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AMENDMENT NO. 2
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. 2
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.......... 10
Item 3. Description of Property............................................ 15
Item 4. Security Ownership of Certain Beneficial Owners and Management.... 16
Item 5. Directors, Executive Officers, Promoters and Control Persons....... 17
Item 6. Executive Compensation............................................. 18
Item 7. Certain Relationships and Related Transactions..................... 19
Item 8. Description of Securities.......................................... 19
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 21
Item 2. Legal Proceedings.................................................. 22
Item 3. Changes in and Disagreements with Accountants...................... 22
Item 4. Recent Sales of Unregistered Securities............................ 22
Item 5. Indemnification of Directors and Officers.......................... 23
Part F/S
Financial Statements....................................................... 29
Part III
Item 1. Index to Exhibits.................................................. 65
Item 2. Description of Exhibits............................................ 65
Signatures................................................................. 66
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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
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ECO-Rx, Inc. (the "Company") was originally incorporated as Eco-Aire
Company, Inc. in the State of Florida on February 27, 1995. The Company changed
its name to ECO-Rx, Inc. on July 27, 1999. The Company is engaged in the
business of developing, manufacturing and marketing air purification systems for
use by both the general public and commercial consumers. The Company has been in
the development stage since its incorporation. The Company's mission is to
pioneer the technology, design and manufacturing of air purification equipment
for the destruction of pathogens and for the efficient and effective removal of
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, and other allergens from the air without the
use of conventional filter systems. At present, there is one configuration
offered by the Company: a portable system that can be mounted on a wall, sit on
a floor stand, or be placed on a shelf. The Company believes its system is
superior to any air purification system available in the marketplace today. Its
applications range from household use for removal of germs, 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
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placed prototype units in commercial facilities to test the concept in actual
working environments. The test sites included doctors' offices, banks, kennels,
"drive-up" windows with pneumatic tubes, homes, warehouse offices and cigar
lounges. Acceptance of the units was overwhelmingly positive. Due to the
effectiveness of the units, operators at the test sites asked to keep the units
at the end of the in-field tests, indicating their satisfaction with the units.
The Company receives no revenues from the prototype units. The units were placed
in working environments with the understanding with the users that the Company
would incorporate their comments in the final production version of the units,
and that when production units were available for purchase that the Company
would take back the prototype units, if they had not already been returned, and
then, if requested to do so by the users, the Company would ship the users the
production units and bill them at that time for the production units. The
Company's financial statements will not be affected when it abandons the
prototype units since they have all been fully expensed.
Management
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The Company's management team consists of Jerrold M. Nelson, Chairman
of the Board, President and Chief Executive Officer, Gary Arnold, Vice Chairman,
Joseph M. Peiken, Vice President and Chief Financial Officer, and Roger A.
Nelsen, Vice President/Sales and Marketing.
Jerrold M. Nelson, Chairman of the Board, President and Chief
Executive Officer. Mr. Nelson has over 27 years of experience in the health care
industry. He has worked for a number of major firms, including Bionomics, OBI
Corporation, and Tuttnauer. He is a former Vice President of Sales for the
Singer Corporation. 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.
Air Purification Product
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The Company's technology uses two basic concepts of sterilization,
Ultraviolet Radiation and Ozone Gas, to destroy airborne bacteria, viruses,
spores and mold. In addition, the Ozone will oxidize some organic odors. Both
components are contained in a closed housing (the "cartridge") which encompasses
a powerful Energy Cell in which the ultraviolet radiation and
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ozone continually function. There is no danger involved in exposure to either
the machine or the environment it creates. The system generates different
wavelengths of energy along the air stream within the cartridge. High levels of
ozone are created first and mixed in turbulent fashion with the incoming air. As
the air travels through the cartridge, it comes in contact with ultraviolet
radiation. As the air stream nears the exit of the cartridge, the ozone gas has
been reduced and the air stream emitted contains ozone that is well below (60%
below) the levels recommended by OSHA and the EPA. In addition, in the
laboratory tests conducted in 1998 by Intertek Testing Laboratory and Northeast
Laboratories the air stream was substantially free 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. 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
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The most fundamental element of the Eco-Rx product is the proprietary
replacement cartridge. It provides a safe, simple way for the end user to
maintain the unit. The user never comes in contact with the 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 a one year life.
The Company is developing a unique base for the lamp, which it intends to
patent.
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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 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
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Tuberculosis is again a growing worldwide medical concern, with the
number of cases increasing in recent years at an alarming rate. In 1990 there
were an estimated 7.5 million cases worldwide and an estimated 2.5 million
deaths from the disease. Documentation exists to substantiate the fact that
health care workers and airline passengers are at a high risk to contract this
airborne disease. In 1996 the World Health Organization (WHO) said that 3.8
million new cases were reported but estimated that nearly eight million cases
might have occurred worldwide. In 1998 the Center for Disease Control (CDC)
reported approximately 8 million new cases and 2 million deaths.
A major cause for the spread of the disease is that it is widespread
in Russia and third world countries. Airlines have made this a much "smaller"
world and, coupled with the
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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 systems, which will enhance marketability
to the transportation industry in addition to normal facility uses.
Small Particulate Filter
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Almost without exception all existing air treatment systems available
in the marketplace today use expensive replaceable filters. The "high end" of
this filter technique is the High-Efficiency-Particulate Air Filter (HEPA)
system. 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
particulate filter to catch "sterile dust" particulates that could remain. In
laboratory testing, over two-thirds of that particulate was destroyed. The
particulate filter will trap the remaining "sterile dust" particulate.
Additional filters will come with the replacement cartridges.
Manufacturing/Assembly
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Eco-Rx plans to establish its own assembly capability. The intention
is to work with a contract manufacturer, who can also provide assistance during
the final design, engineering and tooling phases of product development.
Future Applications
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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
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During 1997, the Company entered into a design and consulting services
agreement with Fitch, Inc. of Columbus, Ohio ("Fitch"). The Company agreed to
pay Fitch a royalty of $1 for each unit sold. 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
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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
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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 masking products to commercial accounts, will be
looking for additional products to sell and new sources of on-going revenue. The
Company believes its Eco-Rx product represents a significant opportunity to
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 to run safely at high
concentrations of contaminants 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. See Item 7 of this Part I. 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 the four employees in amounts to
be determined by the Board after the Board determines that funds are reasonably
available to the Company for such purpose. No employee has any agreement,
written or oral, which would require the payment of any compensation to the
employee for any services rendered to the Company during 1998 or 1999, or during
2000. It is anticipated that deferred and continuing salaries will be paid to
the four employees after the Board determines that funds are reasonably
available to the Company for such purpose, and not before such
determination.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Registration
Statement.
Plan of Operations
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The Company has been in the development stage since its incorporation
in the State of Florida on February 27, 1995. The Company's mission is to
pioneer the technology, design and manufacturing of air purification equipment
for the destruction of pathogens and for the efficient and effective removal of
odors, allergy and asthma causing agents, pollutants and certain gases from
indoor air environments. The Company has a wholly owned subsidiary, Eco-Aire
Marketing, Inc., which is inactive.
