U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _______________ to ____________
Commission File Number 33-17598-NY
THE TIREX CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-2824362
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
740 St. Maurice, Suite 201 Montreal, Quebec H3C 1L5
(Address of Principal executive offices)
(514) 878-0727
(Issuer's telephone number, including area code)
______________________________________________________________
(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 issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes__X__ No____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 11, 1997: 38,774,625 shares
Transitional Small Business Disclosure Format (check one):
Yes _____ No __X___
<PAGE>
The Tirex Corporation and Subsidiary
(A Development State Company)
----------
TABLE OF CONTENTS
PART I
Item 1 - Financial Information (unaudited) Page
----
The Tirex Corporation and Subsidiary
Consolidated Balance Sheets as of
September 30, 1997 and 1996 ........................................ 3
Consolidated Statements of Operations
for the three month periods
ended September 30, 1997 and 1996 .................................. 4
Consolidated Statements of Cash Flows
for the three-month periods
ended September 30, 1997 and 1996 .................................. 5
Notes to Financial Statements (unaudited) ............................ 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 13
PART II
Item 2 - Changes in Securities ........................................... 15
Item 6 - Exhibits and Reports on Form 8-K ................................ 16
----------
The financial statements are unaudited. However, the management of
registrant believes that all necessary adjustments (which include only normal
recurring adjustments) have been reflected to present fairly the financial
position of registrant at September 30, 1997 and the results of its operations
and changes in its financial position for the three month periods ended
September 30, 1996 and 1997 and for the period from inception (July 15, 1987).
2
<PAGE>
The Tirex Corporation and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
As at September 30
Assets 1997 1996
---- ----
Current Assets:
Cash ........................................... 68,436 153
Notes Receivable (Note 5) ...................... 39,729 1,158
Employee advances (Note 5) ..................... 185,942 --
Sales tax receivable ........................... 54,907 --
R&D Investment tax credit receivable (Note 1) .. 269,918 --
Prepaid expense ................................ 13,929 --
--------- ---------
Total Current assets .............................. 632,861 1,311
--------- ---------
Equipment - At Cost - Net of Accumulated
Depreciation of $9,792 (Note l) ................... 12,932 17,181
--------- ---------
Other Assets
Equipment Development costs (Notes 1 & 7) ...... 985,040 192,224
Deferred start-up costs (Note 1) ............... 74,683 --
Organization Costs, Net of Accumulated
Amortization of $718 ........................... 824 1,134
--------- ---------
Total Other Assets ................................ 1,060,547 193,358
--------- ---------
Total Assets ...................................... 1,706,340 211,850
========= =========
Liabilities and Owners' Equity (Deficit):
Current Liabilities
Notes Payable (Note 3) ......................... 24,000 --
Accrued expenses ............................... 882,186 105,483
Loan Payable (Note 4) .......................... 383,693 35,000
Deposit Payable (Note 5) ....................... 763,500 65,000
Due to Shareholders ............................ -- 5,000
Stock Options (Note 6) ......................... 20,000 20,000
--------- ---------
Total Current Liabilities ......................... 2,073,379 230,483
--------- ---------
Commitments and Contingencies
Stockholder's Equity (Deficit) (Notes 1 and 5)
Common Stock, $.001 par value; Authorized
50,000,000 Shares, Issued and Outstanding,
38,774,625 ..................................... 38,775 22,062
Additional paid-in capital ..................... 3,776,353 2,538,581
Deficit accumulated during the development stage (4,182,167) (2,579,276)
--------- ---------
Total Stockholder's Equity ........................ (367,039) (18,633)
--------- ---------
Total Liability and Stockholder's Equity ........... 1,706,340 211,850
========= =========
See Notes to Financial Statements
3
<PAGE>
The Tirex Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
Three months ended September 30
-------------------------------
1997 1996
---- ----
Revenues ................................... -- --
Cost of Sales .............................. -- --
---------- ----------
Gross Profit ............................... -- --
General and Administrative
Expenses
Officers Salary (Note 3) ................... 165,335 137,500
Consulting Services ........................ 67,400 15,266
Professional Services ...................... 32,606 9,234
Rent ....................................... 5,064 --
