U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the quarterly period ended September 30, 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.)
3828 ST. PATRICK, MONTREAL, QUEBEC H4E 1A4
(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 November 18, 1999: 118,481,528 shares
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
<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 Sheets as of
September 30, 1999 and 1998............................ 4
Consolidated Statements of Operations
for the three-month periods
ended September 30, 1999 and 1998...................... 5
Consolidated Statements of Cash Flows
for the three-month periods
ended September 30, 1999 and 1998...................... 6
Notes to Financial Statements (unaudited).................. 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 20
PART II
Item 1 - Legal Proceedings.......................................... 32
Item 2 - Changes in Securities and Use of Proceeds.................. 32
Item 3 - Defaults Upon Senior Securities............................ 33
Item 4 - Submission of Matters
to a Vote of Security Holders........................... 33
Item 6 - Exhibits and Reports on Form 8-K........................... 33
2
<PAGE>
PART I
ITEM 1 - FINANCIAL INFORMATION (UNAUDITED)
The financial statements incorporated herein are unaudited. However,
Management believes that all necessary adjustments (which include only normal
recurring adjustments) have been reflected to present fairly the financial
position of the Company as of September 30, 1999 and the results of its
operations and changes in its financial position for the three-month periods
ended September 30, 1999 and 1998 and for the period from inception (July 15,
1987).
3
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30,
ASSETS (Unaudited) (Audited)
1999 June 30, 1999
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 37,258 $ 177,256
Account receivable & Notes receivable 174,618 155,840
Sales taxes receivable 43,162 81,244
Inventory 25,698 25,698
R&D tax credit receivable 1,079,625 952,704
Prepaid expenses and deposits 555,313 413,766
------------ ------------
1,915,674 1,806,508
Property and equipment, at cost net of
Accumulated depreciation of $73,432 2,376,213 2,282,295
Other assets
Prepaids 42,858 183,920
Deferred financing fees 100,560 125,281
------------ ------------
143,418 309,201
------------ ------------
4,435,305 4,398,004
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable 510,202 409,939
Accrued liabilities 1,268,668 1,825,913
Current portion of long-term debt 130,328 131,532
------------ ------------
Other liabilities
Long term deposits 143,500 143,500
Long-term debt (net of current portion) 759,740 525,118
Convertible subordinated debentures
long-term portion 556,600 766,600
Loan from officers/investors 576,969 149,406
------------ ------------
Stockholders' equity
Common stock, $.001 par value, authorized
120,000,000 shares, issued and outstanding
118,005,850 shares 118,006 97,360
Class A stock; .001 par value, authorized 5,000,000
Shares; issued and outstanding, 0 shares
Additional paid-in capital 15,867,311 15,155,355
Deficit accumulated during the development stage (15,646,798) (14,961,362)
Unrealized gain on foreign exchange 150,779 154,643
------------ ------------
489,298 445,996
------------ ------------
4,435,305 4,398,004
============ ============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Cumulative from
Three Months March 26, 1993
Ended September 30 to September 30, 1999
---------------------------- ---------------------
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Cost of Sales 0 0 0
------------ ------------ ------------
Gross Profit 0 0 0
Operations
General and administrative 335,654 1,451,057 335,654
Depreciation and amortization 143,098 232,630 143,098
Research and development 178,022 11,840 178,022
------------ ------------ ------------
Total Expense 656,774 1,695,527 656,774
Loss before other income and
Expenses (656,774) (1,695,527) (656,774)
------------ ------------ ------------
Other income (expenses)
Interest expense (25,390) (20,035) (25,390)
Interest Income 0
Income from stock options 0
Loss on disposal of equipment 0
Loss on foreign exchange (3,262) (103,770) (3,262)
------------ ------------ ------------
(28,652) (123,805) (28,652)
Net Loss (685,426) (1,819,332) (685,426)
============ ============ ============
Net loss per common share (0.01) (0.03) (0.80)
============ ============ ============
Weighted average shares of
Common stock outstanding 66,258,839 45,816,877 18,209,531
============ ============ ============
</TABLE>
5
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Three Months Ended September 30
-------------------------------
1999 1998
----------- -----------
Operating activities
Net Loss $ 685,426 $ 1,819,332
----------- -----------
Adjustments to reconcile net loss to
net cash used in operation activities
depreciation and amortization 143,098 232,630
Proceeds from grants 127,263 241,002
Stock issued in exchange for services 41,552 980,000
Stock issued in conversion and pmts 563,749 418,750
Unrealized gain on foreign exchange 3,864 73,807
Change in assets and liabilities
increase in Notes receivable (18,778) (38,039)
increase in Sales tax receivables 38,082 69,479
increase in Tax credit receivable (126,921) (46,280)
increase in Prepaid expenses 24,236 (650)
increase in Accrued expenses (684,625) 83,277
increase in Loan payable 64,884
increase in Deposit payable 19,000
increase in Loan Director
427,563
----------- -----------
Total Adjustments 539,083 2,097,860
Net cash operating Activities (146,343) 278,528
----------- -----------
Investing Activities
----------- -----------
Property & equipment (93,918) (556,532)
License
Net Cash investing activities (98,918) (556,532)
Financing Activities
Repayment of notes payables (16,115)
Proceeds from loan payable 100,263 48,278
Repayment of long term debt (2,997)
Net cash financing activities
----------- -----------
100,263 29,166
----------- -----------
Net Decrease in cash (139,998) (248,838)
Cash beginning of period 177,256 398,971
----------- -----------
Cash end of period 37,258 150,133
----------- -----------
6
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES
CHANGE OF NAME
In June, 1998 the Company changed its name from Tirex America,
Inc. to The Tirex Corporation and Subsidiaries.
NATURE OF BUSINESS
The Tirex Corporation and Subsidiaries (the "Company") was
incorporated under the laws of the State of Delaware on August
19, 1987. The Company originally planned to provide
comprehensive health care services to persons with Acquired
Immune Deficiency Syndrome, however due to its inability to
raise sufficient capital it was unable to implement its
business plan. The Company had been inactive since it ceased
operations in November 1990.
In the Fall of 1992, a group of shareholders lead by Edward
Mihal and including 16 other shareholders acting in concert
with Mr. Mihal along with Patrick McLaren and George Fattell,
individuals without any prior affiliation with the Company,
became interested in the Company as an entity potentially
suitable for merger or similar transaction with an operating
private company seeking to become public in this manner. This
group approached the Company's incumbent management with a
proposal whereby they agreed to assume management control,
make all delinquent filings with the Securities and Exchange
Commission, restore service by transfer agent and pay all
other expenses required to enable the Company to begin trading
its stock and completing a merger or similar transaction.
In furtherance of the foregoing, on November 5, 1992, J.
Richard Goldstein, MD, Peter R. Stratton and Robert Kopsack
resigned from their positions as officers and directors of the
Company. From June 1989 until the date of such resignations,
Dr. Goldstein was the Company's President and Chief Executive
Officer, Mr. Stratton was Vice-President, Chief Operating
Officer, Secretary and Treasurer, and Mr. Kopsack was the
Company's Vice President. In resigning their positions, Dr.
Goldstein and Messrs. Stratton and Kopsack acknowledged that
they acceded to their respective positions and had received
compensation in consideration of their representations that
they would, and their best efforts to, implement a business
plan for the Company which would encompass, among other
things, the establishment and operating of skilled nursing
care facilities for patients with Acquired Immune Deficiency
Syndrome. Compensation received by Dr. Goldstein and Messrs.
Stratton and Kopsack consisted of cash payments, stock
issuances, and the grants of stock options and/or stock
purchase warrants. As part of their resignations, Dr.
Goldstein and Messrs. Stratton and Kopsack each executed
releases whereby the Company was released and forever
discharged from all debts, obligations, covenants, agreements,
contracts, claims or demands in law or in equity, including
but not limited to any stock options or stock purchase
warrants granted or promised to them, which against the
Company, each ever had, or thereafter may have for or by
reason of any matter, cause or thing up to and through
November 5, 1992. Each of Dr. Goldstein and Messrs. Stratton
and Kopsack also acknowledged the termination and rescission
of their respective employment agreements with the Company to
such persons as the Company should direct for the purpose of
satisfying certain of the Company's obligations to third
parties. In consideration of the resignations and releases
executed by Dr. Goldstein and Messrs. Stratton and Kopsack,
Edward Mihal and each of the sixteen shareholders
7
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
the Company acting in concert with Mr. Mihal executed and
delivered reciprocal personal releases to and on behalf of Dr.
