SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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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.)
3828 ST. PATRICK
MONTREAL, QUEBEC H4E 1A4
(Address of Principal Executive Offices) (Zip Code)
(514) 933-2518
(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
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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]
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$390,848
(Issuer's revenues for its most recent fiscal year)
$11,828,153 (as of November 15, 1999)
(Aggregate market value of the voting stock
held by non-affiliates of the Issuer)
118,481,528 (as of November 18, 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 Form 10-K of the Company for
the years ended June 30,
1989, 1990, 1991, 1992, 1993, 1994
Annual Report of Form 10-KSB of the Company
for the years ended June 30, 1995, 1996, 1997,
and 1998
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Quarterly Reports on Form 10-QSB of the Company
for the quarters ended September 30, 1998, December 31, 1998
and March 31, 1999
Current Reports on Form 8-K of the Company
Dated September 14, 1998, March 17, 1999, May 18, 1999 and
May 24, 1999
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ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
The Tirex Corporation (hereinafter, the "Company" or "Tirex") is
engaged in the early stages of the business of manufacturing, selling, and
leasing a patented "turn key" cryogenic tire recycling system (the "TCS-1
Plant") designed and developed by Tirex, which breaks down used tires into
cleanly separated and re-saleable rubber crumb, steel wire, and fiber (see
"Existing and Proposed Businesses - Equipment Manufacturing"). The Company was
incorporated in Delaware on August 19, 1987 under the name "Concord Enterprises,
Inc." Its name was changed to "Stopwatch Inc." on June 20, 19891 and to "Tirex
America Inc." on March 10, 1993. On July 11, 1997, in order to encompass the
current and projected international scope of its operations, the Company's name
was changed to "The Tirex Corporation". The Company, does business directly, and
indirectly through its Canadian subsidiaries, The Tirex Corporation Canada Inc.
and Tirex Canada R&D, Inc. (formerly, 3143619 Canada Inc., and formerly known as
"Tirex Canada Inc.").
Since the beginning of 1993, the Company has devoted the bulk of its
efforts to completing the design and development, and commencing the
manufacture, of the TCS-1 Plant and raising the financing required for such
project. All major components of the TCS-1 Plant were successfully tested and
were operational on a non-continuous running basis by May 1998, with
approximately 85% of the TCS-1 Plant components meeting all of Tirex's
specifications. In December 1998, the Company began successfully operating the
first fully integrated TCS-1 Plant on a continuous-running basis for scheduled
periods of up to four hours, at 50% of capacity with one of its two freezing
towers and fracturing mills. This allows the TCS-1 Plant to process only the
tread portion of the tires. In the fourth quarter of fiscal 1999 the Company
started the construction of the second freezing tower and the second
disintegrator unit. However, problems were identified in the course of long-term
testing of the first freezing tower with respect to its internal materials
conveying system, and construction of the second tower was halted pending
resolution of the identified problems. The Company believes that it has found
appropriate solutions to the identified problems and construction of the
redesigned freezing tower is expected to commence in October of 1999.
At the beginning of 1999, the Company began the process of putting into
place the production capacity for producing welcome mats using recycled rubber
crumb of the kind which the TCS-1 would produce. Entering this new business
segment was expected to be profitable based on the estimated costing of the
rubber crumb. In addition, entering this segment was considered strategically
useful to demonstrate to possible buyers of TCS-1 systems that there was a use
and market for the rubber crumb. The Company's initial operations in this
segment were conducted pursuant to an agreement (the "IM2/Tirex Agreement") with
IM2 Merchandising and Manufacturing, Inc. ("IM2"), in Quebec. Pursuant to the
IM2/Tirex Agreement, the Company acted as IM2's exclusive supplier of rubber
welcome mats and related products molded out of rubber crumb ("IM2 Products").
Shipments of limited quantities of mats commenced at the beginning of April
1999. These mats were produced using recycled rubber crumb purchased from other
companies because the TCS-1 could not, at that time, produce sufficient
quantities of rubber crumb to meet the requirement. Furthermore, technical
difficulties in the freezing tower section of the TCS-1 were identified during
the fourth quarter of fiscal 1999 which further reduced the availability of
TCS-1 rubber crumb. The price difference between externally purchased rubber
crumb and the forecast cost to the Company of TCS-1 produced crumb, taking into
account tire recycling subsidies available from the Government of Quebec, was
and remains very substantial, and makes the difference between being profitable
and unprofitable on mat production at the prices the Company was able to obtain
for such mats. In addition, it became apparent in June and July of 1999 that
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1 FOR A DISCUSSION OF THE MERGER WITH STOPWATCH, THE HEALTHCARE BUSINESS
WHICH WAS INTENDED, BUT WHICH NEVER COMMENCED BY STOPWATCH, AND THE REASONS FOR
THE TERMINATION OF THE STOPWATCH BUSINESS PLAN, REFERENCE IS MADE TO ITEM 1 OF
REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1988, ITS TRANSITION REPORT ON FORM 10-K FOR THE TRANSITION PERIOD ENDED JUNE
30, 1989, AND ITS ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE
30, 1995.
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capital asset requirements and the financial and human resources being consumed
by the mat production operation were impeding progress on the completion of the
TCS-1 which was and remains the primary focus of the Company. In August 1999,
the Company began negotiations for the sale of the mat production assets and the
majority of the inventory to IM2. This divestiture was announced on September 7,
1999. As of November 15, 1999, the sale of these assets to IM2 had not been
completed and the Company cannot provide any assurances at this time that the
sale will, in fact, be completed. Pursuant to this divestiture, the Company will
continue with its primary points of focus, these being the manufacture and sale
of TCS-1 tire Disintegration Systems and the development of rubber-thermoplastic
compounds.
The Company's wholly-owned subsidiary, The Tirex Corporation Canada
Inc. ("TCCI") was formed on June 1, 1998, and on June 3, 1998, 3143619 Canada
Inc.'s name was changed to Tirex Canada R & D Inc. (hereinafter referred to as
"Tirex R&D"). The purpose of these changes was to transfer all business
activities, except those which constitute research and development activities
exclusively, from Tirex R&D to TCCI. On April 22, 1998 the Company formed
another wholly owned Canadian subsidiary now known as Tirex Advanced Products
Quebec, Inc. ("TAP"). This subsidiary is presently dormant. However, the Company
may, in the future, transact finished product manufacturing activities through
TAP. The Company also has another dormant, wholly owned subsidiary, formed under
the laws of the State of Delaware, Tirex Acquisition Corp. ("TAC"), for which
the Company has no present plans.2 The Company's principal executive offices are
located at 3828 St. Patrick Street, Montreal, Quebec H4E 1A4, Canada, and its
telephone number is (514) 933-2518 and its Internet address is
[email protected].
Although the Company has generated limited revenues from operations, it
is still in the development stage. The Company began taking orders for TCS-1
Plants in October of 1995 and, to date, has taken orders on a total of fifteen
Plants from five customers, two of which have given refundable deposits of
$25,000 on one Plant each and one of which has given refundable deposits of
$25,000 on each of five Plants. Parts of one of the foregoing Plants (the "First
Production Model") have been delivered and the Company has received a total of
$880,000 in payment thereof. In December 1998, the Company entered into sale and
lease-back arrangements for other portions of the First Production Model,
pursuant to which it received a total of $300,000 (see, below, "Sale and
Lease-Back Transactions"). All undelivered orders are subject to change by
reason of several factors, including possible cancellation of orders, changes in
terms of the contracts, and other factors beyond the Company's control and
should not be relied upon as being necessarily indicative of the Company's
future revenues or profits. The ultimate consummation of each sale contemplated
by such orders will be entirely dependent upon the TCS-1 Plant's meeting
performance expectations, each customer's obtaining lease, or other financing
for the purchased portions of the TCS-1 Plant (as well as all required permits
and licenses to operate a system) and the Company's obtaining sufficient
production financing and capacity to meet delivery requirements. The Company
intends to retain ownership rights to the portions of the First Production
Model, not included in the portions sold for the $880,000 noted above, and to
use the entire First Production Model in the first Tirex Advanced Product Plant,
to be located in the Company's Montreal facility (see "Existing and Proposed
Business - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb"), "Sales and
Marketing - Agreements with Oceans Tire Recycling and Processing Co., Inc.", and
"Backlog"). With respect to the commercial manufacture of TCS-1 Plants, the
Company has located and entered into written and oral agreements with various
engineering and manufacturing subcontractors and component suppliers, which
Management believes will give the Company sufficient production capacity to meet
all current and projected orders for TCS-1 Plants, as required, commencing in or
about November 1999. At present, the Company has no scheduled delivery date
obligations in connection with any orders it has received to date.
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2 UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES HEREINAFTER TO THE
"COMPANY" INCLUDE THE TIREX CORPORATION AND ITS SUBSIDIARIES, TCCI, TIREX R&D,
TAP AND TAC, COLLECTIVELY.
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Absent any reference to "Canadian", "Cdn", or any other variant
thereof, all dollar amounts shown throughout this Report are in United States
dollars. Whenever any dollar amount has been translated from Canadian dollars
into United States dollars or vice-versa, the exchange rate used was one
Canadian dollar (Cdn $1.00) for every United States seventy cents (US$0.70).
This was the approximate average exchange rate in effect during the course of
the fiscal year ended June 30, 1999. As of noon on October 1, 1999 the
applicable international currency market the quoted exchange rate was one
Canadian dollar (Cdn$1.00) for every United States sixty-seven and
ninety-two-six one hundredths cents (US$0.6792)
SALE AND LEASE-BACK TRANSACTIONS
On December 16, 1998, the Company entered into two sale and lease-back
transactions by and among the Company, Northshore Leasing & Funding Inc.
("NLFI"), and Ocean Utility Contracting, Inc. ("OUCI"). Such transactions
consisted of the Company's sales to NLFI of the single fracturing mill and the
single freezing tower, which are components of the TCS-1 Plant installed at the
Company's Montreal facility and the lease back of such components to OUCI. The
Company received an aggregate of $300,000 by way of the purchase price for the
two components. The Company and OUCI have agreed that all of OUCI's rights under
the leases will be assigned to the Company and the Company will assume all of
OUCI's liabilities thereunder. Both leases are for a sixty-month period
commencing on December 15, 1998, with monthly lease payments of $3,499.20
required under each of the two leases. Both leases also provide that at the end
of the lease term, the lessee will have the right to purchase the leased
equipment for $1.00. Such right to purchase will be included in OUCI's
assignment to the Company of its rights under the leases.
MATERIAL FINANCING ACTIVITIES
THE TYPE A PRIVATE PLACEMENT
Between November 5, 1997 and May 11, 1998, the Company offered to sell
(the "Type A Private Placement") through H.J. Meyers & Co., Inc., as placement
agent (the "Placement Agent"), 28 Units, (the "Type A Units") at a price of
$25,000 per Unit, each Type A Unit consisting 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 terminated by the Company and the
Placement Agent on May 11, 1998 following the sale on April 9, 1998 of twenty
Type A Units to two purchasers, yielding gross proceeds of $500,000 and net
proceeds of $433,500 after payment of the Placement Agent's $10% commission, 3%
nonaccountable expense allowance, and an escrow agent's fee of $1,500. 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 Act of 1933, as amended
(the "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, the
Company believed, 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 Act.
The 1,000,000 outstanding Type A Warrants (as of September 17, 1999)
are exercisable at a price of $.001 per share. Through March 10, 1999, the
principal amount of the Type A Debentures and all interest due thereon were
convertible into common stock at a conversion ratio of 67.5% of the closing bid
price of the Company's common stock, as traded in the over-the-counter ("OTC")
market and quoted in the OTC Electronic Bulletin Board of the NASD, 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 (the "Market Price"). As of
June 11, 1999, the conversion rate will decrease, on a monthly basis at a rate
of 1.5% per month, until such date, when it will stabilize at 61.5% of the
Market Price. There is no minimum conversion price. The Type A Debentures, as
amended, are due and payable on December 31, 1999 (the "Maturity Date") and are
redeemable upon the request of a holder at any time after the Maturity Date at
125% of the principal amount plus all accrued, unpaid interest on the principal
amount.
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The resale of the 2,000,000 shares issuable pursuant to the exercise of
the Type A Warrants and the resale of the shares issuable pursuant to the
conversion of the Type A Debentures are being registered by way of inclusion in
the Company's registration statement on Form SB-2 filed with the Securities and
Exchange Commission on May 21, 1998 (Registration No. 333-53255), which has yet
to be declared effective (the "Registration Statement"). Following the effective
date of the Registration Statement, to the extent that they are acquired from
the Company, the shares underlying the Type A Warrants and Type A Debentures may
be offered and resold by the holders thereof, from time to time, as market
conditions permit in transactions in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
relating to prevailing market prices or at negotiated prices.
MERGER WITH RPM INCORPORATED AND THE TYPE B PRIVATE PLACEMENT
On January 7, 1998, The Company issued a total of 3,305,000 shares of
its common stock to thirty-six persons, none of whom had any prior affiliation
with the Company. These issuances were made pursuant to the terms of a merger
agreement by and among the Company, the Company's wholly-owned subsidiary Tirex
Acquisition Corp. ("TAC"), and RPM Incorporated ("RPM") respecting the merger of
RPM with and into TAC (the "RPM Merger"). The RPM Merger Agreement was effective
on January 7, 1998, concurrent with the closing of a private placement of RPM's
securities (the "RPM Private Placement"), in which RPM had offered to sell, on a
best efforts 30 Units-or-none basis, up to 85 units of its securities (the "RPM
Units"), each such RPM Unit consisting of one 10% Convertible Subordinated
Debenture in the principal amount of $10,000 (the "RPM Debentures") and 10,000
shares of the Common Stock of RPM. The closing took place upon the sale of 30.5
RPM Units. All of the net proceeds from the RPM Private Placement ($276,085)
remained in RPM when it was merged into TAC, which was the surviving entity.
Such proceeds thereby inured to the benefit of the Company. In effecting the RPM
Merger, the Company:
(i) exchanged one share of its common stock ("Merger Shares") for
every issued and outstanding share of RPM common stock (which
included 305,000 shares sold in the RPM Private Placement and
3,000,000 shares which had been issued and outstanding prior
to the commencement of the RPM Merger); and
(ii) assumed RPM's liabilities and obligations under 30.5 RPM
Debentures in the aggregate principal amount of $305,000 which
RPM had theretofore sold in the RPM Private Placement;
After the Merger, the Company commenced the "Type B Private Placement",
in which it offered and sold the same type of securities, as were sold in the
RPM Private Placements, i.e., the securities offered in the Type B Private
Placement consisted of "Type B Units" each consisting of 10,000 shares of the
Company's common stock and one convertible Subordinated Debenture of the Company
in the principal amount of $10,000 (the "Type B Debenture"). The number of Type
B Units offered (54.5) was equal to the number of RPM Units remaining unsold as
at the time of the Merger.
Prior to the Merger, RPM and the Company were completely separate
entities. However, the RPM Private Placement, the merger, the exchange of RPM
common stock for Company common stock, and the subsequent Type B Private
Placement by Tirex were at all times contemplated as interdependent transactions
and described in the RPM Private Placement Memorandum as such. Thus the
contemplated post-merger Type B Private Placement was viewed as being a
"continuance" of the RPM Private Placement. The Type B Private Placement
differed from the RPM Private Placement only insofar as: (i) in the RPM Private
Placement, RPM offered and sold shares of RPM common stock, which were to be
exchanged for Company common stock in the merger, while in the post-merger Type
B Private Placement, the Company offered and sold shares of Company common
stock; and (ii) in the RPM Private Placement, RPM offered and sold RPM
debentures, which were to be assumed by the Company in the Merger, while in the
Type B Private Placement, the Company offered and sold Company Type B
Debentures. Except for the above, the terms of the securities included in the
Type B Units were identical to those included in the RPM Units.
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Between January 23, 1998 and May 11, 1998, the Company sold 23 Type B
Units, consisting in the aggregate of 230,000 shares of its common stock and
twenty-three 10% convertible Debentures, each in the principal amount of
$10,000, to 21 private investors, who had no prior affiliation with the Company.
All of the Type B Debentures and the RPM Debentures, which had been
issued by the Company (referred to collectively, hereinafter as the "Type B
Debentures"), provide for: (i) the registration of the shares (the "Type B
Conversion Shares") issuable upon the conversion of the Type B Debentures; and
(ii) 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 Type B
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 principal amounts of the Type B
Debentures are due and payable 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. The Type B Debentures bear interest at the annual
rate of 10% from the date of issuance (the "Issuance Date"), payable
semi-annually, commencing six months from the Issuance Date. The company is
presently in default on interest payments due on the Type B Debentures. As of
February 16, 1999, the Company had not received any demands for interest
payments from any of the holders of the Type B Debentures. The Company intends
to pay all interest due and payable as soon as the funds required to do so are
available.
The shares of the Company's common stock issuable pursuant to the
conversion of the Type B Debentures, are being included in the Registration
Statement.
PRE-PLACEMENT RPM SHARES
3,000,000 shares (the "Pre-Placement RPM Shares") of the 3,305,000
shares of RPM common stock for which the Company issued Merger Shares,
constituted all of the shares of RPM common stock which were issued and
outstanding prior to the commencement of the RPM Private Placement. These shares
were exchanged for 3,000,000 Merger Shares in consideration of RPM's waiver of
certain consulting fees in the amount of $4,000 per month, which accrued prior
and subsequent to the Merger pursuant to the terms of a certain five-year
consulting agreement, dated June 9, 1997, among RPM, the Company, and Dr. Eugene
Stricker and Mr. Mark Schindler who were, prior to the Merger, RPM's principal
shareholders, officers, and directors (the "RPM Consulting Agreement"). Pursuant
to the RPM Consulting Agreement, Dr. Stricker and Mr. Schindler rendered, and
continue to render, consulting services to the Company concerning matters in
connection with the operation of the business, equipment financing, corporate
acquisitions, mergers and other business combinations, as well as management,
corporate planning, marketing, organization and related matters. None of the RPM
Shareholders had any prior affiliation with the Company prior to or after the
Merger (except insofar as they have become shareholders of the Company as a
result of the said Merger). Based upon information provided by the recipients
(the RPM Shareholders") of the above described 3,305,000 shares of common stock
and advice from the principals of RPM and the opinion of RPM's counsel, all
3,000,000 of the Pre-Placement RPM Shares were acquired by the RPM Shareholders
prior to March 31, 1997; all of the RPM Shareholders are "accredited investors"
as that term is defined in Rule 501(a) of the Securities Act; all 3,305,000 of
the shares of RPM common stock (including the Pre-Placement RPM Shares as well
as the RPM Shares sold in the RPM Private Placement) which were exchanged for
Merger Shares were acquired in transactions which were exempt from the
registration requirements of Section 5 of the Act available under Rule 506 of
Regulation D thereof, which would not be integrated, as such term is defined in
Section 502(a) of Regulation D under the Act, with the distribution of the
Merger Shares to the RPM Shareholders, so as to render unavailable, for such
distribution, the exemption from the registration provisions of the Act under
Rule 506 of Regulation D.
Sales made in the RPM Private Placement and the Type B Private
Placement and the exchange of shares in the Merger were effected in compliance
with Rule 506 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.
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THE TYPE C PRIVATE PLACEMENT
On May 11, 1998, the Company completed a private placement (the "Type C
Private Placement") made directly by the Company, with all offers and sales made
by officers of the Company, of a total of 11,760,000 shares of the Company's
common stock (the "Type C Shares") at a price of $.10 per share, yielding
proceeds of $1,176,000, prior to deducting nominal incidental expenses incurred
in connection with the offering. As was the case with the Type A and Type B
Private Placements, 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, the Company believes, 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 Act.
The 11,760,000 Type C Shares which were sold are included in the
Company's Registration Statement on Form SB-2. This Statement, however, has not
yet been deemed effective.
REGISTRATION STATEMENT
On May 21, 1998, the Company filed a Registration Statement on Form
SB-2 (Registration No. 333-53255) with the Securities and Exchange Commission,
for the registration of the resale of certain presently outstanding shares of
the Company's common stock and an undetermined number of shares issuable upon
the conversion or exercise of certain presently outstanding debentures, options,
and warrants. None of the shares included in the Registration Statement are
being offered for sale by the Company. As of November 15, 1999, however, this
Statement, however, has not been deemed effective.
EXISTING AND PROPOSED BUSINESSES
CANADIAN OPERATIONS
The governments of Canada and Quebec, have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage such activities, the Government of Canada, on a national basis, and
the Government of Quebec, on a provincial basis, support private research and
development initiatives through the provision of scientific research tax
incentives to businesses and individuals. As a result of the combined efforts of
both levels of government, Quebec offers the most generous tax incentives for
research and development programs of which the Company is aware.
In May of 1995, in order to take advantage of such financial incentives
in connection with the research and development work on the first production
model of the TCS-1 Plant, the Company formed a Canadian corporation, 3143619
Canada Inc. (formerly referred to as "Tirex Canada Inc."). On June 3, 1998,
Tirex Canada Inc.'s name was changed to Tirex Canada R&D Inc. and is hereinafter
referred to as "Tirex R&D". On April 22, 1998, the Company formed a second
Canadian corporation, 3477584 Canada Inc., the name of which was changed to
Tirex Advanced Products Quebec Inc on June 3, 1998 ("TAP"). TAP is a
wholly-owned subsidiary of The Tirex Corporation and is presently dormant. On
June 1, 1998, the Company formed a third Canadian corporation, "The Tirex
Corporation Canada Inc.", referred to herein as "TCCI". TCCI is a wholly-owned
subsidiary of The Tirex Corporation. The purpose of the above described
corporate formations and name changes was to position the Company to dedicate
Tirex R&D's activities solely and exclusively to research and development and to
establish TCCI as the Company's manufacturing arm.
To qualify for Canadian Government grants and tax benefits, the record
owners of 51% of the issued and outstanding capital stock of Tirex R&D are
Terence C. Byrne, chairman of the Board of Directors and Chief Executive Officer
of The Tirex Corporation and Louis V. Muro, Vice President of engineering and a
member of the Board of Directors of The Tirex Corporation, both of whom are
Canadian residents. Terence C. Byrne also serves as the Chairman of the Board of
Directors and the Chief Executive Officer of Tirex R&D while Louis V. Muro also
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serves as a vice president and a director of Tirex R&D. The Tirex Corporation is
the record holder of the balance of 49% of the issued and outstanding capital
stock of Tirex R&D. Messrs. Byrne and Muro hold their Tirex R&D shares under the
terms of the shareholders agreement, dated July 3, 1995, as amended February 2,
1996 and August 27, 1997 (The "Tirex R&D Shareholder Agreement") which will
require them to transfer all such shares to the Company for no compensation in
2001 or earlier under certain circumstances.
THE TIREX R&D LICENSE
Tirex R&D holds an exclusive, ten year license from the Company, which
expires on July 2, 2005, to design, develop, and manufacture the TCS-1 Plant in
North America (the "Primary License"). The terms of the Primary License provide
that Tirex R&D may manufacture TCS-1 Plants only upon and pursuant to specific
purchase orders issued by The Tirex Corporation and requires that Tirex R&D sell
all TCS-1 Plants which it manufactures exclusively to, or as directed by, The
Tirex Corporation. To the extent necessary to insure that Tirex R&D's operations
are limited to pure research and development activities, Tirex R&D will
sublicense the Primary License to TCCI. Unless the context requires otherwise,
the terms of the sublicense will be identical to those of the Primary License.
To the extent necessary to achieve the aforesaid goals, all other contracts to
which Tirex R&D is a party, will be transferred and assigned, in whole or in
part, from Tirex R&D to TCCI, The Tirex Corporation, or any other existing or
future subsidiary or affiliate of The Tirex Corporation, as management shall
determine.
CANADIAN GOVERNMENT AND GOVERNMENT SPONSORED FINANCIAL ASSISTANCE
The Company's May 1995 transfer of its research and development and
manufacturing activities to Tirex R&D (then referred to as "Tirex Canada") made
the Company eligible for various Canadian and Quebec government programs which
provide loans, grants, and tax incentives, as well as government guarantees for
loans from private lending institutions, for eligible investment, research and
development, and employee-training activities.
The financial assistance which the Company received under these
programs is discussed briefly below, under the subcaptions "Tax Incentives" and
"Canadian Government and Government Sponsored Loans and Grants". A discussion in
more detail of the terms and provisions of these various types of financial
assistance, which the Company received, is included in Item 6 of this Report,
"Management's Discussion and Analysis".
TAX INCENTIVES
Canadian and Quebec tax incentives take the form of deductions and tax
credits with respect to eligible research and development expenditures of Tirex
R&D. Certain tax credits are called "refundable" because to the extent that the
amount of the tax credit exceeds the taxes payable, they are paid over or
"refunded" to the taxpayer. Thus such credits function effectively as monetary
grants. To qualify for such tax credits, research and development activities
must comprise investigation or systematic technological or scientific research
conducted through pure or applied research, undertaken to advance science and
develop new processes, materials, products or devices or to enhance existing
processes, materials, products, or devices.
CANADIAN GOVERNMENT, AND GOVERNMENT SPONSORED LOANS AND GRANTS
The Company has also received 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. The terms and conditions of the
government and government sponsored loans and grants obtained by the Company are
discussed in Item 6 of this Report "Management's Discussion and Analysis".
Briefly, they have included the following:
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$500,000 (CANADIAN) REGIONAL DEVELOPMENT LOAN FROM CANADIAN FEDERAL
GOVERNMENT. In March of 1996, the Company qualified for an interest-free,
unsecured loan (the "FORDQ Loan") in the amount of CA $500,000, (approximately
US $350,000) from the Canadian federal government agency, Canada Economic
Development for Quebec Regions ("CEDQR"), formerly known as The Federal Office
for Regional Development-Quebec (sometimes referred to herein as "FORDQ") under
its Industrial Recovery Program for Southwest Montreal, which is administered by
CEDQR. The purpose of the government program, under which this loan was made, is
to encourage industrial development in Southwest Montreal, where the Company's
corporate headquarters and its manufacturing facility are located. In September
of 1999, following the period covered by this Report, CEDQR informed the Company
that the first Cdn$50,000 loan repayment which had been due as of March 31, 1999
(approximately US$35,000) would be deducted from an additional tax credit claim
which the Company had made with respect to the fiscal year which ended June 30,
1998. The outstanding balance of this loan is now thus Cdn$450,000 or
approximately US$315,000.
$75,000 (CANADIAN) GRANT FROM LA SOCIETE RECYCLAGE QUEBECOISE DE
RECUPERATION ET DE RECYCLAGE ("RECYC QUEBEC"). In April of 1997, the Company
qualified for a grant from Societe Quebecoise de Recuperation et de Recyclage
("Recyc-Quebec"), a self-financed State owned corporation which promotes,
develops, and supports the reduction, reuse, recovery, and recycling of
containers, packaging materials or products, as well as their transformation,
from a resource conservation perspective. Under its mandate, Recyc-Quebec will
provide financial aid for tire recycling projects. The purpose of this grant to
the Company was to support the design, development, and construction of the
first TCS-1 Plant. As of June 30, 1999, the Company had received the entire
amount of the grant.
LOANS FROM THE CANADIAN FEDERAL OFFICE OF REGIONAL DEVELOPMENT - QUEBEC
("FORDQ"). FORDQ's Program for the Development of Quebec's IDEA Program provides
loans in amounts of up to 50% of approved expenditures made by the borrower for
the purpose of identifying and developing export markets for Canadian products.
Under this program, the Company has had its application approved, and or
obtained, a total of five loans under this program, as follows:
(a) On January 16, 1997, the Company qualified for a loan, in an
amount equal to 50% of approved expenditures, up to a maximum
loan amount of Cdn$20,000 (approximately $14,000 U.S.) for a
Market Study respecting the feasibility of marketing TCS-1
Plants in the Iberian Peninsula. Such study (the "Iberian
Report") was done by Gapco, Inc., a corporation controlled by
Alan Crossley, who thereafter became the Company's Director of
European Marketing. As compensation therefor Mr. Crossley
received an aggregate of $40,000 Canadian consisting of a
combination of cash and stock. The stock portion of such
compensation was paid on May 29, 1997 with the issuance of
84,658 shares of the Company's common stock. Mr. Crossley was
until February 11, 1999, a director of the Company. In July
1997, Mr. Crossley was appointed as the Company's Managing
Director of European Market Development (see "Existing and
Proposed Businesses"). The Iberian Report is discussed below
in the subtopic "Marketing and Distribution - Combined
Segments" under the caption, "Marketing Activities". The
Company has received the entire amount of this loan. Repayment
of this loan is to be effected as a percentage of sales of
TCS-1's in the Iberian peninsula up to a maximum of
Cdn$20,000. No repayments have been made to date.
(b) On April 1, 1997, the Company qualified for a loan, in an
amount equal to 50% of approved expenditures, up to a maximum
loan amount of $20,000 Canadian (approximately $14,000 U.S.)
for a Market Study respecting the feasibility of marketing
TCS-1 Plants in India. Such study (the "Indian Report") was
done by Gapco, Inc., a corporation controlled by Alan
Crossley. As compensation therefor, the Company, paid Mr.
Crossley Cdn$40,000. The Company has received the entire
amount of this loan. Repayment of this loan is to be effected
as a percentage of sales of TCS-1's in India up to a maximum
of Cdn$20,000. No repayments have been made to date.
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(c) On July 7, 1997, the Company qualified for a loan, in an
amount equal to 50% of approved expenditures, up to a maximum
loan amount of $95,000 Canadian (approximately $66,500 U.S.)
for market development activities in the United States markets
for rubber crumb. The proceeds of this loan were used to pay
for research activities respecting the potential market in the
United States for TCS-1 Plants and for the rubber crumb that
is expected to be produced thereby ("Tirex Rubber Crumb"). The
nature and results of these activities are discussed below in
the subtopic "Marketing and Distribution - Combined Segments"
under the subcaption, "Marketing Activities". The Company has
received the entire amount of this loan. Repayment of this
loan is to start on June 30, 2001 with a first repayment
amount of Cdn$6,333. Subsequent repayments are at annual
intervals and in increasing amounts with the final payment
scheduled for June 30, 2005 in an amount of Cdn$31,667.
(d) On June 10, 1997, the Company qualified for a loan, in an
amount equal to 50% of approved expenditures, up to a maximum
loan amount of $95,000 Canadian (approximately $66,500 U.S.)
for Iberian market development activities related to
positioning the company to market TCS-1 Plants, rubber crumb,
and related products in the Iberian Peninsula. The activities
conducted in this regard are discussed below in the subtopic
"Marketing and Distribution - Combined Segments" under the
subcaption, "Marketing Activities". The Company has received
the entire amount of this loan. Repayment of this loan is to
be effected as a percentage (1.5%) of sales of TCS-1's in the
Iberian peninsula up to a maximum of Cdn$95,000. No repayments
have been made to date.
(e) On March 11, 1998, the Company qualified for a loan, in an
amount equal to 50% of approved expenditures, up to a maximum
loan amount of Cdn$98,000 (approximately $68,600 U.S.) for
international market development activities, which the Company
used to explore the feasibility of using rubber crumb in
thermoplastic elastomer compounds in the United States and
Canada. The activities conducted in this regard are discussed
below in the subtopic "Marketing and Distribution - Combined
Segments" under the subcaption, "Marketing Activities". The
Company has received the entire amount of this loan. Repayment
of this loan is to start on June 30, 2001 with a first
repayment amount of Cdn$6,533. Subsequent repayments are at
annual intervals and in increasing amounts with the final
payment scheduled for June 30, 2005 in an amount of
Cdn$32,667.
All of the activities for which the above loans were approved have been
completed and the Company has received the funds approved.
TIREX ADVANCED PRODUCTS MANUFACTURING ACTIVITIES
The Company intends to establish and operate its first proposed Tirex
Advanced Products manufacturing activities at its Montreal research and
development and assembly facility. It is the intention of the Company that these
operations will be conducted, exclusively, or on a joint venture basis with a
third party, through the Company's wholly-owned Canadian subsidiary, TCCI (see
"Existing and Proposed Businesses - Proposed TCS-1 Plant Operations: Sales of
Rubber Crumb)
EQUIPMENT MANUFACTURING
PRODUCT: THE TCS-1 PLANT
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The TCS-1 Plant comprises a complete, turn-key, environmentally safe,
cryogenic tire recycling plant system designed to: (i) disintegrate scrap tires,
using substantially less energy than is required by existing ambient methods
(WHICH SHRED AND/OR CHOP TIRES AT "AMBIENT" OR NORMAL ROOM TEMPERATURES) or
other currently available cryogenic methods (WHICH REDUCE THE TEMPERATURE OF THE
MATERIALS FOR AT LEAST A PORTION OF THE PROCESS, BUT WHICH STILL RELY ON
CHOPPING AND/OR SHREDDING THE TIRE), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber. All major
components of the first full-scale TCS-1 Plant (the "First Production Model")
were successfully tested and were operational on a non-continuous 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. Results
of second stage tests, as at September, 1998 indicated that approximately 85% of
the TCS-1 Plant components met all of the Company's specifications and that
modifications were required in certain components in order for the complete
Plant to operate fully in accordance with the Company's specifications.
Continuous testing of the Plant components also enabled Tirex to identify
opportunities to increase the TCS-1 Plant's cost and operating efficiency. The
initial 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. Long-term testing of the system commenced
during the late third quarter of fiscal 1999 using two-shift operations as the
test basis. These long-term tests provided evidence of further required
modifications in the freezing tower to ensure problem-free materials movement
within the tower. These changes were designed during the summer of 1999 and
construction of the second freezing tower, incorporating these changes, was
initiated at the beginning of October 1999. Scheduled completion for the
modified freezing tower is December 1999. These changes are based on known and
proven technologies adapted for the very specific requirements of the TCS-1. For
a discussion of the associated costs and financing of the above, reference is
made to Item 6 of this Report, "Management's Discussion and Analysis
The functions and mechanisms of the TCS-1 Plant have been designed for
the exclusive purpose of disintegrating automobile and truck tires, which
basically consist of the following elements:
* TWO TYPES OF RUBBER. The sidewalls of tires are constructed of
material containing a higher percentage of natural, as opposed
to synthetic, rubber which is used in the treads. The TCS-1
Plant has been designed to take advantage of these differences
to produce a separate rubber powder reclaimed exclusively from
the sidewalls. * Steel beads, which consist of steel wires
tightly wound together to a diameter of approximately 3/8 of
an inch. These beads are imbedded around the rims of the tire
treads.
* Steel belting, which incorporates a thin layer of steel wires
laid out in a "herring bone" pattern and which underlies the
entire surface of the tread area, and
* Fiber threads which are incorporated into the rubber used
throughout the tire.
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ECONOMY, FUNCTIONS, OPERATIONS, AND CAPABILITIES
The TCS-1 Plant has been designed to operate continuously (with minimum
amounts of downtime for maintenance), to consume approximately 6.50 kilowatts of
power, and is designed to require substantially less energy than is used, to the
best of the Company's knowledge, by other presently existing tire recycling
equipment. The TCS-1 Plant is expected to be able to process both automobile and
truck tires at a rate equivalent to 180 passenger tires per hour on a
continuous, commercial operations basis. To date, the Company has succeeded in
operating the TCS-1 Plant for scheduled periods of up to four hours, at 50% of
capacity with one of its two freezing towers and fracturing mills. This allows
the TCS-1 Plant to process only the tread portion of the tires. The addition of
the second freezing tower and fracturing mill will allow for the processing also
of the sidewall portion of the tire. Results of operations to date indicate that
the TCS-1 Plant is presently capable of processing passenger car tires at a rate
of three per minute.
The following discussion of the functions, operations, and capabilities
of the TCS-1 Plant are based upon engineering design plans and specifications
and first and second stage test operations of the first production model of the
TCS-1 Plant. This discussion assumes that the TCS-1 Plant will function in
accordance with projected performance specifications on a continuous, long term,
commercial operating basis. There can however be no assurance, at this time,
that the foregoing assumptions will prove to be correct when the Plant is
operated over extended periods of time on a commercial basis.
STEP-BY-STEP OPERATIONS
The projected step-by step operations of the TCS-1 Plant will encompass
the following:
(a) The two sidewalls will be cut off and the tread will be cut
into lengths of about one foot. (The sidewalls will be kept
separate from the tread sections throughout the process).
(b) The two steel beads which are contained within each tire will
be pulled out;
(c) Sidewall and tread sections will automatically be placed onto
separate conveying systems which will then feed them into the
TCS-1 Plant's freezing chambers through separate air locks.
(d) The frozen sections will then pass through two patented
disintegrators ("Fracturing Mills") where the sidewall and
tread rubber will be reduced to two separate coarse powders.
This operation will not involve any chopping, shredding, or
hammer-milling. Therefore, the steel wires will not be cut or
broken. The fiber threads will retain their basic shapes and
characteristics. No steel powder or fiber fluff will be
produced.
(e) The steel wires will be magnetically removed from the rubber
powders.
(f) The fiber and rubber powder will be passed through screens to
separate the powder from the fiber threads. The fiber threads
will then be conveyed out of the machine to a fiber baler.
(g) The rubber powders will then be conveyed out of the TCS-1
Plant.
(h) 70% of the rubber powders yielded by the TCS-1 Plant will pass
through a ten mesh screen. Supplementary grinders will be
supplied for customers desiring finer powders which can pass
through 40 mesh or 80 mesh screens.
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COMPARISON OF THE PROJECTED TCS-1 PLANT
WITH OTHER, EXISTING TIRE RECYCLING EQUIPMENT
There are two types of tire disintegration processes in use today which
produce rubber powder, normally referred to as "crumb"; cryogenic systems and
"ambient" systems. Management believes that the TCS-1 Plant will have distinct
advantages over existing systems, as set forth in the comparisons below. All
references to "existing conventional cryogenic and ambient systems" are to
technologies which are widely available and known throughout the industry. Such
technologies include all mechanical, commercially feasible tire disintegration
systems of which the Company has knowledge. There can be no assurance however
that one or more new technologies, or improvements to existing technologies,
presently unknown to management, has not, or in the near future, will not,
become available. While it is conceivable that new technological breakthroughs
could provide benefits and advantages equal to or exceeding those of the
projected TCS-1 Plant, at this time, the Company is not aware of any such tire
disintegration system or technology.
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EXISTING CONVENTIONAL
CRYOGENIC AND AMBIENT
SYSTEMS
METHODS
Except for a small number of recyclers who remove the steel beads first, most
conventional cryogenic and ambient systems used today to produce rubber crumb
feed whole tires into chopping, shredding, grinding, or pulverizing mechanisms,
or a combination of any two or more of such mechanisms. Because the entire tire
is subject to these operations, the steel which makes up the beads as well as
the steel wires embedded in the belting and the fiber components of the tire are
also chopped, shredded, and ground. In both conventional cryogenic and ambient
systems, this initial chopping and shredding is effected at ambient temperatures
(normal climatic conditions). Tires, however, are designed to be tough and
durable at these temperatures. The difficulty in chopping or shredding the tires
at these temperatures is compounded by the fact that all of the steel in the
tire is also being chopped and shredded.
EQUIPMENT, ENERGY AND
MAINTENANCE REQUIREMENTS
Because of the toughness of rubber at ambient temperatures and the fact that
steel, as well as the rubber and fiber, are being chopped or shredded, very
large and powerful equipment and the application of substantial amounts of
energy are required to tear tires apart using conventional cryogenic or ambient
systems. Moreover, since tires are so tough and durable, they have to be
shredded in stages. The stages typically include: (i) initial shredding to
reduce the tire to strips of about 2 x 6 inches; (ii) a second shredding to
reduce such strips to pieces approximately 1 x 2 inches in size; (iii) a third
stage which further reduces the material to pieces of approximately 1/8 to 1/2
inches in size; and a fourth shredding operation which yields a coarse powder.
The foregoing shredding operations will consume a total of approximately one
thousand horsepower or more. Because of the foregoing requirements, the
machinery which is used to construct conventional cryogenic or ambient systems
has more bulk than the TCS-1 Plant. Moreover, there is great wear and tear on
the cutting edges of the chopping and shredding mechanisms which causes the
cutting edge to require constant maintenance, repair, and blade replacement.
COOLING TECHNIQUES
As discussed below, conventional cryogenic systems use liquid nitrogen to cool
the rubber before subjecting it to knife or hammer-mill operations. Liquid
nitrogen is an expensive coolant, costing approximately $.04 per pound of tire.
COSTS AND EXPENSES
As a result of the foregoing, initial capital outlays for the equipment and
continuing energy and maintenance costs are high.
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PROBLEMS ASSOCIATED WITH TIRE DISINTEGRATION METHODS IN CURRENT USE.
The initial operations described above will chop or shred a complete tire until
it is reduced to chips ranging in size from about 2 x 2 inches to 2 x 6 inches.
These chips can be used as "TDF" (tire derived fuel") and possibly as fill to
assist drainage. Unless destined for these limited uses, the chips are normally
then fed into a second shredder which reduces them to 1 x 1 inch or 1 x 2 inch
pieces. They are then fed into a knife or hammer mill where they are reduced to
rubber "crumb" consisting of particles of rubber, approximately 1/8 to 1/2 inch
in size. Finally, these pieces are pulverized into a coarse powder or crumb in a
hammer mill. At this point, some of the steel will have been broken into small
pieces of wire, free of rubber, but much of the steel will remain embedded in
the rubber pieces. In addition, since the fiber will have been subject to the
chopping, shredding, and/or pulverizing operations, much of it will have been
broken, and its thread or cord-like configuration destroyed. The broken,
pulverized fibers will have formed a "fluff" which entraps and holds both rubber
and steel particles.
