SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended June 30, 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
(Name of Small Business Issuer in Its Charter)
Delaware 22-3282985
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
740 St. Maurice
Montreal, Quebec H3C 1L5
(Address of Principal Executive Offices) (Zip Code)
(514) 878-0727
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ ] No
[X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
$880,000
(Issuer's revenues for its most recent fiscal year)
$10,353,194 (as of February 4, 1999)
(Aggregate market value of the voting stock held
by non-affiliates of the Issuer)
78,095,141 (as of February 4, 1999)
(Number of shares outstanding of each of the Issuer's classes of common stock,
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
into Part I
Registration statement on Form S-18, as amended
File No. 33-17598-NY
Registration statement on Form SB-2, as amended
File No. 333-53255
Annual Report on Form 10-K of the Company for
the year ended December 31, 1988
Transition Report on Form 10-K of the Company
for the transition period
January 1, 1989 through June 30, 1989
Annual Reports on Forms 10-K of the Company for
the years ended June 30,
1989, 1990, 1991, 1992, 1993, 1994
Annual Report of Forms 10-KSB of the Company
for the years ended June 30, 1995, 1996 and 1997
Quarterly Reports of Forms 10-QSB of the Company
for the quarters ended September 30, 1997, December 31, 1997,
and March 31, 1998
Current Reports on Forms 8-K of the Company
Dated July 11, 1997, February 3, 1998, May 27, 1998, and
September 14, 1998
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ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, is traded on a limited basis in the
over-the-counter market and quoted on the OTC Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board"). The following table sets forth representative high and low bid
prices by calendar quarters as reported in the OTC Bulletin Board during the
last two fiscal years and the subsequent interim period through February 12,
1999. The level of trading in the Company's common stock has been limited and
the bid prices reported may not be indicative of the value of the common stock
or the existence of an active market. The OTC market quotations reflect
inter-dealer prices without retail markup, mark-down, or other fees or
commissions, and may not necessarily represent actual transactions.
Bid Prices
Period Common Stock
------ ------------
Fiscal Year Ended June 30, 1997 Low High
--- ----
September 30, 1996 $0.19 $0.45
December 31, 1996 0.13 0.44
March 31, 1997 0.23 0.58
June 30, 1997 0.18 0.44
Fiscal Year Ending June 30, 1998
September 30, 1997 $0.13 $0.4375
December 31, 1997 0.20 0.37
March 31, 1998 0.19 0.39
June 30, 1998 0.23 0.375
Fiscal Year Ending June 30, 1999
September 30, 1998 $0.12 $0.30
December 31, 1998 0.10 0.28
March 31, 1999* 0.15 0.25
- ----------
* Through February 12, 1999.
Shareholders
As of February 4, 1999, the number of holders of record of the Company's
common stock, $.001 par value, was 450.
3
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Dividends
The Company has paid no cash dividends and has no present plan to pay cash
dividends, intending instead to reinvest its earnings, if any. Payment of future
cash dividends will be determined from time to time by its board of directors,
based upon its future earnings (if any), financial condition, capital
requirements and other factors, the company is not presently subject to any
contractual or similar restriction on its present or future ability to pay such
dividends.
Sales of Unregistered Securities
The following sets forth information respecting the dates, purchasers, and
consideration respecting sales of 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, 1998, 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, 1998, 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 15, 1998, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of their respective employment
agreements and paid by such persons for the account and on behalf of the
Company, during the four-month period which commenced on December 1, 1997 and
ended on March 31, 1998, Tirex issued shares of its common stock to its four
executive officers and its corporate counsel. These issuances were valued at
$0.1399 per share, which value was equal to 50% of the average of the bid and
ask price for the common stock during the period when such unpaid salaries and
expenses were earned and incurred, as traded in the over-the-counter market and
quoted in the OTC Bulletin Board, 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 1998,
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, 1997, December 31, 1997,
and March 31, 1998.
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Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ----------------- ------
Terence C. Byrne $59,183 423,038
Frances Katz Levine 45,191 323,023
Louis V. Muro 33,200 237,312
John L. Threshie, Jr. 6,167 44,081
Vijay Kachru 9,450 67,548
On April 15, 1998, the Company issued shares of its common stock in order
to correct an error, made on December 15, 1997 in the price at which shares were
issued to four of its executive officers and its corporate counsel in
consideration of unpaid executive services and unreimbursed for the five-month
period which commenced on July 1, 1997 and ended on November 30, 1997. The
December 15, 1997 error consisted of issuing shares at a value of $.275 per
share, which value was equal to the average of the bid and ask price for the
Common Stock during the period when such unpaid salaries and expenses were
earned and incurred. It is the policy of the Company, and the board of directors
had approved, that shares issued for such purposes should be valued of 50% of
market value. Therefore the shares should have been issued at a value of $.1375
per share instead of $.275 per share. Accordingly, on April 15, 1998, the
Company authorized the issuance of additional shares to correct such error, as
follows:
<TABLE>
<CAPTION>
=============================================================================================================================
No. Of Shares No. of Shares Which No. of Shares Issued
Erroneously Issued Would Have Been On April 15, 1998 to
Name at $.275 per Share Correctly Issued at Correct Dec. 15,
$0.1375 1997 Error
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Terence C. Byrne 336,353 672,705 336,352
- -----------------------------------------------------------------------------------------------------------------------------
Louis V. Muro 151,309 302,618 151,309
- -----------------------------------------------------------------------------------------------------------------------------
John L. Threshie, Jr. 19,756 39,512 15,512
- -----------------------------------------------------------------------------------------------------------------------------
Vijay Kachru 47,691 95,382 47,690
- -----------------------------------------------------------------------------------------------------------------------------
Frances Katz Levine 206,379 412,758 206,379
=============================================================================================================================
</TABLE>
On April 20, 1998, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of his employment agreements and
paid by him for the account and on behalf of Tirex, during the six-month period
which commenced on July 15, 1997 and ended on December 31, 1997, the Company
issued 597,966 shares of its common stock to Alan Crossley, the Company's
Managing Director of European Market Development. For purposes of such issuance,
the shares were valued at $0.1475 per share, which value was equal to 50% of the
average of the bid and ask price for the common stock during the period when
such unpaid salary and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board.
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Securities Issued as Compensation Under Written Employment Agreements
On April 20, 1998, in consideration of executive services rendered under
the terms of his employment agreement and unreimbursed expenses paid by him for
the account and on behalf of the Company, during the six -month period which
commenced on July 1, 1997 and ended on December 31, 1997, the Company issued
597,966 shares of its Common Stock to Alan Crossley, the Company's Managing
Director of European Market Development. For purposes of such issuance, the
shares were valued at $0.1475 per share, which value was equal to 50% of the
average of the bid and ask price for the common stock during the period when
such unpaid salary and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board.
On or about July 28, 1998 the Company issued an aggregate of 4,095,057
shares of its common stock to Louis Sanzaro, Jean Frechette and Scott Rapfogel
pursuant to their respective employment agreements with the Company. The
foregoing issuances comprised 3,000,000 shares to Mr. Sanzaro, 1,000,000 shares
to Mr. Frechette and 95,057 shares to Mr. Rapfogel.
The 3,000,000 shares issued to Mr. Sanzaro, in connection with his
agreement to serve as the Company's vice president in charge of operations and
chief operating officer, were issued in consideration for Mr. Sanzaro's agreeing
to discontinue his other business activities in order to enter into such
employment agreement (500,000 shares) and in consideration for Mr. Sanzaro's
release of rights to serve as a distributor of TCS-1 Plants in North America or
to receive commissions in connection with sales of TCS-1 Plants made by the
Company in North America (2,500,000 shares). The 1,000,000 shares issued to Mr.
Frechette constituted a signing bonus which was issued in consideration for Mr.
Frechette's agreeing to discontinue his other business activities in order to
enter into an employment agreement with the Company and TCCI whereby Mr.
Frechette agreed to serve as the president and chief operating officer of TCCI.
The 95,057 shares issued to Mr. Rapfogel were issued in lieu of $12,500 in
salary due to Mr. Rapfogel under the terms of his employment agreement with the
Company whereby he agreed to serve as the Company's Assistant U.S. Corporate and
Securities Counsel. For purposes of such issuance, the stock was valued at 50%
of the average bid and ask price for the Company's common stock during the
period in which such stock was earned.
Issuance of Stock in Consideration for Financial Accommodations
On or about July 9, 1998, the Company authorized the issuance of 4,000,000
shares of its common stock to Terence C. Byrne, the chairman of the board of
directors and CEO of the Company and 2,000,000 shares of its common stock to
Frances Katz Levine, formerly the secretary and a director, and presently chief
corporate and US securities counsel of the Company. Such issuances were made in
consideration of financial accommodations made by such persons for the benefit
of the Company including, but not limited to, the following: since January of
1995, on behalf, and for the benefit, of the Company and without any cash
compensation therefor, Terence C. Byrne, the chairman of the board of directors
and CEO of the Company and Frances Katz Levine, formerly the secretary and a
director, and presently corporate and US securities counsel of the Company, had
made substantial financial accommodations and had put themselves at significant
financial risk, including, but not limited to the following: Mr. Byrne's; (i)
having made personal loans to the Company, including a loan in the amount of
$102,000 made in January of 1998; (ii) having been personally responsible for
all credit card debt of the Company, covering all travel, entertainment, and
significant day-to-day operating expenses of the Company; (iii) being the
co-guarantor of all bank debt of the Company and its subsidiaries; and (iv)
being the co-guarantor on all equipment leases of the Company; and Ms. Levine
having for a continuous period of three and one-half years, provided, rent-free
and with no charge for the costs of utilities, a fully-equipped law office,
dedicated solely and exclusively to the requirements of the Company and
throughout such period, having paid, without any
6
<PAGE>
cash reimbursement ever having been made to her, all costs and expenses incurred
by the Company in connection with its legal service requirements, including but
not limited to: (i) telephone charges (ii) office furnishings, equipment, and
supplies; (iii) Federal Express and other postage; and (iv) secretarial and
clerical staff salaries.
Securities Issued As Compensation Under Written Consulting Agreements
On April 13, 1998, the Company issued to Alan Epstein an option to
purchase 1,500,000 shares of the Company's common stock at a price of $.001 per
share, as total compensation under the terms of a Puerto Rican Market
Development and Business Consulting Agreement, dated April 13, 1998 between the
Company and Mr. Epstein (the "Epstein Consulting Agreement"), which agreement
was made retroactively effective as of November 1, 1997, the approximate date
when Mr. Epstein began his market development activities in Puerto Rico . On
April 14, Mr. Epstein exercised the said option and the Company authorized the
issuance thereof on April 15, 1998.
On April 1, 1998, the Company entered into a consulting agreement (the
"SCT Agreement") with Security Capital Trading, Inc. ("SCT"), a financial
consulting firm, and pursuant thereto: (i) issued to SCT stock purchase warrants
(the "SCT Warrants") to purchase a total of 2,000,000 shares of the Company's
common stock at exercise prices of $.25 per share for the first 666,666 shares,
$.40 per share for the next 666,666 shares, and $.50 per share for the remaining
666,667 shares. The Company has the shares issuable upon the exercise of the SCT
Warrants in a registration statement on Form SB-2 which was filed with the
Securities and Exchange Commission on May 21, 1998.
On January 28, 1998, the Company entered into a consulting agreement with
Louis Sanzaro (the "Consulting Agreement"), who is currently an officer and
director of the Company. Compensation for all consulting services rendered by
Mr. Sanzaro under the terms of the Consulting Agreement, consisted of the
issuance to Mr. Sanzaro of one million (1,000,000) shares of the Company's
common stock, 600,000 of which were issued to Mr. Sanzaro on January 30, 1998
and 400,000 of which were issued on or about April 30, 1998.
Securities Issued As Compensation For Goods and Services Rendered
On April 24, 1998 Hydroco Inc., of Dorval, Quebec ("Hydroco") invoiced the
Company for electrical layout goods and services in the aggregate amount of
$57,224.94 (Canadian) (approximately $40,057 U.S.). In May 1998, Hydroco agreed
to accept payment of $5,000 (Canadian) (approximately $3,500 U.S.) of such
amount in common stock of the Company, at a value of $0.23 (U.S.) per share.
Pursuant thereto, on or about June 19, 1998, the Company issued an aggregate of
15,152 shares of its common stock to two assignees of Hydroco.
During the fiscal year ended June 30, 1998, Mila Shvartsman invoiced the
Company for services rendered in connection with United States and Canadian
patent application filings and various other patent related services in the
aggregate amount of $6,513.50. On June 19, 1998, Ms. Shvartsman agreed to accept
shares of the Company's common stock, at a value of approximately $0.20 per
share, in lieu of a cash payment. Pursuant thereto, on or about such date the
Company issued 32,568 shares of its common stock to Mila Shvartsman.
7
<PAGE>
Securities Issued For Waiver of Advance Payment on Lease
On February 17, 1998 the Company entered into a five year lease with
Tri-Steel Industries for a 90,000 square foot research and manufacturing
facility located at 3828 Saint Patrick Street in Montreal, Canada. Tri-Steel
agreed to accept 388,889 shares of the Company's common stock in consideration
of its waiver of its customary requirement that the last two monthly rent
payments under a lease be paid at the time of execution of the lease. These
388,889 shares were issued to Tri-Steel on or about June 19,1998.
The sales discussed above under the subheadings "Sales to Executive
Officers in Respect of Services Rendered", "Securities Issued as Compensation
under Written Employment Agreements", "Issuance of Stock in Consideration for
Financial Accommodations", "Securities Issued as Compensation Under Written
Consulting Agreements", "Sales to Non-Affiliated Parties in Respect of Services
Rendered" and "Securities Issued in Lieu of Rent" are each claimed to have been
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, as more fully described below.
Basis for Section 4(2) Claimed
With respect to all shares and other issuances of securities made in
reliance on Section 4(2):
(a) The Company did not engage in general advertising or general
solicitation and paid no commission or similar renumeration,
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 service;
Such persons had continuing direct access to all relevant
information concerning the Company 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.
(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.
Sales Made Pursuant to Exemption From Registration Available Under Rule 506 of
the Securities Act.
On April 9, 1998, the Company sold twenty 10% convertible Debentures, each
in the principal amount of $25,000 and two million stock purchase options to
purchase a like number of shares of common stock at a price of $.001 per share,
to two private investors, who had no affiliation with the Company.
8
<PAGE>
These securities were sold as twenty units (the "Type A Units") in a private
placement (the "Type A Private Placement", made by the Company between November
5, 1997 and May 11, 1998, through H.J. Meyers & Co., Inc., as placement agent
(the "Placement Agent"), at a price of $25,000 per Unit. Each Type A Unit
consisted of one 10% Convertible Subordinated Debenture in the principal amount
of $25,000 (the "Type A Debentures") and 100,000 warrants (the "Type A
Warrants") to purchase a like number of shares of the common stock of the
Company (the "Type A Warrant Shares").
The Type A Private Placement was effected in reliance upon the
availability of an exemption from the registration provisions of the Securities
Act by virtue of compliance with the provisions of Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereof ("Rule 506"). The Type A
Units were offered and sold to a limited number of sophisticated investors who
understood and were economically capable of accepting the risks associated with
a speculative investment, including the complete loss of such investment, and
who are "Accredited Investors" within the meaning prescribed by Regulation D and
Rule 501 of the Securities Act.
The 2,000,000 outstanding Type A Warrants are exercisable at a price of
$.001 per share. The Type A Debentures are convertible commencing on the day
following the effective date of the Company's Registration Statement at a
conversion ratio equal to a maximum of 67.5% and a minimum of 61.5% of the
closing bid price of the Company's common stock on the trading date immediately
preceding the date of the Company's receipt of a notice of conversion. The
factors which affect the conversion ratio are discussed, above, in Item 1 of
this Report under the caption, "Material Financing Activities - The Type A
Private Placement". After December 31, 1999, the Type A Debentures will be
redeemable, at the request of the holder, at 125% of the principal amount plus
all accrued unpaid interest on the principal amount.
