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 March 31, 1998
[ ] 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 May 18, 1998: 62,796,426 shares
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
The Tirex Corporation
(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
March 31, 1998 and 1997 ......................................... 3
Consolidated Statements of Operations
for the nine month period
ended March 31, 1998 and three and
nine month period 1998 ......................................... 4
Consolidated Statements of Cash Flows
for the nine-month periods
ended March 31, 1998 and 1997 .................................. 5
Notes to Financial Statements (unaudited)............................ 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 15
PART II
Item 2 - Changes in Securities............................................. 20
Item 6 - Exhibits and Reports on Form 8-K.................................. 25
----------
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 March 31, 1998 and the results of its operations and
changes in its financial position for the three and nine month periods ended
March 31, 1997 and for the period from inception (July 15, 1987).
2
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
(Unaudited)
March 31
1998 1997
----------- -----------
ASSETS
Current Assets $ 305,243 $ 10,697
Accounts receivable 115,000 --
Notes receivable 39,729 1,158
Prepared expenses 1,558 --
Employee advances 93,199 --
Sales tax receivable 46,058 --
Income taxes receivable 639,762 --
----------- -----------
Total current assets 1,240,549 11,855
Fixed Assets, at cost, net of accumulated
depreciation of $12,625 36,285 17,681
Other assets
Equipment development costs 919,118 549,116
Deferred start-up costs 96,634 --
Organization costs, net of accumulated
amortization of $795 747 984
----------- -----------
1,016,499 550,100
----------- -----------
Total Assets 2,293,333 579,636
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Bank indebtedness $ 504,689 $ --
Note payable 24,000 24,000
Accrued expenses 976,050 230,603
Loans Payable 479,138 45,796
Deposits payable 663,500 190,000
Total current liabilities 2,647,377 490,399
Convertible subordinated debentures 445,000 --
----------- -----------
Total liabilities 3,092,377 490,399
Commitments and contingencies
Stockholder's equity (deficit)
Common stock, $.001 par value, authorized
50,000,000 shares, issued and outstanding
47,644,182 shares 47,644 28,029
Additional paid-in capital 4,116,802 3,082,938
Deficit accumulated during the development stage (4,963,490) (3,021,730)
----------- -----------
(799,044) 89,237
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,293,333 $ 579,636
=========== ===========
3
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine months ending Three months
March 31 ending March 31,
---------------------------- ---------------
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 415,000 $ -- $ 415,000
Costs of sales 248,082 -- 248,082
Gross profit 166,918 -- 166,918
General and administrative expenses
Officers' salaries 579,144 382,592 181,923
Consulting services 79,571 70,771 9,385
Professional services 211,447 58,761 91,443
Rent 29,270 5,056 13,096
Light, heat and power 3,313 -- 3,313
Travel and entertainment 332,784 65,672 143,239
Telephone 12,775 6,031 4,012
Depreciation and amortization 7,619 2,085 2,833
Office expenses 46,545 13,599 12,684
Miscellaneous 12,889 2,793 12,889
Franchise and other tax 4,152 -- 1,300
Interest and bank charges 10,243 6,270 6,545
Investor relations 756 1,794 (2,073)
Transfer agent 7,089 5,009 5,394
Financing fee 65,719 -- 65,719
Foreign exchange (34,185) -- (18,833)
Total general and administrative expenses 1,369,131 620,433 532,896
Net loss $ (1,202,213) $ (620,433) $ (365,951)
Net loss per common share $ (0.03) $ (0.02) $ (0.01)
Weighted average shares of common
stock outstanding 40,866,990 23,907,069 40,866,990
</TABLE>
4
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated statement of cash flows
(Unaudited)
March 31
--------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(1,202,213) $ (620,433)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 7,619 2,085
Stocks issued in exchange for services 403,049 531,958
Change in assets and liabilities
Increase in accounts receivable (315,000) --
Decrease in employee advances 92,743 --
Decrease in sales tax receivable 4,226 --
Increase in prepaid expenses (1,558) --
Increase in notes receivable (30,000) --
Decrease in loan-director 10,881 --
Increase (decrease) in accrued expenses 83,796 (7,826)
Decrease in due to shareholder -- (5,000)
Increase in income taxes receivable (369,844) --
Net cash used in operating activities (1,316,301) (99,216)
Cash flows from investing activities:
Fixed assets (28,956) (1,740)
Equipment development costs (135,667) (371,892)
Deferred start up costs (21,951) --
Net cash used in investing activities (186,574) (373,632)
Cash flows from financing activities:
Repayment of notes payable (98,551) --
Proceeds form loans payable 278,593 10,796
Proceeds form deposits payable 383,500 125,000
Proceeds from issuance of common stocks 139,850 347,509
Proceeds from issuance of convertible debentures 445,000 --
Net cash provided by financing activities 1,148,392 483,305
Net increase (decrease) in cash (354,483) 10,457
Cash and cash equivalents-beginning of period 155,037 240
Cash and cash equivalents-end of period $ (199,446) $ 10,697
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: The Tirex
Corporation (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
6
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 Summary of Accounting Policies - Nature of Business (continued): 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.