Travel and Entertainment ................... 122,821 9,042
Telephone .................................. 3,555 125
Depreciation and Amortization .............. 4,709 695
Office Expenses ............................ 6,115 1,963
Miscellaneous .............................. 1,683 518
Franchise and Other Tax .................... -- --
Bank Charges ............................... 640 197
Investor Relations ......................... 2,829 2,000
Transfer Agent ............................. 3,659 1,439
Foreign Exchange ........................... 4,474 --
Total General and Administration ---------- ----------
Expenses ................................... 420,890 177,979
Net (LOSS) ................................. (420,890) (177,979)
---------- ----------
Net (Loss) Per Common Share ................ (.0l) (.0l)
---------- ----------
Weighted Average Shares of
Common Stock Outstanding ................... 38,112,298 19,500,000
========== ==========
See Notes to Financial Statements
4
<PAGE>
The Tirex Corporation and Subsidiary
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
Three months ended
September 30
-----------------------
1997 1996
---- ----
Operating Activities
Net (loss) ....................................... (420,890) (177,979)
-------- ---------
Adjustments to Reconcile Net (Loss) to Net
Cash Provided by Operating Activities:
Depreciation and Amortization .................... 4,709 695
Stock Issued in exchange for services ............ 193,581 --
Change in Assets and Liabilities:
Increase in Accrued Expenses .................. 9,932 554
Increase in Loan Payable ...................... 183,148 --
Increase in Deposit Payable ................... 283,500 --
Decrease in Notes Payable ..................... (98,551) --
Increase in Notes Receivable .................. (30,000) --
Increase in Sales Tax Receivables ............. (4,623) --
Decrease in Loan Director ..................... 10,881 --
Increase in Prepaid Expense ................... (13,929) --
-------- ---------
Total Adjustments ................................ 538,648 1,249
-------- ---------
Net Cash-Operating Activities .................... 117,758 (176,730)
-------- ---------
Investing Activities
Equipment Development Costs .................... (201,589) (15,000)
Equipment ...................................... (2,770) --
-------- ---------
Net Cash-Investing Activities .................... (204,359) (15,000)
Financing Activities
Issuance of Common Stock ...................... -- 191,643
-------- ---------
Net Cash - Financing Activities ............... -- 191,643
-------- ---------
Net Decrease in Cash .......................... (86,601) (87)
Cash - Beginning of Period .................... 155,037 240
-------- ---------
Cash - End of Period .......................... 68,436 $ 153
======== =========
See Notes to Financial Statements.
5
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
Nature of Business
Tirex America, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on August 19, 1987. The Company originally
planned to provide comprehensive health care services to persons with
Acquired Immune Deficiency Syndrome, however due to its inability to
raise sufficient capital it was unable to implement its business plan.
The Company had been inactive since it ceased operations in November
1990.
In the Fall of 1992, a group of shareholders lead by Edward Mihal and
including 16 other shareholders acting in concert with Mr. Mihal along
with Patrick McLaren and George Fattell, individuals without any prior
affiliation with the Company, became interested in the Company as an
entity potentially suitable for merger or similar transaction with an
operating private company seeking to become public in this manner. This
group approached the Company's incumbent management with a proposal
whereby they agreed to assume management control, make all delinquent
filings with the Securities and Exchange Commission, restore service by
transfer agent and pay all other expenses required to enable the
Company to begin trading its stock and completing a merger or similar
transaction.
In furtherance of the foregoing, on November 5, 1992, J. Richard
Goldstein, MD, Peter R. Stratton and Robert Kopsack resigned from their
positions as officers and directors of the Company. From June 1989
until the date of such resignations, Dr. Goldstein was the Company's
President and Chief Executive Officer, Mr. Stratton was Vice-President,
Chief Operating Officer, Secretary and Treasurer, and Mr. Kopsack was
the Company's Vice President. In resigning their positions, Dr.
Goldstein and Messrs. Stratton and Kopsack acknowledged that they
acceded to their respective positions and had received compensation in
consideration of their representations that they would, and their best
efforts to, implement a business plan for the Company which would
encompass, among other things, the establishment and operating of
skilled nursing care facilities for patients with Acquired Immune
Deficiency Syndrome. Compensation received by Dr. Goldstein and Messrs.