The 2,000,000 Type A Warrant Shares and the shares of the Company's
common stock issuable pursuant to the conversion of the Type A Debentures (the
"Type A Debenture Shares"), are being registered by way of inclusion in the
Registration Statement.
Between January 23, 1998 and May 11, 1998, the Company sold 230,000
shares of its common stock and 23 10% convertible Debentures, each in the
principal amount of $10,000, to 21 private investors, who had no affiliation
with the Company. These securities were sold as 23 units (the "Type B Units"),
in a private placement (the "Type B Private Placement", made by the Company
between January 20, 1997 and May 11, 1998, through H.J. Meyers & Co., Inc., as
placement agent (the "Placement Agent"), at a price of $10,300 per Unit. The
Type B Private Placement was a continuance by the Company of a private placement
(the "RPM Private Placement") made by RPM Incorporated ("RPM"), which commenced
upon the effective date of a merger (the "RPM Merger") of RPM into the Company's
wholly-owned subsidiary, Tirex Acquisition Corp. ("TAC"). Each Type B Unit
consisted of one 10% Convertible Subordinated Debenture in the principal amount
of $10,000 (the "Type A Debentures") and 10,000 shares of the common stock of
the Company. The Type B Units were sold in a series of three closings, as
follows:
No. Of No. Of
Closing Date Units Sold Purchasers
------------ ---------- ----------
January 23, 1998 8.5 Units 8
February 19, 1998 5.5 Units 6
May 11, 1998 9 Units 7
9
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The Type B Private Placement was effected in compliance with Rule 506 and
the Type B Units were offered and sold only to a limited number of sophisticated
investors who understood and were economically capable of accepting the risks
associated with a speculative investment, including the complete loss of such
investment, and who were "Accredited Investors" within the meaning prescribed by
Regulation D and Rule 501 of the Securities Act.
All of the Type B Debentures were amended prior to the filing of the
Registration Statement to provide for: (i) the registration of the shares (the
"Type B Conversion Shares") issuable upon the conversion of the Debentures; (ii)
the termination of the holder's right to convert the Type B Debentures,
effective the day immediately prior to the filing of the Registration Statement,
and the commencement of a new conversion period as of the date following the
effective date of the said Registration Statement; and (iii) restrictions on the
transfer of the Type B Conversion Shares until the first to occur of: (a) six
months from the effective date of the Registration Statement, or (b) one year
from the date of the issuance of the Debentures. The Type B Debentures are
convertible at a ratio of one share for every $0.20 of the principal amount of
the Debenture plus interest earned thereon from the date of issuance. The Type B
Debentures are redeemable at face value plus all earned interest from the date
of issuance on the first to occur of: (i) two years from the issue date or (ii)
the completion and closing of a public offering of its securities by the
Company.
Between the last week in March 1998 and May 11, 1998, in a private
placement (the "Type C Private Placement") made directly by the Company, with
all offers and sales made by officers of the Company, the Company sold an
aggregate of 11,760,000 shares of the Company's common stock (the "Type C
Shares") at a price of $.10 per share to 57 private investors. The Type C
Private Placement was effected in compliance with Rule 506 and the Type C Shares
were offered and sold only to a limited number of sophisticated investors who
understood and were economically capable of accepting the risks associated with
a speculative investment, including the complete loss of such investment, and
who were "Accredited Investors" within the meaning prescribed by Regulation D
and Rule 501 of the Securities Act.
The 11,760,000 Type C Shares which were sold are being registered for
resale to the public by the holders thereof by way of their inclusion in the
Registration Statement.
Basis for Section Rule 506 Exemption Claimed
With respect 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) 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 transaction.
(b) The Company made reasonable 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 the Company believes to be all
relevant information concerning the Company, and the Company believes such the
purchasers are knowledgeable with respect to the affairs of the Company.
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(d) Each of the Purchasers is an accredited investor, as that term is
defined in Rule 501(a) of the Securities Act, and 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.
(e) The Company made no sales of unregistered securities during the six
month period 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.
11
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the fiscal years ended June 30, 1997 ("Fiscal 1997"), and June 30, 1998
("Fiscal 1998"). This discussion also includes events which occurred subsequent
to the end of Fiscal 1998 and 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. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors". 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, including
the discussion at the end of this Management's Discussion and Analysis, under
the subcaption "Risk Factors". This discussion should be read in conjunction
with the Company's Consolidated Financial Statements, respective notes and
Selected Consolidated Financial Data included elsewhere in this Report.
The Company is in the very early stages of the business of manufacturing
its patented cryogenic scrap tire recycling equipment (the "TCS-1 Plant"). It is
also currently in the process of establishing and initiating operations in a
second business segment which will involve owning and operating, directly or
indirectly, on exclusive or joint venture bases, product manufacturing plants
which will manufacture finished products out of recycled rubber crumb. The first
of such operations will involve the establishment of a rubber mat molding and
flocking plant at the Company's Montreal facility for the production of rubber
floor mats pursuant to the IM2 Agreement, (see Item 1 of this Report "Existing
and Proposed Business Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products").
In January 1998, the fully-automated front-end tire preparation module,
and in March 1998, the cryogenic tire freezing section of the first full-scale
TCS-1 Plant (the "First Production Model") were completed and delivered to OTRP.
As discussed in more detail, below, the Company received a total of $880,000 in
respect thereof and this Plant is presently installed at the Company's 90,000
square foot Montreal manufacturing facility (see also Item 1 of this Report
"Existing and Proposed Businesses - Sales and Marketing - Agreements with Oceans
Tire Recycling & Processing Co., Inc.["OTRP"] and Proposed TCS-1 Plant
Operations: Sales of Rubber Crumb and Manufacture and Sale of Finished
Products"). All major components of the First Production Model were successfully
tested and were operational on a noncontinuous running basis by May 1998. In
mid-June 1998, the Company initiated the second stage of testing, which
consisted of testing all major components and all functions of the First
Production Model, individually, on a continuous running basis. By September 1998
(subsequent to the period covered by this Report), results of second stage tests
indicated that approximately 85% of the TCS-1 Plant components met all of the
Company's specifications. In addition, under continuous testing conditions,
certain unanticipated design anomalies were discovered, which required
modification. The Company also identified several opportunities for improvements
in the original design of the TCS-1 Plant, which the Company believes will
increase economy and efficiency of its operation. In September 1998, the Company
retained the Montreal engineering firm of Beaudoin, Hurens and Associates, Inc.
("BHA") to: (i) prepare and/or finalize all design and engineering drawings,
operation and technical manuals, and other documentation respecting the TCS-1
Plant; and (ii) make an independent engineering assessment of the Company's
findings from its second stage testing of the TCS-1 Plant to verify and
authenticate the modifications which were required to assure the Plant's
conformity with targeted performance criteria. The Company retained
Plasti-Systemes Inc. of Montreal to do all mechanical fabrications required
during the final stage of the project. The foregoing modifications, including
engineering fees, required previously unbudgeted expenditures in the aggregate
amount of approximately $500,000, approximately $250,000
12
<PAGE>
of which had been paid as of December 31, 1998. The required modifications were
completed subsequent to the period covered by this Report in December of 1998 on
a single fracturing mill and a single freezing tower in the First Production
Model. Completion of the second fracturing mill and freezing tower, which will
be included therein, is scheduled to occur in April of 1999. Management
presently estimates that commencement of full-scale commercial manufacture of
TCS-1 Plants will occur in March of 1999.
The Company will also be required to make additional capital investments
and expenditures over the next twelve months in connection with the
establishment at the Company's Montreal facility of rubber mat molding
operations under the IM2 Agreement. Management estimates that costs for the
entire project will aggregate to approximately $925,000. This includes: (i)
approximately $325,000 for modifications to the Company's Montreal facility,
necessary to accommodate these operations and for materials handling equipment,
approximately $168,000 of which had been paid as of December 31, 1998; and (ii)
approximately $600,000 to acquire and install a complete rubber mat molding and
flocking plant (with the exception of the molds which will be furnished by IM2),
approximately $132,000 of which had been paid as of December 31, 1998. The
Company plans to use the output of the First Production Model of the TCS Plant
in its rubber mat molding operations.
The First Production Model, which is presently installed at the Company's
manufacturing facility, was the subject of a Lease and Purchase Agreement (the
"OTRP Agreement") between the Company and Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a company controlled by Louis Sanzaro, the Company's chief
operations officer. The OTRP Agreement called for a total purchase price, for
the purchasable components of the Plant, of $1,225,000 and total five-year
operating lease payments for the leasable components of the Plant, of $750,000
(see Item 1 of this Report "Existing and Proposed Businesses - Equipment
Manufacturing - Sales and Marketing - Agreements with Oceans Tire Recycling &
Processing Co., Inc."). In December 1997, OTRP and the Company agreed that, to
the extent necessary for OTRP to obtain sale and lease-back financing for the
front-end module ("Front-End") and for certain parts of the Air Plant portion of
the Plant, the said OTRP Agreement would be deemed to be modified, as required
for such purpose. OTRP arranged with an equipment financing company for sale and
lease financing, pursuant to which: (i) the said financing company purchased the
Front-End and certain designated portions of the TCS-1 Plant's Air Plant
directly from the Company; and (ii) leased such equipment back to OTRP and/or
the OTRP principals. The Company received a total purchase price of $880,000 in
respect of the foregoing sales, with irrevocable acceptances and final payments
obtained in December 1997 and April 1998, respectively. The Company and OTRP
agreed that the remaining provisions of the OTRP Agreement would be deemed to be
reformed or rescinded so as to allow ownership of the components of the First
Production Model to be transferred, sold, or allocated, as the parties agree
will be in their best interests (see Item 1 of this Report, "Existing and
Proposed Businesses - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products" and Item 2, "Description of
Property").
On December 16, 1998, subsequent to the period covered by this Report, the
Company entered into two sale and lease-back transactions respecting the single
fracturing mill and the single freezing tower contained in the First Production
Model. Such transactions were effected by and among the Company, North Shore
Leasing & Funding Inc. ("NLFI"), and Ocean Utility Contracting, Inc. ("OUCI"), a
company affiliated with OTRP through common ownership and control. Pursuant
thereto, the Company sold the foregoing components to NLFI and NLFI leased them
back to OUCI. The Company received an aggregate of $300,000 by way of the
purchase prices for the two components. The Company and OUCI have agreed that
all of OUCI's rights under the respective leases will be assigned to the Company
and the Company will assume all of OUCI's liabilities thereunder (see Item 1 of
this Report "Existing and Proposed Businesses - Sale and Lease-back
Transactions"). The Company and OTRP have not yet finalized the structure and
ownership of the First Production Model, but it is anticipated that they will
each contribute, among other things, the respective portions of the Plant which
they own (or lease) and that profits and
13
<PAGE>
liabilities from operation of the First Production Model will be divided in
proportion to their respective contributions.
Because of the lengthy delays in the commencement of commercial
operations, the Company has also had to, and may in the near future be forced to
continue to, cover its overhead costs from sources other than revenues from
operations. As at January 15, 1999, the Company estimates that overhead costs,
which will be incurred prior to the generation of revenues adequate to cover
them, will aggregate to approximately $250,000.
Liquidity and Capital Resources
The activities of the Company since its formation in 1987 and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions, including three private placements to a
limited number of accredited investors, which the Company completed on May 11,
1998, and which yielded aggregate net proceeds of $2,063,795 (see "The Company -
Material Financing Activities"). In total, funds raised by the Company from
private sales of its securities are as follows:
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
During the fiscal years ended June 30, 1997 and June 30, 1998 and the
interim six-month period ended December 31, 1998, the Company received
additional funding from Quebec and Canadian government grants, loans, loan
guarantees and refundable tax credits for purposes of completing the development
of the TCS-1 Plant and for the international marketing of such plants (see Item
1. of this Report, "Existing and Proposed Businesses - Canadian Operations -
Canadian Financial Assistance Grants, Loans, and Commitments"). Canadian and
Quebec government research and development tax incentives take the form of both
tax deductions from otherwise taxable income and tax credits respecting the
eligible research and development expenditures of the Company (see "Existing and
Proposed Businesses - Canadian Operations"). Insofar as tax credits for
scientific research and experimental development are concerned, such credits are
offered by both the governments of Canada and of Quebec. The tax credits are
calculated as a percentage of research and development expenditures deemed
eligible by the Revenue Departments of each government. The percentages vary
according to the size of the company (defined according to the asset base and
revenues generated by the company), the residency of the majority of the voting
control and other factors. In the case of both the provincial and the federal
governments, where the amount of the tax credit exceeds other tax liabilities,
such as taxes on income and on capital, and subject to certain other conditions
which a company meets, the amount of any difference is paid to the company, thus
the term, "Refundable Tax Credits". The effective rate of the credit varies from
one company to another as a function of a number of factors, not least of which
are: (i) the nature of the costs being claimed such as labor costs versus
non-labor costs (the credit for labor costs is higher than for non-labor costs);
and (ii) the proportion of expenditures which can be attributed to
14
<PAGE>
research and development but which are not deemed eligible for the tax credits
by their nature. Insofar as the Company is concerned, the tax credits have
varied from approximately 25% to 30% of total research and development
expenditures, including certain types of expenditures deemed ineligible for tax
credits. During the last three fiscal years, virtually all of the activities
connected with the development and construction of the First Production Model of
the TCS-1 Plant have qualified as expenses eligible for refundable tax credits.
As a further measure to stimulate research and development, the Quebec
Government, through the Societe de developpement industriel du Quebec, a public
sector corporation wholly owned by the Government of Quebec, (the "SDI") (a
former English version of this name was the Quebec Industrial Development
Corporation), has put into place a loan guarantee program (the "SDI Loan
Guarantee Program") which provides the SDI's guarantee of repayment of 75% of
the amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. The SDI Loan Guarantee Program therefore
enhances a company's ability to borrow from financial institutions up to 75% of
the amount of the anticipated tax credit for expenditures already incurred
("Allowable Post-Expenditure Loans"), prior to the receipt of the anticipated
tax credit. Alternatively, the SDI Loan Guarantee Program allows companies to
borrow, prior to making any expenditures, up to 60% of the amount of the
anticipated tax credit based on budgeted expenditures not yet incurred (80% of
the amount of an Allowable Post- Expenditure Loan). This provides the cash flow
essential to the research and development efforts. In the absence of any tax
liabilities, these tax credits have functioned as monetary grants and
constituted receivables which were used, prior to their being paid to the
Company, to secure conventional bank financing, supported in part by the SDI
guarantee noted above.
In connection with the Refundable Tax Credits, during the first quarter of
1998, the Bank of Montreal ("BOM") approved a loan to the Company of up to
Cdn$937,000, or approximately US$655,900 ("the BOM Tax Credit Loan") to be used
to pay expenses which would then be eligible for refundable tax credits. As at
June 30, 1998, Cdn.$828,230 (approximately US$579,761) had been lent to the
Company pursuant to the BOM Tax Credit Loan. Subsequent to the period covered by
this Report, during the six-months ended December 31, 1998, the Company borrowed
an additional Cdn.$108,770 (approximately US$76,139) under the BOM Tax Credit
Loan. As at June 30, 1998 and December 31, 1998, respectively, the outstanding
balance payable on the BOM Tax Credit Loan was Cdn$597,820 (approximately
US$418,474) and Cdn$502,520 (approximately US$351,764). The BOM Tax Credit Loan
was secured by: (i) a first-ranking lien on all of the assets, tangible and
intangible, present and future of the Company's Canadian subsidiary, Tirex R&D;
(ii) a lien on the Company's patent for the cryogenic tire disintegration
process and apparatus of the TCS-1 Plant; and (iii) personal guarantees of two
officers and directors of the Company.
The SDI, under its above described Loan Guarantee Program, guaranteed
repayment of 75% of the BOM Tax Credit Loan ("the SDI Guarantee"). The SDI
Guarantee was secured by a lien on the Company's projected tax credit
receivables.