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
7
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 Summary of Accounting Policies - Reorganization (continued):
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 The Tirex
Corporation and its subsidiary Tirex Canada. All intercompany
transactions and accounts have been eliminated in consolidation. Cash
and Cash Equivalents For purposes of the statement of cash flows all
certificates of deposit with maturities of 90 days or less, were deemed
to be cash and cash equivalents. 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
8
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 Summary of Accounting Policies (continued) 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 $4,900,000 as of March 31, 1998269,
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.
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 $639,762. 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.
9
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 2 Going Concern: As shown in the accompanying financial statements, the
Company incurred a net loss of $1,202,212 during the nine months ended
March 31, 1998 and as of that date, the Company's current liabilities
exceeded its current assets by $1,406,828 and its total liabilities
exceeded its total assets by $799,044. 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. As at
March 31, 1998, 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.
On May 15, 1998, subsequent to the period covered by this Report, the
Company completed three private placements of its securities to a
limited number of accredited investors, which yielded aggregate net
proceeds of $2,047,795. Management believes that these funds, (together
with Canadian and Quebec government and governmental agency grants and
loans, in various forms) will be sufficient for it to accomplish the
following: (i) complete, and cover all of the Company's costs related
to, the first TCS-1 production model (the "Production Model"); (ii)
renovate the Company's new manufacturing and assembly facility to bring
it into full compliance with all applicable provincial and municipal
regulations; and (iii) cover the Company's overhead costs and expenses
through the end of October 1998. However that the period of time for
which these funds will be available to cover normal overhead costs
could be significantly reduced if the Company is required to make
substantial, presently unanticipated expenditures to correct any flaws
or defects in the design or construction of the Production Model which
may become apparent during the test phase operations. However, such
funds, together with cash flow from sales of TCS-1 Systems and the
possibility of production financing for the construction of subsequent
TCS-1 Systems are not expected to be sufficient to provide the funds
necessary for the Company's operations, capital expenditures and
anticipated growth during the next twelve months. It will therefore be
necessary for the Company to satisfy its financial needs by raising
additional equity capital. The ability of the Company to continue as
going concern is dependent on the success of its ability to raise
sufficient financing to implement its business plan. The financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
10
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 3 Notes Payable: The Company has available a line of credit which bears
interest at prime plus 3%. Under this line of credit the Company may
borrow a maximum of 80% of their receivable balance from FORD-Q and the
related Rev Canada receivable. At March 31, 1998, $1,504,689 was
outstanding against this line of credit. The note is collateralized by
the receivable from FORD-Q. The Canadian prime rate of interest at
March 31, 1998 was 6.5%. This line was paid in full in July, 1997. The
Company also had a note payable in the amount of $24,000 outstanding as
of March 31, 1998. The repayment terms were being negotiated as of that
time.
Note 4 Loan Payable
June 30,
March 31, ------------------------
Creditor 1998 1997 1996
-------- ---- --------- ---------
FORD-Q $277,917 $178,806 --
IDEA-SME 201,221 21,739 --
TOTAL $479,138 $200,545 --
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. $14,493 was received under this program in fiscal
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
11
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company
Notes to Consolidated Financial Statement
Note 4 Loan Payable (Continued) sales in India occurring after June 1, 1997.
As of June 30, 1997, the Company had received $7,246 under this
program. 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. During the nine months ended
March 31, 1998, the Company received $278,593 (US) in loans under the
foregoing programs.
Note 5 Related Party Transactions: 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. With respect to two such executive
officers and in-house counsel, if they are 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. Included in accrued
expenses at March 31, 1998 is $153,191 of salary to officers and
counsel which the company subsequently issued common stock for. The
Company advanced funds to its officers and directors during the nine
months ended March 31, 1998 in the amount of $387,648. All such amounts
have been repaid during or subsequent to the nine-month period ending
March 31, 1998. Deposits payable include an amount of $638,000 which
are payable to companies which are owned by a director of the Company.
Note 6 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.
12
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company
Notes to Consolidated Financial Statement
Note 7 Commitments: The Company has entered into a property lease agreement
for its corporate headquarters located at 740 St. Maurice, Montreal,
Canada, 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:
Year Ending
June 30
-----------
1998 $ 18,967
1999 18,967
2000 18,967
---------
$ 56,901
The Company has entered into a property lease agreement for its
assembly plant located at 3828 St. Patrick, Montreal, Canada, with a
term from March 1, 1998 to April 30, 2003. Minimum rentals in each of
the next three years is as follows:
Year Ending
April 30
-----------
1999 $ 90,926
2000 174,842
2001 216,800
---------
$ 482,568
Note 8 Contingency: The Company is a defendant in an action which commenced on
June 18, 1997 entitled Great American Commercial Funding Corp. vs. The
Tirex Corporation. 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
The Tirex Corporation. 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
13
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company
Notes to Consolidated Financial Statement
Note 8 Contingency (Continues) that the plaintiffs complaint is without merit
and that the Company will prevail in this litigation.