Stratton and Kopsack consisted of cash payments, stock issuances, and
the grants of stock options and/or stock purchase warrants. As part of
their resignations, Dr. Goldstein and Messrs. Stratton and Kopsack each
executed releases whereby the Company was released and forever
discharged from all debts, obligations, covenants, agreements,
contracts, claims or demands in law or in equity, including but not
limited to any stock options or stock purchase warrants granted or
promised to them, which against the Company, each ever had, or
thereafter may have for or by reason of any matter, cause or thing up
to and through November 5, 1992. Each of Dr. Goldstein and Messrs.
Stratton and Kopsack also acknowledged the termination and rescission
of their respective employment agreements with the Company to such
persons as the Company should direct for the purpose of satisfying
certain of the Company's obligations to third parties. In consideration
of the resignations and releases executed by Dr. Goldstein and Messrs.
Stratton and Kopsack, Edward Mihal and each of the sixteen shareholders
of the Company acting in concert with Mr. Mihal executed and delivered
reciprocal personal releases to and on behalf of Dr. Goldstein and
Messrs. Stratton and Kopsack. In connection with the foregoing
resignations, Dr. Goldstein and Messrs. Stratton and Kopsack appointed,
as an interim board of directors, Patrick McLaren, George Fattell, and
Edward Mihal (the "Interim Management"). It was the goal of the Interim
Management to find suitable acquisition and/or development by the
Company. On December 29, 1992, Edward Mihal resigned his position as an
officer and a director of the Company and Louis V. Muro was appointed
as an officer and director of the Company to fill the vacancy created
thereby.
6
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
Reorganization
On March 26, 1993, the Company entered into an acquisition agreement
(the "Acquisition Agreement") with Louis V. Muro, Patrick McLaren and
George Fattell, officers and directors of the Company (collectively the
"Sellers"), for the purchase of certain technology owned and developed
by the Sellers (the "Technology") and extensive and detailed plans (the
"Business Plan") for a business which will engage in the exploitation
of the Technology. The Technology will be used to design, develop and
construct a prototype machine and thereafter a production quality
machine for the cryogenic disintegration of used tires. Pursuant to the
Acquisition Agreement, Sellers agreed to assign, transfer and sell to
the Company all of their right, title and interest in the Technology
and Business Plan in exchange for fifteen million nine hundred thousand
(15,900,000) shares of the Company's common stock, $.001 par value per
share (the "Sellers' Stock") of which eleven million nine hundred
thousand (11,900,000) shares were put into escrow. The Business Plan
and Technology were developed by the Sellers prior to their affiliation
or association with the Company. The Sellers were engaged as the
Company's officers and directors for the purpose of implementing the
Business Plan with the Technology or such other technology which they
believed could reasonably satisfy the requirements of the Business
Plan.
Effective with the March 26, 1993, closing date of the Acquisition
Agreement (the "Closing Date"), the Company authorized an increase in
the number of directors of the Company from three to six. Pursuant
thereto, the Company appointed Messrs. Kenneth Forbes, Nicholas
Campagna, and Alfred J. Viscido to fill the vacancies created in the
size of the board. As an inducement to Messrs. Forbes, Campagna and
Viscido to join the board of directors, the Company issued 250,000
shares of its common stock, $.001 par value to each of them. The
Acquisition Agreement also provided for stock issuances in the form of
finders fees. Pursuant thereto, the Company issued 300,000 and
1,700,000 shares of its common stock, $.001 par value, to Joseph
Territo and Edward Mihal, respectively.
Effective March 24, 1994, George Fattell resigned as an officer and
director of the Company. Per the terms of his resignation any future
shares of the Company's common stock issued to Mr. Fattell are to be
equally distributed to Louis V. Muro and Patrick McLaren.
Effective January 18, 1995, Louis V. Muro and Patrick McLaren resign
their positions as officers and directors of the Company. In addition
to their resignations they acknowledged that none of the requisite
performance levels for the release of any of the 11,900,000 escrow
shares had been met and renounced all rights to such shares.