Borrowings drawn down under the BOM Tax Credit Loan bear interest, from
the date the funds are drawn down until the outstanding principal and all
accrued and unpaid interest thereon are repaid, at an annual rate equal to the
Bank of Montreal Prime Rate (which, for reasons of inter-bank competition, is
usually equivalent to Canadian Prime Rate) plus 1.25%. Interest on the
outstanding balance of the BOM Tax Credit Loan is due and payable monthly. The
outstanding principal amount is repayable upon the Company's receipt of tax
credit refunds from the Canadian and/or Quebec tax authorities and the release
of the funds by SDI to the Bank of Montreal. During the last three fiscal years,
and the six-month interim period ended December 31, 1998, the Company made
research and development expenditures, generated tax credit claims, and received
funds by way of borrowings under the BOM Tax Credit Loan, as set forth in the
following table:
15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Period Amount of Amount of R&D Amount of Tax Amount Amount of Tax Cumulative
R&D Expenses R&D Expenditures Credits Borrowed Credit Received Outstanding
Were Incurred Expenditures Eligible for Estimated by Against Balance of
Incurred Tax Credits BOM and SDI Estimated Loan as at End
Tax Credits of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
July 1, 1995 to -0- -0- -0- -0- -0- -0-
June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to Cdn$1,576,761 Cdn$1,576,761 Cdn$579,305 -0-(1) -0-(2) -0-
June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to Cdn$2,723,443 Cdn$2,723,443 Cdn$982,113 Cdn$828,230(1) Cdn$307,208(2) Cdn$597,820
June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interim Period Cdn$1,167,892 (3) (4) Cdn$108,770(1) Cdn$245,517(5) Cdn$502,520
July 1, 1998 to (6)
December 31,
1998
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.
16
<PAGE>
(1) Prior to June 30, 1998, the Company received three disbursements from the
BOM in the aggregate amount of Cdn$828,230 (approximately US$579,761) with
the first of these disbursements received on January 30, 1998. These
amounts were based upon estimated tax credit receivables in the following
amounts: (i) Cdn$579,305 (approximately US$405,514) for research and
development expenditures made by the Company during the fiscal year ended
June 30, 1997; and (ii) a portion of the Cdn$982,113 (approximately
US$687,479) for research and development expenditures made by the Company
during the fiscal year ended June 30, 1998. Subsequent to June 30, 1998,
the Company received a further cash disbursement of Cdn$108,770
(approximately US$76,139), in respect of eligible tax credit expenditures
incurred prior to June 30, 1998, effecting the complete draw down of the
entire authorized loan amount of Cdn$937,000 against tax credit
receivables for the cumulative period ended June 30, 1998.
(2) All funds by way of Tax credits received by the Company during fiscal 1998
were attributable to research and development expenditures made by the
Company during fiscal 1997.
(3) As of February 17, 1999, and in accordance with the tax laws and
procedures of the Revenue Departments of the governments of Canada and of
Quebec, the Company had not yet submitted a claim for tax credits based
upon any research and development expenditures made since July 1, 1998.
The Company expects that a portion of such expenditures will be eligible
for Refundable Tax Credits. In connection therewith, the Company will seek
credit facilities similar to the BOM Tax Credit Loan, with one or more
lending institutions, based upon estimated tax credit receivables.
(4) Although the Company made research and development expenditures in the
amount of Cdn$1,167,892 during the six-month period, July 1, 1998 through
December 31, 1998, and while the Company believes that a portion of such
expenditures will be eligible for Refundable Tax Credits, it should be
noted that no credit facilities were or have yet been made available to
the Company to finance these expenditures. The SDI Loan Guarantee Program,
which guaranteed repayment of 75% of the BOM Tax Credit Loan, was
available only for bank loans based on estimated tax credit receivables
for research and development expenditures made on or before June 30, 1998.
It should be noted further that the entire amount available to the Company
under the BOM Tax Credit Loan has already been borrowed by the Company in
connection with research and development expenditures made by the Company
during the years ended June 30, 1997 and 1998. However, the SDI Loan
Guarantee Program is still in existence and may be available to guarantee
new loans which may be made to the Company by other Canadian lending
institutions. Accordingly, (as noted above in footnote 3 to this table),
the Company intends to seek new credit facilities, similar to the BOM Tax
Credit Loan, to finance research and development expenditures made after
June 30, 1998.
(5) Tax credits received by the Company during this interim period, July 1,
1998 through December 31, 1998, are attributable to research and
development expenditures made by the Company during the fiscal year ended
June 30, 1997. As at December 31, 1998, the Company had not yet received
any tax credits for research and development expenditures made from July
1, 1997 through December 31, 1998. However, as described below in footnote
6 to this table, subsequent to December 31, 1998, some funds were received
in respect of research and development expenditures made during the fiscal
year ended June 30, 1998, on a "preliminary advance payment" basis.
17
<PAGE>
(6) The annual Canadian federal government audit of eligible research and
development expenditures for the fiscal year ending June 30, 1998 took
place in January 1999. Results of the audit are expected prior to March
31, 1999. However, as a result of a preliminary, cursory review of the
accounts, a preliminary advance payment check in the amount of
Cdn$320,000, representing approximately half of the amount of the Canadian
federal tax credit claimed on the Government of Canada, was received by
the Company in January 1999, of which amount, the sum of Cdn$175,000 was
used to reduce the outstanding balance of the BOM Tax Credit Loan, in
accordance with the terms and conditions of the SDI Loan Guarantee.
During the last three fiscal years and the six month interim period ended
December 31, 1998, the Company also received additional financial assistance by
way of loans and grants from Quebec governmental agencies, for the design and
development of the TCS-1 Plant and for export market development as follows:
1. In March of 1996, the Company qualified for an interest-free, unsecured
loan (the "FORD-Q Loan") of up to $500,000 (Canadian), or approximately $
350,000 (U.S.). This loan was made available by the Government of Canada under
the Industrial Recovery Program for Southwest Montreal, which is administered by
the federal government agency, Canada Economic Development for Quebec Regions
("CEDQR"), which was previously known as the Federal Office of Regional
Development - Quebec or "FORD-Q". Under the terms of the loan, the Company
received funds in the total amount of Cdn$500,000 or approximately US$350,000,
representing 20% of eligible expenditures made by the Company to design,
develop, and manufacture the first full-scale model of the TCS-1 Plant. The loan
money was disbursed pursuant to the submission of claims of eligible expenses
incurred. The Company did not have funds available to expend for these purposes
until February of 1997. Because of the limited funds available to the Company at
that time, the Bank of Montreal agreed to make short-term loans (the "BOM
Secured Loans") to the Company, secured by CEDQR's acceptance of the Company's
claims for reimbursement of expenditures. All of the BOM Secured Loans were
repaid by the Company as funds were released to the Company under the CEDQR
Loan.
The proceeds of the CEDQR Loan were paid to the Company during the fiscal
years ended June 30, 1997 and 1998, as follows:
Canadian Dollars US Dollar Approximation
---------------- -----------------------
Fiscal 1997 $246,752 $172,725
Fiscal 1998 $253,248 $177,275
Under the terms of the CEDQR Loan, repayment must commence twelve months from
the date CEDQR declares that the project has been completed. This occurred on
March 31, 1998. The repayment schedule therefore calls for four, graduated
annual payments as follows:
Canadian Dollars US Dollar Approximation
---------------- -----------------------
March 31, 1999 $ 50,000 $ 35,000
March 31, 2000 $100,000 $ 70,000
March 31, 2001 $150,000 $105,000
March 31, 2002 $200,000 $140,000
18
<PAGE>
The terms and purposes of the CEDQR Loan are discussed in more detail in
"Existing and Proposed Businesses - Canadian Operations - Canadian Financial
Assistance - Grants, Loans, and Commitments".
2. In April of 1996, the Company qualified for a grant from Societe
Quebecoise de Recuperation et de Recyclage ("Recyc-Quebec"), a self-financed,
Quebec Government-owned corporation established to facilitate and promote
materials recovery and recycling. The amount of such grant was $75,000 Canadian
(approximately $52,500 U.S.). Of this amount, the Company received $50,000
Canadian (approximately $35,000 US) during the fiscal year ended June 30, 1997.
The terms of the grant provide that the Company will receive the balance of
$25,000 Canadian (approximately $17,500 U.S.) when the Company files a final
report on the completion of the project. The Company anticipates that such
report will be filed in or about February 1999. The terms and purposes of this
grant are discussed in more detail in "Existing and Proposed Businesses -
Canadian Operations - Canadian Financial Assistance - Grants, Loans, and
Commitments".
3. The Company has also qualified for five interest-free, unsecured loans
from the Government of Canada in the aggregate amount of $ 232,773 Canadian
(approximately $ 162,900 U.S.). These loans were made available by CEDQR, under
the Innovation, Development, Entrepreneurship Assistance - Small and Medium
Enterprises Program ("IDEA-SME Program"). Under these loan agreements, during
Fiscal 1997 and 1998, the Company received $30,000 Canadian (approximately $
21,000 U.S.) and $ 202,773 Canadian (approximately $ 141,900 U.S.) respectively.
The IDEA-SME Program loans represent up to 50% of approved Company expenditures,
based on submitted claims, subject to maximum amounts for each loan.
Expenditures are required to have been made for the purposes of identifying and
developing export markets for Canadian products. All of the projects which gave
rise to these loans have been declared completed by CEDQR and the repayment
terms have accordingly been established. The following table identifies the
nature of the projects for which these loans were granted, the maximum amount of
the loans approved the government agency, the aggregate amounts received by the
Company as of October 31, 1998 and the repayment terms of each loan.
19
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Amount of
Funds
Received By
Maximum Company as of Rate of
Amount of December 31, Interest
Loan 1998
Nature of Project Repayment Terms
===============================================================
Amount of Payment
Date Due
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Cdn $20,000 Cdn At the end of any fiscal year in 1% of gross annual None
Feasibility Study for $20,000 which the Company has revenues revenue from sales in
Iberian Peninsula from sales of TCS-1 Plants in the Iberia
Iberian Peninsula
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Cdn $20,000 Cdn At the end of any fiscal year in 1% of gross annual None
Feasibility Study for $20,000 which the Company has revenues revenue from sales in
India from sales of TCS-1 Plants in India
India
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Cdn $95,000 Cdn June 30, 2001 Cdn$6,333 None
Respecting Potential $95,000 June 30, 2002 Cdn$12,666
United States Markets June 30, 2003 Cdn$18,999
for Rubber Crumb June 30, 2004 Cdn$25,333
June 30, 2005 Cdn$31,666
- ------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Cdn $95,000 Cdn At the end of any fiscal year in 1.5% of gross annual None
Activities Related to $95,000 which the Company has revenues revenue from sales in
Positioning the Company to from sales of TCS-1 Plants in Iberia
Market TCS-1 Plants, Iberia
Rubber Crumb, and Related
Products in Iberia
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Cdn $98,000 $98,000 June 30, 2001 Cdn $ 6,533.33 None
Respecting the Feasibility Cdn June 30, 2002 Cdn $13,066.66
of using Rubber Crumb in June 30, 2003 Cdn $19,600.00
Thermoplastic Elastomer June 30, 2004 Cdn $26,133.33
Compounds in the United June 30, 2005 Cdn $32,666.66
States and Canada.
====================================================================================================================================
</TABLE>
These loans and the projects which they supported are discussed in more
detail in "Existing and Proposed Businesses - Canadian Operations" and "Existing
and Proposed Businesses - Sales and Marketing".
20
<PAGE>
The Company believes it will be able to cover the balance of the capital
investments and expenditures which it will be required to make in connection
with: (i) modifications which were made to the TCS-1 Plant; (ii) the
establishment, and commencement of operations, of the rubber mat molding and
flocking plant; (iii) commencement of full scale, commercial manufacture of
TCS-1 Plants; and (iv) meeting its overhead on a level sufficient to sustain the
Company for at least the next twelve months, from a combination of some or all
of the following sources: (i) expected cash flow from sales of four TCS-1 Plants
to ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. (see
Item 1 of this Report "Existing and Proposed Businesses - Sales and Marketing -
The Enercon Agreements"); (ii) Canadian and Quebec government and governmental
agency grants, loans, and refundable tax credits; (iii) sale and lease back
financing on inventory and equipment owned by the Company; (iv) conventional
asset based debt financing against receivables and inventory; (v) refunds of all
of the 15% sales taxes paid by the Company on all goods and services purchased
in connection with the Company's manufacturing activities, which the Company, as
a manufacturer and exporter of goods is entitled to (in September 1998, the
Company received Cdn $200,000 by way of such tax refunds for the quarter ended
June 30, 1998); (vi) subcontractor financing; (vii) vendor financed equipment
purchases and/or (viii) a research and development tax credit facility from the
Bank of Montreal for the 1999 calendar year. The Company is presently actively
pursuing all of the foregoing avenues of financing. In addition, management
believes that the Company will be able to obtain sufficient production financing
to cover the costs of constructing subsequent TCS-1 Plants, using the
constituent components of the Plant to be financed, as collateral for debt
financing to cover its construction costs.
Whether the funds, which the Company obtains, from any of the above
proposed sources, will be sufficient to enable the Company to reach a profitable
operating stage, will be entirely dependent upon: (i) the amount of such
financing which the Company is actually able to raise; (ii) Enercon's receipt of
its funding; (iii) the as yet unproven ability of the TCS-1 Plant to operate
continuously on a long-term commercial basis in accordance with its anticipated
performance specifications; and (iv) the ability of the proposed rubber mat
molding facility to operate profitably (see, below, in this Item 6, "Risk Factor
No. 2 - "Need For Substantial Additional Capital" and Item 1 of this Report,
"Existing and Proposed Businesses - Equipment Manufacturing - The TCS-1 Plant",
and "Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - The Enercon Contracts").
Any failure or delay in the Company's receipt of the required financing
would be directly reflected in a commensurate delay or failure in the
commencement of: (i) full scale manufacturing of TCS-1 Plants; and (ii) the
commercial operation of the First Production Model and the establishment and
initiation of rubber mat molding operations. It should be noted also that the
period of time during which any funds raised 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 further flaws
or defects in the design or construction of the First Production Model, which
may become apparent when it is subjected to continuous operation on a long term,
commercial basis. Moreover, given the early stage of development of the Company,
it is impossible at this time to estimate with any certainty the amount of
income from operations, if any, during the next twelve months.
There can be no assurance that the Company will be able to obtain outside
financing on a debt or equity basis on terms favorable to it, if at all. In the
event that there is a failure in any of the finance-related contingencies
described above, the funds available to the Company may not be sufficient to
cover the costs of its operations, capital expenditures and anticipated growth
during the next twelve months. In such case, it would be necessary for the
Company to raise additional equity capital. During Fiscal 1998, in an effort to
put such funding into place, the Company entered into a non-binding letter of
intent with H.J. Meyers & Co., Inc. ("Meyers"), for a proposed public offering
of its securities in an amount of not less than $8,000,000. On or about
September 16, 1998, however, Meyers abruptly ceased doing business. Therefore,
if the Company should wish to raise funds through a public offering, it will be
required to locate
21
<PAGE>
another broker-dealer, ready, willing, and able to underwrite a public offering
of the Company's securities. At this time, the Company is not able to give any
assurances that, in such event, it will be successful in locating an underwriter
or that its efforts will ultimately result in a public offering. If the proceeds
from the above described potential sources of funding should be insufficient for
the Company's requirements and it is not able to effect 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.
As at June 30, 1998, the Company had total assets of $3,814,648 as
compared to $1,555,620 at June 30, 1997 reflecting an increase of $2,259,028.
Fiscal year-end total assets at June 30, 1997 had reflected a previous increase
of $1,357,988 over $197,632 at June 30, 1996. Management attributes the increase
in total assets at June 30, 1998 principally to (i) continuing consulting
agreements which have been recorded as prepaid expenses on the Balance Sheet in
the approximate amount of $970,000; all compensation payable under such
agreements was paid by way of the issuance of an aggregate of 4,000,000 share of
Common Stock to two consultants and the granting of the CGT Option, the terms of
which are discussed, below, in Risk Factor No. 6 "Dilutive and Other Adverse
Effects of Presently Outstanding Debentures, Warrants, and Options"; the
attributed value of all shares of Common Stock issued as compensation under such
consulting agreements and the CGT Option has been included in Paid-in Capital;
(ii) Property and Equipment in the amount of $977,288 which represents an
increase of $190,630 over Property and Equipment of $786,658 at June 30, 1997;.