In order for this crumb to be useable, the steel will have to be separated and
removed. The use of strong magnets removes the free steel pieces, but such
magnets also remove all of the rubber particles in which the rest of the steel
is embedded, resulting in a loss of up to 15% of the rubber.
To avoid losing the substantial amounts of steel-bearing rubber which were
magnetically removed, and to obtain a finer crumb (the coarse crumb has very few
uses), the crumb must be subjected to a second re-grinding, which may or may not
be cryogenic. This is normally done in a knife mill capable of disintegrating
the crumb into smaller particles or in a hammer-mill.
In using a hammer or knife-mill for this operation, however, the following
problems arise: (i) running at an efficient speed, the fiber fluff (which is
contained in the rubber crumb) may clog the mechanism; and (ii) the action of
the hammer or knife-mill will heat the rubber to the point where it will become
so soft that instead of being pulverized into a powder, it will simply be
softened and mashed and thereby will further clog the mechanism.
To avoid these problems, the hammer or knife-milling operations can be conducted
at low feed rates, which will reduce the foregoing problems, but which may not
be economically feasible. Conventional cryogenic systems deal with this problem
by using liquid nitrogen to cool the previously chopped and shredded material
before feeding it into the hammer or knife-mill. Some ambient systems do not
freeze the rubber, but instead inject liquid nitrogen directly into the mill to
keep the rubber from softening.
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Knife-milling or hammer-milling operations will create further problems because
all of the fiber and steel, which is mixed in with the rubber crumb, will have
been ground up and pulverized along with the rubber, with the following results:
(i) The steel components of the tires will have been ground or pulverized into a
fine powder, which cannot be allowed to remain as a contaminant in the rubber
powder if the rubber is to have any economic value. The steel must therefore be
removed magnetically. However, the fine steel powder will be thoroughly mixed in
with the rubber powder. The magnetic action which is meant to pull out the
minute particles of steel, will necessarily also draw out substantial amounts of
the surrounding rubber particles. Losses of rubber powder resulting from the
magnetic removal of the steel powder are estimated to amount to approximately
15% percent of the total rubber powder produced. Such wastage adds substantially
to the cost of useable product yielded by these systems. The steel powder is not
useable for any purpose and has no economic value. It must be transported and
deposited in landfills which again adds to the cost of any useable product
produced. (ii) The thread or cord-like configuration of the fiber will have been
disintegrated into the cotton-like "fluff" described above. This fluff will
attract and hold significant amounts of the powdered rubber and steel.
Separation of the steel and rubber particles from the fiber fluff is nearly
impossible because the fine particles are trapped in the entangling strands and
adhere to them. It is estimated that up to 15% of the rubber powder will be
trapped in the fiber fluff and drawn out with it. The fluff has no current
economic value and actually constitutes a liability because it must be
transported and disposed of, usually as landfill.
The wastage of up to 15% of the rubber powder, which results from losing the
rubber which is trapped in the fiber fluff, together with the additional 15%
percent of the rubber powder which clings to the pulverized steel particles when
they are removed magnetically, brings total losses of rubber powder to
approximately 30% percent, which is reflected in a concomitant increase in the
cost of the product produced.
RECOVERY RATIO
Current shredding operations recover on average twelve pounds, representing 75
percent, of the rubber contained in every twenty pound tire. All of the fiber
and steel, and the balance of the rubber components of each tire are, in most
cases, not reclaimed, for the reasons described above. The result is a loss of
approximately eight pounds of unrecovered, unrecycled rubber, steel, and fiber,
representing 40% of the constituent materials of the tire, which must be
transported and disposed of in landfills or other solid waste disposal
facilities.
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PROJECTED
TCS-1
SYSTEM
METHODS
The projected TCS-1 Plant will be designed to remove and salvage the steel beads
of the tire before any other operation is commenced. Disintegration of the tire
will be accomplished solely by the exertion of pressure, in a proprietary
manner, on frozen rubber. This disintegration process will take place only after
the tire sections have been cooled to a temperature between 90 and 100 degrees
below zero, Fahrenheit, at which point the material will take on a glass-like
brittleness. At no point in the process will the steel or fiber components be
subjected to any chopping, shredding, grinding, or pulverizing procedures which
would destroy the basic integrity of their respective wire-like and cord-like
configurations.
EQUIPMENT, ENERGY AND
MAINTENANCE REQUIREMENTS
The projected TCS-1 Plant is designed to remove the steel beads from the tires
before any disintegration process commences. Additionally, the rubber will be in
an extremely brittle and easy to break condition during the disintegration
process. Therefore, the equipment required to break down the tires will be
considerably smaller and lighter, and the energy requirements will be
drastically lower than those required by conventional cryogenic or ambient
systems in use today. The TCS-1 Plant will be comparatively light in terms of
bulk and weight. Moreover, the TCS-1 Plant will have no shredding or chopping
surfaces that would require continuous sharpening and repairing. This will
result in an additional significant reduction in maintenance expenses.
COOLING TECHNIQUES
The TCS-1 Plant will be designed to use mechanical refrigeration to cool the
tires to the required temperatures. Mechanical refrigeration is normally less
expensive to use than liquid nitrogen and the Company expects its cost to be
approximately $.01 per pound of tire.
COSTS AND EXPENSES
The foregoing is expected to result in significantly smaller initial capital
requirements and drastically lower continuing energy and maintenance costs.
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AVOIDANCE OF PROBLEMS ASSOCIATED WITH TIRE DISINTEGRATION METHODS IN CURRENT
USE.
The proposed TCS-1 Plant has been designed to avoid the problems which arise out
of current tire disintegration methods by insuring that the steel and fiber
components of the tire are not subjected, at any time, to chopping, shredding,
or hammer or knife-milling operations which destroy the integrity of the wire or
cord-like configurations of the steel and fiber. This is expected to prevent the
creation of steel powder and fiber fluff. Disintegration will be accomplished
solely through the exertion of pressure. The TCS-1 Plant disintegration process
is not expected to break the steel wires or to affect their integrity in any
way. Based upon continuous tests to date, the TCS-1 Plant's proprietary
disintegration mechanism does not create steel powder; this results in easy and
efficient separation and removal of the steel by magnetic means, without the
substantial loss of rubber powder which occurs with the methods described
opposite.
The fiber, which does not lose its thread or cord-like configuration, is broken
in the disintegration process into lengths of from 1/2 to 4 inches. Rubber that
is attached to the fiber constitutes a saleable product with unique properties.
Furthermore, test operations to date, indicate that, in this form, the fiber can
be easily separated from the rubber crumb by passing it through wire mesh
screens. The salvaged steel wire pieces and fiber threads will be useable and
saleable.
Based on the foregoing and on test results, management believes that: (i) the
rubber powder yielded by the TCS-1 Plant will contain only an insignificant
amount of fiber and steel; (ii) wastage of salvageable rubber powder will be
reduced from the approximately 30% associated with the use of conventional
cryogenic or ambient systems to an estimated 3%. (iii) instead of unusable steel
powder and fiber fluff, which recyclers must pay to have hauled away and
deposited in landfills, the TCS-1 Plant will yield clean useable, and saleable
reclaimed steel and fiber as well as two types of rubber powder containing only
insignificant amounts of fiber and steel.
RECOVERY RATIO
For the reasons described above, and based on performance tests of the scale
model prototype of the TCS-1 Plant's proprietary disintegration mechanism,
management expects that almost all of the rubber, steel, and fiber components of
the tire will be recovered in useable and saleable condition.
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PRODUCTION AND SUPPLY
Except for its discontinued mat operations, the Company's activities to
date have focused primarily on the design and development of the TCS-1 Plant. In
connection with these activities, the Company has been dependent on arrangements
with its subcontractors for the manufacture and assembly of the principal
components incorporated into the TCS-1 Plant (see "SUBCONTRACTORS", below).
The Company has effected, and intends to continue to effect, all TCS-1
Plant manufacturing operations through its 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 for not less than 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. 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.
SUBCONTRACTORS
The Company retained the following machinery manufacturing, engineering
and designing firms located in Quebec:
BEAUDOIN, HURENS AND ASSOCIATES, INC. On September 21, 1998, the
Company accepted the proposal of Beaudoin, Hurens and Associates, Inc. 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 Tirex's findings from its first
and second stage testing of the TCS-1 Plant to verify and authenticate the
requirements for the modifications which the Company believes are required to
bring the Plant into full compliance with specifications. BHA was to assist the
Company and its subcontractors in effecting the required modifications and to
work with the Company on fine tuning and enhancing the operation of the Plant.
BHA was also to serve as engineering project manager during what Tirex believed
was final stage of preparation for full-scale commercial operations. In the
third quarter of fiscal 1999 it became apparent that BHA did not, in fact, have
the required engineering resources to complete the mandate it had contracted
for. Faced with the Company's refusal to pay invoices until BHA would deliver
the services required by the mandate, BHA withdrew from the Company's premises,
effectively terminating the contract. The Company has officially opposed through
established legal channels the invoices issued by BHA and is of the opinion that
no payments will be made to BHA.
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FEDICO, INC. In January of 1997, the Company retained Fedico, Inc. of
St-Hubert, Quebec ("Fedico"), a machinery design firm located in Quebec. Prior
thereto, Fedico had been providing the Company with consulting and other design
engineering services and had acted as project leader, guiding the over-all
design and engineering of the TCS-1 Plant. In addition to supervising the
over-all assembly and start-up procedures of the first full-scale production
model of the TCS-1 Plant, Fedico designed, engineered, and fabricated certain
components of the Plant, including but not limited to the freezing towers. The
Company's agreement with Fedico provided for retention of Fedico for a minimum
of five hundred hours per year during the course of such agreement at
reasonable, competitive hourly rates for technicians, draftsmen, and
intermediate engineers, with overtime, on-site services, and travel expenses at
prevailing market rates. During second stage testing, certain deficiencies in
the components designed and/or manufactured by Fedico were identified. Fedico's
work for the Company was thence limited to the correction of such deficiencies.
The Company was invoiced by Fedico for the work which the Company believes did
not, in all instances, meet specifications. Insofar as Fedico has not performed
any services for the Company for over a year, the Company considers this
relationship to be terminated. The Company will invoice Fedico for the costs of
correcting deficiencies caused by Fedico. Based upon the foregoing, the Company
does not believe that it will be liable for any further payments to Fedico.
AGREEMENT WITH LEFEBVRE FRERES LIMITEE. In January of 1997, the Company
retained Lefebvre Freres Limitee ("Lefebvre"), a subsidiary of Lefebvre Inc., of
Montreal, Quebec. Lefebvre has experience in custom design and fabrication of
industrial machinery. With its sister companies, Foresteel (specializing in
pressure vessels and welding) and Atelier D'Usinage Trempe (specializing in high
precision machining), Lefebvre has extensive experience and expertise in
designing and constructing equipment used in the pulp and paper, metallurgy,
fiber, power generation, and many other industries. Since the spring of 1996,
Lefebvre was providing the Company with design consulting and other design
engineering services; Lefebvre designed and constructed the prototype fracturing
mill for the TCS-1 Plant at competitive rates and accepted payment of
approximately one-third of its price in 340,160 unregistered shares of the
common stock of the Company. The stock portion of such price was issued to
Lefebvre on January 17, 1997. Prior to such date, Lefebvre had completed the
initial design specifications for the TCS-1 Plant's Disintegration Unit
Assembly. Lefebvre delivered the two completed fracturing mills for the first
TCS-1 Plant during the last week in May 1998. During continuous testing
operations, which began on June 15, 1998, certain deficiencies in the
components, which Lefebvre was responsible for designing and manufacturing, were
identified. As a result, certain modifications were required to be made in the
fracturing mills to bring them into conformance with their operating
specifications. Lefebvre advised the Company that, were they to effect such
modifications, they would require approximately three additional months plus
additional costs in an indeterminate amount. The Company suspended further
services by Lefebvre and contracted with Plasti-Systemes to complete the
modifications on the fracturing mills (see, below "Agreements With
Plasti-Systemes, Inc."). Lefebvre's work for the Company was limited to the
correction of deficiencies. Lefebvre invoiced the Company for the work which the
Company believes did not, in all instances, meet specifications. Insofar as
Lefebvre has not performed any services for the Company for over a year, the
Company considers this relationship to be terminated. The Company will invoice
Lefebvre for the costs of correcting deficiencies caused by Lefebvre. Based upon
the foregoing, the Company does not believe that it will be liable for any
further payments to Lefebvre.
AGREEMENTS WITH PLASTI-SYSTEMES, INC. Plasti-Systemes, Inc.
("Plasti-Systemes") of Ville D'Anjou Quebec was contracted to design, construct,
and install the first fully-automated front-end sidewall cutter and debeader
module "front-end" of the TCS-1 Plant which consists of a series of mechanisms
which automatically: (i) clean and debead the tires; (ii) separate the sidewalls
from the treads; (iii) cut both sidewalls and treads into sections ready for
processing; and (iv) transport the beads and tire sections into separate areas
for disposal or processing has been completed. On January 17, 1997,
Plasti-Systemes accepted payment of 26% of its total price for the foregoing
services by way of 255,010 unregistered shares of the common stock of the
Company. By February of 1999, it became apparent to the Company that
Plastisystemes had encountered difficulties in delivering on the commitments
they made in their Agreements with the Company. The Company terminated its
arrangements with Plastisystemes and launched legal action against
Plastisystemes to recover monies paid. On the advice of Montreal legal counsel,
this legal action was settled out of court in June of 1998, the result of which
was that Plastisystemes paid the Company Cdn$40,000 (approximately US$28,000).
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FORMERLY PROPOSED SERVICES
In the past, the Company had intended to require all of its TCS-1 Plant
purchasers to agree to enter into a maintenance and technical and market support
agreement. In connection with which the Company had intended to provide timely,
high quality technical support to insure that the TCS-1 Plant will perform in
conformance with its specifications. However, as of the date hereof, the Company
has been unable to determine what the maintenance requirements or costs will be
under commercial operating conditions. Therefore, the Company is not presently
offering any maintenance or technical and market support agreements and does not
intend to do so until it is able to establish the level of maintenance fees
which it would have to charge in order to make the provision of such services
economically viable.
SALES AND MARKETING
The Company's present and projected marketing plans respecting TCS-1
Plants, crumb rubber produced from TCS-1 Plant Operations, and the proposed
"Tirex Advanced Products" are discussed below under the caption "Company
Marketing and Distribution".
TCS-1 PLANT SALES
SALES
The Company's present and projected marketing plans respecting TCS-1
Plants are discussed below under the caption "Company Marketing and
Distribution". The Company has entered into agreements for the following sales
of TCS-1 Plants, but the ultimate consummation of each of such sales will be
entirely dependent upon the TCS-1 Plant's meeting performance expectations, each
customer's obtaining lease, or other financing for the purchased portions of the
System (as well as all required permits and licenses to operate a System), and
the Company's obtaining sufficient production financing and capacity to meet
delivery requirements.
THE O/V III AGREEMENTS
On May 29, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III,
Inc.("O/V III") of Toms River, New Jersey ("O/V III"). This agreement modified
the terms of, and superceded, a prior agreement between the parties dated June
6, 1995. O/V III is under common ownership and control with Oceans Tire
Recycling & Processing Co., Inc. ("OTRP") and with the solid waste recycling
firm, Ocean County Recycling Center, Inc. (see, below "Agreements with Oceans
Tire Recycling & Processing Co., Inc."). Under the terms of the O/V III
Agreement, O/V III will purchase and lease the respective components which
comprise the constituent parts of the TCS-1 Plant. The Agreement provides for
lease and purchase arrangements for eight Plants at an aggregate lease and
purchase price of three million dollars ($3,000,000) each.
Pursuant to the terms of the O/V III Agreement, all components of each
Plant, except the Company's patented disintegration system or "Fracturing Mill"
(the "Purchasable Equipment") will be purchased by O/V III for a total purchase
price of $2,250,000. Such Purchasable Equipment includes: (i) the fully
automated front-end sidewall cutter and debeader module; (ii) the air plant and
freezing towers; and (iii) all bailing systems and associated ancillary
equipment, conveyance and exit belts, chutes and/or other components combined or
integrated therewith.
The patented Fracturing Mills, which are sometimes referred to
hereinafter as the "Leased Equipment" are not sold by the Company, but are
leased under a five year operating lease. Under the terms of the O/V III L&P
Agreement, the monthly operating lease payments are $12,500 each.
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The O/V III L&P Agreement called for the delivery of the first Plant by
October 1998, with seven additional Plants scheduled for delivery every three
months thereafter, through July 2000. Construction of the components of the
first full scale prototype of the TCS-1 began in February of 1997, and was
completed in May of 1998. Because completion of the first production model of
the TCS-1 Plant was delayed, OV III waived the originally scheduled delivery
dates and agreed with the Company that they would reschedule delivery of the
first of these Plants for an as yet undetermined date. In May 1997, O/V III
waived its right to purchase the first complete, fully operational TCS-1 Plant
(the "First Production Model") in favor of its affiliated corporation, Oceans
Tire ("OTRP"), which had contracted separately with the Company for the lease
and purchase of one additional Plant (see below, "Agreements with Oceans Tire
Recycling & Processing Co., Inc." and "Proposed Product Manufacturing).
The O/V III L&P Agreement requires a down payment of $25,000 for each
Plant, to be paid not less than fourteen months prior to the anticipated
delivery date. In an effort to assist the Company at this early stage of its
development, to date, O/V III has prepaid five $25,000 down payments on five
Plants. Other payment terms for each of the eight systems subject to the O/V III
L&P Agreement, call for a $50,000 payment six months prior to the anticipated
delivery date, an additional $100,000 to be paid three months prior to the
anticipated delivery date, and $2,075,000 on O/V III's acceptance of the Plant.
Pursuant to the terms of the L&P Agreement, O/V III also entered into certain
ancillary agreements with the Company, consisting of the following:
(a) a royalty agreement (the "Royalty Agreement") pursuant to
which O/V III will pay the Company a royalty of three percent
(3%) of the gross proceeds from all sales of rubber crumb
fiber and steel from scrap tires disintegrated through the
utilization of the TCS-1 Plant;
(b) a rubber crumb purchase option agreement (the "Rubber Crumb
Agreement") pursuant to which O/V III has granted to the
Company an option to purchase up to 40% of the rubber crumb,
yielded by the disintegration of scrap tires in the TCS-1
Plant, at negotiated prices. The Company is currently
exploring the feasibility of vertically integrating its
operations so as to include the rubber crumb brokerage
business and/or the value-added rubber crumb product
development business. It obtained the rubber crumb purchase
option in connection with the foregoing.
In accordance with the former intention of the Company to require all
of its TCS-1 Plant purchasers to agree to enter into a maintenance, technical
and market support agreement, O/V III agreed that it would enter into such an
agreement. However, for reasons described above, under "Formerly Proposed
Services", as of the date hereof, the parties do not presently intend to go
forward with any maintenance arrangements.
AGREEMENTS WITH OCEANS TIRE RECYCLING & PROCESSING CO., INC.
On May 29, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"), a New Jersey corporation under common control
with O/V III. Pursuant to the OTRP L&P Agreement, OTRP was to purchase the first
production model TCS-1 Plant. Under the terms of the OTRP L&P Agreement, the
anticipated delivery date for this Plant was September 15, 1997. However, while
construction of the first full scale prototype of the TCS-1 Plant began in
February of 1997, its completion was delayed because of the limited funds
available for such purpose. As a result, OTRP waived the delivery date and
agreed to reschedule delivery. 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. In connection therewith OTRP arranged with an
equipment financing company for sale and lease-back 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 pursuant to its arrangements with
OTRP and/or the OTRP principals. The Front-End was delivered to OTRP's site in
New Jersey in January of 1998. The parties rescheduled a new delivery date for
the Air Plant, which occurred during the first week of May 1998. Upon the
Company's entering into a lease for its Research and Manufacturing facility in
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Montreal (the "Company Facility"), OTRP shipped the Front-End Module of the
Plant, which had originally been delivered to OTRP in New Jersey, to the Company
Facility and OTRP's equipment financing provider took delivery of the balance of
the Plant at the Company Facility. This allowed for the assembly of the First
Production Model of the TCS-1 Plant, and the initial test phase operations
thereof to be conducted under supervision of both the Company and OTRP, jointly.
The Company sold the Front-End for a total purchase price of $300,000, with
irrevocable acceptance and final payment therefor obtained by the Company in
December of 1997. The designated portions of the Air Plant were sold for a total
purchase price of $580,000, with irrevocable acceptance and final payment
therefor obtained by the Company in April of 1998.
It is the present intention of the parties to reform or rescind the
remaining provisions of the OTRP Agreement for the purpose of transferring
ownership of the entire First Production Model to the Company, any one of its
existing subsidiaries, or to some other entity established jointly, or singly,
by the parties, or either one of them, for such purpose. The structure and terms
of the ownership of the First Production Model have not yet been finalized.
However, in connection therewith, on December 16, 1998, the Company entered into
two sale and leaseback transactions by and among the Company, North Shore
Leasing & Funding Inc. ("NLFI"), and an affiliate of OTRP, Ocean Utility
Contracting, Inc. ("OUCI"). Such transactions consisted of the Company's sales
to NLFI of the single fracturing mill and the single freezing tower, which are
components of the TCS-1 Plant installed at the Company's Montreal facility and
the lease back of such components to OUCI. The Company and OUCI have agreed that
all of OUCI's rights under the leases will be assigned to the Company and the
Company will assume all of OUCI's liabilities thereunder. Both leases provide
that at the end of the lease term, the lessee will have the right to purchase
the leased equipment for $1.00. Such right to purchase will be included in
OUCI's assignment to the Company of its rights under the said leases (see this
Item 1. "Existing and Proposed Businesses - Proposed TCS-1 Plant Operations:
Sales of Rubber Crumb and Manufacture and Sale of Finished Products Product
Manufacturing"). The principal owner is, as of October 13, 1999, an officer and
director of the Company.
THE RECYCLETRON INC. AGREEMENTS
On July 8, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "Recycletron L&P Agreement") with Recycletron Inc.
("Recycletron") of Montreal, Quebec. Pursuant to the Recycletron L&P Agreement,
Recycletron will purchase one TCS-1 Plant. The Agreement calls for a delivery
date at the end of the second quarter of 1998 or such other date as the parties
shall mutually agree. To date, the Company has not been able to deliver a TCS-1
Plant to Recycletron and does not expect to be able to do so until after fiscal
year 2000. To the best of the Company's knowledge, Recycletron is willing to
schedule a delivery date within such time frame. The terms of the Recycletron
L&P Agreement, pursuant to which the constituent components of the TCS-1 Plant
will be leased and or purchased, are substantially identical to those of the O/V
III L&P Agreement, as described above. The only significant differences are in
the purchase price and payment terms. The purchase price for the Purchasable
Equipment is $2,000,000 and the terms of the 60-month operating lease call for
monthly lease payments of $12,500 each. Accordingly, the aggregate
lease/purchase price under the Recycletron L&P Agreement is $2,750,000. Upon
execution of the Agreement, Recycletron paid a $25,000 down payment. Other
payment terms require additional payments of $100,000 six months prior to the
anticipated delivery date, $125,000 prior to the anticipated delivery date, and
$1,750,000 upon Recycletron's acceptance of the Plant.
Pursuant to the terms of the Recycletron L&P Agreement, upon execution
thereof, the parties also entered, or agreed to enter, into the same types of
ancillary agreements as are described above with respect to the O/V III L&P
Agreement, i.e., a maintenance and technical support agreement, a royalty
agreement, and a rubber crumb purchase option agreement. The terms of all of
such ancillary agreements are identical to those described above in connection
with the O/V III Agreements. However, for reasons described above, under
"Formerly Proposed Services", as at the date hereof, the parties do not
presently intend to go forward with any maintenance arrangements.
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AGREEMENTS WITH 750824 ALBERTA LTD.
On December 12, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "Alberta Ltd. L&P Agreement") with 750824 Alberta Ltd.
("Alberta Ltd") of Calgary, Alberta. Pursuant thereto, Alberta Ltd. has agreed
to purchase one TCS-1 Plant. Delivery date for the Plant was scheduled for
September 15, 1998 or such other date as the parties shall mutually agree. To
date, the Company has not been able to deliver a TCS-1 Plant to Alberta Ltd. For
at least the next eight months. The terms of the Alberta Ltd. L&P Agreement,
pursuant to which the constituent components of the TCS-1 Plant will be leased
and or purchased, is substantially identical to those of the O/V III L&P
Agreement, as described above. The only significant differences are in the
payment terms. The purchase price for the Purchasable Equipment in the Alberta
Ltd. Plant is $2,250,000. As with all other Plants contracted for to date, the
monthly payments under the 60-month operating lease for the Leased Equipment
will be $12,500 for each Plant. Accordingly, the aggregate lease/purchase price
under the Alberta Ltd. L&P Agreement is $3,000,000. Upon execution of the
Alberta Ltd. L&P Agreement, Alberta Ltd. paid $25,000 into escrow as a down
payment on the Plant. Although the Agreement called for an initial payment of
$225,000 for the Alberta Ltd. Plant within sixty days of the execution of the
Alberta Ltd. L&P Agreement, initial payment has not yet been received. Alberta
Ltd. and the Company have mutually agreed that the due date for such payment
will be established by mutual agreement after all testing on the First
Production Model of the TCS-1 Plant has been successfully completed. To date, no
date has been agreed on and the Company is not able to state with certainty
whether this transaction will be effected. The $2,000,000 balance of the
purchase price for the Purchasable Equipment is due upon delivery of the TCS-1
Plant.
Pursuant to the terms of the Alberta Ltd. L&P Agreement, upon execution
thereof, the parties also entered into the same types of ancillary agreements as
are described above with respect to the O/V III L&P Agreement, i.e., a royalty
agreement and a rubber crumb purchase option agreement. The terms of all of such
ancillary agreements are identical to those described above in connection with
the O/V III Agreements. The Alberta Ltd. L&P Agreement also provides for the
preparation of an agreement for the maintenance of the TCS-1 Plant to be done
jointly by the Company and Alberta Ltd., on mutually agreeable terms.
THE ENERCON AGREEMENTS
On each of August 19, 1998 and October 13, 1998, the Company entered
into two Equipment Lease and Purchase Agreements (the "Enercon L&P Agreements")
with ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio.
Pursuant to each of the Enercon L&P Agreements, Enercon has agreed to purchase
one TCS-1 Plant configured to process car tires only and a second Plant
specially configured to process truck tires only. The terms of the Enercon L&P
Agreements, pursuant to which the constituent components of the TCS-1 Plant will
be leased and or purchased, are substantially identical to those of the O/V III
L&P Agreement, as described above. The only significant differences are in the
payment terms. The purchase price for the Purchasable Equipment in each of the
Enercon Plants is $2,250,000. As with all other Plants contracted for to date,
the monthly payments under the 60-month operating lease for the Leased Equipment
will be $12,500 for each Plant. Accordingly, the aggregate lease/purchase price
under the four Enercon L&P Agreements aggregates to $12,000,000. Although the
Enercon L&P Agreements called for an initial payment of $337,500 for each of the
two Enercon Plants upon execution of the Agreements, as of October 13, 1999, the
Company had not yet received such payments because, as of such date, Enercon had
not yet received custody of funds which it expects to use toward such payments.
Enercon has advised the Company that it expects to receive such funds
imminently, but, as of November 15, 1999, the Company was not able to predict
with certainty when or if Enercon would in fact receive such funds. All four of
these sales are completely dependent upon Enercon raising sufficient financing
to meet its obligations under the respective Enercon L&P Agreements. In addition
to the initial payments, terms under each of the Enercon L&P Agreements require
additional payments on each of the four Enercon Plants, as follows:
(a) 15% (US $337,500) upon acceptance by Enercon of equipment
drawings, layout drawings, and other written
specifications, such acceptance to be based
upon local permitting and applicable
operating requirements;
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(b) 30% (US $675,000) two months after the Company gives notice to
Enercon that it has commenced manufacture of
the Plants;
(c) 10% (US $225,000) two months prior to the anticipated Delivery
Date.
(d) 15% (US $337,500) on Delivery; and
(e) 15% (US $337,500) on Acceptance of the Plants by Enercon.
Pursuant to the terms of the Enercon L&P Agreements, upon execution
thereof, the parties also entered into the same types of ancillary agreements as
are described above with respect to the O/V III L&P Agreement, i.e., a royalty
agreement and a rubber crumb purchase option agreement. The terms of all of such
ancillary agreements are identical to those described above in connection with
the O/V III Agreements. The Enercon L&P Agreements provide for the preparation
of an agreement for the maintenance of the TCS-1 Plant to be done jointly by the
Company and Enercon, on mutually agreeable terms. Enercon verbally reiterated
its commitment to the Company in September 1999, and stated that their funding
was in place.
BACKLOG
The Company includes in its "backlog," orders for TCS-1 Plants under
executed Equipment Purchase and Lease Agreements. Although the stated backlog
may be used as a guideline in determining the value of orders which are
presently scheduled for delivery during the period indicated, it is subject to
change by reason of several factors including possible cancellation of orders,
change in the terms of the contracts, and other factors beyond the Company's
control and should not be relied upon as being necessarily indicative of the
Company's revenues or of the profits which the Company might realize when the
results of such contracts are reported. The ultimate consummation of each sale
included in the backlog will be entirely dependent upon the TCS-1 Plant's
meeting performance expectations, each customer's obtaining lease, or other
financing for the purchased portions of the System (as well as all required
permits and licenses to operate a System), and the Company's obtaining
sufficient production financing and capacity to meet delivery requirements.
Based on the foregoing, as of October 1, 1999, the Company's backlog
amounted to $41,750,000. This includes, for fourteen TCS-1 Plants: (i) the full
purchase price for the Purchasable Equipment which will be sold by the Company,
and (ii) total lease payments for the Leased Equipment under the five-year
operating lease. Together, the Purchasable Equipment and the Leased Equipment
constitute a complete TCS-1 Plant. However, there is no assurance that any
amount of this backlog will be converted into sales.
The Plants included in the above stated backlog include: (i) eight
TCS-1 Plants ordered by O/V III for an aggregate lease/purchase price of
$3,000,000 each, in respect of which the Company has already received over
$130,000 by way of prepayments of the five $25,000 down payments (due for each
system fourteen months before the scheduled delivery date of such Plant) on five
of the eight Plants ordered by O/V III; (ii) one TCS-1 Plant ordered by
Recycletron for an aggregate lease/purchase price of $2,750,000, in respect of
which the Company has received a $25,000 down payment; (iii) one TCS-1 Plant
ordered by 750824 Alberta, Ltd., for an aggregate lease/purchase price of
$3,000,000, in respect of which the Company has received a $25,000 down payment;
and (iv) four TCS-1 Plants ordered by ENERCON America Distribution Limited
("Enercon") of Westerville, Ohio for an aggregate lease/purchase price of
$12,000,000.
The Company is unable to state when, if ever, it will make delivery of
the four Plants ordered by Enercon. In this regard, it should be noted that, as
of November 15, 1999, the Company had not yet received any payments from
Enercon. Despite Enercon's having informed the Company verbally in September
1999 that their funding was in place and that they would be able to proceed with
the contracts in October 1999, to the extent that receipt of payments from
Enercon might be materially delayed, construction and delivery of the TCS-1
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Plants ordered by Enercon will also be delayed. Delivery dates for the remaining
ten Plants included in the backlog are anticipated to be scheduled throughout
the year 2000. Management believes that all operating problems respecting the
TCS-1 Plant have been identified during continuous testing during the third and
fourth quarters of fiscal 1999. It should be noted, however, that the TCS-1
Plant has not yet functioned under commercial operating conditions over an
extended period of time. Therefore, delivery dates for all Plants on order
remain subject to delay principally because of presently unforeseeable problems
which may become manifest under long-term, commercial use.
The Company has not included in its backlog any revenues which may
result from the Royalty Agreements which all TCS-1 Plant purchasers must enter
into with the Company. These Royalty Agreements entitle the Company to receive a
royalty in the amount of 3% of the gross revenues from sales of rubber crumb
produced by the TCS-1 Plant.
DEPENDENCE ON MAJOR CUSTOMERS
To date the Company has received orders for fifteen TCS-1 Plants, eight
of which were ordered by O/V III and parts of one of which have been purchased
by OTRP, an affiliate of O/V III. Proceeds from the sale to OTRP constituted one
hundred percent (100%) of the Company's revenues from operations during fiscal
1998 and the eight Plants ordered by O/V III constitute approximately fifty-six
percent (56%) of the Company's present backlog. The loss of O/V III would have a
material adverse effect on the Company. O/V III is under the control of Louis
Sanzaro, who, until November 23, 1999 had been an officer and director of the
Company. For purposes of this discussion, O/V III and OTRP are sometimes
referred to herein, collectively, as the "Sanzaro Entities". The Company has
also received orders for four TCS-1 Plants from Enercon. These orders constitute
approximately twenty-eight percent (28%) of the Company's present backlog. As is
the case with O/V III, the loss of this customer would have a major adverse
effect on the Company. Notwithstanding the foregoing, the Company also believes
that while Mr. Sanzaro's companies and Enercon comprise the initial TCS-1 Plant
purchasers, future sales efforts will be widespread and, as the Company matures
and its business develops, it will not be dependent upon the business of one or
more major customers.
Mr. Sanzaro's initial contacts with the Company occurred in the summer
of 1995. On October 5, 1995, Mr. Sanzaro, through O/V III, entered into the
initial agreement to purchase and lease eight TCS-1 Plants. At that time, three
associates and/or employees of O/V III were retained by the Company as
consultants respecting various aspects of the Company's plans to design, develop
and manufacture the TCS-1 Plant. Following his initial contacts with the Company
in October 1995, Mr. Sanzaro also worked actively with the Company to assist it
in these efforts. On or about January 1, 1997, the Company and Mr. Sanzaro
agreed that he should be fairly compensated for his consulting services. The
Company did not formalize its arrangements with Mr. Sanzaro or compensate him
for his services until January 28, 1998, when it entered into a two year
consulting agreement with him, retroactively effective to January 1, 1997. Total
compensation under the Sanzaro consulting agreement was 1,000,000 unregistered
shares of the Company's common stock. On January 17, 1997 Mr. Sanzaro was
appointed as a Director of the Company. In October 1995, the Company and Mr.
Sanzaro had agreed that Mr. Sanzaro would be the sole and exclusive distributor
of TCS-1 Plants in North America and that he would be entitled to a commission
of 10% of the total lease and purchase price on all sales of TCS-1 Plants in
North America. In July 1998, Mr. Sanzaro and the Company entered into an
employment agreement pursuant to which Mr. Sanzaro was retained as the Company's
Vice President in charge of operations, to serve in such position as the
Company's Chief Operating Officer ("COO"). In connection with his appointment to
such position, Mr. Sanzaro agreed to give up all rights which he theretofore had
with respect to his serving as exclusive distributor. Mr. Sanzaro also agreed to
serve full time in his position as the Company's COO and in connection therewith
to terminate virtually all of his activities connected with his own recycling
businesses in New Jersey. In consideration of Mr. Sanzaro's agreement to
discontinue his other business activities in order to enter into the Company's
employ, the Company issued 500,000 shares of its common stock to him as a
signing bonus. In addition, for agreeing to release the Company from its
obligation to appoint him as exclusive distributor of the TCS-1 in North
America, the Company issued to Mr. Sanzaro an additional 2,500,000 shares of its
common stock. As of November 23, 1999, and in order to avoid a future conflict
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of interest which could arise from his accepting on behalf of companies which he
controls, a licencing agreement for the marketing and manufacturing of TCS-1
systems, Mr. Sanzaro resigned as an officer of the Company and is no longer
performing any duties as COO. (see ""Management - Executive Officers and
Directors" and Certain Relationships and Related Transactions" ).
RESEARCH AND DEVELOPMENT - TCS-1 PLANT MANUFACTURING SEGMENT
Research and development activities and expenditures for the Company's
existing TCS-1 Plant manufacturing segment and its proposed TCS-1 Plant
Operations and TAP segment are discussed on a combined basis, below, following
the description of the Company's proposed TCS-1 Plant Operations under the
caption "Research and Development - Combined Segments".
EMPLOYEES - TCS-1 PLANT MANUFACTURING SEGMENT
The number and categories of persons employed in the Company's existing
TCS-1 Plant manufacturing segment and in its proposed TCS-1 Plant Operations and
TAP segment are discussed on a combined basis, below, under the caption
"Employees - Combined Segments".
PATENT PROTECTION
The Company was issued a United States patent on its Cryogenic Tire
Disintegration Process and Apparatus on April 7, 1998 (Patent No. 5,735,471).
The duration of the patent is 20 years from the date the original application
was filed. In November 1998, the Company filed its patent, for review, with the
Canadian Patent Office. The Company is unable to state at this time how long the
Canadian review process will take and is unable to give any assurances that the
Canadian Patent will be granted. Prior to the issuance of such patent, the
Company relied solely on trade secrets, proprietary know-how and technological
innovation to develop its technology and the designs and specifications for the
TCS-1 Plant. In connection with a loan made by the Bank of Nova Scotia to the
Company, a lien on this patent was granted to the said bank (see below in Item I
of this Report "Management's Discussion and Analysis - Liquidity and Capital
Resources").
The Company has entered into confidentiality and invention assignment
agreements with certain employees and consultants which limit access to, and
disclosure or use of, the Company's 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 technologies and/or processes or
that secrecy will not be breached. In addition, although 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. The Company
believes that the steps it has taken to date will provide some degree of
protection, however, no assurance can be given that this will be the case.
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On or about September 13, 1996, the Company received a letter from
attorneys for a New York based recycling company respecting its filing for
worldwide patent protection for a tire recycling process utilizing a natural air
freezing system and claiming that, upon issuance of its Canadian patent, the
Company's recycling process would be the subject of a patent infringement claim.
The Company responded to such letter on September 20, 1996 stating its position
that any such claim would be completely without merit. The Company has received
no further communications respecting this matter. Since that time, a member of
the Company's engineering staff and the Company's patent agent have examined the
patent which was involved in this matter and have advised the Company that to
the best of their knowledge, the specifications thereof are different from those
of the patent for which the Company has applied and that no meritorious patent
infringement claim could arise in connection therewith. However, no assurance
can be given in the absence of a final court determination, that any particular
patent is valid and enforceable or that any patent may not be the subject of
patent infringement claims. The Company has no present knowledge of any
information which would adversely affect the validity of its patent, as
described above.
COMPETITION - EQUIPMENT MANUFACTURING SEGMENT
Management knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 Plant, which are
presently being sold or used anywhere in the world, nor is it aware of any
competing patents relating to the Company's disintegration technology. However,
the TCS-1 Plant, may reasonably be expected to compete with related or similar
processes, machines, apparata or devices for tire disintegration, cryogenic or
otherwise. Moreover, prospective competitors which may enter the field may be
considerably larger than the Company in total assets and resources. This could
enable them to bring their own technologies to more advanced stages of
development with more speed and efficiency than the Company will be able to
apply to the TCS-1 Plant. Additionally, manufacturers of presently available
equipment may be in a position to operate research and development departments
dedicated continually to improving conventional systems and to developing new
and improved systems. There can be no assurance that the TCS-1 Plant, will
successfully compete with existing systems or with any improved or new systems
which may be developed in the future.
PROPOSED TCS-1 PLANT OPERATIONS: SALES OF RUBBER CRUMB
AND MANUFACTURE AND SALE OF FINISHED PRODUCTS
PROPOSED OWNERSHIP, ESTABLISHMENT, AND
OPERATION OF TIREX ADVANCED PRODUCTS PLANT
The Company is presently in the process of making arrangements to own
and operate the First Production Model of the TCS Plant, on either an exclusive
or joint basis (see the discussion below) 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.
The First Production Model is presently installed at the Company's
Montreal manufacturing facility. This Plant 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 Operating Officer until November 23, 1999. The OTRP
Agreement provided for certain sections of the First Production Model to be
purchased by OTRP for a purchase price of $1,225,000 and for the balance of the
Plant to be leased under a five year operating lease at a monthly rental of
$12,500 (see "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
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("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. In connection therewith 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 pursuant to its arrangements with OTRP and/or the OTRP principals. The
Company sold the Front-End for a total purchase price of $300,000, with
irrevocable acceptance and final payment therefor obtained by the Company in
December of 1997. The designated portions of the Air Plant were sold for a total
purchase price of $580,000, with irrevocable acceptance and final payment
therefor obtained by the Company in April of 1998. It is the present intention
of the parties to reform or rescind the remaining provisions of the OTRP
Agreement for the purpose of transferring ownership of the entire First
Production Model to the Company, any one of its existing subsidiaries, or to
some other entity established jointly, or singly, by the parties, or either one
of them, for such purpose. The structure and terms of the ownership of the First
Production Model have not yet been finalized (see the discussion, above, in this
Item 1, under the subcaption, "Agreements with Oceans Tire Recycling &
Processing Co., Inc.").
