SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from ________________ to __________________ Commission File No. 0-28117 Eco-Rx, Inc. ------------ (Exact name of Small Business Issuer as Specified in its charter) Florida 65-0569329 ------- ---------- (State or other jurisdiction or (IRS employer Identification No) organization) 2051 Northeast 191 Drive North Miami Beach, FL 33179 --------------------------- (Address of Principal Executive Offices) (305) 937 1862 --------------- (Registrant's Telephone Number) Not applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock,$0.001 par value At August 1, 2000 5,842,939 Preferred Stock, $0.001 par value At August 1, 2000 None Transitional Small Business Disclosure Format: Yes [_] No [x] PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 2 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND 1999 (UNAUDITED) =============================================================================== June 30, 2000 1999 ---- ---- CURRENT ASSETS Cash $ 767 $ 2,532 Inventory - 5,307 ----------- ----------- TOTAL CURRENT ASSETS 767 7,839 FURNITURE AND EQUIPMENT, NET 10,784 9,385 OTHER ASSETS 13,687 2,755 ----------- ----------- TOTAL ASSETS $ 25,238 $ 19,979 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Current portion of lease obligation $ 13,888 $ 10,416 Accounts payable and accrued expenses 389,226 204,262 Notes payable to stockholders 506,600 350,000 ----------- ----------- TOTAL CURRENT LIABILITIES 909,714 564,678 LEASE OBLIGATION 6,090 18,958 ----------- ----------- TOTAL LIABILITIES 915,804 583,636 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued and outstanding Common stock - $.001 par value, 10,000,000 shares authorized; 5,842,939 shares issued and outstanding 5,843 5,836 Additional paid-in capital 1,247,376 1,217,334 Deficit accumulated during the development stage (2,143,785) (1,786,827) ----------- ----------- TOTAL STOCKHOLDERS' DEFICIT (890,566) (563,657) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 25,238 $ 19,979 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 3 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS JUNE 30, 2000 AND 1999 ================================================================================ (UNAUDITED) For the Period February 27, 199 (Inception) Quarter Ended Quarter Ended thru June June 30, June 30, 30, 2000 2000 1999 (Unaudited) -------------- ------------ ------------ REVENUES $ - $ - $ - ------------- ----------- ----------- COSTS AND EXPENSES General and administrative 166,100 56,246 1,521,698 Depreciation and amortization 4,160 4,542 59,374 Interest 38,349 20,581 166,271 Research and development 3,855 4,441 68,710 Abandonment of property - - 384,917 ------------- ----------- ----------- TOTAL EXPENSES (212,464) (85,810) (2,200,970) INTEREST INCOME - - 8,227 OTHER INCOME - 50,000 ------------- ----------- ----------- LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (212,464) (85,810) (2,142,743) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - - (1,042) ------------- ----------- ----------- NET LOSS $ (212,464) $ (85,810) $(2,143,785) ============= =========== =========== BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK: Loss before cumulative effect of change in accounting principle $ (.04) $ (.01) $ (,37) Cumulative effect of change in accounting principle - - - ------------- ----------- ----------- BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (0.01) $ (0.37) ============= =========== =========== SHARES USED IN THE CALCULATION OF BASIC AND DILUTED NET LOSS PER SHARE 5,842,939 5,836,439 5,842,939 ============= =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT JUNE 30, 2000 AND 1999 (UNAUDITED) ================================================================================ Accumulated Additional During the Common Stock paid-in Development ------------------- Shares Par Value Capital Stage Total ------------ ------------- ----------- ------------- ------------- Balances at February 27, 1995 (inception) (unaudited) - $ - $ - $ - $ - Common stock issued for cash (unaudited) 3,700,497 3,700 89,015 - 92,715 ---------- ---------- ------------ ----------- ---------- Balances at December 31, 1995 (unaudited) 3,700,497 3,700 89,015 - 92,715 Common stock issued for cash (unaudited) 94,228 94 59,906 - 60,000 Net loss (unaudited) - - - (168,096) (168,096) ---------- ---------- ------------ ----------- ---------- Balances at December 31, 1996 (unaudited) 3,794,725 3,794 148,921 (168,096) (15,381) Common stock issued for cash 946,727 947 758,803 - 759,750 Less: Cost of services related To registration (60,595) (60,595) Common stock issued in connection with loan payable 10,000 10 (10) - - Net loss - - - (801,109) (801,109) ---------- ---------- ------------ ----------- ---------- Balances at December 31, 1997 4,751,452 4,751 847,119 (969,205) (117,335) 5 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED) JUNE 30, 2000 AND 1999 (UNAUDITED) ================================================================================ Deficit Common Stock Accumulated ----------------- Additional During the paid-in Development Shares Par Value Capital Stage Total ------ --------- ----------- ----------- ----- Common stock issued for cash and stock subscription receivable 112,000 112 213,888 - 214,000 Conversion of loan payable to common stock 75,000 75 149,925 - 150,000 Common stock issued for services 897,987 898 85,632 - 86,530 Less: Cost of services (paid with common stock above) related to issuing common stock - - (70,480) - (70,480) Net loss - - - (731,814) (731,814) --------- --------- -------------- ------------ ---------- Balances at December 31, 1998 5,836,439 5,836 1,226,084 (1,701,019) (469,099) Common stock issued for cash 6,500 7 32,493 32,500 Less: Cost of services related to registration (11,201) (11,201) Net Loss - - - (230,302) (230,302) --------- --------- -------------- ------------ ---------- Balances at December 31, 1999 5,842,939 $ 5,843 $ 1,247,376 $ (1,931,321) $ (678,102) Net Loss for the Six Month Period ending June 30, 2000 - - - (212,464) (212,464) --------- --------- -------------- ------------ ---------- Balances at June 30, 2000 5,842,939 $ 5,843 $ 1,247,376 $ (2,143,785) $ (890,566) --------- --------- -------------- ------------ ---------- 6 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS JUNE 30, 2000 AND 1999 (UNAUDITED) ================================================================================ For the Period February 27, 1995 (Inception) Six Months Six Months thru Ended Ended June 30, June 30, June 30, 2000 2000 1999 (Unaudited) --------- --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(212,464) $ (85,810) $(2,143,785) --------- --------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,160 4,542 59,374 Abandonment of property - - 384,917 Adjustment to inventory for impairment 35,384 Services received in exchange for stock - 16,050 Consulting fee paid by reclassifying advances to stockholders - 205,587 Cumulative effect of change in accounting principle - 1,042 Changes in operating assets and liabilities: Inventory - - (120,791) Advances to stockholders - - (205,587) Other assets (10,912) (88,490) Accounts payable and accrued expenses 114,759 (29,670) 389,226 --------- --------- ----------- TOTAL ADJUSTMENTS 108,007 (25,128) 676,712 --------- --------- ----------- NET CASH USED IN OPERATING ACTIVITIES (104,457) (110,938) (1,467,073) --------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of fixed assets - 16,000 Capital expenditures (6,169) (3,617) (259,799) --------- --------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,169) (3,617) (243,799) --------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stockholder loans 139,300 110,000 723,400 Proceeds from issuance of common stock 6,292 1,098,370 Expense related to registration - (11,201) Repayment of stockholder loan (50,000) - (66,800) Payment of lease obligation (4,648) (3,617) (32,110) --------- --------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 84,652 116,251 1,711,659 --------- --------- ----------- 7 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) JUNE 30, 2000 AND 1999 (UNAUDITED) - --------------------------------------------------------------------------------------- For the Period February 27, 1995 (Inception) Six Months Six Months through Ended Ended June 30, June 30, June 30, 2000 2000 1999 (Unaudited) ---------- ---------- ------------- NET INCREASE (DECREASE) IN CASH 25,974 1,696 767 CASH AT BEGINNING OF YEAR 26,761 836 - ---------- ---------- ------------- CASH AT END OF PERIOD $ 767 $2,532 $ 767 ========== ========== ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $23,404 $ - $ 56,994 ========== ========== ============= Cash paid for income taxes $ - $ - $ - ========== ========== ============= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Leased equipment $ - $ - $ 52,088 ========== ========== ============= 75,000 shares of common stock issued in exchange for settlement of outstanding note to a stockholder $ - $ - $150,000 ========== ========== ============= 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 ========== ========== ============= 8 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 1 - NATURE OF BUSINESS ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc. has been in the development stage since its incorporation in the State of Florida on February 27, 1995. The Company's mission is to pioneer the technology, design and manufacturing of air purification equipment for the destruction of pathogens and for the efficient and effective removal of odors, allergy and asthma causing agents, pollutants and certain gases from indoor air environments. The consolidated financial statements include the accounts of ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc. and its wholly owned subsidiary, Eco-Aire Marketing, Inc., collectively referred to as the "Company". Eco-Aire Marketing, Inc. is inactive and ECO-Rx, Inc. f/k/a Eco-Aire Company, Inc.'s investment in said company has been eliminated in consolidation. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist primarily of metal, bulbs, ballasts, machines in process and miscellaneous supplies. In the third quarter of 1999, the Company wrote off $5,307 of items previously included in inventory, as they believed that these items may not have any value in future operations. (B) FURNITURE AND EQUIPMENT The Company's furniture and equipment is stated at cost. Depreciation is computed on the straight line method over the estimated useful lives of the assets, which range from 3 to 5 years. (C) ASSET IMPAIRMENT Assets are considered impaired when, based upon current information and events, it is probable that the Company will not realize an economic benefit on the recorded assets. Impairment is measured on an asset specific basis based upon the fair value of the assets or the discounted expected future cash flows. During 1998, the Company wrote-off approximately $40,000 due to impairment, relating to patents and prepaid royalties. 9 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (D) ORGANIZATIONAL COSTS Organizational costs have been expensed in accordance with Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. During 1998, the Company expensed $1,042 of organization costs, as a result of SOP 98-5, which is reflected as a cumulative effect of change in accounting principle in the consolidated statement of operations (E) INCOME TAX Effective January 1, 1996, the Company, with the consent of its stockholders, elected to be treated as an "S" Corporation for income tax purposes. Under this election, federal and state income taxes are payable by the individual stockholders rather than the Company. Accordingly, no provision or liability for income taxes had been included in the consolidated financial statements through December 31, 1997. On September 30, 1998, the Company terminated its election to be treated as an S Corporation. The Company now accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax liabilities and assets of a change in tax rates is recognized in income in the period that includes the enactment date. (F) EARNINGS PER SHARE Earnings per share is determined in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". This statement establishes standards for computing and presenting earnings per share ("EPS"). It replaces the presentation of primary EPS with a presentation of basic EPS. This statement requires restatement of all prior-period EPS data presented. 10 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The net loss per share is computed by dividing the net loss for the period by the weighted average number of shares outstanding (as adjusted retroactively for the dilutive effect of common stock options) for the period plus the dilutive effect of outstanding common stock options and warrants considered to be common stock equivalents. Stock options and other common stock equivalents are excluded from the calculations as their effect would be anti-dilutive. Common stock issued for nominal consideration is deemed outstanding for all historical periods. Basic and diluted earnings per share amounts are equal because the Company has a net loss and consideration of the outstanding options, warrants and their equivalents would result in anti-dilutive effects to earnings per share. The number of shares used to compute EPS was 5,842,939 and 5,836,439 for the period ended June 30, 2000 and 1999, respectively. (G) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the related reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates made in preparation of the financial statements. (H) CONCENTRATIONS OF CREDIT RISK A major portion of the Company's business is expected to be conducted using its patented technology. Consequently, the Company's profitability may be subjected to changes in technology and its use in commerce, as well as, the enforceability of its patent. (I) READINESS FOR YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, those computer programs having time-sensitive software would recognize a date using "00" as the year 1900 rather than the year 2000. The Company is in its development stage and does not have sophisticated computer equipment that may cause the Year 2000 issue to adversely affect its operations. 