(iii) cash assets in the amount $398,971 at June 30, 1998, which reflects an
increase of $243,934 over cash assets in the amount of $155,037 at June 30,
1997. The cash position of the Company at June 30, 1997 had reflected an
increase of $154,797 over $240 in cash assets at June 30, 1996; (iv) research
and development tax credit receivables ("R&D TCR's") in the amount of $855,818
at June 30, 1998, which reflects an increase of $535,498 over R&D TCR's in the
amount of $320,320 at June 30, 1997 R&D TCR's at June 30, 1997 had reflected an
increase of $269,918 over $50,402 in R&D TCR's at June 30, 1996; (v) the
recognition of deferred financing costs in the amount of $158,255; and (vi)
outstanding loans to officers in the aggregate amount of $195,969, which
represents an increase of $180,59O over $15,379 in outstanding loans at June 30,
1997 (see Item 12 of this Report, "Certain Relationships and Related
Transactions" - "Loan Transactions with Terence C. Byrne and Affiliated Entity"
and "Loans to Louis Sanzaro and Affiliate.)
As at June 30, 1998, the Company had total liabilities of $3,360,588 as
compared to $1,695,350 at June 30, 1997, reflecting an increase in liabilities
of $1,665,238. Total liabilities at June 30, 1997 had reflected a previous
increase of $1,327,921 over $367,429 in total liabilities at June 30, 1996.
Management attributes such increases in total liabilities at June 30, 1998
primarily to: (i) advances from the Canadian federal government agency, Canada
Economic Development-Quebec Regions (CEDQR), formerly known as, and sometimes
referred to herein as, the Federal Office for Regional Development- Quebec
(FORD-Q), pursuant to loans contributed by such agency under the Industrial
Recovery Program for Southwest Montreal (IRPSWM) and the Innovation,
Development, Entrepreneurship and Access Program for Quebec Small and
Medium-Size Enterprises (IDEA-SME) in the amount of $500,012, which represents
an increase of $299,467 over CEDQR balances of $200,545 at June 30, 1997; (ii)
the issuance during Fiscal 1998, in two of the Private Placements (including
debentures assumed in the merger with RPM) of 10% Convertible Subordinated
Debentures in the aggregate principal amount of $1,035,000; and (iii) bank
indebtedness in the amount of $407,926 which represents an increase of $285,375
over bank indebtedness of $122,551 at June 30, 1997.
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Reflecting the foregoing, the financial statements indicate that as at
June 30, 1998, the Company had a working capital surplus (current assets minus
current liabilities) of $373,198 and that as at June 30, 1997, the Company had a
working capital deficit of $1,013,659. The primary causes of this net increase
in net working capital were: (i) an increase in research and development tax
credits receivable in the amount of $585,900, (ii) an increase of prepaid
expenses and deposits respecting on-going consulting agreements in the amount of
$970,000, and, (iii) a decrease in deposits payable of $336,500.
The Company currently has limited material assets (see, below, Risk Factor
No. 3. "History of Losses and Accumulated Deficit"). The success of the
Company's tire recycling equipment manufacturing business, its proposed rubber
mat molding business, and its ability to continue as a going concern will be
dependent upon the Company's ability to obtain adequate financing to commence
profitable, commercial manufacturing and sales activities and the TCS-1 Plant's
ability to meet anticipated performance specifications on a continuous, long
term, commercial basis.
Results of Operations
As noted above, the Company is presently in the very early stages of the
business of manufacturing and selling TCS-1 Plants and is also currently engaged
in establishing a complete rubber mat molding and flocking facility in which it
intends to utilize the First Production Model of the TCS-1 Plant. The Company
intends to begin manufacturing TCS-1 Plants and operating its rubber mat molding
facility on commercial bases by March of 1999. The Company had no income from
operations during Fiscal 1997; It generated $880,000 in revenues during fiscal
1998 from the sale of the single front-end module and the single fracturing mill
of the First Production Model of the TCS-1 Plant. However, unless and until the
Company successfully develops and commences TCS-1 Plant manufacturing and sales
operations and/or profitable rubber mat molding operations on a full-scale
commercial 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.
The financial statements which are included in this Report reflect total
general and administrative expenses of $1,970,277 for Fiscal 1998 which reflects
an increase of $1,691,329 over Fiscal 1997, when general and administrative
expenses were $278,948. During fiscal 1998, the Company's total operating costs
increased by $2,198,031, from $2,366,535 for fiscal 1997 to $4,564,566 for
fiscal 1998. The majority of such increase is the result of various factors,
including: (i) an increase of $510,000 in respect of valuations attributed to
stock bonuses granted to officers and counsel; (ii) an increase of $358,000 in
respect of valuations attributed to stock issued for various consulting and
professional fees; (iii) an increase of $112,000 in financing fees, by way of
commissions and expense allowance to the Selling Agent in the Type A and Type B
Private Placements; (iv) an increase of $229,000 in travel and entertainment
costs; (v) an increase of $406,000 in respect of valuations attributed to stock
issued in consideration for the release of an exclusive rights agreement (see
Item 12 of this Report, "Certain Relationships and Related Transactions -
Consulting and Executive Agreements with Louis Sanzaro"); and (vi) an increase
of $306,000 in costs directly associated with the development of the TCS-1
Plant. Total research and development costs during Fiscal 1998 were $2,581,928
which reflected an increase of $498,640 over research and development costs for
Fiscal 1997. During the year ended June 30, 1998, shares of Common Stock with an
aggregate attributed value of $1,870,000 were issued in exchange for services as
compared to Common Stock with an aggregate attributed value of $1,600,000 during
the year ended June 30, 1997.
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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 that the recipients of such shares
accepted such numbers of shares as a function of a combination of their
perceived valuation of both present and possible future value of the shares,
rather than the actual value of the stock at the time it was issued. Management
believes that, as of the dates such shares were issued in lieu of cash
compensation, their actual and potential value, if any, could not be determined,
and that any attempt to specify a current valuation with any reasonable
assurance, would be flawed, without substance, and highly contingent upon, and
subject to, extremely high risks including but not limited to the following
factors: (i) the absence of a reliable, stable, or substantial trading market
for the Company's common stock, the possibility that such a market might never
be developed, and the resultant minimal, or total absence of, market value for
any substantial block of common stock; (ii) the very high intrinsic risks
associated with early development stage businesses, such as the Company's; (iii)
the Company's lack of sufficient funds, as at such issuance dates, to implement
its business plan and the absence of any commitments, at such times, from
potential investors to provide such funds; (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,
(See "Existing and Proposed Businesses", "Market for the Company's Common Equity
and Related Stockholder Matters", and "Management - Certain Relationships and
Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees").
From inception (July 15, 1987) through June 30, 1998, the Company has
incurred a cumulative net loss of $10,051,483. Approximately $1,057,356 of such
cumulative net 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 expending 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.
Risk Factors
The Company's liquidity, capital resources, and results of operations
indicate that an investment in the Company remains speculative, involves a high
degree of risk, and should not be made by persons who cannot afford the loss of
their entire investment. Prospective investors in the Company should carefully
consider all of the information contained in this Report before deciding whether
to purchase securities of the Company, and, in particular, the factors set forth
below.
Information contained in this Report contains "forward-looking statements"
which can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "should" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following Risk Factors include,
among other things, cautionary statements with respect to certain
forward-looking statements, including statements of certain risks and
uncertainties that could cause actual results to vary materially from the future
results referred to in such forward-looking statements.
1. Development Stage Company: No Assurance as to Future Profitable
Operations. Because it is in the development stage and has had no significant
operations to date, the Company cannot predict with any certainty the future
success or failure of its operations. The Company's existing business (the
design and manufacture of tire recycling equipment) and its proposed business
(the operation of tire recycling equipment and the production of products using
the recycled rubber produced therefrom), are both subject to all of the risks
inherent in the establishment of new businesses and there is no assurance that
the Company will generate net income or successfully expand its operations in
the future. Moreover,
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as a new enterprise, it is likely to remain subject to risks and occurrences
which management is unable to predict with any degree of certainty, and for
which it is unable to fully prepare. The likelihood of the success of the
Company in either business segment must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the formation of a new business and the competitive environment
in which the Company will operate. Because of the Company's very limited
business history, there is little evidence for investors to analyze in order to
make an informed judgment as to the merits of an investment in the Company. Any
such investment should therefore be considered a high risk investment in an
unseasoned start-up company with the possibility of the loss of the entire
investment.
2. Need For Substantial Additional Capital. During the period between
January 7, and May 11, 1998, the Company completed and closed certain financing
activities which yielded aggregate net proceeds to the Company in the amount of
$2,063,795 (see Risk Factor No. 6 "Dilutive and Other Adverse Effects of
Presently Outstanding Debentures, Warrants, and Options" and "The Company -
Material Financing Activities"). Upon completion of the last of such financing
activities in May of 1998, management believed that the proceeds realized
therefrom (together with Canadian and Quebec government and governmental agency
grants and loans, in various forms) would provide the Company with adequate
funding to accomplish the following: (i) complete and cover all of the Company's
costs related to the first production model of the TCS-1 Plant (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 (see "Description of Property"); and (iii) cover the Company's
overhead costs and expenses through the end of October 1998. The Company has,
however, had to revise its estimates regarding the adequacy of such funding for
several reasons, including but not limited to the necessity for certain
unanticipated modifications to the TCS-1 Plant design and the Company's entry
into a second business segment involving the operation of a TCS-1 Plant and the
production of molded rubber floor mats.
During the "Stage 2" test phase of the First Production Model, the Company
encountered certain unanticipated design flaws in the TCS-1 which required
modification and it also identified several opportunities for improvements in
the original design of the TCS-1 Plant, which the Company believes will increase
economy and efficiency of its operation. The required modifications were
completed in December 1998 with respect to a single fracturing mill and a single
freezing tower in the First Production Model. Completion of the second
fracturing mill and freezing tower to be installed therein is scheduled to occur
in April of 1999. The costs of the foregoing modifications, including
engineering fees, aggregated to a previously unbudgeted amount of approximately
$500,000, approximately $250,000 of which had been paid by the Company as of
December 31, 1998.
The Company is also currently involved in establishing rubber mat molding
operations under the IM2 Agreement. In connection therewith, the Company will
incur additional costs and expenses in an estimated aggregate amount of
approximately $925,000. This includes: (i) approximately $325,000 for
modifications to the Company's Montreal facility, necessary to accommodate these
operations, and for materials handling equipment; and (ii) approximately
$600,000 to cover the costs of purchasing and installing a complete rubber mat
molding and flocking plant (see "Existing and Proposed Businesses Product
Manufacturing and Sales of Rubber Crumb" and "Description of Property").
The Company has also had to, and may, in the near future be forced to
continue to, cover its overhead costs from sources other than cash flow from
operations because of the unanticipated and lengthy delays in the commencement
of commercial operations.
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The Company believes that it will be possible to meet its immediate goals
of: (a) commencing full scale commercial production of TCS-1 Plants; (b)
commencing rubber mat molding operations under the IM2 Agreement; and (c)
covering its overhead expenses until sufficient cash flow is generated by
operations, out of a combination of some or all of the following sources: (i)
funds on hand; (ii) expected cash flow from sales of four TCS-1 Plants to
ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. (see
"Existing and Proposed Businesses - Sales and Marketing - The Enercon
Agreements"); (iii) Canadian and Quebec government and governmental agency
grants, loans, and refundable tax credits; (iv) sale and lease back financing on
inventory and equipment owned by the Company; (v) conventional asset based debt
financing against receivables and inventory; (vi) refund of all of the 15% sales
tax paid by the Company on all goods, and services purchased in connection with
the Company's manufacturing activities; (vii) subcontractor financing; (viii) a
research and development tax credit facility from the Bank of Montreal for the
1999 calendar year; and/or (ix) vendor financing by way of installment purchases
of equipment. However, the sufficiency of such funds, if the Company does
receive them, will be completely dependent upon the TCS-1 Plant's as yet
unproven ability to operate without significant problems, on a long-term,
continuous, commercial basis.
Assuming the Company is able to cover the costs necessary to: (i) complete
the second fracturing mill and freezing tower; and (ii) install a complete
rubber mat molding and flocking facility, from the sources described above, full
scale commercial manufacture of TCS-1 Plants and rubber mat molding operations
are presently expected to occur during March 1999. However, any failure or delay
in the Company's receipt of the required financing would be directly reflected
in a commensurate delay or failure in the commencement of commercial operations
(see "Existing and Proposed Businesses - Equipment Manufacturing - The TCS-1
Plant", and "Existing and Proposed Businesses - Equipment Manufacturing - Sales
and Marketing - The Enercon Contracts" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations").
The Company's more long term future capital requirements will depend upon
numerous factors, including the amount of revenues generated from operations (if
any), the cost of the Company's sales and marketing activities and the progress
of the Company's research and development activities, none of which can be
predicted with certainty. Receipt of any projected revenues is entirely
dependent upon the TCS-1's meeting performance expectations, ENERCON's ability
to meet its payment obligations under its agreements with the Company, Enercon
obtaining all required permits and licenses to operate a Plant, the Company's
obtaining sufficient production, financing and capacity to meet delivery
requirements, and the rubber crumb produced by the TCS-1 meeting customer
requirements. The Company believes that if all of the foregoing contingencies
are met, it will have sufficient cash flow to fund its operations for at least
the next twelve months. If revenues from operations within the next twelve
months should fail to meet current projections, the Company may attempt to make
an underwritten public offering of its securities in order to insure that it
will have sufficient working capital. The Company notes that on August 13, 1997,
it received a Letter of Intent from H.J. Meyers, Inc. ("Meyers"), a
broker-dealer registered with the National Association of Securities Dealers,
Inc., for the underwriting of such a proposed public offering (the "Proposed
Public Offering") in an amount of not less than $8,000,000. On or about
September 16, 1998, however, Meyers abruptly ceased doing business. If the
Company should determine that it is necessary or desirable to effect a public
offering, it will have to locate another broker-dealer, ready, willing, and able
to underwrite a public offering of the Company's securities. There can be no
assurance that the Company will succeed in finding an underwriter or that a
public offering will in fact be completed or that the Company will receive
adequate financing from any such public offering. In the event that the
projected revenues are not generated and a public offering does not occur within
twelve months, the Company intends to endeavor to obtain sale and lease-back
financing on equipment owned by the Company, conventional asset based debt
financing against receivables and inventory, and/or to seek other avenues of
financing through private offerings of its debt or equity securities. The
Company believes that at least one, or a combination of more than one, of the
foregoing avenues of financing will enable it to commence full scale
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production of the TCS-1 Plant and its proposed product manufacturing and rubber
crumb sales operations on a level sufficient to sustain the Company for at least
the next twelve months. However, given the early stage of development of the
Company, it should be noted that it is impossible at this time to estimate with
any certainty what the Company's income from operations will be during the next
twelve months and that there can be no assurance that the Company will be able
to obtain outside financing on a debt or equity basis on terms favorable to it,
if at all. While management does not believe that it will be the case,
prospective investors in the Company should note that if all of the above
described internal and external sources for financing should fail to be
sufficient, the Company could be required to reduce its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous.
