U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the quarterly period ended March 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from____ to____
Commission File Number 33-17598-NY
THE TIREX CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-2824362
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
740 St. Maurice, Montreal, Quebec H3C 1L5
(Address of Principal executive offices)
(514) 933-2518
(Issuer's telephone number, including area code)
----------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of May 10, 1999: 87,428,779 shares
Transitional Small Business Disclosure Format (check one):
Yes ____ No __X__
1
<PAGE>
The Tirex Corporation
(A Development Stage Company)
-----------------------------
TABLE OF CONTENTS
PART I
Item 1 - Financial Information (unaudited) Page
----
The Tirex Corporation and Subsidiaries
Consolidated Balance Sheet as of
March 31, 1999................................................... 3
Consolidated Statements of Operations
for the three and nine month periods
ended March 31, 1999 and 1998.....................................4
Consolidated Statements of Cash Flows
for the nine-month periods
ended March 31, 1999 and 1998.....................................5
Notes to Financial Statements.........................................6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................17
PART II
Item 1 - Legal Proceedings....................................................32
Item 2 - Changes in Securities and Use of Proceeds............................33
Item 3 - Defaults Upon Senior Securities......................................38
Item 6 - Exhibits and Reports on Form 8-K.....................................39
----------
The financial statements are unaudited. However, the management of the
issuer believes that all necessary adjustments (which include only normal
recurring adjustments) have been reflected to present fairly the financial
position of registrant at March 31, 1999 and the results of its operations and
changes in its financial position for the three and nine month periods ended
March 31, 1999 and 1998 and for the period from inception (July 15, 1987).
2
<PAGE>
The Tirex Corporation
A Development Stage Company
Consolidated Balance Sheet
Assets (Unaudited) (audited)
March 31, 1999 June 30 1998
-------------- ------------
$ $
Current Assets - -
Cash and cash equivalents 0 398,971
Account receivables 0
Notes receivable 523,118 225,969
Sales taxes receivable 40,794 133,868
R&D tax credit receivable 639,737 855,818
Prepaid expenses and deposits 531,671 618,266
----------- -----------
1,735,320 2,232,892
Property and equipment, at cost, net of
accumulated depreciation of $34,417 1,983,306 977,288
Other assets
Licence 37,105
Prepaids 144,000 445,677
Organization costs net of accumulated amortization
of $ 826 515 536
Deferred financing fees 117,431 158,255
----------- -----------
299,051 604,468
----------- -----------
4,017,677 3,814,648
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable 407,926
Accrued liabilties 1,356,232 1,274,150
Deposits payable 34,500 143,500
Current portion of long-term debt 34,120 34,118
----------- -----------
1,424,852 1,859,694
Other liabilities
Long term deposits 128,000
Loan from investor 93,516
Long-term debt (net of current portion 555,639 465,894
Convertible subordinated debentures
long-term portion 935,000 1,035,000
----------- -----------
1,712,155 1,500,894
----------- -----------
3,137,007 3,360,588
----------- -----------
Stockholders' equity
Common stock, $.001 par value, authorized
120,000,000 shares, issued and outstanding
86,392,080 shares 86,392 63,642
Class A stock; .001 par value, authorized 5,000,000
shares; issued and outstanding, 0 shares
Additional paid-in capital 13,601,332 10,258,116
Deficit accumulated during the development stage (12,985,546) (10,051,483)
Unrealized gain on foreign exchange 178,492 183,785
----------- -----------
880,670 454,060
4,017,677 3,814,648
=========== ===========
3
<PAGE>
The Tirex Corporation
A Development Stage Company
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Consolidated Statement Consolidated Statement
of Operations of Operations
------------------------------ ------------------------------- ---------------
Cumulative from
Three months Nine months Three months Nine months March 26, 1993
ended ended ended ended to March 31,
March 31, 1999 March 31, 1999 March 31, 1998 March 31, 1998 1999
------------------------------- --------------------------------- ---------------
1999 1999 1998 1998 1999
---- ---- ---- ---- ----
$ $ $ $ $
- - - - -
<S> <C> <C> <C> <C> <C>
Revenues 0 300,000 415,000 415,000 1,234,725
Cost of Sales 0 130,676 248,082 248,082 941,518
----------- ----------- ----------- ----------- -----------
Gross profit 0 169,324 166,918 166,918 293,207
----------- ----------- ----------- ----------- -----------
Operations
General and administrative 590,150 2,484,964 470,774 1,388,287 5,441,274
Depreciation and amortization 190,719 508,006 4,786 532,034
Research and development 0 13,590 581,093 939,949 6,059,690
----------- ----------- ----------- ----------- -----------
Total Expense 780,839 3,006,530 1,051,867 2,333,022 12,032,998
----------- ----------- ----------- ----------- -----------
Loss before other income and expenses (780,839) (2,837,206) (884,949) (2,166,104) (11,739,791)
----------- ----------- ----------- ----------- -----------
Other income (expenses)
Interest expense (24,835) (78,932) (6,545) (10,243) (142,938)
Interest income 0 0 0 0 2,540
Income from stock options 0 0 0 0 10,855
Loss on disposal of equipment 0 0 0 0 (2,240)
Gain (Loss) on foreign exchange 103,777 (17,895) 18,833 34,186 (56,586)
----------- ----------- ----------- ----------- -----------
78,942 (96,827) 12,288 23,943 (188,369)
----------- ----------- ----------- ----------- -----------
Net Loss (701,927) (2,934,063) (872,661) (2,142,161) (11,928,160)
=========== =========== =========== =========== ===========
Net loss per common share (0.01) (0.03) (0.02) (0.05) (0.65)
=========== =========== =========== =========== ===========
Weighted average shares of common
stock outstanding 77,098,084 77,098,084 40,866,990 40,866,990 18,370,771
----------- ----------- ----------- ----------- -----------
</TABLE>
4
<PAGE>
The Tirex Corporation
A Development Stage Company
Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended
March 31,
------------------------
1999 1998
---- ----
Operating activities $ $
- -
Net loss 2,934,063 2,142,161
---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities:
depreciation and amortization 508,006 7,619
Proceeds from grants 698,438 478,780
stock issued in exchange for services 1,115,125 403,049
stock issued in conversion and pmts 1,348,502 85,575
Unrealized gain on foreign exchange 98,484
Change in assets & Liabilities
increase in Notes receivable (297,149) (30,000)
decrease Sales tax receivables 93,074 4,226
increase in Tax credit receivable (216,081) (369,844)
increase in Prepaid expenses 86,595 (1,558)
increase in Accrued expenses 365,560 856,821
increase in Loan payable 64,685
increase in Deposit payable 19,000
increase in Accounts receivables (115,000)
increase in Loan director 93,516 10,881
---------- ----------
Total Adjustments 3,977,725 1,330,549
Net cash operating Activities 1,043,692 (811,612)
---------- ----------
Investing Activities
Property & equipment (1,006,018) (28,956)
licence (37,105) (157,618)
---------- ----------
Net cash investing activities (1,043,123) (186,574)
Financing activities
Proceeds from notes payables 71,070
Repayment of notes payables (478,996) (98,551)
Proceeds from loan payable 48,131 278,593
Proceeds from deposits payable 383,500
Repayment of long term debt (89,745)
Proceeds from issuance stocks & debentures 50,000 584,850
---------- ----------
Net cash financing activities (399,540) 1,148,392
---------- ----------
Net Decrease in cash (398,971) 150,206
Cash beginning of period 398,971 155,037
---------- ----------
Cash end of period 0 305,243
========== ==========
5
<PAGE>
The TIREX CORPORATION 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.
Nature of Business
The Tirex Corporation (the "Company") was incorporated under the laws of
the State of Delaware on August 19, 1987. The Company originally planned
to provide comprehensive health care services to persons with Acquired
Immune Deficiency Syndrome, however due to its inability to raise
sufficient capital it was unable to implement its business plan. The
Company had been inactive since it ceased operations in November 1990.