Note 9 Subsequent Event: Subsequent to March 31, 1998, the Company received an
additional $35,000 (approximate, in US dollars) under the FORD-Q
Industrial Recovery Program and $10,165 (approximate, in US
dollarsunder the Program for the Development of Quebec SME'S.
Subsequent to March 31, 1998, the Company received an additional
$1,531,430 from sales of its securities in three private placements
effected by the Company in accordance with the requirements of the
exemption from the registration provisions of the Securities Act, which
is available under Rule 506 of Regulation D, as promulgated under
Section 4(2) thereof.
14
<PAGE>
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the three-month and nine month periods ended March 31, 1998. This
discussion contains both historical and forward looking-statements. When used in
this discussion, the words "expect(s)", "feel(s)","believe(s)", "will", "may",
"anticipate(s)" "intend(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Readers are
also urged to carefully review and consider the various disclosures elsewhere in
this Report which discuss factors which affect the Company's business.
The Company is in the very early stages of the business of manufacturing
its patented cryogenic scrap tire recycling equipment (the "TCS-1 System"). The
Initial design and development work on the first production model of the TCS-1
System (for purposes of this discussion, the "Production Model") has been
brought to approximately 90% completion, and construction was begun in February
of 1997. In January 1997, the fully-automated front-end tire preparation module,
and in April 1998, the cryogenic tire freezing section, of the Production Model
were completed, sold, and delivered to the purchaser.
During the five-month period, which commenced on January 8, 1998 and
extended beyond the period covered by this Report to May 15, 1998, in three
private placements of the securities of the Company (the "Private Placements"),
the Company raised capital, in an amount which management believes will be
sufficient to cover all costs expected to be required to complete constructions,
and testing operations, of the Production Model (see, the discussion below under
the subcaption "Liquidity and Capital Resources"). As at the date hereof,
Management is unable to predict with certainty the amount of time or money which
will be required to complete the final assembly and testing, or "debugging" of
the Production Model necessary to bring it into conformance with its anticipated
performance specifications. However, a test phase of an estimated two months has
been scheduled and is expected to begin on or about June 15, 1998. If after such
testing operations are complete, the Production Model meets all anticipated
performance specifications, Management intends to begin manufacturing subsequent
systems immediately thereafter.
Liquidity and Capital Resources
On May 15, 1998, subsequent to the period covered by this Report, the
Company completed three private placements of its securities to a limited number
of accredited investors, which yielded aggregate net proceeds of $2,063,795.
Management believes that these funds, (together with Canadian and Quebec
government and governmental agency grants and loans, in various forms) will be
sufficient for it to accomplish the following:
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<PAGE>
(i) complete, and cover all of the Company's costs related to, the Production
Model; (ii) renovate the Company's new manufacturing and assembly facility to
bring it into full compliance with all applicable provincial and municipal
regulations; and (iii) cover the Company's overhead costs and expenses through
the end of October 1998. It should be noted however that the period of time for
which these funds will be available to cover normal overhead costs could be
significantly reduced if the Company is required to make substantial, presently
unanticipated expenditures to correct any flaws or defects in the design or
construction of the Production Model which may become apparent during the test
phase operations.
Management believes that after the test phase of the Production Model is
satisfactorily completed, the Company will be able to obtain sufficient
"production financing" to cover the costs of constructing subsequent TCS-1
Systems. This type of financing will allow the Company to borrow funds to cover
constructions costs and to use the System, which is being constructed, as
collateral for such borrowings. However, the Company's ability to obtain
construction financing will be dependent upon the Production Model's meeting its
anticipated performance specifications and, possibly, other factors as well.
Because assembly of the Production Model has not yet been completed and testing
operations have not yet commenced, management is unable at this time to give any
assurances that such performance specifications will be met, on a timely basis,
without undue economic costs, if at all, or if the Company will be able to
obtain construction financing on beneficial terms, if at all.
Management does not believe that, even with the possible availability of
production financing, such financing together with cash flow from sales of TCS-1
Systems will be sufficient to provide the funds necessary for the Company's
operations, capital expenditures and anticipated growth during the next twelve
months. It will therefore be necessary for the Company to satisfy its financial
needs by raising additional equity capital. In an effort to put such funding
into place, the Company has entered into a non-binding letter of intent with a
potential underwriter for a public offering of its securities in an amount of
not less than $8,000,000. Management is not able at this time to give any
assurances that the said non-binding letter of intent will ultimately result in
a public offering or that the Company will be successful in obtaining another
underwriter for such enterprise. In all events, no public offering is expected
to be effected during the current fiscal year. Management believes that If the
Company is not able to complete a public offering of its securities within the
next twelve months, or find other sources of outside funding, the Company's
financial position and its prospects for beginning and developing profitable
business operations could be materially adversely affected.