In the past, the Company has experienced operational difficulties and
delays of more than five years, three of which years occurred during the tenure
of the current management. All such difficulties and delays were the result of
working capital constraints and the Company may continue to experience such
problems in the future. Should such problems continue or reoccur in the future,
they could have a material adverse effect on the Company's business, financial
condition and results of operations. The working capital constraints which the
Company experienced were the result of its being undercapitalized from the
outset and therefore without sufficient resources to hire required personnel or
pay vendors of products and services, including but not limited to
subcontractors needed to design and build the First Production Model of the
TCS-1 Plant. The Company estimates that it required financing in excess of
$2,000,000 to complete the design, development, and construction of the said
First Production Model of its TCS-1 Plant plus funds to maintain finance-raising
activities. The Company actively sought financing under its former management
from 1992 through 1994 and continued to do so under its current management
beginning in January 1995. It did not raise sufficient financing to design and
construct the First Production Model to the point where initial testing could be
commenced until May 1998. Lack of sufficient working capital also required
management, who worked for the Company for no, or very limited, cash
compensation, to devote a substantial amount of their time and effort to raising
the required financing. The Company estimates, that if it had sufficient
financing in January of 1995 when members of current management commenced its
search for funding, it might have been able to complete the design, development,
and construction of the First Production Model by October 1996. Instead, it
required an additional three years for the Company to raise sufficient funds to
meet its initial goals and objectives. The absence of operations and the
resultant lack of significant cash flow from 1995 until the present, compounded
the Company's problems because even the overhead required to sustain fund
raising activities had to be financed from outside sources. This further delayed
the Company's ability to devote sufficient resources to completing the design,
development, and construction of the First Production Model of the TCS-1. By way
of example, the First Production Model was scheduled for delivery by February of
1997. Instead, the last of the three major components of such model was
completed in June of 1998 and, as discussed above, the First Production Model
underwent extended testing and "debugging" procedures until December 1998.
3. History of Losses and Accumulated Deficit. The Company has experienced
operating losses in each fiscal period since its formation in 1987, including
the period since the 1993 inception of its tire recycling business plan. As at
June 30, 1998, the Company had a deficit accumulated since formation in the
aggregate approximate amount of $10,051,483, approximately $8,994,127 of which
was accumulated since the 1993 inception of the Company's present business plan.
The Company expects to incur additional operating losses through at least the
end of the fiscal year ending June 30, 1999 and possibly thereafter (see, above,
Risk Factor No. 1 "Development Stage Company: No Assurance as to Future
Profitable Operations"). Since its inception, the Company has generated
extremely limited revenues from operations (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
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4. Going Concern Assumption. The Company's independent auditors' report on
the Company's financial statements for the years ended June 30, 1997 and 1998,
contains an explanatory paragraph indicating that: (i) the Company is still in
the development stage; (ii) it cannot be determined at this time that the
Company's tire disintegration technology will be developed to a productive
stage; and (iii) the Company's uncertainty as to its productivity and its
ability to raise sufficient capital raise substantial doubt about its ability to
continue as a going concern. In addition, the Company had an accumulated deficit
of $10,051,483 as at June 30, 1998. The Company will require substantial
additional funds in the future, and there can be no assurance that any
independent auditors' report on the Company's future financial statements will
not include a similar explanatory paragraph if the Company is unable to raise
sufficient funds or generate sufficient cash from operations to cover the cost
of its operations. The existence of the explanatory paragraph may materially
adversely affect the Company's relationship with prospective customers and
suppliers, and therefore could have a material adverse effect on the Company's
business, financial condition and results of operations.
5. No Guarantee of Product Acceptance in Market. The first production
model of the TCS-1 Plant was completed in May of 1998 and is expected to be
ready for commercial production, on a complete "turn-key" basis, in March 1999.
Consequently, there is not yet any history of commercial operations of the TCS-1
Plant. There can be no assurance that the TCS-1 Plant will be accepted in the
market for tire disintegration equipment. Moreover, the Company's market
research has focused on the potential demand for the TCS-1 Plant, and the rubber
crumb it is designed to produce, to the exclusion of other types of tire
disintegration equipment. Therefore, the Company is not able to estimate with
any assurance the potential demand for the TCS-1 Plant, if any. There can be no
assurance that sufficient market penetration can be achieved so that projected
production levels of the TCS-1 Plant will be absorbed by the market (see
"Existing and Proposed Businesses-Sales and Marketing").
6. Dilutive and Other Adverse Effects of Presently Outstanding Debentures,
Warrants, and Options. As of February 12, 1999, there were outstanding options
and warrants pursuant to which the Company is obligated to sell common stock, as
follows:
(a) 2,000,000 common stock purchase warrants (the "Type A Warrants") to
purchase a like number of shares of the Company's common stock at an
exercise price of $.001 per share, the resale of all of which shares
are included in the Registration Statement.
(b) 10% convertible Type A Debentures in the aggregate principal amount
of $500,000, with principal and interest convertible, in whole or in
part, into shares of the Company's common stock at a conversion
ratio equal to a percentage ranging between 67.5% and 61.5% of the
closing bid price of the Company's common stock on the trading date
immediately preceding the date of the Company's receipt of a notice
of conversion from a holder of the Type A Debentures. Accordingly,
if, on February 16, 1999, all of the principal amount, but none of
the interest, due on the Type A Debentures had been converted into
common stock (based on the market price of the common stock as at
February 12, 1999), a total of 4,357,298 shares of common stock
would have been issued in respect of such conversion. The resale of
all of which shares would be included in the Registration Statement.
To the extent that the interest portion of the Debenture is not
converted, all accrued interest will be payable in cash.
(c) 10% convertible Type B Debentures in the aggregate principal amount
of $535,000, with principal and interest convertible, in whole or in
part, into shares of the Company's common stock at a conversion
ratio of one share for every $.20 of principal amount and
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interest earned thereon from the date of issuance. If the principal
amount of all of the Type B Debentures, but not the interest, were
converted, the aggregate number of shares issuable would be
2,675,000, the resale of all which shares are included in the
Registration Statement. To the extent that the interest portion of
the Type B Debenture is not converted, all accrued interest will be
payable in cash.
(d) an option to purchase 235,294 shares, held by Lenford Robins, an
unaffiliated consultant, exercisable at a price of $.17 per share.
Mr. Robins is an expert in all types of equipment financing through
sale and leaseback arrangements, and otherwise, and has provided,
and continues to provide, consulting services to the Company with
respect to locating, structuring, and arranging such financing for
purchasers and potential purchasers of TCS- 1 Plants. From the
Summer of 1996 through the Spring of 1997, Mr. Robins provided
substantial consulting services in connection with sale and
leaseback financing for Ocean's Tire Recycling & Processing Co.,
Inc. ("OTRP").
(e) (i) options to purchase, on or before March 31, 1999, an aggregate
of 250,000 shares, at an exercise price of $.1875 per share; and
(ii) options to purchase, on or before June 30, 1999, an aggregate
of 250,000 shares, at an exercise price of $.28 per share. Each of
the above described options are held among three individuals,
including Sharon Sanzaro (the spouse of Louis Sanzaro, an officer
and director of the Company), who hold such options as designees or
assignees of Ocean/Venture III, Inc., a company controlled by Mr.
Sanzaro. These options were granted in consideration of the
agreements of Ocean/Venture III, Inc. given on March 31, 1996, and
June 30, 1996 to extend the maturity date of certain indebtedness
which the Company owed to Ocean/Venture III, Inc. for periods which
ranged from 90 to 120 days from each of such dates.
(f) an option, held by a former outside director of the Company, to
purchase 20,000 shares of convertible preferred stock at a price of
$10 per share (the "Preferred Option"). If purchased, such preferred
stock will be convertible into shares of the Company's common stock
at a conversion ratio equal to the number of shares of common stock
purchasable for the purchase price of each preferred share ($10) at
30% of the average market price of the Company's common stock during
the five trading days immediately prior to the date of conversion
provided, however, that should the total number of shares of the
Preferred Stock which can be purchased pursuant to the Option, be
convertible into fewer than two million (2,000,000) shares of the
Company's Common Stock, the number of shares of Preferred Stock
purchasable under the Option, at the exercise price of ten dollars
per preferred share, will be increased to such number as is
convertible to 2,000,000. If the shares of convertible preferred
stock had been converted into shares of the Company's common stock
as at February 16, 1999, a total of 3,836,930 shares would have been
issued in respect of such conversion. For a discussion in more
detail of the terms of this option and the purchase thereof,
reference is made to "Certain Relationships and Related
Transactions" under the caption, "Extension of Exercise Period of
Option Held by John G. Hartley", below; and
(g) the CGT Option to purchase a number of shares equal, on a fully
diluted basis, to 10% of the total issued and outstanding common
stock of the Company, at an exercise price equal to $.1195 per share
with respect to 969,365 shares and at an exercise price with respect
to the balance of the shares equal to fifty percent (50%) of the
average of the final bid and ask prices of the common stock of the
Company, as quoted in the OTC Bulletin
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Board during the ten business days preceding the exercise date. If
all of the other presently outstanding debentures, options, and
warrants were exercised, as described above, the total number of
shares of common stock of the Company issued and outstanding would
be 91,699,663, prior to the exercise of the CGT Option, in which
case, the number of shares subject to the CGT Option would be
10,188,851, the resale of all of which shares would be included in
the Registration Statement.
The holders of the convertible debentures, the warrants, and the
outstanding options have an opportunity to profit from a rise in the market
price of the common stock, if such rise should occur, with a resulting dilution
in the interests of the other shareholders. Moreover, if the above described
debentures, warrants, and options (the "Convertible Securities") are converted
or exercised, most of the shares of common stock issued upon such exercise or
conversion (the "Underlying Shares") will be available for immediate sale into
the public market, commencing on the effective date of the Registration
Statement. The sale or availability for sale of substantial amounts of common
stock in the public market could adversely affect the prevailing market price of
the Company's common stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities. In addition, even
if the Convertible Securities are not converted or exercised, the terms on which
the Company may obtain additional financing may be adversely affected by the
existence of such securities. For example, the holders of the Convertible
Securities could convert or exercise them at a time when the Company is
attempting to obtain additional capital through a new offering of securities
which have terms more favorable (to the Company) than those provided by the then
outstanding Convertible Securities.
7. Additional Dilution from Issuance of Shares for Services. To date, the
Company has had no significant operating revenues. Accordingly, the bulk of its
cash assets have been, and may continue to be, utilized to cover the expenses
associated with the development of the TCS-1 Plant. Given the foregoing, the
Company regularly pays certain of its financial obligations by issuing
restricted shares of its common stock, at a discount, in lieu of cash. The
discounts at which such shares were issued was generally, but not always, set at
50% of the average market price of the stock, as traded in the over-the-counter
market and quoted in the OTC Bulletin Board. Such discounts were either
negotiated at arms length with third parties or determined arbitrarily by the
Company, in which cases they bore no relationship to the Company's assets,
earnings, book value or other such criteria of value. Such issuances have, and
may continue to, result in substantial dilution to the Company's existing
shareholders.
Since January of 1995, the Company has issued a total of 32,756,186
shares, constituting 41.94% of the issued and outstanding shares of the Company
in lieu of cash compensation due under employment and consulting agreements with
its executive officers, employees, and corporate counsel and in additional
compensation by way of directors shares and stock bonuses. In addition, during
that period, the Company issued 12,888,243 shares, constituting approximately
16.5% of the issued and outstanding common stock of the Company to affiliated
and non-affiliated consultants and subcontractors for consulting services of
various types. For as long as the Company has insufficient cash resources to
meet its obligations to its officers, counsel, and outside vendors, the Company
will, to the extent possible, continue to issue shares of its common stock at
negotiated or arbitrary discounts. In addition, the Company intends to submit to
its shareholders, proposals to adopt three stock option plans for the benefit of
its employees (See Risk Factor No. 9 "Possible Voting Control by Management and
Corporate Counsel" and Risk Factor No. 27 "Adverse Effects of Proposals to Be
Presented at Annual Shareholders Meeting: Anti-Takeover Provisions, Limitations
on Shareholders Voting Rights, and Stock Bonuses to Management", "Management -
Executive Compensation", "Management - Security Ownership of Certain Beneficial
Owners and Management", and "Certain Relationships and Related Transactions").
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8. Possible Depressive Effect on Price of Securities of Future Sales of
Common Stock. The resale of 11,952,857 of the 78,095,141 common shares of the
Company, issued and outstanding as of February 4, 1999, has been included in the
Registration Statement. 11,760,000 of such shares will be freely tradeable
commencing on the effective date of the Registration Statement or, if the
holders thereof shall choose to withdraw the registration of such shares, they
will be tradeable under Rule 144 commencing May 11, 1999. The resale of an
estimated 21,220,449 shares issuable upon the exercise or conversion of
presently outstanding options, warrants, and debentures have also been included
in the Registration Statement and will be freely tradeable upon the later of:
(i) the effective date of the Registration Statement; or (ii) their issuance.
Alternatively, if the holders of the convertible debentures and some of such
warrants (but not the options) shall choose to withdraw them from the
Registration Statement, they will become tradeable under Rule 144 on
commencement dates ranging from January 7, 1999 to May 11, 1999. The sale or
other disposition of much of the currently outstanding shares of common stock is
restricted by the Securities Act. Unless such sales are registered, these shares
may only be sold in compliance with Rule 144 promulgated under the Securities
Act or some other exemption from registration thereunder. Rule 144 provides,
among other matters, that if certain information concerning the operating and
financial affairs of the Company is publicly available, persons who have held
restricted securities for a period of one year may thereafter sell in each
subsequent three month period up to that number of such shares equal to one
percent of the Company's total issued and outstanding common stock. The sale or
availability for sale of substantial amounts of common stock in the public
market after the offering being made by the Registration Statement could
adversely affect the prevailing market price for the Company's common stock and
could impair the Company's ability to raise additional capital through the sale
of its equity securities.
9. Possible Voting Control by Management and Corporate Counsel: Possible
Depressive Effect on Market Prices. As of February 4, 1999, the Company's
officers and directors were the beneficial owners of an aggregate of 29,391,199
shares, constituting approximately 37.16% of the Company's outstanding common
stock. The Company intends to hold the 1999 annual meeting of its shareholders
prior to the end of the current fiscal year. (See Risk Factor No. 27 "Adverse
Effects of Proposals to Be Presented at Annual Shareholders Meeting:
Anti-Takeover Provisions, Limitations on Shareholders Voting Rights, and Stock
Bonuses to Management"). In addition to the proposals discussed in Risk Factor
No. 27, the Board of Directors has proposed that the shareholders approve the
adoption of three stock option plans. If adopted, two of these plans will be for
the benefit of all of the Company's employees, but management and key employees
are expected to be the principal beneficiaries thereof. The third of these
proposed plans, is intended to be specifically for the purpose of awarding
options for the purchase of shares of common stock at a nominal exercise price
of $.001 per share, to key employees and members of management in respect of
certain specified performance achievements attained or to be attained by the
Company due to their efforts.
The other two stock option plans to be presented to the Shareholders,
consist of a statutory and a non-statutory plan. Key management and other
employees will also be eligible to receive option grants under each of such
plans. The exercise price of options granted under the statutory plan must be
not less than 100% of the market price on the day the option is granted unless
the grantee owns 10% or more of the total issued and outstanding common stock of
the Company, in which case the exercise price must be not less than 110% of the
market price on the day the option is granted. The non-statutory plan to be
proposed to the shareholders calls for an exercise price of not less than 50% of
the market price on the date the option is granted.
The concentration of ownership by the Company's officers and directors
may, along with other "anti-takeover" measures which the Board of Directors
plans to submit to the shareholders, discourage potential acquirors from seeking
control of the Company through the purchase of Common Stock, and this
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possibility could have a depressive effect on the price of the Company's
Securities. (See "Risk Factor No. 25 "Adverse Effects of Proposals to Be
Presented at Annual Shareholders Meeting: Anti-Takeover Provisions, Limitations
on Shareholders Voting Rights, and Stock Bonuses to Management" and "Principal
Shareholders").
10. Proposed Reverse Split: Possible Negative Effect on Value of
Securities. As of February 4, 1999, there were 78,095,141 shares of the
Company's common stock issued and outstanding. While the Company considers that
it would be highly unlikely if all of the currently outstanding options and
warrants were to be exercised and all of the currently outstanding debentures
were to be converted with respect to the principal amount of such debentures,
there could be up to 103,887,814 shares of common stock issued and outstanding.