Although the Company is in its development stage and does not have
sophisticated computer equipment, its principal corporate computer is new and is
Year 2000 compliant. The accounting software which will be used by the Company
is Year 2000 compliant, and its word processing software and spreadsheet
software are Year 2000 compliant. There is no anticipated remediation, and no
future cost is anticipated for Year 2000 compliance.
The Company remains a development stage company with 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. The notes payable by the Company
to stockholders and others at September 30, 1999 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 December 31, 1998, 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, that is now payable upon demand.
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 December 31, 1998, 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, that is now payable upon demand.
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Virginia Levitt Various unsecured loans, interest accruing at 15%, with 50,000
Eddie Levitt maturity dates ranging from January 31, 1999 to March 12,
Morris Levitt 1999. These notes were renewed and now have maturity dates
Alan Douglas ranging from June 30, 2000 to July 31, 2000.
Eddie Levitt Unsecured, bearing interest at 15%, due on demand. 20,000
Jerrold M. Nelson _________
Dan Glaviano 250,000
Notes Payable to Others
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Rozel International Unsecured, bearing interest at 12%. This note matured on 100,000
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.
_________
Total: $350,000
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The Company's plan of business is more particularly described in Item
1 of this Registration Statement under the caption "Description of Business."
The information which follows is a narrative description of the Company's plan
of operation for the next 12 months, anticipated product research and
development for the next 12 months, planned capital expenditures for the next 12
months, and the Company's results of operations, liquidity and capital
resources.
Plan of Operation for the Next 12 Months
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Following is the Company's plan of operation for the next 12 months:
. Complete the design of four air purification units; two small
room units, as well as one each for medium and larger rooms, and
have them tested at an independent laboratory to insure that they
meet the Company's requirements;
. Have the production molds for manufacturing the units designed
and built;
. Commence the work necessary to submit the finished unit for a
510-K medical device rating from the Food and Drug
Administration;
. Ascertain that the Company's patent applications comply with the
final design criteria;
. Finalize the list of suppliers;
. Acquire and inventory the component parts that the Company does
not intend to manufacture;
. Design and print sales materials and packaging materials;
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. Sell and ship finished products;
. Fill in product line with additional air purification products;
. Begin development and design of new products; and
. Pursue licensing agreements for the Company's technology.
Product Research and Development for the Next 12 Months
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Over the next 12 months, the Company anticipates its product research
and development will be for (a) air purification products for automobiles and
trucks and home central air conditioning systems, and (b) water purification
applications utilizing the technology.
Expenditures for the Next 12 Months
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The Company anticipates that its expenditures over the next 12 months
will total approximately $1,093,000, excluding the cost of production molds
which the Company presently anticipates will be separately financed. This sum is
comprised of the following:
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Repay or restructure loans $ 250,000
Payment towards reductions
of accounts payable and accruals 100,000
Working capital 100,000
Build out of offices and factory 30,000
Equipment 5,000
Engineering 15,000
Acquire parts and supplies 150,000
General and Administrative 393,000
Packaging 25,000
Printing and brochures 25,000
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$1,093,000
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To fund these expenditures, the Company intends to raise approximately
$200,000 by selling its subsidiary, and approximately $900,000 in a nonpublic
offering to accredited investors only, for a total of $1,100,000.
Results of Operations
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The Company had no revenues from its date of organization (February
27, 1995) through September 30, 1999. It did have Interest Income of $8,227 and
Other Income of $50,000. The $50,000 in Other Income, received by the Company
during the year ended December 31, 1998, was a good faith payment received by
the Company from Sunbeam while an agreement was being negotiated. Subsequently
the parties failed to enter an agreement and the Company was entitled to retain
the fee it had received from Sunbeam. The Company had no revenues for the nine
months ended September 30, 1999. The Company had a net loss of $150,594 for the
nine months ended September 30, 1999, a net loss of $464,711 for the nine months
ended September 30, 1998, and a net loss of $1,851,613 from February 27, 1995,
the date of inception through September 30, 1999. As of September 30, 1999,
current liabilities exceeded current assets by $586,855.
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The Company's general and administrative expenses totaled $127,185 and
$483,033 for the nine months ended September 30, 1999 and 1998, respectively,
$728,382 for the year ended December 31, 1998, and $1,324,002 from inception
through September 30, 1999. General and administrative expenses include
telephone, travel, legal fees (including patent fees and legal fees related to
patent applications), 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 and $164,494 in 1998, due to the increasing expenses in
1997 and 1998 relating to the Company's patent applications. During 1998, the
increase in the Company's general and administrative expenses was also due to
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. 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 the year ended December 31, 1998.
Legal expenses incurred in 1998 and 1999 are not recurring. Testing expenses and
certain patent expenses are also not recurring.
During the year ended December 31, 1997, the Company incurred a charge
of $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. The manufacturing facility was closed because management
determined that neither the factory nor the product then being produced was
technically or economically viable. The total charge of $384,917 for the year
ended December 31, 1997 consisted of the following: (a) tools and large
materials shearing, bending and punching equipment totaling $34,347, net of the
selling price of $16,000; (b) leasehold improvements of $1,994; (c) design and
development costs for the discontinued product of $120,000; (d) abandonment of
machines out for testing and components, inventory of metal and other supplies,
totaling $176,597; and (e) prepaid advertising, brochures and packing supplies
totaling $51,979. All of the foregoing charges were cash items, with the
exception of charges included in the above amounts which related to the unpaid
portion of the 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 $32,991 and $29,373 at
December 31, 1998 and September 30, 1999, respectively. The reduction in the
amount is due to monthly payments.
Management does not believe that the Company will develop any material
revenues until the Company is able to license its technology or sell and
distribute its products. Management is presently involved in preliminary
negotiations for a licensing agreement which, if successfully completed, may
result in substantial profits to the Company. No assurances can be given,
however, that such negotiations will be successful. Until the Company is able
to arrange licensing agreements or sell its own products, it must depend upon
continued private sales of its securities and loans from its shareholders to
fund its losses.
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Liquidity and Capital Resources
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The Company had cash of $499 at September 30, 1999. From its
organization through September 30, 1999, the Company has been substantially
dependent on the proceeds of various private offerings of its equity securities
and loans from stockholders to fund its operating expenses. The Company has
principally engaged in borrowing activity from its shareholders (who have loans
outstanding to the Company of $250,000 in the aggregate as of September 30,
1999) and one unrelated party for $100,000. It is anticipated that the Company's
shareholders will continue to loan funds to the Company to fund its expenses
over the next 12 to 18 months, at which time the Company will consider
additional private placements or a public offering of its securities. The
Company has no loan arrangement with any commercial lending institution and is
unlikely to receive traditional commercial debt financing in the foreseeable
future. Management estimates the Company's present operating expenses to be a
minimum of $13,000 and a maximum of $20,000 per month, depending upon the
Company's payments to outside research consultants and other consultants.