11 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (J) NEW ACCOUNTING PRONOUNCEMENTS The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective for the period ending December 31, 1998. SFAS No. 130 requires companies to report by major components and in total, the change of its net assets during the period from non- owner sources. The adoption of SFAS No. 130 did not have a significant effect on the Company's financial position, results of operations, or cash flow, since the Company does not have any components of comprehensive income, other than net income/(loss) from operations. During 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for the way companies report information about operating segments in annual financial statements and establishes standards for related disclosures about products and services, geographic areas and major customers. The Company's air purification business is currently the only segment reportable under SFAS No. 131. (K) PATENTS The Company has applied for several patents in connection with its technology. There are no assurances that the patents will be granted. (L) OTHER INCOME The Company received $50,000 as part of a letter of intent to enter into an agreement with a third-party to produce air purification machines to be sold by the third-party. The letter of intent expired in 90 days, without the consummation of the contract. The $50,000 is reflected as other income in the cumulative column in the consolidated statement of operations. NOTE 3 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN Since formation, the Company's operations have been devoted primarily to: . Raising capital . Developing its product . Obtaining financing . Developing its marketing plan Accordingly, the Company is considered to be in the development stage, as its planned production and sales have not yet commenced. 12 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 3 - DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN (CONTINUED) Management's plans include the following: . Commencement of production and development of new products . Implementation of sales and leasing of commercial units . Pursuing licensing agreements for the technology The Company has made progress expanding the patent coverage and marketing strategy. The Company has adopted a plan to implement certain courses of action for raising capital and marketing. The Company has also held presentations for major companies to license the technology and sell or distribute its products. The Company has been in the development stage since its inception on February 27, 1995. These statements are presented on the basis that the Company will continue as a going concern. This contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. As shown in the accompanying consolidated financial statements, the Company has incurred net losses since its inception and no revenues. As of December 31, 1999, current liabilities exceeded current assets by approximately $678,000. These factors, as well as the Company's ability to obtain additional long-term financing, adequate stockholder capital contributions, future equity funding and achieve and maintain profitable operations, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 4 - FURNITURE AND EQUIPMENT, NET These accounts consist of the following as of June 30, 2000: Furniture and equipment $ 43,703 Less accumulated depreciation 32,919 -------- $ 10,784 ======== Depreciation expense for the six months ended June 30, 2000 and 1999 was $4,160 and $4,542, respectively. 13 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES These accounts consist of the following as of June 30, 2000: Accounts payable $ 296,698 Accrued interest 92,528 --------- $ 389,226 ========= NOTE 6 - NOTES PAYABLE TO STOCKHOLDERS The notes payable to stockholders as of June 30, 2000 is comprised of the following: Note accruing interest at 10%; all unpaid interest and principal became due June, 1998, and is personally guaranteed by three of the Company's stockholders. As of December 31, 1999 this note was payable on demand and was accruing interest at the default rate of 18%. $ 100,000 Note accruing interest at 12%; maturing the earlier of: (a) the infusing of gross proceeds of $300,000 in additional debt or equity capital, (b) the closing of an initial public offering or "reverse merger" of the Company into a publicly traded entity, or (c) December 31, 1999. Subsequent to December 31, 1999 the Company repaid $50,000 of this note. The balance is due on demand and is accruing interest at the default rate of 18%. 50,000 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, 1999 this note was payable on demand and was accruing interest at the default rate of 18%. 80,000 Various unsecured loans, interest accruing at 15%, with original maturity dates ranging from January, 1999 to March, 1999. These notes were renewed and now have maturity dates in the year 2000. 194,300 Various unsecured loans, interest accruing at 12%, with maturities through August 2000. 82,300 --------- $ 506,600 ========= The Company has committed to issue certain shares of common stock to certain lenders. The amounts and ratios of shares are to be determined. 