Goldstein and Messrs. Stratton and Kopsack. In connection with
the foregoing resignations, Dr. Goldstein and Messrs. Stratton
and Kopsack appointed, as an interim board of directors,
Patrick McLaren, George Fattell, and Edward Mihal (the
"Interim Management"). It was the goal of the Interim
Management to find suitable acquisition and/or development by
the Company. On December 29, 1992, Edward Mihal resigned his
position as an officer and a director of the Company and Louis
V. Muro was appointed as an officer and director of the
Company to fill the vacancy created thereby.
REORGANIZATION
On March 26, 1993, the Company entered into an acquisition
agreement (the "Acquisition Agreement") with Louis V. Muro,
Patrick McLaren and George Fattell, officers and directors of
the Company (collectively the "Sellers"), for the purchase of
certain technology owned and developed by the Sellers (the
"Technology") and extensive and detailed plans (the "Business
Plan") for a business which will engage in the exploitation of
the Technology. The Technology will be used to design, develop
and construct a prototype machine and thereafter a production
quality machine for the cryogenic disintegration of used
tires. Pursuant to the Acquisition Agreement, Sellers agreed
to assign, transfer and sell to the Company all of their
right, title and interest in the Technology and Business Plan
in exchange for fifteen million nine hundred thousand
(15,900,000) shares of the Company's common stock, $.001 par
value per share (the "Sellers' Stock") of which eleven million
nine hundred thousand (11,900,000) shares were put into
escrow. The Business Plan and Technology were developed by the
Sellers prior to their affiliation or association with the
Company. The Sellers were engaged as the Company's officers
and directors for the purpose of implementing the Business
Plan with the Technology or such other technology which they
believed could reasonably satisfy the requirements of the
Business Plan.
Effective with the March 26, 1993, closing date of the
Acquisition Agreement (the "Closing Date"), the Company
authorized an increase in the number of directors of the
Company from three to six. Pursuant thereto, the Company
appointed Messrs. Kenneth Forbes, Nicholas Campagna, and
Alfred J. Viscido to fill the vacancies created in the size of
the board. As an inducement to Messrs. Forbes, Campagna and
Viscido to join the board of directors, the Company issued
250,000 shares of its common stock, $.001 par value to each of
them. The Acquisition Agreement also provided for stock
issuances in the form of finder's fees. Pursuant thereto, the
Company issued 300,000 and 1,700,000 shares of its common
stock, $.001 par value, to Joseph Territo and Edward Mihal,
respectively.
Effective March 24, 1994, George Fattell resigned as an
officer and director of the Company. Per the terms of his
resignation any future shares of the Company's common stock
8
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
issued to Mr. Fattell are to be equally distributed to Louis
V. Muro and Patrick McLaren.
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Effective January 18, 1995, Louis V. Muro and Patrick McLaren
resigned their positions as officers and directors of the
Company. In addition to their resignations they acknowledged
that none of the requisite performance levels for the release
of any of the 11,900,000 escrow shares had been met and
renounced all rights to such shares.
DEVELOPMENTAL STAGE
At December 15, 1999 the Company is still in the development
stage. The operations consist mainly of raising capital,
obtaining financing, developing equipment, obtaining customers
and supplies, installing and testing equipment and
administrative activities.
BASIS OF CONSOLIDATION
The consolidated financial statements include the consolidated
accounts of The Tirex Corporation and its subsidiaries and
Tirex Canada R&D, Inc. Tirex Canada R&D, Inc. is held 49% by
the Company and 51% by the shareholders of the Company. The
shares owned by the shareholders are held in escrow by the
Company's attorney and are restricted from transfer. All
inter-company 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.
ACCOUNTS RECEIVABLE
Management believes that all accounts receivable as of June
30, 1999 and which are still in the accounts of the Company as
of December 15, 1999, were fully collectible; therefore, no
allowance for doubtful accounts were recorded.
INVENTORY
The Company values inventory at the lower cost (first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed provided using the
straight-line method over the estimated useful lives of five
years.
9
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Repairs and maintenance costs are expensed as incurred while
additions and betterments are capitalized. The cost and
related accumulated depreciation of assets sold or retired are
eliminated from the accounts and any gain or losses are
reflected in earnings.
ESTIMATES
Preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 encourages, but does not require
companies to record at fair value compensation cost for
stock-based compensation plans. The Company has chosen to
account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. The
difference between the fair value method of SFAS-123 and APB
25 is immaterial.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128). SFAS 128 changes the
standards for computing and presenting earnings per share
(EPS) and supersedes Accounting Principles Board Opinion No.
15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex
capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. SFAS
128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods.
This Statement requires restatement of all prior-period EPS
data presented.
10
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
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.
Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the
period. Diluted earnings per common share is computed using
the weighted average number of shares of common stock and
dilutive common equivalent shares related to stock options and
warrants outstanding during the period.
The adoption of SFAS 128 had no effect on previously reported
loss per share amounts for the year ended June 30, 1997. For
the years ended June 30, 1999 and 1998, and for the
three-month period ended September 30, 1999, primary loss per
share was the same as basic loss per share and fully diluted
loss per share was the same as diluted loss per share. A net
loss was reported in 1998 and 1997, and accordingly, in those
years the denominator was equal to the weighted average
outstanding shares with no consideration for outstanding
options and warrants to purchase shares of the Company's
common stock, because to do so would have been anti-dilutive.
Stock options for the purchase of 13,212,673 and 9,212,673
shares at June 30, 1999 and 1998, respectively, and warrants
for the purchase of 1,000,000 and 2,000,000 shares at June 30,
1999 and 1998 respectively, were not included in loss per
share calculations, because to do so would have been
anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments,
which principally include cash, note receivable, accounts
payable and accrued expenses, approximates fair value due to
the relatively short maturity of such instruments.
The fair value of the Company's debt instruments are based on
the amount of future cash flows associated with each
instrument discounted using the Company's borrowing rate. At
June 30, 1999 and 1998, respectively, the carrying value of
all financial instruments was not materially different from
fair value.
INCOME TAXES
The Company has net operating loss carry-overs of
approximately $14 million as of June 30, 1999, expiring in the
years 2004 through 2011. However, based upon present Internal
Revenue regulations governing the utilization of net operating
11
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
loss carry-overs 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 carry forwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax
asset established for utilization of the Company's tax loss
carry forwards would correspondingly require a valuation
allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these
financial statements.
The Company has research and development investment tax
credits receivable from Canada and Quebec amounting to
$1,079,625 at September 30, 1999.
FOREIGN EXCHANGE
Assets and liabilities of the Company which are denominated in
foreign currencies are translated at exchange rates prevailing
at the balance sheet date. Revenues and expenses are
translated at average rates throughout the year.
REVENUE RECOGNITION
Revenue is recognized when the product is shipped to the
company.
Note 2 - GOING CONCERN
As shown in the accompanying financial statements, the Company
incurred a net loss of $4,910,000 during the year ended June
30, 1999, and incurred an additional loss of $685,426 for the
three-month period ended September 30, 1999.
In March 1993, the Company, which was still in the development
stage, developed a new Business Plan. As at December 15,, 1999
the Company was in the process of constructing a production
quality machine for the cryogenic disintegration of used
tires. At December 15, 1999, the Company was still in the
development stage.
The Company is currently in the process of formulating a plan
to effect an additional public offering, the proceeds of which
would be used for working capital and capital acquisitions.
The ability of the Company to continue as a going concern is
dependent on the success of the plan. The financial statements
do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
12
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 3 - FINANCING COSTS
During the year ended June 30, 1998 the Company incurred
$158,255 in connection with debt financing. These costs have
been capitalized in other assets and are being amortized over
the terms of the financing. Amortization of financing costs
for the year ended June 30, 1999 was $32,964.
Note 4- PROPERTY AND EQUIPMENT
FINANCING COSTS
As of June 30, 1999 plant and equipment consisted of the following:
Furniture, fixtures and equipment $ 188,890
Leasehold improvements 176,716
Construction in progress - equipment 2,084,039
------------
2,449,645
Less accumulated depreciation and amortization 73,432
------------
$ 2,376,213
============
Note 4 - PROPERTY AND EQUIPMENT (Continued)
FINANCING COSTS
Depreciation and amortization expense charged to operations
was $42,770 and $12,361 for the years ended June 30, 1999 and
1998, respectively. For the three-month period ended September
30, 1999, depreciation and amortization charged against
furniture, fixtures and equipment, Leasehold Improvements and
Construction in Progress was $13,915. Other amortization of
prepaid expenses and deferred financing costs amounted to
$129,183.