The Company continues to explore opportunities with various investors,
joint venture candidates, and prospective licensees. As of the date of this
Registration Statement, the Company has not received any binding commitment for
equity or debt financing, nor has it entered into any joint venture or licensing
agreement with respect to its air machine. Management believes that the Company
can continue to operate on a maintenance basis at a cost of no more than $13,000
per month over the next 12 months, provided that the Company obtains sufficient
cash from shareholder loans, as described above, to meet its operating expenses.
The $13,000 required by the Company is allocated as follows: minimum lease
payments of $868, telephone expenses of approximately $2,000, insurance expenses
of approximately $2,200, credit card merchant equipment costs and fees of $97,
office expenses of approximately $835, legal expenses of approximately $1,000,
and interim payroll and consulting expenses of $6,000.
Development Stage Operations and Going Concern
- ----------------------------------------------
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
14
<PAGE>
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 nine months ended September 30, 1999
and 1998. As of September 30, 1999, total liabilities exceeded total assets by
$558,037.
The Company's ongoing losses, as well as the Company's ability to
obtain additional long-term financing, adequate stockholder capital
contributions, and future equity funding, create an uncertainty about the
Company's ability to continue as a going concern. The Company's financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
Item 3. Description of the Property
To reduce current expenses, the Company's executive office is
currently located in the residence of Joseph M. Peiken, the Chief Financial
Officer of the Company, at 2051 Northeast 191 Drive, North Miami Beach, Florida
33179. The Company also maintains
15
<PAGE>
temporary office space at 511 South 21/st/ Avenue, Hollywood, Florida 33020,
within space located within the offices of Alarm Trust of Florida, Inc., a
company owned by certain shareholders of the Company. As of September 30, 1999,
the Company was not paying any rent for the use of either of these premises, and
there currently are no formal or informal agreements pursuant to which the
Company will pay rent to its landlords in the future. As of September 30, 1999,
the Company had no laboratory, research or manufacturing facilities. The Company
leased a factory on a month-to-month basis at $1,000 per month through February
27, 1997, at which time a one year lease was executed at a different location
providing for a monthly rental of $1,375. The factory was subsequently
abandoned. Rental expense for all operating leases amounted to approximately
$41,000 during 1998. As of September 30, 1999, the Company had no rent
commitments.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The 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 March 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
Kevin S. Waltzer/(4)/ 654,956 11.40%
2865 S. Gable Rd., PMB 393
New Town, PA 18940
All officers, directors and
principal shareholders
as a group (6 persons) 3,499,749 59.90%
</TABLE>
16
<PAGE>
/(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 2000
Annual Meeting of Shareholders of the Company, to be held in May 2000, and until
their successors have been duly elected and qualified.
<TABLE>
<CAPTION>
Term Served as
Name of Director Age Director/Officer Positions With Company
- ---------------- --- ---------------- ----------------------
<S> <C> <C> <C>
Jerrold M. Nelson 57 Since February 1995 Director, Chairman, President
and Chief Executive Officer
Gary Arnold 45 Since June 1998 Director, Vice Chairman
Roger A. Nelsen 52 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
recovery is unknown.
17
<PAGE>
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, 1998, the compensation paid by the Company to the Company's Chief Executive
Officer and to the Company's four most-highly compensated executive officers,
other than the Company's Chief Executive Officer, who were serving at December
31, 1998 and whose total annual salary and bonus exceeded $100,000 (none).
<TABLE>
<CAPTION>
Restricted Securities
Name and Stock Underlying
Principal Position Year Salary ($) Award(s)($) Options/SARs($)
(a) (b) (c) (f) (g)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerrold M. Nelson 1998 -0- -- --
Chairman of the Board,
President
1997 -0- -- --
</TABLE>
18
<PAGE>
Item 7. Certain Relationships and Related Transactions
During 1997, the Company issued 10,000 restricted shares to Gary
Arnold, a Director of the Company, in consideration of his loans to the Company.
During 1996 and 1997, the Company loaned funds, at 7% interest, to
certain stockholders and others. As of December 31, 1997, the total loans
outstanding to such individuals were as follows:
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
The foregoing loans and additional amounts were expensed as consulting
fees during 1998 as follows:
Jerrold M. Nelson $ 65,411
Joseph M. Peiken 71,275
Roger A. Nelsen 68,322
Theodore M. Shlisky 49,106
Others 12,534
--------
Total: $266,648
There are no other loans or advances to officers, directors or
stockholders. There are no contracts between the Company and any insiders.
Because the Company could not pay its employees any salaries during 1996 and
1997, it believes that its loans to its officers were on terms that were in the
best interests of the Company and substantially the same as, and as favorable
as, those that other companies in similar financial condition would have made to
their employees. The Company also believes that all the loans made to the
Company by its shareholders, described above under the heading "Notes Payable to
Shareholders", were on terms substantially the same as, and as favorable as,
those that the Company could have obtained from unaffiliated parties.
Item 8. Description of Securities
Common Stock
The Company is presently authorized to issue 10,000,000 Shares of
$.001 par value Common Stock. As of September 30, 1999, the Company had
5,842,939 shares issued and outstanding.
19
<PAGE>
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 September 30, 1999, the Company has issued no
shares of Preferred Stock.
The Articles of Incorporation of the Company authorize the Board of
Directors to issue from time to time all or any shares of Preferred Stock, in
one or more series, and to fix for each such series such voting powers, full or
limited, or not voting powers, and such designations, preferences (including
seniority upon liquidation), relative participating optional or other special
rights, redemption rights, conversion privileges and such qualifications,
limitations, or restrictions thereof, as shall be stated and expressed in
resolutions adopted by the Board providing for the issuance of such series of
Preferred Stock.
20
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's Common Stock has been authorized to trade by the NASD on
the OTC Pink Sheets under the symbol "ECRX" as of September 22, 1999. The
Market Maker for the Common Stock of the Company is National Capital LLC, 6801
Broadway Extension, Oklahoma City, Oklahoma 73116 ("National Capital"). In a
letter to National Capital dated September 27, 1999, the NASD cleared National
Capital's request to submit a quote of $5.00 Bid, $5.50 Ask on the OTC Pink
Sheets for the Common Stock of the Company. 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 March 15, 2000.
As of March 15, 2000, there were 60 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.
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
21
<PAGE>
than the sum of its total liabilities plus the amount which would be needed, if
the corporation were to be dissolved at the time of the payment of the dividend,
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights, if any, are superior to those receiving the distribution.
The shares of common stock of the Company are subject to the "penny
stock" rules, as defined in Rule 3a51-1 of the Securities Exchange Act of 1934.
