lease for space in
Hollywood, Florida to house the administrative office, product
assembly and shipping operations.
63
<PAGE>
PART III
Item 1. Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
---------- ----------- -------
<S> <C> <C>
3.1 Articles of Incorporation of Registrant,
as originally filed and amended *
3.2 Bylaws of Registrant *
4.1 Form of Common Stock Certificate *
10.1 Consulting Agreement with Fitch,
Inc. dated January 17, 1997 *
10.2 Office Lease **
16 Copy of Letter dated May 5, 2000
from Morrison, Brown, Argiz &
Company on change in certifying
Accountant ***
21.1 Subsidiary of Registrant ***
23.1 Consent of Perez-Abreu, Aguerrebere,
Sueiro LLC
</TABLE>
* Previously filed as an Exhibit to Registrant's Form 10-SB
(file 0-28117) and incorporated herein by this reference.
** Previously filed as an Exhibit to Registrant's Form 10-KSB for the
year ended December 31, 1999, and incorporated herein by this
reference.
*** Previously filed as an Exhibit to Registrant's Form 8-K filed by the
Registrant on May 10, 2000 and incorporated herein by this reference.
Item 2. Description of Exhibits
None
64
<PAGE>
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: July 18, 2000 By: /s/ Joseph M. Peiken
--------------------
Vice President and
Chief Financial Officer
and Director
65