On August 13, 1997, the Company received a Letter of Intent from H.J. Meyers,
Inc. (the "Meyers Letter of Intent"), a broker-dealer registered with the
National Association of Securities Dealers, Inc., for the underwriting of a
proposed public offering. On or about September 16, 1998, however, H. J. Meyers
abruptly ceased doing business. The Company intends to endeavor to effect a
public offering of its securities and is presently in negotiations with another
potential underwriter. The Meyers Letter of Intent had required that the Company
have not more than ten million (10,000,000) shares of common stock issued and
outstanding prior to the proposed public offering. The Company believes that any
potential underwriter for a public offering of the Company's securities will
require that the Company effect a reverse split to reduce the number of shares
of its common stock issued and outstanding because the total number of shares of
common stock currently outstanding is disproportionately large in relation to
the Company's level of sales, net income and net worth. Additionally, the
Company's common stock has had a low market value per share in recent months,
which may, the Company believes, tend to reduce stockbroker and investor
interest in the Company. Further, the Company believes that the current per
share price of the Company's common stock may limit the effective marketability
of the Company's common stock because of the reluctance of many brokerage firms
and institutional investors to recommend lower-priced stocks to their clients or
to hold them in their own portfolios. In light of the above, the Company intends
to call a meeting of its shareholders and to submit to them a proposal to
reverse split the number of shares of common stock issued and outstanding at a
ratio of one post-split share for every five pre-split shares, or at some other,
possibly higher, ratio, as the board of directors shall agree is in the best
interests of the Company and its shareholders. Based upon the number of shares
issued and outstanding as of February 4, 1999, and assuming that the Reverse
Split is approved by the shareholders and effected at a one-for-five ratio,
there will be a decrease in the number of outstanding shares of common stock of
the Company to approximately 15,619,028 shares. Because of standard
anti-dilution clauses or market price sensitive exercise or conversion prices
contained in all presently outstanding convertible debentures, warrants, and
options, such reverse split would also affect the number of shares of common
stock issuable upon conversion or exercise of such debentures, warrants, or
options. Negotiations with potential underwriters may result in a different
reverse-split ratio or even a second reverse split.
The Company believes that a decrease in the number of shares of common
stock outstanding may increase the trading price and marketability of such
shares. However, the market price of the Company's common stock should also be
expected to reflect Company performance and other factors, some of which may be
unrelated to the number of shares outstanding. Accordingly, there can be no
assurance that the market price of the Common Stock after the Reverse Split will
actually increase in an amount proportionate to the decrease in the number of
outstanding shares. The Reverse Split may leave stockholders with one or more
"odd lots" of the Company's stock, i.e. stock holdings in amounts of less than
100 shares. These shares may be more difficult to sell, or require a greater
commission per share to sell, than shares in lots of 100.
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Upon the effectiveness of the Reverse Split, if it is approved by the
Shareholders, the presently issued certificates shall be deemed to represent the
number of shares equal to the number of pre-split shares originally represented
by such certificate divided by the ratio of the reverse split, and rounded up to
the next full number. EXAMPLE: if the reverse split is effected at a
one-for-five ratio, a certificate which originally represented an 10,523
pre-split shares would be deemed to represent 10,523 divided by five (2,104.6),
rounded up to the next full number, i.e., 2,105 shares. Thus no fractional
shares of common stock will result from the reverse split (see "Risk Factor No.
6, Dilutive and Other Adverse Effects of Presently Outstanding Debentures,
Warrants and Options").
11. Dependence on Major Customers. To date the Company has received orders
for fifteen TCS- 1 Plants, eight of which were ordered by Ocean/Ventures III,
Inc.("O/V III") of Toms River, New Jersey ("O/V III") and parts of one of which
have been purchased by Oceans Tire Recycling & Processing Co., Inc. ("OTRP"), a
company under common control with O/V III. The eight Plants ordered by O/V III
constitute approximately fifty-six percent (56%) of the Company's present
backlog. The Company has also received orders for four TCS-1 Plants from ENERCON
America Distribution Limited ("Enercon") of Westerville, Ohio. The Enercon
orders constitute approximately twenty-eight percent (28%) of the Company's
present backlog. The loss of either of these two customers would have a major
adverse effect on the Company.
Both O/V III and OTRP are controlled by Louis V. Sanzaro, an officer and
director of the Company. Mr. Sanzaro's past and present relationships and
transactions with the Company are discussed in detail in "Existing and Proposed
Businesses - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products."
Completion and consummation of all currently outstanding orders for TCS-1
Plants, are entirely dependent upon the TCS-1's meeting performance
expectations, each customer's obtaining lease or other financing for the
purchased portions of the Plant (as well as all required permits and licenses to
operate a Plant), and to the Company's obtaining sufficient production,
financing and capacity to meet delivery requirements. (See "Existing & Proposed
Businesses - "Equipment Manufacturing - Dependence on
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Major Customer" and "Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products."
12. Uncertainty of Product and Technology Development: Technological
Factors. The Company has completed initial development and construction, of the
first production model of the TCS-1 Plant. The Company's success will depend
upon the TCS-1 Plant's meeting targeted performance and cost objectives and its
timely introduction into the marketplace. Such an outcome will be subject to the
risks inherent in the development of a new product, technology, and, business,
including unanticipated delays, expenses, and difficulties, as well as the
possible insufficiency of funding to complete development (see Risk Factor No. 2
"Need for Substantial Additional Capital", above). There can be no assurance
that under commercial usage conditions, the TCS-1 Plant will satisfactorily
perform the functions for which it has been designed and constructed, that it
will meet applicable price or performance objectives, or that unanticipated
technical or other problems will not occur which would result in increased costs
or material delays in establishing the Company's business at a profitable level.
There can be no assurance that, despite testing by the Company, problems will
not be encountered in the TCS-1 Plant after the commencement of commercial
manufacture and sales, resulting in loss or delay in market acceptance.
13. International Sales and Operations. The Company plans to market the
TCS-1 Plant in Europe and India during the 1999 calendar year, and in other
areas throughout the world as opportunities arise. There can however, be no
assurances that the TCS-1 Plant will be successfully marketed or that any
anticipated international sales of TCS-1 Plants will take place. In addition,
the Company may enter into joint ventures with purchasers of TCS-1 Plants for
the purpose of engaging in the business of operating tire recycling businesses
equipped with TCS-1 Plants. To the extent that the Company engages in
international sales and/or operations, it will be subject to various risks
associated therewith, including but not limited to changes in tariff rates, lack
of reliability and availability of qualified labor, and instability of political
climate or economic environment. In addition, the value of any capital equipment
owned by such joint ventures and any operating lease or equipment purchase
financing payments received by the Company, may, under certain conditions, be
valued or paid in non-U.S. currencies, all of which will be subject to
independent fluctuating exchange rates with the U.S. dollar which may have an
adverse affect on the Company's revenues or asset values in terms of the U.S.
dollar.
14. Protection of Tirex Proprietary Technology and Potential Infringement.
The success of the Company's proposed business depends in part upon its ability
to protect its proprietary technology and the proposed TCS-1 Plant which will
utilize such technology. On April 7, 1998, the Company was issued a United
States patent on its Cryogenic Tire Disintegration Process and Apparatus (Patent
No. 5,735,471). This patent will expire on December 18, 2016. In November 1998,
the Company filed this patent with the Canadian Patent Office. The Company is
presently unable to state how long the Canadian review will take. While the
Company expects a Canadian patent to be granted, it is unable to give any
assurance that this will in fact be the case. Prior to obtaining its patent, the
Company relied on trade secrets, proprietary know-how and technological
innovation to develop its technology and the designs and specifications for the
TCS-1 Plant. Except where the terms of their employment agreements would make it
redundant or, in the sole discretion of management, it is determined that
because of the non-technical nature of their duties, such agreements are not
necessary or appropriate, the Company has, and will continue to, enter into
confidentiality and invention assignment agreements with all employees and
consultants which limit access to, and disclosure or use of, the Company's
proprietary technology. There can be no assurance, however, that the steps taken
by the Company to deter misappropriation or third party development of its
technology and/or processes will be adequate, that others will not independently
develop similar technology and/or processes or that secrecy will not be
breached. In addition, although
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the Company believes that its technology has been independently developed and
does not infringe on the proprietary rights of others, there can be no assurance
that the Company's technology does not and will not so infringe or that third
parties will not assert infringement claims against the Company in the future.
Moreover, there can be no assurance that the Company will have the resources to
defend its Patent by bringing patent infringement or other proprietary rights
actions.
15. Limited Public Market: Company Not Eligible for Inclusion on NASDAQ.
To date there has been only a limited and sporadic public market for the
Company's common stock. There can be no assurance that an active and reliable
public market will develop or, if developed, that such market will be sustained.
Purchasers of shares of common stock of the Company may, therefore, have
difficulty in reselling such shares. As a result, investors may find it
impossible to liquidate their investment in the Company should they desire to do
so. The Company's common stock is currently traded in the over-the-counter
market and quoted on the OTC Bulletin Board. The Company intends to apply to
have its common stock approved for quotation on the Nasdaq SmallCap Market at
such time, in the future, that it meets the requirements for inclusion. As at
the date hereof, however, the Company is not eligible for inclusion in NASDAQ or
for listing on any national stock exchange. All companies applying and
authorized for NASDAQ are required to have not less than $4,000,000 in net
tangible assets, a public float(2) with a market value of not less than five
million dollars, and a minimum bid of price of $4.00 per share. At the present
time, the Company is unable to state when, if ever, it will meet the Nasdaq
application standards. Unless the Company is able to increase its net worth and
market valuation substantially, either through the accumulation of surplus out
of earned income or successful capital raising financing activities, it will
never be able to meet the eligibility requirements of NASDAQ. In addition, it is
likely that the Company, which, as of February 4, 1999, had 78,095,141 shares of
common stock issued and outstanding, will have to effect a reverse split of its
issued and outstanding stock, in order to meet the minimum bid price requirement
(see, also, Risk Factor No. 6 "Dilutive and Other Adverse Effects of Debentures
and Warrants and Presently Outstanding Option"). Moreover, even if the Company
meets the minimum requirements to apply for inclusion in The Nasdaq SmallCap
Market, there can be no assurance, that approval will be received or, if
received, that the Company will meet the requirements for continued listing on
the Nasdaq SmallCap Market. Further, Nasdaq reserves the right to withdraw or
terminate a listing on the Nasdaq SmallCap Market at any time and for any reason
in its discretion. If the Company is unable to obtain or to maintain a listing
on the Nasdaq SmallCap Market, quotations, if any, for "bid" and "asked" prices
of the common stock would be available only on the OTC Bulletin Board where the
common stock is currently quoted or in the "pink sheets" published by the
National Quotation Bureau, Inc. This can result in an investor's finding it more
difficult to dispose of or to obtain accurate quotations of prices for the
common stock than would be the case if the common stock were quoted on the
Nasdaq SmallCap Market. Irrespective of whether or not the common stock is
included in the Nasdaq SmallCap system, there is no assurance that the public
market for the common stock will become more active or liquid in the future. In
that regard, prospective purchasers should consider that this offering is being
made without the underwriting arrangements typically found in a public offering
of securities. Such arrangements generally provide for the issuer of the
securities to sell the securities to an underwriter which, in turn, sells the
securities to its customers and other members of the public at a fixed offering
price, with the result that the underwriter has a continuing interest in the
market for such securities following the offering. In order to qualify for
listing on a national stock exchange, similar minimum criteria respecting, among
other things, the Company's net worth and/or income from operation must be met.
- ------------
(2) "Public float" is defined as shares that are not held directly or
indirectly by any officer or director of the issuer and by any other
person who is the beneficial owner of more than 10 percent of the total
shares outstanding.
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Accordingly, market transactions in the Company's common stock are subject
to the "Penny Stock Rules" of the Securities and Exchange Act of 1934, which are
discussed in more detail, below, under "Risk Factor No. 16. Applicability of
Penny Stock Rules to Broker-Dealer Sales of Company Common Stock". These rules
could make it difficult to trade the common stock of the Company because
compliance with them can delay and/or preclude certain trading transactions.
This could have an adverse effect on the ability of an investor to sell any
shares of the Company's common stock.
16. Applicability of "Penny Stock Rules" to Broker-Dealer Sales of Company
Common Stock. As discussed above, at the present time, the Company's common
stock is not listed on The Nasdaq SmallCap Stock Market or on any stock
exchange. Although dealer prices for the Company's common stock are listed on
the OTC Bulletin Board, trading has been sporadic and limited since such
quotations first appeared on April 4, 1994. See "Market Information".
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
special disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a "penny stock". Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share and is not listed on The Nasdaq SmallCap Stock Market or a
major stock exchange. These regulations subject all broker-dealer transactions
involving such securities to the special "Penny Stock Rules" set forth in Rule
15g-9 of the Securities Exchange Act of 1934 (the "34 Act"). It may be necessary
for the Selling Shareholders and the Underlying Share Selling Shareholders to
utilize the services of broker-dealers who are members of the NASD. The current
market price of the Company's common stock is substantially less than $5 per
share and such stock can, for at least for the foreseeable future, be expected
to continue to trade in the over-the-counter market at a per share market price
of substantially less than $5 (see "Market Information"). Accordingly, any
broker-dealer sales of the Company's shares will be subject to the Penny Stock
Rules. These Rules affect the ability of broker-dealers to sell the Company's
securities and also may affect the ability of purchasers of the Company's common
stock to sell their shares in the secondary market, if such a market should ever
develop.
The Penny Stock Rules also impose special sales practice requirements on
broker-dealers who sell such securities to persons other than their established
customers or "Accredited Investors." Among other things, the Penny Stock Rules
require that a broker-dealer make a special suitability determination respecting
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. In addition, the Penny Stock Rules require that a
broker-dealer deliver, prior to any transaction, a disclosure schedule prepared
in accordance with the requirements of the Commission relating to the penny
stock market. Disclosure also has to be made about commissions payable to both
the broker-dealer and the registered representative and the current quotations
for the securities. Finally, monthly statements have to be sent to any holder of
such penny stocks disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
Accordingly, for so long as the Penny Stock Rules are applicable to the
Company's common stock, it may be difficult to trade such stock because
compliance with such Rules can delay and/or preclude certain trading
transactions. This could have an adverse effect on the liquidity and/or price of
the Company's common stock.
17. Management's Lack of Industry Experience. Although Management has
significant general business and engineering experience, potential investors
should be aware that no member of management has been directly involved in
administering a tire disintegration, recycling, or tire disintegration equipment
manufacturing, business, except for Mr. Sanzaro, who has more than twenty years
of experience in the recycling business (excluding tires) (see "Management -
Directors and Executive Officers").
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18. Dependence on Key Personnel. The Company believes that its success
depends to a significant extent on the efforts and abilities of certain of its
senior management, in particular those of Terence C. Byrne, Chairman of the
Board of Directors and Chief Executive Officer; Louis Sanzaro, President and
Chief Operating Officer, and Louis V. Muro, Vice President in charge of
engineering. The loss of any of these persons could have a material adverse
affect on the Company's business, prospects, operating results, and financial
condition. The Company has entered into employment agreements with Messrs.
Byrne, Sanzaro, and Muro (see "Management - Employment Contracts and Termination
of Employment and Changes - in - Control Arrangements"). The Company does not
presently have key man life insurance policies and does not intend to obtain any
unless required to do so under future financing arrangements. There can be no
assurance that such policies will be available to the Company on commercially
reasonable terms, if at all. Additionally, the ability of the Company to realize
its business plan could be jeopardized if any of its senior management becomes
incapable of fulfilling his obligations to the Company and a capable successor
is not found on a timely basis. There can however be no assurance that, in such
event, the Company will be able to locate and retain a capable successor to any
member of its senior management.