Prior to the recently completed Private Placements described above, the
activities of the Company 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, as follows:
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Proceeds From
Year Ended Sales of
June 30th Securities
--------- ----------
1998* $2,063,795*
1997 345,391
1996 80,872
1995 22,316
1994 237,430
1993 76,055
1990 80,812
1989 77,000
- ----------
* Includes $532,365 in proceeds from Private Placements received between January
1, 1998 and March 31, 1998
As at March 31, 1998, the Company had total assets of $2,293,333 as
compared to $1,555,620 at June 30, 1997 reflecting an increase of $737,713
during the first nine-months of the year ending June 30, 1998 and an increase of
$1,713,697 in total assets since March 31, 1997. Management attributes the
increases in total assets during the nine months ended March 31, 1998,
principally to (i) accrued design and development costs of the TCS-1 System of
$135,577; (ii) an increase in cash in the amount of $150,206; (iii) an increase
in research and development tax credit receivables in the amount of $369,844;
and (iv) deferred start up costs of $21,951.
As at March 31, 1998, the Company had total liabilities of $3,092,377 as
compared to $2,601,978 at June 30, 1997 reflecting an increase in liabilities of
$1,397,627 during the first nine-months of Fiscal 1998 and an increase of
$2,801,978 in total liabilities since March 31, 1997 when total liabilities were
$490,399. Management attributes such increases in total liabilities since March
31, 1997, primarily to the recording of liabilities associated with the accruing
of various expenses, including (i) 540,839 in officers' salaries accrued during
the nine months ended March 31, 1998, $153,191 of which will be repaid as of
June 30, 1998 by way of the issuance of shares of Common Stock, and $387,648 of
which will be repaid in cash as at the end of the current fiscal year; (ii)
increase bank indebtedness in the amount of $504,869; (iii) $433,342 in advances
from the Federal Office of Regional Development - Quebec ("FORDQ") pursuant to a
loan contributed under the Industrial Recovery Program for South-West Montreal;
(iv) $473,500 in refundable deposits and/or prepayments on TCS-1 Systems for
which orders have been taken, and (v) the issuance in one of the Private
Placements of 10% Convertible Subordinated debentures in the aggregate principal
amount of $445,000.
Reflecting the foregoing, as at March 31, 1998, the Company had a working
capital deficit (current assets minus current liabilities) of ($1,406,828). As
at March 31, 1997, the Company's working capital deficit was ($246,031) and as
at June 30, 1997, the end of the last fiscal year, the working capital deficit
was ($1,013,559).
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The Company currently has limited material assets, negative working
capital, and a negative net worth. The success of its tire recycling equipment
manufacturing business and its ability to continue as a going concern will be
dependent, initially, upon the Production Model's meeting anticipated
performance specifications on a timely and economical basis and the Company's
ability to obtain adequate financing to commence profitable, commercial
manufacturing and sales activities following the test phase of the Production
Model.
Results of Operations
As noted above, the Company is presently in the very early stages of the
business of manufacturing and selling its patented cryogenic tire recycling
equipment, referred to herein as the "TCS-1 System". The Company recently
completed the initial design and development stage of the TCS-1 System and it
intends to begin manufacturing on a commercial basis following the test phase of
the Production Model if such test phase proves that the Production Model is
capable of meet its anticipated performance specifications. The Company
generated $415,000 in revenues in January of 1998 from the sale of the front-end
module of the Production Model of the TCS-1 System. However, unless and until
the Company successfully develops and commences manufacturing and sales
operations on a full-scale commerical level, it will continue to generate no, or
only limited, revenues from operations. Except for the foregoing, the Company
has never engaged in any significant business activities. There were no
significant revenues from during the nine-month period ended March 31, 1997.
The financial statements which are included in this Report reflect
increases in total general and administrative expenses, which increased from
$520,433 for the nine-month period ended March 31, 1997 to $1,369,130 for the
nine-month period ended March 31, 1998. The great bulk of such increase
reflected the accrual, as expenditures, of $540,839 of salaries for the
Company's executive officers and corporate counsel. Other expenses during the
nine-month period ended March 31, 1998 were made principally for overhead and
operating costs. Management believes that the amounts accrued in respect of the
shares issued to compensate the executive officers and corporate counsel 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 shares received by such
persons in lieu of cash compensation, management believes that it was, as of the
dates when such shares were issued, impossible to determine the actual current
or potential value, if any, of the such shares in light of the fact that, as of
such dates, the shares had no or only very minimal actual market value and the
actual potential market value of such shares, if any, at such dates was, 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
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, in some instances, to their being subject to certain stock
18
<PAGE>
restriction agreements; and (v) the uncertainty respecting the Company's ability
to continue as a going concern.
From inception (July 15, 1987) through March 31, 1998, the Company has
incurred a cumulative net loss of $4,963,490. Approximately 21% 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.
19
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the fiscal quarter ended March 31, 1997, Registrant made the
following sales of its common stock, $.001 par value, per share ("Common Stock")
without registration under the Securities Act of 1933, as amended (the
"Securities Act"). The following sets forth information respecting the dates,
purchasers, and consideration involved in such sales and the bases for
Registrant's claim that all such sales were exempt from the registration
provisions of Section 5 of the Securities Act.