In the Fall of 1992, a group of shareholders lead by Edward Mihal and
including 16 other shareholders acting in concert with Mr. Mihal along
with Patrick McLaren and George Fattell, individuals without any prior
affiliation with the Company, became interested in the Company as an
entity potentially suitable for merger or similar transaction with an
operating private company seeking to become public in this manner. This
group approached the Company's incumbent management with a proposal
whereby they agreed to assume management control, make all delinquent
filings with the Securities and Exchange Commission, restore service by
transfer agent and pay all other expenses required to enable the Company
to begin trading its stock and completing a merger or similar
transaction.
In furtherance of the foregoing, on November 5, 1992, J. Richard
Goldstein, MD, Peter R. Stratton and Robert Kopsack resigned from their
positions as officers and directors of the Company. From June 1989 until
the date of such resignations, Dr. Goldstein was the Company's President
and Chief Executive Officer, Mr. Stratton was Vice-President, Chief
Operating Officer, Secretary and Treasurer, and Mr. Kopsack was the
Company's Vice President. In resigning their positions, Dr. Goldstein
and Messrs. Stratton and Kopsack acknowledged that they acceded to their
respective positions and had received compensation in consideration of
their representations that they would, and their best efforts to,
implement a business plan for the Company which would encompass, among
other things, the establishment and operating of skilled nursing care
facilities for patients with Acquired Immune Deficiency Syndrome.
Compensation received by Dr. Goldstein and Messrs. Stratton and Kopsack
consisted of cash payments, stock issuances, and the grants of stock
options and/or stock purchase warrants. As part of their resignations,
Dr. Goldstein and Messrs. Stratton and Kopsack each executed releases
whereby the Company was released and forever discharged from all debts,
obligations, covenants, agreements, contracts, claims or demands in law
or in equity, including but not limited to any stock options or stock
purchase warrants granted or promised to them, which against the
Company, each ever had, or thereafter may have for or by reason of any
matter, cause or thing up 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
6
<PAGE>
appointed, as an interim board of directors, Patrick McLaren, Gerge
Fattell, and Edward Mihal (the "Interim Management"). It was the goal of
the Interim Management to find suitable acquisition and/or development
by the Company. On December 29, 1992, Edward Mihal resigned his position
as an officer and a director of the Company and Louis V. Muro was
appointed as an officer and director of the Company to fill the vacancy
created thereby.
Reorganization
On March 26, 1993, the Company entered into an acquisition agreement
(the "Acquisition Agreement") with Louis V. Muro, Patrick McLaren and
George Fattell, officers and directors of the Company (collectively the
"Sellers"), for the purchase of certain technology owned and developed
by the Sellers (the "Technology") and extensive and detailed plans (the
"Business Plan") for a business which will engage in the exploitation of
the Technology. The Technology will be used to design, develop and
construct a prototype machine and thereafter a production quality
machine for the cryogenic disintegration of used tires. Pursuant to the
Acquisition Agreement, Sellers agreed to assign, transfer and sell to
the Company all of their right, title and interest in the Technology and
Business Plan in exchange for fifteen million nine hundred thousand
(15,900,000) shares of the Company's common stock, $.001 par value per
share (the "Sellers' Stock") of which eleven million nine hundred
thousand (11,900,000) shares were put into escrow. The Business Plan and
Technology were developed by the Sellers prior to their affiliation or
association with the Company. The Sellers were engaged as the Company's
officers and directors for the purpose of implementing the Business Plan
with the Technology or such other technology which they believed could
reasonably satisfy the requirements of the Business Plan.
Effective with the March 26, 1993, closing date of the Acquisition
Agreement (the "Closing Date"), the Company authorized an increase in
the number of directors of the Company from three to six. Pursuant
thereto, the Company appointed Messrs. Kenneth Forbes, Nicholas
Campagna, and Alfred J. Viscido to fill the vacancies created in the
size of the board. As an inducement to Messrs. Forbes, Campagna and
Viscido to join the board of directors, the Company issued 250,000
shares of its common stock, $.001 par value to each of them. The
Acquisition Agreement also provided for stock issuances in the form of
finders fees. Pursuant thereto, the Company issued 300,000 and 1,700,000
shares of its common stock, $.001 par value, to Joseph Territo and
Edward Mihal, respectively.
Effective March 24, 1994, George Fattell resigned as an officer and
director of the Company. Per the terms of his resignation any future
shares of the Company's common stock issued to Mr. Fattell are to be
equally distributed to Louis V. Muro and Patrick McLaren.
Effective January 18, 1995, Louis V. Muro and Patrick McLaren resign
their positions as officers and directors of the Company. In addition to
their resignations they acknowledged that none of the requisite
performance levels for the release of any of the 11,900,000 escrow
shares had been met and renounced all rights to such shares.
Developmental Stage
As of March 31, 1999 the Company was still in the development stage. Up
to that date, the operations had consisted mainly of raising capital,
obtaining financing, developing equipment, obtaining customers and
supplies, installing and testing equipment and administrative
activities. In April of 1999, the Company commenced production of rubber
crumb with equipment developed and started the production of welcome
mats for the US market.
7
<PAGE>
Basis of Consolidation
The consolidated financial statements include the consolidated accounts
of The Tirex Corporation and its subsidiaries and Tirex Canada, Inc..
Tirex Canada, 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.
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
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 required 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.
Organization Costs
Organization costs are being amortized on a straight-line basis over a
sixty month period.
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
8
<PAGE>
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.
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, 1998 and 1997, 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
9,212,673 and 2,000,000 shares at June 30, 1998 and 1997, respectively,
and warrants for the purchase of 2,000,000 shares at June 30, 1998 and
1997 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, 1998 and 1997, 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 $4
million as of June 30, 1998, 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.
9
<PAGE>
The Company has research and development investment tax credits
receivable from Canada and Quebec amounting to $639,737 applicable to
expenditures incurred between July 1, 1998 and March 31, 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.
Note 2 - Going Concern
As shown in the accompanying financial statements, the Company incurred
a net loss of $2,934,063 for the nine-month period ended March 31, 1999.
In March 1993, the Company, which was still in the development stage,
developed a new Business Plan. As at March 31, 1999, the Company was
still considered to be in the development stage. As of that date, the
Company had constructed a production quality machine for the cryogenic
disintegration of used tires. At the beginning of the fourth quarter of
the Company's Fiscal Year 1998-1999, the Company commenced production of
rubber crumb using its technology and simultaneously commenced the
production of welcome mats for the US market. The commencement of
production of rubber crumb using the Company's patented tire
disintegration technology will permit the evaluation of the long-term
effectiveness of the Company's technology and will permit the Company to
introduce such modifications as are seen to be appropriate to enhance
its efficiency and reliability. As of the date of this Report, the
Company has not yet operated the machine on a long-term continuous basis
and is thus still not in a position to ascertain the long-term
commercial effectiveness of the machine. Fees generated from tipping and
culling have so far been insufficient to fund the current operations of
the Company. These factors create an uncertainty about the Company's
ability to continue as a going concern. 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 nine months ended March 31, 1999 the Company incurred $66,566
in connection with debt financing . Amortization of capitalized
financing costs capitalized amounted to $58,311 and this figure is
included in the figure of $508,006 for depreciation and amortization
applicable to capital assets, intangible assets and prepaid expenses for
the nine-month period ended March 31, 1999.
Note 4 - Property and Equipment
Financing Costs
As of March 31, 1999 plant and equipment consisted of the following:
Furniture, fixtures and equipment $ 100,328
Leasehold improvements 152,917
Construction in progress 1,695,644
----------
1,948,889
Less accumulated depreciation and amortization 34,417
----------
$1,983,306
==========
10
<PAGE>
Depreciation and amortization expense charged to operations was $34,417
for the nine months ended March 31 1999.