The "penny stock" disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market, resulting in large spreads
and a lower market price. Pursuant to the Penny Stock Reform Act of 1990, the
Securities and Exchange Commission (the "Commission") adopted a number of penny
stock transaction disclosure rules. Rule 15g-9, which became effective on
January 1, 1990, requires broker-dealers recommending penny stocks to document
the suitability of the investment for the specific customer and to obtain the
written agreement of the customer to purchase the penny stock. The Penny Stock
Disclosure Rules adopted by the Commission require a broker-dealer prior to
opening an account for a customer to whom it recommends the purchase or sale of
penny stocks to deliver to the customer a standardized Risk Disclosure Document,
to make specified disclosures in connection with each transaction in a penny
stock, and to deliver a specifically tailored monthly statement to customers
holding in their account penny stocks, the purchase of which was recommended by
the dealer.
Item 2. Legal Proceedings
None.
Item 3. Changes In and Disagreements With Accountants
None.
Item 4. Recent Sales of Unregistered Securities
During the year ended December 31, 1996, 94,228 restricted shares of
common stock were issued for cash in 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 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
22
<PAGE>
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 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 January 31, 2000, there were 60 holders of record of the
Company's common stock. Since the inception of the Company, securities of the
Company have been issued to 53 accredited investors and 7 non-accredited
investors.
Item 5. Indemnification of Officers and Directors
The statutes, charter provisions, bylaws, contracts or other
arrangements under which controlling persons, directors or officers of the
registrant are insured or indemnified in any manner against any liability which
they may incur in such capacity are as follows:
Florida Statute
- ---------------
Section 607.0850 of the Florida Statutes ("Indemnification of
Officers, Directors, Employees, and Agents") provides that each Florida
corporation shall have the following powers:
"(1) A corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or
23
<PAGE>
was serving at the request of the corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any proceeding by judgment, order, settlement, or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(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
24
<PAGE>
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 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;
25
<PAGE>
(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;
(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:
26
<PAGE>
(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. "
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
27
<PAGE>
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."
28
<PAGE>
PART F/S
<TABLE>
<S> <C>
Index to Financial Statements.................................................... 29
Consolidated Financial Statements................................................ 30
Report of Independent Auditor............................................... 31
Consolidated Balance Sheets as of December 31, 1998 and 1997................ 32
Consolidated Statements of Operations from Inception (02/27/95)
through December 31, 1998 (unaudited) and for the Years Ended
December 31, 1998 and 1997.................................................. 33
Consolidated Statements of Stockholders' Deficit from Inception (02/27/95)
through December 31, 1998 (unaudited) and the Years Ended
December 31, 1998, 1997, 1996 and 1995 (unaudited).......................... 34
Consolidated Statements of Cash Flows from Inception (02/27/95)
through December 31, 1998 (unaudited) and for the Years Ended
December 31, 1998 and 1997 ................................................. 35-36
Notes to Consolidated Financial Statements.................................. 37-48
Consolidated Interim Financial Statements (unaudited)............................ 49
Consolidated Balance Sheets (unaudited) as of
September 30, 1999 and 1998................................................. 50
Consolidated Statements of Operations (unaudited) for
the Nine Months Ended September 30, 1999 and 1998........................... 51
Consolidated Statements of Stockholder's Deficit (unaudited)
for the Nine Months Ended September 30, 1999 and 1998....................... 52
Consolidated Statement of Cash Flows (unaudited) for
the Nine Months Ended September 30, 1999 and 1998 and for the
period from Inception (02/27/95) through September 30, 1999................ 53 -54
Notes to Consolidated Financial Statements.................................. 55 -64
</TABLE>
29
<PAGE>
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
(A Development Stage Company)
Consolidated Financial Statements
For the Years Ended
December 31, 1998 and 1997
30
<PAGE>
MORRISON, BROWN, ARGIZ
& COMPANY
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Stockholders
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
We have audited the accompanying consolidated balance sheets of ECO-Rx, Inc.
f/k/a Eco-Aire Company, Inc. (a development stage company) and subsidiary (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
statements of operations, stockholders' deficit and cash flows for the period
February 27, 1995 (inception) through December 31, 1998 are unaudited and we
express no opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ECO-Rx, Inc. f/k/a
Eco-Aire Company, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and its ability to
continue in the normal course of business is dependent upon its ability to raise
capital and the success of future operations. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
Miami, Florida
July 29, 1999 (except for the last paragraph
of Note 15, as to which date is April 17, 2000)
1001 Brickell Bay Drive, 9th Floor, Miami, Florida 33131 phone 305-373-5500
fax 305-373-0056 http://www.mba-cpa.com
1600 Stout Street, 11th Floor, Denver, Colorado 80202 phone 303-615-9500
fax 303-615-9572
31
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 836 $ 79,118
Inventory 5,307 5,307
Accounts receivable - 16,000
Stock subscription receivable 15,000 -
----------- ---------
TOTAL CURRENT ASSETS 21,143 100,425
ADVANCES TO STOCKHOLDERS - 205,587
FURNITURE AND EQUIPMENT, NET 13,926 18,251
OTHER ASSETS, NET 2,755 53,710
----------- ---------
TOTAL ASSETS $ 37,824 $ 377,973
=========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of lease obligation $ 10,418 $ 6,710
Accounts payable and accrued expenses 233,932 121,900
Notes payable to stockholders 240,000 330,000
----------- ---------
TOTAL CURRENT LIABILITIES 484,350 458,610
LEASE OBLIGATION 22,573 36,698
----------- ---------
TOTAL LIABILITIES 506,923 495,308
----------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock - $.001 par value, 5,000,000 shares
authorized; none issued and outstanding
Common stock - $.001 par value, 10,000,000 shares
authorized; 5,836,439 and 4,751,452 shares issued
and outstanding at December 31, 1998 and 1997,
respectively 5,836 4,751
Additional paid-in capital 1,226,084 847,119
Deficit accumulated during the development stage (1,701,019) (969,205)
----------- ---------
TOTAL STOCKHOLDERS' DEFICIT (469,099) (117,335)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 37,824 $ 377,973
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31
December 31, December 31, 1998
1998 1997 (Unaudited)
----------------- ------------- --------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative $ 728,382 $ 356,819 $ 1,196,817
Amortization and depreciation 11,682 18,128 50,063
Interest 40,708 21,147 72,065
Research and development - 28,325 54,342
Abandonment of property - 384,917 384,917
----------------- ------------ --------------
TOTAL EXPENSES 780,772 809,336 1,758,204
INTEREST INCOME - 8,227 8,227
OTHER INCOME 50,000 - 50,000
----------------- ------------ --------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (730,772) (801,109) (1,699,977)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (1,042) - (1,042)
----------------- ------------ --------------
NET LOSS $ (731,814) $ (801,109) $(1,701,019)
================= ============ ==============
NET LOSS PER SHARE OF COMMON STOCK:
Loss before cumulative effect of
change in accounting principle $ (.12) $ (.17) $ (.29)
Cumulative effect of change in
accounting principle - - -
----------------- ------------ --------------
NET LOSS $ (.12) $ (.17) $ (.29)
================= ============ ==============
SHARES USED IN THE CALCULATION
OF NET LOSS PER SHARE 5,836,439 4,751,452 5,836,439
================= ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<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 10,000 10 (10) - -
connection with loan payable
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 112,000 112 213,888 - 214,000