Note 5 - NOTES PAYABLE
The Company had available as of June 30, 1999 a $510,000 line
of credit which bears interest at the Canadian prime rate plus
1.25% to finance 75% of its research and development
investment tax credits incurred for the fiscal year ended June
30, 1999. At June 30, 1999, $408,302 was outstanding against
this line of credit. As of September 30, 1999, the outstanding
balance was $510,000. As of December 15, 1999, the outstanding
balance was $119,000. The note is collateralized by the
personal guarantees of certain officers, certain equipment of
Tirex Canada and guaranteed by The Tirex Corporation Canada,
Inc. The loan is guaranteed at a rate of 80% by the
Garantie-Quebec (Guarantee-Quebec), a subsidiary of a Quebec
Government-owned corporation, Investissements-Quebec
(Investments-Quebec) and is repayable from the research and
developmental investment tax credits received. The Canadian
prime rate of interest at June 30, 1999 was 6 1/4%.
Under the terms of the note payable to the bank, the Company
is required to maintain a current ratio of 1:1 by June 30,
1999 and 1.2:1 by June 30, 2000, a tangible net worth of
$750,000, and the furnishing of periodic financial statements.
During the year ended June 30, 1999, the Company failed to
comply with certain loan covenants.
The Company has two notes payable to investors at June 30,
1999 totaling $1,637 to pay for accrued interest on the debt
which was converted to stock.
13
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 6 - LONG-TERM DEBT
1999
Federal Office of Regional Development (Ford-Q) Loan -----------
payable under the Industrial Recovery Program amounting
to 20% of certain eligible costs incurred (maximum loan
$340,252) repayable in annual installments over a
forty-eight month period following completion of the
project, unsecured and non-interest bearing. (If the
Company defaults the loans become interest bearing)
$ 340,252
Loans payable under the Program for the Development of
Quebec SME's based on 50% of approved eligible costs
for the preparation of market development studies in
certain regions. Loans are unsecured and non-interest
bearing. (If the Company defaults the loans become
interest bearing).
Note 6 - LONG-TERM DEBT (Continued)
Loan payable over five years commencing
June 2000 due June 2004 64,648
Loan payable over five years, commencing
June 2001, due 2005 60,020
Loan payable in amounts equal to 1% of annual
sales in Spain through June 30, 2007 13,610
Loan payable in amounts equal to 11/2% of annual
sales in Spain and Portugal through June 30, 2004 64,465
-----------
542,995
Less: current portion 106,385
-----------
$ 436,610
===========
Minimum principal repayments of each of the next five
years as follows:
1999 $ 106,385
2000 114,697
2001 157,033
2002 29,243
2003 37,555
Thereafter 98,082
-----------
$ 542,995
===========
Note 7 - CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under agreements
classified as capital leases. The cost and the
accumulated amortization for such equipment as of June
30, 1999 was $122,609 and $12,289, respectively.
14
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
The following is a schedule by years of future minimum lease
payments under capital leases of equipment together with the
obligations under capital leases (present value of future
minimum rentals) as of June 30, 1999.
Years Ended
June 30,
-----------
2000 $ 34,605
2001 28,075
2002 28,075
2003 28,075
2004 20,955
-----------
Total minimum lease payments 139,785
Less amount representing interest 26,130
-----------
Total obligations under capital lease 113,655
Less current installments of obligations
under capital leases 25,147
-----------
Long-term obligation under capital leases,
with interest rate of 9.3% $ 88,508
===========
15
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 8 - CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures consist of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
TYPE A TYPE B
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance June 30, 1999 $386,600 $380,000
--------------------------------------------------------------------------------------------------------
Interest rate 10% 10%
--------------------------------------------------------------------------------------------------------
Maturity Earlier of (i) the completion of a Earlier of (i) two years from
public offering yielding gross the issue date or (ii) the
proceeds of not less than completion of a public
$8,000,000, (ii) the closing on offering of its securities by
financing in excess of $4,500,000. the Maker. These debentures
These debentures are subordinated are subordinated to all
to all current and future bank debt. current and future bank debt.
--------------------------------------------------------------------------------------------------------
Redemption rights If not converted, the holder may If not converted the holder
require the Company to redeem at may require the Company to
any time after maturity at a redeem at any time after
premium of 125% of the principal maturity for the principal
amount plus interest. amount plus interest
--------------------------------------------------------------------------------------------------------
Conversion ratio 61.5% of the average closing bid $0.20 per share. During the
price of the common stock as year ended June 30, 1999,
reported by NASDAQ during the $155,000 of convertible
five-day period preceding the debentures were converted to
Company's receipt of a notice of common stock.
conversion by a debenture holder.
During the year ended June 30,
1999, debentures totaling $113,400
were converted to common stock.
--------------------------------------------------------------------------------------------------------
Warrants As part of the debenture package,
the Company issued 2,000,000
warrants to purchase a like number
of shares of common stock at $.001
per share. During the year
ended June 30, 1999,
1,000,000 warrants were exercised.
--------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 9 - RELATED PARTY TRANSACTIONS
On July 22, 1994, 3,000,000 shares of The Tirex Corporation
and Subsidiaries, Inc. were released from escrow and issued
to Louis V. Muro and Patrick McLaren (1,500,000 shares each)
in accordance with the terms and provisions of the
Acquisition Agreement dated March 26, 1993.
The Company entered into various employment agreements with
the executive officers and general Counsel whereby the
Company will pay a total of $565,000 a year plus benefits.
All of the employment agreements call for terms ranging from
3 - 8 years. In addition to the employment services, the
officers agree not to compete with the Company for the two
year period following the termination of employment. If an
officer is terminated other than for cause or for "good
reason", the terminated officer will be paid twice the
amount of their base salary for twelve months. During the
year ended June 30, 1999, two employees were terminated and
received severance pay totaling $500,000 which was paid in
stock. The employees also received options to buy 4,000,000
shares of stock for par value or $4,000. The options were
exercised July 31, 1999. The value of the options were
recorded as paid in capital at June 30, 1999 for 50% of the
average price of the stock or $381,600.
Included in accrued salaries at September 30, 1999 is
$328,930 of salary to officers and employees which the
company will issue common stock for. Various loans due to
the officers totaling $149,406 will be paid in stock during
the year ended June 30, 2000.
At June 30, 1999 and 1998, the Company had notes receivable
from various officers in the amount of $74,406 and $195,969,
respectively. One note in the amount of $70,405 bears
interest at an annual rate of 8% above prime through
September 1998 and 2% above prime since that date and is
collateralized by 400,000 shares of Tirex Corporation which
is held by the officer. The remaining notes are non-interest
bearing and are payable on demand.
At September 30, 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.
The revenue recognized during the year ended June 30, 1998
was received by a Company in which a director in the Company
has a financial interest.
Note 10 - EXCHANGE OF DEBT FOR COMMON STOCK
During the year ended June 30, 1999, the Company recorded
increases in common stock and paid-in capital of $343,952,
which was in recognition for the exchange of common stock
for debt owed. Debt totaling $164,000 was payable to certain
related parties to the Company.
17
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 11 - COMMON STOCK
During the years ended June 30, 1999 and 1998, the Company
issued common stock to individuals in exchange for services
performed totaling $2,759,744 and $926,576, respectively.
Included in these amounts are payments to officers of the
Company and in house counsel in exchange for salary and
consulting in the amount of $2,210,502 and $361,945,
respectively. Also included in the amounts paid in stock
during the year ended June 30, 1999 was an exclusive rights
contract payable to an officer totaling $406,250. During the
three-month period ended September 30, 1999, the Company
issued common shares to officers, employees and corporate
counsel in exchange for services rendered in the amount of
$64,376. The dollar amounts assigned to such transactions
have been recorded at the fair value of the services
received, because the fair value of the services received
was more evident than the fair value of the stock
surrendered.