Note 5 - Notes Payable
As of March 31, 1999, the company had no lines of credit available from
any banking institution. The previous credit facility made available by
the Bank of Montreal, supported by a loan guarantee made available by a
Quebec Government agency, the Societe de developpement industriel du
Quebec(SDIQ), to bridge finance scientific research tax credits earned
for the period ending June 30, 1998 was paid off in accordance with the
terms of the agreement with SDIQ on March 24, 1999. While the company
has recorded tax credit receivables in the amount of $639,737 as of
March 31, 1999, no other credit facility had been put in place as of
that date to bridge finance such receivables. In May of 1999, the
company did receive an offer for such financing from ScotiaBank subject
to the availability of a loan guarantee by the same Quebec Government
agency whose name was recently changed to Investissements Quebec. As of
the date of these financial statements, this guarantee had not yet been
accorded. Should such guarantee be accorded, the available credit would
be a maximum of Cdn$750,000 (approximately US$517,500) applicable to the
tax credits for the company's year ending June 30, 1999, and would be
renewable for the subsequent year. This credit facility would bear
interest at Canadian prime rate plus 1.25% . In addition to the
guarantee from Investissements Quebec, the note would be further
collateralized by limited personal guarantees of certain officers, the
assets of Tirex Canada R&D Inc., and guaranteed by The Tirex Corporation
Canada Inc., which guarantee would be supported by a pledge of the
assets of said company.
Note 6 - Long-Term Debt
- --------------------------------------------------------------------------------
Canada Economic Development for Quebec Regions
(CEDQR)(formerly known as the Federal Office of Regional
Development - Quebec (FORD-Q) 1998
- --------------------------------------------------------------------------------
Loan payable under the Industrial Recovery Program
For Southwest Montreal (IRPSWM) amounting to 20%
of certain eligible costs incurred (maximum loan $500,000)
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) $ 341,180
- --------------------------------------------------------------------------------
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 Copany defaults the loans become interest bearing).
- --------------------------------------------------------------------------------
- - Loan payable over five years commencing 64,823
June 2000 due June 2004
- --------------------------------------------------------------------------------
- - Loan payable over five years, commencing 60,187
June 2001, due 2005
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
- - Loan payable in amounts equal to 1% of the annual 13,647
sales in India through June 30, 2002
- --------------------------------------------------------------------------------
- - Loan payable in amounts equal to 1% of annual sales in 13,647
Spain through June 30, 2007
- --------------------------------------------------------------------------------
- - Loan payable in amounts equal to 11/2% of annual sales 64,823
in Spain and Portugal through June 30, 2004
- --------------------------------------------------------------------------------
$ 558,307
- --------------------------------------------------------------------------------
Less: Current portion 34,118
- --------------------------------------------------------------------------------
$ 524,189
- --------------------------------------------------------------------------------
Minimum principal repayments of each of the next five years as follows:
- --------------------------------------------------------------------------------
1999 $34,118
- --------------------------------------------------------------------------------
2000 90,415
- --------------------------------------------------------------------------------
2001 129,517
- --------------------------------------------------------------------------------
2002 168,617
- --------------------------------------------------------------------------------
2003 32,581
- --------------------------------------------------------------------------------
Thereafter 44,764
- --------------------------------------------------------------------------------
$500,012
- --------------------------------------------------------------------------------
In March of 1999, the Company made a written request to CEDQR to postpone the
first repayment of Cdn$50,000 (approximately US$34,118) for a period of six
months citing delays in the project schedule which were partly caused by delays
at sub-contractors located in the region affected by the ice storm of January
1998. Following said ice storm, CEDQR appropriated for itself the discretionary
right to grant such delays. In those circumstances where delays were accorded,
no interest would be charged during the six-month extension period. In the event
the requested delay would be granted, the forecast repayments would be adjusted
to take into account the actual delays accorded. As of the date of these
financial statements, no decision on the company's request had been received.
The above schedule does not reflect any delays in the repayment schedule.
12
<PAGE>
Note 7- Convertible Subordinated Debentures
Convertible subordinated debentures consist of the following:
<TABLE>
<CAPTION>
Type A Type B
------ ------
<S> <C> <C>
Balance as of $500,000 $435,000
March 31, 1999
Interest Rate 10% 10%
Maturity Earlier of (i) - the completion Earlier of (i)- two years
of a public offering yielding from the issue date or (ii) -
gross proceeds of not less than the completion of a public
$8,000,000, (ii) - the closing offering of its securities by
on financing in excess of $4,500,000, the Maker
(iii) - December 31, 1999
Redemption rights If not converted, the holder If not converted, the holder
may require the Company may require the Company
to redeem at any time after to redeem at any time
maturity at a premium of after maturity the principal
125% of the principal amount plus interest
amount plus interest
Conversion ratio 66% of the closing bid price $0.20 per share
of the common stock as
reported by NASDAQ on
the trading day immediately
preceding the Company's
receipt of a notice of
conversion by a debenture
holder.
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.
</TABLE>
Note 8 - Related Party Transactions
The Company entered into various employment agreements with the
executive officers whereby the Company will pay a total of $762,500 a
year. All of the employment agreements are multi-year in nature. Since
March 31, 1999, one officer resigned from his position as such although
he continues to be employed by the Company in other capacities at the
same salary. As a result of the foregoing, the annual commitment in
respect of officers remuneration has been reduced to $700,000. In
addition to the employment services, the officers agree not to compete
with the Company for periods ranging from one to two years following the
termination of employment. If
13
<PAGE>
an officer is terminated other than for cause or for "good reason", the
terminated officer will be paid up to twice the amount of their base
salary for twelve months.
Included in accrued expenses at March 31, 1999 is approximately $29,000
for salary to officers in compensation for which the company intends to
issue common stock.
At March 31, 1999, the Company had a note receivable from an officer in
the amount of $74,405. This note bears interest at an annual rate of 8%
above prime through September 1998 and 2% above prime through September
1999 (the due date).
At March 31, 1999, an officer of the Company owed the company an amount
of $21,564, which amount will be repaid prior to the end of fiscal year.
At March 31, 1999 the Company had a note receivable for $30,000 from a
Company in which a director has 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.
Note 9 - Common Stock
During the nine months ended March 31, 1999, the Company issued common
stock to individuals in exchange for services performed and financial
accommodations totaling $1,683,737. Included in these amounts are
payments to officers and Corporate Counsel of the Company in exchange
for financial accommodations and other services rendered without benefit
of cash payment in the amount of $1,115,696. 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 10 - Stock Option
On May 19, 1995, the Company sold to a director of the Company an option
(the Hartley 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 shares of the
Company's common stock at a conversion rate equal to one preferred share
(and all accumulated and unpaid dividends thereon) for the number of
shares of the Company's stock purchasable for $10 at a price equal to
30% of the market price of such common stock as at the date of
conversion. The number of shares purchasable under the Hartley Option at
a price of $10 per share can be increased if, at the conversion rate in
effect on the effective date, 20,000 preferred shares are convertible
into fewer than 2,000,000 common shares. 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.
Compensatory Common Stock Options
Under a stock option agreement with Continental General Tire (CGT), CGT
was granted an option to purchase up to 10% of the total common shares
of the Company, which percentage would be calculated after the option's
having been exercised. As of May 10, 1999, the Company had 87,428,779
shares outstanding, which would entitle CGT to purchase 9,714,309
shares. Under the terms of the option agreement, such shares so
purchased would have a market value as of May 10, 1999 equal to
approximately $1,313,834. The weighted average exercise price as of May
10, 1999 is equal to $0.0617.
14
<PAGE>
Note 12 - 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.
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, the
Company was inactive.
For accounting purposes the Company recorded the merger as a purchase
and not as a pooling of interests.
Note 13 - Government Assistance
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credits. During
the year ended June 30, 1998, the Company received approximately
$670,000 which has been recorded as paid in capital. During the
nine-month period ended March 31, 1999,and pursuant to government audit,
the company received a total of Cdn$1,118,051 (approximately US$760,000)
from Revenue Canada and Revenu Quebec in respect of tax credits for the
year ended June 30, 1998.