and stock subscription receivable
Conversion of loan payable to 75,000 75 149,925 - 150,000
common stock
Common stock issued 897,987 898 85,632 - 86,530
for services
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)
========= ========= ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1998
1998 1997 (Unaudited)
------------- ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(731,814) $(801,109) $(1,701,019)
--------- --------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 11,682 18,128 50,063
Abandonment of property - 384,917 384,917
Adjustment to inventory for impairment - 30,077 30,077
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 - (91,671) (120,791)
Accounts receivable - 13,160 -
Advances to stockholders - (205,587) (205,587)
Other assets 47,234 (27,979) (77,578)
Accounts payable and accrued expenses 112,032 58,974 233,932
--------- --------- -----------
TOTAL ADJUSTMENTS 393,627 180,019 517,712
--------- --------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (338,187) (621,090) (1,183,307)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 16,000 - 16,000
Capital expenditures (4,678) (160,202) (253,630)
--------- --------- -----------
NET CASH USED IN INVESTING
ACTIVITIES 11,322 (160,202) (237,630)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans 60,000 150,000 390,000
Proceeds from issuance of common stock 199,000 699,155 1,050,870
Payment of lease obligation (10,417) (8,680) (19,097)
--------- --------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 248,583 840,475 1,421,773
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH (78,282) 59,183 836
CASH AT BEGINNING OF YEAR 79,118 19,935 -
--------- --------- -----------
CASH AT END OF YEAR $ 836 $ 79,118 $ 836
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1998
1998 1997 (Unaudited)
------------ ------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 22,063 $ 11,527 $ 33,590
======== ======== ========
SUPPLEMENTAL SCHEDULE OF
NON-CASH ACTIVITY:
Leased equipment $ - $ 52,088 $ 52,088
======== ======== ========
75,000 shares of common stock issued
in exchange for settlement of outstanding
note to a stockholder $150,000 $ - $150,000
======== ======== ========
897,987 shares of common stock issued
in exchange for services received (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
statements.
36
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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.
(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. The effect
of adopting SOP 98-5 is reported as a cumulative effect of change
in accounting principle in the accompanying statement of
operations. The adoption of SOP 98-5 increased the net loss for
the year ended December 31, 1998 by $1,042 ($0 per share).
-37-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
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.
-38-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) 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 5,836,439 and
4,751,452 for the years ended December 31, 1998 and 1997,
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.
(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.
-39-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) 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.
(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 year ending
December 31, 1998. During 1998, the total patent costs charged to
expense was $137,703 (including $122,000 for legal fees related
to the patents).
NOTE 2 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
Since formation, the Company's operations have been devoted primarily
to:
. Raising capital
. Developing its product
. Obtaining financing
. Developing its marketing plan
Accordingly, the Company is considered to be in the development stage,
as its planned production and sales have not yet commenced.
Management's plans include the following:
. Commencement of production and development of new products
. Implementation of sales and leasing of commercial units
. Pursuing licensing agreements for the technology
The Company has made progress expanding the patent coverage and
marketing strategy. The Company has adopted a plan to implement
certain courses of action for raising capital and marketing. The
Company has also held presentations for major companies, to license
the technology, sell or distribute its products.
-40-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - 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 during the years ended December 31, 1998 and 1997
of $731,814 and $801,109, respectively. As of December 31, 1998,
current liabilities exceeded current assets by $463,207.
These factors, as well as the Company's ability to obtain additional
long-term financing, adequate stockholder capital contributions and
future equity funding, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of
these uncertainties.
NOTE 3 - RELATED PARTIES
During 1997, several advances were made to certain stockholders which
accrued interest at 7% per annum. During 1998, the Company entered
into agreements with 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.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
The Company recorded a stock subscription receivable in the amount of
$15,000 at December 31, 1998. The monies were subsequently collected
by June, 1999. The receivable was recorded as a current asset due to
the short term nature of the repayment period.
-41-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Furniture and equipment $37,534 $32,855
Less accumulated depreciation 23,608 14,604
------- -------
$13,926 $18,251
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997
was $9,003 and $16,700, respectively.
NOTE 6 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Patents $ - $26,218
Organization costs - 2,500
------- -------
- 28,718
Less accumulated amortization - 8,074
------- -------
- 20,644
Developmental costs - 16,031
Deposits 2,755 7,035
Prepaid royalty - 10,000
------- -------
$ 2,755 $53,710
======= =======
</TABLE>
Amortization expense for the years ended December 31, 1998 and 1997
was $2,679 and $1,428, respectively.
-42-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These accounts consist of the following:
1998 1997
-------- --------
Accounts payable $205,666 $112,280
Accrued interest 28,266 9,620
-------- --------
$233,932 $121,900
======== ========
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders at December 31, 1998 and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note accruing interest at 10%; all unpaid interest and
principal 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
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
Note accruing interest at 15%, maturing in May, 1998. As an
additional incentive for making this loan, 10,000 shares of
common stock were issued at the inception of the loan. Upon
maturity in May 1998, this note was converted to 75,000 shares
of common stock. - 150,000
Various unsecured loans, interest accruing at 15%, with maturity
dates ranging from January, 1999 to March, 1999. These notes were
renewed and now have maturity dates ranging from November, 1999 to
December, 1999. 50,000 -
Unsecured, non-interest bearing note payable, due on demand. This
note was repaid in January, 1999. 10,000 -
-------- --------
$240,000 $330,000
======== ========
</TABLE>
-43-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company, from time to time, is a defendant in legal actions
arising from normal business activities. Management has reviewed
pending litigation with legal counsel and believes that those actions
are without merit or that the ultimate liability, if any, resulting
from them will not materially affect the Company's financial position.
OPERATING LEASE
The Company entered into a lease in October, 1997 for a building in
Boston. The annual rent on this building totaled approximately
$47,000. The Company canceled this lease in October, 1998.
The Company leased a factory on a month-to-month basis at $1,000 per
month through February, 1997, at which time a one-year lease was
executed at a different location providing for a monthly rental of
$1,375. Although the factory was subsequently abandoned in August,
1997, the Company continued to make payments on this lease until
February, 1998.
Rental expense for all operating leases amounted to approximately
$41,000 and $25,000 during 1998 and 1997, respectively. As of December
31, 1998, the Company had no rent commitments.
LEASE OBLIGATION
In March, 1997, the Company entered into a noncancelable equipment
lease totaling $52,088. The factory in which this equipment was
located was abandoned during 1997. As a result, the equipment was also
abandoned and its net book value is included in the $384,917 amount
reported as abandonment of property for the year ended December 31,
1997 in the Company's consolidated statements of operations. The
Company, however, could not cancel this lease and therefore, continues
to make monthly payments.