In order to establish and operate the Montreal T.A.P. Plant, the
Company will be required to make modifications and improvements to its Montreal
facility to accommodate such operations and to meet local fire, environmental,
and other applicable regulations. Renovations and improvements to the Montreal
facility required to be made, or already made, in order to establish and operate
the Montreal T.A.P. Plant include the installation or renovation of:; (i)
lighting; (ii) a heating system; (iii) a new floor in the manufacturing area;
and (iv) a new sprinkling system throughout the building. In addition, the
Company will have to construct: (i) a loading dock area; and (ii) a storm
drainage system. The Company estimates that such plant modifications and
improvements will cost approximately Cdn$70,000 or approximately US$50,000.
The foregoing has resulted in delays which have required the Company to
continue to cover its overhead without significant cash flow from operations,
other than tax credits and loans related thereto. This is expected to continue
until approximately December 1999. The Company intends to finance the
establishment of the foregoing from: (i) funds on hand; (ii) expected cash flow
from recent sales of four TCS-1 Plants; and (iii) the possibility of obtaining
sale and leaseback financing on the TCS-1 equipment components owned by the
Company. However, initiation of commercial operation of the Montreal T.A.P.
Plant is dependent upon numerous factors, including the successful performance,
on a long term, continuous running basis, of the First Production Model in
accordance with operating specifications (see "Existing and Proposed Businesses
- - Equipment Manufacturing Products and Services - The TCS-1 Plant"). While the
Company expects to begin full scale commercial operation of the Montreal T.A.P.
Plant in November 1999, it cannot, at this time, state with certainty when all
requisite factors will be in place therefor.
PROPOSED PRODUCTS
The Company intends to target the following markets: specialty molded
construction products, industrial and athletic surfaces. The Company believes
that crumb rubber modified (CRM) asphalt also shows strong market potential and
that new tire manufacturing and thermoplastic compounds, particularly for the
automotive sector constitute promising potential markets for rubber crumb in the
future (See, below, "Existing and Proposed Businesses - Company Marketing and
Distribution - Potential Markets").
RAW MATERIALS
The Government of Quebec passed a law which came into effect October 1,
1999 which provides for a Cdn$3.00 tax to be imposed on the sale of new tires so
as to provide funds for the recycling of used tires. The Government of Quebec
further announced that 40% of this tax (thus Cdn$1.20) would be passed on to
those companies or persons recycling the tires. Based on obtaining fifteen (15)
pounds of rubber out of an average scrap passenger car tire, the subsidy per
pound of rubber becomes Cdn$0.08 or approximately US$0.054 per pound. Supplies
of recyclable scrap tires, as well as subsidies are expected for no cost to it,
from, through, or under the auspices of, Recyc-Quebec. As at the date hereof,
however, the Company has not entered into any formal or written arrangements
with Recyc-Quebec or with any other potential supplier of recyclable scrap tires
for feedstock to be used in its proposed operations. Moreover, the Company could
encounter legal barriers should it attempt to import tires from outside of
Quebec. Notwithstanding the foregoing, the Company is confident that it will, at
least in the foreseeable future, be able to obtain adequate feedstock for its
tire recycling operations, on a subsidized basis, or otherwise.
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PROPOSED RUBBER CRUMB AND FINISHED PRODUCT MARKETING ACTIVITIES
The price for rubber crumb is determined by its quality and its
particle size. Rubber crumb, of a quality which the Company believes the TCS-1
Plant will be able to produce at the outset, currently sells for approximately
$0.15 US per pound. Revenues from projected sales of rubber crumb will be in
addition to the government subsidies noted above and are therefore expected to
be approximately $0.205 US per pound. The Company believes that it will be able
to produce and sell between 20,000 and 50,000 pounds of rubber crumb per day
commencing about the end of November 1999.
The Company's plans for marketing rubber crumb produced from the
operation of the Montreal T.A.P. Plant and finished products manufactured
therefrom are discussed in more detail below under the caption "Company
Marketing and Distribution".
RESEARCH AND DEVELOPMENT - PROPOSED TCS-1 PLANT OPERATIONS AND TAP SEGMENT
Research and Development activities and expenditures for the Company's
existing TCS-1 Plant manufacturing segment and its proposed TCS-1 Plant
Operations and TAP segment are discussed on a combined basis, below, under the
caption "Research and Development - Combined Segments."
EMPLOYEES - PROPOSED TCS-1 PLANT OPERATIONS AND TAP SEGMENT
The number and categories of persons employed in the Company's existing
TCS-1 Plant manufacturing segment and its proposed TCS-1 Plant Operations and
TAP segment are discussed on a combined basis, below, under the caption
"Employees - Combined Segments."
COMPETITION - PROPOSED TCS-1 PLANT OPERATIONS AND TAP SEGMENT
The Company intends to market rubber crumb produced at the Montreal TAP
Plant throughout the province of Quebec. The Company is aware of four crumb
rubber producers in Quebec which, to the best knowledge of the Company, have
been producing an aggregate of approximately 27 million pounds of rubber crumb
per year from both scrap tires and "buffings" (rubber removed from tires in the
re-treading process). Such product is utilized by Quebec manufacturers of
outdoor mats, construction related products, parking curbs, manhole seals,
acoustic panels, and mud flaps for the automotive industry. The Company believes
that there presently exists in Quebec demand for approximately 23 million
additional pounds of rubber crumb per year which, because of insufficient local
product, is now being filled by rubber crumb imported from elsewhere. The
Company believes it will be able to compete successfully in the local area based
on price and quality.
The finished products which the Company intends to manufacture at the
Montreal TAP Plant are expected to include specialty molded construction
products and athletic surfaces. These are intended to be marketed in North
America through independent distributors. It is the intention of the Company
that its initial finished product will comprise consumer mats molded out of
rubber crumb produced by operation of the TCS-1 Plant. The Company will have
many competitors in this area, varying in size from small companies with limited
resources to large companies with substantially greater financial and management
resources than the Company and with the technical ability to develop, or the
funds necessary to acquire, finished products similar to those intended to be
offered by the Company. Many large companies with sophisticated product
marketing and technical abilities and financial resources that do not presently
compete with the Company may enter the market for products made from recycled
rubber. Such companies could rapidly become significant additional competitors
of the Company. To the extent that competitors achieve either a performance or
price advantage, the Company could be adversely affected. In addition,
competitive pressures from large, well financed competitors could result in
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lowering of prices for goods made from recycled rubber, which would adversely
affect the Company's ability to compete. The Company intends to compete on the
basis of quality and production economies which can be realized from vertical
integration, whereby the Company will produce the raw material (rubber crumb) to
be utilized in the manufacture of its finished products.
RESEARCH AND DEVELOPMENT ACTIVITIES - COMBINED SEGMENTS
The Company's technical expertise has been an important factor in its
development and is expected to serve as a basis for future growth. Since its
inception, the Company has devoted substantial resources to the design and
development of the TCS-1 Plant as well as to raising the financing necessary for
such activities. During the last two completed fiscal years, the Company also
conducted research and development activities in the area of product development
focusing on potential commercial applications for the rubber crumb which is
expected to be produced by operation of the TCS-1 Plant. During the fiscal years
ended June 30, 1997, 1998 and 1999, respectively, the Company expended
approximately $806,982, $1,064,205 and $1,449,550 on research and development
activities applied to the design, development, and construction of the first
TCS-1 production model and product development. The basic design, development
and construction of the first complete production model of the TCS-1 Plant was
completed in May of 1998. Thereafter, continuous testing procedures revealed the
need for certain modifications, which were completed in December of 1998 on a
single fracturing mill and a single freezing tower in the First Production
Model. Subsequent long-term testing was conducted in the third and fourth
quarters of fiscal 1999, which testing revealed design problems involving the
conveying system within the freezing tower. The Company halted construction of
the second freezing tower pending resolution of the design problem. The Company
has identified an adaptable, known technology which it believes will solve the
technical problems associated with the first design of the conveying system
within the freezing tower and will proceed with the reconstruction according to
the new design in October and November of 1999. While Management believes that
this new design will resolve the identified problem, Management cannot provide
any assurances that the new design will, in fact, resolve the identified
problems. (see "Existing and Proposed Businesses - Equipment Manufacturing -
Products and Services - The TCS-1 Plant"). Thereafter, the Company intends to
continue to seek to refine and enhance its tire disintegration technology and to
enhance it to comply with emerging regulatory or industry standards or the
requirements of a particular customer. The Company also intends to continue to
endeavor to develop new products and uses for the crumb rubber produced by the
operation of the TCS-1 Plant.
During the fiscal years ended June 30, 1997, 1998 and 1999, all
research and development activities respecting the TCS-1 Plant were carried out
by the Company's engineering and technical staff, consisting of Louis V. Muro,
Vice President in Charge of Engineering, and one other Company employed
engineer, who devoted 100% of their time to such projects. Such activities were
conducted in conjunction with an outside consultant and the Company's outside
subcontractors.
Research and Development activities in the area of product development
were effected principally by members of the Company's executive and management
staff, who dedicated part of their time to such activities.
EMPLOYEES - COMBINED SEGMENTS
As of November 1999, the Company had sixteen persons employed either
directly or under consulting contracts including its five executive officers,
its technical program director, two secretary-receptionists, and its managing
director of European market development, with a balance of the Company's staff
comprised of mechanical and other support personnel. All of the foregoing
persons devote their full time to the business and affairs of the existing and
proposed businesses of the Company, as required. At times, the Company also
utilizes the services of several part-time consultants to assist them with
market research and development and other matters. The Company intends to hire
additional personnel, as needed.
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The Company does not presently retain any employees who devote their
full time to the Company's proposed TCS-1 Plant operations or finished product
manufacturing businesses. However, the Company expects to hire up to 15
additional employees during the 2000 calendar year, on an as needed basis, with
the bulk of such new employees expected to be utilized in the Company's proposed
TCS-1 Plant Operations.
POTENTIAL MARKETS
The Company believes that the potential markets for its: (i) TCS-1
Plant; (ii) rubber crumb produced by its proposed ownership and operation of one
or more TCS-1 Plants ("Tirex Rubber Crumb"); and (iii) finished products
manufactured from or incorporating Tirex Rubber Crumb ("Tirex Advanced
Products") will all directly reflect the level of demand for economical, high
quality rubber crumb derived from the recycling of scrap tires. With respect to
TCS-1 Plant operation, the Company intends initially to target the following
markets: specialty molded construction products, various consumer products and
athletic surfaces of the type which compete with traditional artificial surfaces
such as are used on soccer fields etc.. The Company believes that crumb rubber
modified (CRM) asphalt also shows strong market potential and it will be
targeted by the Company if the results and recommendations in a report,
presently being prepared by the National Institute for Occupational Safety and
Health (see the discussion, below, under "Rubber Modified Asphalt"), are
positive. The Company believes also that new tire manufacturing and
thermoplastic compounds, particularly for the automotive sector constitute
promising potential markets for rubber crumb in the future.
The following discussion of the potential markets for rubber crumb
assumes that the TCS-1 Plant will be capable of economically producing high
quality recycled rubber crumb and in a variety of sizes, capable of being used
in wide range of products. The Company believes that the First Production Model
of the TCS-1 Plant will be ready for commercial operation by the end of November
1999, utilizing one of its two freezing towers and fracturing mills, and that it
will be fully operational by early in the year 2000 with both freezing towers
and fracturing mills. It should be noted, however, that because of the lack of
an operating history, the Company cannot, at this time, give any assurance with
respect to whether the TCS-1 Plant will in fact perform as expected under
continuous, commercial operating conditions. Moreover, even if the demand for
rubber crumb should increase in accordance with the Company's expectations,
there can be no assurance that a concomitant development of demand for the TCS-1
Plant will develop.
Rubber is a valuable raw material and the Company believes that
recycling this valuable resource from scrap tires is an ideal way to recover
that value. Recycled scrap tire rubber is already used in a great variety of
products, promoting longevity by adding it to asphalt pavement, adding bulk and
providing drainage as a soil additive, providing durability as a carpet under
padding, increasing resiliency in running track surfaces and gymnasium floors,
and absorbing shock and lessening the potential for injuries as a ground cover
for playgrounds and other recreational areas.
Recycling tires into reusable crumb rubber (or "ground rubber") was, as
of 1996, the third largest use of scrap tires. "Crumb rubber" is the end product
of the tire disintegration process. The ideal crumb rubber is a powder, which
can be produced in various particulate sizes, ranging from relatively coarse to
very fine, and which is not significantly contaminated by fiber and metal
particles. It is generally derived from used automobile tires or tire parts such
as treads. The Scrap Tire Use Disposal Study - 1996 Update (the "STMC Study"),
published by the Scrap Tire Management Council (the "STMC") in April of 1997,
reported that of the approximately 266 million scrap tires generated in the
United States in 1996, market applications were found for 76% (or 202 million).
The STMC Study reported further that, as of the period covered by the STMC
Study, the largest use presently being made of scrap tires is burning them as
tire derived fuel (sometimes referred to as "TDF"), which serves principally as
a low-cost substitute for, or supplement to, coal, wood chips, or other
combustible fuels. In this regard, 152 million or 76% of the tires for which
market applications had been found, were burned as TDF. Exporting used tires
(for refitting and re-use as tires) was the second largest use for scrap tires.
While utilizing scrap tires to produce crumb rubber still constitutes a
significantly smaller market for used tires, the STMC Study reported that this
usage experienced significant growth during 1995 and 1996, increasing two
hundred and seventy-seven percent (277%) from 4,500,000 tires in 1994 to
12,500,000 tires in 1996. Historically, most crumb rubber available and sold in
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the market was derived not from recycled scrap tires, but from tire "buffings",
a by-product of the tire re-treading process.3 Recently, however, this has
changed significantly, with tire buffings now representing 52% and scrap tires
representing 48% of source material for crumb rubber. According to the STMC, the
demand for crumb rubber for various uses could experience further substantial
increases over the next two to five years, with expected overall growth in sales
of crumb rubber from 25% to 33%. The Company believes that because the supply of
buffings is limited, the main source of an increased supply of crumb rubber must
come from scrap tires.
At present, there are at least seven general categories of markets for
crumb rubber of various sizes and grades. These consist of the following:
* RUBBER MODIFIED ASPHALT ("RMA", 168 MILLION POUNDS IN THE
UNITED STATES IN 1996): Crumb rubber can be blended with
asphalt to modify the properties of asphalt used in highway
construction. Crumb rubber can be used either as part of the
asphalt rubber binder, seal coat, cape seal spray, or joint
and crack sealant (generally referred to as "asphalt-rubber")
or as an aggregate substitution (rubber modified asphalt
concrete or "RUMAC"). At present, the cost of using
asphalt-rubber and RUMAC is somewhat higher than conventional
materials. However, the service life of such products has
proved in some cases to be two to three times that of
conventional asphalt pavements. While the use of crumb rubber
in asphalt pavement has a large potential market, certain
technical issues must be addressed before the potential can be
reached. The ability to recycle asphalt pavement containing
crumb rubber and the development of standards, particularly
for materials testing and the environment are the key issues
to be addressed. In general, asphalt-rubber, or the "wet
process", has proven to be the most successful product,
representing approximately 95% of the RMA market in 1996,
according to the STMC. Other key issues involve potential
environmental and human health effects associated with the use
of crumb rubber modified (CRM) asphalt. In this regard, the
National Institute for Occupational Safety and Health (NIOSH)
performed a series of exposure and health evaluations from
1994 through 1997. To date, the NIOSH project has performed
site evaluations at seven paving projects around the country
(Michigan, Indiana, Florida, Arizona, Massachusetts and
California). A composite report of the overall findings and
conclusions is currently being prepared by NIOSH but has not
yet been issued. This report will address issues of sampling
methods, worker exposures, and health effects associated with
conventional versus CRM asphalt paving.
* BOUND RUBBER PRODUCTS (134 MILLION POUNDS IN THE UNITED STATES
IN 1996): Ground or powdered scrap tire rubber is formed into
a set shape, usually held together by an adhesive material
such as urethane or epoxy. Examples of such applications are
injection molded products and extruded goods such as railroad
crossing pads; dock bumpers, patio floor blocks, flooring
material, roof walkway pads, and carpet underlay.
* NEW TIRE MANUFACTURING (48 MILLION POUNDS IN THE UNITED STATES
IN 1996): Fine crumb rubber or powder reclaimed from scrap
tires can be used as a low volume filler material in both the
tread and the sidewalls of new tires. The percentage of
recycled rubber that can be used in new tires is somewhat in
excess of 1.5%.
* ATHLETIC AND RECREATIONAL APPLICATIONS (24 MILLION POUNDS IN
THE UNITED STATES IN 1996) (US OR WORLDWIDE): Coarse crumb
rubber can be used in several applications, such as in running
track material, grass surfaced playing areas, or as a
substitute for playground surfaces. The use of crumb rubber
for these purposes will generally make playing surfaces and
running tracks more resilient and less rigid, but capable of
maintaining traction and shape.
- ---------------------
3 TIRE BUFFINGS CONSIST OF RELATIVELY SMALL PIECES OF RUBBER WHICH REMAIN
ON THE TIRE SHELL DURING THE RE-TREADING PROCESS. AFTER THE USED TREAD IS
REMOVED, THESE SMALL PIECES ARE "BUFFED" OFF THE SHELL BEFORE THE NEW
TREAD IS ATTACHED.
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* MOLDED AND EXTRUDED PLASTICS AND RUBBER (18 MILLION POUNDS IN
THE UNITED STATES IN 1996): Finely ground scrap tire rubber
can be placed into production molds to form products for the
automotive industry, such as sound insulation, step pads,
truck and trailer liners, matting and drip irrigation pipes.
Management believes that there are significant potential
markets for these applications which may result from
continuing research and development of products using a
surface modified rubber. There has also been increasing
interest on the part of automotive manufacturers in the
purchase of products which contain recycled rubber.
* FRICTION MATERIAL (8 MILLION POUNDS IN THE UNITED STATES IN
1996): Coarse crumb rubber is used in friction brake materials
for brake pads and brake shoes.
MARKETING ACTIVITIES
The Company's objective is to market and distribute its products
worldwide, through national and international distributors and sales
representatives. However, to a large extent the Company has to date concentrated
its efforts on completing the design, development, and construction of the first
production model of the TCS-1 Plant and raising adequate financing to support
such efforts. It has, therefore, not yet commenced a significant marketing
campaign and does not intend to do so until the production model is complete and
adequate funding is available to cover the costs thereof. During the last two
completed fiscal years and the subsequent period, the Company has however taken
initial steps to prepare a foundation for a world-wide marketing program,
appointing Alan Crossley as Managing Director of European Market Development. In
connection therewith the Company has engaged in the following market research
activities with financial assistance from the Canadian Federal Office of
Regional Development - Quebec ("FORDQ") under its IDEA Program, which provides
loans in amounts of up to 50% of approved expenditures made by the borrower for
the purpose of identifying and developing export markets for Canadian products
(the terms and amounts of these loans are discussed, above, in "Existing and
Proposed Business - Canadian Operations - Canadian Government, and Government
Sponsored Loans and Grants"):
(a) From April, 1997 through March, 1998, the Company conducted
market research activities respecting the potential United
States markets for rubber crumb. The Company retained
Plasti-Services Inc. a non-profit organization founded by
government and manufacturers of plastic and rubber goods,
which produced a report (the "Plasti-Services Report). This
report indicated that the market was mature and well serviced
with numerous non-rubber based products and that unless the
Company was able to produce a product which could replace any
of those presently being used, at substantial cost savings,
this would not be an area which the Company should pursue. The
PlastiServices Report highlighted technical and economic
issues that the Company must address, such as materials
compatibility, lack of sufficient existing technical data, and
cost of equipment modification for potential users of rubber
crumb based compounds. Based upon the foregoing, the Company
believes that the Plasti-Services Report is inconclusive
because the Company has not yet produced sufficient samples of
the type of rubber crumb it expects to produce to effect a
thorough analysis of such projected product. Moreover, to the
best of the Company's knowledge, there is no other tire
derived rubber crumb, of the quality which the Company expects
to be able to produce, currently available. Further, the
Company believes that its overall research indicates that: (i)
plastics and rubber compounders would be willing to consider
using tire derived rubber in place of what they are using now
and would be willing to enter collaborative ventures to test
Tirex Rubber Crumb if and when it is produced in sufficient
quantities; and (ii) with consistent materials specifications.
The Company also retained a special consultant, with expertise
in the area of government assistance programs related to
recycling, who investigated public sector incentives by region
for any activities related to tire recycling business in forms
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of grants, subsidies, tipping fees and legislation related to
tires. Based upon the foregoing, the Company believes that in
order to properly identify the best potential market
opportunities and price structures for Tirex Rubber Crumb, its
present market research and development priorities should
focus, in the following sequence, on: (i) producing sufficient
quantities of Tirex Rubber Crumb (which is dependent upon the
TCS-1 Plant's being able to operate in accordance with its
specifications; (ii) developing appropriate test protocols;
(iii) analyzing the Tirex Rubber Crumb for its technical and
materials properties; (iv) doing competitive testing with
other products currently available in the market place; and
(v) working with potential users, focusing on using Tirex
Rubber Crumb to reduce their material costs.
(b) In January of 1997, the Company began exploratory activities
respecting the feasibility of marketing the TCS-1 Plant in
Europe and Asia. In connection therewith, the Company's
European Market Development Consultant, through Gapco, Inc.,
conducted market studies respecting the feasibility of
marketing TCS-1 Plants in the Iberian Peninsula and in India.
The Iberian study indicated that Spain constitutes a sizeable
market both in terms of scrap tires requiring elimination or
disposal and in terms of rubber crumb utilization. According
to the study, Spain's tire disposal industry is presently
dominated by landfilling practices due to the abundance of
land useable as landfill sites and the relatively low short
term costs associated with this method of tire disposal.
Another popular method of tire disposal in Spain is
incineration although this method has been associated with
problems ranging from cost inefficiency to causing air
pollution. Generally, the present circumstances in Spain
regarding tire disposal have been acknowledged to be
environmentally unsatisfactory resulting in pressure to
develop alternative disposal methods. The study concludes that
none of the methods of tire disposal presently in use in Spain
are technically satisfactory or cost efficient. It indicates
that several alternative solutions to Spain's tire disposal
problems are under development and that although there exists
the potential for substantial competition in the tire disposal
industry in the future there is no such competition at the
present time. At present, the Company is not aware of any
potential competitor in Spain having a tire disposal system
comparable to the TCS-1 Plant, although no assurance can be
given that this is in fact the case. A substantial portion of
the study was also devoted to assessing the market in Spain
for rubber in general and recycled rubber crumb in particular.
Spain is a net importer of all the types of rubber raw
material it uses and consequently, the study concluded that
Spain's rubber industry should be particularly receptive to
new sources of cheaper raw materials. The study indicated that
marketing efforts in Spain for rubber crumb should be directed
at tire manufacturers, users of rubber crumb and other tire
by-products, waste processors and government organizations
responsible for waste disposal. It concluded that any entry
strategy for a TCS-1 Plant in Spain would be dependent upon
identifying potential purchasers of Tirex rubber crumb, but
that this could be done only after the TCS-1 Plant is capable
of producing a reliable supply of homogeneous product.
In or about July 1997, the Company commenced European market
development activities aimed at positioning the Company to
Market TCS-1 Plants, Rubber Crumb, and Related Products in
Europe. These activities included appointing a Director of
European Market Development and opening a sales office in
Madrid for the purpose of promoting and developing a market
for TCS-1 Plants and for the rubber crumb expected to be
produced from the operation of such Plants. Results from
European marketing activities, conducted subsequent to the
completion of the Iberian market study, appear to indicate
that landfill bans, producer responsibility, and management of
integrated waste tire collection systems are the priority
items in the recommendations of the European Economic Union's
European Commission - Environmental Council. To this end,
Germany, the United Kingdom and other areas in northern Europe
are currently implementing, and, for the near future, are
expected to continue to implement, the recycling directives of
the European Economic Union substantially ahead of areas in
southern Europe. As a result, the Company had decided to move
its European marketing efforts to London. The Company believes
it will be able to do so during the current fiscal year.
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(c) Since April, 1998, the Company has been engaged in market
research activities respecting the feasibility of using rubber
crumb in thermoplastic elastomer compounds in the United
States and Canada. Such activities included retaining a
consulting firm specializing in rubber industry, to identify
thermoplastic applications that can incorporate Tirex Rubber
Crumb in significant (30 to 60 percent) quantities as a raw
material. The Company has also retained a Quebec-based
research and development laboratory with expertise in rubber
and plastics formulations, to develop formulations for the low
end thermoplastics products such as flooring, construction and
road and athletic surface applications.
In November 1997, the Company also began working with a consultant who
had expertise and substantial business and marketing experience and contacts in
and around Puerto Rico in connection with: (i) market development in the
Southeastern United States and the Caribbean and (ii) assistance in developing
and implementing a business plan designed to expand the Company's business to
include participating, through joint ventures, or otherwise, in the recycling of
scrap tires into useable crumb rubber and other saleable byproducts. For a
discussion of compensation arrangements with such consultant, reference is made
to Item 5 of this Report, the subtopic, "Sales of Unregistered Securities -
Securities Issued As Compensation Under Written Consulting Agreements". As a
result of such consultant's efforts, in the spring of 1998, the Company entered
into negotiations for a joint venture (the "Proposed P.R. Joint Venture") with a
group of persons who have knowledge of the operation of business enterprises in
Puerto Rico and who believe that they have the ability to, establish and develop
contacts between the Company and government agencies in Puerto Rico with respect
to the establishment and operation of one or more TCS-1 Plant equipped scrap
tire recycling plants in Puerto Rico. It was intended that the prospective joint
venture partners would devote their efforts and expertise to: (i) obtaining all
required licenses, permits, and available Puerto Rican government incentives,
grants and aids needed to establish and develop the business of Tirex PR and the
operations of the Tirex PR Plant; (ii) assisting the Company in locating and
obtaining private and/or government agency debt financing, grants, and tax
credits, as available, to capitalize the Proposed PR Joint Venture and to
provide working capital for the establishment and development of its business
and operations; (iii) locating appropriate plant sites; and (iv) establishing
and developing contacts between the Proposed P.R. Joint Venture and potential
customers for the crumb rubber and other products to be produced by the
operations of such scrap tire recycling plants. The present status of the
Proposed P.R. Joint Venture is that negotiations are continuing with the
potential partners, but that no final decisions have been reached as of yet.,
and, as at the date hereof, Management is unable to give any assurance that any
joint venture or other operations in Puerto Rico will result from these efforts.
The Company can make no assurances with respect to the success of its
distribution strategy. Furthermore, the Company has limited resources to achieve
the distribution of its products and no assurances can be given that the Company
will not require additional financing, which may not be available, to achieve
such objective.
GOVERNMENT REGULATION
While the Company's equipment manufacturing operations may not be
directly subject to extraordinary government regulations, the Company's
continuing research and development activities, and the operation of the
Montreal T.A.P. Plant will involve, to varying degrees and for varying periods
of time, the storage of scrap tires which may subject the Company to stringent
environmental regulations.
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. Furthermore, to the best of the
Company's knowledge, operation of the TCS-1 Plant will not result in the
emission of air pollutants, 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 potentially
serious environmental problems. While the Company does not believe that such
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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 US states and Canadian provinces 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 US-EPA and comparable US state and local regulatory agencies,
and similar government bodies in Canada actively enforce environmental
regulations and conduct periodic inspections to determine compliance with
government regulations. Failure to comply with applicable regulatory
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 and/or impose costly new procedures for
compliance, or prevent the Company or its TCS-1 customers from obtaining, or may
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.
The Company believes that it will be able to operate in compliance
with such regulations. In this regard it has retained environmental attorneys to
advise it with respect to compliance with local environmental regulations. It
has also engaged a consultant to advise purchasers of its TCS-1 Plants with
respect to compliance with local environmental regulations applicable to the
installation and operation of the TCS-1 Plant. Even prior to the initiation of
operations at the Montreal T.A.P. Plant, the Company has made, and will continue
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to make expenditures relating to environmental compliance because at least a
limited amount of storing and processing of tires has been required for testing
of the first TCS-1 Plant at the Montreal facility.
Specifically, with respect to the Montreal T.A.P. Plant, local
ordinances require that scrap tires be stored indoors, under certain conditions
including proper segregation of tires and adequacy of sprinkler systems and
other fire code requirements. In order to comply with such regulations, the
Company has installed sprinkler systemsin those areas of the building which it
occupies, and has dedicated segregated areas of its Montreal facility to the
storage of tires in manageable piles. However, should the Company or any other
company engaged in the fabrication of products using rubber occur in those areas
of the building not occupied by the Company, as prime space tenant, the Company
would be obliged to ensure that the entire building would be fitted with
sprinklers, even if such other product manufacturing were carried out by an
independent company. The proposed sale of the mat production business to IM2
invokes this condition and IM2 has included the cost of such leasehold
improvements in its budget forecasts in their business plan. In connection
therewith, the Company's revised plans respecting the use of the building for
the storage of tires will be submitted to the Montreal Building Department (the
"Building Department") in the near future. To date, the Company has expended
approximately Cdn$40,000 or US$28,000 on capital expenditures relating to
environmental compliance. However, in addition to the above noted possibility of
mandated changes to the building in order to bring it into conformance with fire
regulations, the inception of equipment manufacturing and TCS-1 Plant
operations, together with continually changing compliance standards and
technology, may affect the Company's future capital expenditure requirements
relating to environmental compliance.
ITEM 2. DESCRIPTION OF PROPERTY
CORPORATE HEADQUARTERS
The Company's corporate headquarters are located at 3828 St. Patrick,
Montreal, Quebec, H4E 1A4.
RESEARCH AND MANUFACTURING FACILITY
On February 17, 1998, the Company entered into a five-year term lease
(the "Tri-Steel Lease") with Tri-Steel Industries Inc. ("Tri-Steel"), effective
as of March 1, 1998 for a 90,000 square foot research and manufacturing facility
on a completely fenced 180,000 square foot contiguous lot located at 3828 Saint
Patrick Street and 2200 Pitt Street in Montreal, Canada. The facility is a
concrete and reinforced steel structure consisting of three completely
integrated areas, including:
(a) a 40,000 square foot reinforced concrete and galvanized
structural steel, area, with a reinforced concrete floor and a
mezzanine, which was constructed in 1941. Approximately 800
square feet will be dedicated to administrative offices, a
reception area, and a conference room. The balance of this
structure will be used for fabrication of TCS-1 Plants and
ancillary equipment;
(b) a 20,000 square foot area constructed of galvanized structural
steel, one-story (thirty to forty feet) in height, with a
concrete floor, added at or around 1982. This structure will
be used for test operations of the TCS-1 and further
development and improvements thereon.
(c) a 30,000 square foot area constructed of galvanized structural
steel with a dirt floor, constructed at or around 1986, to be
used for warehousing purposes.
When the Company entered into the Tri-Steel Lease, the facility was in
excellent repair and was well suited to the requirements of the Company for the
purpose of manufacturing TCS-1 Plants. The only improvement required at that
time, was an updated fire suppression system in compliance with the local
Montreal fire code respecting the storage of rubber product. However, the
planned expansion of the Company's activities to encompass the operation of a
TCS-1 Plant and the manufacture of finished products out of the rubber crumb
produced thereby, has necessitated additional modifications and renovations to
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the building. These have included the installation of the new fire suppression
system noted above and new lighting, heating, electric, and ventilation systems,
as well as the construction of new concrete and asphalt floors, garage doors,
and loading docks. The aggregate cost of the foregoing improvements is
approximately US$300,000, US$100,000 of which improvements have already been
paid for by the Company. The Company expects all of the foregoing renovations
and improvements to be completed in or before December 1999.
The Facility is situated, adjacent to an interstate highway and a
Canadian National Railway line in an industrial area located approximately two
miles from the principal downtown Montreal business center and the Company's
executive headquarters.
In September of 1999, Tri-Steel verbally agreed that, in the event that
the mat production assets are sold and if IM2 assumes responsibility for the
space occupied by the mat production business, TriSteel would agree to a
reduction of space to approximately half of the building, reflecting the
Company's current requirements and those which will be required for the
manufacturing of TCS-1 systems, that IM2 could pay for their space directly to
TriSteel (but without alleviating Tirex of primary financial responsibility
under the lease) and that there would be a commensurate reduction in rent
expense for the Company. Insofar as the sale of the mat production assets has
not been completed and that management cannot provide any assurances at this
time that such sale will, in fact, be completed, the possible reduction in rent
might not materialize and the Company would be required to pay the rents as set
out in the lease and which are summarized in the next paragraph.
The original Tri-Steel Lease provided for rental payments, as follows:
(i) year-one (commencing March 1, 1998): Cdn$10,000 per month (approximately
US$7,000); (ii) year-two: Cdn$20,000 per month (approximately US$14,000); and
(iii) years-three, four, and five: Cdn$25,000 per month (approximately
US$17,500). Quebec sales taxes ("QST") and (Canadian) Government sales taxes
("GST") are also payable by the Company on all rental payments. Management
believes that under present regulations, these taxes are either refundable to
the Company or are available as reductions of required remissions of sales taxes
collected on sales made to other taxable Canadian entities. It is estimated that
year-one sales taxes will aggregate to approximately 15% of all rental payments
made. The Company's present sales tax status is such, however, that QST and GST
payments will be refunded to it by the government. The Company is obligated to
pay additional costs, including all fuel and utility charges, real estate taxes.
The Lease requires the company to carry insurance on the premises for not less
than CA $4,000,000 (approximately $2,800,000 US) and public liability insurance
for not less than CA $3,000,000 (approximately $2,100,000 US). The Company
estimates that the aggregate amount of such additional costs will be
approximately CA $10,265 (approximately $7,153 US) for temporary coverage for
the first year of the lease.
ITEM 3. LEGAL PROCEEDINGS
SETTLEMENT OF GREAT AMERICAN MATTER
On November 12, 1998, the Company entered into a settlement agreement
by and among Great American Commercial Funding Corp ("Great American"), the
Company, and a third party unrelated to the Company, who also had business
dealings with Great American. The matter between Great American and the Company,
to which the said settlement agreement pertains, is an action which had been
commenced by Great American on June 18, 1997 in the United States District Court
for the District of New Jersey, entitled Great American Commercial Funding Corp.
vs. Tirex America Inc. The action arose out of a certain placement fee agreement
(the "Placement Fee Agreement"), executed by the Company in February of 1996,
under which the Company, among other things, undertook to pay the Great American
a placement fee in the amount of $250,000 and to grant to the plaintiff an
option to acquire 400,000 shares of the company's common stock, at a price of
$0.01 per share, in the event, and only in the event, that Great American
succeeded in obtaining financing acceptable to the Company.
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In fulfillment of the terms of the Settlement Agreement, the Company
paid of $32,500 in cash and issued one-year options to purchase an aggregate of
up to fifty thousand shares of the Company's unregistered common stock at a
price of $0.20 per share.
SETTLEMENT OF NAIS CORPORATION MATTER
Effective, December 18, 1998, the Company and the Nais Corporation
("NAIS") settled an action (the "NAIS Settlement Agreement") brought by NAIS on
May 27, 1998 against the Company in the U.S. District Court for the Southern
District of New York. This action was based upon a financial consulting
agreement (the "NAIS Agreement"), dated May 3, 1997, between NAIS and the
Company. The Complaint alleged that the Company failed to comply with certain
compensatory arrangements contained in the said NAIS Agreement and sought relief
by way of immediate registration of 5,231,092 shares of the Company's common
stock issued to NAIS as compensation (the "NAIS Shares") and damages in the
amount of $630,000. The Company filed an Answer and Counterclaim denying any
liability to NAIS.
In fulfillment of the Settlement Agreement, NAIS returned 500,000 NAIS
Shares to the Company, issued to the Chairman of the Board of Directors and
Chief Executive Officer of the Company, a voting proxy respecting the remaining
4,731,092 NAIS Shares, NAIS's right to have any of the NAIS Shares registered by
the Company was rescinded, and certain other terms respecting sales of shares.
THREATENED LITIGATION WITH DR. LAURA GABIGER
On November 18, 1998, attorneys for Dr. Laura Gabiger advised the
Company that they had been authorized by Dr. Gabiger to file suit against the
Company for breach of contract. It is the position of the Company that it has no
obligations whatsoever to Dr. Gabiger and, moreover, that Dr. Gabiger should
return compensation paid to her in stock and in cash, for services which she was
either unwilling or unable to render to the Company. This matter arises out of a
consulting agreement, dated June 18, 1997, between the Company and Dr. Laura
Gabiger (the "Gabiger Agreement").
The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 1999 no
matters were submitted to a vote of the shareholders of the Company.
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PART II
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 three fiscal years. 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
June 30, 1999 0.09 0.28
SHAREHOLDERS
As of September 17, 1999, the number of holders of record of the
Company's common stock, $.001 par value, was approximately 470, which does not
include shares held by persons or companies in street or nominee name.
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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, 1999, and not previously reported in a
quarterly report on Form 10-Q.4
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, 1999, 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 and other financial
accommodations 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 July 10, 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
and for other financial accommodations provided to 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:
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
- ----------------------
4 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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SECURITIES ISSUED AS COMPENSATION UNDER WRITTEN EMPLOYMENT AGREEMENTS
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. In April of 1999, the
Company issued 1,000,000 shares to Mr. Ash which constituted a signing bonus
which was issued in consideration for Mr. Ash's agreeing to discontinue his
other business activities in order to enter into an employment agreement with
the Company whereby Mr.Ash agreed to serve as the Secretary-Treasurer and Chief
Financial Officer of the Company.
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 then
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 and Frances Katz Levine 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 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.
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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. This SB-2 Registration
Statement has not been deemed effective.
On January 28, 1998, the Company entered into a consulting agreement
with Louis Sanzaro (the "Consulting Agreement"), who, until November 23, 1999
was an officer 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 UNDER SEVERANCE AGREEMENTS
In July of 1999, the Company issued 3,485,714 shares and 2,022,857
shares to Frances Levine and Scott Rapfogel, the Company's previous in-house
Corporate Counsel, under the terms of a severance agreement. Also provided in
this severance agreement was the issuance of 2,000,000 shares under option to
each of Frances Levine and Scott Rapfogel.
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.
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.
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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 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 remuneration,
directly or indirectly, with respect to such transactions.
(b) The persons who acquired these securities are current or
former executive officers and directors of the Company,
consultants to the Company, and providers of professional or
other significant 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 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 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. 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,
the Company believed, 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 1,000,000 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
47
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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. During fiscal 1999,
1,000,000 warrants were exercised, leaving 1,000,000 warrants still outstanding.
The remaining 1,000,000 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 included in the Company's
Registration Statement on Form SB-2 which has not been deemed effective.
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
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, the Company believed, 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 reliance on Rule 506 and the Type C Shares
were offered and sold only to a limited number of sophisticated investors who,
the Company believed, 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 Act.
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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 on Form SB-2 which has not been deemed effective.
On September 15, 1999, the Company issued 2,654,731 Shares of Common
Stock to Terence C. Byrne and Vijay Kachru, officers of the Company and John
B.M. Frohling, its U.S. Securities Counsel, which were included on a
Registration Statement on Form S-8, Registration No. 333-87155.
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 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.
(d) Each of the Purchasers is an accredited investor, as that term is
defined in Rule 501(a) of the 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
Act.
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, 1998 ("Fiscal 1998"), and June 30, 1999
("Fiscal 1999"). This discussion also includes events which occurred subsequent
to the end of Fiscal 1999 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.
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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, rubber crumb
production operations.
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
payment therefor 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 non-continuous 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, 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 an engineering firm 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 also retained a mechanical fabrication company to do all mechanical
fabrications required during the final stage of the project. However, in the
third quarter of fiscal 1999 it became apparent that neither BHA nor
Plasti-Systemes had, in fact, the required engineering resources to complete the
mandates they had contracted for. Faced with the Company's refusal to pay
invoices until BHA would deliver the services required by the mandate, BHA
withdrew from the Company's premises, effectively terminating the contract.
These difficulties with BHA and Plasti-Systemes caused a delay of at least six
months relative to the Company's goal of having the system fully-operational by
the fourth quarter of Fiscal 1999. The Company has since reverted to an earlier
design concept for the freezing tower, based on a known technology and expects
to have the freezing tower operational by November of 1999.
During the last half of Fiscal 1999, the Company engaged the process of
establishing manufacturing capacity for the production of rubber welcome mats to
be sold to IM2. Entering this new business segment was expected to be profitable
based on the estimated costing of the rubber crumb which the TCS-1 would
produce. In addition, entering this segment was strategically useful to
demonstrate to possible buyers of TCS-1 systems that there was a real use and
market for the rubber crumb. The Company's initial operations in this segment
were conducted pursuant to an agreement (the "IM2/Tirex Agreement") with IM2
Merchandising and Manufacturing, Inc. ("IM2"), in Quebec. Pursuant to the
IM2/Tirex Agreement, the Company acted as IM2's exclusive supplier of rubber
welcome mats and related products molded out of rubber crumb ("IM2 Products").
Shipments of limited quantities of mats commenced at the beginning of April
1999. These mats were produced using recycled rubber crumb purchased from other
companies because the TCS-1 could not, at that time, produce sufficient
quantities of rubber crumb to meet the requirement. Furthermore, technical
difficulties in the freezing tower section of the TCS-1 were identified during
the fourth quarter which further reduced the availability of TCS-1 rubber crumb.