Note 14 - Commitments
The Company leases office space under an agreement for a term from July
1, 1997 to June 30, 2000. The Company has an option to renew this lease
for an additional two years. However, in April 1999, management decided
to consolidate its office space at the factory location and will attempt
to sub-let the office space to be abandoned. The renewal option is
unlikely to be exercised. Minimum rentals in each of the next three
years is as follows:
Amount
------
June 30,1999 $18,967
June 30, 2000 18,967
-------
TOTAL $37,934
=======
15
<PAGE>
The Company also leases 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:
Amount
------
June 30, 1999 $108,880
June 30, 2000 176,900
June 30, 2001 204,100
June 30, 2002 204,100
June 30, 2003 170,100
--------
TOTAL $864,000
========
Rental expense for the year ended June 30, 1998 amounted to $55,532 and
for the nine-month period ended March 31, 1999 amounted to approximately
$69,000.
Note 15 - Subsequent Event
During the subsequent period from March 31, 1999 to May 13, 1999,
holders of convertible debentures converted an amount of $68,400 into
common shares of the company in addition to the $100,000 converted prior
to March 31, 1999.
Note 16 - Other Options and Warrants
Note 10 addresses the Hartley and CGT options that are outstanding at
March 31, 1999. The Company also has warrants and options outstanding to
purchase 4,485,295 shares of common stock, which warrants and options
expire at various future dates. These rights can be exercised at various
rates from $0.001 through $0.50
16
<PAGE>
ITEM 2 - 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 three and nine month periods ended March 31, 1999. This discussion
also includes events which occurred subsequent to the end of such quarter 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.
The Company is in the very early stages of the business of manufacturing
its patented cryogenic scrap tire recycling equipment (the "TCS-1 Plant") which
it intends to market as well as to use in its own operations. In March 1999, the
Company commenced operations in a second business segment, which presently
involves the partial ownership, and the operation, of the TCS-1 Plant which is
installed at the Company's Montreal facility and the production of molded rubber
welcome mats out of the recycled rubber crumb produced thereby. The Company's
longer term business plan for this segment includes the direct or indirect
ownership of additional TCS-1 Plants, on exclusive or joint venture bases, and
the establishment of additional rubber product manufacturing plants.
Liquidity and Capital Resources
The activities of the Company since its formation in 1987 and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions, including three private placements to a
limited number of accredited investors, which the Company completed on May 11,
1998, and which yielded aggregate net proceeds of $2,063,795. In total, funds
raised by the Company from private sales of its securities are as follows:
Proceeds From
Year Ended Sales of
June 30th Securities
--------- -----------
1998 $2,063,795
1997 345,391
1996 80,872
1995 22,316
1994 237,430
1993 76,055
1990 80,812
1989 77,000
17
<PAGE>
In addition, from July 1, 1998 through March 31, 1999, the Company has
also received approximately $1,506,000 from various other sources (other than
operations) including: (i) an aggregate of $300,000, received in December 1998
and January 1999, from sale and lease back financing on inventory and equipment
(subsequent to the period covered by this Report, in April 1999, the Company
received an additional amount of approximately $62,400 from sale and lease back
financing on inventory and equipment); (ii) approximately $927,000, received in
September 1998 and January, February and March 1999 from Canadian research and
development tax credit refunds; (iii) approximately $214,000, received, from
time to time, from officers, directors, and employees, by way of loans to the
Company (such loans being repaid by the issuance of shares of the Company's
common stock at a discount of 50% of the then current market price); and (iv)
approximately $65,000, received in February and March 1999, in refunds 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. The foregoing have
provided adequate funding to accomplish the following: (i) cover all of the
Company's costs related to the first production model of the TCS-1 Plant (the
"Production Model"), including previously unanticipated modifications identified
during testing; (ii) proceed with renovations of the Company's new manufacturing
and assembly facility which have brought it into full compliance with all
applicable provincial and municipal regulations except for the purchase and
installation of a sprinkler system which will cost approximately $100,000 and
for which the Company expects to be able to obtain sale and leaseback financing;
(iii) cover the Company's overhead costs and expenses; and (iv) cover the
initial costs of establishing and commencing operations in the Company's second
business segment involving the operation of a TCS-1 Plant and the production of
molded rubber floor mats including capital investments in molding and flocking
equipment.
The Company expects that these same funding sources, together with
anticipated cash flow from rubber mat molding operations, which were started in
April 1999, vendor financing, and conventional asset based debt financing
against receivables and inventory will continue to provide sufficient capital to
cover overhead and maintain and expand molding operations. The Company is also
ready to begin full scale, commercial manufacture of TCS-1 Plants. Its present
plans do not require it to obtain any outside financing to do so, but instead
require only partial prepayments from the purchasers of such Plants. The Company
will not manufacture any TCS-1 Plants for purchasers unless and until it
receives the prepayments necessary to fund such manufacture. Therefore, any
failure or delay, on the part of the persons who have placed orders with the
Company for TCS-1 Plants, to obtain the required financing to effect such
purchases, will be directly reflected in a commensurate delay or failure, on the
Company's part, to begin TCS-1 Plant manufacturing operations.
Absent adequate revenues from operations during the phase-in period of
commercial operations, the Company will remain dependent on the outside sources
described above to meet its requirements and to continue operating. Whether the
funds, which the Company obtains, from any of such sources, will be sufficient
to enable the Company to reach a profitable operating
18
<PAGE>
stage, will be entirely dependent upon: (i) the amount of such financing which
the Company is actually able to raise; (ii) the ability of prospective TCS-1
Plant purchasers to obtain financing; (iii) the as yet unproven ability of the
TCS-1 Plant to operate successfully on a continuous, long-term, commercial
basis; (iv) ability of prospective purchasers of TCS-1 Plants to obtain
financing to effect their projected purchases; and (v) the ability of the
proposed rubber mat molding facility to operate profitably While the Company
believes it that it will successfully fulfill all of the foregoing criteria,
there can be no assurance with any certainty that this will, in fact, be the
case. The failure to do so would have a material adverse effect on the Company's
ability to continue to operate. The Company's more long term future capital
requirements will depend upon numerous factors, including the amount of revenues
generated from operations, 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 factors discussed above and
the Company's ability, over the long-term, to successfully market TCS-1 Plants
and finished products made from recycled rubber crumb.
As noted above, in the nine month period ended March 31, 1999, the Company
received funds from sources other than operations, as described above. This was
true also during the fiscal years ended June 30, 1997 and 1998 and the interim
nine-month period ended March 31, 1998 when the Company received funds from
Quebec and Canadian government grants, loans, loan guarantees, and refundable
tax credits, which were granted for, and used to, complete the development of
the TCS-1 Plant and begin the international marketing of such plants. 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. 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,
19
<PAGE>
virtually all of the activities connected with the development and construction
of the First Production Model of the TCS-1 Plant have qualified as expenses
eligible for refundable tax credits.
As a further measure to stimulate research and development, the Quebec
Government, through the Societe de developpement industriel du Quebec, a public
sector corporation wholly owned by the Government of Quebec, (the "SDI") (a
former English version of this name was the Quebec Industrial Development
Corporation), has put into place a loan guarantee program (the "SDI Loan
Guarantee Program") which provides the SDI's guarantee of repayment of 75% of
the amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. The SDI Loan Guarantee Program therefore
enhances a company's ability to borrow from financial institutions up to 75% of
the amount of the anticipated tax credit for expenditures already incurred
("Allowable Post-Expenditure Loans"), prior to the receipt of the anticipated
tax credit. Alternatively, the SDI Loan Guarantee Program allows companies to
borrow, prior to making any expenditures, up to 60% of the amount of the
anticipated tax credit based on budgeted expenditures not yet incurred (80% of
the amount of an Allowable Post-Expenditure Loan). This provides the cash flow
essential to the research and development efforts. In the absence of any tax
liabilities, these tax credits have functioned as monetary grants and
constituted receivables which were used, prior to their being paid to the
Company, to secure conventional bank financing, supported in part by the SDI
guarantee noted above.