Future minimum lease payments under this lease consisted of the
following at December 31, 1998:
Years ending December 31,
1999 $10,418
2000 10,418
2001 10,418
2002 1,737
-------
$32,991
=======
-44-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 10 - 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:
<TABLE>
<CAPTION>
For the Period
February 27,
1995
(inception)
through
Year Ended Year Ended December 31,
December 31, December 31, 1998
1998 1997 (Unaudited)
----------------- ------------------ ----------------
<S> <C> <C> <C>
Net loss $ (731,814) $ (801,109) $ (1,701,019)
================= ================== ================
Weighted average common shares
outstanding used in computing basic
net loss per share 5,836,439 4,751,452 5,836,439
================= ================== ================
Net loss per share of common stock $ (.12) $ (.17) $ (.29)
================= ================== ================
</TABLE>
During 1997, the Company amended its articles of incorporation and
changed the capital structure from common stock authorized of 1,000
shares with a par value of $1, to 10,000,000 shares of common stock
authorized with a par value of $.001 and authorized preferred stock of
5,000,000 shares with a par value of $.001. During 1997, the Company
also effectuated two stock splits, a 2,000 for 1 stock split and a
3.60266 for 1 stock split, for its common stock. The statement of
stockholder's deficit reflects the effect of these stock splits and
change in par value retroactively.
-45-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)
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.
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.
None of these shares were sold through National Association of
Securities Dealers, Inc. (NASD) Broker/Dealers, nor were any
commissions paid for these shares. None of the shares issued for
services have been issued for future sales of stock.
NOTE 11 - IMPAIRED ASSETS
Based upon a review, on an asset specific basis, of the December 31,
1998 carrying values, management recognized impairments for previously
recorded assets of $41,957, which are included in general and
administrative expenses in the accompanying statement of operations.
Impaired assets at December 31, 1998 consisted of patents and prepaid
royalties.
Patents (including design and development costs) previously recorded
as assets during 1996 and 1997 were superceded by new patent
applications made during 1998. This made the previously recorded
amounts impaired as the market value of the patents was reduced to $0
and no future cash flows could reasonably be expected from those
patents.
Royalty assets representing prepayment of future royalties due to the
Company's manufacturing, design and marketing firm were considered to
have uncertain expected future value. The prepaid royalties have no
market value and future cash flows from those royalties are uncertain.
-46-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - ABANDONMENT OF FACTORY
During 1997, the Company began limited manufacturing operations in its
own factory. Management determined that the Company's start-up
manufacturing facility was deemed to be not technologically or
economically feasible. The factory was abandoned during 1997 and the
loss resulting from the closing (consisting mainly of equipment which
was abandoned) was charged to operations. The charge relating to the
abandonment ($384,917) was recorded in the 1997 statement of
operations. All of the costs included in the abandonment loss were
cash costs with the exception of an equipment lease (See Note 9) on
which the Company continues to be obligated. The outstanding balance
on the lease was $32,991 and $43,408 at December 31, 1998 and December
31, 1997, respectively.
The Company had three employees at the factory when it was closed. The
loss on abandonment of the factory does not include any costs for
payroll or severance for the factory employees who were terminated
upon the Company's adoption of its plan to abandon the factory.
NOTE 13 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
at December 31, 1998 and 1997, as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments." The carrying values of cash, accounts
receivable, stock subscription receivable, accounts payable and
accrued expenses and debt are reasonable estimates of their fair
values.
NOTE 14 - 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
======== ========
</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 December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Total Deferred Tax Asset $ 172,565
Less Valuation Allowance 172,565
---------
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.
-47-
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 15 - SUBSEQUENT EVENTS
In January, 1999, the Company obtained a $100,000 loan bearing
interest at 12%. The maturity date of this note is the earlier of: (a)
the infusion of gross proceeds of $300,000 in additional debt or
equity capital, (b) the closing of an initial public offering or
"reverse merger" of the Company into a publicly traded entity or (c)
December 31, 1999.
On July 27, 1999, the Company changed its name to Eco-RX, Inc.
In February, 2000, the Company paid $5,000 in interest to extend the
$100,000 and $80,000 notes payable to David Mack. These two notes are
now payable upon demand. Various unsecured 15% notes totaling $50,000
were renewed through June and July, 2000.
-48-
<PAGE>
ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.
(A Development Stage Company)
Consolidated Financial Statements
For the Nine Months Ended
September 30, 1999 and 1998
(UNAUDITED)
49
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30.
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------------- --------------------
<S> <C> <C>
ASSETS
- -------
CURRENT ASSETS
Cash $ 499 $ 1,037
Inventory - 5,307
------------------ -------------------
TOTAL CURRENT ASSETS 499 6,344
------------------ -------------------
FURNITURE AND EQUIPMENT, NET 7,114 14,639
OTHER ASSETS, NET 2,755 53,501
------------------ -------------------
TOTAL ASSETS $ 10,368 $ 74,484
================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 226,938 $ 144,695
Notes payable - stockholders 250,000 240,000
Notes payable - others 100,000 -
Current portion of lease obligation 10,416 10,416
------------------ -------------------
TOTAL CURRENT LIABILITIES 587,354 395,111
LEASE OBLIGATION 18,957 27,784
------------------ -------------------
TOTAL LIABILITIES 606,311 422,895
================== ===================
STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value, 5,000,000 shares
authorized; none issued and outstanding
Common stock - $0.001 par value, 10,000,000 shares
authorized, 5,842,939 and 5,814,106 shares 5,843 5,772
issued and outstanding.
Additional paid-in capital 1,249,827 1,049,326
Deficit accumulated during the development stage (1,851,613) (1,403,509)
------------------ -------------------
TOTAL STOCKHOLDERS' DEFICIT (595,943) (348,411)
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 10,368 $ 74,484
================== ===================
</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 OPERATIONS
SEPTEMBER 30.