The price difference between externally purchased rubber crumb and the forecast
cost to the Company of TCS-1 produced crumb, taking into account tire recycling
subsidies available from the Government of Quebec, was and remains very
substantial, and makes the difference between being profitable and unprofitable
on mat production at the prices the Company was able to obtain for such mats. In
addition, it became apparent in June and July of 1999 that capital asset
requirements and the financial and human resources being consumed by the mat
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production operation were impeding progress on the completion of the TCS-1 which
was and remains the primary focus of the Company. In August 1999, the Company
began negotiations for the sale of the mat production assets and the majority of
the inventory to IM2. This divestiture was announced on September 7, 1999. As of
November 23, 1999, the sale of these assets to IM2 had not been completed and
the Company cannot provide any assurances at this time that the sale will, in
fact, be completed. Pursuant to this divestiture, the Company will continue with
its primary points of focus, these being the manufacture and sale of TCS-1 tire
Disintegration Systems and the development of rubber-thermoplastic compounds.
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, a Director
of the Company. 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, 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 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 of September 1, 1999, the Company estimates that overhead costs
from July 1, 1999 until the date that adequate revenues will be generated to
cover it overhead costs, will amount to approximately $250,000.
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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 the most important of which yielded aggregate
net proceeds in fiscal 1998 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:
-----------------------------------------------------------------
Year Ended June 30th Proceeds From Sales of Securities
-------------------- ---------------------------------
-----------------------------------------------------------------
1999 $ 286,500
-----------------------------------------------------------------
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 June
30, 1999, 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 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.
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As a further measure to stimulate research and development, the Quebec
Government, through its agency, Guarantee Quebec ("GQ") and previously 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 "GQ / 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 GQ / 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 GQ / 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 GQ / 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. This
entire credit facility was used by the Company and was repaid in full by March
24, 1999.
In connection with Refundable Tax Credits for the fiscal year ending
June 30, 1999, the Company received on May 9, 1999 an offer of tax credit
financing to a maximum amount of Cdn$750,000 (approximately US$525,000) from the
Bank of Nova Scotia ("ScotiaBank"), subject to the provision of a loan guarantee
by GQ, which guarantee was issued on June 6, 1999. As of June 30, 1999,
Cdn.$600,000 (approximately US$420,000) had been lent to the Company pursuant to
the ScotiaBank Tax Credit Loan and was still outstanding as a liability on the
Balance Sheet. The ScotiaBank 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.
GQ, under its above described Loan Guarantee Program, guaranteed
repayment of 75% of the ScotiaBank Tax Credit Loan ("the GQ Guarantee"). The GQ
Guarantee was secured by a lien on the Company's projected tax credit
receivables.
Borrowings drawn down under the ScotiaBank 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 ScotiaBank 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 GQ to ScotiaBank. During the last three fiscal
years, the Company made research and development expenditures, generated tax
credit claims, and received funds by way of borrowings under the Scotiabank Tax
Credit Loan, as set forth in the following table:
53
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT CUMULATIVE
AMOUNT OF R&D AMOUNT OF TAX BORROWED OUTSTANDING
PERIOD AMOUNT OF R&D EXPENDITURES CREDITS AGAINST BALANCE OF LOAN
R&D EXPENSES EXPENDITURES ELIGIBLE FOR ESTIMATED BY ESTIMATED AMOUNT OF TAX AS AT END OF
WERE INCURRED INCURRED TAX CREDITS BANKS AND SDI TAX CREDITS CREDIT RECEIVED PERIOD
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RE: BOM -0- -0- -0- -0- -0- -0-
July 1, 1995 to
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
- -------------------------------------------------------------------------------------------------------------------------
July 1, 1998 to Cdn$1,167,892 (3) (4) Cdn$108,770(1) Cdn$245,517(5)(6) BOM Loan = zero
June 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
RE: SCOTIABANK Cdn$2,512,604 Cdn$2,163,508 Cdn$1,000,000 Cdn$600,000 n/a ScotiaBank Loan
July 1, 1998 to Cdn$600,000
June 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
Subsequent to n/a n/a n/a Cdn$150,000 n/a ScotiaBank Loan
June 30, 1999 Cdn$750,000 (7)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.
54
<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 and Tax
Credits received during fiscal 1999 were attributable to
research and development expenditures made by the Company
during fiscal 1998.
(3) On or about October 20, 1999, and in accordance with the tax
laws and procedures of the Revenue Departments of the
governments of Canada and of Quebec, the Company submitted a
claim for tax credits based upon any research and development
expenditures made during fiscal 1999. The Company expects that
a portion of such expenditures will be eligible for Refundable
Tax Credits. In connection therewith, the Company obtained
credit facilities from ScotiaBank, similar to the BOM Tax
Credit Loan, based upon estimated tax credit receivables.
(4) The Company made research and development expenditures in the
amount of Cdn$2,163,508 during fiscal 1999, and the Company
believes that a portion of such expenditures will be eligible
for Refundable Tax Credits. It should be noted further that
the entire amount available to the Company under the
ScotiaBank Tax Credit Loan has already been borrowed by the
Company in connection with research and development
expenditures made by the Company during the year ended June
30, 1999.
(5) Tax credits received by the Company during fiscal 1999, are
attributable to research and development expenditures made by
the Company during the fiscal year ended June 30, 1997 and
1998.
(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. As a result
of the audit, the Company received approval for tax credits in
the amount of Cdn$637,033 from the Government of Canada and
Cdn$490,927 from the Government of Quebec. The tax credits
received were used to reduce the BOM Tax Credit Loan balance
to zero in March of 1999.
(7) On November 5, 1999, the Company received and cashed a check
from the Revenue Department of the Government of Quebec in
respect of research and development tax credits for the fiscal
year ended June 30, 1999. This check amounted to Cdn$606,948
(approximately US$413,000). In accordance with the
requirements of the loan guarantee provided by
Garantie-Quebec, an amount of Cdn$400,000 (approximately
US$272,000) was given that same day to ScotiaBank to reduce
the loan balance. As of November 23, 1999, the loan balance
due to ScotiaBank is thus Cdn$350,000 (approximately
US$238,000). As of November 23, 1999, no research and
development tax credit checks had yet been received from the
Revenue Department of the Government of Canada.
55
<PAGE>
During the last three fiscal years, 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
In lieu of receiving from the Company a check in March of 1999 in the
amount of Cdn$50,000, CEDQR indicated that it would have Revenue Canada reduce
the amount of the tax credit check now due to the company by this same
Cdn$50,000, this offset thus satisfying the Company's responsibility respecting
the March 31, 1999 payment. As of November 23, 1999, the Company had not
received any checks from the Government of Canada from which the Cdn$50,000
would have been deducted.
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 provided that the Company would receive the balance of
$25,000 Canadian (approximately $17,500 U.S.) when the Company filed a final
report on the completion of the project. Such a report was be filed in or about
56
<PAGE>
February 1999 and the balance was received. 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.
57
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AMOUNT OF
FUNDS
RECEIVED BY
COMPANY AS OF REPAYMENT TERMS
MAXIMUM DECEMBER 31, ======================================================== RATE OF
NATURE OF PROJECT AMOUNT OF LOAN 1998 DATE DUE AMOUNT OF PAYMENT INTEREST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Feasibility Cdn $20,000 Cdn $20,000 At the end of any fiscal year 1% of gross annual None
Study for Iberian Peninsula in which the Company has revenues revenue from sales
from sales of TCS-1 Plants in the in Iberia
Iberian Peninsula
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Feasibility Cdn $20,000 Cdn $20,000 At the end of any fiscal year 1% of gross annual None
Study for India in which the Company has revenues revenue from sales
from sales of TCS-1 Plants in India in India
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting Cdn $95,000 Cdn $95,000 June 30, 2001 Cdn $ 6,333 None
Potential United States Markets June 30, 2002 Cdn $12,666
for Rubber Crumb June 30, 2003 Cdn $18,999
June 30, 2004 Cdn $25,333
June 30, 2005 Cdn $31,666
- ------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Cdn $95,000 Cdn $95,000 At the end of any fiscal year 1.5% of gross annual None
Activities Related to Positioning in which the Company has revenues revenue from sales
the Company to Market TCS-1 Plants, from sales of TCS-1 Plants in Iberia
Rubber Crumb, and Related Products in Iberia
in Iberia
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Cdn $98,000 Cdn $98,000 June 30, 2001 Cdn $ 6,533.33 None
Respecting the Feasibility of using June 30, 2002 Cdn $13,066.66
Rubber Crumb in Thermoplastic June 30, 2003 Cdn $19,600.00
Elastomer Compounds in the United June 30, 2004 Cdn $26,133.33
States and Canada. June 30, 2005 Cdn $32,666.66
====================================================================================================================================
</TABLE>
58
<PAGE>
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".
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 and will be made to the TCS-1
Plant;(ii) commencement of full scale, commercial manufacture of TCS-1 Plants;
and (iii) 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 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 (vi) subcontractor financing; (vii) vendor
financed equipment purchases and/or (viii) a research and development tax credit
facility from ScotiaBank 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. 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 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
59
<PAGE>
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 of June 30, 1999, the Company had total assets of $4,398,004 as
compared to$3,814,648 at June 30, 1998 reflecting an increase of $583,356.
Fiscal year-end total assets at June 30, 1998 had reflected a previous increase
of $2,259,028 over $1,555,620 at June 30, 1997. Management attributes the
increase in total assets at June 30, 1998 principally to (i) an increase of
$1,305,007 in Property, Plant and Equipment from $977,288 as of June 30, 1998 to
$2,282,295 as of June 30, 1999, and (ii) an increase of $96,886 in Research and
development tax credits receivable from $855,818 as of June 30, 1998 to $952,704
as of June 30, 1999. These increases were partially offset by (i) decreases in
cash and cash equivalents which went from $398,971 as of June 30, 1998 to
$177,256 as of June 30, 1999, a decease of $221,715, (ii) a decrease of $204,500
in current prepaid expenses and deposits from $618,226 as of June 30, 1998 to
$413,766 as of June 30, 1999, resulting from amortization of such prepaid
expenses, and similarly in long-term prepaid expenses and deposits which
decreased by $261,757 from $445,677 as of June 30, 1999 to $183,920 as of June
30, 1999.
As of June 30, 1999, the Company had total liabilities of $3,952,008 as
compared to $3,360,588 at June 30, 1998, reflecting an increase in liabilities
of $591,420. Total liabilities at June 30, 1998 had reflected a previous
increase of $1,665,238 over $1,695,350 in total liabilities at June 30, 1997.
Management attributes such increases in total liabilities at June 30, 1999
primarily to: (i) increases in accrued salaries in an amount fo $605,877 from
$17,076 as of June 30, 1998 when such amount was included in general accrued
liabilities to $622,953 as of June 30, 1999 which amount is shown under a
separate caption on the Balance Sheet, and (ii) an increase in obligations under
capital lease in a total amount of $113,655, which amount was split $25,147 to
current liabilities and $88,508 to long-term liabilities; there was no balance
as of June 30, 1998. These increases were partially offset by (i) decreases of
$268,400 in convertible subordinated debentures from $1,035,000 as of June 30,
1998 to $766,600 as of June 30, 1999, reflecting conversions into equity and
(ii) a decrease of $71,190 in accrued liabilities from $1,274,150 as of June 30,
1998 to $1,202,960 as of June 30, 1999.
Reflecting the foregoing, the financial statements indicate that as at
June 30, 1999, the Company had a working capital deficit (current assets minus
current liabilities) of $704,376 and that as at June 30, 1998, the Company had a
working capital surplus of $373,198. The primary cause of this net decrease in
net working capital was: (i) an increase in accrued salaries of $605,877,
primarily due to senior management and key employees. By virtue of agreement
with the various persons involved, virtually all of this amount will be
compensated by issuance of stock in accordance with established company
practice.
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.
60
<PAGE>
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 $3,229,332 for Fiscal 1999 which
reflects an increase of $1,259,055 over Fiscal 1998, during which general and
administrative expenses were $1,970,277. During fiscal 1999, the Company's total
operating costs increased by $336,324, from $4,475,181 for fiscal 1998 to
$4,811,505 for fiscal 1999. The majority of such increase is the result of
various factors, including: (i) an increase of $500,000 in respect of employment
termination benefits for two employees, which benefits were paid in stock of the
Company and (ii), the issuance of stock as signing bonuses for two employees,
which stock was recorded at an aggregate value of $201,250.
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, 1999, the Company has
incurred a cumulative net loss of $14,961,362. 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.
61
<PAGE>
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), 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, 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 fiscal 1999, the
Company completed and closed certain financing activities which yielded
aggregate net proceeds to the Company in the amount of $286,500 Management
believed that the proceeds realized therefrom (together with Canadian and Quebec
government and governmental agency grants and loans, in various forms) should
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 calendar 1999. 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.
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.
However, longer-term testing revealed additional problems in the freezing tower
involving the conveying system within the tower. The Company is currently
modifying the conveying system and anticipates such work to be completed in
November of 1999. The cost of the redesigned conveying system is estimated at
Cdn$70,000 (approximately US$50,000), including installation.
62
<PAGE>
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.
The Company believes that it will be possible to meet its immediate
goals of: (a) commencing full scale commercial production of TCS-1 Plants; and
(b) 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 ScotiaBank 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 complete
the reconstruction of the conveying system within the freezing tower; from the
sources described above, full scale commercial manufacture of TCS-1 Plants is
presently expected to occur during December 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").
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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 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 six years, four 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.
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 of June 30, 1999, the Company had a deficit accumulated since formation
in the aggregate approximate amount of $14,961,362, approximately $13,904,006 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, 2000 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, 1998
and 1999, 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 $14,961,362 as at June 30, 1999. 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 November
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 September 17, 1999, there were
outstanding options and warrants pursuant to which the Company is obligated to
sell common stock, as follows:
(a) 1,000,000 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 net outstanding
aggregate principal amount of $161,100, as of September 17,
1999, 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 September 17,
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 of
September 17, 1999), a total of 5,821,138 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 net outstanding
aggregate principal amount of $380,000, as of September 17,
1999, 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 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 1,900,000, the resale of all which
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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) 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 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 124,043,468,
prior to the exercise of the CGT Option, in which case, the
number of shares subject to the CGT Option would be
13,804,830, the resale of all of which shares would be
included in the Registration Statement. At present, the
authorized share issuance of the Company is 120,000,000
shares. The Company has obtained authorization from
shareholders representing in excess of 50% of the votes of the
common shareholders to increase the authorized share issuance
to 165 million shares.
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.
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Since January of 1995, the Company has issued a total of 53,496,331
shares, constituting 50.5% 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 13,953,726 shares, constituting approximately
13.2% 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").
8. POSSIBLE DEPRESSIVE EFFECT ON PRICE OF SECURITIES OF FUTURE SALES
OF COMMON STOCK. The resale of 11,952,857 of the 118,481,528 common shares of
the Company, issued and outstanding as of November 23, 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 September 17, 1999, the
Company's officers and directors were the beneficial owners of an aggregate of
30,550,835 shares, constituting approximately 28.86% of the Company's
outstanding common stock. (See Risk Factor No. 27 "ADVERSE EFFECTS OF PROPOSALS
OF THE BOARD OF DIRECTORS: 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.
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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
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. 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 A. Sanzaro, a director,
and until November 23, 1999, an officer 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 Major customer" and
"Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and Manufacture and Sale
of Finished Products."
11. 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.
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12. INTERNATIONAL SALES AND OPERATIONS. The Company plans to market the
TCS-1 Plant in Europe and India during the 2000 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 marketed successfully 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.
13. 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. 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 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.
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14. 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 of
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 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 October 19, 1999, had 118,481,528 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.
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. 15.
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.
15. 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
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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.
16. 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 (see "Management - Directors and Executive Officers").
17. 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 and Louis V. Muro, Vice President
in charge of engineering. The loss of the services of either 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 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. Moreover, 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, if at all. 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.
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<PAGE>
18. 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
breeding grounds for mosquitoes and vermin.
As a result, many US states and Canadian provinces 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 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
72
<PAGE>
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").
19. PRODUCTION AND SUPPLY. The Company intends to begin manufacturing
the TCS-1 Plant on a commercial basis in January 2000. 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").
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.
20. 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.
21. 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
73
<PAGE>
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").
22. 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.
23. 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.
24. 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".
25. PRIOR NOTICE NOT REQUIRED FOR SHAREHOLDER ACTIONS. None of the
Company's securities are 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 in certain circumstances. 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.
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<PAGE>
26. ADVERSE EFFECTS OF PROPOSALS OF THE BOARD OF DIRECTORS:
ANTI-TAKEOVER PROVISIONS, LIMITATIONS ON SHAREHOLDERS VOTING RIGHTS, AND STOCK
BONUSES TO MANAGEMENT. There has never been a Stockholders' Annual Meeting and
none is planned. 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 (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.
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<PAGE>
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 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 takeovers 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").
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, required to be included in this
Report pursuant to Item 310(a) of Regulation S-B, are set forth below.
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<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
INDEX
PAGE
----
Report of Independent Auditors 75
Consolidated Balance Sheet 76
Consolidated Statement of Operations 77
Consolidated Statements of Stockholders' Equity (Deficit) 78
Consolidated Statements of Cash Flows 80
Notes to Consolidated Financial Statements 82
77
<PAGE>
Report of Independent Auditors
Board of Directors
The Tirex Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of The Tirex
Corporation and Subsidiaries (a development stage company) as of June 30, 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended, June 30, 1999 and 1998 and for the
cumulative period from March 26, 1993, (date of inception) to June 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Tirex
Corporation and Subsidiaries (a development stage company) at June 30, 1999, and
the results of their operations, and their cash flows for the years ended June
30, 1999 and 1998, and for the cumulative period from March 26, 1993, (date of
inception) to June 30, 1999, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is still in the development stage and it
cannot be determined at this time that the technology acquired will be developed
to a productive stage. The Company's uncertainty as to its productivity and its
ability to raise sufficient capital raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Pinkham & Pinkham, P.C.
Certified Public Accountants
September 28, 1999
Cranford, New Jersey
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<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Balance Sheet
June 30, 1999
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 177,256
Accounts receivable 51,434
Inventory 25,698
Notes receivable 104,406
Sales tax receivable 81,244
R& D Investment tax credit receivable 952,704
Prepaid expenses and deposits 413,766
------------
1,806,508
------------
Property and equipment, at cost, net of accumulated
depreciation of $59,517 2,282,295
------------
Other assets
Prepaid expenses and deposits 183,920
Deferred financing costs 125,281
------------
309,201
------------
$ 4,398,004
============
LIABILITY AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 409,939
Current portion of long-term debt 106,385
Current obligations under capitalized lease 25,147
Accounts payable and accrued expenses 1,202,960
Accrued salaries 622,953
Deposits payable 143,500
2,510,884
Other liabilities
Long term debt (net of current portion) 436,610
Capital lease (net of current portion) 88,508
Convertible subordinated debentures 766,600
Loan from officers 149,406
1,441,124
Stockholders' equity
Common stock, $.001 par value, authorized
120,000,000 shares, issued and outstanding,
97,359,353 shares 97,360
Class A stock;.001 par value, authorized 5,000,000
shares issued and outstanding, 0 shares --
Additional paid-in capital 15,155,355
Deficit accumulated during the development stage (14,961,362)
Unrealized gain on foreign exchange 154,643
------------
445,996
------------
$ 4,398,004
============
</TABLE>
See Notes to Consolidated Financial Statements
79
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Operations
Cumulative
Period from
March 26, 1993
(Date of
Inception) to
Year Ended June 30, 1998 June 30, 1999
1999 Restated Restated
------------------- ------------ --------------
<S> <C> <C> <C>
Revenues $ 390,848 $ 880,000 $ 1,325,573
Cost of sales 204,988 796,490 1,015,830
------------ ------------ ------------
Gross profit 185,860 83,510 309,743
------------ ------------ ------------
Operations
General and administrative 3,229,332 1,970,277 6,185,672
Depreciation and amortization 47,222 12,361 71,250
Research and development 1,677,068 2,581,928 7,723,168
------------ ------------ ------------
Total expense 4,953,622 4,564,566 13,980,090
------------ ------------ ------------
Loss before other income and expenses (4,767,762) (4,481,056) (13,670,347)
------------ ------------ ------------
Other income (expenses)
Interest expense (119,923) (53,387) (183,929)
Interest income 15,422 2,540 17,962
Income from stock options -- -- 10,855
------------ ------------ ------------
Loss on disposal of equipment -- -- (2,240)
------------ ------------ ------------
(104,501) (50,847) (157,352)
------------ ------------ ------------
Net loss (4,872,263) (4,531,903) (13,827,699)
Other comprehensive loss
Loss on foreign exchange (37,616) (38,538) (76,307)
------------ ------------ ------------
Comprehensive loss $ (4,909,879) $ (4,570,441) $(13,904,006)
============ ============ ============
Net loss per common share $ (.07) $ (.10) $ (.65)
============ ============ ============
Weighted average shares of common
stock outstanding 66,029,439 45,704,410 21,511,812
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
80
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
----------- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 3,383,020 3,383 194,980 (1,057,356) -- (858,993)
Stock issued for reorganization 18,650,000 18,650 76,155 -- -- 94,805
Stock issued for services 100,000 100 (100) -- -- --
Stock issued in exchange for
warrants 363,656 364 (364) -- -- --
Forgiveness of debt -- -- 728,023 -- -- 728,023
Net loss for the year -- -- -- (165,296) -- (165,296)
----------- ----------- ----------- ----------- ---- ------------
Balance at June 30, 1993 22,496,676 22,497 998,694 (1,222,652) -- (201,461)
Stock issued 2,000 2 (2) -- -- --
Exchange for debt -- -- 149,170 -- -- 149,170
Payments received for stock
previously issued -- -- 237,430 -- -- 237,430
Net loss for year -- -- -- (179,296) -- (179,296)
----------- ----------- ----------- ----------- ---- ------------
Balance at June 30, 1994 22,498,676 22,499 1,385,292 (1,401,948) -- 5,843
Revision of common stock (11,900,000) (11,900) 11,900 -- -- --
Stock issued for services 5,592,857 5,592 513,908 -- -- 519,500
Shares issued in exchange
for debt 200,000 200 24,300 -- -- 24,500
Issuance of common stock 402,857 401 21,915 -- -- 22,316
Net loss for year -- -- -- (575,771) -- (575,771)
----------- ----------- ----------- ----------- ---- ------------
Balance at June 30, 1995 16,794,390 16,792 1,957,315 (1,977,719) -- (3,612)
----------- ----------- ----------- ----------- ---- ------------
See Notes to Consolidated Financial Statements
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 16,794,390 16,792 1,957,315 (1,977,719) -- (3,612)
Stock issued for services 3,975,662 5,090 846,612 -- -- 851,702
Shares issued in exchange
for debt 391,857 392 29,008 -- -- 29,400
Issuance of common stock 710,833 710 80,161 -- -- 80,871
Net loss for year -- -- -- (1,127,044) -- (1,127,044)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1996 21,872,742 22,984 2,913,096 (3,104,763) -- (168,683)
Stock issued for options -- -- 912,838 -- -- 912,838
Stock issued for services 5,067,912 3,955 690,234 -- -- 694,189
Shares issued in exchange
for debt 251,382 252 43,965 -- -- 44,217
Issuance of common stock 10,257,936 10,259 335,132 -- -- 345,391
Grants issued -- -- 408,597 -- -- 408,597
Net loss for year -- -- -- (2,376,279) -- (2,376,279)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 37,449,972 37,450 5,303,862 (5,481,042) -- (139,730)
Stock issued for services 4,396,466 4,396 922,180 -- -- 926,576
Stock issued for options -- -- 948,500 -- -- 948,500
Issuance of common stock 21,795,000 21,796 1,176,755 -- -- 1,198,551
Unrealized foreign exchange -- -- -- -- 183,785 183,785
Stock options issued and
outstanding -- -- 1,236,913 -- -- 1,236,913
Grants issued -- -- 669,906 -- -- 669,906
Net loss for year -- -- -- (4,570,441) -- (4,570,441)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 63,641,438 63,642 10,258,116 (10,051,483) 183,785 454,060
------------ ------------ ------------ ------------ ------------ ------------
Stock issued for services 24,200,439 24,200 2,735,544 -- -- 2,759,744
Stock issued for options 2,234,567 2,235 38,765 -- -- 41,000
Shares issued in exchange
for debt 3,787,947 3,788 340,164 -- -- 343,952
Conversion of debentures 2,816,966 2,817 290,102 -- -- 292,919
Issuance of common stock 677,966 678 49,322 -- -- 50,000
Unrealized foreign exchange -- -- -- -- (29,142) (29,142)
Stock options issued and
outstanding -- -- 385,600 -- -- 385,600
Grants issued -- 1,057,742 -- -- -- 1,057,742
Net loss for year -- -- -- (4,909,879) -- (4,909,879)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 97,359,353 $ 97,360 $ 15,155,355 $(14,961,362) $ 154,643 $ 445,996
============ ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Cash Flows
Cumulative
Period from
March 26, 1993
(Date of
Year ended June 30, Inception) to
1999 1998 June 30, 1999
------------ ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,909,879) $ (4,570,441) $(13,904,006)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 47,222 11,952 70,842
Loss on disposal and abandonment of assets -- -- 15,559
Stock issued in exchange for interest 24,519 -- 28,736
Stock issued in exchange for services and expenses 2,759,744 926,576 6,693,951
Stock options issued in exchange for services 385,600 2,185,413 2,571,013
Unrealized gain on foreign exchange (29,142) 183,785 154,643
Change in assets and liabilities:
(Increase) decrease in :
Accounts receivable (51,434) -- (51,434)
Employee advances -- 185,942 --
Inventory (25,698) -- (25,698)
Sales tax receivable 52,624 (83,584) (81,244)
R&D investment tax credit receivable (96,886) (585,900) (952,704)
Other assets 462,337 (1,063,943) (607,806)
(Decrease) increase in :
Accounts payable and accrued expenses 272,762 381,896 1,568,036
Accrued salaries 622,953 -- 622,953
Due to stockholders -- -- 5,000
------------ ------------ ------------
Net cash used in operating activities (485,278) (2,428,304) (3,892,159)
------------ ------------ ------------
Cash flow from investing activities:
Increase in notes receivable -- (216,240) (225,969)
Reduction in notes receivable 121,563 -- 121,563
Equipment (131,166) (72,871) (244,798)
Equipment assembly costs (1,098,790) (117,759) (1,999,801)
Organization cost -- -- 6,700
Reduction of security deposit -- -- (1,542)
Deferred start up costs -- 74,683 --
------------ ------------ ------------
Net cash used in investing activities (1,108,393) (332,187) (2,343,847)
------------ ------------ ------------
Cash flows from financing activities:
Loans from officers 149,406 -- 149,406
Loan granted to director -- 10,881 --
Deferred financing costs 32,964 (158,255) (125,291)
Proceeds from deposits -- (336,500) 143,500
Proceeds from notes payable 2,013 285,375 409,939
Payments on lease obligations (4,167) -- (4,167)
Proceeds from issuance of convertible
subordinated debentures -- 1,035,000 1,035,000
Proceeds from loan payable 56,607 299,467 591,619
Proceeds from issuance of stock options -- -- 20,000
------------ ------------ ------------
Sub-total $ 236,823 $ 1,135,968 $ 2,220,006
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
83
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
A DEVELOPMENTAL STAGE COMPANY
Consolidated Statements of Cash Flows
Cumulative
Period from
March 26, 1993
(Date of
Year ended June 30, Inception) to
1999 1998 June 30, 1999
----------- ----------- --------------
<S> <C> <C> <C>
Sub-total from prior page $ 236,823 $ 1,135,968 $ 2,220,006
Proceeds from grants 1,044,133 669,906 2,122,636
Proceeds from issuance of common stock 2,913 21,796 57,129
Proceeds from additional paid-in capital 88,087 1,176,755 2,013,234
Net cash provided by financing activities 1,371,956 3,004,425 6,413,005
Net (decrease) increase in cash and cash
equivalents (221,715) 243,934 176,999
Cash and cash equivalents - beginning
of year 398,971 155,037 257
Cash and cash equivalents - end of year $ 177,256 $ 398,971 $ 177,256
=========== =========== ===========
</TABLE>
Supplemental Disclosure of Non-Cash Activities:
In 1999 and 1998, the Company recorded an increase in common stock and
in additional paid-in capital of $343,952 and $126,347, respectively, which was
in recognition of the payment of debt. In 1999 and 1998 stock was issued in
exchange for services performed and expenses in the amount of $2,759,744 and
$926,576 respectively. In 1999 and 1998 stock options were issued in exchange
for services totaling $385,600 and $2,185,413 respectively.
Equipment was purchased via leases totaling $117,821 during the year ended June
30, 1999.
Convertible debentures were exchanged into stock totaling $268,400 during the
year ended June 30, 1999. Accrued interest of $24,519 was also converted into
stock.
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 20,530 $ -- $ 50,962
========== ======== ========
Income taxes paid $ -- $ -- $ --
========== ======== ========
See Notes to Consolidated Financial Statements
84
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES INC. AND SUBSIDIARY
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 -SUMMARY OF ACCOUNTING POLICIES
CHANGE OF NAME
In June, 1998 the Company changed its name from Tirex America, Inc. to The Tirex
Corporation and Subsidiaries.
NATURE OF BUSINESS
The Tirex Corporation and Subsidiaries (the "Company") was incorporated under
the laws of the State of Delaware on August 19, 1987. The Company originally
planned to provide comprehensive health care services to persons with Acquired
Immune Deficiency Syndrome, however due to its inability to raise sufficient
capital it was unable to implement its business plan. The Company had been
inactive since it ceased operations in November 1990.
In the Fall of 1992, a group of shareholders lead by Edward Mihal and including
16 other shareholders acting in concert with Mr. Mihal along with Patrick
McLaren and George Fattell, individuals without any prior affiliation with the
Company, became interested in the Company as an entity potentially suitable for
merger or similar transaction with an operating private company seeking to
become public in this manner. This group approached the Company's incumbent
management with a proposal whereby they agreed to assume management control,
make all delinquent filings with the Securities and Exchange Commission, restore
service by transfer agent and pay all other expenses required to enable the
Company to begin trading its stock and completing a merger or similar
transaction.
In furtherance of the foregoing, on November 5, 1992, J. Richard Goldstein, MD,
Peter R. Stratton and Robert Kopsack resigned from their positions as officers
and directors of the Company. From June 1989 until the date of such
resignations, Dr. Goldstein was the Company's President and Chief Executive
Officer, Mr. Stratton was Vice-President, Chief Operating Officer, Secretary and
Treasurer, and Mr. Kopsack was the Company's Vice President. In resigning their
positions, Dr. Goldstein and Messrs. Stratton and Kopsack acknowledged that they
acceded to their respective positions and had received compensation in
consideration of their representations that they would, and their best efforts
to, implement a business plan for the Company which would encompass, among other
things, the establishment and operating of skilled nursing care facilities for
patients with Acquired Immune Deficiency Syndrome. Compensation received by Dr.
Goldstein and Messrs. Stratton and Kopsack consisted of cash payments, stock
issuances, and the grants of stock options and/or stock purchase warrants. As
part of their resignations, Dr. Goldstein and Messrs. Stratton and Kopsack each
executed releases whereby the Company was released and forever discharged from
all debts, obligations, covenants, agreements, contracts, claims or demands in
law or in equity, including but not limited to any stock options or stock
purchase warrants granted or promised to them, which against the Company, each
ever had, or thereafter may have for or by reason of any matter, cause or thing
up to and through November 5, 1992. Each of Dr. Goldstein and Messrs. Stratton
and Kopsack also acknowledged the termination and rescission of their respective
employment agreements with the Company to such persons as the Company should
direct for the purpose of satisfying certain of the Company's obligations to
third parties. In consideration of the resignations and releases executed by Dr.
Goldstein and Messrs. Stratton and Kopsack, Edward Mihal and each of the sixteen
shareholders of the Company acting in concert with Mr. Mihal executed and
delivered reciprocal personal releases to and on behalf of Dr. Goldstein and
Messrs. Stratton and Kopsack. In connection with the foregoing resignations, Dr.
Goldstein and Messrs. Stratton and Kopsack appointed, as an interim board of
directors, Patrick McLaren, George Fattell, and Edward Mihal (the "Interim
Management"). It was the goal of the Interim Management to find suitable
acquisition and/or development by the Company. On December 29, 1992, Edward
Mihal resigned his position as an officer and a director of the Company and
Louis V. Muro was appointed as an officer and director of the Company to fill
the vacancy created thereby.
85
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 -SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
REORGANIZATION
On March 26, 1993, the Company entered into an acquisition agreement (the
"Acquisition Agreement") with Louis V. Muro, Patrick McLaren and George Fattell,
officers and directors of the Company (collectively the "Sellers"), for the
purchase of certain technology owned and developed by the Sellers (the
"Technology") and extensive and detailed plans (the "Business Plan") for a
business which will engage in the exploitation of the Technology. The Technology
will be used to design, develop and construct a prototype machine and thereafter
a production quality machine for the cryogenic disintegration of used tires.
Pursuant to the Acquisition Agreement, Sellers agreed to assign, transfer and
sell to the Company all of their right, title and interest in the Technology and
Business Plan in exchange for fifteen million nine hundred thousand (15,900,000)
shares of the Company's common stock, $.001 par value per share (the "Sellers'
Stock") of which eleven million nine hundred thousand (11,900,000) shares were
put into escrow. The Business Plan and Technology were developed by the Sellers
prior to their affiliation or association with the Company. The Sellers were
engaged as the Company's officers and directors for the purpose of implementing
the Business Plan with the Technology or such other technology which they
believed could reasonably satisfy the requirements of the Business Plan.
Effective with the March 26, 1993, closing date of the Acquisition Agreement
(the "Closing Date"), the Company authorized an increase in the number of
directors of the Company from three to six. Pursuant thereto, the Company
appointed Messrs. Kenneth Forbes, Nicholas Campagna, and Alfred J. Viscido to
fill the vacancies created in the size of the board. As an inducement to Messrs.
Forbes, Campagna and Viscido to join the board of directors, the Company issued
250,000 shares of its common stock, $.001 par value to each of them. The
Acquisition Agreement also provided for stock issuances in the form of finder's
fees. Pursuant thereto, the Company issued 300,000 and 1,700,000 shares of its
common stock, $.001 par value, to Joseph Territo and Edward Mihal, respectively.
Effective March 24, 1994, George Fattell resigned as an officer and director of
the Company. Per the terms of his resignation any future shares of the Company's
common stock issued to Mr. Fattell are to be equally distributed to Louis V.
Muro and Patrick McLaren.
Effective January 18, 1995, Louis V. Muro and Patrick McLaren resigned their
positions as officers and directors of the Company. In addition to their
resignations they acknowledged that none of the requisite performance levels for
the release of any of the 11,900,000 escrow shares had been met and renounced
all rights to such shares.
DEVELOPMENTAL STAGE
At June 30, 1999 the Company is still in the development stage. The operations
consist mainly of raising capital, obtaining financing, developing equipment,
obtaining customers and supplies, installing and testing equipment and
administrative activities.
BASIS OF CONSOLIDATION
The consolidated financial statements include the consolidated accounts of The
Tirex Corporation and its subsidiaries and Tirex Canada R&D, Inc.. Tirex Canada
R&D, Inc. is held 49% by the Company and 51% by the shareholders of the Company.
The shares owned by the shareholders are held in escrow by the Company's
attorney and are restricted from transfer . All intercompany transactions and
accounts have been eliminated in consolidation.
86
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 -SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows all certificates of deposits with
maturities of 90 days or less, were deemed to be cash equivalents.
ACCOUNTS RECEIVABLE
Management believes that all accounts receivable as of June 30, 1999, were fully
collectible; therefore, no allowance for doubtful accounts were recorded.
INVENTORY
The Company values inventory at the lower cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed provided using the straight-line method over the
estimated useful lives of five years.
Repairs and maintenance costs are expensed as incurred while additions and
betterments are capitalized. The cost and related accumulated depreciation of
assets sold or retired are eliminated from the accounts and any gain or losses
are reflected in earnings.
ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123
In 1997, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
encourages, but does not require companies to record at fair value compensation
cost for stock-based compensation plans. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock. The difference between the fair value method of SFAS-123 and
APB 25 is immaterial.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). SFAS 128 changes the standards for computing and presenting earnings per
share (EPS) and supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share." SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. This
Statement requires restatement of all prior-period EPS data presented.
As it relates to the Company, the principal differences between the provisions
of SFAS 128 and previous authoritative pronouncements are the exclusion of
common stock equivalents in the determination of Basic Earnings Per Share and
the market price at which common stock equivalents are calculated in the
determination of Diluted Earnings Per Share.
87
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 -SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Adoption of Statement of Accounting Standard No. 128
Basic earnings per common share is computed using the weighted average number of
shares of common stock outstanding for the period. Diluted earnings per common
share is computed using the weighted average number of shares of common stock
and dilutive common equivalent shares related to stock options and warrants
outstanding during the period.
The adoption of SFAS 128 had no effect on previously reported loss per share
amounts for the year ended June 30, 1997. For the years ended June 30, 1999 and
1998, primary loss per share was the same as basic loss per share and fully
diluted loss per share was the same as diluted loss per share. A net loss was
reported in 1998 and 1997, and accordingly, in those years the denominator was
equal to the weighted average outstanding shares with no consideration for
outstanding options and warrants to purchase shares of the Company's common
stock, because to do so would have been anti-dilutive. Stock options for the
purchase of 13,212,673 and 9,212,673 shares at June 30, 1999 and 1998,
respectively, and warrants for the purchase of 1,000,000 and 2,000,000 shares at
June 30, 1999 and 1998 respectively, were not included in loss per share
calculations, because to do so would have been anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which principally
include cash, note receivable, accounts payable and accrued expenses,
approximates fair value due to the relatively short maturity of such
instruments.
The fair value of the Company's debt instruments are based on the amount of
future cash flows associated with each instrument discounted using the Company's
borrowing rate. At June 30, 1999 and 1998, respectively, the carrying value of
all financial instruments was not materially different from fair value.
INCOME TAXES
The Company has net operating loss carryovers of approximately $14 million as of
June 30, 1999, expiring in the years 2004 through 2011. However, based upon
present Internal Revenue regulations governing the utilization of net operating
loss carryovers where the corporation has issued substantial additional stock,
most of this loss carryover may not be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, effective July 1993. SFAS No.109 requires the
establishment of a deferred tax asset for all deductible temporary differences
and operating loss carryforwards. Because of the uncertainties discussed in Note
2, however, any deferred tax asset established for utilization of the Company's
tax loss carryforwards would correspondingly require a valuation allowance of
the same amount pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company has research and development investment tax credits receivable from
Canada and Quebec amounting to $952,704 at June 30, 1999.
FOREIGN EXCHANGE
Assets and liabilities of the Company which are denominated in foreign
currencies are translated at exchange rates prevailing at the balance sheet
date. Revenues and expenses are translated at average rates throughout the year.
REVENUE RECOGNITION
Revenue is recognized when the product is shipped to the company.
88
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 2 -GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $4,910,000 during the year ended June 30, 1999.
In March 1993, the Company, which was still in the development stage, developed
a new Business Plan. As at June 30, 1999 the Company was in the process of
constructing a production quality machine for the cryogenic disintegration of
used tires. At June 30, 1999, the Company was still in the development stage.
The Company is currently in the process of formulating a plan to effect an
additional public offering, the proceeds of which would be used for working
capital and capital acquisitions. The ability of the Company to continue as a
going concern is dependent on the success of the plan. The financial statements
do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
Note 3 -FINANCING COSTS
During the year ended June 30, 1998 the Company incurred $158,255 in connection
with debt financing. These costs have been capitalized in other assets and are
being amortized over the terms of the financing. Amortization of financing costs
for the year ended June 30, 1999 was $32,964.
Note 4-PROPERTY AND EQUIPMENT
FINANCING COSTS
As of June 30, 1999 plant and equipment consisted of the following:
Furniture, fixtures and equipment $ 170,808
Leasehold improvements 171,004
Construction in progress - equipment 2,000,000
-----------
2,341,812
Less accumulated depreciation and amortization 59,517
-----------
$ 2,282,295
===========
Depreciation and amortization expense charged to operations was $42,770 and
$12,361 for the years ended June 30, 1999 and 1998, respectively.
Note 5- NOTES PAYABLE
The Company has available a $510,000 line of credit which bears interest at the
Canadian prime rate plus 1.25% to finance 75%of its research and development
investment tax credits incurred for the fiscal year ended June 30, 1999. At June
30, 1999, $408,302 was outstanding against this line of credit. The note is
collateralized by the personal guarantees of certain officers, certain equipment
of Tirex Canada and guaranteed by The Tirex Corporation and Subsidiaries. The
loan is guaranteed at a rate of 80% by the Garantie-Quebec (Guarantee-Quebec), a
subsidiary of a Quebec Government-owned corporation, Investissements-Quebec
(Investments-Quebec) and is repayable from the research and developmental
investment tax credits received. The Canadian prime rate of interest at June 30,
1999 was 6 1/4%.
Under the terms of the note payable to the bank, the Company is required to
maintain a current ratio of 1:1 by June 30, 1999 and 1.2:1 by June 30, 2000, a
tangible net worth of $750,000, and the furnishing of periodic financial
statements. During the year ended June 30, 1999, the Company failed to comply
with certain loan covenants.