In May of 1995, in order to take advantage of various research and
development incentives, the Company and officers of the Company formed
a Canadian corporation named 3143619 Canada, Inc. (Tirex Canada). All
of the research and development work on the first production model of
the TCS-1 System is being completed by Tirex Canada and after the
completion of the model, they will manufacture the product.
On July 11, 1997 the Company's name was changed to The Tirex
Corporation.
Basis of Consolidation
The consolidated financial statements include the accounts of Tirex
America, Inc. and its subsidiary Tirex Canada. All intercompany
transactions and accounts have been eliminated in consolidation.
7
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
Equipment Development Costs
Deferred development costs are stated at cost net of any investment tax
credits when there is reasonable assurance that the credits will be
realized. Amortization will begin once commercial production of the
product has commenced and will be computed based upon the estimated
useful life of related products as determined from management's future
sales estimates and will not exceed five years from the date of the
product's market launching.
Deferred Start-Up Costs
Deferred start-up costs represent pre-operating expenses and will be
amortized on a straight-line basis over a three year period once
commercial operations have commenced.
Equipment
Equipment is recorded at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets
by using the straight-line method of depreciation.
Repairs and maintenance costs are expensed as incurred while additions
and betterments are capitalized. The cost and related accumulated
depreciation of assets sold or retired are eliminated from the accounts
and any gain or losses are reflected in earnings.
Estimates
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 reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Organization Costs
Organization costs are being amortized on a straight-line basis over a
sixty month period.
Per Share Data
The primary income (loss) per share was computed on the weighted number
of shares of common stock outstanding during the period. Common share
equivalents were not included as their inclusion would have been
anti-dilutive.
Income Taxes
The Company has net operating loss carryovers of approximately $4
million as of June 30, 1997, expiring in the years 2004 through 2011.
However, based upon present Internal Revenue regulations governing the
utilization of net operating loss carryovers where the corporation has
issued substantial additional stock, most of this loss carryover may
not be available to the Company.
8
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1993. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company has research and development investment tax credits
receivable from Canada and Quebec amounting to $269,918.
Foreign Exchange
Assets and liabilities of the Company which are denominated in foreign
currencies are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
Note 2 - Going Concern
In March 1993, the Company, which was still in the development stage,
developed a new Business Plan. The Company is in the process of
constructing a production quality machine for the cryogenic
disintegration of used tires. The Company also plans to recycle used
tires using ambient temperature disintegration equipment. At June 30,
1997, the Company is still in the development stage. Fees generated
from tipping and culling were insufficient to fund the current
operations of the Company. All of these factors create an uncertainty
about the Company's ability to continue as a going concern.
The Company is currently in the process of trying to obtain funding
needed through a private placement of its securities in an amount of
not less than $700,000, which will provide working capital while the
Company constructs its cryogenic disintegration machine. The ability of
the Company to continue as going concern is dependent on the success of
the plan. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
Note 3 - Notes Payable
The Company also had a note payable in the amount of $24,000
outstanding as of June 30, 1997. The repayment terms were being
negotiated as of that time.
9
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 4 - Loan Payable
1997 1996
--------- ---------
FORD-Q ........................... $ 277,976 $ --
IDEA-SME ......................... 105,717 --
--------- ---------
$ 383,693 $ --
========= =========
On April 11, 1996 the Company entered into a loan agreement with the
Federal Office of Regional Development - Quebec (FORD-Q) which will be
repayable annually over a period of forty-eight months following the
completion of the project. The loan is being contributed under the
Industrial Recovery Program for South-West Montreal and will be
calculated as the lesser of $362,319 or 20% of the eligible costs
incurred for the construction of a commercial scale prototype of the
cryogenic scrap tire disintegration system. The loan is non-interesting
bearing and unsecured. The Company received $178,806 under this program
in fiscal 1997.
On April 30, 1997 the Company received a refundable contribution
awarded under the terms of the Program for the Development of Quebec's
SME'S (IDEA-SME). The contribution is repayable in amounts equal to 1%
of the annual gross sales in Spain and Portugal occurring after June 1,
1997.
On March 26, 1997, the Company received a refundable contribution for
the preparation of market development studies for India under the
Quebec SME development assistance program (IDEA-SME). The maximum
contribution is $14,493 based on 50% of the approved eligible costs.