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
Nine Months Nine Months (Inception)
Ended Ended Through
September 30, September 30, September 30,
1999 1998 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative 127,185 483,033 1,324,002
Asset impairment 5,307 - 5,307
Amortization and depreciation 6,813 15,356 56,876
Interest 6,848 16,322 78,913
Research and development 4,441 - 58,783
Abandonment of property - - 384,917
----------------- ----------------- --------------
TOTAL EXPENSES 150,594 514,711 1,908,798
INTEREST INCOME - - 8,227
OTHER INCOME - 50,000 50,000
----------------- ----------------- --------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (150,594) (464,711) (1,850,571)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - (1,042)
----------------- ----------------- --------------
NET LOSS $ (150,594) $ (464,711) $ (1,851,613)
================= ================= ==============
Loss before cumulative effect of change
in accounting principle $ (0.03) $ (0.08) $ (0.32)
----------------- ----------------- --------------
Cumulative effect of change in accounting
principle - - -
----------------- ----------------- --------------
NET LOSS $ (0.03) $ (0.08) $ (0.32)
================= ================= ==============
SHARES USED IN THE CALCULATION OF
NET LOSS PER SHARE 5,842,939 5,814,711 5,842,939
----------------- ----------------- --------------
</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 STOCKHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
------------------------------
Shares Par Value Capital Stage Total
---------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at February 27, 1995
(inception) (unaudited) - - - - -
Common stock issued for cash
(unaudited) 3,700,497 3,700 89,015 - 92,715
---------------- -------------- --------------- ---------------- -------------
Balances at December 31, 1995 3,700,497 3,700 89,015 - 92,715
Common stock issued for cash
(unaudited) 94,228 94 59,906 - 60,000
Net loss (unaudited) - - - (168,096) (168,096)
---------------- -------------- --------------- ---------------- -------------
Balances at December 31, 1996
(unaudited) 3,794,725 3,794 148,921 (168,096) (15,381)
Common stock issued for cash
(unaudited) 946,727 947 698,208 - 699,155
Common stock issued in
of 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
Common stock issued in
exchange for forgiveness of debt 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
placing 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)
Issuance of common
Stock for cash 6,500 7 32,500 - 32,507
Cost of services related to registration (8,757) (8,757)
Net loss - - - (150,594) (150,594)
---------------- -------------- --------------- ---------------- -------------
Balances at September 30, 1999 5,842,939 5,843 1,249,827 (1,851,613) (595,943)
================ ============== =============== ================ =============
</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)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Nine Months Nine Months through
ended ended September 30,
September 30, September 30, 1999
1999 1998 (Unaudited)
--------------- ---------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (150,594) (464,711) (1,851,613)
--------------- ---------------- -------------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 6,813 10,465 56,876
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 5,307 - (115,484)
Accounts receivables 15,000 16,000 15,000
Advances to stockholders - (205,587) (205,587)
Other assets - (3,957) (77,578)
Accounts payable and accrued expenses (6,995) (20,795) 226,937
--------------- --------------- -------------------
TOTAL ADJUSTMENTS 20,125 (203,874) 537,837
-------------- -------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (130,469) (668,585) (1,313,776)
--------------- --------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - - 16,000
Capital expenditures - (71,311) (253,630)
--------------- --------------- -------------------
NET CASH USED IN INVESTING ACTIVITES - (71,311) (237,630)
--------------- --------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans 10,000 (90,000) 400,000
Proceeds from loans other 100,000 - 100,000
Proceeds from issuance of common stock (net) 23,750 203,228 1,074,620
Payment of lease obligation (3,618) (5,209) (22,715)
--------------- --------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 130,132 108,019 1,551,905
--------------- --------------- -------------------
NET INCREASE (DECREASE) IN CASH (337) (631,877) 499
CASH AT BEGINNING OF YEAR 836 79,118 -
--------------- --------------- -------------------
CASH AT END OF PERIOD $ 499 $ (552,759) $ 499
=============== =============== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
53
<PAGE>
ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
February 27, 1995
(Inception)
Nine Months Nine Months through
ended ended September 30,
September 30, September 30, 1999
1999 1998 (Unaudited)
---------------- ---------------- ---------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 39,447 $ 16,322 $ 73,037
================ ================ =====================
SUPPLEMENTAL SCHEDULE OF
NON-CASH ACTIVITY:
Leased equipment $ - $ - $ 52,088
================ ================ =====================
75,000 shares of common stock issued
exchange for settlement of outstanding
note to a stockholder $ - $ 150,000 $ 150,000
================ ================ =====================
897,987 shares of common stock issued
in exchange for services received (net of
$70,480 charged to additional-paid-in capital
as expenses of placing common stock) $ - $ - $ 16,050
================ ================ =====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
54
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(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 from 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.
(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
55
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
start-up activities and organization costs to be expensed as
incurred. The Company has adopted SOP 98-5 as of December 31,
1998. The effect of adopting SOP 98-5 is reported as a cumulative
effect of change in accounting principle in the accompanying
statement of operations. The adoption of SOP 98-5 Increased the
net loss for the year ended December 31, 1998 by $1,042 ($0 per
share).
(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.
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
purposes.
56
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 weighted average number of shares used to compute EPS was
5,842,939 and 5,814,106 for nine months ended September 30, 1999
and 1998 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.
(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
57
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
Since formation, the Company's operations have been devoted primarily
to:
. Raising capital
. Developing its product
. Obtaining financing
. Developing its marketing plan
Accordingly, the Company is considered to be in the development stage,
as its planned production and sales have not yet commenced.
Management's plans include the following:
. Commencement of production and development of new products
. Implementation of sales and leasing of commercial units
. Pursuing licensing agreements for the technology
The Company has made progress expanding the patent coverage and
marketing strategy. The Company has adopted a plan to implement
certain courses of action for raising capital and marketing. The
Company has also held presentations for major companies, to license
the technology, sell or distribute its products.
The Company has been in the development stage since its inception on
February 27, 1995. These statements are presented on the basis that
the Company will continue as a going concern. This contemplates the
realization of assets and the satisfaction of
58
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 2 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN (CONTINUED)
liabilities in the normal course of business over a reasonable length
of time. As shown in the accompanying consolidated financial
statements, the Company has incurred net losses for the Nine Months
ended September 30, 1999 and 1998. As of September 30, 1999, current
liabilities exceeded current assets by $586,855.
These factors, as well as the Company's ability to obtain additional
long-term financing, adequate stockholder capital contributions, and
future equity funding, create an uncertainty about the Company's
ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of
these uncertainties.
NOTE 3 - RELATED PARTIES
During 1997, several advances were made to certain shareholders which
accrued interest at 7% per annum. During 1998, the Company entered
into agreements with these shareholders for consulting services which
were paid during the year through the settlement of the open advances.
General and administrative expenses include $205,587 in the nine
months ended September 30, 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 recorded as consulting expense during 1998. Further, $25,001 was
paid to another shareholder and charged to consulting expense during
the nine months ended September 30, 1998. In total, $291,649 was paid
to related parties as consulting expense during the nine months ended
September 30, 1998.
NOTE 4 - FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Furniture and equipment $37,534 $36,055
Less accumulated depreciation 30,420 21,416
------- -------
$ 7,114 $14,639
======= =======
</TABLE>
Depreciation expense for the nine months ended September 30, 1999 and
1998 was $6,813 and $6,812 respectively.