In connection with the Refundable Tax Credits, during the first quarter of
1998, the Bank of Montreal ("BOM") approved a loan to the Company of up to
Cdn$937,000, or approximately US$655,900 ("the BOM Tax Credit Loan") to be used
to pay expenses which would then be eligible for refundable tax credits. As at
June 30, 1998, Cdn.$828,230 (approximately US$579,761) had been lent to the
Company pursuant to the BOM Tax Credit Loan. During the nine-month period ended
March 31, 1999, the Company borrowed an additional Cdn.$108,770 (approximately
US$76,139) under the BOM Tax Credit Loan. As at June 30, 1998 and March 31,
1999, respectively, the outstanding balance payable on the BOM Tax Credit Loan
was Cdn$597,820 (approximately US$418,474) and $0. The BOM Tax Credit Loan was
secured by: (i) a first-ranking lien on all of the assets, tangible and
intangible, present and future of the Company's Canadian subsidiary, Tirex R&D;
(ii) a lien on the Company's patent for the cryogenic tire disintegration
process and apparatus of the TCS-1 Plant; and (iii) personal guarantees of two
officers and directors of the Company.
The SDI, under its above described Loan Guarantee Program, guaranteed
repayment of 75% of the BOM Tax Credit Loan ("the SDI Guarantee"). The SDI
Guarantee was secured by a lien on the Company's projected tax credit
receivables.
Borrowings drawn down under the BOM Tax Credit Loan bore interest, from
the date the funds were drawn down until the date that the outstanding principal
and all accrued and unpaid interest thereon was repaid, at an annual rate equal
to the Bank of Montreal Prime Rate (which,
20
<PAGE>
for reasons of inter-bank competition, was usually equivalent to the Canadian
Prime Rate) plus 1.25%. Interest on the outstanding balance of the BOM Tax
Credit Loan was due and payable monthly. The outstanding principal amount was
repayable upon the Company's receipt of tax credit refunds from the Canadian
and/or Quebec tax authorities and the release of the funds by SDI to the Bank of
Montreal. During the last three fiscal years, and the nine-month interim period
ended March 31, 1999, the Company made research and development expenditures,
generated tax credit claims, and received funds by way of borrowings under the
BOM Tax Credit Loan, as set forth in the following table:
21
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Period Amount of R&D Amount of R&D Amount of Tax Amount Borrowed Amount of Cumulative
R&D Expenses Were Expenditures Expenditures Credits Estimated Against Estimated Tax Credit Outstanding Balance
Incurred Incurred Eligible for by BOM and SDI Tax Credits Received of Loan as at End
Tax Credits of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
July 1, 1995 to -0- -0- -0- -0- -0- -0-
June 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to Cdn$1,576,761 Cdn$1,576,761 Cdn$579,305 -0-(1) -0-(2) -0-
June 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to Cdn$2,723,443 Cdn$2,723,443 Cdn$982,113 Cdn$828,230(1) Cdn$307,208(2) Cdn$597,820
June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Interim Period Cdn$1,362,210 (3) (4) Cdn$108,770(1) Cdn$1,363,568 -0-
July 1, 1998 to (5)
March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.
22
<PAGE>
(1) Prior to June 30, 1998, the Company received three disbursements from the
BOM in the aggregate amount of Cdn$828,230 (approximately US$579,761) with
the first of these disbursements received on January 30, 1998. These
amounts were based upon estimated tax credit receivables in the following
amounts: (i) Cdn$579,305 (approximately US$405,514) for research and
development expenditures made by the Company during the fiscal year ended
June 30, 1997; and (ii) a portion of the Cdn$982,113 (approximately
US$687,479) for research and development expenditures made by the Company
during the fiscal year ended June 30, 1998. Subsequent to June 30, 1998,
the Company received a further cash disbursement of Cdn$108,770
(approximately US$76,139), in respect of eligible tax credit expenditures
incurred prior to June 30, 1998, effecting the complete draw down of the
entire authorized loan amount of Cdn$937,000 against tax credit
receivables for the cumulative period ended June 30, 1998.
(2) All funds by way of Tax credits received by the Company during fiscal 1998
were attributable to research and development expenditures made by the
Company during fiscal 1997.
(3) As at March 31, 1999, the Company had not yet submitted a claim for tax
credits based upon any research and development expenditures made since
July 1, 1998. The Company expects that a portion of such expenditures will
be eligible for Refundable Tax Credits. In connection therewith,
subsequent to the period covered by this Report, on May 7, 1999, the
Company received an offer of renewable financing against tax credit
receivables from ScotiaBank (the "ScotiaBank Tax Credit Loan") for a
maximum amount of Cdn $750,000 (approximately US $517,500), per year, for
two years, subject to a loan guarantee to be provided by Investissements
Quebec, formerly known as the SDI. The ScotiaBank Tax Credit Loan is
similar to the BOM Tax Credit Loan. In addition to the loan guarantee by
Investissements Quebec, the ScotiaBank Tax Credit Loan will be further
secured by a lien on the assets of Tirex Canada R&D Inc., an unlimited
guarantee of The Tirex Corporation Canada Inc. which guarantee is secured
by a lien in the amount of Cdn $1,500,000 (approximately US $1,035,000) on
all present and future movable property of The Tirex Corporation Canada
Inc. plus a personal guarantee by two directors of the Company.
(4) The SDI Loan Guarantee Program, which guaranteed repayment of 75% of the
BOM Tax Credit Loan, was available only for bank loans based on estimated
tax credit receivables for research and development expenditures made on
or before June 30, 1998. The entire amount available to the Company under
the BOM Tax Credit Loan has already been borrowed by the Company in
connection with research and development expenditures made by the Company
during the years
23
<PAGE>
ended June 30, 1997 and 1998. The SDI Loan Guarantee Program is still in
existence, however, and is being relied upon by the Company to guarantee
new loans which may be made to the Company by ScotiaBank and other
Canadian lending institutions. Accordingly, (as noted above in footnote 3
to this table), the Company intends to utilize the ScotiaBank Tax Credit
Loan in the same manner that it utilized the BOM Tax Credit Loan, to
finance certain research and development expenditures made after June 30,
1998.
(5) Tax credits in the amount of Cdn $245,517 received by the Company during
the period, July 1, 1998 through December 31, 1998, were attributable to
research and development expenditures made by the Company during the
fiscal year ended June 30, 1997. Tax credits in the amount of
Cdn$1,118,051, received by the Company during the three month period ended
March 31, 1999 were attributable to research and development expenditures
made by the Company during the fiscal year ended June 30, 1998. Parts of
these tax credit payments were used to repay the remaining balance due on
the BOM Tax Credit Loan.
During the last three fiscal years and the nine month interim period ended
March 31, 1999, 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.
24
<PAGE>
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 $163,498
Fiscal 1998 $253,248 $167,802
Under the terms of the CEDQR Loan, repayment was originally scheduled to
commence twelve months from the date CEDQR declared that the project had 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 $ 34,118
March 31, 2000 $100,000 $ 68,236
March 31, 2001 $150,000 $102,354
March 31, 2002 $200,000 $136,472
Because of the limited cash resources presently available to the Company,
as of April 30, 1999, it had not paid the loan repayment scheduled for March 31,
1999. Under the terms of the CEDQR Loan, there is no penalty for failure to make
a scheduled payment other than a charge of interest on overdue payments at a
rate established by regulation under the Financial Administration Act on the
date of the first contribution payment made by the Minister in charge. The
applicable interest rate on overdue payments under this loan is the Canadian
prime rate + 3%. Notwithstanding the foregoing, in March of 1999, the Company
made a written request to CEDQR to postpone the due date of the first repayment
of Cdn $50,000 (approximately US $34,118) for a period of six months citing
delays in the project schedule which were caused in part by delays by
sub-contractors located in the Montreal region affected by an ice storm in
January of 1998. Following such ice storm, CEDQR appropriated for itself the
discretionary right to grant such extensions. In those circumstances where
payment extensions are granted, no interest is charged during the extension
period. As of the date of this report, no decision on the Company's request had
been received.
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
25
<PAGE>
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 following the completion of the project. This amount was
received by the Company in April 1999.
3. The Company 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 March 31, 1999 and the repayment terms of each loan.