The Company has two notes payable to investors at June 30, 1999 totaling $1,637
to pay for accrued interest on the debt which was converted to stock.
89
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Note 6- LONG-TERM DEBT
Federal Office of Regional Development (Ford-Q) 1999
Loan payable under the Industrial Recovery Program ----
amounting to 20% of certain eligible costs incurred (maximum loan
$340,252) repayable in annual installments over a forty-eight month
period following completion of the project, unsecured and non-interest
bearing. (If the Company defaults the loans become
interest bearing) $340,252
Loans payable under the Program for the Development of Quebec SME's
based on 50% of approved eligible costs for the preparation of market
development studies in certain regions. Loans are unsecured and
non-interest bearing. (If the Company defaults the loans become
interest bearing)
- Loan payable over five years commencing
June 2000 due June 2004 64,648
- Loan payable over five years, commencing
June 2001, due 2005 60,020
- Loan payable in amounts equal to 1% of annual
sales in Spain through June 30, 2007 13,610
- Loan payable in amounts equal to 11/2% of annual
sales in Spain and Portugal through June 30, 2004 64,465
--------
542,995
Less: current portion 106,385
$436,610
========
Minimum principal repayments of each of the next five years as follows:
1999 $106,385
2000 114,697
2001 157,033
2002 29,243
2003 37,555
Thereafter 98,082
--------
$542,995
========
90
</TABLE>
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 7- CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under agreements classified as
capital leases. The cost and the accumulated amortizations for such
equipment as of June 30, 1999 was $122,609 and $12,289, respectively.
The following is a schedule by years of future minimum lease payments
under capital leases of equipment together with the obligations under
capital leases (present value of future minimum rentals) as of June 30,
1999.
Years Ended
June 30,
2000 $ 34,605
2001 28,075
2002 28,075
2003 28,075
2004 20,955
Total minimum lease payments 139,785
Less amount representing interest 26,130
Total obligations under capital lease 113,655
Less current installments of obligations
under capital leases 25,147
Long-term obligation under capital leases,
with interest rate of 9.3% $ 88,508
Note 8- CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures consist of the following:
<TABLE>
<CAPTION>
Type A Type B
------ ------
<S> <C> <C>
Balance a June 30, 1999 $386,600 $380,000
Interest rate 10% 10%
Maturity Earlier of (i)-the completion Earlier of (i)-two years from the
of a public offering yielding issue date or (ii)-the completion
gross proceeds of not less of a public offering of its
than 8,000,000, (ii)-the securities by the Maker. These
closing on financing in debentures are subordinated to
excess of 4,500,000, all current and future bank debt.
These debentures are
subordinated to all current
and future bank debt.
Redemption rights If not converted the holder If not converted the holder may
may require the Company require the Company to redeem
to redeem at any time after at any time after maturity for the
maturity at a premium of 125% principal amount plus interest
of the principal amount plus
interest
</TABLE>
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<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 8 - CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
Conversion ratio 61.5% of the average of the $.20 per share. During the
closing bid price of the year ended June 30, 1999,
common stock as reported $155,000 of convertible
by NASDAQ during the five debentures were converted
day period preceding the to common stock.
Company's receipt of a notice
of conversion by a debenture
holder. During the year ended
June 30, 1999 debentures totaling
$113,400 were converted to
common stock.
Warrants As part of the debenture
package, the Company issued
2,000,000 warrants to purchase
a like number of shares of
common stock at $.001 per share
During the year ended June 30, 1999,
$1,000,000 warrants were exercised.
</TABLE>
Note 9 - RELATED PARTY TRANSACTIONS
On July 22, 1994, 3,000,000 shares of The Tirex Corporation and
Subsidiaries, Inc. were released from escrow and issued to Louis V.
Muro and Patrick McLaren (1,500,000 shares each) in accordance with the
terms and provisions of the Acquisition Agreement dated March 26, 1993.
The Company entered into various employment agreements with the
executive officers and general Counsel whereby the Company will pay a
total of $565,000 a year plus benefits. All of the employment
agreements call for terms ranging from 3 - 8 years. In addition to the
employment services, the officers agree not to compete with the Company
for the two year period following the termination of employment. If an
officer is terminated other than for cause or for "good reason", the
terminated officer will be paid twice the amount of their base salary
for twelve months. During the year ended June 30, 1999, two employees
were terminated and received severance pay totaling $500,000 which was
paid in stock. The employees also received options to buy 4,000,000
shares of stock for par value or $4,000. The options were exercised
July 31, 1999. The value of the options were recorded as paid in
capital at June 30, 1999 for 50% of the average price of the stock or
$381,600.
Included in accrued salaries at June 30, 1999 is $343,626 of salary to
officers and employees which the company subsequently issued common
stock for. Various loans due to the officers totaling $149,406 will be
paid in stock during the year ended June 30, 2000.
At June 30, 1999 and 1998, the Company had notes receivable from
various officers in the amount of $74,406 and $195,969, respectively.
One note in the amount of $70,405 bears interest at an annual rate of
8% above prime through September 1998 and 2% above prime since that
date and is collateralized by 400,000 shares of Tirex Corporation which
is held by the officer. The remaining notes are non-interest bearing
and are payable on demand.
At June 30, 1999 the Company had a note receivable for $30,000 from a
Company in which a director as a financial interest. The note bears
interest at prime plus 2% and is due on demand.
Deposits payable included an amount of $118,500 which are payable to
companies which are owned by a director of the Company.
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<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
The revenue recognized during the year ended June 30, 1998 was received
by a Company in which a director in the Company has a financial
interest.
Note 10- EXCHANGE OF DEBT FOR COMMON STOCK
During the year ended June 30, 1999, the Company recorded increases in
common stock and paid-in capital of $343,952, which was in recognition
for the exchange of common stock for debt owed. Debt totaling $164,000
was payable to certain related parties to the Company.
Note 11- COMMON STOCK
During the years ended June 30, 1999 and 1998, the Company issued
common stock to individuals in exchange for services performed totaling
$2,759,744 and $926,576, respectively. Included in these amounts are
payments to officers of the Company and in house counsel in exchange
for salary and consulting in the amount of $2,210,502 and $361,945,
respectively. Also included in the amounts paid in stock during the
year ended June 30, 1999 was an exclusive rights contract payable to an
officer totaling $406,250. The dollar amounts assigned to such
transactions have been recorded at the fair value of the services
received, because the fair value of the services received was more
evident than the fair value of the stock surrendered.
Note 12- STOCK OPTION
On May 19, 1995, the Company sold to a director of the Company an
option to purchase 20,000 shares of Cumulative Convertible Preferred
Stock at an exercise price of $10 per share, exercisable during the two
year period beginning May 19, 1995, and ending May 18, 1997. The
director paid $20,000 for the option. The terms of the Preferred Stock
purchasable under the option call for cumulative cash dividends at a
rate of $1.20 per share and conversion into 2,000,000 or more shares of
common stock. The conversion to common stock ratio varies depending on
when the conversion is made. At May 29, 1997, the exercise period was
extended until May 18, 1999. During the year ended June 30, 1999, the
director exercised the option to buy 1,234,567 shares of common stock
for $40,000. The balance of these options have expired.
<TABLE>
<CAPTION>
Compensatory Common Stock Options
--------------------------------- Compensation
Cost
For the Year Ended
Number of Shares June 30, 1999
---------------- ------------------
<S> <C> <C>
Balance at July 1, 1998 9,212,673 --
Stock options granted during the year
ended June 30, 1999 4,000,000 381,600
Stock options exercised during the year
ended June 30, 1999 -- --
------------- ------------
Balance at June 30, 1999 13,212,673 $ 381,600
============= ============
</TABLE>
The options expire at various dates through April 2000. The exercise price
ranges from .001 to .50 with the weighted average exercise price equal to .14.
Note 13- ACQUISITION BY MERGER OF RPM INCORPORATED
During November 1997, the Company entered into a merger agreement with
RPM Incorporated ("RPM"). The Company acquired all of the assets and
liabilities of RPM by acquiring all of the outstanding common stock of
RPM in exchange for common stock in the Company on a unit for unit
basis. RPM ceased to exist following the exchange.
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<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 13- ACQUISITION BY MERGER OF RPM INCORPORATED (CONTINUED)
The assets and liabilities acquired by the Company from RPM consist of
the proceeds from the sale of debentures as well as the debentures of
$535,000. The financing fees on the issuance of the debentures totaling
$61,755 is included in the statement of operations for the year ended
June 30, 1998. A total of 535,000 shares were issued as a result of the
merger valued at $16,050. A total of $16,050 was received for this
stock.
The Company entered into an additional agreement with the former
shareholders of RPM for a consulting agreement for a period of 5 years
expiring in June, 2002. In exchange for this consulting agreement,
3,000,000 shares of common stock were issued valued at $240,000. Other
than the consulting agreement and the issuance of the debentures, RPM
was inactive.
For accounting purposes the Company recorded the merger as a purchase
and not as a pooling of interests.
Note 14- GOVERNMENT ASSISTANCE
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit. During
the year ended June 30, 1999 the company received approximately
$1,058,000 which has been recorded as paid in capital.
Note 15- COMMITMENTS
The Company leases office and warehouse space at an annual minimum rent
of $82,000 for the first year, $169,000 for the second year and
$211,000 per year for the third through the fifth year. The lease
expires 2003. The Company is also responsible for its proportionate
share of any increase in real estate taxes and utilities. Under the
terms of the lease, the Company is required to obtain adequate public
liability and property damage insurance. The minimum future rental
payments under this lease are as follows:
June 30, Amount
-------- ----------
2000 $ 176,900
2001 204,100
2002 204,100
2003 170,100
----------
$ 755,200
==========
Rental expense for the year ended June 30, 1999 and 1998 amounted to
$111,930 and $55,532, respectively. One of these leases contains a
second ranking moveable hypothec in the amount of $300,000 on the
universality of the corporations moveable property.
Note 16- RESTATED FINANCIAL STATEMENTS
The financial statements for June 30, 1998 and for the cumulative
period from March 26, 1983 to June 30, 1999 have been restated to break
out other comprehensive income.
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<PAGE>
Note 17- CONTINGENCY
The Company is involved with a lawsuit with a prior consultant. The
complaint alleged that the Company breached its consulting agreement by
failing to pay compensation due there under and sought damages in the
amount of $221,202 including interest and legal costs. The Company
filed a counter claim for fraud, breach of contact and unjust
enrichment on the part of the consultant. The Company sought relief
consisting of compensatory damages in the amount of $28,800 and
cancellation of the stock certificate issued to the plaintiff for
263,529 shares; a declaratory judgment that the consulting agreement is
of no force and effect; punitive damages; and interest and legal costs.
The Company's position is that this case is completely without merit.
Note 18- ACCUMULATED OTHER COMPREHENSIVE INCOME
The deficit accumulated during the development stage included other
accumulated comprehensive income totaling $76,307.
95
<PAGE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There was no resignation or dismissal of the Company's principal
independent accountant during the two most recent fiscal years and the interim
period subsequent thereto.
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 June 30, 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:
DATE
OFFICES APPOINTED
NAME AGE HELD DIRECTOR
-------------------- --- ------------------------ -----------------
Terence C. Byrne 42 Chairman of the Jan. 18, 1995
Board of Directors and
Chief Executive Officer
Louis V. Muro 67 Vice President Jan. 1, 1996
of Engineering
and Director
John L. Threshie, Jr. 45 Vice President, and
Assistant Secretary Not Applicable
Louis Sanzaro 49 Past President,and January 17, 1997
Chief Operating Officer,
(until November 23, 1999)
and Director
Michael D.A. Ash 50 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
The Board of Directors has no standing committees other than the
executive committee which consists of three members. The members of the
executive committee, as of June 30, 1999 were Terence C. Byrne, Louis V. Muro,
and Louis Sanzaro. Mr. Sanzaro resigned from the executive committee, effective
November 23, 1999, to avoid a possible future conflict of interest. The
executive committee can exercise all powers of the full board with respect to
the management of the Company's business.
On February 11, 1999, the Company instituted an overall management
restructuring and reorganization. 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
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<PAGE>
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 of 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. 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 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.
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<PAGE>
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. Effective November 23,
1999, and to avoid a possible future conflict of interest, Mr. Sanzaro resigned
as President of the Company. Mr. Sanzaro holds a degree in marketing from
Marquette University. In 1997, he was 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,
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<PAGE>
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, until November 23, 1999 has been the Company's President
and Chief Operating Officer is a controlling person of all entities included in
the "Ocean Group".
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<PAGE>
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.
ITEM 10. EXECUTIVE COMPENSATION
CURRENT REMUNERATION
Except for individually negotiated employment agreements with its
executive officers, the Company has no stock option or stock appreciation
rights, long term or other incentive compensation plans, deferred compensation
plans, stock bonus plans, pension plans, or any other type of compensation plan
in place for its executive officers, directors, or other employees. Except
pursuant to the terms of their respective agreements, none of its executive
officers or directors have ever received compensation of any such types from the
Company pursuant to plans or otherwise. The following table sets forth
information concerning the annual compensation received or accrued for services
provided in all capacities to the Company for the fiscal years ended June 30,
1996, 1997, 19981998 by the Company's chief executive and all executive officers
of the Company serving as such as at June 30, 1998 or at any time during the
year ended June 30, 1998 whose compensation may be deemed for these purposes to
have exceeded $100,000 (see "Executive Compensation - Employment Contracts and
Termination of Employment and Change-in-Control Arrangements") In all instances
where cash salary payments are described as having been "waived", unregistered
shares of the Company's common stock were issued in lieu of such cash payments
and no further payments, in cash or stock, are due in respect of such waivers.
Stock issued in lieu of cash salary payments was valued at one-half the average
market price of such stock during the periods in which such salary was earned.
Determination of the market price for such purpose was based upon the average of
the bid and ask prices of such stock, as traded in the over-the-counter market
and quoted in the OTC Bulletin Board. The 50% discount from the market price was
determined arbitrarily, by negotiation between the Company and its executive
officers and did not bear any relationship to any established valuation criteria
such as assets, book value, or prospective earnings. The market prices of the
Company's common stock and the liquidity of such market has historically been
volatile. Future announcements concerning the Company or its competitors,
including the results of testing, technological innovations or new commercial
products may have a significant impact on the market price of the Company's
securities. Management believes that, as of the dates when such shares were
issued, they had no or only very minimal actual market value and the actual
potential market value of such shares, if any, was at such dates, and as at the
date hereof remains, highly contingent upon, and subject to, extremely high
risks (see, below, Note 7 to the Summary Compensation Table).
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
====================================================================================================
Annual Compensation
================================================
Salary Bonus Other
Name and Principal Position Year ($) ($) ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $250,000(1) (11) (12) (13) $ 0(14)
----------------------------------------------------------
1998 $250,000(2)(7)(8) (11) (12) (13) $5,075(14)
----------------------------------------------------------
Terence C. Byrne 1997 $250,000(3)(7)(8) (11) (12) (13) $ 422(14)
President, and Chief Executive Officer ----------------------------------------------------------
1996 $250,000(4)(7)(8) (11) (12) (13) $ 0(14)
- ----------------------------------------------------------------------------------------------------
1999 $150,000(5) (11) (12) (13) $ 0(14)
----------------------------------------------------------
1998 $150,000(6)(7)(8) (11) (12) (13) $4,224(14)
----------------------------------------------------------
Louis V. Muro 1997 $150,000(7)(7)(8) (11) (12) (13) $1,056(14)
Vice President of Engineering ----------------------------------------------------------
1996 $150,000(8)(7)(8) (11) (12) (13) $ 0(14)
- ----------------------------------------------------------------------------------------------------
Louis A. Sanzaro 1999 $175,000(9) (11) (12) (13) $ 0(14)
Chief Operating Officer
(until November 23, 1999)
- ----------------------------------------------------------------------------------------------------
Michael D.A. Ash 1999 $125,000(10) (11) (12) (13) $ 0(14)
Secretary-Treasurer &
Chief Financial Officer
====================================================================================================
NOTES TO SUMMARY COMPENSATION TABLE APPEAR ON FOLLOWING PAGE:
</TABLE>
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(1) FOR THE YEAR ENDED JUNE 30, 1999, MR. BYRNE RECEIVED CASH SALARY PAYMENTS
FROM THE COMPANY IN THE AGGREGATE AMOUNT OF $71,000.85. (THIS DOES NOT INCLUDE
CASH DISBURSEMENTS MADE TO MR. BYRNE DURING FISCAL 1999 BY WAY OF REIMBURSEMENTS
FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY). MR. BYRNE WAIVED CASH
PAYMENT OF THE BALANCE OF $178,999.15 IN SALARY PAYMENTS UNDER THE TERMS OF HIS
EMPLOYMENT AGREEMENT WITH THE COMPANY (THE "BYRNE EXECUTIVE AGREEMENT") FOR
FISCAL 1999. THE TERMS AND CONDITIONS OF THE BYRNE EXECUTIVE AGREEMENT, WHICH
CALLS FOR AN ANNUAL SALARY IN THE AMOUNT OF $250,000, ARE DISCUSSED IN MORE
DETAIL, BELOW, UNDER THE CAPTION, "EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS - EXECUTIVE AGREEMENTS". IN LIEU
OF CASH PAYMENT OF SALARY AND REIMBURSABLE EXPENSES, MR. BYRNE AGREED TO ACCEPT
SHARES OF THE COMPANY'S STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF
SUCH STOCK DURING THE PERIODS IN WHICH SUCH SALARY WAS EARNED OR SUCH EXPENSES
WERE INCURRED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR. BYRNE FOR
SERVICES RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT DURING FISCAL 1999 AND FOR
UNREIMBURSED EXPENSES INCURRED DURING FISCAL 1999 AGGREGATED TO 2,030,913
SHARES. HOWEVER, IN SEPTEMBER 1998 COMPUTATIONAL ERRORS THAT RESULTED IN
UNDERSTATEMENTS OF SALARY PAID TO MR. BYRNE FOR THE PERIODS JULY 1, 1997 -
NOVEMBER 30, 1997 AND DECEMBER 1, 1997 - MARCH 31, 1998 WERE DISCOVERED. AS A
CONSEQUENCE THEREOF, MR. BYRNE WAS INFORMED THAT HE WOULD HAVE TO RETURN TO THE
COMPANY FOR CANCELLATION AN AGGREGATE OF 508,109 (THE "RETURN SHARES") OF THE
1,303,920 COMPENSATION SHARES. 22,804 OF THE RETURN SHARES CONSIST OF
COMPENSATION SHARES RECEIVED BY MR. BYRNE IN DECEMBER 1997 AND 485,305 RETURN
SHARES CONSIST OF COMPENSATION SHARES RECEIVED BY MR. BYRNE IN APRIL 1998. IN
DECEMBER 1998, MR. BYRNE RETURNED THE 485,305 RETURN SHARES RECEIVED BY HIM IN
APRIL 1998. THE 22,804 RETURN SHARES RECEIVED BY HIM IN DECEMBER 1997 WERE
SUBSEQUENTLY TRANSFERRED TO AN ASSIGNEE OF MR. BYRNE. MR. BYRNE ARRANGED FOR THE
RETURN OF THESE SHARES. FOR A DISCUSSION IN DETAIL OF ALL ISSUANCES OF
COMPENSATION SHARES MADE TO MR. BYRNE DURING FISCAL 1998, INCLUDING THE DATES,
AMOUNTS, AND SHARE PRICES THEREOF, REFERENCE IS MADE TO, "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - ISSUANCE OF STOCK IN LIEU OF SALARIES AND CONSULTING
FEES AND STOCK RESTRICTION AGREEMENTS", BELOW. SUBSEQUENT TO JUNE 30, 1998, MR.
BYRNE HAS CONTINUED TO WAIVE PAYMENT OF SUBSTANTIAL PORTIONS OF HIS CONTRACTUAL
SALARY AND HE HAS AGREED TO CONTINUE TO WAIVE ALL OR PART OF SUCH SALARY UNTIL
THE COMPANY'S FINANCIAL POSITION IMPROVES SIGNIFICANTLY.
2) FOR THE YEAR ENDED JUNE 30, 1998, MR. BYRNE RECEIVED CASH SALARY PAYMENTS
FROM THE COMPANY IN THE AGGREGATE AMOUNT OF $70,362.68. (THIS DOES NOT INCLUDE
CASH DISBURSEMENTS MADE TO MR. BYRNE DURING FISCAL 1998 BY WAY OF REIMBURSEMENTS
FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY). MR. BYRNE WAIVED CASH
PAYMENT OF THE BALANCE OF $179,637.32 IN SALARY PAYMENTS AND $3,750 IN
REIMBURSABLE EXPENSES DUE TO HIM UNDER THE TERMS OF HIS EMPLOYMENT AGREEMENT
WITH THE COMPANY (THE "BYRNE EXECUTIVE AGREEMENT") FOR FISCAL 1998. THE TERMS
AND CONDITIONS OF THE BYRNE EXECUTIVE AGREEMENT, WHICH CALLS FOR AN ANNUAL
SALARY IN THE AMOUNT OF $250,000, ARE DISCUSSED IN MORE DETAIL, BELOW, UNDER THE
CAPTION, "EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS - EXECUTIVE AGREEMENTS". IN LIEU OF CASH PAYMENT
OF SALARY AND REIMBURSABLE EXPENSES, MR. BYRNE AGREED TO ACCEPT SHARES OF THE
COMPANY'S STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF SUCH STOCK
DURING THE PERIODS IN WHICH SUCH SALARY WAS EARNED OR SUCH EXPENSES WERE
INCURRED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR. BYRNE FOR SERVICES
RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT DURING FISCAL 1998 AND FOR
UNREIMBURSED EXPENSES INCURRED DURING FISCAL 1998 AGGREGATED TO 1,303,920
SHARES.
(3) FOR THE YEAR ENDED JUNE 30, 1997, MR. BYRNE RECEIVED CASH SALARY PAYMENTS
FROM THE COMPANY IN THE AGGREGATE AMOUNT OF $62,457. (THIS DOES NOT INCLUDE CASH
DISBURSEMENTS MADE TO MR. BYRNE DURING FISCAL 1997 BY WAY OF REIMBURSEMENTS FOR
EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY). MR. BYRNE WAIVED CASH
PAYMENT OF THE BALANCE OF $187,543 IN SALARY PAYMENTS DUE TO HIM UNDER THE TERMS
OF HIS EMPLOYMENT AGREEMENT WITH THE COMPANY (THE "BYRNE EXECUTIVE AGREEMENT")
FOR FISCAL 1997. THE TERMS AND CONDITIONS OF THE BYRNE EXECUTIVE AGREEMENT,
WHICH CALLS FOR AN ANNUAL SALARY IN THE AMOUNT OF $250,000, ARE DISCUSSED IN
MORE DETAIL, BELOW, UNDER THE CAPTION, "EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS - EXECUTIVE AGREEMENTS". IN LIEU
OF CASH PAYMENT OF SALARY, MR. BYRNE AGREED TO ACCEPT SHARES OF THE COMPANY'S
STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF SUCH STOCK DURING THE
PERIODS IN WHICH SUCH SALARY WAS EARNED. THE NUMBER OF COMPENSATION SHARES
ISSUED TO MR. BYRNE FOR SERVICES RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT
DURING FISCAL 1997 AGGREGATED TO 1,130,217 SHARES. FOR A DISCUSSION IN DETAIL OF
ALL ISSUANCES OF COMPENSATION SHARES MADE TO MR. BYRNE DURING FISCAL 1997,
INCLUDING THE DATES, AMOUNTS, AND SHARE PRICES THEREOF, REFERENCE IS MADE TO,
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ISSUANCE OF STOCK IN LIEU OF
SALARIES AND CONSULTING FEES AND STOCK RESTRICTION AGREEMENTS", BELOW.
(4) FOR THE YEAR ENDED JUNE 30, 1996, MR. BYRNE RECEIVED CASH SALARY PAYMENTS
FROM THE COMPANY IN THE AGGREGATE AMOUNT OF $17,424. (THIS DOES NOT INCLUDE CASH
DISBURSEMENTS MADE TO MR. BYRNE DURING FISCAL 1996 BY WAY OF REIMBURSEMENTS FOR
EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY). MR. BYRNE WAIVED CASH
PAYMENT OF THE BALANCE OF $ 232,576 IN SALARY PAYMENTS DUE TO HIM UNDER THE
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TERMS OF BYRNE EXECUTIVE AGREEMENT FOR THE YEAR ENDED JUNE 30, 1996. IN LIEU OF
CASH PAYMENT OF SALARY, MR. BYRNE AGREED TO ACCEPT SHARES OF THE COMPANY'S
STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF SUCH STOCK DURING ALL OR
PART OF THE PERIOD IN WHICH SUCH SALARY WAS EARNED. THE NUMBER OF COMPENSATION
SHARES ISSUED TO MR. BYRNE FOR SERVICES RENDERED PURSUANT TO HIS EXECUTIVE
AGREEMENT DURING FISCAL 1996 AGGREGATED TO 1,676,075.
(5) FOR THE FISCAL YEAR ENDED JUNE 30, 1999, MR. MURO RECEIVED CASH SALARY
PAYMENTS FROM THE COMPANY, IN THE AGGREGATE AMOUNT OF $54,703.99. (THIS DOES NOT
INCLUDE CASH DISBURSEMENTS MADE TO MR. MURO DURING FISCAL 1998 BY WAY OF
REIMBURSEMENTS FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY.) MR.
MURO WAIVED CASH PAYMENT OF THE AGGREGATE BALANCE OF $95,296.01 IN SALARY
PAYMENTS DUE TO HIM UNDER THE TERMS OF HIS EMPLOYMENT AGREEMENT WITH THE COMPANY
(THE "MURO EXECUTIVE AGREEMENT") FOR FISCAL 1999. IN LIEU THEREOF, MR. MURO
AGREED TO ACCEPT SHARES OF THE COMPANY'S STOCK, VALUED AT ONE-HALF THE AVERAGE
MARKET PRICE OF SUCH STOCK DURING THE PERIODS IN WHICH SUCH SALARY WAS EARNED OR
SUCH EXPENSES WERE INCURRED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR.
MURO FOR SERVICES RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT AND FOR
UNREIMBURSED EXPENSES INCURRED DURING FISCAL 1999 AGGREGATED TO 1,283,122
SHARES. HOWEVER, IN SEPTEMBER 1998 COMPUTATIONAL ERRORS THAT RESULTED IN
UNDERSTATEMENTS OF SALARY PAID TO MR. MURO FOR THE PERIODS JULY 1, 1997 -
NOVEMBER 30, 1997 AND DECEMBER 1, 1997 - MARCH 31, 1998 WERE DISCOVERED. AS A
CONSEQUENCE THEREOF, MR. MURO WAS INFORMED THAT HE WOULD HAVE TO RETURN TO THE
COMPANY FOR CANCELLATION AN AGGREGATE OF 230,077 (THE "RETURN SHARES") OF THE
650,957 COMPENSATION SHARES. 4,298 OF THE RETURN SHARES CONSIST OF COMPENSATION
SHARES RECEIVED BY MR. MURO IN DECEMBER 1997 AND 225,779 RETURN SHARES CONSIST
OF COMPENSATION SHARES RECEIVED BY MR. MURO IN APRIL 1998. IN DECEMBER 1998, MR.
MURO RETURNED ALL OF THE RETURN SHARES. FOR A DISCUSSION IN DETAIL OF ALL
ISSUANCES OF COMPENSATION SHARES MADE TO MR. MURO DURING FISCAL 1998, INCLUDING
THE DATES, AMOUNTS, AND SHARE PRICES THEREOF, REFERENCE IS MADE TO "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - ISSUANCE OF STOCK IN LIEU OF SALARIES
AND CONSULTING FEES", BELOW. SUBSEQUENT TO JUNE 30, 1998, MR. MURO HAS CONTINUED
TO WAIVE PAYMENT OF SUBSTANTIAL PORTIONS OF HIS CONTRACTUAL SALARY AND HE HAS
AGREED TO CONTINUE TO WAIVE ALL OR PART OF SUCH SALARY UNTIL THE COMPANY'S
FINANCIAL POSITION IMPROVES SIGNIFICANTLY.
(6) FOR THE FISCAL YEAR ENDED JUNE 30, 1998, MR. MURO RECEIVED CASH SALARY
PAYMENTS FROM THE COMPANY, IN THE AGGREGATE AMOUNT OF $62,023.44. (THIS DOES NOT
INCLUDE CASH DISBURSEMENTS MADE TO MR. MURO DURING FISCAL 1998 BY WAY OF
REIMBURSEMENTS FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY.) MR.
MURO WAIVED CASH PAYMENT OF THE AGGREGATE BALANCE OF $87,976.06 IN SALARY
PAYMENTS AND $3,750 IN REIMBURSABLE EXPENSES DUE TO HIM UNDER THE TERMS OF HIS
EMPLOYMENT AGREEMENT WITH THE COMPANY (THE "MURO EXECUTIVE AGREEMENT") FOR
FISCAL 1998. IN LIEU THEREOF, MR. MURO AGREED TO ACCEPT SHARES OF THE COMPANY'S
STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF SUCH STOCK DURING THE
PERIODS IN WHICH SUCH SALARY WAS EARNED OR SUCH EXPENSES WERE INCURRED. THE
NUMBER OF COMPENSATION SHARES ISSUED TO MR. MURO FOR SERVICES RENDERED PURSUANT
TO HIS EXECUTIVE AGREEMENT AND FOR UNREIMBURSED EXPENSES INCURRED DURING FISCAL
1998 AGGREGATED TO 650,957 SHARES.
(7) FOR THE FISCAL YEAR ENDED JUNE 30, 1997, MR. MURO RECEIVED CASH SALARY
PAYMENTS FROM THE COMPANY IN THE AGGREGATE AMOUNT OF $51,510. (THIS DOES NOT
INCLUDE CASH DISBURSEMENTS MADE TO MR. MURO DURING FISCAL 1997 BY WAY OF
REIMBURSEMENTS FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY.) MR.
MURO WAIVED CASH PAYMENT OF THE AGGREGATE BALANCE OF $98,490 IN SALARY PAYMENTS
DUE TO HIM UNDER THE TERMS OF HIS EMPLOYMENT AGREEMENT WITH THE COMPANY (THE
"MURO EXECUTIVE AGREEMENT") FOR THE YEAR ENDED JUNE 30, 1997. IN LIEU THEREOF,
MR. MURO AGREED TO ACCEPT SHARES OF THE COMPANY'S STOCK, VALUED AT ONE-HALF THE
AVERAGE MARKET PRICE OF SUCH STOCK DURING THE PERIODS IN WHICH SUCH SALARY WAS
EARNED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR. MURO FOR SERVICES
RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT DURING FISCAL 1997 AGGREGATED TO
595,540. FOR A DISCUSSION IN DETAIL OF ALL ISSUANCES OF COMPENSATION SHARES MADE
TO MR. MURO DURING FISCAL 1997, INCLUDING THE DATES, AMOUNTS, AND SHARE PRICES
THEREOF, REFERENCE IS MADE TO "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
ISSUANCE OF STOCK IN LIEU OF SALARIES AND CONSULTING FEES", BELOW.
(8) FROM JANUARY 18, 1995 THROUGH DECEMBER 31, 1995, MR. MURO SERVED AS AN
ENGINEERING CONSULTANT TO THE COMPANY PURSUANT TO THE TERMS OF HIS CONSULTING
AGREEMENT (THE "MURO CONSULTING AGREEMENT") WHICH PROVIDED FOR AGGREGATE
CONSULTING FEES IN THE AMOUNT OF $150,000. EFFECTIVE JANUARY 1, 1996, MR. MURO
SERVED AS THE COMPANY'S VICE PRESIDENT OF ENGINEERING PURSUANT TO THE MURO
EXECUTIVE AGREEMENT, WHICH PROVIDES FOR SALARY PAYMENTS TO MR. MURO IN THE
ANNUAL AMOUNT OF $150,000. FOR THE SIX-MONTH PERIOD WHICH COMMENCED ON JULY 1,
1995 AND ENDED ON DECEMBER 31, 1995, MR. MURO WAIVED PAYMENT IN CASH OF ALL
CONSULTING FEES DUE TO HIM. FOR THE BALANCE OF THE FISCAL YEAR ENDED JUNE 30,
1996, MR. MURO RECEIVED CASH SALARY PAYMENTS FROM THE COMPANY IN THE AGGREGATE
AMOUNT OF $7,592. (THIS DOES NOT INCLUDE CASH DISBURSEMENTS MADE TO MR. MURO
DURING FISCAL 1996 BY WAY OF REIMBURSEMENTS FOR EXPENSES PAID BY HIM FOR OR ON
BEHALF OF THE COMPANY.) MR. MURO WAIVED CASH PAYMENT OF THE AGGREGATE BALANCE OF
$142,408 IN CONSULTING FEES AND SALARY PAYMENTS DUE TO HIM UNDER THE TERMS OF
THE MURO CONSULTING AGREEMENT AND THE MURO EXECUTIVE AGREEMENT FOR THE YEAR
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ENDED JUNE 30, 1996. IN LIEU THEREOF, MR. MURO AGREED TO ACCEPT SHARES OF THE
COMPANY'S STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF SUCH STOCK
DURING ALL OR PART OF THE PERIOD IN WHICH SUCH CONSULTING FEES AND SALARY WERE
EARNED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR. MURO FOR SERVICES
RENDERED PURSUANT TO HIS CONSULTING AND EXECUTIVE AGREEMENTS DURING FISCAL 1996
AGGREGATED TO 1,074,367.
(9) FOR THE FISCAL YEAR ENDED JUNE 30, 1999, MR. SANZARO RECEIVED NO CASH
SALARY PAYMENTS FROM THE COMPANY (THIS DOES NOT INCLUDE CASH DISBURSEMENTS MADE
TO MR. SANZARO DURING FISCAL 1998 BY WAY OF REIMBURSEMENTS FOR EXPENSES PAID BY
HIM FOR OR ON BEHALF OF THE COMPANY.) MR. SANZARO WAIVED CASH PAYMENT OF THE
AGGREGATE BALANCE OF $175,000 IN SALARY PAYMENTS DUE TO HIM UNDER THE TERMS OF
HIS EMPLOYMENT AGREEMENT WITH THE COMPANY (THE "SANZARO EXECUTIVE AGREEMENT")
FOR FISCAL 1999. IN LIEU THEREOF, MR. MURO AGREED TO ACCEPT SHARES OF THE
COMPANY'S STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET PRICE OF SUCH STOCK
DURING THE PERIODS IN WHICH SUCH SALARY WAS EARNED OR SUCH EXPENSES WERE
INCURRED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR. SANZARO FOR SERVICES
RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT AND FOR UNREIMBURSED EXPENSES
INCURRED DURING FISCAL 1999 AGGREGATED TO 2,391,939 SHARES. THROUGHOUT FISCAL
1999, MR. SANZARO WAIVED CASH PAYMENT OF HIS ENTIRE CONTRACTUAL SALARY AND HE
HAS AGREED TO CONTINUE TO WAIVE ALL OR PART OF SUCH SALARY UNTIL THE COMPANY'S
FINANCIAL POSITION IMPROVES SIGNIFICANTLY.
(10) FOR THE FISCAL YEAR ENDED JUNE 30, 1999, MR. ASH RECEIVED CASH SALARY
PAYMENTS FROM THE COMPANY, IN THE AGGREGATE AMOUNT OF $9,603.66. (THIS DOES NOT
INCLUDE CASH DISBURSEMENTS MADE TO MR. ASH DURING FISCAL 1998 BY WAY OF
REIMBURSEMENTS FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY.) MR.
ASH WAIVED CASH PAYMENT OF THE AGGREGATE BALANCE OF $46,533.01 IN SALARY
PAYMENTS DUE TO HIM UNDER THE TERMS OF HIS EMPLOYMENT AGREEMENT WITH THE COMPANY
(THE "ASH EXECUTIVE AGREEMENT") FOR FISCAL 1999. IN LIEU THEREOF, MR. ASH AGREED
TO ACCEPT SHARES OF THE COMPANY'S STOCK, VALUED AT ONE-HALF THE AVERAGE MARKET
PRICE OF SUCH STOCK DURING THE PERIODS IN WHICH SUCH SALARY WAS EARNED OR SUCH
EXPENSES WERE INCURRED. THE NUMBER OF COMPENSATION SHARES ISSUED TO MR. ASH FOR
SERVICES RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT AND FOR UNREIMBURSED
EXPENSES INCURRED DURING FISCAL 1999 AGGREGATED TO 901,305 SHARES, NOT INCLUDING
THE 1,000,000 SHARES ISSUED TO MR. ASH AS A SIGNING BONUS. THROUGHOUT THE PERIOD
OF EMPLOYMENT OF MR. ASH IN FISCAL 1999 STARTING WITH HIS HIRING IN JANUARY
1999, MR. ASH HAS CONTINUED TO WAIVE PAYMENT OF SUBSTANTIAL PORTIONS OF HIS
CONTRACTUAL SALARY. SUBSEQUENT TO JUNE 30, 1999 VOLUNTARILY ABROGATED HIS
EXECUTIVE AGREEMENT WITH THE COMPANY FOR PURPOSES OF ENTERING INTO A NEW
AGREEMENT FOR THE PERIOD FROM SEPTEMBER 1, 1999 TO DECEMBER 31, 2000 UNDER WHICH
MR. ASH WILL CONTINUE TO PROVIDE SERVICES AS SECRETARY-TREASURER AND CHIEF
FINANCIAL OFFICER FOR THE COMPANY UNDER A CONSULTING CONTRACT. MR. ASH'S
COMPENSATION FOR THIS SIXTEEN-MONTH PERIOD WILL BE PAID THROUGH THE ISSUANCE OF
2,000,000 SHARES OF THE COMPANY, WHICH SHARES WILL BE ISSUED IN PRE-DETERMINED
QUANTITIES AT VARIOUS DATES THROUGHOUT THE SIXTEEN-MONTH PERIOD.
(11) MANAGEMENT BELIEVES THAT IT IS IMPOSSIBLE TO DETERMINE THE ACTUAL CURRENT
OR POTENTIAL VALUE, IF ANY, OF SUCH SHARES IN LIGHT OF THE FACT THAT, AS OF THE
DATES WHEN SUCH SHARES WERE ISSUED TO THE EXECUTIVE OFFICERS, THEY HAD NO OR
ONLY VERY MINIMAL ACTUAL MARKET VALUE AND THE ACTUAL POTENTIAL MARKET VALUE OF
SUCH SHARES, IF ANY, WAS AT SUCH DATES, AND AS AT THE DATE HEREOF REMAINS,
HIGHLY CONTINGENT UPON, AND SUBJECT TO, EXTREMELY HIGH RISKS INCLUDING BUT NOT
LIMITED TO THE FOLLOWING FACTORS: (I) THE VERY EARLY STAGE OF DEVELOPMENT OF THE
COMPANY'S BUSINESS; (II) THE COMPANY'S LACK OF SUFFICIENT FUNDS TO IMPLEMENT ITS
BUSINESS PLAN AND THE ABSENCE OF ANY COMMITMENTS FROM POTENTIAL INVESTORS TO
PROVIDE SUCH FUNDS; (III) THE ABSENCE OF A RELIABLE, STABLE, OR SUBSTANTIAL
TRADING MARKET FOR SUCH SHARES; (IV) THE RESTRICTIONS ON TRANSFER ARISING OUT OF
THE ABSENCE OF REGISTRATION OF SUCH SHARES AND CERTAIN STOCK RESTRICTION
AGREEMENTS WHICH EACH OF SUCH PERSONS HAS ENTERED INTO; AND (V) THE UNCERTAINTY
RESPECTING THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN, (SEE THE
DISCUSSIONS INCLUDED ABOVE, IN "EXISTING AND PROPOSED BUSINESSES" AND "MARKET
FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS").
(12) ALL COMPENSATION SHARES AND STOCK BONUSES ISSUED TO THE EXECUTIVE OFFICERS
NAMED IN THIS SUMMARY COMPENSATION TABLE IN LIEU OF CASH COMPENSATION WERE
ISSUED PURSUANT TO CERTAIN SPECIAL COMPENSATION AGREEMENTS AND STOCK RESTRICTION
AGREEMENTS BETWEEN EACH OF THEM AND THE COMPANY. THE TERMS AND CONDITIONS OF
SUCH AGREEMENTS ARE DISCUSSED IN DETAIL BELOW, UNDER "EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS - EXECUTIVE
AGREEMENTS AND SPECIAL COMPENSATION AGREEMENTS" AND IN "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - SALES OF AND RESTRICTIONS ON SHARES HELD BY EXECUTIVE
OFFICERS", BELOW.
(13) ON MAY 29, 1997, THE COMPANY AWARDED STOCK BONUSES TO MR. BYRNE AND MR.