1. Securities Issued As Compensation Under Written Consulting Agreement
On January 28, 1998 Registrant authorized the issuance of 600,000 shares
of Common Stock to Louis V. Sanzaro pursuant to the terms of his consulting
agreement (the "L. Sanzaro Consulting Agreement"), executed at such date and
deemed by the parties to be effective as of January 1, 1997. The retroactive
effectiveness of the L. Sanzaro Consulting Agreement was agreed to and
acknowledged by the parties in recognition of Mr. Sanzaro's having provided
valuable consulting services to Registrant on a continuous basis since October
of 1995 without receiving any compensation, but on the understanding that he
would be fairly and equitably compensated for such services beginning not later
than January 1, 1997. Pursuant to the L. Sanzaro Consulting Agreement, Mr.
Sanzaro has rendered, and/or will render, advice, opinions, "hands-on"
assistance, and, in some cases, effectuation of, the following: (i) developing
pro-forma financial projections respecting the operations of a TCS-1 Plant
("Plant") and marketing of rubber crumb generated thereby; (ii) designing and
developing a complete maintenance program for the TCS-1 System to insure
continuous operation in compliance with specifications; (iii) developing
specialized accounting software to be used with all TCS-1 Systems for the
purpose on monitoring all financial aspects of operations and for calculation of
sales-based royalties due and payable to the Corporation; (iv) designing and
developing logistics respecting Plant configuration necessary for safe and
efficient operations-flow and providing technical and mechanical adjustments to
plant set-ups throughout the United States during the Engagement Period; (v)
testing new equipment at construction and assembly site, adjusting, and
designing modifications to new equipment as required by test results; (vi)
assisting Registrant with respect to TCS-1 System site-planning and installation
at operators' sites throughout the United States during the Engagement Period,
including providing personnel to "trouble-shoot" and or adjust all newly
installed equipment, as required during the Engagement Period; (vii) advising
Registrant's management of pertinent changes and developments respecting new
emerging technologies in tire recycling industry; and (viii) developing and
establishing a training program for the instruction of operators and their
personnel with respect to all aspects of Plant operations.
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<PAGE>
Total compensation under the L. Sanzaro Consulting Agreement consists of the
said 1,000,000 shares of Common Stock, 600,000 of which have been issued, as
described above, and the balance of 400,000 of which were issued subsequent to
March 31, 1998.
Registrant 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, for the reasons described below.
2. Issuances Made Pursuant to Stock Bonuses
Granted Under Written Employment Agreements
On January 28, 1998, Registrant authorized the issuance of an aggregate of
4,000,000 shares to two of its executive officers and to its corporate attorney,
at a price of $.001 per share, as follows: Terence C. Byrne - 2,000,000, Louis
V. Muro - 1,000,000, and Frances Katz Levine - 1,000,000. Such sales were made
pursuant to the exercise of options granted to such persons and subsequently
amended, as follows: On September 3, 1997, Registrant granted to the foregoing
individuals options to purchase the respective number of shares set forth above
at an exercise price equal to the full market price of the Common Stock at such
date, as follows: Terence C. Byrne - 2,000,000, Louis V. Muro - 1,000,000, and
Frances Katz Levine - 1,000,000 (the "1997 Options"). Such bonuses were granted
for the fiscal year ended June 30, 1997 pursuant to the terms of their
respective employment agreements with Registrant, which provide for
discretionary bonuses for each year (or portion thereof) during the term of such
agreements, with the actual amount of any such bonus to be determined in the
sole discretion of the Board of Directors based upon its evaluation of the
Executive's performance during such year. On January 13, 1998, Registrant
granted to each of these persons a bonus (the "1998 Bonus"), under the terms of
their respective employment agreements, for the fiscal year which will end on
June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses consisted of amendments to
the terms of the 1997 Options, reducing the option exercise price $.001 per
share. Both the 1997 and the 1998 bonuses were unanimously approved by
Registrant's full six member Board of Directors, which includes Mr. Byrne and
Mr. Muro.
Registrant 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, for the reasons described below.
Basis for Section 4(2) Exemption Claimed
With respect to all sales and other issuances of securities as hereinabove
described, which Registrant claims to have been exempt from the registration
requirements of Section 5 of the Securities Act by reason of Section 4(2)
thereof :
(i) Registrant did not engage in general advertising or general solicitation
and paid no commission or similar remuneration, directly or indirectly,
with respect to such transactions.
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<PAGE>
(ii) The persons who acquired these securities were current or former executive
officers and directors, or consultants, all of whom are sophisticated
investors; Such persons had continuing access to all relevant information
concerning the Registrant and/or have such knowledge and experience in
financial and business matters that they are capable of evaluating the
merits and risks of such investment and are able to bear the economic risk
thereof.
(iii) The persons who acquired these securities advised Registrant 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.
3. Sales Made Pursuant to Exemption From Registration Available Under Rule 506
of the Securities Act.
On January 8, 1998, Registrant authorized the issuance of an aggregate of
3,305,000 shares of its Common Stock (the "Tirex Merger Share" to thirty-six
persons (the "RPM Shareholders") in a share-for-share exchange for 3,305,000
Shares of the Common Stock of RPM Incorporated, a privately held Delaware
Corporation ("RPM"). Such exchange was effected under the terms of a certain
Plan and Agreement of Merger (the "Merger Agreement") by and among the
Registrant, RPM, and Tirex Acquisition Corp., a wholly-owned subsidiary of the
Registrant ("TAC"). Pursuant to the terms of the Merger Agreement, RPM was
merged with and into TAC (the "Merger") with TAC remaining as the surviving
entity after the Merger.