NOTE 5 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deposits $ 2,755 $ 7,035
Prepaid expenses - 46,466
------- -------
</TABLE>
59
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
$2,755 $53,501
====== =======
Amortization expense for the nine months ended September 30, 1999 and
1998 was $0 and $9,194, respectively.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These accounts consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts payable $182,727 $130,824
Accrued interest 44,211 13,871
-------- --------
$226,938 $144,695
======== ========
</TABLE>
NOTE 7 - NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders at September 30, 1999 and 1998
is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note accruing interest at 10%; all unpaid interest and principal
becomes due June, 1998, and is personally guaranteed by three of
the Company's stockholders. As of December 31, 1999 this note
was payable on demand and was accruing interest 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 $300,000 in
additional debt or equity capital, (b) the closing of
an initial public offering or "reverse merger" of
the Company into a publicly traded entity or (c)
December 31, 1999. 100,000 -
Unsecured loan, interest accruing at 8.75% payable annually
commencing December, 1996. Loan matures December, 1998 at
which time all principal and unpaid interest is due. As of
December 31, 1999 this note was payable on demand and was
accruing interest 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
</TABLE>
60
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
renewed and now have maturity dates ranging from November,
1999 to December, 1999. 70,000 50,000
Unsecured, non-interest bearing note payable, due on demand.
This note was repaid in January, 1999. - 10,000
-------- --------
$350,000 $240,000
======== ========
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company, from time to time, is a defendant in legal actions
arising from normal business activities. Management has reviewed
pending litigation with legal counsel and believes that those actions
are without merit or that the ultimate liability, if any, resulting
from them will not materially affect the Company's financial position.
OPERATING LEASE
The Company entered into a lease in October, 1977 for a building in
Boston. The annual rent on this building totaled approximately
$47,000. The Company canceled this lease in October, 1998.
The Company leased a factory under a one year lease for a monthly
rental of $1,375. Although the factory was subsequently abandoned in
August, 1997, the Company continued to make payments on this lease
until February, 1998.
Rental expense for all operating leases amounted to approximately
$41,000 during 1998. As of September 30, 1999, the Company had no rent
commitments.
LEASE OBLIGATION
In March, 1997, the Company entered into a noncancelable equipment
lease totaling $52,088. The factory in which this equipment was
located was abandoned during 1997. As a result, the equipment was also
abandoned and its net book value is included in the $384,917 amount
reported as abandonment of property for the year ended December 31,
1997 in the Company's consolidated statements of operations. The
Company, however, could not cancel this lease and therefore, continues
to make monthly payments.
Future minimum lease payments under a noncancelable equipment lease
consisted of the following at September 30, 1999:
<TABLE>
Twelve months ending September 30,
<S> <C>
2000 $14,615
2001 10,418
2002 4,340
$29,373
=======
</TABLE>
61
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 9 - DESIGN AND CONSULTING AGREEMENT
During 1997, the Company entered into a design and consulting services
agreement with a third party. The Company shall pay a royalty of $1
for each unit sold for a period of five years, commencing on the date
of first sale. The Company will pay the same $1 royalty for an
additional 45 years with respect to sales of the original product made
by the Company to customers introduced to the Company by this
firm.
NOTE 10 - STOCKHOLDERS' DEFICIT
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted
average number of outstanding shares of common stock. Net loss per
share for the periods presented does not include the effects of stock
options and warrants because their effects would be anti-dilutive.
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
For the Period
February 27,
Nine months Nine months 1995
Ended Ended (inception)
September 30, September 30, through
1999 1998 9-30-99
---- ---- -------
<S> <C> <C> <C>
Net loss $ (150,594) $ (464,711) $(1,851,613)
========== ========== ===========
Weighted average common shares
outstanding used in computing basic
net loss per share 5,842,939 5,814,106 5,842,939
========== =========== ============
Net loss per share $ (0.03) $ (0.08) $ (0.32)
========== ========== ===========
</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 also authorized preferred
stock of 5,000,000 shares with a par value of $.001. During 1997, the
Company effectuated two stock splits, a 2,000 for 1 stock split and a
3.60266 for 1 stock split, for its common stock. The statement of
stockholder's deficit reflects the effect of these stock splits and
change in par value retroactively.
During 1995 the Company issued 2,812,378 shares of common stock for
$92,715 and 888,121 shares of common stock for services rendered by
certain professionals.
During 1996, the Company issued 94,228 shares of common stock for
$60,000. An
62
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
additional 947,160 shares of common stock was issued during 1997 for
$699,155. Also during 1997, 10,000 shares of common stock were issued
in consideration of a note payable.
During 1998, the Company issued 112,000 shares of common stock for a
stock subscription receivable of $15,000 and $199,000 in cash. The
Company also issued 75,000 shares of common stock in exchange for
forgiveness of a $150,000 debt.
During 1998, 897,987 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.
None of these shares were sold through National Association of
Securities Dealers, Inc (NASD) Broker/Dealers, nor were any
commissions paid for these shares. None of the shares issued for
services have been issued for future sales of stock.
NOTE 11 - IMPAIRED ASSETS
Based upon a review, on an asset specific basis, of the September 30,
1999 carrying values, management recognized impairment of a previously
recorded asset of $5,307, which is included in general and
administrative expenses in the accompanying statement of
operations.
Patents (including design and development costs) previously recorded
as assets during 1996 and 1997 were superceded by new patent
applications made during 1998. This made the previously recorded
amounts impaired as the market value of the patents was reduced to $0
and no future cash flows could reasonably be expected from those
patents.
Royalty assets, representing prepayment of future royalties due to the
Company's manufacturing, design and marketing firm were considered to
have uncertain expected future value. The prepaid royalties have no
market value and future cash flows from those royalties are
uncertain.
NOTE 12 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
at December 31, 1998 and 1997, as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments." The carrying values of cash, accounts
receivable, stock subscription receivable, accounts payable and
accrued expenses and debt are reasonable estimates of their fair
values.
63
<PAGE>
ECO-Rx, Inc. F/K/A ECO-AIRE COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 13 - 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
September 30, 1999 150,594 150,594 2019
</TABLE>
The components of deferred tax assets and liabilities arise primarily
from the net operating loss reflected above.
The Company's total deferred tax liabilities, deferred tax assets and
deferred tax asset valuation allowances at September 30, 1999 are as
follows.
<TABLE>
<CAPTION>
<S> <C>
Total Deferred Tax Asset $223,767
Less Valuation Allowance 223,767
--------
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 operation 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 14 - SUBSEQUENT EVENTS
In February, 2000, the Company paid $5,000 in interest to extend the
$100,000 and $80,000 notes payable to David Mack. These two notes are
now payable upon demand.
Various unsecured 15% notes totaling $50,000 were renewed through June
and July 2000.
64
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit No. Description
3.1 Articles of Incorporation, as amended*
3.2 Bylaws*
4.1 Form of common stock certificate*
10.1 Consulting Agreement with Fitch, Inc. dated
January 17, 1997*
* previously filed by ECO-Rx, Inc. in this Registration Statement
(Form 10-SB, 0-28117)
Item 2. Description of Exhibits
None.
65
<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: April 21, 2000 By: /s/ Joseph M. Peiken
----------------------------------
Joseph M. Peiken
Vice President, Chief Financial
Officer and Director
66