MURO (THE "STOCK BONUSES"), FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND 1996
(THE "1995/1996 BONUSES"). ON SEPTEMBER 3, 1997, THE COMPANY AWARDED ADDITIONAL
STOCK BONUSES TO EACH OF THESE PERSONS IN THE FORM OF OPTIONS TO PURCHASE COMMON
STOCK (THE "1997 BONUS OPTIONS") AND ON JANUARY 13, 1998, THE COMPANY AWARDED
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BONUSES TO SUCH PERSONS (THE "1998 BONUSES") CONSISTING OF A REDUCTION IN THE
EXERCISE PRICE OF THE 1997 BONUS-OPTIONS FROM THE FULL MARKET PRICE OF THE
COMMON STOCK ON THE EXERCISE DATE THEREOF TO $.001 PER SHARE. THE FOREGOING
BONUSES WERE GRANTED TO THESE INDIVIDUALS IN RECOGNITION OF: (I) THEIR SUCCESS
IN BRINGING THE COMPANY FROM A VIRTUAL START-UP POSITION IN JANUARY 1995 TO ITS
PRESENT STAGE OF DEVELOPMENT, AND (II) THAT SUCH PERSONS HAVE NOT BEEN
ADEQUATELY COMPENSATED FOR THEIR CONTRIBUTIONS BECAUSE, AMONG OTHER THINGS, THEY
HAVE ACCEPTED, FOR ALL OF THE SERVICES RENDERED BY THEM TO THE COMPANY,
COMPENSATION CONSISTING PRINCIPALLY OF SHARES OF THE COMPANY'S COMMON STOCK, THE
VALUE OF WHICH HAS BEEN AND CONTINUES TO BE COMPLETELY DEPENDENT UPON THE
SUCCESS OF THE COMPANY AND THEREFORE HAS ALWAYS PLACED AND CONTINUES TO PLACE
THE RECIPIENTS THEREOF AT RISK. THE AWARDING OF EACH OF THE AFORESAID BONUSES
WAS APPROVED BY THE FULL BOARD OF DIRECTORS AND WAS EFFECTED PURSUANT TO THE
TERMS OF THE COMPANY'S EMPLOYMENT AGREEMENTS WITH EACH OF SUCH PERSONS. SUCH
AGREEMENTS PROVIDE THAT MR. BYRNE AND MR. MURO ARE EACH ELIGIBLE TO RECEIVE A
DISCRETIONARY BONUS FOR EACH YEAR (OR PORTION THEREOF) DURING THE TERM OF SUCH
AGREEMENT AND ANY EXTENSIONS THEREOF, WITH THE ACTUAL AMOUNT OF ANY SUCH BONUS
TO BE DETERMINED IN THE SOLE DISCRETION OF THE BOARD OF DIRECTORS BASED UPON ITS
EVALUATION OF THE EXECUTIVE'S PERFORMANCE DURING SUCH YEAR. THE 1995/1996
BONUSES CONSISTED OF OPTIONS TO PURCHASE THE FOLLOWING NUMBERS OF SHARES, AT A
PER SHARE EXERCISE PRICE OF $.001 PER SHARE, IN THE FOLLOWING AMOUNTS: MR. BYRNE
- - 1,413,382 SHARES; MR. MURO - 1,115,093 SHARES. THE 1997 BONUSES CONSISTED OF
OPTIONS TO PURCHASE THE FOLLOWING NUMBERS OF SHARES: MR. BYRNE - 2,000,000; MR.
MURO - 1,000,000 AT THE EXERCISE PRICE DESCRIBED ABOVE, AS REDUCED TO $.001 PER
SHARE PURSUANT TO THE AWARD OF THE 1998 BONUSES. BECAUSE THE SHARES WHICH WERE
PURCHASED PURSUANT TO THE EXERCISE OF THE FOREGOING OPTIONS, WERE ISSUED UNDER
THE TERMS OF THE ABOVE DESCRIBED EMPLOYMENT AGREEMENTS, THEY ARE ALSO SUBJECT TO
THE TERMS OF THE RESPECTIVE STOCK RESTRICTION AGREEMENTS WHICH EACH OF SUCH
PERSONS HAS ENTERED INTO. THE TERMS AND CONDITIONS OF SUCH AGREEMENTS ARE
DISCUSSED IN DETAIL BELOW, IN "EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS - EXECUTIVE AGREEMENTS AND SPECIAL
COMPENSATION AGREEMENTS" AND IN "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - SALES OF AND RESTRICTIONS ON SHARES HELD BY EXECUTIVE OFFICERS".
(14) REPRESENTS ADDITIONAL COMPENSATION RECEIVED IN THE FORM OF CAR ALLOWANCE
PAYMENTS. CARALLOWANCE PAYMENTS WERE WAIVED IN FISCAL 1999. THIS AMOUNT DOES NOT
INCLUDE THE 1,000,000 SHARES OF COMMON STOCK OF THE COMPANY WHICH MR. ASH
RECEIVED AS A SIGNING BONUS NOR THE 500,000 SHARES WHICH MR. SANZARO RECEIVED AS
A SIGNING BONUS.
(15) FOR THE FISCAL YEAR ENDED JUNE 30, 1999, MR. FRECHETTE RECEIVED CASH SALARY
PAYMENTS FROM THE COMPANY, IN THE AGGREGATE AMOUNT OF $71,011.83. (THIS DOES NOT
INCLUDE CASH DISBURSEMENTS MADE TO MR. FRECHETTE DURING FISCAL 1999 BY WAY OF
REIMBURSEMENTS FOR EXPENSES PAID BY HIM FOR OR ON BEHALF OF THE COMPANY.) MR.
FRECHETTE WAIVED CASH PAYMENT OF THE AGGREGATE BALANCE OF $41,488.17 IN SALARY
PAYMENTS DUE TO HIM UNDER THE TERMS OF HIS EMPLOYMENT AGREEMENT WITH THE COMPANY
(THE "FRECHETTE EXECUTIVE AGREEMENT") FOR FISCAL 1999. IN LIEU THEREOF, MR.
FRECHETTE AGREED TO ACCEPT SHARES OF THE COMPANY'S STOCK, VALUED AT ONE-HALF THE
AVERAGE MARKET PRICE OF SUCH STOCK DURING THE PERIODS IN WHICH SUCH SALARY WAS
EARNED OR SUCH EXPENSES WERE INCURRED. THE NUMBER OF COMPENSATION SHARES ISSUED
TO MR. FRECHETTE FOR SERVICES RENDERED PURSUANT TO HIS EXECUTIVE AGREEMENT AND
FOR UNREIMBURSED EXPENSES INCURRED DURING FISCAL 1999 AGGREGATED TO 477,155
SHARES NOT INCLUDING THE 1,000,000 SHARES ISSUED TO MR. FRECHETTE AS A SIGNING
BONUS.
COMPENSATION OF DIRECTORS
The directors of the Company are not compensated for their services as
such, except as follows: Three of the Company's five present directors received
unregistered shares of the Company's common stock ("Directors Shares"). Messrs.
Byrne and Hartley received Directors Shares in consideration of their agreements
to join the Company's Board of Directors in January of 1995. Mr. Sanzaro
received Directors Shares as compensation for services under the terms of his
Directors Compensation Agreement, dated July 7, 1997. Directors Shares were
issued, or transferred to the Company's directors as follows: 2,500,000 shares
were transferred by two members of the Company's former management to Terence C.
Byrne on January 18, 1995; 100,000 shares were issued by the Company to John G.
Hartley on February 16, 1995; and 100,000 shares were issued to Louis Sanzaro on
or about July 7, 1997. At the time the Directors Shares were transferred or
issued to the respective directors, they accepted shares based upon a
combination of their perceived valuation of both present and possible future
value of the shares, rather than the actual value of the Company's common stock
at that time. It was the position of the recipients of such shares that, as of
the dates they were received, their actual and potential value, if any, could
not be determined, and that any attempt to specify such valuation with any
reasonable assurance, would have been 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
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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 the discussions included above, in "Existing and Proposed
Businesses" and "Market for the Company's Common Equity and Related Stockholder
Matters").
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
EXECUTIVE AGREEMENTS
AND SPECIAL COMPENSATION AGREEMENTS
1. TERMS OF THE EXECUTIVE AGREEMENTS
The Company has entered into employment agreements with all of its
executive officers (the "Executive Agreements"). The respective commencement and
termination dates, and annual salaries under the Executive Agreements, as
amended, are as follows:
ANNUAL
OFFICER COMMENCEMENT DATE TERMINATION DATE SALARY
- ------- ----------------- ---------------- ------
Mr. Byrne January 18, 1995 December 31, 2003 US$250,000
Mr. Muro January 1, 1996 December 31, 2000 US$150,000
Mr. Sanzaro5 June 15, 1998 November 23, 1999 US$175,000
Mr. Threshie January 1, 1996 December 31, 1999 US$ 62,500
Mr. Frechette August 17, 1998 May 17, 1999 US$150,000
Mr. Ash January 4, 1999 December 31, 2000 Note following
Subsequent to fiscal 1999, Mr. Ash voluntarily abrogated his Executive
Agreement with the Company for purposes of entering into a new agreement under
which his compensation would be in the form of shares. Under this new agreement,
Mr. Ash continues to act as Secretary-Treasurer and Chief Financial Officer on a
consulting basis. Under the terms of the original Executive Agreement, Mr. Ash's
annual compensation was US$125,000. The consulting agreement extends to December
31, 2000 and is renewable by mutual consent of the Company and Mr. Ash. Mr.
Ash's compensation is payable only in shares of the Company, thus permitting a
substantial cash flow benefit to the Company. Mr. Ash's compensation for the
sixteen-month period to end December 31, 2000 is established at 2,000,000 common
shares or such other number of shares which would be derived in the event of a
stock split or reverse stock split.
All of the above agreements provide for the payment of bonuses at the
sole discretion of the Board of Directors based upon an evaluation of the
executive's performance, with payment of any such bonuses to be reviewed
annually. As of the date hereof, the Board of Directors has not established a
Compensation Committee and it has no plans to do so until such time as the
financial position and prospects of the Company improve significantly. The
Executive Agreements also provide for the participation by each of the foregoing
persons in any pension plan, profit-sharing plan, life insurance,
hospitalization or surgical program, or insurance program hereafter adopted by
the Company (there are no such programs in effect at the present time),
reimbursement of business related expenses, the non-disclosure of information
which the Company deems to be confidential to it, non-competition by the
executive with the Company for the one-year period following termination of
employment with the Company and for various other terms and conditions of
employment.
- ---------------
5 MR. SANZARO'S EXECUTIVE AGREEMENT CANCELLED AND REPLACED AN EARLIER
CONSULTING AGREEMENT BETWEEN THE COMPANY AND HIM (SEE "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS").
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The Executive Agreements with Messrs. Byrne, Muro, and Sanzaro and Ash
also include severance provisions which provide, among other things, for
severance compensation in the event that the employment of the executive is
terminated by the Company other than for cause, or by the executive for "good
reason", as that term is defined in the Executive Agreements, or pursuant to a
change in control of the Company. The various Executive Agreements provide for
severance compensation, as follows: (i) In the case of Messrs. Byrne, Sanzaro,
and Muro, 200% of the amount of the base salary for a period of twelve months;
(ii) In the case of Mr. Ash, the amount of severance compensation for
termination other than for cause, or by the executive for "good reason", as that
term is defined in the Executive Agreements, or pursuant to a change in control
of the Company, amounts to 1,000,000 common shares of the Company.
Certain executives have received signing bonuses or other stock
compensation in consideration of their discontinuing their other business
activities and entering into their executive agreements with the Company. During
the last two fiscal years, these included Messrs. Frechette and Ash, who
received one million shares, and Mr. Sanzaro, who received 500,000 shares, as
signing bonuses. Under the terms of his Executive Agreement, Mr. Sanzaro also
received an additional 2,500,000 shares for agreeing to release the Company from
its prior commitment to appoint him as its exclusive distributor of TCS-1 Plants
and to pay him commissions on all sales of TCS-1 Plants made in North America.
Because of the early stage of development of the Company, its lack of
operations and insignificant cash flow, since January 18, 1995, the Company has
not had the resources to meet fully its financial obligations under the
Executive Agreements. As a result, the major portion of the compensation which
has been available to the Company's executive officers has consisted of
unregistered shares of the Company's common stock ("Compensation Shares"), which
such individuals accepted, in lieu of cash compensation, for a substantial
portion of salary and/or consulting fees due to them (see "Certain Relationships
and Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees"). As was the case with the value of Directors Shares, at the various dates
when Compensation Shares were issued to the executive officers, they accepted
such shares based upon a combination of their perceived valuation of both
present and possible future value of the shares, rather than the actual value of
the Company's common stock at that time. It was the position of the recipients
of such shares that, as of the dates they were received, their actual and
potential value, if any, could not be determined, and that any attempt to
specify such valuation with any reasonable assurance, would have been 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"
and "Market for the Company's Common Equity and Related Stockholder Matters").
All of the Executive Agreements, as amended, provide that, as
compensation, and in lieu of payment in cash of salary, due thereunder, the
Company may issue and the respective executive officers will accept unregistered
shares of the Company's common stock, valued at fifty percent (50%) of the
average of the bid and ask prices of such stock, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, during part or all
of the period in which the salary was earned under the Executive Agreement. All
of the Compensation Shares issued to Mr. Byrne and Mr. Muro are also subject to
the terms and conditions of certain stock restriction agreements between each of
them and the Company. Such stock restriction agreements, as amended on May 30,
1996 and May 1, 1997 (the "Amended Stock Restriction Agreements"), provide that
shares subject to such agreements may be sold, hypothecated, donated or
otherwise disposed of, in accordance with the Rules and Regulations of the
Securities Act of 1933, as amended, and, under certain circumstances, included
in a registration statement on Form S-8.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth information as of February 11, 1999,
with respect to the persons known to the Company to be the beneficial owners of
more than 5% of the common stock, $.001 par value of the Company and of more
than 5% of the Class A Common Stock of the Company's subsidiary, Tirex R&D.
Neither the Company nor Tirex R&D have any shares of any other class issued or
outstanding.
PRINCIPAL SHAREHOLDERS TABLE
NAME AND AMOUNT AND
TITLE ADDRESS OF NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT OF
CLASS OWNER OWNERSHIP CLASS
- ----- ---------- ---------- ----------
Common Batholomew International 11,772,361(2) 9.95%
The Tirex Investments, Ltd.
Corporation P.O. Box 484
Basel House
108 Halkett Place
St. Helier, Jersey JE4 5SS
Chanel Islands
Common Terence C. Byrne 2,079,873(3) 1.76%
The Tirex 466 Cote St. Antoine
Corporation Westmount, Quebec
H3Y 2G9
Class A
Common 34(4) 34%
Tirex
R&D
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PRINCIPAL SHAREHOLDERS TABLE (CONTINUED)
NAME AND AMOUNT AND
TITLE ADDRESS OF NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT OF
CLASS OWNER OWNERSHIP CLASS
- ----- ---------- ---------- ----------
Common CG TIRE, INC. 13,804,830(5) 10%
The Tirex The Continental General
Corporation Tire Recycling Effort
1800 Continental Blvd.
Charlotte, NC 28273
Common Frances Katz Levine 7,255,312(6) 6.13%
The Tirex 621 Clove Road
Corporation Staten Island, NY 10310
Common SH Developments 8,592,607 7.26%
C/o Alton Management S.A.
5/2 Jumpers Building
Rosia Road
Gibralter
Class A
Common 17(4) 17%
Tirex
R&D
NOTES
The footnotes to this table appear after the "Security Ownership of
Management Table" which is set forth on the following page.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of September 17, 1999,
with respect to the beneficial ownership of the Common Stock, $.001 par value,
of the Company and the Class A common stock of the Company's subsidiary, Tirex
R&D by each of the executive officers and directors of the Company and Tirex R&D
and by all respective executive officers and directors as a group:
MANAGEMENT SHAREHOLDINGS TABLE
NAME AND AMOUNT AND
TITLE ADDRESS OF NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT OF
CLASS OWNER OWNER CLASS (1)
- ----- ---------- ---------- ----------
Common Terence C. Byrne 16,949,036(3) 14.33%
The Tirex 466 Cote St. Antoine
Corporation Westmount, Quebec
H3Y 2G9
Class A
Common 34(4) 34%
Tirex
R&D
Common Louis V. Muro 4,121,448 3.48%
The Tirex 374 Oliver Avenue
Corporation Westmount, Quebec
Canada H3Z 3C9
Class A
Common 17(4) 17%
Tirex
R&D
Common Louis V. Sanzaro 4,918,911 4.16%
The Tirex 1497 Lakewood Road
Corporation Toms River, NJ 08755
Common John L. Threshie, Jr.
The Tirex 200 Lansdowne,
Corporation Westmount, Quebec
Canada, H3Z 3E1 81,271 *
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MANAGEMENT SHAREHOLDINGS TABLE (CONTINUED)
NAME AND AMOUNT AND
TITLE ADDRESS OF NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT OF
CLASS OWNER OWNER CLASS (1)
- ----- ---------- ---------- ----------
Common John G. Hartley 1,254,567 1.06%
The Tirex 7/9 Boulevard D'Italie
Corporation Monte Carlo MC 98000
Monaco
Common Michael Ash 1,210,309 1.02%
The Tirex 310 Montee Sabourin
Corporation St. Bruno, Quebec
Canada, J3V 4P6
Common Henry P. Meier 410,000 *
The Tirex 1904 Waverly Place
Corporation Oakhurst, New Jersey 07755
Common All directors and 28,945,542 24.47%
The Tirex officers as a group
Corporation (7 persons)
Class A All directors and 51 (4) 51%
Common officers as a group
Tirex (7 persons)
R&D
* PERCENTAGES LESS THAN 1% NOT SHOWN
NOTES:
(1) THE PERCENTAGES LISTED IN THE TABLES ARE CALCULATED ON THE BASIS OF
118,481,528 SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF THE COMPANY
OUTSTANDING AS OF NOVEMBER 23, 1999, WITH THE FOLLOWING EXCEPTION: (A) THE
PERCENTAGE DEEMED TO BE BENEFICIALLY OWNED BY CG TIRE, INC. IS CALCULATED ON THE
BASIS OF 118,481,528 SHARES OF COMMON STOCK CURRENTLY ISSUED AND OUTSTANDING
PLUS 131,782,608 SHARES OF COMMON STOCK WHICH, CG TIRE HAS THE RIGHT TO ACQUIRE
PURSUANT TO ITS OPTION WITHIN 60 DAYS FROM THE DATE OF THIS REPORT (SEE, BELOW,
FOOTNOTE 5 TO THIS TABLE)
(2) BARTHOLOMEW INTERNATIONAL INVESTMENTS LTD. IS OWNED BY THE BARTHOLOMEW
TRUST, THE BENEFICIARIES OF WHICH ARE TERENCE C. BYRNE, HIS SPOUSE, AND HIS TWO
SONS.
(3) INCLUDES: (I) 2,009,990 SHARES HELD OF RECORD BY MR. BYRNE AS OF FEBRUARY
11, 1999; AND (II) 69,883 SHARES HELD OF RECORD BY MR. BYRNE'S WIFE, DARLA
SAPONE BYRNE, OVER WHICH SHARES MR. BYRNE HAS VOTING POWER PURSUANT TO AN
IRREVOCABLE PROXY GRANTED TO HIM ON SEPTEMBER 27, 1996; (III) 11,772,361 SHARES
HELD OF RECORD BY BARTHOLOMEW INTERNATIONAL INVESTMENTS, LTD.; AND (IV)
3,096,802 SHARES OWNED BY THE NAIS CORPORATION, OVER WHICH SHARES MR. BYRNE HAS
VOTING POWER PURSUANT TO AN IRREVOCABLE PROXY GRANTED TO HIM IN CONNECTION WITH
THE DECEMBER 18, 1998 SETTLEMENT OF A LAWSUIT BROUGHT BY THE NAIS CORPORATION
AGAINST THE COMPANY (SEE ITEM 3 OF THIS REPORT, "LEGAL PROCEEDINGS");
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(4) MESSRS. BYRNE AND MURO HOLD ALL SHARES OF TIREX R&D CLASS A COMMON STOCK
PURSUANT TO THE TERMS OF A SHAREHOLDERS AGREEMENT AMONG THEM AND THE COMPANY
(THE "TIREX R&D SHAREHOLDERS AGREEMENT"), PURSUANT TO WHICH THEY WILL BE
OBLIGATED TO TRANSFER ALL SUCH SHARES TO THE COMPANY, FOR NO CONSIDERATION, ON
MAY 2, 2001, UNLESS THE TERM OF SUCH AGREEMENT IS UNILATERALLY EXTENDED BY THE
COMPANY. THE COMPANY DOES NOT INTEND TO TAKE ANY ACTIONS OF ANY KIND WITH
RESPECT TO SUCH SHARES WHICH WOULD BE IN VIOLATION OF ANY CANADIAN GOVERNMENT
REGULATIONS GOVERNING TAX AND OTHER FINANCIAL INCENTIVES WHICH MAY BE AVAILABLE
TO TIREX R&D. THE TERMS OF THE TIREX R&D SHAREHOLDERS AGREEMENT ARE DISCUSSED IN
MORE DETAIL, BELOW, IN "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS", UNDER
THE CAPTION "TRANSFER OF 17% OF TIREX R&D SHARES FROM MR. FORBES TO MR. BYRNE."
(5) INCLUDES 13,804,830 SHARES WHICH CG TIRE, INC. (CGT) HAS THE RIGHT TO
ACQUIRE AT ANYTIME PRIOR TO APRIL 23, 2000 PURSUANT TO AN OPTION TO PURCHASE AT
A PER SHARE PRICE EQUAL TO FIFTY PERCENT (50%) OF THE AVERAGE OF THE FINAL BID
AND ASK PRICES OF THE COMMON STOCK OF TIREX, AS QUOTED IN THE OTC BULLETIN BOARD
DURING THE TEN BUSINESS DAYS PRECEDING THE DATE OF A NOTICE OF EXERCISE GIVEN BY
THE CG TIRE, ALL, OR ANY PART OF, THE NUMBER OF SHARES OF THE COMMON STOCK OF
TIREX WHICH WOULD CONSTITUTE TEN PERCENT, UPON THEIR ISSUANCE (10%) OF THE
COMMON STOCK OF TIREX, ISSUED AND OUTSTANDING AT THE DATE OF EXERCISE (THE
"OPTION"), ON A FULLY DILUTED BASIS. THE CGT OPTION WAS AMENDED AT OR AROUND
AUGUST 13, 1997 AND MAY 18, 1998. THE OPTION, WHICH HAS A THREE-YEAR TERM, WAS
GRANTED TO CGT ON APRIL 24, 1997, IN CONSIDERATION OF CGT'S AGREEMENT TO (I)
EXPLORE WITH THE COMPANY THE POSSIBILITY OF THE COMPANY'S: (A) FURNISHING
GENERAL TIRE WITH ALL OR PART OF ITS 80-MESH CRUMB RUBBER REQUIREMENTS AND (B)
ESTABLISHING LOCAL TIRE RECYCLING CENTERS FOR THE PURPOSE OF ACCEPTING FOR
DISINTEGRATION, SCRAP TIRES FROM GENERAL TIRE'S NETWORK OF INDEPENDENT DEALERS;
AND (II) ADVISE THE COMPANY WITH RESPECT TO GENERAL TIRE'S SPECIFICATIONS FOR
ITS CRUMB RUBBER REQUIREMENTS, ANY FURTHER DEVELOPMENT OF SUCH SPECIFICATIONS IN
THE FUTURE, THE SUITABILITY OF THE TCS-1 PLANT FOR MEETING SUCH SPECIFICATIONS,
AND THE FURTHER DEVELOPMENT OF THE COMPANY'S TECHNOLOGY IN COORDINATION WITH
CONTINENTAL TIRE'S PRODUCT DEVELOPMENT REQUIREMENTS. CGT HAS NOT, AS OF THE DATE
HEREOF, EXERCISED ANY PART OF THE OPTION.
(6) INCLUDES 1,808,061 SHARES HELD OF RECORD BY MS. LEVINE'S SPOUSE, ROBERT
LEVINE, OVER WHICH SHARES MS. LEVINE DISCLAIMS ANY BENEFICIAL OWNERSHIP.
(7) PURSUANT TO THE SETTLEMENT OF A LAWSUIT BROUGHT BY NAIS AGAINST THE COMPANY
ALL SHARES HELD OF RECORD BY NAIS ARE SUBJECT, FOR SO LONG AS THEY ARE HELD BY
NAIS OR ANY ASSIGNEE OF NAIS, TO A VOTING PROXY HELD BY TERENCE C.
BYRNE. (SEE FOOTNOTE 3 TO THIS TABLE AND ITEM 3. "LEGAL PROCEEDINGS").
CHANGES IN CONTROL
The Company is not aware of any arrangements which may at a subsequent
date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of any transactions during the last two
completed fiscal years, the current fiscal year or any presently proposed
transactions, to which the Company was or is to be a party, in which the amount
involved in such transaction (or series of transactions) was $60,000 or more (in
some instances, transactions valued at less than $60,000) have also been
included) and which any of the following persons had or is to have a direct or
indirect material interest: (i) any director or executive officer of the
Company; (ii) any person who owns or has the right to acquire 5% or more of the
issued and outstanding common stock of the Company; and (iii) any member of the
immediate family of any such persons. The Company does not have any requirement
respecting the necessity for independent directors to approve transactions with
related parties. All transactions are approved by the vote or unanimous written
consent of the full board of directors or the executive committee of the board
of directors, which, during the period covered by this Report, consisted of
Terence C. Byrne, John Hartley, and Louis V. Muro. On February 11, 1999, as part
of an overall management reorganization, Mr. Hartley resigned from, and Mr.
Sanzaro was appointed to, the Executive Committee. Mr. Sanzaro's resignation as
President of the Company, effective November 23, 1999, also brings his
resignation as a Member of the Executive Committee. All members of the Board of
Directors, individually and/or collectively, could have possible conflicts of
interest with respect to transactions with related parties.
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ISSUANCE OF STOCK IN LIEU OF SALARIES AND UNREIMBURSED EXPENSES
During the years ended June 30, 1998 and 1999, the Company's executive
officers and, since December 22, 1996, its in-house corporate and securities
counsel, Frances Katz Levine have waived substantial portions of their salaries
and unreimbursed expenses made by them on behalf, and for the account, of the
Company, and have accepted shares of the Company's common stock in lieu thereof.
In connection therewith; shares have been issued for the periods indicated as
follows:
YEAR ENDED JUNE 30, 1997
For the fiscal quarter ended September 30, 1996, Mr. Byrne waived
payment of $51,769, Ms. Levine waived payment of $31,062, Mr. Muro waived
payment of $29,324, and Mr. Threshie waived payment of $9,945. In connection
therewith, on September 30, 1996, the Company authorized the issuance of 329,738
shares to Mr. Byrne, 197,847 shares to Ms. Levine, 186,777 shares to Mr. Muro,
and 62,392 shares to Mr. Threshie. The number of shares issued at such time was
calculated on the basis of 50% of the average of the bid and ask price for the
Company's stock (50% of $.314 or approximately $.157 per share) during the
three-month period ended September 30, 1996. On April 28, 1997, the Company
authorized the issuance to Vijay Kachru, who was an officer of the Company until
February 11, 1999, of 32,396 shares in lieu of $5,475 in salary waived by her
for services performed during the month of September 1996. The number of shares
issued to Ms. Kachru was calculated on the basis of the price of the Company's
common stock during the quarter ended September 30, 1996.
For the fiscal quarter ended December 31, 1996, Mr. Byrne waived
payment of $40,966, Ms. Levine waived payment of $33,446, Mr. Muro waived
payment of $23,910, Mr. Threshie waived payment of $12,074, and Ms. Kachru
waived payment of $9,819. In connection therewith, on January 17, 1997, the
Company authorized the issuance of 285,876 shares to Mr. Byrne, 233,402 shares
to Ms. Levine, 166,853 shares to Mr. Muro, and 84,260 shares to Mr. Threshie. On
April 28, 1997, the Company authorized the issuance to Ms. Kachru of 68,520
shares in lieu of salary waived by her for services performed during this
quarter.The number of shares issued at such time was calculated on the basis of
50% of the average of the bid and ask price for the Company's stock (50% of
.2866 or approximately $.1433 per share) during the three-month period ended
December 31, 1996.
For the fiscal quarter ended March 31, 1997, Mr. Byrne waived payment
of $41,836, Ms. Levine waived payment of $30,554, Mr. Muro waived payment of
$22,732, Mr. Threshie waived payment of $1,934, and Ms. Kachru waived payment of
$6,715. In connection therewith, on April 28, 1997, the Company authorized the
issuance of 195,495 shares to Mr. Byrne, 142,776 shares to Ms. Levine, 106,224
shares to Mr. Muro, 9,037 shares to Mr. Threshie, and 31,383 shares to Ms.
Kachru. The number of shares issued at such time was calculated on the basis of
50% of the average of the bid and ask price for the Company's stock (50% of .428
or approximately $.214 per share) during the three-month period ended March 31,
1997.
For the fiscal quarter ended June 30, 1997, Mr. Byrne waived payment of
$52,972, Ms. Levine waived payment of $41,640, Mr. Muro waived payment of
$22,524, Mr. Threshie waived payment of $3,140, and Ms. Kachru waived payment of
$5,905. In connection therewith, on April 28, 1997, the Company authorized the
issuance of 319,108 shares to Mr. Byrne, 250,843 shares to Ms. Levine, 135,686
shares to Mr. Muro, 18,915 shares to Mr. Threshie, and 35,572 shares to Ms.
Kachru. The number of shares issued at such time was calculated on the basis of
50% of the average of the bid and ask price for the Company's stock (50% of .333
or approximately $.166 per share) during the three-month period ended June 30,
1997.
YEAR ENDED JUNE 30, 1998
For the five-month period ended November 30, 1997, Mr. Byrne waived
payment of $92,497, Ms. Levine waived payment of $56,574, Mr. Muro waived
payment of $41,610, Mr. Threshie waived payment of $5,433, and Ms. Kachru waived
payment of $13,111. In connection therewith, on December 15, 1997, the Company
authorized the issuance of 336,353 shares to Mr. Byrne, 206,379 shares to Ms.
Levine, 151,309 shares to Mr. Muro, 24,000 shares to Mr. Threshie, and 47,692
shares to Ms. Kachru. The number of shares issued at such time was calculated on
the basis of 100% of the average of the bid and ask price for the Company's
stock (approximately $.275 per share) during the five-month period ended
November 30, 1997. The issuance of these shares at such price constituted an
error because the executive committee of the board of directors had authorized
and directed that shares issued in lieu of cash compensations for such period be
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issued at 50% of the average market price of the Company's common stock. In
correction of the foregoing error, on April 15, 1998, the Company authorized the
issuance of additional shares, as follows: 336,352 to Mr. Byrne, 151,309 to Mr.
Muro, 15,512 to Mr. Threshie, 47,690 to Ms. Kachru, and 206,379 to Ms. Levine.
For the four-month period ended March 31, 1998, Mr. Byrne waived
payment of $59,183, Ms. Levine waived payment of $45,191, Mr. Muro waived
payment of $33,200, Mr. Threshie waived payment of $6,167, and Ms. Kachru waived
payment of $9,450. In connection therewith, on April 15, 1998, the Company
authorized the issuance of 423,038 shares to Mr. Byrne, 323,023 shares to Ms.
Levine, 237,312 shares to Mr. Muro, 44,081 shares to Mr. Threshie, and 67,548
shares to Ms. Kachru. The number of shares issued at such time was calculated on
the basis of 50% of the average of the bid and ask price for the Company's stock
(50% of $.28 per share or approximately $.14 per share) during the four-month
period ended March 31, 1998.
For the three month period ended June 30, 1998, Mr. Byrne waived
payment of $31,707, Ms. Levine waived payment of $36,615.90, Mr. Muro waived
payment of $16,916, Mr. Threshie waived payment of $1,307.10, Ms. Kachru waived
payment of $1,608.22, and Mr. Sanzaro, whose employment as an executive officer
of the Company commenced on June 15, 1998, waived payment of $7,291.67. In
connection therewith, in December, 1998 the Company authorized the issuance of
208,177 shares to Mr. Byrne; 240,327 shares to Ms. Levine; 111,027 shares to Mr.
Muro; 8,579 shares to Mr. Threshie; 10,555 shares to Ms. Kachru; and 47,859
shares to Mr. Sanzaro. The number of shares issued at such time was calculated
on the basis of 50% of the average of the bid and ask price for the Company's
common stock (50% of $.3044177 or approximately $.1523588 per share) during the
three month period ended March 31, 1998.
In September 1998 computational errors were discovered that resulted in
understatements of salary paid to all of the Company's executive officers and to
the Company's corporate and securities counsel for the five month period ended
November 30, 1997 and the four month period March 31, 1998. As a consequence
thereof, all of the Company's executive officers and its corporate and
securities counsel during the periods in question, received share overpayments
of Compensation Stock with regard to such periods. Such officers and legal
counsel were promptly notified that they would have to return such share
overpayments to the Company so that the shares representing such overpayments
could be cancelled. Pursuant to the foregoing, (i) Mr. Byrne was required to
return an aggregate of 508,109 Compensation Shares consisting of 22,804
Compensation Shares issued to him in December 1997 and 485,305 Compensation
Shares issued to him in April 1998; (ii) Mr. Muro was required to return an
aggregate of 230,077 Compensation Shares consisting of 4,298 Compensation Shares
issued to him in December 1997 and 225,779 Compensation Shares issued to him in
April 1998; (iii) Mr. Threshie was required to return an aggregate of 83,593
Compensation Shares consisting of 24,800 Compensation Shares issued to him in
December 1997 and 59,593 Compensation Shares issued to him in April 1998; (iv)
Ms. Kachru was required to return an aggregate of 162,930 Compensation Shares
consisting of 47,692 Compensation Shares issued to her in December 1997 and
115,238 Compensation Shares issued to her in April 1998; and (v) Ms. Levine was
required to return an aggregate of 31,353 Compensation Shares issued to her in
April 1998. Each of Messrs. Byrne, Muro and Threshie, Ms. Kachru and Ms. Levine
agreed to return such Compensation Shares representing overpayments and, as at
February 16, 1999, all of such Compensation Shares have been returned except for
22,804 Compensation Shares issued to Mr. Byrne in December 1997. These 22,804
Compensation Shares were transferred to an assignee of Mr. Byrne following their
issuance and Mr. Byrne has advised the Company that arrangements are being made
by him regarding their return for cancellation. In addition to the foregoing,
for the nine-month period ended March 31, 1998 Mr. Threshie and Ms. Kachru
received cash salary overpayments in the respective amounts of $712.63 and
$236.17. These amounts were treated by the Company as additional salary payments
to Mr. Threshie and Ms. Kachru during the three month period ended June 30, 1998
for the purpose of calculating the amount of Compensation Stock due to Mr.
Threshie and Ms. Kachru for such period.
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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 May 29, 1997,
Mr. Crossley, through GAPCO, Inc., a corporation under his control, also
accepted an additional 84,658 shares of the Company's common stock as part of
the compensation due to him under his consulting agreement. (See "Certain
Relationships and Related Transactions - Consulting and Employment Agreements
with Alan Crossley"). 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 January 1, 1998 and ended on June 30, 1998, the Company paid Mr. Crossley in
cash. The unreimbursed expenses incurred by Mr. Crossley for the account and on
behalf of the Company during the twelve month period ended June 30, 1998 which
were subsequently repaid to Mr. Crossley in connection with his employment
agreement, in a combination of cash and stock, aggregated to Cdn$115,000.
YEAR ENDED JUNE 30, 1999
For the three month period ended September 30, 1998, Mr. Byrne waived
payment of $28,486; Ms. Levine waived payment of $41,492; Mr. Muro waived
payment of $14,763; Mr. Threshie waived payment of $325; Ms. Kachru waived
payment of $338; and Mr. Sanzaro waived payment of $43,750. In December 1998 the
Company authorized the issuance of 269,589 shares to Mr. Byrne, 392,679 shares
to Ms. Levine; 139,716 shares to Mr. Muro; 3,076 shares to Mr. Threshie; 3,195
shares to Ms. Kachru; and 414,046 shares to Mr. Sanzaro. The number of shares
issued at such time was calculated on the basis of 50% of the average of the bid
and ask price for the Company's common stock (50% of $.2113293 or approximately
$.1056646 per share) during the three month period ended September 30, 1998.
For the three-month period ended December 31, 1998, Mr. Byrne waived
payment of $34,201, Ms. Levine waived payment of $23,500 and Mr. Muro waived
payment of $18,259, Mr. Threshie waived payment of $787, Ms. Kachru waived
payment of $539, Mr. Sanzaro waived payment of $43,750 and Mr. Frechette waived
payment of $13,060
For the three month period ended March 31, 1999, Mr. Byrne waived
payment of $41,395, Ms. Levine waived payment of $23,250 in respect of salary
and $36,825 in respect of expenses for the six-month period ended March 31,
1999, Mr. Muro waived payment of $18,523, Mr. Threshie waived payment of $2,203,
Ms. Kachru waived payment of $2,087, Mr. Sanzaro waived payment of $43,750 in
respect of salary and $47,366 in respect of expenses for the eight-month period
ended February 1999, Mr. Frechette waived payment of $13,432 and Mr. Ash waived
payment of $19,678 In connection with the cash payments waived for the second
and third quarters of fiscal 1999, on April 6, 1998,and in respect of the period
from October 1, 1998 to March 15, 1999, with the exception of the period covered
for the expenses of Mr. Sanzaro, which period was a nine-month period, the
Company authorized the issuance of 858,030 shares to Mr. Byrne, 970,143 shares
to Ms. Levine, 417,676 shares to Mr. Muro, 34,320 shares to Mr. Threshie,
1,297,748 shares to Mr. Sanzaro, 301,045 shares to Mr. Frechette and 201,145
shares to Mr. Ash, not including the signing bonus of 1,000,000 to Mr. Ash which
was issued on the same date.. The number of shares issued at such time was
calculated on the basis of 50% of the average of the bid and ask price for the
Company's stock or approximately $0.0882 per share) during the six-month period
ended March 31, 1999, with the exception of the 1,000,000 shares issued to Mr.
Ash as a signing bonus which were issued at $0.09125 per share.
For the three-month period ended June 30, 1999, Mr. Byrne waived
payment of $72,916, Ms. Levine waived payment of $43,750 for salary and $29,310
for expenses, Mr. Muro waived payment of $43,750, Mr. Threshie waived payment of
$601, Ms. Kachru waived payment of $18,958.22, Mr. Sanzaro waived payment of
$43,750, Mr. Frechette waived payment of $8,854 and Mr. Ash waived payment of
$33,218. In connection therewith, in June 1999 the Company authorized the
issuance of 903,294 shares to Mr. Byrne; 1,074,861 shares to Ms. Levine; 541,976
shares to Mr. Muro; 2,901 shares to Mr. Threshie; 219,175 shares to Ms. Kachru;
632,306 shares to Mr. Sanzaro, 99,057 shares to Mr. Frechette and 404,818 shares
to Mr. Ash. The number of shares issued at such time was calculated on the basis
of 50% of the average of the bid and ask price for the Company's common stock
(50% of $.18266 or approximately $.09133 per share) during the three month
period ended June 30, 1999.
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LOAN TRANSACTIONS WITH TERENCE C. BYRNE AND AFFILIATED ENTITY
On several occasions during the fiscal year ended June 30, 1999 and in
the period subsequent thereto, the Company required immediate cash infusions to
meet its financial obligations. To assist the Company on such occasions, Terence
C. Byrne, or an entity with which Mr. Byrne is affiliated, made loans to the
Company, as follows:
OCTOBER 27, AND NOVEMBER 30, 1998 LOANS TO COMPANY AND MARCH 1999
INVESTMENT IN THE COMPANY On October 27, 1998, at the behest of Terence C.
Byrne, Bartholomew International Investments Limited ("Bartholomew"), a
corporation owned by The Bartholomew Trust, the beneficiaries of which are Mr.
Byrne and his spouse and children, made a loan to the Company in the amount of
$150,000. The loan was made pursuant to the Company's promissory note which bore
interest at an annual rate of 2% over the Bank of Montreal's Prime Rate and
which was due and payable on July 26, 1999. On or about November 30, 1998, Mr.
Byrne personally lent the Company an additional $14,000 on identical terms. On
or about December 2, 1998, as part of the Company's negotiations to obtain short
term bank debt financing, Bartholomew agreed to forego any interest on, and
repayment in cash of, the $150,000 loan, and Mr. Byrne agreed to forego any
interest on, and repayment in cash of, the $14,000 loan and both parties
accepted in full satisfaction of such loan, unregistered shares of the Company's
common stock valued at fifty percent (50%) of the average of the high ask and
low bid prices of such stock, as traded in the over-the-counter market and
quoted in the OTC Electronic Bulletin Board on December 1, 1998. In connection
therewith, on December 2, 1998, the Company authorized the issuance of a total
of 2,523,077 shares of this corporation's unregistered common stock to
Bartholomew. In March of, 1999, at the behest of Terence C. Byrne, Bartholomew
invested the sum of $50,000 in the Company for which 677,966 shares were issued
LOANS TO MR. BYRNE From time to time, during the course of the fiscal
year ended June 30, 1998, as was practical and expedient, the Company paid
certain expenses for and on behalf Mr. Byrne. All of such payments were treated
as loans made by the Company to Mr. Byrne. The aggregate amount of such loans
outstanding as at June 30, 1998, was $121,564. On December 15, 1998, Mr. Byrne
repaid $100,000 of such loans and has since repaid the balance. Such loans are
recorded on the books and records of the Company and do not bear interest or
state any required maturity date.