Note 12 - STOCK OPTION
On May 19, 1995, the Company sold to a director of the
Company an option to purchase 20,000 shares of Cumulative
Convertible Preferred Stock at an exercise price of $10 per
share, exercisable during the two year period beginning May
19, 1995, and ending May 18, 1997. The director paid $20,000
for the option. The terms of the Preferred Stock purchasable
under the option call for cumulative cash dividends at a
rate of $1.20 per share and conversion into 2,000,000 or
more shares of common stock. The conversion to common stock
ratio varies depending on when the conversion is made. At
May 29, 1997, the exercise period was extended until May 18,
1999. During the year ended June 30, 1999, the director
exercised the option to buy 1,234,567 shares of common stock
for $40,000. The balance of these options have expired.
COMPENSATORY COMMON STOCK OPTIONS
Compensation
Cost
Number For the Year
of Ended
Shares June 30, 1999
---------- -------------
Balance at July 1, 1998 9,212,673 --
Stock options granted during the year
ended June 30, 1999 4,000,000 381,600
Stock options exercised during the year
ended June 30, 1999 -- --
---------- ----------
Balance at June 30, 1999 13,212,673 $ 381,600
========== ==========
The options expire at various dates through April 2000. The
exercise price ranges from .001 to .50 with the weighted average
exercise price equal to .14.
18
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 13 - ACQUISITION BY MERGER OF RPM INCORPORATED
During November 1997, the Company entered into a merger agreement
with RPM Incorporated ("RPM"). The Company acquired all of the
assets and liabilities of RPM by acquiring all of the outstanding
common stock of RPM in exchange for common stock in the Company on
a unit for unit basis. RPM ceased to exist following the exchange.
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.
Note 13 - ACQUISITION BY MERGER OF RPM INCORPORATED (Continued)
The Company entered into an additional agreement with the former
shareholders of RPM for a consulting agreement for a period of 5
years expiring in June, 2002. In exchange for this consulting
agreement, 3,000,000 shares of common stock were issued valued at
$240,000. Other than the consulting agreement and the issuance of
the debentures, RPM was inactive.
For accounting purposes the Company recorded the merger as a
purchase and not as a pooling of interests.
Note 14 - GOVERNMENT ASSISTANCE
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit.
During the year ended June 30, 1999 the company received
approximately $1,058,000 which has been recorded as paid in
capital.
Note 15 - COMMITMENTS
The Company leases office and warehouse space at an annual minimum
rent of $82,000 for the first year, $169,000 for the second year
and $211,000 per year for the third through the fifth year. The
lease expires 2003. The Company is also responsible for its
proportionate share of any increase in real estate taxes and
utilities. Under the terms of the lease, the Company is required
to obtain adequate public liability and property damage insurance.
The minimum future rental payments under this lease are as
follows:
June 30, Amount
-------- ----------
2000 $ 176,900
2001 204,100
2002 204,100
2003 170,100
----------
$ 755,200
==========
Rental expense for the year ended June 30, 1999 and 1998 amounted
to $111,930 and $55,532, respectively. One of these leases
contains a second ranking moveable hypothec in the amount of
$300,000 on the universality of the Company's moveable property.
19
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 16 - RESTATED FINANCIAL STATEMENTS
The financial statements for June 30, 1998 and for the cumulative
period from March 26, 1983 to June 30, 1999 have been restated to
break out other comprehensive income.
Note 17 - CONTINGENCY
The Company is involved with a lawsuit with a prior consultant.
The complaint alleged that the Company breached its consulting
agreement by failing to pay compensation due there under and
sought damages in the amount of $221,202 including interest and
legal costs. The Company filed a counter claim for fraud, breach
of contact and unjust enrichment on the part of the consultant.
The Company sought relief consisting of compensatory damages in
the amount of $28,800 and cancellation of the stock certificate
issued to the plaintiff for 263,529 shares; a declaratory judgment
that the consulting agreement is of no force and effect; punitive
damages; and interest and legal costs. The Company's position is
that this case is completely without merit.
Note 18 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The deficit accumulated during the development stage included
other accumulated comprehensive income totaling $76,307.
20
<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 six months periods ended December 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"). Management presently estimates that commencement of full-scale
commercial manufacture of TCS-1 Plants operations will occur early in the new
year.
Since early 1993, the Company has devoted the bulk of its efforts to
completing the design and development, and commencing the manufacture, of the
TCS-1 Plant and raising the financing required for such project. In December
1998, the Company began successfully operating the first fully integrated TCS-1
Plant on a continuous-running basis for scheduled periods of up to four hours,
at 50% of capacity with one of its two freezing towers and fracturing mills.
This allows the TCS-1 Plant to process only the tread portion of the tires. In
the fourth quarter of fiscal 1999 the Company started the construction of the
second freezing tower and the second disintegrator unit. However, problems were
identified in the course of long-term testing of the first freezing tower with
respect to its internal materials conveying system. Construction of the second
tower was halted pending resolution of the identified problems. The Company
believes that it has found appropriate solutions to the identified problems.
Construction of the redesigned freezing tower commenced in November of 1999 and
is expected to be completed on or about the end of the current calendar year.
In early 1999, the Company began the process of putting into place the
production capacity for producing welcome mats using recycled rubber crumb of
the kind which the TCS-1 would produce. Entering this new business segment was
expected to be profitable based on the estimated costing of the rubber crumb. In
addition, entering this segment was considered strategically useful to
demonstrate to possible buyers of TCS-1 systems that there was a use and market
for the rubber crumb. The Company's initial operations in this segment were
conducted pursuant to an agreement (the "IM2/Tirex Agreement") with IM2
Merchandising and Manufacturing, Inc. ("IM2"), in Quebec. Shipments of limited
quantities of mats commenced at the beginning of April 1999. These mats were
produced using recycled rubber crumb purchased from other companies because the
TCS-1 could not, at that time, produce sufficient quantities of rubber crumb to
meet the requirement. Furthermore, the technical difficulties in the freezing
tower section of the TCS-1 referred to in the previous paragraph further reduced
the availability of TCS-1 rubber crumb. The price difference between externally
purchased rubber crumb and the forecast cost to the Company of TCS-1 produced
crumb, taking into account tire recycling subsidies available from the
Government of Quebec, was and remains very substantial, and makes the difference
between being profitable and unprofitable on mat production at the prices the
Company was able to obtain for such mats. In addition, it became apparent in
June and July of 1999 that capital asset requirements and the financial and
human resources being consumed by the mat production operation were impeding
progress on the completion of the TCS-1 which was and remains the primary focus
of the Company. In August 1999, the Company began negotiations for the sale of
the mat production assets and the majority of the inventory to IM2. This
divestiture was announced on September 7, 1999. As of December 12, 1999, the
sale of these assets to IM2 had not been completed and the Company cannot
provide any assurances at this time that the sale will, in fact, be completed.
However, should this sale not be consummated, the Company has been approached by
other credible possible purchasers of such equipment and expects to complete a
transaction in the near future. Pursuant to this divestiture, the Company will
continue with its primary points of focus, these being the manufacture and sale
of TCS-1 tire Disintegration Systems and the development of rubber-thermoplastic
compounds.