The Merger was effected after an initial closing upon the sale of 31 units
of the RPM's securities (the "RPM Units") in a private placement in which 85 RPM
Units were offered at a price of $10,300 per RPM Unit. Each RPM Unit consisted
of one 10% Convertible Subordinated Debenture in the principal amount of $10,000
(the "RPM Debentures") and 10,000 shares of the common stock of RPM, $.001 par
value ("RPM Common Stock"). In effectuation of the Merger:
(i) Registrant exchanged one Merger Share for every issued and
outstanding share of the common stock of RPM, $.001 par value, per
share ("RPM Common Stock") and assumed RPM's liabilities and
obligations under the outstanding RPM Debentures in the aggregate
principal amount of $305,000;
(ii) The Initial RPM Closing was held upon completion of the sale of 30.5
RPM Units, which yielded gross proceeds in the amount of $314,150
and all of such proceeds, net of the placement agent's 10%
commission and
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<PAGE>
certain other offering expenses in the aggregate amount of $6,650
(yielding net proceeds in the amount of $276,085) remained in RPM
and inured to the benefit of Registrant upon effectuation of the
Merger.
3,000,000 shares (the "Pre-Private Placement RPM Shares") of the 3,305,000
shares of RPM common stock (the "RPM Merger Shares") for which Tirex Merger
Shares were exchanged, constituted all of the shares of RPM common stock which
were issued and outstanding prior to the commencement of the RPM Private
Placement. These shares were exchanged for 3,000,000 Tirex Merger Shares in
consideration of RPM's waiver of certain consulting fees in the amount of $4,000
per month, accrued prior to, and accruable subsequent to, the Merger pursuant to
the terms of a certain five-year consulting agreement, dated June 9, 1997, among
RPM, the Company, and two individuals who were, prior to the Merger, RPM's
principal shareholders, officers, and directors. None of the RPM Shareholders
had any affiliation of any kind with Registrant prior to or after the Merger
(except insofar as they have become shareholders of Registrant as a result of
the said Merger).
Based upon information provided by the recipients (the "RPM Shareholders")
of the above described 3,305,000 Tirex Merger Shares, advice from the principals
of RPM, and the opinion of RPM's counsel:
(i) all 3,000,000 of the Pre-Private Placement RPM Shares were acquired
by the RPM Shareholders prior to March 31, 1997;
(ii) all of the RPM Shareholders were "accredited investors" as that term
is defined in Rule 501(a) of the Securities Act;
(iii) all 3,305,000 of the RPM Merger Shares (including the Pre-Private
Placement RPM Shares as well as the RPM Shares sold in the RPM
Private Placement) were acquired in transactions which were exempt
from the registration requirements of Section 5 of the Securities
Act available under Rule 506 of Regulation D thereof, which would
not be integrated, as such term is defined in Section 502(a) of
Regulation D under the Securities Act, with the distribution of the
Tirex Merger Shares to the RPM Shareholders, so as to render
unavailable, for such distribution, the exemption from the
registration provisions of the Securities Act under Rule 506 of
Regulation D.
RPM filed a Form D with the Commission with respect to the offer and sale
of the RPM Units and Registrant filed a Form D with the Commission with respect
to the distribution of the Tirex Merger Shares to the RPM Shareholders.
After the Merger until May 11, 1998, Registrant continued to offer and
sell the balance of the securities which had originally been offered by RPM in
the Private Placement, at the same per Unit Price of $10,300. With respect to
RPM Units sold after the Merger, the exchange of RPM common stock for
Registrant's common stock and Registrant's assumption of the RPM debentures were
deemed to have occurred
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<PAGE>
concurrently with the RPM Merger. On January 23, 1998 Registrant closed on sales
of an additional 8.5 RPM Units, and issued an aggregate of 85,000 shares of its
Common Stock and eight 10%, convertible subordinated debentures in the aggregate
principal amount of $85,000; on February 19, 1998, Registrant closed on sales of
an additional 5.5 Units, and issued an aggregate of 55,000 shares of its Common
Stock and six 10%, convertible subordinated debentures in the aggregate
principal amount of $55,000.
The offers and sales of the RPM Units were made only to "accredited
investors" as that term is defined in Rule 501(a) of the Securities Act of 1933,
as amended (the "Securities Act") in a private placement (the "Private
Placement"), through a placement agent, which is a broker dealer registered with
the National Association of Securities Dealers, pursuant to a Confidential
Private Offering Memorandum, dated November 28, 1997 (the "Private Placement
Memorandum) in a manner consistent with the requirements of the exemption from
the registration provisions of the Securities Act, which is available under Rule
506 of Regulation D, as promulgated under Section 4(2) thereof. These sales are
claimed to have been exempt from registration under the Securities Act pursuant
to Rule 506 as more fully described below.