19. Regulatory and Environmental Considerations. The Company does not
expect that its equipment manufacturing operations will be subject to any
unusual or burdensome governmental regulations. However, the Company is
presently in the process of making arrangements to own the First Production
Model of the TCS Plant and to operate it as a "Tirex Advanced Products Plant"
for the purpose of selling rubber crumb produced by operation of the TCS-1 Plant
and manufacturing finished products, made wholly or partially from such rubber
crumb (see "Existing and Proposed Businesses - Proposed TCS- 1 Plant Operations:
Sales of Rubber Crumb and Manufacture and Sale of Finished Products"). The TCS-
1 Plant is a "closed loop" system which does not use any chemicals, solvents,
gases or other substances, which could result in emissions of any kind from the
operation of the Plant and to the best of the Company's knowledge, will not
result in the emission of air pollution, the disposal of combustion residues,
the storage of hazardous substances (as is the case with other tire recycling
processes such as pyrolysis), or the production of any significant amounts of
solid waste which would have to be landfilled. However, the operation of a TCS-1
Plant will involve, to varying degrees and for varying periods of time, the
storage of scrap tires which, with their size, volume and composition, can pose
serious environmental problems. While the Company does not believe that such
storage will normally involve quantities of tires so large or storage periods so
extensive as to constitute the "stockpiling" of scrap tires, it should be noted
that stockpiling, should it occur, could constitute a particularly serious
environmental problem. Among the numerous problems relating to scrap tires, is
that when stockpiled above ground, tires create serious fire, public health, and
environmental hazards ranging from fires, which generate large and dense clouds
of black smoke and are extremely difficult to extinguish, to the creation of
vast breeding grounds for mosquitoes and vermin.
As a result, many states have either passed or have pending legislation
regarding discarded tires including legislation limiting the storage of used
tires to specifically designated areas. The Company and other operators of TCS-1
Plants will therefore be subject to various local, state, and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental, health, and labor agencies. Establishing and operating
a TCS-1 Plant for tire recycling will require numerous permits and compliance
with environmental and other government regulations, on the part of the
Company's customers, both in the United States and Canada and in most other
foreign countries. The process of obtaining required regulatory approvals may be
lengthy and expensive for both the Company and for its TCS-1 Plant customers.
Moreover, regulatory approvals, if granted, may include significant limitations
on either the Company's or its customer's operations. The EPA and comparable
state and local regulatory agencies actively enforce environmental regulations
and conduct periodic inspections to determine compliance with government
regulations. Failure to comply with applicable regulatory
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requirements can result in, among other things, fines, suspensions of approvals,
seizure or recall of products, operating restrictions, and criminal
prosecutions.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company, and of all TCS-1 Plant Operators, may
impose financial burdens that could adversely affect the business, financial
condition, prospects, and results of operations, of the Company. Such adverse
affects could include, but may not be limited to, the burden of compliance with
laws and regulations governing the installation and/or operation of TCS-1 Plants
discouraging potential customers from purchasing a TCS-1 Plant. Actions by
federal, state, and local governments concerning environmental or other matters
could result in regulations that could increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 Plant and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
Plant customers to operate profitably and in compliance with such regulations.
However, since all government regulations are subject to change and to
interpretation by local administrations, the effect of government regulation
could conceivably prevent, or delay for a considerable period of time, the
development of the Company's business as planned and/or impose costly new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals. Actions by federal,
state, and local governments concerning environmental or other matters could
result in regulations that could therefore increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 Plant and make such by-products less profitable or even impossible
to sell at an economically feasible price level, which could result in the
Company's or its TCS-1 customers' businesses being less profitable, or
unprofitable, to operate. Continually changing government compliance standards
and technology, could also affect the Company's future capital expenditure
requirements relating to environmental compliance. Likewise, the burden of
compliance with laws and regulations governing the installation and/or operation
of TCS-1 Plants could discourage potential customers from purchasing a TCS-1
Plant which would adversely affect the Company's business, prospects, results,
and financial condition. As a result, the business of the Company could be
directly and indirectly affected by government regulations (See "Existing and
Proposed Businesses - Government Regulation").
20. Production and Supply. The Company intends to begin manufacturing the
TCS-1 Plant on a commercial basis in March 1999. In connection therewith, the
Company will be dependent on arrangements with its subcontractors for the
manufacture and assembly of the principal components incorporated into the TCS-1
Plant (see Existing & Proposed Businesses "Agreements With Subcontractors"). It
will therefore be substantially dependent on the ability of such subcontractors
to satisfy performance and quality specifications and to dedicate sufficient
production capacity for all TCS-1 Plant scheduled delivery dates. The Company
believes that all of its subcontractors have the requisite manufacturing
capabilities and the willingness to dedicate sufficient amounts of their
manufacturing capacity to the Company to meet all TCS-1 Plant delivery dates,
currently scheduled or expected to be scheduled within the next two years.
However, no assurance can be given that this will in fact be the case and
failure on the part of the Company's subcontractors in these regards would
adversely affect the Company's ability to manufacture and deliver TCS-1 Plants
on a timely and competitive basis. In such event the Company would have to
replace or supplement its present subcontractors. There can be no assurance that
should it be necessary to do so, the Company would be able to find capable
replacements for its subcontractors on a timely basis and on terms beneficial to
the Company, if at all; The Company's inability to do so would have a material
adverse effect on its business (see Existing & Proposed BusinesseS: "Production
and Supply").
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Components of the TCS-1 Plants, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 Plant, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
21. Technological Changes. To date, the market for tire disintegration
equipment has not, to the best of management's knowledge, been characterized by
rapid changes in technology. However, there can be no assurance that new
products or technologies, presently unknown to the Company, will not, at any
time in the future and without warning, render the Company's tire disintegration
technology less competitive or even obsolete. Moreover, the technology upon
which the Company's tire disintegration system is based, could be susceptible to
being analyzed and reconstructed by an existing or potential competitor.
Although the Company has been issued a United States patent respecting its
proprietary disintegration system, the Company may not have the financial
resources to successfully defend such patent, were it is to become necessary, by
bringing patent infringement suits against parties that have substantially
greater resources than are available to the Company. The Company must continue
to create innovative new products reflecting technological changes in design,
engineering, and development, not only of new tire disintegration machinery, but
of products, and machinery capable of producing products, which incorporate and
recycle the rubber, steel, and/or fiber by-products which will be produced by
the operation of the TCS-1 Plant. Failure to do so, could prevent to Company
from gaining and maintaining a significant market for its products. This may
require a continuing high level of product development, innovation, and
expenditures. To the extent that the Company does not respond adequately to such
technological advances, its products may become obsolete and its growth and
profitability may be adversely affected.
22. Competition. Although management believes that the Tirex Technology
has distinct advantages over other existing tire disintegration methods, the
Company will face competition from other equipment manufacturers, virtually all
of whom will be larger than the Company, and will have substantially more assets
and resources than the Company. Management intends to meet such competition by
developing technological innovations which will make the TCS-1 Plant more
economical and efficient than other tire disintegration methods although no
assurance can be given that this will prove to be the case. (see "Existing and
Proposed Businesses - Competition").
23. Lack of Liability Insurance. The proposed TCS-1 Plant may expose the
Company to possible product liability claims if, among other things, the
operation of the TCS-1 Plant results in personal injury, death or property
damage. There can be no assurance the Company will have sufficient resources to
satisfy any liability resulting from such claims or will be able to cause its
component suppliers or customers to indemnify or insure the Company against such
claims. The Company does not presently intend to obtain product liability
insurance prior to the commencement of commercial operation of the TCS-1 Plant.
Should the Company determine that such insurance is necessary, there can be no
assurance that affordable insurance coverage will be available in terms and
scope adequate to protect the Company against material adverse effects in the
event of a successful claim.
24. No Dividends and None Anticipated. The Company has not paid any cash
dividends, nor does it contemplate or anticipate paying any dividends upon its
common stock in the foreseeable future.
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25. Possible Adverse Effects of Authorization and Issuance of Preferred
Stock. The Company's amended Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of "Class A Stock". Twenty thousand of such shares
are reserved for issuance as preferred stock under an outstanding option
therefor. The Board of Directors has the power to issue the balance of the Class
A Stock in such series and classes and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
The issuance of any series of preferred stock having rights superior to those of
the common stock may result in a decrease in the value or market price of the
common stock and could be used by the Board of Directors as a means to prevent a
change in control of the Company. Such preferred stock issuances could make the
possible takeover of the Company, or the removal of management of the Company,
more difficult. The issuance of such preferred stock could discourage hostile
bids for control of the Company in which shareholders could receive premiums for
their common stock or warrants, could adversely affect the voting and other
rights of the holders of the common stock, or could depress the market price of
the common stock. Also, the voting power and percentage of stock ownership of
the shareholders of the Company's outstanding capital stock can be substantially
diluted by such preferred stock issuance. See also, Risk Factor No. 27 "Adverse
Effects of Proposals to Be Presented at Annual Shareholders Meeting:
Anti-Takeover Provisions, Limitations on Shareholders Voting Rights, and Stock
Bonuses to Management".
26. Prior Notice Not Required For Shareholder Actions. None of the
Company's securities is registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "34 Act"). As a result, the Company is not subject
to the Proxy Rules of Section 14 of the 34 Act. The Company is thus able to take
shareholder actions in conformance with Section 228 of the Delaware General
Corporation Act, which permits it to take any action which is required to, or
may, be taken at an annual or special meeting of the shareholders, without prior
notice and without a vote of the shareholders. Instead of such vote, the written
consent or consents in writing, setting forth the action so taken, can be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted on such action.
The only notice which shareholders other than those who consented to such
action, are entitled to, is required to be given promptly after the action has
been taken.
27. Adverse Effects of Proposals to Be Presented at Annual Shareholders
Meeting: Anti-Takeover Provisions, Limitations on Shareholders Voting Rights,
and Stock Bonuses to Management. The Company intends to hold the 1999 annual
meeting of its shareholders prior to the end of the current fiscal year. This
will be the first meeting of the Shareholders ever called by the Company. The
Board of Directors has proposed that the Company's Certificate of Incorporation
should be amended and restated to contain provisions that may make it more
difficult to acquire control of the Company by means of tender offer,
over-the-counter purchases, a proxy fight, or otherwise. If adopted by the
required vote of the Company's shareholders, the amendments will include: (i)
the addition of a "fair price" provision to the Certificate of Incorporation
that regulates business combinations with any person or group beneficially
owning fifteen percent (15%) or more of the Company's common stock, including a
voting requirement of seventy-five percent (75%) of the voting power of all
outstanding voting shares of the Company (excluding shares held by such fifteen
percent (15%) stockholder or group of stockholders) for a business combination,
unless the business combination is approved by a majority of the members of the
Board of Directors who have held office since prior to the date of the 1999
annual meeting (the "Continuing Directors") or satisfies certain minimum price
and procedural requirements; (ii) the addition to the Certificate of
Incorporation of a provision granting authority to the Board of Directors to
adopt one or more shareholder rights plans, rights agreements, or other forms of
"poison pills" in the future without further shareholder approval, (iii) the
addition to the Certificate of Incorporation of a provision classifying the
Board of Directors into three classes; (iv) the addition to the Certificate of
Incorporation of a seventy-five percent
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(75%) voting requirement for any stockholder action to be taken by written
consent; (v) an amendment to the Certificate of Incorporation requiring the
affirmative vote of the holders of seventy-five percent (75%) of the outstanding
voting stock to amend, alter and repeal the By-laws and to allow the Board of
Directors to amend, alter or repeal the By-laws without stockholder consent;
(vi) the addition to the Certificate of Incorporation of a provision electing to
be governed by the provisions of Section 203 of the Delaware General Corporation
Law which, under certain circumstances, imposes restrictions on proposed
business combinations between a company and an interested stockholder of such
company; (vii) the addition of a seventy-five percent (75%) voting requirement
in order to amend, alter or repeal the foregoing proposed amendments to the
Certificate of Incorporation; (viii) an amendment to the By-laws eliminating the
ability of stockholders to call a special meeting; and (ix) the addition to the
By-laws of a provision requiring that stockholders submit director nominations
and other business to be considered at meetings of stockholders at least 90 days
in advance of any such meeting of stockholders. The proposed amendments are not
being submitted to the shareholders in response to any effort, of which the
Company is aware, to accumulate the Company's common stock or to obtain control
of the Company.
The proposed amendments, individually and collectively, may have the
effect of making more difficult and discouraging a merger, tender offer or proxy
fight, even if such transaction or occurrence may be favorable to the interests
of some or all of the Company's stockholders. The proposed amendments also may
delay the assumption of control by a holder of a large block of the Company's
common stock and the removal of incumbent management, even if such removal might
be beneficial to some or all of the stockholders. Furthermore, the proposed
amendments may have the effects of deterring or frustrating certain types of
future takeover attempts that may not be approved by the incumbent Board of
Directors, but that the holders of a majority of the shares of Company's common
stock may deem to be in their best interests or in which some or all of the
stockholders may receive a substantial premium over prevailing market prices for
their stock.
By having the effect of discouraging takeover attempts, the proposed
amendments also could have the incidental effect of inhibiting certain changes
in management (some or all of the members of which might be replaced in the
course of a change of control) and also the temporary fluctuations in the market
price of the Company's common stock that could result from actual or rumored
takeover attempts. Moreover, tender offers or other non-open market acquisitions
of stock are usually made at prices above the prevailing market price of a
company's stock. In addition, acquisitions of stock in the open market by
persons attempting to acquire control may cause the market price of the stock to
reach levels that are higher than might otherwise be the case. Approval of the
some or all of the proposed amendments may deter such purchases, particularly
purchases for less than all of the Company's shares, and therefore may deprive
holders of the Company's common stock of an opportunity to sell their shares at
a temporarily higher market price.
Purchasers of the Company's shares should note that such amendments, if
adopted, will result in there being special requirements for supermajority
shareholder approval of any subsequent business combination and the possibility
that after an acquiror (for purposes of this discussion, an "Interested
Shareholder") purchases a certain percentage of the Company's common stock, it
will be forced to pay a higher price to other Company shareholders in such a
business combination. This would likely would make it more costly for a third
party to acquire control of the Company. Thus, the proposed amendments may
decrease the likelihood of a tender offer for less than all of the shares of the
common stock of the Company, which may adversely affect stockholders who desire
to participate in such a tender offer. In certain cases, the proposed fair price
amendment's minimum price provisions, while providing objective pricing
criteria, could be arbitrary and not indicative of value. In addition, an
Interested Stockholder may be unable, as a practical matter, to comply with all
of the procedural requirements. In these circumstances, unless an Interested
Stockholder were able to obtain special stockholder approval of a proposed
Business Combination, it would be forced either to negotiate with the Board of
Directors on terms
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acceptable to the Board or to abandon the proposed business combination. The
proposed amendments also would give veto power to minority stockholders with
respect to a proposed Business Combination that is opposed by a majority of
Continuing Directors but that is desired by a majority of the Company's
stockholders unless the minimum pricing and procedural requirements were met. If
members of the Company's current management and principal shareholders were to
maintain their current stock ownership, they would have the ability to block the
requisite vote. In addition, the proposed amendments may tend to insulate
incumbent directors against the possibility of removal in the event of a
takeover attempt because only the Continuing Directors would have the authority
to reduce to a simple majority or eliminate the special stockholder vote
required for a particular Business Combination.
While some of the proposed amendments would directly affect the
possibility of the Company's being the subject of a tender offer or a hostile
takeover, others will directly limit the ability of minority shareholders to
participate in Company affairs. The classified Board of Directors provisions,
will divide the Board of Directors into three classes of directors serving
staggered two-year terms, with two directors to be elected at each annual
meeting of shareholders. This will extend the time required to change the
composition of the Board of Directors. The provision requiring shareholders to
give 90 days advance notice to the Company of any nomination for election to the
Board of Directors, or other business to be brought at any shareholders' meeting
will make it more difficult for shareholders to nominate candidates to the Board
of Directors who are not supported by management. This provision will make it
more difficult to implement shareholder proposals even if a majority of
shareholders are in support thereof. Each of these provisions may also have the
effect of deterring hostile take-overs or delaying changes in control or
management of the Company. In addition, the indemnification provisions of the
Company's Certificate of Incorporation and Bylaws may represent a conflict of
interest between management and the shareholders since officers and directors
may be indemnified prior to any judicial determinations as to their conduct.