21
<PAGE>
On December 9, 1999, the Company negotiated and signed a Memorandum of
Understanding with Shandong Hongli Group Company, Ltd. ("Hongli") from the city
of Dezhou in Shandong Province in The Peoples' Republic of China respecting the
sale of the principal components of a TCS-1 System, excluding the front-end tire
preparation system which the customer does not require because of the
substantial availability of rubber tire chips in their region. This sale is
expected to be completed early in the new calendar year once Hongli will have
witnessed the integrated TCS-1 in operation. The Memorandum of Understanding
also provides that the Company and Hongli will, over the very short term, work
toward the completion of a licensing agreement under which Hongli would acquire
the exclusive right to manufacture and distribute the TCS-1 in the Peoples'
Republic of China. The Company intends that any such licensing agreement would
include numerous clauses designed to protect the proprietary interests of the
Company in the technology, and that the agreement would include a performance
clause which would permit the Company to withdraw the element of exclusivity in
the event that certain sales targets are not met. Hongli is a rapidly growing,
diversified company in China currently employing about 4500 persons. Hongli
manufactures tractors and farm implements, diesel engines gears and textile
machinery. Hongli also is involved with real estate development, service
stations, restaurants and retail sales and service of scooters. Hongli reports
total assets of 5.2 Billion Yuan which is equal to approximately US$621 million
LIQUIDITY AND CAPITAL RESOURCES
The activities of the Company since its formation in 1987 and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions, including three private placements to a
limited number of accredited investors, which the Company completed on May 11,
1998, and which yielded aggregate net proceeds of $2,063,795 (see "The Company -
Material Financing Activities"). In total, funds raised by the Company from
private sales of its securities are as follows:
--------------------------------------------------
Year Ended Proceeds From
June 30th Sale of Securities
--------------------------------------------------
1999 $ 286,500
--------------------------------------------------
1998 2,063,795
--------------------------------------------------
1997 345,391
--------------------------------------------------
1996 80,872
--------------------------------------------------
1995 22,316
--------------------------------------------------
1994 237,430
--------------------------------------------------
1993 76,055
--------------------------------------------------
1990 80,812
--------------------------------------------------
1989 77,000
--------------------------------------------------
During the fiscal years ended June 30, 1998 and June 30, 1999 and the interim
five-month period ended November 30, 1999, the Company received additional
funding from Quebec and Canadian government grants, loans, loan guarantees and
refundable tax credits for purposes of completing the development of the TCS-1
22
<PAGE>
Plant and for the international marketing of such plants (see Item 1. of this
Report, "Existing and Proposed Businesses - Canadian Operations - Canadian
Financial Assistance - Grants, Loans, and Commitments"). Canadian and Quebec
government research and development tax incentives take the form of both tax
deductions from otherwise taxable income and tax credits respecting the eligible
research and development expenditures of the Company (see "Existing and Proposed
Businesses - Canadian Operations"). Insofar as tax credits for scientific
research and experimental development are concerned, such credits are offered by
both the governments of Canada and of Quebec. The tax credits are calculated as
a percentage of research and development expenditures deemed eligible by the
Revenue Departments of each government. The percentages vary according to the
size of the company (defined according to the asset base and revenues generated
by the company), the residency of the majority of the voting control and other
factors. In the case of both the provincial and the federal governments, where
the amount of the tax credit exceeds other tax liabilities, such as taxes on
income and on capital, and subject to certain other conditions which the company
meets, the amount of any difference is paid to the company, thus the term,
"Refundable Tax Credits". The effective rate of the credit varies from one
company to another as a function of a number of factors, not least of which are:
(i) the nature of the costs being claimed such as labor costs versus non-labor
costs (the credit for labor costs is higher than for non-labor costs); and (ii)
the proportion of expenditures which can be attributed to research and
development but which are not deemed eligible for the tax credits by their
nature. Insofar as the Company is concerned, the tax credits have varied from
approximately 25% to 30% of total research and development expenditures,
including certain types of expenditures deemed ineligible for tax credits.
During the last three fiscal years, virtually all of the activities connected
with the development and construction of the First Production Model of the TCS-1
Plant have qualified as expenses eligible for refundable tax credits.
As a further measure to stimulate research and development, the Quebec
Government, through "Garantie-Quebec" (Guarantee Quebec), hereinafter referred
to as G-Q, a subsidiary of "Investissements Quebec" (Investments Quebec), a
successor to 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 continued a loan guarantee program formerly operated by SDI, (the "G-Q Loan
Guarantee Program") which provides G-Q's guarantee of repayment of 75% of the
amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. G-Q's 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. 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 G-Q 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. By
December 1998, the Company had borrowed the entire amount authorized and, in
accordance with the terms of the SDI Loan Guarantee Agreement, by the end of
March 1999, the Company had reimbursed the entire amount. On May 9, 1999, the
Company received a similar offer of financing from ScotiaBank, conditional upon
the receipt of a loan guarantee from G-Q, the successor to SDI. This offer was
for an amount of up to Cdn$750,000 (approximately US$510,000). The loan
guarantee from G-Q was obtained in June of 1999 and the Company proceeded to
borrow Cdn$600,000, (approximately US$420,000), which amount was outstanding as
of the end of Fiscal 1999. The remaining Cdn$150,000 was drawn down in September
of 1999. In November of 1999, the Company received a check from the Government
of Quebec in respect of research and development tax credits in the amount of
Cdn$606,948 from which amount the sum of Cdn$300,000 was deducted to reduce the
ScotiaBank Tax Credit Loan balance. On November 23, 1999, the Company received
23
<PAGE>
an advance check from the Government of Canada, also in respect of research and
development tax credits for the fiscal year which ended June 30, 1999. The check
was based on an approved advance of approximately Cdn$410,000. However, the
Government deducted and amount due for payroll source deductions, plus a minor
amount of interest thereon. The net amount of the check was Cdn $381,339
(approximately US $259,310). From this amount, the sum of Cdn$175,000 was
deducted to further reduce the ScotiaBank Tax Credit Loan balance such that, as
of December 8, 1999, the outstanding balance due to ScotiaBank is now
Cdn$175,000 (approximately US$119,000). The ScotiaBank Tax Credit Loan is
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.
Borrowings drawn down under the ScotiaBank Tax Credit Loan bear
interest, from the date the funds are drawn down until the outstanding principal
and all accrued and unpaid interest thereon are repaid, at an annual rate equal
to the ScotiaBank Prime Rate (which, for reasons of inter-bank competition, is
usually equivalent to Canadian Prime Rate) plus 1.25%. Interest on the
outstanding balance of the ScotiaBank Tax Credit Loan is due and payable
monthly. During the last three fiscal years, and the five-month interim period
ended November 30, 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:
24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD AMOUNT OF R&D AMOUNT OF R&D AMOUNT OF TAX AMOUNT BORROWED AMOUNT OF TAX CUMULATIVE
R&D EXPENSES EXPENDITURES EXPENDITURES CREDITS ESTIMATED AGAINST ESTIMATED CREDIT RECEIVED OUTSTANDING BALANCE
WERE INCURRED ELIGIBLE FOR BY BANKS AND G-Q TAX CREDITS OF LOAN AS AT END
INCURRED TAX CREDITS (FORMERLY SDI) OF PERIOD
- ------------------------------------------------------ -------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RE: BOM -0- -0- -0- -0- -0- -0-
July 1, 1995 to
June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to Cdn$1,576,761 Cdn$1,576,761 Cdn$579,305 -0-(1) -0-(2) -0-
June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to Cdn$2,723,443 Cdn$2,723,443 Cdn$982,113 Cdn$828,230(1) Cdn$307,208(2) Cdn$597,820
June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
July 1, 1998 to Cdn$1,167,892 (3) (4) Cdn$108,770(1) Cdn$245,517(5) BOM Loan = zero
June 30, 1999 (6)
- ------------------------------------------------------------------------------------------------------------------------------------
RE: SCOTIABANK Cdn$2,512,604 Cdn$2,163,508 Cdn$1,000,000 Cdn$600,000 n/a ScotiaBank Loan
July 1, 1998 to Cdn$600,000
June 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Five months to n/a n/a n/a Cdn$150,000 Cdn$1,016,948 ScotiaBank Loan
November 30, 1999 Cdn$175,000 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.
25
<PAGE>
(1) Prior to June 30, 1998, the Company received three
disbursements from the BOM in the aggregate amount of
Cdn$828,230 (approximately US$579,761) with the first of these
disbursements received on January 30, 1998. These amounts were
based upon estimated tax credit receivables in the following
amounts: (i) Cdn$579,305 (approximately US$405,514) for
research and development expenditures made by the Company
during the fiscal year ended June 30, 1997; and (ii) a portion
of the Cdn$982,113 (approximately US$687,479) for research and
development expenditures made by the Company during the fiscal
year ended June 30, 1998. Subsequent to June 30, 1998, the
Company received a further cash disbursement of Cdn$108,770
(approximately US$76,139), in respect of eligible tax credit
expenditures incurred prior to June 30, 1998, effecting the
complete draw down of the entire authorized loan amount of
Cdn$937,000 against tax credit receivables for the cumulative
period ended June 30, 1998.
(2) All funds by way of Tax credits received by the Company during
fiscal 1998 were attributable to research and development
expenditures made by the Company during fiscal 1997 and Tax
Credits received during fiscal 1999 were attributable to
research and development expenditures made by the Company
during fiscal 1998.
(3) On or about October 20, 1999, and in accordance with the tax
laws and procedures of the Revenue Departments of the
governments of Canada and of Quebec, the Company submitted a
claim for tax credits based upon any research and development
expenditures made during fiscal 1999. The Company expects that
a portion of such expenditures will be eligible for Refundable
Tax Credits. In connection therewith, the Company obtained
credit facilities from ScotiaBank, similar to the BOM Tax
Credit Loan, based upon estimated tax credit receivables.