Basis for Rule 506 Exemption Claimed
With respect to all sales and other issuances of securities as hereinabove
described and claimed to have been exempt from the registration requirements of
Section 5 of the Securities Act pursuant to Rule 506 thereof:
(a) Registrant did not engage in general advertising or general
solicitation and paid no commission or similar remuneration, directly or
indirectly, with respect to such transaction.
(b) Registrant made reasonably inquiry to determine the investment intent
of the purchasers (i.e., to determine that such Shares were purchased for
investment and without a view to their resale and informed them that an
appropriate legend would be placed on certificates or documents evidencing such
securities reciting the absence of their registration under the Act and
referring to the restrictions on their transferability and resale).
(c) The Purchasers have been provided with, or have access to, all
information requested by them and with what Registrant believes to be all
relevant information concerning the Registrant, and Registrant believes such the
Purchasers are knowledgeable with respect to the affairs of Registrant.
(d) The Company has good reason to believe that each of such persons is,
and each of the Purchasers has represented himself or herself to be an
accredited investor, as that term is defined in Rule 501(a) of the Securities
Act, and that such person has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks of
such investments and is able to bear the economic risk thereof.
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<PAGE>
(e) Registrant made no sales of unregistered securities during the six
month preceding the sales made pursuant to Rule 506 except for sales made
pursuant to Employee Benefit Plans as that term is defined in Rule 405 of the
Securities Act.
Item. 6 - Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith:
10(a) Consulting Agreement, dated January 28, 1998, effective of January
1, 1997 between Registrant and Louis Sanzaro
(b) Current Reports on Forms 8-K filed during quarter ended March 31, 1998
Current Report on Form 8-K, dated February 3, 1998, filed with the
Commission on February 17, 1998, reporting: Item 5. "Other Events".
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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
By /s/ Terence C. Byrne
------------------------------
Terence C. Byrne, President
and Treasurer
THE TIREX CORPORATION
Date: May 18, 1998 By /s/ Terence C. Byrne
------------------------------
Terence C. Byrne, Chief Executive
and Chief Financial Officer
26
EXHIBIT A
----------
THE TIREX CORPORATION
----------
CONSULTING AGREEMENT
Consulting Agreement, made this 28th day of January 1998, to be effective
as of January 1, 1997 (the "Effective Date") between The Tirex Corporation, a
Delaware corporation (the "Corporation"), and Louis Sanzaro, 1497 Lakewood Road,
Toms River, NJ 08755 (the "Consultant").
Whereas, since the Effective Date, the Consultant has been providing to
the Corporation, on the terms set forth herein, the consulting services
described in Section 2, of this Agreement;
Whereas, the Corporation wishes to assure itself of the continued services
of the Consultant for the period provided in this Agreement, and the Consultant
is willing to provide his services to the Corporation for the said period under
the terms and conditions hereinafter provided.
Now, Therefore, Witnesseth, that for and in consideration of the premises
and of the mutual promises and covenants herein contained, the parties hereto
agree as follows:
1. Employment
The Corporation agrees to and does hereby engage the Consultant, and the
Consultant agrees to and does hereby accept engagement by the Corporation as a
consultant in connection with the operation of certain aspects of the business
and affairs of the Corporation, for the two-year period which commenced as of
the Effective Date and will end on December 31, 1999. The period during which
Consultant has, and will continue to, serve in such capacity shall be deemed the
"Engagement Period" and shall hereinafter be referred to as such.
2. Consulting Services
The services which the Consultant has rendered since the Effective Date
have included, and will, during the balance of the Engagement Period, include,
the rendering of advice, opinions, "hands-on" assistance, and, in some cases,
effectuation of, the following:
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<PAGE>
(a) Developing pro-forma financial projections respecting the operations
of a TCS-1 Plant ("Plant") and marketing of rubber crumb generated
thereby;
(b) Designing and developing a complete maintenance program for the
TCS-1 System to insure continuous operation in compliance with
specifications;
(c) Developing specialized accounting software to be used with all TCS-1
Systems for the purpose on monitoring all financial aspects of
operations and for calculation of sales-based royalties due and
payable to the Corporation;
(d) Designing and developing logistics respecting Plant configuration
necessary for safe and efficient operations-flow and providing
technical and mechanical adjustments to plant set-ups throughout the
United States during the Engagement Period;
(e) Testing new equipment at construction and assembly site, adjusting,
and designing modifications to new equipment as required by test
results;
(f) Assist site-planning and installation at operators' sites throughout
the United States during the Engagement Period, including providing
personnel to "trouble-shoot" and or adjust all newly installed
equipment, as required during the Engagement Period.
(g) Advise Corporation management of pertinent changes and developments
respecting new emerging technologies in tire recycling industry;
(h) Develop and establish a training program for the instruction of
operators and their personnel with respect to all aspects of Plant
operations.
All such services are to be performed only upon direct authorization from
the Corporation. The Consultant shall have the sole discretion as to the form,
manner and place in which the said consulting services shall be rendered. The
Consultant shall by this agreement, be prevented and barred from rendering
services of the same or similar nature, as herein described, or services of any
nature whatsoever, for or in behalf of persons, in the same business of the
Corporation firms or corporations other than the Corporation.