26
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Amount of Funds
Received By
Company as of
Maximum Amount March 31, Rate of
of Loan 1999 Interest
Nature of Project Repayment Terms
=====================================================
Amount of Payment
Date Due
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Feasibility Study for Cdn $20,000 Cdn At the end of any fiscal year 1% of gross annual None
Iberian Peninsula $20,000 in which the Company has revenue from sales in
revenues from sales of TCS-1 Iberia
Plants in the Iberian Peninsula
- -----------------------------------------------------------------------------------------------------------------------------------
Market Research Feasibility Study for Cdn $20,000 Cdn At the end of any fiscal year 1% of gross annual None
India $20,000 in which the Company has revenue from sales in
revenues from sales of TCS-1 India
Plants in India
- -----------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting Potential Cdn $95,000 Cdn June 30, 2001 Cdn$6,333 None
United States Markets for Rubber Crumb $95,000 June 30, 2002 Cdn$12,666
June 30, 2003 Cdn$18,999
June 30, 2004 Cdn$25,333
June 30, 2005 Cdn$31,666
- -----------------------------------------------------------------------------------------------------------------------------------
Cdn $95,000 Cdn At the end of any fiscal year 1.5% of gross annual None
Iberian Market Development Activities $95,000 in which the Company has revenue from sales in
Related to Positioning the Company to revenues from sales of TCS-1 Iberia
Market TCS-1 Plants, Rubber Crumb, and Plants in Iberia
Related Products in Iberia
- -----------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Respecting Cdn $98,000 $98,000 June 30, 2001 Cdn $ 6,533.33 None
the Feasibility of using Rubber Crumb Cdn June 30, 2002 Cdn $13,066.66
in Thermoplastic Elastomer Compounds June 30, 2003 Cdn $19,600.00
in the United States and Canada. June 30, 2004 Cdn $26,133.33
June 30, 2005 Cdn $32,666.66
===================================================================================================================================
</TABLE>
27
<PAGE>
As at March 31, 1999, the Company had total assets of $4,017,677, as
compared to $3,814,648 as at the end of the last fiscal year (June 30, 1998) and
$2,293,331 as at March 31, 1998. Management attributes the changes in total
assets at March 31, 1999 as compared to June 30, 1998 (an overall increase of
$203,029) principally to the following:
(i) an increase in the amount of $1,006,018 in Property, Plant and
Equipment from the June 30, 1998 balance of $977,288 to the March
31, 1999 balance of $1,983,306;
(ii) an increase in the amount of $297,149 in Notes Receivable from the
June 30, 1998 balance of $225,969 to the March 31, 1999 balance of
$523,118;
(iii) a decrease in the amount of $216,031 in Research & Development Tax
Credit Receivables from the June 30, 1998 balance of $855,818 to the
March 31, 1999 balance of $639,737 as collection of the June 30th
balance receivable outpaced the creation of new amounts receivable;
and
(iv) a decrease in the amount of $301,677 in Prepaid Expenses from the
June 30, 1998 balance of $445,677 to the March 31, 1999 balance of
$144,000.
Management attributes the changes in total assets at March 31, 1999 as
compared to March 31, 1998 (an overall increase of $1,724,346) principally to
the following:
(i) an increase in the amount of $1,027,903 in Property, Plant and
Equipment from the March 31, 1998 balance of $955,403 to the March
31, 1999 balance of $1,983,306;
(ii) an increase in the amount of $530,113 in Prepaid Expenses from the
March 31, 1998 balance of $1,558 to the March 31, 1999 balance of
$531,671; and
(iii) an increase in the amount of $483,389 in Notes Receivable from the
March 31, 1998 balance of $39,729 to the March 31, 1999 balance of
$523,118.
As at March 31, 1999, the Company had total liabilities of $3,137,007,
reflecting an decrease of $223,581 over total liabilities of $3,360,588 at June
30, 1998 (the end of the last fiscal year), and an increase of $44,630 over
total liabilities of $3,092,377 on March 31, 1998. The changes in total
liabilities at March 31, 1998 as compared to March 31, 1999, were primarily
attributable to events which occurred during the nine months ended March 31,
1999. Management attributes the changes in total liabilities at March 31, 1999
when compared to June 30, 1998 (an overall decrease of $223,581), principally to
the following:
28
<PAGE>
(i) a decrease in the amount of $407,926 in Notes Payable from the June
30, 1998 balance of $407,926 to the March 31, 1999 balance of $0;
(ii) a decrease in the amount of $100,000 in Convertible Subordinated
Debentures from the June 30, 1998 balance of $1,035,000 to the March
31, 1999 balance of $935,000, resulting from the conversion of
certain of such debentures into equity;
(iii) an increase in the amount of $82,082 in Accrued Liabilities from the
June 30, 1998 balance of $1,274,150 to the March 31, 1999 balance of
$1,356,232;
(iv) an increase in the amount of $93,516 in Loans Payable from the June
30, 1998 balance of $0 to the March 31, 1999 balance of $93,516; and
(v) an increase in the amount of $89,745 in Long Term Debt from the June
30, 1998 balance of $465,894 to the March 31, 1999 balance of
$555,639.
The changes in Deposits Payable in the Current Liabilities section of the
Balance Sheet and similarly in the Other Liabilities section of the Balance
Sheet represents a reclassification only and reflects the fact that these
deposits will not be realized within the next twelve months.
Reflecting the foregoing, the financial statements indicate that as at
March 31, 1999, the Company had a working capital surplus (current assets minus
current liabilities) of $310,468, reflecting a decrease of $62,730 over working
capital of $373,198 at June 30, 1998, and an increase of $1,717,296 over working
capital at March 31, 1998, when the Company had a working capital deficit of
($1,406,828). Almost all of the changes in net working capital at March 31, 1999
when compared to March 31, 1998 are attributable to the three month period ended
June 30, 1998. The primary causes of the aggregate increase in net working
capital at March 31, 1998 when compared to net working capital at June 30, 1998
were:
(i) an increase in the current portion of Prepaid Expenses in the amount
of $616,708 from the March 31, 1998 balance of $1,558 to the June
30, 1998 balance of $618,266. As at June 30, 1998, the current
portion of Prepaid Expenses related almost entirely to prepaid
consulting agreements, compensation under which consisted of the
issuance of stock and stock options. An additional amount of
$445,667 relating to such prepaid consulting agreements, was
included in Other Assets at June 30, 1998;
(ii) a decrease in Loans Payable in the amount of $479,138 from the March
31, 1998 balance of $479,138 to the zero balance as at June 30,
1998; and
(iii) an increase in Notes Receivable in the amount of $186,240 from the
March 31, 1998 balance of $39,729 to the June 30, 1998 balance of
$225,969.
29
<PAGE>
Results of Operations
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 certain air-plant equipment of the First Production Model of the
TCS-1 Plant. During the nine-month period ended March 31, 1999, it received
revenues of $300,000 from the sale of a single fracturing mill and a cooling
tower of the First Production Model. The Company is presently manufacturing
molded rubber welcome mats under a contract with IM2 Merchandising and
Manufacturing, Inc. ("IM2"), in Quebec. Pursuant to the IM2/Tirex Agreement, the
Company acts as IM2's exclusive supplier of rubber welcome mats and related
products molded out of rubber crumb ("IM2 Products"). Under the minimum sales
goals set by IM2, the Company could anticipate generating approximately
$19,800,000 in revenues over the next five years, with approximately $1,100,000
of such amount generated during the next twelve months. However, initial orders
from IM2 are currently exceeding first-year contract minimums resulting in the
Company now anticipating sales of over one million mats during the next twelve
months, with anticipated revenues of approximately $3.15 per mat, which could
bring revenues during the next twelve months to approximately $3,150,000, with
projected first-year earnings under the IM2 contract of $1,400,000. However,
unless and until the Company successfully develops and commences TCS-1 Plant
manufacturing and sales operations and/or expands its rubber mat molding
operations, it will continue to generate 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
operating expenses of $701,927 and $3,103,387, respectively, for the three and
nine-month periods ended March 31, 1999. These amounts reflect a decrease of
$337,652 from the analogous three month period ended March 31, 1998 when total
operating expenses were $1,039,579 and an increase of $794,308 over the
analogous nine month period ended March 31, 1998 when total operating expenses
amounted to $2,309,079.