(4) The Company made research and development expenditures in the
amount of Cdn$2,163,508 during fiscal 1999, and the Company
believes that a portion of such expenditures will be eligible
for Refundable Tax Credits. It should be noted further that
the entire amount available to the Company under the
ScotiaBank Tax Credit Loan has already been borrowed by the
Company in connection with research and development
expenditures made by the Company during the year ended June
30, 1999.
(5) Tax credits received by the Company during fiscal 1999, are
attributable to research and development expenditures made by
the Company during the fiscal year ended June 30, 1997 and
1998, whereas amounts received in the current fiscal year
(Fiscal 2000) are in respect of tax credits for the fiscal
year which ended June 30, 1999.
(6) The annual Canadian federal government audit of eligible
research and development expenditures for the fiscal year
ending June 30, 1998 took place in January 1999. As a result
of the audit, the Company received approval for tax credits in
the amount of Cdn$637,033 from the Government of Canada and
Cdn$490,927 from the Government of Quebec. The tax credits
received were used to reduce the BOM Tax Credit Loan balance
to zero in March of 1999.
(7) On November 5, 1999, the Company received and cashed a check
from the Revenue Department of the Government of Quebec in
respect of research and development tax credits for the fiscal
year ended June 30, 1999. This check amounted to Cdn$606,948
(approximately US$413,000). In accordance with the
requirements of the loan guarantee provided by
Garantie-Quebec, an amount of Cdn$400,000 (approximately
US$272,000) was given that same day to ScotiaBank to reduce
the loan balance. On November 23, 1999, an advance check was
received from the Government of Canada in respect of research
26
<PAGE>
and development tax credits. This advance was made available
pending final determination of the tax credit due, and was
based on an advance amount of Cdn$410,000. The Government took
offsets from this amount in respect of payroll taxes due,
which amounts were offset by interest credited to the Company.
The net amount of the check was Cdn$381,339. As of December 8,
1999, the loan balance due to ScotiaBank is thus Cdn$175,000
(approximately US$119,000).
During the last three fiscal years and the six month interim period
ended December 31, 1998, the Company also received additional financial
assistance by way of loans and grants from Quebec governmental agencies, for the
design and development of the TCS-1 Plant and for export market development as
follows:
1. In March of 1996, the Company qualified for an interest-free,
unsecured loan (the "FORD-Q Loan") of up to $500,000 (Canadian), or
approximately $ 350,000 (U.S.). This loan was made available by the Government
of Canada under the Industrial Recovery Program for Southwest Montreal, which is
administered by the federal government agency, Canada Economic Development for
Quebec Regions ("CEDQR"), which was previously known as the Federal Office of
Regional Development - Quebec or "FORD-Q". Under the terms of the loan, the
Company received funds in the total amount of Cdn$500,000 or approximately
US$350,000, representing 20% of eligible expenditures made by the Company to
design, develop, and manufacture the first full-scale model of the TCS-1 Plant.
The loan money was disbursed pursuant to the submission of claims of eligible
expenses incurred. The Company did not have funds available to expend for these
purposes until February of 1997. Because of the limited funds available to the
Company at that time, the Bank of Montreal agreed to make short-term loans (the
"BOM Secured Loans") to the Company, secured by CEDQR's acceptance of the
Company's claims for reimbursement of expenditures. All of the BOM Secured Loans
were repaid by the Company as funds were released to the Company under the CEDQR
Loan.
The proceeds of the CEDQR Loan were paid to the Company during the
fiscal years ended June 30, 1997 and 1998, as follows:
Canadian Dollars US Dollar Approximation
---------------- -----------------------
Fiscal 1997 $246,752 $172,725
Fiscal 1998 $253,248 $177,275
Under the terms of the CEDQR Loan, repayment must commence twelve months from
the date CEDQR declares that the project has been completed. This occurred on
March 31, 1998. The repayment schedule therefore calls for four, graduated
annual payments as follows:
Canadian Dollars US Dollar Approximation
---------------- -----------------------
March 31, 1999 $ 50,000 $ 35,000
March 31, 2000 $100,000 $ 70,000
March 31, 2001 $150,000 $105,000
March 31, 2002 $200,000 $140,000
The terms and purposes of the CEDQR Loan are discussed in more detail
in "Existing and Proposed Businesses - Canadian Operations - Canadian Financial
Assistance - Grants, Loans, and Commitments". The Cdn$50,000 which was due on
March 31, 1999 was offset against the tax credit appeal check which the Company
received in December 1999. The Company is thus current in respect to this loan
repayment schedule.
2. In April 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
27
<PAGE>
materials recovery and recycling. The amount of such grant was $75,000 Canadian
(approximately $52,500 U.S.). Of this amount, the Company received $50,000
Canadian (approximately $35,000 US) during the fiscal year ended June 30, 1997.
The terms of the grant provide that the Company will receive the balance of
$25,000 Canadian (approximately $17,500 U.S.) when the Company files a final
report on the completion of the project. The Company anticipates that such
report will be filed in or about February 1999. The terms and purposes of this
grant are discussed in more detail in "Existing and Proposed Businesses -
Canadian Operations - Canadian Financial Assistance - Grants, Loans, and
Commitments".
3. The Company has also qualified for five interest-free, unsecured
loans from the Government of Canada in the aggregate amount of $ 232,773
Canadian (approximately $ 162,900 U.S.). These loans were made available by
CEDQR, under the Innovation, Development, Entrepreneurship Assistance - Small
and Medium Enterprises Program ("IDEA-SME Program"). Under these loan
agreements, during Fiscal 1997 and 1998, the Company received $30,000 Canadian
(approximately $ 21,000 U.S.) and $ 202,773 Canadian (approximately $ 141,900
U.S.) respectively. The IDEA-SME Program loans represent up to 50% of approved
Company expenditures, based on submitted claims, subject to maximum amounts for
each loan. Expenditures are required to have been made for the purposes of
identifying and developing export markets for Canadian products. All of the
projects which gave rise to these loans have been declared completed by CEDQR
and the repayment terms have accordingly been established. The following table
identifies the nature of the projects for which these loans were granted, the
maximum amount of the loans approved the government agency, the aggregate
amounts received by the Company as of October 31, 1998 and the repayment terms
of each loan.
28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT OF FUNDS
RECEIVED BY
MAXIMUM COMPANY AS OF REPAYMENT TERMS
AMOUNT DECEMBER 31, ---------------------------------------------------------- RATE OF
NATURE OF PROJECT OF LOAN 1998 DATE DUE AMOUNT OF PAYMENT INTEREST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Feasibility Cdn $20,000 Cdn At the end of any fiscal year 1% of gross annual None
Study for 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 Cdn $20,000 Cdn At the end of any fiscal year 1% of gross annual None
Study for 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 Cdn $95,000 Cdn June 30, 2001 Cdn$6,333 None
Potential United States $95,000 June 30, 2002 Cdn$12,666
Markets for Rubber Crumb 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 $95,000 in which the Company has revenue from sales in
Activities Related to revenues from sales of TCS-1 Iberia
Positioning the Company to Plants in Iberia
Market TCS-1 Plants, Rubber
Crumb, and Related Products
in Iberia
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Cdn $98,000 $98,000 June 30, 2001 Cdn $ 6,533.33 None
Respecting the Feasibility Cdn June 30, 2002 Cdn $13,066.66
of using Rubber Crumb in June 30, 2003 Cdn $19,600.00
Thermoplastic Elastomer June 30, 2004 Cdn $26,133.33
Compounds in the United June 30, 2005 Cdn $32,666.66
States and Canada.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
These loans and the projects which they supported are discussed in more
detail in "Existing and Proposed Businesses - Canadian Operations" and "Existing
and Proposed Businesses - Sales and Marketing".
29
<PAGE>
The Company believes it will be able to cover the balance of the
capital investments and expenditures which it will be required to make in
connection with: (i) modifications which were and will be made to the TCS-1
Plant;(ii) commencement of full scale, commercial manufacture of TCS-1 Plants;
and (iii) meeting its overhead on a level sufficient to sustain the Company for
at least the next twelve months, from a combination of some or all of the
following sources: (i) expected cash flow from sales of four TCS-1 Plants to
ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. (see Item
1 of this Report "Existing and Proposed Businesses - Sales and Marketing - The
Enercon Agreements"); (ii) Canadian and Quebec government and governmental
agency grants, loans, and refundable tax credits; (iii) sale and lease back
financing on equipment owned by the Company; (iv) conventional asset based debt
financing against receivables and inventory; (v) refunds of all of the 15% sales
taxes paid by the Company on all goods and services purchased in connection with
the Company's manufacturing activities, which the Company, as a manufacturer and
exporter of goods is entitled to (vi) subcontractor financing; (vii) vendor
financed equipment purchases and/or (viii) a research and development tax credit
facility from ScotiaBank currently in place. The Company is presently actively
pursuing all of the foregoing avenues of financing. In addition, management
believes that the Company will be able to obtain sufficient production financing
to cover the costs of constructing subsequent TCS-1 Plants, using the
constituent components of the Plant to be financed, as collateral for debt
financing to cover its construction costs.