3. Compensation
3.1 As compensation for all consulting services rendered by the Consultant
during the Engagement Period pursuant to this Agreement, the Corporation shall
issue to the Consultant:
(a) a total of six hundred thousand shares of the common stock, $.001
par value, of the Corporation, for a per share purchase price of
$.001, payment
28
<PAGE>
of which, by valuable services rendered, is hereby acknowledged.
(b) an option to purchase an additional 400,000 shares of the Company's
Common Stock, at a per share price of $0.__.
3.2 During the term of this Agreement, the Corporation shall reimburse the
Consultant for reasonable and properly documented out-of-pocket business and/or
entertainment expenses incurred by the Consultant in connection with his duties
under this Agreement, provided however, that the Consultant shall not incur
expenses during any one month period in excess of US $2,000 without the prior
written consent of the Corporation.
4. Secrets
Consultant agrees that any trade secrets or any other like information of
value relating to the business and/or field of interest of the Corporation or
any of its affiliates, or of any corporation or other legal entity in which the
Corporation or any of its affiliates has an ownership interest of more than
twenty-five per cent (25%), including but not limited to, information relating
to inventions, disclosures, processes, systems, methods, formulae, patents,
patent applications, machinery, materials, research activities and plans, costs
of production, contract forms, prices, volume of sales, promotional methods,
list of names or classes of customers, which he has heretofore acquired during
his engagement by the Corporation or any of its affiliates or which he may
hereafter acquire during the Engagement Period and the three-year period
beginning after termination of the Engagement Period as the result of any
disclosures to him, or in any other way, shall be regarded as held by the
Consultant and his personnel, if any, in a fiduciary capacity solely for the
benefit of the Corporation, its successors or assigns, and shall not at any
time, either during the term of this Agreement or thereafter, be disclosed,
divulged, furnished, or made accessible by the Consultant and his personnel, if
any, to anyone, or be otherwise used by them, except in the regular course of
business of the Corporation or its affiliates. Information shall for the
purposes of this Agreement be considered to be secret if not known by the trade
generally, even though such information may have been disclosed to one or more
third parties pursuant to distribution agreements, joint venture agreements and
other agreements entered into by the Corporation or any of its affiliates.
6. Assignment
This Agreement may be assigned by the Corporation as part of the sale of
substantially all of its business; provided, however, that the purchaser shall
expressly assume all obligations of the Corporation under this Agreement.
Further, this Agreement may be assigned by the Corporation to an affiliate,
provided that any such affiliate shall expressly assume all obligations of the
Corporation under this Agreement, and provided further that the Corporation
shall then fully guarantee the performance of the Agreement by such affiliate.
Consultant agrees that if this Agreement is so assigned, all the terms and
conditions of this Agreement shall obtain between such assignee and himself with
the same force and effect as if said Agreement had been made with such assignee
in the first
29
<PAGE>
instance. This Agreement is personal to the Consultant and shall not be assigned
without written consent of the Corporation.
7. Entire Understanding
This Consulting Agreement contains the entire understanding between the
parties and supersedes all prior and collateral communications, reports,
agreements, and understandings between the parties. No change, modification,
alteration, or addition to any provision hereof shall be binding unless in
writing and signed by authorized representatives of both parties. This
Consulting Agreement shall apply in lieu of and notwithstanding any specific
statement associated with any particular information or data exchanged, and the
duties of the parties shall be determined exclusively by the aforementioned
terms and conditions.
8. Survival of Certain Agreements
The covenants and agreements set forth in Articles 4 and 5, hereof and, to
the extent applicable, the covenants and agreements set forth in Article 3
hereof, shall survive the expiration of the Engagement Period and shall survive
termination of this Agreement and remain in full force and effect.
9. Notices
9.1 All notices required or permitted to be given hereunder shall be
delivered by hand, certified mail, or recognized overnight courier, in all cases
with written proof of receipt required, addressed to the parties as set forth
below and shall be deemed given upon receipt as evidenced by written and dated
receipt of the receiving party.
9.2 Any notice to the Corporation or to any assignee of the Corporation
shall be addressed as follows:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
9.3 Any notice to Consultant shall be addressed as follows:
Louis Sanzaro
1497 Lakewood Road
Toms River, NJ 08755
9.4 Either party may change the address to which notice to it is to be
addressed, by notice as provided herein.
30
<PAGE>
10. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Delaware.
11. Interpretation
Whenever possible, each Article of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
Article is unenforceable or invalid under such law, such Article shall be
ineffective only to the extent of such unenforceability or invalidity, and the
remainder of such Article and the balance of this Agreement shall in such event
continue to be binding and in full force and effect.
11. Prior Agreements
This Agreement supersedes and cancels any and all prior agreements,
whether written or oral, between the parties.
In Witness Whereof, the parties hereto have executed the above Agreement
as of the day and year first above written.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
--------------------------------
Terence C. Byrne, President
By /s/ Louis Sanzaro
--------------------------------
Louis Sanzaro, Consultant
31
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