With respect to the variations in total operating expenses for the
nine-month periods ended March 31, 1998 and 1999, depreciation and amortization,
particularly amortization of prepaid consulting fees, was a major factor. For
the three and nine-month periods ended March 31, 1999, depreciation and
amortization amounted to $190,719 and $508,006 respectively, versus zero and
$4,786 for the analogous periods in 1998, providing increases of $190,719 and
$503,220 respectively. Salaries and professional fees amounted to $224,366 and
$1,354,558 for the three and nine-month periods ended March 31, 1999 versus the
analogous three and nine-month periods for 1998 when these figures amounted to
$273,366 and $790,591 respectively, thus showing a decrease for the three-month
period ended March 31, 1999 in the amount of $49,000 but an increase for the
nine-month period ended March 31, 1999 in the amount of $563,967. Consulting
fees and signing bonuses for the three-month period ended March 31, 1999
amounted to $242,497 versus $9,385 for the analogous period ended March 31,
1998, reflecting an increase of $233,112. For the nine-month period ended March
31, 1999, consulting fees and signing bonuses amounted to
30
<PAGE>
$672,276 versus $79,571 for the nine-month period ended March 31, 1998,
reflecting an increase of $592,705.
From inception (July 15, 1987) through March 31, 1999, the Company has
incurred a cumulative net loss of $12,985,546, $2,934,063 of which was incurred
during the nine months ended March 31, 1999. 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.
31
<PAGE>
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is the defendant in an action, commenced on February 18, 1999,
in the Orange County Superior Court, State of North Carolina, entitled "Laura
Gabiger vs. The Tirex Corporation". This action arises out of a consulting
agreement, dated June 18, 1997, between the Company and Dr. Laura Gabiger (the
"Gabiger Agreement"). The Gabiger Agreement provided for a term of three years,
commencing on July 1, 1997, and compensation at the annual rate of $96,000
during the first two years and at an annual rate of $58,000 during the third
year. The Agreement provided further that thirty percent (30%) of such
compensation would be paid in cash and seventy percent (70%) would be paid in
shares of the Company's common stock. On July 7, 1997, the Company issued to Dr.
Gabiger 263,529 shares of its common stock, which covered the Company's stock
compensation obligations for the entire first year of the Gabiger Agreement. In
addition, between October 1997 and June 1998, the Company paid Dr. Gabiger a
total of $28,800, representing the full amount of cash compensation due to her
for that period.
The complaint alleges that the Company breached its consulting agreement
with Ms. Gabiger by failing to pay compensation due thereunder and seeks damages
in the amount of $221,202, with interest from the date of the alleged breached
on June 8, 1998 plus legal costs. On April 21, 1999, the Company filed an answer
and counterclaim denying the plaintiff's claims of breach of contract and
counterclaiming for fraud, breach of contract, and unjust enrichment on the part
of Ms. Gabiger. The Company's counterclaims are based upon its allegations that
Ms. Gabiger induced the Company to enter into the consulting agreement by
falsely representing that she had expertise and experience in researching and
securing governmental support in the form of grants and other public programs to
finance certain specified activities of the Company, that she utterly failed to
perform any of her duties under the consulting agreement in accordance with her
representations, and that she was, therefore, unjustly enriched in the amount of
$28,800 in cash and 263,529 shares of the Company's common stock. The Company's
counterclaim seeks relief consisting of: (i) compensatory damages in the amount
of $28,800 and cancellation of the stock certificate issued to plaintiff; (ii) a
declaratory judgment that the consulting agreement is of no force and effect;
(iii) punitive damages; and (iv) interest and legal costs.
On April 21, 1999 the Company removed this case to the Federal District
Court by filing a Notice of Removal. During the first week of May 1999,
plaintiff filed a motion to remand back to State court in North Carolina. This
motion is presently pending and the Company will resist it vigorously. It is the
Company's position that this case is completely without merit and the Company
intends to vigorously defend it and to pursue its counterclaims for the return
of monies and stock paid to Ms. Gabiger in advance.
32
<PAGE>
The Company is unaware of any other pending or threatened material 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 2 - Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
During the fiscal quarter ended March 31, 1999, the Company made the
following sales of its common stock, $.001 par value, per share ("Common Stock")
without registration under the Securities Act of 1933, as amended (the
"Securities Act"). The following sets forth information respecting the dates,
purchasers, and consideration involved in such sales and the bases for the
Company's claim that all such sales were exempt from the registration provisions
of Section 5 of the Securities Act by reason of Section 4(2) thereof.
Sales to Executive Officers, Legal Counsel and Employees in Respect of Services
Rendered, Unreimbursed Expenses and Employment Agreements
During the quarter ended March 31, 1999, the Company authorized the
following stock issuances to its executive officers, legal counsel, and
employees in consideration of unpaid salaries, services rendered, and/or
unreimbursed expenses, due and owing to them under or in connection with their
respective employment agreements with the Company:
1. On March 30, 1999, in consideration of unpaid executive services
rendered to, and unreimbursed expenditures made for and on behalf of, the
Company during the five and one-half month period ended March 15, 1999, the
Company authorized the issuance of an aggregate of 3,495,473 shares to five of
its executive officers and its in-house corporate counsel at a per share price
of approximately $.0882083. $.0882083 represents 50% of the average of the bid
and ask price for 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
said five and one-half month period. The following table sets forth the number
of shares issued to each of the identified parties with respect to such five and
one-half month period and the basis therefor:
33
<PAGE>
Amount of Unpaid
Salary and Unreimbursed No. Of
Employee Expenses Owed Shares Issued
- -------- ------------- -------------
Terence C. Byrne US $ 75,685 858,030
Louis V. Muro US $ 36,843 417,676
John L. Threshie, Jr. US $3,027 34,320
Louis Sanzaro US $80,711(1) 914,259
Frances Katz Levine US $85,575(2) 970,143
Jean Frechette US $26,555 301,045
2. On March 30, 1999, in consideration of unpaid executive services
rendered to the Company during the two and one-half month period ended March 15,
1999, the Company authorized the issuance of 201,145 shares of its common stock
to Michael Ash, the Company's secretary, treasurer and chief financial officer
at a per share price of approximately .0978263, representing 50% of the average
of the bid and ask price for 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 said two and one-half month period. The 201,145 shares were
issued with respect to $26,042 in unpaid salary.
3. During the period May 1998 through November 1998 and the period
December 1998 through February 5, 1999 Ocean Utility Contracting Inc. ("Ocean"),
a corporation controlled by Louis Sanzaro, incurred certain reimbursable
expenses on behalf of the Company in the respective amounts of $28,072.17 and
$19,293.73 or $47,365.90 on an aggregated basis. In connection therewith, Ocean
agreed to accept, in lieu of cash reimbursement, unregistered shares of the
Company's common stock valued at 50% of the average bid and ask prices of such
common stock on the dates on which the respective invoices were submitted. The
average bid and ask price of this corporation's common stock as at December 15,
1998 and February 16, 1999 were $.335 and $.17875, 50% of which is $.1675 and
$.089375 respectively. Consequently, on March 31, 1999, the Company authorized
the issuance of 167,595 shares and 215,874 shares,
- --------------
(1) Includes $503 of documented, unreimbursed cash disbursements.
(2) Includes $36,825 of documented, unreimbursed cash disbursements.
34
<PAGE>
respectively, or an aggregate of 383,469 shares to Louis Sanzaro, the assignee
of Ocean.
4. On March 25, 1999 the Company authorized the issuance of an aggregate
of 143,561 shares of its common stock to John Carr, a former employee of the
Company's subsidiary, Tirex Canada R&D Inc. ("Tirex R&D") with respect to
compensation owed to Mr. Carr pursuant to his June 17, 1998 employment agreement
with Tirex R&D. 100,000 of such shares represented a signing bonus under the
employment agreement. The balance of 43,561 shares were issued with respect to
$6,643 owed to Mr. Carr under the employment agreement. These 43,561 were issued
at a price of approximately $.1525 per share, which represents the average of
the bid and ask price for the Company's common stock as at March 22, 1999.