The contribution is repayable in amounts equal to 1% of the annual
gross sales in India occurring after June 1, 1997.
On June 6, 1997, the Company entered into an agreement under the Quebec
SME development assistance program (IDEA-SME) to receive a refundable
contribution for market development activities for the Iberian
Peninsula. The maximum contribution is $68,841 , based on 50% of
approved eligible costs. The contribution is repayable in amounts equal
to 1.5% of the annual gross sales in Spain and in Portugal occurring
after June 1, 1998 less amounts repaid through the amounts noted in the
April 30, 1997 agreement.
Note 5 - Related Party Transactions
In 1994, a stockholder loaned the Company $5,000. This loan was
converted to common stock and additional paid-in capital during the
year ended June 30, 1997.
On July 22, 1994, 3,000,000 shares of Tirex America, Inc. were released
from escrow and issued to Louis V. Muro and Patrick McLaren (1,500,000
shares each) in accordance with the terms and provisions of the
Acquisition Agreement dated March 26, 1993.
The Company has entered into employment agreements with all of its
executive officers and with its in-house corporate counsel. In addition
to the employment services, the officers agree not to compete with the
Company for the two year period following the termination of
employment. If an officer is terminated other than for cause or for
"good reason", the terminated officer will be paid twice the amount of
their base salary for twelve months.
10
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 5 - Related Party Transactions (continued)
Included in accrued expenses at September 30, 1997 is $120,000 of
salary to officers which the company subsequently issued common stock.
The Company advanced funds to its officers and directors during the
year ended June 30, 1997 in the amount of $185,942. These will be
repaid during the year ending June 30, 1998.
On June 30, 1997 and 1996, the Company had notes receivable from
various officers in the amount of $9,729 and $1,158, respectively. All
of these notes and loans are non-interest bearing and will be repaid
during the year ending June 30, 1998.
Deposits payable include an amount of $738,500 which are payable to
companies which are owned by a director of the Company.
Note 6 - Stock Option
On May 19, 1995, the Company sold to a director of the Company an
option to purchase 20,000 shares of Cumulative Convertible Preferred
Stock at an exercise price of $10 per share, exercisable during the two
year period beginning May 19, 1995, and ending May 18, 1999. The
director paid $20,000 for the option. The terms of the Preferred Stock
purchasable under the option call for cumulative cash dividends at a
rate of $1.20 per share and conversion into shares of common stock. The
conversion to common stock ratio varies depending on when the
conversion is made. At September 30, 1997, the option has not been
exercised.
Note 7 - Government Assistance
The Company has entered into an agreement with Recyc-Quebec for
financial assistance covering 50% of certain defined costs incurred in
developing the cryogenic scrap tire disintegration system to a maximum
of $54,348. $36,500 has been received during the year and this amount
has reduced the equipment development costs on the balance sheet.
11
<PAGE>
The Tirex Corporation and Subsidiary
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 8 - Commitments
The Company has entered into a property lease agreement, with a term
from July 1, 1997 to June 30, 2000. The Company has an option to renew
this lease for an additional three years. Minimum rentals in each of
the next three years is as follows:
1998 .................. $ 18,967
1999 .................. 18,967
2000 .................. 18,967
--------
$ 56,901
========
Note 9 - Contingency
The Company is a defendant in an action which commenced on June 18,
1997 entitled Great American Commercial Funding Corp. vs. Tirex
America, Inc. The Company agreed to pay the plaintiff a placement fee
of $250,000 and to grant them an option to acquire 400,000 shares of
the company's common stock at a price of $.01 per share in the event
that the plaintiff succeeded in obtaining financing acceptable to the
Company. The amount and terms of the financing are not mentioned in the
documents. The plaintiff recommended an equipment lease financing
company who in turned introduced the Company to one of their customers.
The customer ultimately entered into a lease financing arrangement with
Tirex America, Inc. Because the advances made to the Company pursuant
to that lease financing arrangement did not constitute the type of
financing originally contemplated, the Company believes it has no
financial obligation to the plaintiff. The Company and its litigation
counsel believe that the plaintiffs complaint is without merit and that
the Company will prevail in this litigation.