CONSULTING AND EXECUTIVE AGREEMENTS WITH LOUIS SANZARO
On January 28, 1998, the Company entered into a consulting agreement
with Louis Sanzaro (the "Consulting Agreement"), who is currently a director of
the Company. The Consulting Agreement was made effective as of January 1, 1997.
Mr. Sanzaro had actually been providing consulting services to the Company prior
to January 1, 1997, but the parties had not yet agreed, at that time, to enter
into a formal consulting agreement with respect to such services. The Consulting
Agreement was for a three-year term ending December 31, 1999 and provided for
Mr. Sanzaro to render advice, opinions, "hands-on" assistance with respect to,
and, in some cases, effecting of, among other things, the following: (i)
developing pro-forma financial projections respecting the operations of a TCS-1
Plant and marketing of rubber crumb generated thereby; (ii) designing and
developing a complete maintenance program for the TCS-1 Plant; (iii) developing
specialized accounting software to be used with all TCS-1 Plants; (iv) designing
and developing logistics respecting Plant configuration; (v) testing new
equipment at construction and assembly site, adjusting, and designing
modifications, as required; and (vi) site-planning and Plant installation.
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 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. The bulk of the services performed by Mr. Sanzaro in connection
with the foregoing were rendered after July 1, 1997.
The Sanzaro Consulting Agreement was cancelled and replaced by an
employment agreement between the parties (the "Sanzaro Executive Agreement"),
pursuant to which, Mr. Sanzaro was appointed as the Company's Vice President of
Operations and Chief Operating Office. Since February 11, 1999, Mr. Sanzaro has
served under the Sanzaro Executive Agreement as President of the Company. For a
discussion in detail of the terms of the Sanzaro Executive Agreement, reference
is made to the discussion included above, under "Management - Employment
Contracts and Termination of Employment and Change-in-Control Arrangements" -
"Executive Agreements And Special Compensation Agreements"). Effective November
23, 1999, Mr. Sanzaro resigned as President of the Company to avoid a possible
future conflict of interest which could arise from his conclusion of a licencing
agreement with the Company under which companies controlled by Mr. Sanzaro would
have the right to market and manufacture TCS-1 systems for the US market. As of
November 23, 1999, Mr. Sanzaro is not performing any duties as COO of the
Company.
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SHARES ISSUED TO LOUIS SANZARO IN CONSIDERATION OF TERMINATING RIGHT TO BE
APPOINTED EXCLUSIVE SALES REPRESENTATIVE IN NORTH AMERICA
Prior to his being appointed an officer of the Company, Mr. Sanzaro and
the Company had agreed, in principal that Mr. Sanzaro would be appointed as the
Company's exclusive sales distributor in the United States and Puerto Rico.
Under the terms of the Sanzaro Executive Agreement, Mr. Sanzaro released the
Company from its obligation to appoint him as its exclusive sales distributor
and to pay him commissions on sales of TCS-1 Plants made in the United States
and Puerto Rico. In consideration for such release, the Company issued to Mr.
Sanzaro 2,500,000 shares of its common stock.
AGREEMENTS WITH CUSTOMERS CONTROLLED BY LOUIS SANZARO
On May 29, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III,
Inc.("O/V III") of Toms River, New Jersey ("O/V III") for the purchase and lease
of the various components which will comprise eight TCS-1 Plants. Also on that
same date, the Company entered into an Equipment Lease and Purchase Agreement
(the "OTRP L&P Agreement") with Oceans Tire Recycling & Processing Co., Inc.
("OTRP") for the purchase and lease of the various components which comprise the
first production model of the TCS-1 Plant. Louis Sanzaro, a director of the
Company is a controlling person of both O/V III and Oceans Tire. For details
respecting Mr. Sanzaro's relationship with the Company prior to January 1997,
reference is made to the discussion included, above, in "Existing and Proposed
Business - Equipment Manufacturing" under the subcaption, "Dependence on Major
Customer."
The O/V III L&P Agreement modified the terms of, and replaced, a prior
agreement between the parties dated June 6, 1995 (the "Prior O/V III
Agreement"). For details of the terms and provisions of the O/V III L&P
Agreement and the OTRP L&P Agreement, as well as certain ancillary agreements
executed or agreed to in connection therewith, reference is made to the
discussions contained above, in "Existing and Proposed Businesses" under the
subcaptions, "The O/V III Agreements" and "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. In connection therewith OTRP arranged with an equipment financing
company for sale and lease-back 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 pursuant to its arrangements with OTRP and/or the OTRP
principals.
It is the present intention of the parties to reform or rescind the
remaining provisions of the OTRP Agreement for the purpose of transferring
ownership of the entire First Production Model to the Company, any one of its
existing subsidiaries, or to some other entity established jointly, or singly,
by the parties, or either one of them, for such purpose. The structure and terms
of the ownership of the First Production Model have not yet been finalized.
However, in connection therewith, on December 16, 1998, the Company entered into
two sale and lease-back transactions by and among the Company, North Shore
Leasing & Funding Inc. ("NLFI"), and an affiliate of OTRP, Ocean Utility
Contracting, Inc. ("OUCI"). Such transactions consisted of the Company's sales
to NLFI of the single fracturing mill and the single freezing tower, which are
components of the TCS-1 Plant installed at the Company's Montreal facility and
the lease back of such components to OUCI. The Company and OUCI have agreed that
all of OUCI's rights under the leases will be assigned to the Company and the
Company will assume all of OUCI's liabilities thereunder. Both leases provide
that at the end of the lease term, the lessee will have the right to purchase
the leased equipment for $1.00. Such right to purchase will be included in
OUCI's assignment to the Company of its rights under the said leases (see this
Item 1. "Existing and Proposed Businesses - Proposed TCS-1 Plant Operations:
Sales of Rubber Crumb and Manufacture and Sale of Finished Products" under the
subcaption, "Proposed Ownership, Establishment, and Operation of Tirex Advanced
Products Plant").
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LOANS TO LOUIS SANZARO AND AFFILIATE
On September 9, 1997, the Company made an unsecured loan in the
principal amount of $30,000 to Ocean Utility Contracting Co. Inc., a New Jersey
corporation under the control of Louis Sanzaro. The loan bears interest at an
annual rate of 2% over the prime rate charged by Citibank, NA and is payable on
demand. To date, none of the principal or interest on this loan has been paid
and the Company is unable to state at this time when it intends to make demand
for payment.
The Company made a loan in the principal amount of $70,405 to Louis
Sanzaro, pursuant to Mr. Sanzaro's promissory note, dated April 8, 1998, as
amended and extended on September 5, 1998. The loan bears interest at an annual
rate of 2% over the prime rate charged by Citibank, NA (the "Prime Rate") from
the date the loan was made through the maturity date, September 5, 1999.
Repayment of this loan is secured by a security and pledge agreement between the
parties, pursuant to which Mr. Sanzaro granted to the Company a security
interest in 400,000 shares of the Company's common stock, which is presently
being held in escrow.
EXTENSION OF EXERCISE PERIOD OF OPTION HELD BY JOHN G. HARTLEY
On May 19, 1995, the Company sold to John G. Hartley, a director of the
Company, an option (the "Hartley Option") to purchase twenty thousand (20,000)
shares of the Cumulative Convertible Preferred Stock of the Company ("Preferred
Shares") at an exercise price of $10 per share, during a two-year exercise
period which commenced on May 19, 1995 and was scheduled to terminate on May 18,
1997. Mr. Hartley paid the Company twenty thousand dollars ($20,000) for the
said Hartley Option. On May 29, 1997, the Company amended the Hartley Option
(the "Hartley Amendment") to extend the exercise and conversion periods
thereunder to May 18, 1999. For a discussion of the reasons for the Hartley
Amendment and additional details respecting the original terms of the Hartley
Option, reference is made to Item 12 of the Company's annual report of Form
10-KSB for the year ended June 30, 1997, "Certain Relationships and Related
Transactions" under the subcaption, "Extension of Exercise Period of Option Held
by John G. Hartley".
On May 11, 1999, Mr. Hartley paid $40,000 under this option to acquire
1,234,567 common shares of the Company at a price equal to one-third of market
value. The remainder of the option was allowed to expire by Mr.
Hartley.
TRANSFER OF 17% OF TIREX R&D SHARES FROM KENNETH J. FORBES TO TERENCE C. BYRNE.
As discussed above, in "Existing and Proposed Businesses", under the
caption "Canadian Operations", in May of 1995, in order to take advantage of
such certain financial incentives, the Company formed a Canadian corporation,
3143619 Canada Inc. (referred to herein as "Tirex R&D") in the Province of
Quebec, Canada, for the purpose of completing all research and development work
on the first production model of the TCS-1 Plant and thereafter serving as the
Company's manufacturing arm. There are a total of one hundred shares of Tirex
R&D stock issued and outstanding. These shares are held of record as follows:
(i) 49% by the company; (ii) 34% by Terence Byrne; (iii) 17% by Louis V. Muro.
Messrs. Byrne and Muro are Canadian residents and, therefore, Tirex R&D has been
deemed to be eligible for Canadian government sponsored financial incentives.
All of the Tirex R&D Shareholders hold their shares pursuant to the
terms and provisions of a Shareholders Agreement, dated July 3, 1995, as amended
February 8, 1996 and August 21, 1997 (the "Tirex R&D Shareholders Agreement")
which provides, among other things, for: (i) each Shareholder to retain complete
voting control over all shares held of record by such Shareholder; (ii) Tirex
R&D's right to redeem the shares held by Mr. Byrne or Mr. Muro in amounts equal
to any number of shares of Tirex R&D which may be sold to private investors who
are also Canadian residents; (iii) the Company's right to direct the transfer of
all or any part of such shares to other individuals who are officers and
directors of the Company, so long as such other individuals are also Canadian
Residents who will hold such shares in accordance with the terms of the Tirex
Shareholders Agreement; (iv) the return of all Tirex R&D shares held by Messrs.
Byrne and Muro upon the expiration of the Shareholders Agreement (May 2, 2001)
unless such agreement is unilaterally extended by the Company. On August 21,
1997, pursuant to the request of the Company 17 shares of Tirex R&D common stock
were transferred by Kenneth J. Forbes, a former Tirex R&D shareholder, to
Terence C. Byrne. The Company does not intend to become the record holder of the
shares held by Messrs. Byrne and Muro until such time as its record ownership of
such shares will not contravene any Canadian regulations respecting financial
aid and assistance to Tirex R&D.
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EMPLOYMENT AGREEMENT WITH MS. LEVINE
From January 18, 1995 through and including December 21, 1996, Frances
Katz Levine was employed by the Company as its Secretary and General Counsel
under the terms of an employment agreement dated January 18, 1995 (the "First
Levine Employment Agreement"). On December 22, 1996, Ms. Levine resigned her
positions as Secretary, General Counsel, and as a Director of the Company. Her
resignation was not caused by any disagreement with the Company on any matter
relating to the Company's operations, policies, or practices. Following her
resignation from the foregoing positions, Ms. Levine has continued to be
employed by the Company as its in-house Corporate and United States Securities
Counsel pursuant to the terms of her employment agreement, dated December 22,
1996 (the "Second Levine Employment Agreement"). The Principal terms and
conditions of the First and the Second Levine Employment Agreements, other than
the commencement and termination dates and the positions and exact nature of
duties and responsibilities, are essentially identical, except also for terms
which were added in order to insure that benefits and rights earned under the
First Employment Agreement would not be lost to Ms. Levine perforce of the
foregoing changes. On May 1, 1997, the Second Levine Employment Agreement was
amended to explicitly state the original intent of the parties that Ms. Levine
would remain eligible to receive a discretionary bonus for each year (or portion
thereof) during which Ms. Levine had served as Secretary and General Counsel
under the First Levine Employment Agreement. Both the First and Second Levine
Employment Agreements provide for an annual salary of $150,000 and the
reimbursement of business related expenses. The Second Levine Employment
Agreement, which is currently in effect, has a term which expires on December
21, 2000. Such agreement provides for the payment of bonuses at the sole
discretion of the Board of Directors based upon a performance evaluation. The
Second Levine Employment Agreement also contains severance provisions similar to
those contained in the Executive Agreements between the Company and each of
Terry Byrne, Lou Muro and Lou Sanzaro. It also provides, in light of the
Company's cash position, that the Company may, in lieu of payment in cash of
salary and reimbursable expenses, issue to Ms. Levine, unregistered shares of
the Company's common stock, valued at 50% of the average of the bid and ask
prices of such stock, as traded in the over-the-counter market and quoted in the
OTC Bulletin Board, during part or all of the period during which such salary
was earned or such expenses were incurred. Ms. Levine, and her partner, Scott
Rapfogel, the Assistant General Counsel to the Company, pursuant to amicable
discussions with Management, resigned from their positions effective July 1,
1999. Severance compensation was paid in the form of shares to each individual
in respect of shares for unpaid compensation and for severance payments. Ms.
Levine was issued 5,485,714 shares in total and Mr. Rapfogel received 4,022,857
shares in total.
EXTENSION OF EMPLOYMENT AGREEMENTS WITH MR. BYRNE AND MR. MURO
The Company is a party to employment agreements with Terence C. Byrne,
chairman of the board of directors and CEO of the Company, and with Louis V.
Muro, the Company's vice president in charge of engineering. On May 1, 1997, the
parties amended these employment agreements so as to extend the term of Mr.
Byrne's agreement until December 31, 2003 and Mr. Muro's agreement until
December 31, 2000. No other changes were made pursuant to these amendments. For
a discussion in more detail of the terms and conditions of the Company's
employment agreements with Mr. Byrne and Mr. Muro, reference is made to the
information contained above in "EXECUTIVE COMPENSATION - EMPLOYMENT CONTRACTS
AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS."
EXECUTIVE AGREEMENT WITH LOUIS SANZARO.
On July 23, 1998 the Company entered into an employment agreement with
Louis Sanzaro pursuant to which Mr. Sanzaro was employed as the Company's vice
president of operations until February 11, 1999, and since such date, as the
Company's president. The agreement was made effective as of June 15, 1998, the
date when Mr. Sanzaro began serving in such capacity. The agreement called for a
term of four years ending June 14, 2002 and provided for salary compensation at
the annual rate of $175,000. It also included a signing bonus consisting of
500,000 shares of the Company's common stock. In consideration for the Company's
entering into such employment agreement and issuing to Mr. Sanzaro an additional
2,500,000 shares of its common stock, Mr. Sanzaro released the Company from any
obligations arising out of or being connected with or related to serve as a
distributor of TCS-1 Plants in North America or to receive remuneration of any
kind in connection with sales of TCS-1 Plants theretofore or thereafter made by
the Company in North America. Effective November 23, 1999, Mr. Sanzaro resigned
as President of the Company so as to avoid a possible future conflict of
interest. For a discussion in more detail of the Sanzaro Executive Agreement,
reference is made to the information contained above in "Executive Compensation
- - Employment Contracts and Termination of Employment and Change-in-Control
Arrangements".
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EXECUTIVE AGREEMENT WITH JEAN FRECHETTE.
On July 24, 1998 the Company and The Tirex Corporation Canada, Inc.
("Tirex Canada") entered into an employment agreement with Jean Frechette ,
pursuant to which Mr. Frechette was employed as the president and chief
operating officer of Tirex Canada from August 17, 1998 until May 1999. The
agreement is for a five year term ending August 16, 2003 and provides for salary
compensation at the annual rate of $150,000 along with a car allowance of $500
Canadian per month. The employment agreement also included a signing bonus of
1,000,000 shares of the Company's common stock. For a discussion in more detail
of the Frechette Executive Agreement, reference is made to the information
contained above in "Executive Compensation - Employment Contracts and
Termination of Employment and Change-in-Control Arrangements". Mr. Frechette
resigned from his position on May 17, 1999.
EXECUTIVE AGREEMENT WITH JOHN L. THRESHIE, JR.
On February 20, 1997, the Company entered into an employment agreement
with John L. Threshie, Jr., pursuant to which Mr. Threshie is currently employed
as a vice president and as assistant secretary of the Company. Mr. Threshie's
employment agreement with the Company was made effective as of January 1, 1996,
the date when Mr. Threshie began receiving a salary for serving as a vice
president. The agreement was for a three-year term ending December 31, 1998 and
provided for compensation at the annual rate of $50,000. Effective July 1, 1998
the salary provisions of the agreement were amended to provide for an annual
salary of $62,500 and as of December 31, 1998, it was further amended to extend
the term of the agreement to December 31, 1999. From December 22, 1996 until
February 11, 1999, Mr. Threshie also served as secretary of the Company. For a
discussion in more detail of the Executive Agreements, reference is made to the
information contained above in "Executive Compensation - Employment Contracts
and Termination of Employment and Change-in-Control Arrangements".
ISSUANCE OF STOCK TO MR. MURO AS COMPENSATION FOR PAST SERVICES
Mr. Muro served as Secretary of the Company from December 29, 1992
until March 1994 and as the Company's president from March 1994 until January
18, 1995. Mr. Muro received no compensation for any of the foregoing services,
but served on the basis of an understanding that he would be fairly and
equitably compensated. However, former management failed to arrange for, or pay,
any compensation to Mr. Muro for his services as an officer of the Company
during such periods. In order to assure itself of the continued services of Mr.
Muro and to compensate him on a fair and equitable basis for the aforesaid
executive services, on January 17, 1997, the Board of Directors authorized the
issuance of a total of 1,113,636 shares of common stock. At that time, Mr. Muro
agreed to accept such shares as compensation for all services rendered prior to
January 18, 1995 at the same rate as he has been entitled to receive for his
services since such date. Based upon the foregoing, Mr. Muro was entitled to
payment of three hundred and six thousand, two hundred fifty dollars ($306,250)
in respect of his pre-1995 services. The number of shares so issued was
calculated on the basis of one hundred and fifty percent (150%) of the average
of the bid and ask prices of the Company's common stock, as traded in the
over-the-counter market and reported in the electronic bulletin board of the
NASD, during the calendar years of 1993 and 1994. The Company's stock was traded
only sporadically during such time. Therefore, calculations were based upon the
fifteen months during 1993 and 1994 when actual trading took place and for which
it was possible to obtain information. The average of the high and low closing
prices of the common stock of this corporation, as traded in the
over-the-counter market during such fifteen month period, which the Company was
able to obtain, was approximately $.18333 per share.
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AMENDMENT OF STOCK OPTION HELD BY CG TIRE, INC.
On April 24, 1997, the Company granted to CG TIRE, Inc. (CGT) an option
to purchase at a per share price 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 Board during the ten business days preceding the date of a
notice of exercise given by the CG TIRE, all, or any part of, the number of
shares of the common stock of the Company which would constitute, upon their
issuance, ten percent (10%) of the common stock of the Company, issued and
outstanding, on a fully diluted basis (the "CGT Option"). As of August 13, 1997,
the Company agreed to amend the CGT Option with respect to the purchase price
for a certain portion of the CGT Option. On February 18, 1997, CGT agreed to
further amend its Option to make it unexercisable prior to the effective date of
the registration statement. For a discussion in detail of the terms of the CGT
Option and the consideration received by the Company therefor, see footnote (4)
to the Principal Shareholders Table, included, above in "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT".
CONSULTING AND EMPLOYMENT AGREEMENTS WITH ALAN CROSSLEY
On July 1, 1997, the Company entered into an employment agreement with
Alan Crossley (the "Crossley Employment Agreement"), a former director of the
Company, pursuant to which, Mr. Crossley was appointed as the Company's Managing
Director of European Market Development. This Agreement replaced and superseded
a consulting agreement between the Company and Mr. Crossley (the "Crossley
Consulting Agreement"). The said Consulting Agreement had been entered into on
May 29, 1997 and had been made retroactively effective to January 15, 1997. Such
retroactive effectiveness reflected the time period during which Mr. Crossley,
directly and through GAPCO, Inc., a corporation controlled by Mr. Crossley had
actually rendered services to the Company, as its European Market Development
Consultant. The Crossley Consulting Agreement provided for consulting services
consisting of advice and opinions to the Company concerning, and the undertaking
and effectuation of, activities necessary to establish and develop in Europe and
in India, markets for the TCS-1 Plant and for rubber crumb and the preparation
of market development studies for the Iberian Peninsula and India. The Crossley
Consulting Agreement was for a two-year term and provided for the following
compensation: (i) upon completion of the Iberian Peninsula Market Study
conducted by GAPCO, Inc., $40,000 (Canadian) to be paid in either, or a
combination of, cash or unregistered shares of the Company's common stock,
valued at $.17 per share; (ii) upon completion of the Indian Market Study
conducted by GAPCO, Inc., $40,000 (Canadian) to be paid in either, or a
combination of, cash or unregistered shares of the Company's common stock,
valued at $.17 per share, and (ii) an expense allowance of up to $115,000
(Canadian) or approximately US $80,500. Although the Crossley Consulting
Agreement also provided for an annual salary of $75,000 (Canadian), such salary
was not to commence until July 1, 1997. Because the Consulting Agreement was
replaced by the Crossley Employment Agreement effective as of January 15, 1997,
no salary payments were ever due or paid under the said Consulting Agreement.
However, pursuant to the terms of the Crossley Consulting Agreement, payments of
an aggregate of $80,000 (Canadian) were paid to Mr. Crossley, in a combination
of cash and common stock, in respect of certain market studies for the Iberian
Peninsula and India conducted by GAPCO, Inc. The stock portion of such
compensation was paid on May 29, 1997 with the issuance of 84,658 shares of the
Company's common stock. On April 6, 1999, Mr. Crossley was issued 649,576 shares
of the Company at a price equal to $0.0935 per share in compensation for his
having waived cash payment of $60,751 due to him for salaries and expenses
incurred during fiscal 1999.
Pursuant to the agreement of the parties, the Crossley Employment
Agreement was made effective as of June 15, 1997. It provides for a one-year
term, automatically renewable for two successive one-year periods. Under the
terms of the Employment Agreement, Mr. Crossley is responsible for undertaking
and effecting activities necessary to establish and develop markets for the
TCS-1 Plant and for the crumb rubber which will be produced by the operation of
the TCS-1 Plant throughout the European Economic Union, India, Pakistan and
Saudi Arabia (collectively the "Territory"), and such other areas as the parties
may, from time to time, mutually agree. In connection therewith, Mr. Crossley is
responsible for, among other things, setting up the appropriate corporate
structure and organization for importing and distributing TCS-1 Plants and crumb
rubber into and throughout Europe. The Crossley Employment Agreement provides
for compensation by way of an annual salary of $75,000 (Canadian) and a sales
commission of eight percent (8%) of the purchase price of all sales of TCS-1
Plants sold within the Territory, provided however that, all salary payments
made or payable under the Crossley Employment Agreement will be deducted from
the amount of any such sales commissions. The Agreement also provides for
reimbursement of documented expenses for specified purposes in an amount not to
exceed $115,000 (Canadian) per year.
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BONUSES AND ADDITIONAL COMPENSATION TO EMPLOYEES
On May 30, 1997, the Company authorized the issuance of shares of its
Common Stock pursuant to the exercise of options (the "Bonus Options") which had
been granted to Terence C. Byrne, Louis V. Muro, and Frances Katz Levine as
bonuses for the fiscal years ended June 30, 1995 and 1996 pursuant to the terms
of their respective employment agreements. The Bonus Options permitted such
persons to purchase shares of common stock, at a per share exercise price of
$.001 per share, as follows: Terence C. Byrne - 1,413,382 shares, Louis V. Muro
- - 1,115,093 shares, and Frances Katz Levine - 811,684 shares. The respective
employment agreements, pursuant to which such options were granted, provide for
discretionary bonuses for each year (or portion thereof) during the term of such
agreements, with the actual amount of any such bonus to be determined in the
sole discretion of the Board of Directors based upon its evaluation of the
Executive's performance during such year. Such bonuses were unanimously approved
by the Company's full board of directors, which, at that time, consisted of six
members including Mr. Byrne and Mr. Muro. All of said Options were exercised by
the option holders immediately upon the grants thereof.
On January 28, 1998, the Company authorized the issuance of an
aggregate of 4,000,000 shares to two of its executive officers and to its
corporate attorney, at a price of $.001 per share, as follows: Terence C. Byrne
- - 2,000,000 shares, Louis V. Muro - 1,000,000 shares, and Frances Katz Levine -
1,000,000 shares. Such sales were made pursuant to the exercise of options
granted to such persons and subsequently amended, as follows: On September 3,
1997, the Company granted to the foregoing individuals options to purchase the
respective number of shares set forth above at an exercise price equal to the
full market price of the Common Stock at such date, as follows: Terence C. Byrne
- - 2,000,000, Louis V. Muro - 1,000,000, and Frances Katz Levine - 1,000,000 (the
"1997 Options"). Such bonuses were granted for the fiscal year ended June 30,
1997 pursuant to the terms of their respective employment agreements with the
Company, which provide for discretionary bonuses for each year (or portion
thereof) during the term of such agreements, with the actual amount of any such
bonus to be determined in the sole discretion of the Board of Directors based
upon its evaluation of the Executive's performance during such year. On January
13, 1998, the Company granted to each of these persons a bonus (the "1998
Bonus"), under the terms of their respective employment agreements, for the
fiscal year which ended on June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses
consisted of amendments to the terms of the 1997 Options, which reduced the
option exercise price to $.001 per share. Both the 1997 and the 1998 bonuses
were unanimously approved by the Company's full board of directors which, at
that time, consisted of six members including Mr. Byrne and Mr. Muro.
On June 23, 1998, the Company's Board of Directors by unanimous written
consent, recognized that 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 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. The board further stated its belief that the significant growth
and development demonstrated by the Company, from January 1995 to the present,
could not have been possible without the above described financial
accommodations made by Mr. Byrne and Ms. Levine and that, in view of the
significant contributions made, and the financial risks incurred, by these
persons, it would be fair and equitable to compensate them for the foregoing
financial accommodations made, and risks incurred, by them. In effectuation of
the foregoing, on or about July 9, 1998, the Company authorized the issuance of
4,000,000 shares of its common stock to Mr. Byrne and 2,000,000 shares of its
common stock to Ms. Levine.
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ITEM 13. EXHIBITS
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The financial statements filed as a part of this report are as follows:
Consolidated Balance Sheet - June 30, 1999
Consolidated Statements of Operations for the years ended June 30, 1998 and
1999, and cumulative for the period from inception (March 26, 1993) to
June 30, 1999
Consolidated Statements of Owners' Equity (Deficit) as of
June 30, 1992 - 1999
Consolidated Statements of Cash Flows for the years ended June 30, 1998 and
1999 and cumulative for the period from inception (March 26, 1993) to
June 30, 1999
FINANCIAL STATEMENT SCHEDULES
Financial statements schedules have been omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
EXHIBITS
The exhibits filed as a part of this Report or incorporated herein by
reference are as follows:
<TABLE>
<CAPTION>
EXHIBITS INCORPORATED
HEREIN BY REFERENCE,
EXHIBIT NO. AS FILED
WITH DOCUMENT
INDICATED
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<S> <C> <C>
2. (a) Agreement and Plan of Merger and
Reorganization, dated May 9, 1989 (1) 2
(b) Certificate of Merger, filed with the
Secretary of State of Delaware on June 8, 1989 (5) 2(b)
(c) Certificate of Merger, filed with the
Secretary of State of New Jersey on June 8, 1989 (5) 2(c)
(d) Acquisition Agreement among the Company,
Patrick McLaren, Louis V. Muro and George
Fattell, dated March 26, 1993 (8) 2
(e) Certificate of Merger, of Tirex Acquisition Corp and RPM
Incorporated filed with the Secretary of State of Delaware on
January 20, 1998 (20)
(f) Agreement and Plan of Merger
(Tirex Acquisition Corp. and RPM Incorporated)
3. (a) Certificate of Incorporation filed August 19, 1987 (2) 3(a)
(b) Certificate of Amendment filed June 20, 1989 (5) 3(b)
(c) Certificate of Amendment filed March 10, 1993 (8) 3
(d) Certificate of Amendment filed December 5, 1995 (9) 3(e)
(e) By-Laws (2) 3(b)
(f) Certificate of Amendment filed August 11, 1997
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(g) Certificate of Amendment filed February 3, 1998 (21) 3
(h) Certificate of Incorporation of Tirex Acquisition Corp., filed
with the Secretary of State of Delaware on
December 15, 1997 (20) 3(h)
(k) Certificate of Amendment to the Certificate of Incorporation,
filed with the Secretary of State of Delaware on
July 10, 1998 (19) 3
4. (a) Form of Option to John Hartley for the purchase
of 20,000 shares of Preferred Stock (9) 4(g)
(b) Form of Exchangeable Option, Dated October 5, 1995, to
Sharon Sanzaro for the purchase of 560,000
shares of common stock (9) 4(h)
(c) Form of Exchangeable Option, Dated October 5, 1995, to
Raymond Pirraglia for the purchase of 140,000
shares of common stock (9) 4(i)
(d) Form of Exchangeable Option, Dated October 5, 1995, to
Terry Bentley for the purchase of 100,000
shares of common stock (9) 4(j)
(e) Form of Exchangeable Option, Dated January 1, 1996, to
Raymond Pirraglia for the purchase of 43,750
shares of common stock(9) 4(k)
(f) Form of Exchangeable Option, Dated January 1, 1996, to
Terry Bentley for the purchase of 31,250
shares of common stock (9) 4(l)
(g) Form of Exchangeable Option, Dated January 1, 1996, to
Sharon Sanzaro for the purchase of 175,000
shares of common stock (9) 4(m)
(h) Specimen Preferred Stock Certificate (9) 4(f)
(i) Form of Exchangeable Option, Dated as of March 31, 1996, to
Raymond Pirraglia for the purchase of 43,750
shares of common stock (12) 4(n)
(j) Form of Exchangeable Option, Dated as of March 31, 1996, to
Terry Bentley for the purchase of 31,250
shares of common stock (12) 4(o)
(k) Form of Exchangeable Option, Dated as of March 31, 1996, to
Sharon Sanzaro for the purchase of 175,000
shares of common stock (12) 4(p)
(l) Form of Exchangeable Option, Dated July 1, 1996, to Raymond
Pirraglia for the purchase of 43,750
shares of common stock (12) 4(q)
(m) Form of Exchangeable Option, Dated July 1, 1996, to Terry
Bentley for the purchase of 31,250
shares of common stock (12) 4(r)
(n) Form of Exchangeable Option, Dated July 1, 1996, to Sharon
Sanzaro for the purchase of 175,000
shares of common stock (12) 4(s)
(o) Form of Option, Dated April 24, 1997 to CG TIRE, Inc. for the
purchase of up to 10% of the common stock
of the Company (17) 4(t)
</TABLE>
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(p) Amendment, Dated September 30, 1997, to GC TIRE, Inc.(20)
(q) Amendment, Dated February 16, 1998, to CG TIRE, Inc(20)
(r) Form of "Type A" Subordinated,
Convertible Debenture
(s) Form of "Type B" Subordinated
Convertible Debenture (20) 4(t)
(t) Form of "Type A" Warrant
(u) Stock Purchase Warrant
Issued To Security Capital Trading, Inc.
(v) Form of Amendment to "Type B" Debenture (20) 4(w)
(w) Amendment to CGT Option (20) 4(x)
(x) Form of "Type A" Securities
Purchase Agreement
(y) Form of "Type B" Securities Purchase Agreement (20) 4(y)
(z) Form of "Type C" Subscription and Registration
Rights Agreement (20) 4(aa)
(aa) Option To Purchase Common Stock, Issued to
Alan Epstein, dated April 13, 1998 (18) 4.2
(bb) Form of Amendment to "Type A" Subordinated,
Convertible Debenture
10. (a) Executive Agreement, dated Jan 18, 1995,
between the Company and Terence C. Byrne (9) 10(rr)
(b) Stock Restriction Agreements, dated Jan 18, 1995, June 1,
1995, and July 31, 1995 between the Company
and Terence C. Byrne (9) 10(tt)
(c) Stock Restriction Agreements, dated Jan 18, 1995, June 1,
1995, July 31, 1995 between the Company
and Frances Katz Levine (9) 10(uu)
(d) License Agreement , dated as of July 3, 1995 between
the Company and Tirex Canada (9) 10(ggg)
(e) Shareholders Agreement, dated as of July 3, 1995, as amended
February 8, 1996 among the Company,
Tirex Canada, Kenneth J. Forbes, Terence C. Byrne,
and Louis V. Muro (9) 10(hhh)
(f) Amendment, dated August 27, 1997 to Shareholders Agreement,
dated as of July 3, 1995, as amended
February 8, 1996 among the Company,
Tirex Canada, Kenneth J. Forbes,
Terence C. Byrne, and Louis V. Muro(20) 10(f)
(g) Special Compensation Agreement, dated April 1, 1996,
between the Company and Frances Katz Levine (11) 4.6
(h) Amendment No. 1 dated May 30, 1996, to Executive
Agreement, dated Jan. 18, 1995, between the Company
and Terence C. Byrne (11) 4.7
(i) Amendment No. 1 dated May 30, 1996, to Stock Restriction
Agreement, dated June 1, 1995, between the Company
and Terence C. Byrne (11) 4.9
(j) Amendment No. 1 dated May 30, 1996, to Stock Restriction
Agreement, dated June 1, 1995, between the Company
and Frances Katz Levine (11) 4.9
(k) Special Compensation Agreements, dated June 1, 1995, July
25, 1995, November 23, 1995, and March 18, 1996
between the Company and Terence C. Byrne (12) 10(rrr)
(l) Special Compensation Agreements, dated November 15, 1995
and March 18, 1996, and April 1, 1996
between the Company and Louis V. Muro (12) 10(ttt)
(m) English translation of Agreement for Financial Assistance
for Technology Development between La Societe Quebecoise
de Recuperation et de Recyclage and
Tirex Canada Inc. (12) 10(vvv)
</TABLE>
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(n) Commitment, dated April 11, 1996, from the Industrial
Recovery Program for Southwest Montreal,
for a loan of up to $500,000 (Canadian) (12) 10(www)
(o) Amendment No. 1 to Stock Restriction Agreement
of January 18, 1995, dated May 30, 1996, between
the Company and Terence C. Byrne. (12) 10(xxx)
(p) Amendment No 1. to Stock Restriction Agreement of January
18, 1995, dated May 30, 1996,
between the Company and Frances Katz Levine. (12) 10(yyy)
(q) Financial Consulting Agreement, dated May 3, 1997,
between the Company and The Nais Corp. (15) 10
between the Company and the Nais Corp.
(r) Employment Agreement, effective as of January 1, 1996, between
the Company and John L. Threshie, Jr. (13) 4.4
(s) Employment Agreement, dated April 29, 1997,
between the Company and Vijay Kachru (17) 10(cccc)
(t) Amendment No.2, dated May 1, 1997, to Stock Restriction
Agreement of April 1, 1996, between the Company
and Louis V. Muro (17) 10(dddd)
(u) Amendment No. 2, dated May 1, 1997, to Stock Restriction
Agreement of June 1, 1995 between the Company
and Terence C. Byrne (17) 10(eeee)
(v) Amendment No. 2, dated May 1, 1997, to Stock Restriction
Agreement of June 1, 1995 between the Company
and Frances Katz Levine (17) 10(ffff)
(w) Employment Agreement, dated December 22, 1997, between
the Company and Frances Katz Levine (17) 10(gggg)
(x) Amendment, dated May 1, 1997, to Employment Agreement of
December 22, 1996, between the Company and
Frances Katz Levine (17) 10(hhhh)
(y) Amendment, dated May 1, 1997, to Employment Agreement of
January 18, 1995, between the Company and
Terence C. Byrne (17) 10(iiii)
(z) Amendment, dated May 1, 1997 to Employment Agreement of
January 1, 1996, between the Company and
Louis V. Muro (17) 10(jjjj)
(aa) Equipment Lease & Purchase Agreement, dated May 29, 1997,
between the Company and Oceans Tire Recycling & Processing
Co., Inc., including Royalty Agreement and Crumb rubber
Brokerage Agreement, of even date
therewith, as Exhibits thereto (17) 10(kkkk)
(bb) Equipment Lease & Purchase Agreement, dated May 29, 1997,
between the Company and Ocean Ventures III, Inc., including
Royalty Agreement and Crumb rubber Brokerage Agreement, of
even date therewith,
as Exhibits thereto (17) 10(llll)
(cc) Equipment Lease & Purchase Agreement, dated July 8, 1997,
between the Company and Recycletron Inc., including Royalty
Agreement and Crumb rubber Brokerage Agreement, of even
date therewith,
as Exhibits thereto (17) 10(mmmm)
(dd) Consulting Agreement, dated April 18, 1998, between the Company
and Alan Epstein(18) 4.1
(ee) Consulting Agreement, dated January 28, 1998, between the Company
and Louis Sanzaro (20) 10(gg)
(ff) Executive Agreement made as of July 23, 1998 between the
Company and Louis Sanzaro (19) 10.1
(gg) Executive Agreement made as of July 24, 1998 among the Company,
The Tirex Corporation Canada Inc. and Jean Frechette (19) 10.2
(hh) Employment Agreement made as of June 22, 1998 between
the Company and Scott Rapfogel (19) 10.3
</TABLE>
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(ii) Agreement, dated December 11, 1998, between the Company
and IM2 Merchandising and Manufacturing, Inc. (22) 10(ii)
(jj) Consulting Agreement, dated April 1, 1998, between the Company
and Security Capital Trading, Inc. (22) 10(jj)
(kk) Offer of Federal Office of Regional Development (Quebec), dated
July 4, 1997, of repayable contribution of CA$95,000 for market
development studies and activities in the United States
(Project No. 0762) (22) 10(kk)
(ll) Offer of Federal Office of Regional Development (Quebec),
dated March 9, 1998, of repayable contribution of CA$98,000
for international market development activities
(Project No. 1158) (22) 10(ll)
(mm) Offer of Federal Office of Regional Development (Quebec),
dated March 26, 1997, of repayable contribution of CA$20,000
for preparation of market development studies for India
(Project No. 0635) (22) 10(mm)
(nn) Passenger Car Equipment Lease & Purchase Agreement, dated
August 19, 1998, between the Company and ENERCON
American Distribution Ltd.(22) 10(nn)
(oo) Truck Tire Equipment Lease & Purchase Agreement, dated August
19, 1998, between the Company and ENERCON
American Distribution Ltd.(22) 10(oo)
(pp) Royalty Agreement, dated August 19, 1998,
between the Company and ENERCON American Distribution Ltd.(22) 10(pp)
(qq) Rubber Crumb Purchase Option Agreement, dated August 19, 1998,
between Registrant and ENERCON American Distribution Ltd. (22) 10(qq)
(rr) Purchase Rights Agreement, dated August 19, 1998,
between the Company and ENERCON American Distribution Ltd.(22) 10(rr)
(ss) Passenger Car Equipment Lease & Purchase Agreement, dated
October 9, 1998,between the Company and ENERCON American
Distribution Ltd.(22) 10(ss)
(tt) Truck Tire Equipment Lease & Purchase Agreement, dated October
9, 1998, between the Company and ENERCON
American Distribution Ltd. (22) 10(tt)
(uu) Royalty Agreement, dated October 9, 1998,
between the Company and ENERCON American Distribution Ltd.(22) 10(uu)
(vv) Rubber Crumb Purchase Option Agreement, dated October 9, 1998,
between Registrant and ENERCON American Distribution Ltd. (22) 10(vv)
(ww) Purchase Rights Agreement, dated October 9, 1998,
between the Company and ENERCON American Distribution Ltd.(22) 10(ww)
(xx) Equipment Lease & Purchase Agreement, dated December 12, 1997,
between the Company and 750824 Alberta Ltd. (22) 10(xx)
(yy) European Market Development Consulting Agreement, dated May 29, 1997,
with Alan Crossley (22) 10(yy)
(zz) Employment Agreement, dated July 1, 1997, with Alan Crossley (22) 10(zz)
(aaa) Promissory Note, dated January 23, 1998, from the Company to
Terence C. Byrne in the amount of $102,000(22) 10(aaa)
(bbb) Promissory Note, dated October 27, 1998, from the Company to
Bartholomew International Investments Ltd. in the amount of
$150,000(22) 10(bbb)
(ccc) Release, dated December 2, 1998, to Promissory Notes, dated
October 27, 1998 and November 30, 1998, from the Company to
Bartholomew International Investments Ltd.
and Terence C. Byrne, respectively.(22) 10(ccc)
(ddd) Promissory Note, dated November 30, 1998, from the Company to
Terence C. Byrne in the amount of $14,000 (22) 10(ddd)
(eee) Promissory Note, dated April 8, 1998, from Louis V. Sanzaro to
the Company in the amount of $70,405.31(22) 10(eee)
(fff) Security and Pledge Agreement, dated April 8, 1998, between
Louis V. Sanzaro and the Company (22) 10(fff)
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(ggg) Amendment, dated September 5, 1998, to Promissory Note,
dated April 8, 1998, from Louis V. Sanzaro to the Company(22) 10(ggg)
(hhh) Promissory Note, dated September 9, 1997, from Ocean Utility
Contracting Co., Inc. to the Company in the amount of $30,000(22) 10(hhh)
(iii) Management translation of Offer of Loan Guarantee, dated
January 16, 1998, from the Societe' de Developpement
Industrial du Quebec (original in French)(22) 10(iii)
(jjj) Loan Agreement, dated February 21, 1996, between Bank of Montreal
and the Company's subsidiary 3143619 Canada Inc.