14 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 7 - COMMITMENTS AND CONTINGENCIES GOVERNMENTAL REGULATIONS The Company's operations may be subject to supervision and regulation by governmental regulatory agencies, which could impact and have a material adverse effect on the Company's business, financial condition or results of operations. LITIGATION The Company, from time to time, is a defendant in legal actions arising from normal business activities. Management does not believe any potential or pending litigation currently exists. LEASE OBLIGATION In March, 1997, the Company entered into a noncancelable equipment lease totaling $52,088. The factory in which this equipment was located was abandoned during 1997. The Company, however, could not cancel this lease and therefore, continues to make monthly payments. Future minimum lease payments under this lease as of June 30, 2000 consisted of the following: Twelve months ending June 30, 2001 $ 13,888 2002 6,090 -------- $ 19,978 ======== Rental expense for all operating leases amounted to approximately $4,700 during the first six months of 2000. There was no rental expense during 1999. In April, 2000, the Company executed a five year lease for space in Hollywood, Florida to house the administrative office, product assembly and shipping operations. The lease also contains an option to renew for an additional five years. 15 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) Future minimum lease payments under this lease consisted of the following: Twelve months ending June 30, 2000 $ 31,038 2001 53,208 2002 54,279 2003 55,863 2004 57,764 Thereafter 24,460 --------- $ 276,612 ========= DESIGN AND CONSULTING AGREEMENT During 1997, the Company entered into a design and consulting service agreement with a third party in which it shall pay a royalty of $1 for each unit sold for a period of five years, commencing on the date of first sale. The Company will pay the same $1 royalty for an additional 45 years with respect to sales of the original product made by the Company to customers introduced to the Company by this firm. FINANCIAL CONSULTING SERVICES AGREEMENT During 1999, the Company entered into a financial consulting services agreement with a third party in which the third party consultant will receive 50,000 shares of the Company's common stock in exchange for services. The consultant has not performed the services as of December 31, 1999 and therefore, the shares have not been issued. 16 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 8 - STOCKHOLDERS' DEFICIT LOSS PER SHARE Loss per share is computed by dividing net loss by the number of outstanding shares of common stock. Net loss per share for the periods presented does not include the effects of stock options and warrants because their effects would be anti-dilutive. The following table sets forth the computation of net loss per share: For the Period February 27, 1995 (inception) Ended Ended through June 30, June 30, June 30, 2000 1999 2000 ---------- ----------- ------------ Net loss $ (212,464) $ (85,810) $ (2,143,785) ========== =========== ============ Weighted average common shares outstanding used in computing basic net loss per share 5,842,939 5,838,939 5,842,939 ========== =========== ============ Net loss per share of common stock $ (0.04) $ (0.01) $ (0.37) ========== =========== ============ During 1997, the Company amended its articles of incorporation and changed the capital structure from common stock authorized of 1,000 shares with a par value of $1, to 10,000,000 shares of common stock authorized with a par value of $.001 and authorized preferred stock of 5,000,000 shares with a par value of $.001. During 1997, the Company also effectuated two stock splits, a 2,000 for 1 stock split and a 3.60266 for 1 stock split, for its common stock. The statement of stockholder's deficit reflects the effect of these stock splits and change in par value retroactively. During 1995, the Company issued 3,700,497 shares of common stock for $92,715. 17 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 8 - STOCKHOLDERS' DEFICIT (CONTINUED) During 1996, the Company issued 94,228 shares of common stock for $60,000. An additional 46,727 shares of common stock was issued during 1997 for $759,750. The Company incurred $60,595 of expenses related to this issuance. 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. During 1999, the Company issued 6,500 shares of common stock for $32,500. Costs related to the registration of the Company were charged against additional paid-in-capital in the amount of $11,201. None of these shares were sold through the National Association of Securities Dealers, Inc. (NASD) Broker/Dealers, nor were any commissions paid for these shares. None of the shares issued for services have been issued for future sales of stock. NOTE 9 - FAIR VALUE The Company has estimated the fair value of its financial instruments as of December 31, 1999, as required by Statement of Financial Accounting Standards No. 107, "Disclosure 18 ECO-RX, INC. F/K/A ECO-AIRE COMPANY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) about Fair Value of Financial Instruments." The carrying values of cash, accounts payable and accrued expenses, lease obligations and debt are reasonable estimates of their fair