Whether the funds, which the Company obtains, from any of the above
proposed sources, will be sufficient to enable the Company to reach a profitable
operating stage, will be entirely dependent upon: (i) the amount of such
financing which the Company is actually able to raise; (ii) Enercon's receipt of
its funding; and (iii) the as yet unproven ability of the TCS-1 Plant to operate
continuously on a long-term commercial basis in accordance with its anticipated
performance specifications; (see, below, in this Item 6, "Risk Factor No. 2 -
"Need For Substantial Additional Capital" and Item 1 of this Report, "Existing
and Proposed Businesses - Equipment Manufacturing - The TCS-1 Plant", and
"Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - The Enercon Contracts").
Any failure or delay in the Company's receipt of the required financing
would be directly reflected in a commensurate delay or failure in the
commencement of: (i) full scale manufacturing of TCS-1 Plants; and (ii) the
commercial operation of the First Production Model. It should be noted also that
the period of time during which any funds raised will be available to cover
normal overhead costs could be significantly reduced if the Company is required
to make substantial, presently unanticipated, expenditures to correct any
further flaws or defects in the design or construction of the First Production
Model, which may become apparent when it is subjected to continuous operation on
a long term, commercial basis. Moreover, given the early stage of development of
the Company, it is impossible at this time to estimate with any certainty the
amount of income from operations, if any, during the next twelve months.
There can be no assurance that the Company will be able to obtain
outside financing on a debt or equity basis on terms favorable to the Company,
if at all. In the event that there is a failure in any of the finance-related
contingencies described above, the funds available to the Company may not be
sufficient to cover the costs of its operations, capital expenditures and
anticipated growth during the next twelve months. In such case, it would be
necessary for the Company to raise additional equity capital. During Fiscal
1998, in an effort to put such funding into place, the Company entered into a
non-binding letter of intent with H.J. Meyers & Co., Inc. ("Meyers"), for a
proposed public offering of its securities in an amount of not less than
$8,000,000. On or about September 16, 1998, however, Meyers abruptly ceased
doing business. Therefore, if the Company should wish to raise funds through a
public offering, it will be required to locate another broker-dealer, ready,
willing, and able to underwrite a public offering of the Company's securities.
At this time, the Company is not able to give any assurances that, in such
event, it will be successful in locating an underwriter or that its efforts will
ultimately result in a public offering. If the proceeds from the above described
potential sources of funding should be insufficient for the Company's
30
<PAGE>
requirements and it is not able to effect a public offering of its securities
within the next twelve months, or find other sources of outside funding, the
Company's financial position and its prospects for beginning and developing
profitable business operations could be materially adversely affected.
As of September 30, 1999, the Company had total assets of $4,435,305 as
compared to $3,814,648 at September 30, 1998 reflecting an increase of $620,657,
and a marginal increase of $37,301 over total assets as of the last fiscal
year-end, June 30, 1999, which total amounted to $4,398,004. Thus, of the total
increase in total assets from June 30, 1998 to June 30, 1999, $583,356 or 94%
was applicable to activities which occurred during the course of the last nine
months of Fiscal 1999. Fiscal year-end total assets at June 30, 1999 had
reflected a previous increase of $583,356 over $3,814,648 at June 30, 1998.
Management attributes the increase in total assets at June 30, 1999 versus June
30, 1998 principally to (i) an increase of $1,305,007 in Property, Plant and
Equipment from $977,288 as of June 30, 1998 to $2,282,295 as of June 30, 1999,
and (ii) an increase of $96,886 in Research and development tax credits
receivable from $855,818 as of June 30, 1998 to $952,704 as of June 30, 1999.
These increases were partially offset by (i) decreases in cash and cash
equivalents which went from $398,971 as of June 30, 1998 to $177,256 as of June
30, 1999, a decease of $221,715, (ii) a decrease of $204,500 in current prepaid
expenses and deposits from $618,226 as of June 30, 1998 to $413,766 as of June
30, 1999, resulting from amortization of such prepaid expenses, and similarly in
long-term prepaid expenses and deposits which decreased by $261,757 from
$445,677 as of June 30, 1998 to $183,920 as of June 30, 1999.
As of September 30, 1999, the Company had total liabilities of
$3,946,007 as compared to $3,537,163 on September 30, 1998, reflecting an
increase in liabilities of $408,844. Total liabilities as of the end of June 30,
1999 (Fiscal 1999) were $3,952,008 which is actually $6,001 higher than the
September 30, 1999 balance. The June 30, 1999 balance had reflected a previous
increase of $591,420 over $3,360,588 in total liabilities as of June 30, 1998.
Management attributes such increases in total liabilities at September 30, 1999
versus the balance of twelve months earlier, September 30, 1998, primarily to:
(i) outstanding loans and advances from officers and investors in the aggregate
amount of $576,979, which represents an increase of $277,126 over $299,853 in
outstanding loans at September 30, 1998, and (ii) an increase in Long-Term Debt,
net of the current portion thereof which, as of September 30, 1999 amounted to
$759,740 versus $556,305 as of September 30, 1998, reflecting an increase of
$203,435 and (iii) an increase in Notes Payable from $391,811 as of September
30, 1998 to $510,202 as of September 30, 1999, an increase of $118,391.
Compensating for these increases was a decrease in Convertible Subordinated Debt
as a result of conversions of same into common shares of the Company. As of
September 30, 1998, the balance of such debt was $1,035,000 whereas the balance
as of September 30, 1999 was $556,600, reflecting a decrease of $453,100 which
was added to Shareholders' Equity.
Reflecting the foregoing, the financial statements indicate that as of
September 30, 1999, the Company had a working capital surplus (current assets
minus current liabilities) of $6,476 and that as of September 30, 1998, the
Company had a working capital surplus of $82,959. The primary causes of this net
decrease in net working capital was an increase in notes payable in the amount
of $118,391, offset by minor decreases in other accounts.
The Company currently has limited material assets. The success of the
Company's tire recycling equipment manufacturing business, and its ability to
continue as a going concern will be dependent upon the Company's ability to
obtain adequate financing to commence profitable, commercial manufacturing and
sales activities and the TCS-1 Plant's ability to meet anticipated performance
specifications on a continuous, long term, commercial basis.
31
<PAGE>
RESULTS OF OPERATIONS
As noted above, the Company is presently in the very early stages of
the business of manufacturing and selling TCS-1 Plants. The Company intends to
begin manufacturing TCS-1 Plants on commercial basis by early in the calendar
year 2000. The Company had $390,848 of gross sales during Fiscal 1999, but, due
to the halting of operations in the Company's rubber mat molding operation, the
Company did not generate any gross sales during this first quarter of Fiscal
2000. Unless and until the Company successfully develops and commences TCS-1
Plant manufacturing and sales operations on a full-scale commercial level, it
will continue to generate no or only limited revenues from operations. Except
for the foregoing, the Company has never engaged in any significant business
activities.
The financial statements which are included in this Report reflect
total general and administrative expenses of $656,774 for the three-month period
ended September 30, 1999 versus $1,695,527 for the analogous three-month period
ended September 30, 1998, reflecting a decrease of $1,038,753. The most
important reason for this decrease relates to one-time charges recorded in the
three-month period ended September 30, 1998, which were reported in the
Company's Report 10-KSB for the year ended June 30, 1999. These one-time charges
related to issuances of shares to officers and previous corporate counsel and
also included a signing bonus for a former officer of the Company's Canadian
operations. The total amount expensed relative to such share issuances last year
was $1,398,750. Total general and administrative, depreciation and amortization
and research and development costs for Fiscal 1999 were $4,953,622 versus
$4,564,566 for the fiscal year which ended June 30, 1998, reflecting an increase
of $389,056. Taking into account the one-time charges recorded in the first
quarter of Fiscal 1999 which is the three-month period ended September 30, 1998,
these one-time charges amounting to $1,398,750, one can surmise that, in the
absence of such one-time charges, the total expenses for general and
administrative, depreciation and amortization and research and development for
Fiscal 1999 would have been considerably less than the amount actually recorded
and considerably less than the amount recorded for Fiscal 1998.