12
<PAGE>
The Tirex Corporation and Subsidiary
(A Development Stage Company)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant
factors which have affected Registrant's financial position and operations
during the fiscal quarter ended September 30, 1997.
Liquidity and Capital Resources
The activities of Registrant since its inception in 1987 have been financed
by sources other than operations. Such financing was principally provided by the
sale of securities in private transactions, including the exercise of both
public and private warrants of Registrant, as follows:
Proceeds From
Year Ended Sales of
June 30th Securities
--------- ----------
1997 ......................... $318,685
1996 ......................... 80,872
1995 ......................... 22,316
1994 ......................... 237,430
1993 ......................... 76,055
1990 ......................... 80,812
1989 ......................... 77,000
As at September 30, 1997, Registrant had total assets of $1,706,340
reflecting an increase of $1,494,490 from the end of the analagous quarter in
the fiscal year ended June 30, 1996 when total assets were $211,850. The
foregoing reflects an increase of $792,816 attributable to accrued design and
development costs of the TCS-1 System, and increases in: (i) cash in the
amount of $68,283; (ii) research and development tax credit receivables in the
amount of $269,918; (iii) deferred start up costs of $74,683; (iv) note
receivable of $38,571; (v) sales tax receivable of $54,907; and (vi) advances to
employees of $185,942. During that same period, total liabilities increased by
$l,842,896 from $230,483 at September 30, 1996 to $2,073,379 at September 30,
1997. Such increase was due primarily to the recording of liabilities associated
with the accruing of various expenses, including: (i) $120,000 in accrued
officers' salaries, all of which will be paid in unregistered stock of the
Company and not in cash; (ii) $698,500 reflecting the Company's receipt of
refundable deposits from O/V III, and recycletron; (iii) increase in debt
consisting of loans from the FORDQ in the amount of $383,693. Reflecting the
foregoing, as at September 30, 1997, the Company had a working capital deficit
(current assets minus current liabilities) of
13
<PAGE>
$1,440,518 as compared to a working capital deficit of $229,172 at September 30,
1996. The major part of such working capital deficit ($120,000) represents
accrued officers' salaries, to be paid by the Company in stock and not in cash,
and deposits of future sales of $763,500.
The Company currently has limited material assets of $22,724, negative
working capital and a negative net worth of $367,039. The success of its tire
disintegration equipment manufacturing business and its ability to continue as a
going concern will be dependent upon the Company's ability to obtain adequate
financing to complete the design and development of the TCS-l System and to
commence manufacturing and sales activities related thereto. The Company
believes that it will be able to do so during the fiscal year which will end
June 30, 1998. Currently, the Company is negotiating the terms of a private
placement of the Company's securities in an amount of up to $1,400,000 (the
"Proposed Private Placement"). The Company is also conducting negotiations
respecting the terms of a public offering of the Company's common stock in an
amount of not less than $8,000,000 (the "Proposed Public Offering"). The
Company can give no assurance at this time that either the Proposed Private
Placement or the Proposed Public Offering will be attempted or, if attempted,
that either of such offerings will be successfully completed.
Results of Operations
Registrant has never engaged in any significant business activities and had
no revenues from operations during the first quarter ended September 30, 1997 or
in the first quarter of the prior fiscal year ended September 30, 1996.
Management has continued to devote all of Registrant's limited resources to
activities connected with raising financing to complete the design and
development, and to commence manufacture, of the TCS-1 System.
The financial statements which form a part of this Report reflect an
increase in total general and administrative expenses, from $177,979 for the
quarter ended September 30, 1996, to $420,890 for the quarter ended September
30, 1997, however, the great bulk of such increase reflects the accrual, as
expenditures, of $165,335 in executive officers' salaries, payment of virtually
all of which was actually waived by the executive officers and the Company's
corporate counsel, who have agreed to accept shares of the Company's Common
Stock in lieu of such payment. Management believes that the amounts accrued in
respect of the shares issued to compensate the executive officers' reflect the
fair value of the services rendered and not the value of the stock at the time
it was issued. In respect of the value of the compensation actually received by
such officers, management believes that it is impossible to determine the actual
current or potential value, if any, of the such shares in light of the fact
that, as of the dates when such shares were issued to the executive officers,
they had no or only very minimal actual market value and the actual potential
market value of such shares, if any, was at such dates, and as at the date
hereof remains, highly contingent upon, and subject to, extremely high risks
including but not limited to the following factors: (i) the very early stage of
development of the Company's business; (ii) the Company's lack of sufficient
funds to implement its business plan and the absence of any commitments from
potential investors to provide such funds; (iii) the absence of
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<PAGE>
a reliable, stable, or substantial trading market for such shares; (iv) the
restrictions on transfer arising out of the absence of registration of such
shares; and (v) the uncertainty respecting the Company's ability to continue as
a going concern.