5. As of February 26, 1999 the Company authorized the issuance of
1,000,000 shares of its common stock to Michael Ash, the Company's secretary,
treasurer and chief financial officer. These shares were issued to Mr. Ash as a
singing bonus under his January 4, 1999 employment agreement with the Company.
6. On February 17, 1999 the Company authorized the issuance of 146,296
shares of its common stock to Scott Rapfogel, the Company's Assistant U.S.
Corporate and Securities Counsel, in lieu of $12,500 in salary due to him under
his employment agreement with the Company. Pursuant to the terms of such
employment agreement, the shares were valued at 50% of the average high ask and
low bid price of the Company's stock during the five month period ended December
31, 1998 or $.0854434 per share.
7. On March 31, 1999 the Company authorized the issuance of 500,000 shares
of its common stock to Scott Rapfogel, its Assistant U.S. Corporate and
Securities Counsel as a bonus. Such issuance was made to Mr. Rapfogel in
recognition of his valuable services to the Company and in recognition that the
salary being paid to him pursuant to his employment agreement is not of an
amount commensurate with that of an attorney with his level of expertise and
experience.
8. On March 31, 1999 the Company authorized the issuance of 649,576 shares
of its common stock to Alan Crossley, the Company's Director of European Market
Development with respect to approximately 60,751 remaining due to Mr. Crossley,
pursuant to his employment agreement with the Company, for the period July 1,
1998 through March 31, 1998 in connection with salary and unreimbursed expenses.
The shares issued were valued at 50% of the average of the bid and ask prices
for the Company's common stock during the period when such salary was earned and
such expenses were incurred. Accordingly, the effective sale price was $.0935241
per share.
35
<PAGE>
Issuance of Stock for Consulting Services
On March 31, 1999 the Company authorized the issuance of 58,818 shares,
132, 335 shares, and 144,050 shares to Hydroco Inc. ("Hydroco") (including
assignees thereof), 3003892 Canada Inc. ("3003892 Canada"), and Michael Dublois
Consultants Inc. ("MDCI"), respectively, in connection with various consulting
services provided to the Company by each of such entities. The issuance to
Hydroco was made in consideration of Hydroco's agreement to convert $6,470 owed
to it by the Company into shares of the Company's common stock valued at the
negotiated price of $.11 per share. The issuance to 3003892 Canada was made in
consideration of 3003892 Canada's agreement to convert $18,196 owed to it by the
Company into shares of the Company's common stock valued at $.1375 per share.
Such price represents the average of the bid and ask price for the Company's
common stock on September 23, 1998, the date upon which 3003892 Canada first
invoiced the Company for the services giving rise to the debt. The issuance to
MDCI was made in consideration of MDCI's agreement to convert $17,286 owed to it
by the Company into shares of the Company's common stock valued at $.12 per
share. Such price represents the average of the bid and ask price for the
Company's common stock on November 10, 1998, the date upon which MDCI first
invoiced the Company for services giving rise to the debt.
Issuance of Stock for Amendment of Agreement
and Partial Waiver of License Fee
On March 31, 1999, the Company authorized the issuance of 88,235 shares to
David Sinclair, as assignee of IM2 Merchandising & Manufacturing Inc. in
consideration for IM2's agreement to amend a certain Exclusive Dealings
Agreement, of December 1998, between IM2 and the Company to, among other things,
waive: (i) certain manufacturing capacity deadlines which the Company would
otherwise have been obligated to meet; and (ii) the payment of the Cdn $17,000
balance of a license fee payable under such agreement. The number of shares
issued represents the negotiated price of US $15,000 paid by the Company for the
aforesaid amendment and waiver of the Cdn $17,000 payable to IM2. The shares
issued in lieu of payment of US $15,000 in cash were valued at $.17 per share,
which reflected the average of the bid and ask prices of the Company's common
stock on March 24, 1999.
Issuance of Stock for Legal Office Rent
On March 31, 1999, the Company authorized the issuance of 137,215 shares
of its common stock to Frances Katz Levine, the Company's U.S. Corporate and
Securities Counsel, in lieu of $12,000 owed to Ms. Levine for office rent with
respect to the period October 1, 1998 through March 31, 1999. The shares were
valued at 50% of the average of the ask and bid prices
36
<PAGE>
of the Company's common stock during the period the office rental fees were
payable ($.1749078 per share, 50% of which is $.0874539). Effective as of
October 1, 1998, the Company entered into a rental fee agreement with Ms. Levine
which provided for a rental fee in the amount of $2,000 per month for: (i) the
full-time, exclusive use of two offices which serve exclusively as offices for
the Company's in-house counsel and two part-time secretaries; and (ii) the
part-time use of other space for record storage and conference room purposes.
From January of 1995 until October 1, 1998, Ms. Levine had provided these
facilities and all utilities, free of charge to the Company.
Issuance of Stock in Connection with Debenture Conversion
On March 31, 1999, the Company authorized the issuance of an aggregate of
561,235 shares of its common stock to Mark Bruce, the holder of two Convertible
Type B Debentures in the aggregate principal amount of $100,000. 225,000 of such
shares were issued to Al Pietrangelo, an assignee of Mr. Bruce. In accordance
with the terms of the Debenture, the $100,000 principal amount of the Debentures
and the $12,247 in interest due on the Debentures, through the date of
conversion, were converted into shares of the Company's common stock valued at
$.20 per share.
Issuance in Respect of Conversion of Debt to Equity
On March 31, 1999, the Company authorized the issuance of 677,966 shares
of its common stock to Bartholomew International Investments Ltd. ("BIIL"), a
corporation owned by the Bartholomew Trust. Terence C. Byrne, Registrant's
chairman and chief executive officer, and his spouse are the beneficiaries under
the Bartholomew Trust. These shares were issued in consideration for the
conversion of US$50,000 owed to Mr. Byrne in connection with a $50,000 March 4,
1999 loan by Mr. Byrne to enable the Company to purchase certain flocking
equipment required by the Company for its molding operations. The terms of the
conversion required Mr. Byrne to forego any interest on, and repayment in cash
of, the aforesaid debt and to accept in full satisfaction thereof, 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 the
conversion date. Pursuant to the foregoing, these shares were valued at 50% of
the average of the closing bid and ask price for the Company's common stock on
March 29, 1999, (50% of $.1475 or $.07325 per share).
37
<PAGE>
Basis for Section 4(2) Exemption Claimed
With respect to all sales and other issuances of securities as hereinabove
described, which the Company claims to have been exempt from the registration
requirements of Section 5 of the Securities Act by reason of Section 4(2)
thereof :
(i) 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.
(ii) The persons who acquired these securities were current or former
executive officers, directors, employees, or consultants, all of
whom are sophisticated investors; Such persons had continuing 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.
(iii) 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.
Item 3 - Defaults Upon Senior Securities
During the period January 7, 1998 through May 11, 1998, the Company issued an
aggregate of $535,000 of convertible, subordinated debentures bearing interest
at the rate of 10% which are due two (2) years from their respective dates of
issuance. As at March 31, 1999, $100,000 of these debentures had been converted
into shares of the Company's common stock. Interest on the outstanding principal
amount of the debentures is due and payable semi-annually commencing six months
from the issuance date of such debentures. As at March 31, 1999, the Company was
in arrears on interest payments accrued on these debentures since their
issuances, in the aggregate amount of $39,000, and intends to pay all such
interest as soon as the resources therefor are available.
38
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) No Exhibits are being filed herewith:
(b) One Current Report on Forms 8-K was filed during the quarter ended
March 31, 1998. Such Current Report, dated March 17, 1999, reported, under Item
5 thereof, on an agreement in principle, by the Company to acquire 80.6% of Les
Caoutchoucs Enviromax Inc. a/k/a Enviromax Rubber Inc., a manufacturer of rubber
products molded out of recycled rubber.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE TIREX CORPORATION
Date: May 18, 1999 By /s/ Terence C. Byrne
-------------------------
Terence C. Byrne, Chairman of
the Board of Directors
and Chief Executive Officer
Date: May 18, 1999 By /s/ Michael Ash
--------------------
Michael Ash, Treasurer and
Chief Accounting and Financial Officer
39
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
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