Under Delaware law, each of the proposed amendments to the Certificate of
Incorporation and By-laws described above requires the affirmative vote of the
holders of a majority of the Company's outstanding shares of common stock. All
of the proposals are permitted by law. If stockholders approve any or all of the
proposed amendments, the Company will file a Restated Certificate of
Incorporation that reflects the proposed amendments with the Secretary of State
of the State of Delaware. Each of the proposed amendments adopted by the
Company's stockholders will become effective regardless of whether any of the
other proposed amendments to be acted upon at the Meeting is adopted.
In addition to the proposed amendments to the Certificate of Incorporation
and By-laws, the present Certificate of Incorporation authorizes the Board of
Directors to issue shares of Class A Stock having such rights, preferences and
privileges as designated by the Board of Directors without stockholder approval
(see "Risk Factor No. 25 "Possible Adverse Effects of Authorization and Issuance
of Preferred Stock").
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors, Executive Officers and Significant Employees
The following sets forth, as of February 19, 1999, the names and ages of
all directors, executive officers, and other significant employees of the
Company; the date when each director was appointed; and all positions and
offices in the Company held by each. Each director will hold office until the
next annual meeting of shareholders and until his or her successor has been
elected and qualified:
Offices Date
Name Age Held Director Appointed
---- --- ---- -------- ---------
Terence C. Byrne 41 Chairman of the Jan. 18, 1995
Board of Directors and
Chief Executive Officer
Louis V. Muro 66 Vice President Jan. 1, 1996
of Engineering
and Director
John L. Threshie, Jr. 44 Vice President, and
Assistant Secretary Not Applicable
Louis Sanzaro 48 President, January 17, 1997
Chief Operating Officer,
and Director
Michael D.A. Ash 49 Secretary, Treasurer, and Chief
Financial and Accounting
Officer Not Applicable
John G. Hartley 51 Director February 21, 1995
Henry Meier 42 Director February 11, 1999
Jean Frechette 50 President and Chief Operating Not Applicable
Officer of The Tirex
Corporation Canada Inc.
The board of directors has no standing committees other than the executive
committee which consists of three members. The present members of the executive
committee are Terence C. Byrne, Louis V. Muro, and Louis Sanzaro. The executive
committee can exercise all powers of the full board with respect to the
management of the Company's business.
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Subsequent to the period covered by this report, on February 11, 1999, the
Company instituted an overall management restructuring and reorganization, which
is presently being implemented by the Company. The reasons for such
reorganization did not involve any disagreements among management members or
between the Company and any such individuals. Rather, it was the agreed
consensus of all members of management that the Company is presently in the
process of evolving out of the developmental stage and into an early operational
stage and that, reflecting such development, its management and personnel
requirements are growing and changing. The current reorganization of the
Company's management is being effected for the purpose of better positioning the
Company to change its focus from pure research and development activities to a
combination of commercial, revenue producing operations and continuing research
and development activities. The Company believes that the reorganization of its
management will maximize and enhance its ability to meet the changing needs and
requirements of its business as it grows and develops.
The management reorganization included the following: Alan Crossley and
John L. Threshie, Jr. resigned from the Board of Directors. Mr. Threshie
resigned from the position of secretary, has been appointed assistant secretary,
and continues to serve as vice president of the Company. Mr. Crossley continues
to serve as Director of European Market Development. The Company intends to ask
Mr. Crossley to join an advisory board proposed to be established. Further,
Terence C. Byrne resigned his positions as president, treasurer, and chief
financial and accounting officer, and was appointed chairman of the board of
directors. Mr. Byrne continues to hold the office of chief executive officer of
the Company. Louis Sanzaro resigned his position as vice president and was
appointed president the Company. Mr. Sanzaro was also appointed to the executive
committee of the board of directors to fill the vacancy created by John G.
Hartley's resignation therefrom. Mr. Sanzaro continues to hold the office of
chief operating officer of the Company. Jean Frechette joined the Company in
August 1998 as president, chief operating officer, and the director of the
Company's wholly-owned subsidiary, The Tirex Corporation Canada, Inc. In January
1999, Michael Ash joined the Company and as part of the reorganization, he was
appointed secretary, treasurer, and chief financial and accounting officer.
Finally, Vijay Kachru resigned her position of vice president of marketing
development. Ms. Kachru will continue to be employed by the Company in other
capacities.
Family Relationships
No family relationship has ever existed between any director, executive
officer of Company or any person contemplated to become such.
Business Experience
The following summarizes the occupation and business experience during the
past five years for each director, executive officer and significant employee of
the Company. A significant employee is a person who is not an executive officer
of the Company but who is expected to make a significant contribution to the
business of the Company.
TERENCE C. BYRNE. Mr. Byrne joined the Company on January 18, 1995 and has
served as chief executive officer and director of the Company since such date.
From January 18, 1995 through February 11, 1999, Mr. Byrne served as president,
treasurer, and chief financial and accounting officer of the Company. On
February 11, 1999, Mr. Byrne was appointed chairman of the board of directors.
He has also served as the chairman of the board of directors and the chief
executive officer of The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc.
since June 1998 and May 1995 respectively. He holds a Bachelor's degree in
Economics from Villanova University in Philadelphia. Mr. Byrne has been
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the controlling shareholder and an officer and director of Bartholemew & Byrne,
Inc., a consulting firm specializing in corporate finance and general business
consulting, since its founding in January 1993. From September 1992 through
August 1993, he directed European marketing and business development for Pacer
Plants Corporation, a public company engaged in the business of systems
engineering for high tech industries. From July 1989 to August 1992, Mr. Byrne
served as president of Digital Optronics Corporation, a public company which,
until August 1992, was engaged in the business of manufacturing digital optronic
measuring devices, (principally) for the defense industry. From November 1988
(prior to being acquired by Digital Optronics) until March 1992, Mr. Byrne also
served as president and a director of Byrne Industries, Inc.("BII"), a
wholly-owned subsidiary of Digital Optronics, Inc. BII was, until the drastic
down-turn in the defense industry in March of 1991, in the business of
manufacturing electronic defense equipment as a sub-contractor to major
multi-billion dollar defense industry companies, such as Lockheed Aviation.
LOUIS V. MURO. Mr. Muro acted as an engineering consultant to the Company
from January 18, 1995 until January 1, 1996 when he was appointed as a director
and as vice president in charge of engineering. Mr. Muro served as a director of
the Company from December 29, 1992 until January 18, 1995. He also served as the
Company's secretary from December 29, 1992 until March 1994 when he was
appointed president of the Company, a position he held until January 18, 1995.
He has also served as the vice president in charge of engineering and as a
director of The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc. since
June 1998 and May 1995 respectively. Mr. Muro received a B.S. degree in Chemical
Engineering from Newark College of Engineering in 1954, since which time he has
continually been employed as a chemical engineer. From 1974 to 1993 Mr. Muro has
been the sole proprietor of Ace Refiners Corp. of New Jersey, a precious metals
refinery. From 1971 to 1974, he worked as an independent consultant and from
1964 until 1971, he was director of research and development for Vulcan
Materials Corporation in Pittsburgh, Pa., a public company engaged in the
business of recovering useable tin and clean steel from scrap tin plate. From
1960 to 1964, Mr. Muro was the sole proprietor of Space Metals Refining Co. in
Woodbridge, NJ, a company involved in the purification of scrap germanium to
transistor grade metal. From 1959 to 1960 he was employed by Chemical
Construction Co., of New Brunswick, NJ, where he developed a process for the
waste-free production of urea from ammonia, carbon dioxide and water. From 1954
to 1959, Mr. Muro worked in the research and development department at U.S.
Metals Refining Co. in Carteret, NJ where he was involved with the refinement of
precious metals.
JOHN L. THRESHIE, JR. Mr. Threshie has served as a vice president of the
Company since June 1995. He was appointed Assistant Secretary of the Company on
February 11, 1999. From December 1996 until February 11, 1999, Mr. Threshie held
the position of secretary, and from June 1995 until February 11, 1999, as a
director, of the Company. He also served as a director for The Tirex Corporation
Canada Inc. and Tirex Canada R&D Inc. from June 1998 and June 1995,
respectively, until February 11, 1999. He has more than fourteen years of
experience in the areas of management, marketing and sales primarily in the
field of advertising. Mr. Threshie holds a Bachelor of Science Degree in
Business from the University of North Carolina. He was employed as an insurance
and financial broker by Primerica Financial Services from 1991 through 1994.
From 1988 to 1990, Mr. Threshie was an advertising account supervisor for
Ammirati & Puris Inc., an advertising firm in New York. From 1983 to 1988 Mr.
Threshie was employed as a senior account executive at the advertising firm of
Saatchi and Saatchi, Inc. From 1979 to 1983 Mr. Threshie was employed by
Milliken & Co. as a sales representative.
LOUIS SANZARO. Mr. Sanzaro has been a director of the Company since
January 1997 and a director of The Tirex Corporation Canada Inc. since June
1998. He served as a consultant to the Company from January 1, 1997 until June
1998, when he was appointed Vice President of Operations and Chief Operating
Officer (see, below, "Certain Relationships and Related Transactions"). On
February 11, 1999, Mr. Sanzaro resigned as vice president of operations and was
appointed to the position of president of the Company. Mr. Sanzaro holds a
degree in marketing from Marquette University. In 1997, he was
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named "Recycler of the Year" for the State of New Jersey and was also awarded
the distinction of being named "Recycling Processor of the Decade" by Ocean
County, New Jersey. He is the President and a member of the Board of Directors
of the nation-wide, Construction Material Recycling Association. Since 1986, Mr.
Sanzaro has served as President and CEO of Ocean County Recycling Center, Inc.
("Ocean County Recycling"), in Tom's River, New Jersey. Ocean County Recycling
is in the business of remanufacturing construction and demolition debris for
reuse as a substitute for virgin materials in the construction and road building
industries. In addition, since 1989, Mr. Sanzaro has served as Vice President
and COO of Ocean Utility Contracting Co., Inc., a New Jersey the Company engaged
in the installation of sewer and water main pipelines and the construction of
new roadway infrastructure. From 1973 until 1990, Mr. Sanzaro was the President
and CEO of J and L Excavating and Contracting Co., Inc., a company engaged in
the construction of residential, commercial, industrial, and government
building. Mr. Sanzaro was a member of the Board of Directors of the New Jersey
state-wide Utility Transportation.
JOHN G. HARTLEY. Mr. Hartley holds a Bachelor of Science Degree in
Economics from Manchester University in England. In addition to serving as a
director for the Company, he has served as a director for The Tirex Corporation
Canada Inc since June 1998. He has acted as a director of Pacer Plants Inc.
since 1985. Pacer Plants is a publicly held company with offices in Boston,
Mass. and is engaged in the business of Plants Engineering for high tech
industries. Since 1993, Mr. Hartley has also served as a consultant to Moore
Rowland International, an investment banking firm headquartered in Monaco.
MICHAEL D.A. ASH. Mr. Ash joined the Company on January 11, 1999. On
February 11, 1999, Mr. Ash was appointed secretary, treasurer, and chief
financial and accounting officer of the Company. Mr. Ash graduated with a
Bachelor's Degree in business Administration, Magna Cum Laude, from Bishop's
University in Quebec in 1970, and with an MBA, with Distinction, from Harvard
Business School in 1975. Mr. Ash is also a Chartered Accountant, (Canadian
equivalent to a CPA), having qualified for this professional designation in 1972
while employed by Coopers & Lybrand. Since graduation from Harvard, Mr. Ash has
spent most of his career with the Government of Canada, first with the Office of
the Comptroller General in Ottawa and, for the last eighteen years, with a
federal regional economic and industrial development agency in Montreal where he
gained wide-ranging exposure to a very large number of companies and industrial
sectors, ranging from developmental companies to major multi-national
corporations. For ten years during this time period, Mr. Ash was also a
part-time lecturer in accountancy at Concordia University in Montreal for
students registered in the program leading to the Chartered Accountancy
designation.
HENRY P. MEIER. Mr. Meier was appointed to the board of directors of the
Company on February 11, 1999. He holds a Bachelor of Science Degree in Business
from Rider University, Lawrenceville, New Jersey and a Master's Degree in
Business from Monmouth University, West Long Branch, New Jersey. Mr. Meier has
worked as a Certified Public Accountant since 1984, maintaining own accounting
practice (Henry P. Meier C.P.A.) since 1993. From 1992 until 1996, Mr. Meier was
Chief Financial Officer of Basic Line, Inc., a multi-million dollar plastic
houseware manufacturer. Since 1996, he has served as Chief Financial Officer of
the "Ocean Group", a group of companies specializing in the fields of
remanufacturing of construction and demolition debris for reuse, tire recycling,
construction payroll leasing and real estate ownership from 1996 to present.
Louis Sanzaro, the Company's President and Chief Operating Officer is a
controlling person of all entities included in the "Ocean Group".
JEAN FRECHETTE. Mr. Frechette has served as the president, chief operating
officer and a director of the Company's wholly owned subsidiary, The Tirex
Corporation Canada, Inc., since August 17, 1998. Mr. Frechette holds degrees and
certificates in business management, commercialization, market development, and
distribution. Before joining the government of Quebec in 1990 he served in the
private
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sectors of industrial and commercial companies for more than 20 years in various
management positions. From 1990 to 1993, Mr. Frechette was employed by the
Government of the Province of Quebec to manage a government study respecting
value added distribution services and to report on the problems facing Quebec
companies. From 1993 to 1996, Mr. Frechette served as Acting Director for the
Department of Market Development and Commercial Activities and the
Administration of Business Laws of the Government of Quebec. During that period
he also served on the Committee for the Reorganization of the Department of
Industry, Trade, Technologies, and Commerce and on the Inter Provincial Trade
Barriers Board. In 1996, Mr. Frechette was asked by the office of the Vice Prime
Minister to join the Foreign Investment Services and to prepare and execute
strategies to attract foreign investment to Quebec. Serving in this capacity
until July 1998, Mr. Frechette has been involved with bringing together foreign
investment capital and Canadian companies in need of financing. During his
tenure, Mr. Frechette introduced potential foreign investments, in the amount of
approximately four billion Canadian dollars (CA $4,000,000,000), to Canadian
companies. As of July 31, 1998, approximately CA $1.4 billion dollars of such
foreign capital has been invested. Non Canadian investors brought into Canadian
Companies under Mr. Frechette's purview have included, among others, ABB,
Biomatrix, Haig, Komatsu, Nordx/CDT, Lockheed Martin, Mitec Telecom, Ilco -
Unican, CES Group, Iris, SCI Systems, and Osram Sylvam.
Compliance With Section 16(a) of the Exchange Act.
None of the Company's securities have been registered pursuant to Section
12 of the Exchange Act of 1934, as amended (the "Exchange Act"). Therefore,
Section 16(a) of the Exchange Act is not applicable.
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SIGNATURES
In accordance with Section 15(d) of the Exchange Act of 1934, the Company
has caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
--------------------
Date: March 24, 1999 Terence C. Byrne, Chairman of the Board
of Directors and Chief Executive Officer
In accordance with Section 15(d) of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
SIGNATURES TITLE Date
Principal Executive Officer:
/s/ Terence C. Byrne March 24, 1999
- ------------------------------
Terence C. Byrne Chairman of the Board
of Directors and Chief
Executive Officer
Principal Financial and
Accounting Officer:
/s/ Michael D.A. Ash March 24, 1999
- -----------------------------
Michael D.A. Ash Secretary, Treasurer,
and Chief Financial and
Accounting Officer
A Majority of the Board
of Directors:
/s/ Terence C. Byrne March 24, 1999
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Terence C. Byrne Director
/s/ Louis Sanzaro March 24, 1999
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Louis Sanzaro Director
/s/ Louis V. Muro March 24, 1999
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Louis V. Muro Director
/s/ Henry Meier March 24, 1999
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Henry Meier Director