("Tirex R&D, Inc.")(22) 10(jjj)
(kkk) Offer of Federal Office of Regional Development (Quebec), of
repayable contribution of CA$20,000 for market development
studies for the Iberian peninsula
(Project No. 0526)(22) 10(kkk)
(lll) Offer of Federal Office of Regional Development (Quebec), of
repayable contribution of CA$95,000 for market development
activities for the Iberian peninsula
(Project No. 0761)(22) 10(lll)
(mmm) Loan Agreement, dated May 7, 1999 between
the Scotiabank and the Company's subsidiary,
3143619 Canada, Inc. ("Tirex R& D, Inc.")
(nnn) Management translation of Offer of Loan Guarantee dated June
9, 1999 from GARANTIE-QUEBEC (successor to the rights of
Societe' de Developpement Industrial du Quebec) (orginal in
French)
17. (a) Release and Resignation of J. Richard Goldstein,
dated November 5, 1992 (7) 17(a)
(b) Release and Resignation of Robert Kopsack,
dated November 5, 1992 (7) 17(b)
(c) Release and Resignation of Peter Stratton,
dated November 5, 1992 (7) 17(c)
(d) Release and Resignation of George Fattell,
dated March 24, 1994 (9) 17(d)
(e) Notice and Release of Escrow Agent by Patrick McLaren
and Louis V. Muro, dated January 18, 1995 (9) 17(e)
20. (a) "Type A" Private Placement Memorandum, dated
November 5, 1997, as amended February 26, 1998 (20) 20(a)
(b) "Type B" Private Placement Memorandum, dated
November 28, 1997, as amended March 6, 1998 (20) 20(b)
(c) "Type C" Private Placement Memorandum, dated
March 19, 1998 (20) 20(c)
21. Subsidiaries of the Company(22) 21
22. (a) Notice to Shareholders, dated July 21, 1997, Pursuant to
Delaware General Corporation Law Section 228(d), respecting
the amendment of the Certificate of Incorporation, changing
the Company's name to "The Tirex Corporation" (16) 20
(b) Notice to Shareholders, dated February 4, 1998, Pursuant to
Delaware General Corporation Law Section 228(d), respecting
the amendment of the Certificate of Incorporation, increasing
the Company's Capital Stock to 70,000,000 shares (21) 20
(c) Notice to Shareholders, dated July 13, 1998, Pursuant to
Delaware General Corporation Law Section 228(d), respecting
the amendment of the Certificate of Incorporation, increasing
the Company's Capital Stock to 120,000,000 shares (19) 20
23. Consent of Independent Auditor
99. (a) Feasibility Study by Techtran:
Technology Transfer Institute (12)
</TABLE>
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NOTES
(1) Filed with the Securities and Exchange Commission on June 21,
1989, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated June 1, 1989, which exhibits are incorporated herein by
reference.
(2) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the registration statement of the Company on
Form S-18, File No. 33-17598-NY, which exhibits are incorporated herein by
reference.
(3) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1988, which exhibits are incorporated herein by
reference.
(4) Filed with the Securities and Exchange Commission on December 13,
1988 and incorporated herein by reference.
(5) Filed with the Securities and Exchange Commission on August 10,
1989, as an exhibit, numbered as indicated above, to post-effective amendment
no. 1 to the registration statement of the Company on Form S-18, File No.
33-17598-NY, which exhibits are incorporated herein by reference.
(6) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's transition report on Form 10-K for
the transition period December 31, 1988 to June 30, 1989, which exhibits are
incorporated herein by reference.
(7) Filed with the Securities and Exchange Commission on February 1,
1993, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated November 5, 1992, which exhibits are incorporated
herein by reference.
(8) Filed with the Securities and Exchange Commission on April 15,
1993, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated March 10, 1993, which exhibits are incorporated herein
by reference.
(9) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1995, which exhibits are incorporated herein by
reference.
(10) Filed with the Securities and Exchange Commission on June 20, 1996
as an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, File No. 333-5090, which exhibits are incorporated herein
by reference.
(11) Filed with the Securities and Exchange Commission on June 22, 1996
as an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, Registration No. 333-5310, which exhibits are incorporated
herein by reference.
(12) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1996, which exhibits are incorporated herein by
reference.
(13) Filed with the Securities and Exchange Commission on March 21,
1997 as an exhibit, numbered as indicated above, to the registration statement
of the Company on Form S-8, Registration No. 333-23759, which exhibits are
incorporated herein by reference.
128
<PAGE>
(14) Filed with the Securities and Exchange Commission on August 27,
1997 as an exhibit, numbered as indicated above, to the registration statement
of the Company on Form S-8, Registration No. 333-34369, which exhibits are
incorporated herein by reference.
(15) Filed with the Securities and Exchange Commission on July 14, as
an exhibit, numbered as indicated above, to the Company's current report on Form
8-K dated June 24, 1997, which exhibits are incorporated herein by reference.
(16) Filed with the Securities and Exchange Commission on August 14,
1997, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated July 11, 1997, which exhibits are incorporated herein
by reference.
(17) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1997, which exhibits are incorporated herein by
reference.
(18) Filed with the Securities and Exchange Commission on April 14,
1998 as an exhibit, numbered as indicated above, to the registration statement
of the Company on Form S-8, File No. 333-50071, which exhibits are incorporated
herein by reference.
(19) Filed with the Securities and Exchange Commission on July 30,
1998, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated May 27, 1998, which exhibits are incorporated herein by
reference.
(20) Filed with the Securities and Exchange Commission on May 21, 1998,
as an exhibit, numbered as indicated above, to the Company's registration
statement on Form SB-2, which exhibits are incorporated herein by reference.
(21) Filed with the Securities and Exchange Commission on February 16,
1998, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated February 3, 1998, which exhibits are incorporated
herein by reference.
(22) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1998, which exhibits are incorporated herein by
reference.
REPORTS ON 8-K
The Company filed current reports on Form 8-K on May 18, 1999 May 24, 1999.
129
<PAGE>
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: December 2, 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
<S> <C> <C>
/s/ TERENCE C. BYRNE Chairman of the Board December 2, 1999
--------------------- of Directors and Chief
Terence C. Byrne Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ MICHAEL D.A. ASH Secretary, Treasurer, December 2, 1999
--------------------- and Chief Financial and
Michael D.A. Ash Accounting Officer
A MAJORITY OF THE BOARD OF DIRECTORS:
/s/ TERENCE C. BYRNE Director December 2, 1999
---------------------
Terence C. Byrne
/s/ LOUIS SANZARO Director December 2, 1999
---------------------
Louis Sanzaro
/s/ LOUIS V. MURO Director December 2, 1999
---------------------
Louis V. Muro
</TABLE>
130
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy materials have been sent to security-holders
during the fiscal year ended June 30, 1999 or the subsequent interim period. As
at the date hereof, the Company plans to furnish proxy materials relating to its
annual meeting, which is presently intended to be held during the current fiscal
year. All such materials will be furnished to the Commission at the same time as
they are sent to securities holders.
131
<PAGE>
EXHIBITS
INDEX OF EXHIBITS BEING FILED HEREWITH
Page
----
10.
(mmm) Loan Agreement, dated May 7, 1999 between
Scotiabank and the Company's subsidiary,
3143619 Canada, Inc. ("Tirex R& D, Inc.")
(nnn) Management translation of Offer of Loan Guarantee dated June
9, 1999 from GARANTIE-QUEBEC (successor to the rights of
Societe' de Developpement Industrial du Quebec) (orginal in
French)
23. Consent of Independent Auditor
132
EXHBIT 10 (MMM)
SCOTIA BANK
THE BANK OF NOVIA SCOTIA
Commercial Banking Center and Main Branch
Tour Scotia, 1002 Sherbrooke Street West, Montreal (Quebec) H3A 3L6
Tel (514) 499-5432
May 6, 1999
Tirex Canada R&D, Inc.
3828 St-Patrick Street
Montreal, Qc
H4E 1A4
Dear Sirs:
We are pleased to confirm that subject to acceptance by you, The Bank
of Nova Scotia (the "Bank") will make available to Tirex Canada R&D, Inc. (the
"Borrower"), credit facilities on the terms and conditions set out in the
attached Terms and Conditions Sheet and Schedule "A".
If the arrangements set out in this letter, and in the attached Terms
and Conditions Sheet and Schedule "A" (collectively the "Commitment Letter") are
acceptable to you, please sign the enclosed copy of this letter in the space
indicated below and return the letter to us by the close of business on May 20,
1999 after which date this offer will lapse.
If we can be of any further assistance to you on this proposal, please feel free
to contact us. We look forward to a long and mutually rewarding association.
Yours very truly,
/s/ Michael Sirois /s/ Robert J. Lawigne
- ------------------ ---------------------
Michael Sirois Robert J. Lawigne
Account Manager AGM Credit
The arrangements set out above and in the attached Terms and Conditions
Sheet and Schedule "A" (collectively the "Commitment Letter") are hereby
acknowledged and accepted by:
Guarantors
Tirex Canada R&D, Inc. The Tirex Corporation Canada, Inc.
By: /s/ Terence C. Byrne By: /s/ Terence C. Byrne
Title: CEO Title:
By: /s/ Michael Ash By:
Title: CFO Title:
Date: May 7, 1999 /s/ Terence C. Byrne
--------------------
Terence Byrne
/s/ Louis Muro
--------------------
Louis Muro
1
<PAGE>
TERMS AND CONDITIONS
CREDIT NUMBER: 1 AUTHORIZED AMOUNT: $750,000
- -------------- ----------------------------
TYPE
Revolving term
PURPOSE
To finance 75% of Investissements Quebec approved research development
refundable Investment Tax Credit (ITC's)
CURRENCY
Canadian dollars
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced
by Demand Promissory Notes supported by Investissements Quebec approval
of ITC documentation in a form satisfactory to the Bank.
INTEREST RATE/FEES/COMMISSION
The Bank's Prime Lending Rate from time to time, plus 1.25% per annum
with interest payable monthly.
OTHER FEES
A Bank Administration Fee of $250 is payable by the Borrower on the
occasion of each advance
DRAWDOWN
Advances are to be made in minimum multiples of $25,000.
REPAYMENT
Advances are repayable in periodic lump sums from the receipt of
Federal and Provincial refundable Investments Tax Credits, or on
Demand, whichever occurs first.
2
<PAGE>
OTHER FEES, COMMISSIONS AND COMPENSATING BALANCES
An application fee of 0.33% of total credits is payable by the Borrower
upon acceptance of this letter.
An Annual Review Fee of 0.25% of total credits is payable by the
Borrower annually.
In addition to, and not in substitution for the obligations of the
Borrower and the rights of the Bank upon the occurrence of an event of
default herein, the Borrower shall pay to the Bank:
(a) a fee of $150 per month (or such higher amount as may be
determined by the Bank from time to time) for each month or
part thereof during which the Borrower is late in providing
the Bank with financial or other information required herein;
(b) a fee of $150 per month (or such higher amount as may be
determined by the Bank from time to time) for each month or
part thereof during which loan payments of principal, interest
or other amounts are past due; and
(c) a fee of $150 per month (or such higher amount as may be
determined by the Bank from time to time) for each month or
part thereof during which the Borrower is in default of any
other term or condition contained in this Commitment Letter or
in any other agreement to which the Borrower and the Bank are
parties.
The imposition or collection of fees does not constitute an express or
implied waiver by the Bank of any event of default or any of the terms
or conditions of the lending arrangements, security or rights arising
from any default. Fees may be charged to the Borrower's deposit account
when incurred.
GENERAL SECURITY, TERMS, AND CONDITIONS APPLICABLE TO ALL CREDITS
GENERAL SECURITY
The following security, evidenced by documents in form satisfactory to the Bank
and registered or recorded as required by the Bank, is to be provided prior to
any advances or availment being
made under the Credits
Movable Hypothec in the amount of $1,500,000 on all present
and future movable property with appropriate insurance
coverage, loss, if any, payable to the Bank.
3
<PAGE>
A certificate of guarantee from Investissements Quebec
confirming an 80% deficiency guarantee
Priority Agreement with Investissements Quebec giving the Bank
pirority over ALL ASSETS
Guarantee(s) and Postponement Agreement(s) given by the
following (with corporate seal(s) and resolution(s) as
applicable) in the amount(s) shown:
NAME AMOUNT
---- ------
Terence Byrne and Louis Muro $200,000
(joint and several)
The Tirex Corporation Canada Inc.* Unlimited
*Supported by
Movable Hypothec in the amount of $1,500,000 on all present
and future movable property with appropriate insurance
coverage, loss, if any, payable to the Bank.
GENERAL CONDITIONS
Until all debts and liabilities under the Credit(s) have been
discharged in full, the following conditions will apply in respect of
the Credit(s):
The consolidated ratio of current assets to consolidated
current liabilities of The Tirex Corporation is to reach 1.0:1
or better by June 30,1999 and reaching 1.2:1 by June 30,2000.
Consolidated Tangible Net Worth (TNW) of The Tirex Corporation
is to be maintained in excess of $750,000 USD at all times.
TNW is defined as the sum of the share capital, earned and
contributed surplus and postponed funds less (i) amounts due
from officers/affiliates, (ii) investments in affiliates, and
(iii) intangible assets as defined by the Bank.
Advances under this facility to finance ITCs shall not exceed
75% of the ITCs applied for and subject to Investissements
Quebec approval and total advances are not to exceed 125% of
the Borrower's previous years of ITCs
4
<PAGE>
Without the Bank's prior written consent:
No change in ownership is permitted.
No mergers, acquisitions or change in the Borrower's
line of business are permitted.
For ongoing credit risk management purposes all operating
accounts of the borrower should be maintain with the bank as
long as the Borrower has any operating line facility with the
Bank.
GENERAL BORROWER REPORTING CONDITIONS
Until all debts and liabilities under the Credit(s) have been
discharged in full, the Borrower will provide the Bank with the
following:
Annual, audited financial Statements, within 90 days of the
Borrower's fiscal year end, duly signed.
Annual, audited financial Statements, within 90 days of the
Guarantor's fiscal year end, duly signed.
Annual, audited consolidated financial Statements of The Tirex
Corporation, within 90 days of fiscal year end, duly signed
Quarterly, interim financial Statements within 45 days of
period end of the Borrower and the Guarantor(September,
December, March).
Quarterly, consolidated interim financial Statements within 45
days of period end of The Tirex Corporation (September,
December, March).
5
<PAGE>
SCHEDULE A
ADDITIONAL TERMS AND CONDITIONS APPLICABLE
TO ALL CREDITS
(In the event of a conflict, the terms and conditions of any lease
agreement and/or conditional sale contract supersede the terms and
conditions in this Schedule A with regard to such leases and/or
conditional sale contracts).
CALCULATION AND PAYMENT OF INTEREST
1. Interest on loans/advances made in Canadian dollars will be calculated
on a daily basis and payable monthly on the 22nd day of each month
(unless otherwise stipulated by the Bank). Interest shall be payable
not in advance on the basis of a calendar year for the actual number of
days elapsed both before and after demand of payment or default and/or
judgment.
2.
INTEREST ON OVERDUE INTEREST
2. Interest on overdue interest shall be calculated at the same rate as
interest on the loans/advances in respect of which interest is overdue,
but shall be compounded monthly and be payable on demand, both before
and after demand and judgment.
ENVIRONMENT
3. The Borrower agrees:
(a) to obey all applicable laws and requirements of any federal,
provincial, or any other governmental authority relating to
the environment and the operation of the business activities
of the Borrower;
(b) to allow the Bank access at all times to the business premises
of the Borrower to monitor and inspect all property and
business activities of the Borrower;
(c) to notify the Bank from time to time of any business activity
conducted by the Borrower which involves the use or handling
of hazardous materials or wastes or which increases the
environmental liability of the Borrower in any material
manner;
(d) to notify the Bank of any proposed change in the use or
occupation of the property of the Borrower prior to any change
occurring;
6
<PAGE>
(e) to provide the Bank with immediate written notice of any
environmental problem and any hazardous materials or
substances which have an adverse effect on the property,
equipment, or business activities of the Borrower and with any
other environmental information requested by the Bank from
time to time.
(f) to conduct all environmental remedial activities which a
commercially reasonable person would perform in similar
circumstances to meet its environmental responsibilities and
if the Borrower fails to do so, the Bank may perform such
activities; and
(g) to pay for any environmental investigations, assessments or
remedial activities with respect to any property of the
Borrower that may be performed for or by the Bank from time to
time.
If the Borrower notifies the Bank of any specified activity or change
or provides the Bank with any information pursuant to subsections (c),
(d), or (e), or if the Bank receives any environmental information from
other sources, the Bank, in its sole discretion, may decide that an
adverse change in the environmental condition of the Borrower or any of
the property,
equipment, or business activities of the Borrower has occurred which
decision will constitute, in the absence of manifest error, conclusive
evidence of the adverse change. Following this decision being made by
the Bank, the Bank shall notify the Borrower of the Bank's decision
concerning the adverse change.
If the Bank decides or is required to incur expenses in compliance or
to verify the Borrower's compliance with applicable environmental or
other regulations, the Borrower shall indemnify the Bank in respect of
such expenses, which will constitute further advances by the Bank to
the Borrower under this Agreement.
INITIAL DRAWDOWN
4. The right of the Borrower to obtain the initial drawdown under the
Credit(s) is subject to the condition precedent that there shall not
have been any material adverse changes in the financial condition or
the environmental condition of the Borrower or any guarantor of the
Borrower.
PERIODIC REVIEW
5. The obligation of the Bank to make further advances or other
accommodation available under any Credit(s) of the Borrower under which
the indebtedness or liability of the Borrower is payable on demand, is
subject to periodic review and to no adverse change occurring in the
financial condition or the environmental condition of the Borrower or
any guarantor.
7
<PAGE>
EVIDENCE OF INDEBTEDNESS
6. The Bank's accounts, books and records constitute, in the absence of
manifest error, conclusive evidence of the advances made under this
Credit, repayments on account thereof and the indebtedness of the
Borrower to the Bank.
ACCELERATION
7. (a) All indebtedness and liability of the Borrower to the Bank
payable on demand, is repayable by the Borrower to the Bank at
any time on demand;
(b) All indebtedness and liability of the Borrower to the Bank not
payable on demand, shall, at the option of the Bank, become
immediately due and payable, the security held by the Bank
shall immediately become enforceable, and the obligation of
the Bank to make further advances or other accommodation
available under the Credits shall terminate, if any one of the
following Events of Default occurs:
(i) the Borrower or any guarantor fails to make when due,
whether on demand or at a fixed payment date, by
acceleration or otherwise, any payment of interest,
principal, fees, commissions or other amounts payable
to the Bank;
(ii) there is a breach by the Borrower of any other
term or condition contained in this Commitment Letter
or in any other agreement to which the Borrower and
the Bank are parties;
(iii) any default occurs under any security listed in this
Commitment Letter under the headings "Specific
Security" or "General Security" or under any other
credit, loan or security agreement to which the
Borrower is a party;
(iv) any bankruptcy, re-organization, compromise,
arrangement, insolvency or liquidation proceedings or
other proceedings for the relief of debtors are
instituted by or against the Borrower and, if
instituted against the Borrower, are allowed against
or consented to by the Borrower or are not dismissed
or stayed within 60 days after such institution;
(v) a receiver is appointed over any property of
the Borrower or any judgement or order or any process
of any court becomes enforceable against the Borrower
or any property of the Borrower or any creditor takes
possession of any property of the Borrower;
(vi) any adverse change occurs in the financial
condition of the Borrower or any guarantor.
8
<PAGE>
(vii) any adverse change occurs in the environmental
condition of:
(A) the Borrower or any guarantor of the
Borrower; or
(B) any property, equipment, or business
activities of the Borrower or any guarantor
of the Borrower.
COSTS
8. All costs, including legal and appraisal fees incurred by the Bank
relative to security and other documentation, shall be for the account
of the Borrower and may be charged to the Borrower's deposit account
when submitted.
REQUEST FOR ENGLISH
9. This document and all related documents have been drafted in English at
the Borrower's request. Ce document et tous les documents y afferents
ont ete rediges en anglais a la demande de l'emprunteur.
9
EXHBIT 10 (NNN)
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
LETTER OF OFFER OF A LOAN GUARANTEE DATED JUNE 9, 1999, FROM
GARANTIE-QUEBEC (SUCCESSOR TO THE RIGHTS OF THE SOCIETE DE DEVELOPPEMENT
INDUSTRIEL DU QUEBEC, LOIS DU QUEBEC 1971 ' CHAP. 64) PREVIOUSLY KNOWN IN
ENGLISH AS THE QUEBEC INDUSTRIAL DEVELOPMENT SOCIETY (QIDC), A CORPORATION
WHOLLY-OWNED BY THE GOVERNMENT OF QUEBEC. (HEREINAFTER REFERRED TO AS "GQ")
OFFER OF A LOAN GUARANTEE
File 52926
BY: GARANTIE-QUEBEC, (successor to the rights of the Societe de
Developpement Industriel du Quebec, LOIS DU QUEBEC 1971 '
Chap. 64) legal entity, duly incorporated under the LOI SUR
INVESTISSEMENT-QUEBEC and SUR GARANTIE-QUEBEC, Chap. 17 of
the LOIS DU QUEBEC of 1998, having its head office located
at 1200 de l'Eglise Road, Suite 500, Sainte-Foy, Quebec, G1V
5A3, and having a place of business located at 2001, McGill
College Avenue, 9th Floor, Montreal, Quebec, H3A 1G1,
hereinafter referred to as "GQ".
TO: TIREX CANADA R&D INC., body politic and corporate duly
incorporated and having its principal place of business
located at 73828 St. Patrick Street, Montreal, Quebec, H4E
1A4, hereinafter referred to as "the Company".
1. LOAN GUARANTEE
1.1 GQ offers to the Company a guarantee, hereinafter referred
to as the "Guarantee", in the form of a security bond equal
to 80% of the net loss on a loan, to a maximum amount of
Seven Hundred and Fifty thousand dollars CDN' ($750,000),
hereinafter referred to as the "Loan", granted by the Bank
of Nova Scotia, hereinafter referred to as the "Lender", to
the Company. The Loan serves specifically to finance
refundable tax credits for scientific research and
experimental development, as estimated by GQ, relative to
the fiscal year of the Company ending June 30, 1999,
hereinafter referred to as the "Tax Credits".
1.2 For purposes of the Guarantee, the net loss is defined as
being the sum of interest and capital of the Loan which are
the object of a Guarantee Certificate according to Article 3
hereunder, plus accumulated interest for a maximum period of
three (3) months from the date of the calling (hereinafter
referred to as the "Calling")' of the Loan, after deducting
the net proceeds of security offered as guarantee of the
repayment of the Loan, it being understood, however, that
the accumulated interest as of and from the date of Calling
can never exceed, in the net loss calculation, ten per cent
(10%) of the balance of capital of the Loan at the time its
Calling.
2. DURATION OF THE GUARANTEE
The Guarantee will become null and void between the Company and GQ,
the latter being thus liberated from its obligations toward the
Company with respect to the Guarantee, as of the earliest of the
following dates:
2.1 June 30, 2001;
2.2 The date of total reimbursement of the Loan (including
interest and all accessory charges).
1
<PAGE>
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
3. COMMITMENTS ESSENTIAL TO PUT THE GUARANTEE INTO EFFECT
3.1 Before putting the Guarantee into effect:
3.1.1 The Lender must have received from GQ a loan
guarantee certificate (hereinafter referred to as
the "Loan Guarantee Certificate")', which will be
issued to the Lender once the conditions stipulated
in sub-paragraphs 3.1.2 and following have been
accomplished to GQ's satisfaction; this Loan
Guarantee Certificate will permit the Lender to
disburse an amount representing up to Eighty
percent (80%) of the portion of the Loan serving
to finance the Tax Credits estimated for the financial year
covered by this Offer.
3.1.2 The Company must have granted to the Lender all
securities required by the Lender for the purpose of
guaranteeing the reimbursement of the amounts or
obligations which are due to or which may become due
to the Lender under the Loan and appearing in the
"Declaration by the Lender", the latter forming an
integral part of the "Application for Guarantee".
3.1.3 The Company must have signed a loan agreement with
the Lender containing in particular:
3.1.3.1 Provisions to the effect that the Company must
reimburse the Lender as of the earliest of the
following dates:
3.1.3.1.1 the date of filing of the
Company's Declaration of Revenue
(Tax Return)', if there is, at
such time, an offset against Tax
Credits receivable of payable
income taxes;
3.1.3.1.2 the date on which the Company is
expected to file its Declaration
of Revenue (Tax Return)', if
such filing has not yet
effectively been filed;
3.1.3.1.3 The thirtieth (30th) day
preceding the Guarantee's
expiration date.
3.1.3.2 An article to the effect that the Company undertakes
to apply any cheque or any amount received with
respect to refundable Tax Credits or any future Tax
Credit, uniquely to the reduction of the balance of
the Loan, in default of which, the Loan will become
payable by the Company within ten (10) days following
such a default.
3.1.3.3 An article to the effect that Loan will
become payable by the Company within ten
(10) days of any default or non-respect by
the latter of its undertakings or
obligations under this Offer or any
amendment thereto, as the case may be.
3.1.3.4 An article to the effect that the
disbursements of the Loan will not exceed
seventy-five percent (75%) of the amount of
the refundable Tax Credits; for this
purpose, the Lender must obtain from the
Company, prior to each disbursement of the
Loan, a declaration confirming to the Lender
the amount of scientific research and
experimental development expenses as well as
the amount of refundable tax credits earned
in the course of the period preceding the
request for disbursement.
3.1.3.5 An article to the effect that prior to
making any disbursement under this Loan, the
Company must obtain a universal hypothec on
all debts and accounts receivable, whether
present or future, and register hypothec
with the REGISTRE DES DROITS PERSONNELS ET
REELS MOBILIERS after March 9, 1999.
3.1.4 The Company must have provided GQ with the following
annexes, namely: 'AUTORISATION D'ECHANGE DE
RENSEIGNEMENTS AVEC REVENU QUEBEC', 'AUTORISATION
D'ECHANGE DE RENSEIGNEMENTS AVEC REVENU CANADA' and
'AUTORISATION AVEC REVENU CANADA D'ENVOI DE CHEQUES
D'IMPOT AU BUREAU DE GARANTIE-QUEBEC'.
2
<PAGE>
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
3.2 Prior to each subsequent putting into effect of the Guarantee:
3.2.1 The Company must transmit a 'DEMANDE DE MISE EN
VIGUEUR DE LA GARANTIE' (Request to Give Effect to
the Guarantee)' using the form prescribed for this
purpose, accompanied by an Accountant's Report
respecting the scientific research and experimental
development expenses prepared by the Company's
external auditors, or any other justification
document acceptable to GQ, attesting to the amount of
scientific research and experimental development
expenses incurred for each of the fiscal year of the
Company covered by the present Offer.
To the extent that GQ is satisfied with the documents referred
to in 3.2.1, GQ will issue in favour of the Lender a Guarantee
Certificate permitting the Lender to disburse the balance of
the Loan serving to finance the refundable Tax Credits for the
financial year concerned.
4. OBLIGATIONS OF THE COMPANY
4.1 From the date of acceptance (hereinafter referred to as the
"Date of Acceptance") of the present Offer, and for the entire
duration of the Guarantee and until complete payment of any
sum which could become due to GQ by the Company by virtue of
these presents or by virtue of any Guarantee Certificate, the
Company commits itself to:
4.1.1 provide audited annual financial statements within
ninety (90) days of the end of the fiscal year,
provide equally, upon request, its semi-annual
financial statements, the financial statements of its
subsidiaries and, as the case may be, its
consolidated financial statements or any other
financial statement required by GQ, and this within
the time delays prescribed by GQ;
4.1.2 transact on a commercial basis and at arm's length in
its commercial dealings with all persons;
4.1.3 to not provide loans or advances or any other form of
financial assistance to associated companies, within
the meaning of the Income Tax Act, nor to provide
them with investments, guarantees, nor effect with
them transactions outside of the normal course of
business;
4.1.4 to neither liquidate nor dissolve itself without the
prior written consent of GQ;
4.1.5 to inform GQ and the Lender as received of any refund
of Tax Credits or as of when the Company will have
become aware of any compensation at source through
the initiative of Revenue Canada or Revenue Quebec or
of any compensation through the initiative of the
Company;
4.1.6 to put into place and maintain an accounting system
permitting the identification by project of
scientific research and experimental development
expenses;
4.1.7 to maintain a document system respecting scientific
research and experimental development projects and
activities acceptable to the fiscal authorities.
4.1.8 to provide to GQ, upon written request by GQ, and
within the time delays prescribed for such requests,
any information and any document which GQ would judge
useful and pertinent to the application of the
Guarantee, to the Tax Credits and to the 'REGLEMENT
SUR LE PROGRAMME D'AIDE AU FINANCEMENT DES
ENTREPRISES' (Regulation on Assistance Program for
Financing of Enterprises)';
4.1.9 to provide to GQ, as filed or as received, all tax
returns, all Notices of Assessment as well as all
correspondence related to refundable Tax Credits
contemplated by the present Offer.
4.1.10 obtain GQ's written consent prior to declaring or
paying any dividend on one or several categories of
shares.
4.1.11 maintain a long term debt to equity ratio lower than
2.5/1, it being understood that equity includes loans
granted to the Company which do not require any
reimbursement on the capital over the next five (5)
years as well as eventual shareholders' subscriptions
to any category of shares. All subordinated advances
made by the shareholders; deferred grants from
Federal, Provincial or Municipal government bodies;
3
<PAGE>
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
as well as all other entry of a similar nature are
also included in the calculation of net shareholders'
equity. All deferred costs, unpaid goodwill,
evaluation surplus, loans granted or secured by
governmental organizations and other entries of a
similar nature will be subtracted. Research costs and
other intangibles which will have been capitalised
and which were not paid for in cash by the Company
will be reduced from the net equity calculation.
4.1.12 apply without delay any cheque or amount that the
Company should receive as refundable Tax Credits or
future Tax Credits solely toward reducing the Loan.
4.1.13 produce and file with the appropriate fiscal
authorities, any Income Tax Declaration and/or any
other document required to enable the receipt of
refundable Tax Credits or any future Tax Credit.
5. EVENTS OF DEFAULT
5.1 Notwithstanding any disposition to the contrary contained in
the present Offer and even if the conditions have been
respected, GQ reserves the right to annul any part of the
Guarantee not put into effect or to defer the putting into
effect (of the Guarantee)', at its discretion, and the Company
commits itself to reimburse upon demand the Loan plus
interest, fees and accessory costs in the following cases
which constitute events of default:
5.1.1 if the Company, without having obtained the prior
written consent of GQ, moves a substantial portion of
its assets outside of Quebec;
5.1.2 if the Company cedes its assets, is put under
trusteeship under the terms of the BANKRUPTCY AND
INSOLVENCY ACT (L.R.C.(1985), Chapter B-3), makes a
proposal to its creditors or commits an act of
bankruptcy under the terms of the said law, or if the
Company is under order to liquidate its assets under
the terms of the LAW RESPECTING THE DISSOLUTION OF
COMPANIES (L.R.Q., Chapter 14), or any other law to
the same effect, or if the Company is insolvent or on
the point of becoming insolvent or if the Company
does not maintain its legal existence or if the
financial situation deteriorates to the point of
jeopardizing the survival of the Company;
5.1.3 if the Company avails itself of the dispositions of
the law facilitating certain transactions between the
Company and its creditors. (L.R.C. (1985) Chapter
c-36) (SIMILAR TO US CHAPTER 11 - REORGANIZATION)
5.1.4 if the Company loses 40% of its qualification for
refundable tax credits with respect to salary costs
by virtue of the Income tax Act, or its qualification
for refundable Tax Credits respecting scientific
research and experimental development Tax Credits by
virtue of the INCOME TAX ACT or according to the
REGLEMENT SUR LE PROGRAMME D'AIDE AU FINANCEMENT DES
ENTREPRISES (Assistance Program for Financing of
Enterprises Regulation)';
5.1.5 if there is a change in control of the Company, not
previously authorized by GQ, a DE FACTO change of
control of the Company, or a change in the nature of
its operations;
It is to be understood with respect to control, the
holding of a number of voting shares sufficient to
elect a majority of the Directors of the Company. It
is to be understood by DE FACTO control, the holding
of such shares (voting)' by one or more physical
persons giving the control through the intermediary
of one or more legal persons to one or the other of
the shareholders of the Company;
In the event of the the death of the controlling and
majority shareholder, the transfer of the deceased's
shareholdings to his or her heirs will be presumed to
not constitute a change in the ultimate control of
the Company, provided that said control remains with
the deceased's legal heirs.
5.1.6 if there is an interruption of business affairs or a
liquidation of the Company's assets;
5.1.7 if, at any time, the Company is party to litigation
or to judicial procedures before a court of justice
or a tribunal, a commission or government agency, or
with Revenue Canada or Revenue Quebec, without having
revealed these matters to GQ;
4
<PAGE>
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
5.1.8 in case of fraud, false declarations or falsification
of documents submitted to GQ or to the Lender, by the
Company or its representatives;
5.1.9 if the Company defaults in fulfilling any of the
conditions and clauses of the present Offer, of the
Loan Agreement between the Company and the Lender, of
any other document accessory to the Loan and any
amendment of these, as the case may be.
5.2 Notwithstanding any disposition to the contrary contained in the
present Offer, and even if the conditions have been respected, GQ
reserves the right to annul any unissued part of the loan guarantee or
to defer its putting into effect, at its sole discretion, in the
following cases:
5.2.1 if the Company hasn't presented to GQ any request for
disbursement of the Loan, supported by justifying documents
required by GQ within six (6) months of the Date of Acceptance
of the present Offer;
5.2.2 if, in the opinion of GQ, there has been an important
unfavourable change in the financial situation of the Company.
6. GENERAL TERMS AND CONDITIONS
6.1 This contract will be governed by the laws (of the Province)'
of Quebec and, in case of dispute, only the courts (of the
province)' of Quebec will have jurisdiction. In addition, this
Offer is subject to the application of the terms and
conditions enunciated in the LOI SUR INVESTISSEMENT-QUEBEC ET
SUR GARANTIE-QUEBEC and its regulations.
6.2 By its acceptance of the present Offer, the Company declares
that all information conveyed to GQ or to the Lender which
gave rise to the present Offer is exact, complete and true.
6.3 The Company cannot cede or transfer the rights conferred upon
it under the terms of the present Offer without the prior
written consent of GQ.
6.4 By accepting this Offer, the Company consents that a public
announcement be made by GQ, communicating the following
information: the name and address of the Company, the nature
of the Company and the amount of the Guarantee.
6.5 If the Company wishes to officially announce a project related
to the present Offer, make public the financial intervention
of GQ, or proceed to an official opening, the Company must
inform GQ fifteen (15) days in advance, so as to permit GQ to
participate.
6.6 The Company commits itself to pay all expenses related to the
preparation, execution and registration, if applicable, of the
documents required to give effect to the present Offer and any
amendments thereto.
6.7 GQ and its representatives can, without prior notice to the
Company, enter the premises of the Company during normal
business hours for purposes of conducting audits deemed useful
or necessary.
6.8 For purposes of the present Offer, all notices must be sent in
writing by certified mail, registered mail or hand delivery.
Notices originating from GQ will be sent to the head office of
the Company, to the attention of the authorized representative
who will sign the present Offer for and in the name of the
Company. All notices originating from the Company or its
shareholders will be sent to GQ, at its head office, to the
attention of the Secretary. All notices will be deemed to have
been received the date of their delivery in the case of hand
delivery, or the third working day following the date of
mailing in the case of certified or registered mail.
7. FEES
The present Offer is subject to the payment of Guarantee fees equal to
two (2%) of the amount of the Loan, to wit fifteen thousand dollars
(CDN.)' ($15,000) as well as management fees (hereinafter called the
"Commitment Fee" of one (1%) of the amount of the Loan, to wit seven
thousand five hundred dollars (CDN.)' ($7,500) and to the payment of
the Federal Goods and Services Tax (GST)' five hundred and twenty-five
5
<PAGE>
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
dollars (CDN.)' ($525) and of the Quebec Sales Tax (QST)' six hundred
one dollars and eighty-eight cents (CDN.)' ($601.88) applicable to the
Commitment Fee. These Guarantee Fees and Commitment Fees, which must be
remitted to GQ upon acceptance of the present Offer, will not be
refundable under any circumstances, in whole or in part.
The cashing of the Guarantee Fees or of the Commitment Fees does not
confer any right on the Company and in no way obliges GQ to put into
effect all or any part of the Guarantee, these rights and obligations
being only created to the extent that the terms and conditions
indicated in the present Offer are met.
For information purposes, GQ possesses the GST registration number
142625136 RT with respect to the federal government and the QST
registration number 1021665521 TQ 0001 with respect to the Quebec
government.
8. GUARANTEES
For purposes of the present Offer intervene:
Mr Terence Byrne, 489 Grosvenor, Westmount, Quebec H3Y 2S5 - and - Mr.
Louis Muro, 374 Oliver Street, Westmount, Quebec H3Z 3C9, stipulating
jointly and severally (hereinafter designated collectively as the
"Intervenors".
The Intervenors declare that they are shareholders or Directors of the
Company, that they have been made aware of the contents of the present
Offer, its terms, conditions and application, that they understand its
implications and that they are satisfied.
The Intervenors declare that it is to their advantage that the GQ Loan
Guarantee be conferred upon the Company.
The Company and the Intervenors declare that the Intervenors are
shareholders of the Company or that they maintain close and continuous
business relations with the Company.
The Intervenors, as joint and several guarantors, hereby guarantee to
GQ, the repayment of all sums which GQ might have to pay to the Lender
under the terms of the guarantee in the event of the non-respect by the
Company of its obligations to provide to GQ, as produced or as
received, all tax filings, Notices of Assessment, as well as any
correspondence related to Tax Credits, or its obligation to apply any
cheque or amount received as Tax Credits to the reduction of the
balance of the Loan.
The Intervenors, as joint and several guarantors, hereby guarantee to
GQ the repayment of any sum which GQ might have paid to the Lender
under the terms of the Loan Guarantee, up to the amount of any portion
of Tax Credits refunded or credited which might have been withheld by
the federal and provincial government against payment of obligations by
the Company to those governments. (offsets...substantial rewording
required to translate the meaning of the paragraph from French into
English)'
The Intervenors will be considered and will find themselves in the same
situation as the Company, and they expressly renounce all requests for
payment, claims, protests and notices of same as well as all notices of
default and they also renounce any benefits of division and discussion.
Notwithstanding Article 2363 of the QUEBEC CIVIL CODE, the Intervenors
respectively agree that their above-mentioned obligations toward GQ
will continue beyond the term of their functions within the Company,
unless they each substitute, following their MANDATE (translated in
terms of meaning rather than words insofar as there is no easy English
equivalent of the sentence and grammatical structure)', a successor
acceptable to GQ.
GARANTIE-QUEBEC
By: (Sgd: Claude B. Proulx) By: (Sgd: Jean-Charles Vincent)
Claude B. Proulx, Portfolio Manager Jean-Charles Vincent, Regional Manager
Date: June 9, 1999
------------
6
<PAGE>
CERTAIN ANNOTATIONS AND EXPLANATIONS MAY HAVE BEEN ADDED BY MANAGEMENT TO
ENHANCE CLARITY. SEE THE FOLLOWING CHARACTER FOR SUCH ADDITIONS (' " "). SOME
PUNCTUATION MAY HAVE BEEN MODIFIED IN RECOGNITION OF CERTAIN DIFFERENCES BETWEEN
FRENCH AND ENGLISH GRAMMAR.
ACCEPTANCE BY THE COMPANY
After having become knowledgable of the terms and conditions of the present
Offer, we accept the present Offer of a Loan Guarantee and we attach a cheque in
the amount of (CDN.)' ($23,626.88) in payment of the Guarantee Fees, (CDN.)'
($15,000) and the Commitment Fees ($7,500), the GST ($5250), QST ($601.88)
mentioned above.
TIREX CANADA R&D INC.
By: (Sgd: Terence C. Byrne) Date: June 10, 1999
Terence C. Byrne, President -------------
[Name of signatory]
GUARANTEES
After having read the present Offer of a Loan Guarantee, its terms and
conditions, the Intervenors declare in understanding its implications, that they
are satisfied and consent to their respective personal commitment enunciated in
Article 8.
(Sgd: Terence C. Byrne) Date: June 10, 1999
Terence C. Byrne, President -------------
[Name of signatory]
(Sgd: Louis Muro) Date: June 10, 1999
Louis Muro -------------
[Name of signatory]
7
EXHIBIT 23
Pinkham & Pinkham, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Report of Independent Auditors
We consent to the incorporation by reference in the Annual Report on Form 10KSB
of our report dated September 28, 1999 of the Tirex Corporation for the year
ended June 30, 1999.
/s/ PINKHAM & PINKHAM, P.C.
-------------------------------------
Pinkham & Pinkham, P.C.
Certified Public Accountants
December 3, 1999
Cranford, New Jersey
514 Centennial Avenue, Cranford, NJ 07016 Tel: 908-653-1710 Fax: 908-653-1713
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