From inception (July 15, 1987) through September 30, 1997, the Company has
incurred a cumulative net loss of $4,182,167. Approximately 28% of such
cumulative loss was incurred, prior to the inception of the Company's present
business plan, in connection with the Company's discontinued proposed health
care business and was due primarily to the expensing of costs associated with
the unsuccessful attempt to establish such health care business. The Company
never commenced its proposed health care operations and therefore, generated no
revenues therefrom. The Company is presently in the business of designing and
developing cryogenic tire disintegration equipment (the "TCS-I System"), which
it intends to begin manufacturing on a commercial basis, during the current
fiscal year. Design and development work on the first production model of the
TCS-1 System has been brought to approximately 90% completion. Unless and until
the Company successfully develops and commences manufacturing and sales
operations respecting such a machine, the Company will continue to generate no
revenues from operations.
PART II
OTHER INFORMATION
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
Registrant has reported the information required with respect to all sales
of unregistered securities made by it during the quarter ended September 30,
1997, in Item 5 of Registrant's annual report on Form 10-KSB, for the fiscal
year ended June 30, 1997, which information is hereby incorporated herein by
reference and attached as an Exhibit hereto.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith:
Exhibit No. Exhibit
- ----------- -------
99 Item 5 of Registrant's Annual Report on Form 1O-KSB for the
year ended June 30, 1997
(b) Current Reports on Forms 8-K filed during quarter ended September 30,
1996
Registrant filed two Current Reports on Forms 8-K during the first quarter
ended September 30, 1997, as follows:
Current Report on Form 8-K, dated June 24, 1997, filed with the Commission
on July 14, 1997.
Current Report on Form 8-K, dated July 11, 1997, filed with the Commission
on August 14, 1997.
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.
THE TIREX CORPORATION
Date: November 12, 1997 By /s/ Terence C. Byrne
-----------------------------------
Terence C. Byrne, President
and Treasurer
Date: November 12, 1997 /s/ Terence C. Byrne
-----------------------------------
Terence C. Byrne, Chief Executive
and Chief Financial Officer
16
ITEM 5. MARKET FOR THE COMPANY COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Sales of Unregistered Securities
The following sets forth information respecting the dates, purchasers, and
consideration involved in sales of its Common Stock by the Company without
registration under the Securities Act of 1933, as amended (the "Securities Act")
during the fiscal year ended June 30, 1997, and not previously reported in a
quarterly report on Form 10-Q.(1)
Sales to Executive Officers in Respect of Services Rendered
As discussed extensively, below, in the footnotes to the Summary
Compensation Table, which appears in Item 10 of this Report, "Executive
Compensation - Current Remuneration" and in Item 12 of this Report, "Certain
Relationships and Related Transactions - Issuance of Stock in Lieu of Salaries
and Consulting Fees", during the fiscal year ended June 30, 1997, the Company
had available financial resources to meet only part of its salary obligations to
its executive officers and its corporate and securities counsel, and to
reimburse such persons for out-of-pocket disbursements made by them for the
account, or on behalf, of the Company. As a result, such persons accepted
unregistered shares of the Company's Common Stock, valued, for this purpose
only, at fifty percent of the average of the bid and ask prices for of stock as
traded in the over-the-counter market and reported in the electronic bulletin
board of the NASD, as follows:
On April 28, 1997, in consideration of unpaid executive services rendered
during the fiscal quarter ended March 31, 1997, the Company authorized the
issuance of an aggregate of 453,532 shares to three of its executive officers
and its in-house corporate counsel at a per share price of $.214, representing
50% of the average of the bid and ask price for the Common Stock of
approximately $.428 per share during the said fiscal quarter. On that same date,
the Company authorized the issuance of an aggregate of 132,299 shares to another
executive officer in consideration of unpaid executive services rendered during
the seven month-month period ended March 31, 1997, at fifty percent of the
average of the bid and ask prices for of stock as traded in the over-the-counter
market and reported in the electronic bulletin board of the NASD, during the
three fiscal quarters when such unpaid services were rendered, as follows:
- --------
(1) For information respecting sales of unregistered shares of its Common
Stock made by the Company during the first three quarters of fiscal 1997,
reference is made to the disclosure thereof contained in Part II, Item 2.