values. NOTE 10 - INCOME TAXES The Company has federal and state net operating loss carryforwards as follows: Period Ending Federal State Years of Expiration -------------------- ----------- --------- ------------------- December 31, 1999 $737,845 $737,845 2018-2019 ======== ======== ========= June 30, 2000 $212,464 $212,464 2020 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 June 30, 2000 are as follows: Total Deferred Tax Asset $333,290 Less Valuation Allowance 333,290 ------- Net Deferred Tax Asset $ -0- The Company provides a 100 percent valuation allowance for any deferred tax asset which is attributable to unused net operating loss carryforwards. Generally accepted accounting principles require a valuation reserve only if it is more likely than not that some portion or all of a deferred tax asset will not be realized. 19 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the unaudited Condensed Financial Statements and Notes thereto appearing elsewhere in this report. (a) Eco-Rx's plan of operation for the next twelve months . Complete the process of filing a Form 10-SB with the Securities And Exchange Commission. . Complete the design of five air purification units; two room units, as well as three 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; . 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. b) Product Research and Development for the Next 12 Months Over the next 12 months, the Company anticipates its product research and development will be for (a) air purification products for automobiles and trucks and home central air conditioning systems, and (b) water purification applications utilizing the technology. 20 Expenditures for the Next 12 Months The Company anticipates that its cash requirements over the next 12 months will total approximately $ 3,500,000, including the cost of production of plastic injection molds for the products, the return of loans and the payment of the old accounts payable. (d) The Company will hire a new chief executive officer and a new chief financial officer, a secretary/receptionist, and others to supervise the assembly of the machines. 21 Part II - OTHER INFORMATION Item 1. Legal Proceedings. The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, no such action by or against the Company has been threatened. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities The Company is in default on three notes payable. In February 2000, the Company paid $5,000 in interest to extend two of the notes, one for $100,000 and one for $80,000. They are now due on demand, accruing interest at the default rate of 18%. The third note for $100,000 was due at the end of 1999. It has been reduced to $50,000. The note holder has demanded rapid payment. Item 4. Submission of matters to a Vote of Security Holders None Item 5. Other Information During the quarter ended June 30, 2000, the Company (a) on June 30, 2000 filed a Form 10-KSB for the year ended December 31, 2000, and will be filing an amended Form 10-KSB for such period on or about August 18, 2000; and (b) on May 15, 2000 filed a Form 10-QSB for the quarter ended March 31, 2000, and will be filing an amended Form 10-QSB for such period on or about August 18, 2000. Item 6. Exhibits and Reports on Form 8-K. (a) See the Index to Exhibits on page 24 hereof. (b) Reports were filed on Form 8-K on May 5, 2000 and May 10, 2000. The Form 8-K filed on May 5, 2000 reported the dismissal on May 1, 2000 of Morrison, Brown, Argiz & Company as the Company's certifying accountant. The form 8-K filed on May 10, 2000 reported the Company's engagement on May 3, 2000 of Perez-Abreu, Aguerrebere, Sueiro LLC as the Company's principal accountant to audit the Company's financial statements. 22 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ECO-Rx, Inc. (Registrant) By: /s/ Joseph M. Peiken ---------------------------- Joseph M. Peiken Vice President and Chief Financial Officer Date: August 15, 2000 23 PART III Item 1. Index to Exhibits Exhibit No. Description Page No. ----------- ----------- -------- 3.1 Articles of Incorporation of Registrant, as originally filed and amended (1) 3.2 Bylaws of Registrant (1) 4.1 Form of Common Stock Certificate (1) 10.1 Consulting Agreement with Fitch, Inc. dated January 17, 1997 (1) 10.2 Office Lease (2) 16 Copy of Letter dated May 5, 2000 from Morrison, Brown, Argiz & Company on change in certifying Accountant (3) 21.1 Subsidiary of Registrant (3) 23.1 Consent of Perez-Abreu, Aguerrebere, Sueiro LLC (1) 27 Financial Data Schedule (1) Previously filed as an Exhibit to Registrant's Form 10-SB (file 0- 28117) and incorporated herein by this reference. (2) Previously filed as an Exhibit to Registrant's Form 10-KSB for the year ended December 31, 1999, and incorporated herein by this reference. (3) Previously filed as an Exhibit to Registrant's Form 8-K filed by the Registrant on May 10, 2000 and incorporated herein by this reference. Item 2. Description of Exhibits None 24