"Changes in Securities" contained in the Company's quarterly reports on Forms
10-QSB for the quarters ended September 30, 1996, December 31, 1996, and March
31, 1997.
<PAGE>
Period for
Which Shares Price Per No. Of
are Issued Share Shares
---------- ----- ------
Sept 1, 1996
through
Sept 30, 1996 US $0.169 32,396
Quarter ended
Dec 31, 1996 US $0.1433 68,520
Quarter ended
March 31, 1997 US $0.214 31,383
Issuance of Stock Pursuant to Consulting Agreements
1. On April 28, 1997, in consideration of business and financial consulting
services rendered by a nonaffiliated financial consultant (the "Financial
Consultant"), the Company authorized the issuance of 79,462 shares of its Common
Stock to the said nonaffiliated consultant for an aggregate purchase price of
$20,000 (Canadian) (approximately, US $14,780 at exchange rates in effect as at
such date). In accordance with the terms of the Consulting Agreement applicable
thereto, this represented a per share price equal to the average of the high and
low prices of the Company's common stock as traded in the over-the-counter
market and quoted in the NASD Electronic Bulletin Board, during the ten (10)
days of trading immediately preceding April 3, 1996, when the average per share
high-ask price and the average per share low-bid price of the common stock of
the Company were approximately US $0.204 and US $0.168, respectively, yielding
an average of such prices during such period of approximately US $0.186.
2. On April 28, 1997, in consideration of financial public relations
consulting services rendered by a nonaffiliated public relations consultant (the
"Public Relations Consultant"), the Company authorized the issuance of 99,502
shares of its Common Stock to the said nonaffiliated Public Relations Consultant
for an aggregate purchase price of $20,000. In accordance with the terms of the
Public Relations Consulting Agreement applicable thereto, this represented a per
share price equal to 50% of the average of the high and low prices of the
Company's common stock as traded in the over-the-counter market and quoted in
the NASD Electronic Bulletin Board, during the ten (10) days of trading
immediately preceding March 11, 1997, when the average per share high-ask price
and the average per share low-bid price of the common stock of the Company were
approximately US $0.435 and US $0.369, respectively, yielding an average of
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<PAGE>
such prices during such period of approximately US $0.402, 50% of which was
$0.201.
These sales are claimed to have been exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, as more fully described below.
Basis for Exemption Claimed
With respect to all sales and other issuances of securities as hereinabove
described:
(a) The Company did not engage in general advertising or general
solicitation and paid no commission or similar remuneration, directly
or indirectly, with respect to such transactions.
(b) The persons who acquired these securities are current or former
executive officers and directors of the Company, consultants to the
Company, and providers of professional or other significant services;
Such persons had continuing direct access to all relevant information
concerning the Company and/or have such knowledge and experience in
financial and business mattes that they are capable of evaluating the
merits and risks of such investment and are able to bear the economic
risk thereof.
(c) The persons who acquired these securities advised the Company that the
Shares were purchased for investment and without a view to their
resale or distribution unless subsequently registered and acknowledged
that they were aware of the restrictions on resale of the Shares
absent subsequent registration and that an appropriate legend would be
placed on the certificates evidencing the Shares reciting the absence
of their registration under the Securities Act and referring to the
restrictions on their transferability and resale.
Accordingly, the Company claims the transactions hereinabove described, to
have been exempt from the registration requirements of Section 5 of the
Securities Act by reason of Section 4(2) thereof in that such transactions did
not form part of a single financing plan and did not involve a public offering
of securities.
3