Management believes that the amounts accrued to date in respect of the
shares issued to compensate the executive officers and corporate counsel reflect
the fair value of the services rendered, and that the recipients of such shares
accepted such numbers of shares as a function of a combination of their
perceived valuation of both present and possible future value of the shares,
rather than the actual value of the stock at the time it was issued. Management
believes that, as of the dates such shares were issued in lieu of cash
compensation, their actual and potential value, if any, could not be determined,
and that any attempt to specify a current valuation with any reasonable
assurance, would be flawed, without substance, and highly contingent upon, and
subject to, extremely high risks including but not limited to the following
factors: (i) the absence of a reliable, stable, or substantial trading market
for the Company's common stock, the possibility that such a market might never
be developed, and the resultant minimal, or total absence of, market value for
any substantial block of common stock; (ii) the very high intrinsic risks
associated with early development stage businesses, such as the Company's; (iii)
the Company's lack of sufficient funds, as at such issuance dates, to implement
its business plan and the absence of any commitments, at such times, from
potential investors to provide such funds; (iv) the restrictions on transfer
arising out of the absence of registration of such shares; and (v) the
uncertainty respecting the Company's ability to continue as a going concern,
(See "Existing and Proposed Businesses", "Market for the Company's Common Equity
and Related Stockholder Matters", and "Management - Certain Relationships and
Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees").
From inception (July 15, 1987) through September 30, 1999, the Company
has incurred a cumulative net loss of $15,646,798. 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.
32
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
THREATENED LITIGATION WITH DR. LAURA GABIGER
On November 18, 1998, attorneys for Dr. Laura Gabiger advised the
Company that they had been authorized by Dr. Gabiger to file suit against the
Company for breach of contract. It is the position of the Company that it has no
obligations whatsoever to Dr. Gabiger and, moreover, that Dr. Gabiger should
return compensation paid to her in stock and in cash, for services which she was
either unwilling or unable to render to the Company. This matter arises out of a
consulting agreement, dated June 18, 1997, between the Company and Dr. Laura
Gabiger (the "Gabiger Agreement").
The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal quarter ended September 30, 1999, Registrant issued
11,127,550 unregistered shares, of which 8,472,819 shares were issued against
accrued liabilities reported on the annual financial statements of June 30,
1998. The remaining 2,654,731 shares were issued to an officer, an employee and
corporate counsel for services rendered and as a signing bonus, which expenses,
recorded in the amount of $64,377, were recorded in the three-month period ended
September 30, 1999. Of the 8,472,819 shares issued in respect of accrued
liabilities as of June 30, 1999, 530,921 shares were issued to officers and
employees in lieu of cash payments for loans made to the Company. The remaining
7,941,898 shares were issued to officers and employees in lieu of cash payments
for salaries, which amount totaled $272,251. Insofar as it is pertinent to the
discussion of the reduction of operating costs in the three-month period ended
September 30, 1999 versus the analogous three-month period ended September 30,
1998, and to enhance understanding of the reduction, the following information
relative to the three-month period ended September 30, 1998 is also presented:
On or about July 9, 1998, the Company authorized the issuance of
4,000,000 shares of its common stock to Terence C. Byrne, the chairman of the
board of directors and CEO of the Company and 2,000,000 shares of its common
stock to Frances Katz Levine, formerly the secretary and a director, and (now
formerly) chief corporate and US securities counsel of the Company. Such
33
<PAGE>
issuances were made in consideration of financial accommodations made by such
persons for the benefit of the Company including, but not limited to, the
following: since January of 1995, on behalf, and for the benefit, of the Company
and without any cash compensation therefor, Terence C. Byrne, the chairman of
the board of directors and CEO of the Company and Frances Katz Levine, formerly
the secretary and a director, and presently corporate and US securities counsel
of the Company, had made substantial financial accommodations and had put
themselves at significant financial risk, including, but not limited to the
following: Mr. Byrne's; (i) having made personal loans to the Company, including
a loan in the amount of $102,000 made in January of 1998; (ii) having been
personally responsible for all credit card debt of the Company, covering all
travel, entertainment, and significant day-to-day operating expenses of the
Company; (iii) being the co-guarantor of all bank debt of the Company and its
subsidiaries; and (iv) being the co-guarantor on all equipment leases of the
Company; and Ms. Levine having for a continuous period of three and one-half
years, provided, rent-free and with no charge for the costs of utilities, a
fully-equipped law office, dedicated solely and exclusively to the requirements
of the Company and throughout such period, having paid, without any cash
reimbursement ever having been made to her, all costs and expenses incurred by
the Company in connection with its legal service requirements, including but not
limited to: (i) telephone charges (ii) office furnishings, equipment, and
supplies; (iii) Federal Express and other postage; and (iv) secretarial and
clerical staff salaries.
On or about July 28, 1998 the Company issued an aggregate of 4,095,057
shares of its common stock to three individuals, as follows:
1. 3,000,000 shares were issued to Louis Sanzaro pursuant to the
terms of his employment agreement with the Company, dated July
23, 1998, which provided for the issuance of: (i) 500,000
shares as a signing bonus in consideration for Mr. Sanzaro's
agreeing to discontinue his other business activities in order
to enter into the said employment agreement; and (ii)
2,500,000 shares in consideration for Mr. Sanzaro's release of
his right to serve as the Company's exclusive distributor of
TCS-1 Plants in North America and to receive commissions of
any kind in connection with sales of TCS-1 Plants theretofore
or thereafter made by the Company in North America.
2. 1,000,000 shares issued to Jean Frechette pursuant to the
terms of his employment agreement with the Company, dated July
24, 1998, which provided for the issuance of such shares as a
signing bonus in consideration for Mr. Frechette's agreeing to
discontinue his other business activities in order to enter
into the said employment agreement and serve as the president
and chief operating officer of the Company's wholly-owned
subsidiary, The Tirex Corporation Canada Inc.
3. 95,057 shares issued to Scott Rapfogel in lieu of $12,500 in
salary due to Mr. Rapfogel under the terms of his employment
agreement with the Company whereby he agreed to serve as the
Company's Assistant U.S. Corporate and Securities Counsel. For
purposes of such issuance, the stock was valued at 50% of the
average bid and ask price for the Company's common stock
during the period in which such stock was earned.
BASIS FOR SECTION 4(2) EXEMPTION CLAIMED
With respect to all sales and other issuances of securities as
hereinabove described, which Registrant claims to have been exempt from the
registration requirements of Section 5 of the Securities Act by reason of
Section 4(2) thereof:
(i) Registrant did not engage in general advertising or general
solicitation and paid no commission or similar remuneration, directly
or indirectly, with respect to such transactions.
(ii) The persons who acquired these securities were executive officers and
directors, or employees of the Registrant, all of whom are
sophisticated investors; Such persons had continuing access to all
relevant information concerning the Registrant and/or have such
knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of such investment and
are able to bear the economic risk thereof.
34
<PAGE>
(iii) The persons who acquired these securities advised Registrant that the
Shares were purchased for investment and without a view to their resale
or distribution unless subsequently registered and acknowledged that
they were aware of the restrictions on resale of the Shares absent
subsequent registration and that an appropriate legend would be placed
on the certificates evidencing the Shares reciting the absence of their
registration under the Securities Act and referring to the restrictions
on their transferability and resale.
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. Interest thereon was due and payable semi-annually commencing
six months from the issuance date of such debentures. As of March 9, 1999, the
Company was in arrears on interest payments accrued on these debentures since
their issuance, in the aggregate amount of $49,000, and intends to pay all such
interest as soon as the resources therefor are available.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In accordance with the Delaware General Corporation Law, Section
228(a), on July 9, 1998, the holders of record of approximately 50.7% of the
issued and outstanding shares of common stock, $.001 par value, of the issuer,
in person or by proxy, by their consent in writing authorized, approved and
adopted a resolution respecting the amendment of the issuer's certificate of
incorporation. Pursuant thereto, effective July 10, 1998, the certificate of
incorporation of the issuer was amended so as to change the amount of capital
stock, which the issuer is authorized to issue, from 69,900,000 shares of Common
Stock, par value $.001 per share and 100,000 shares of Open Stock, par value
$.001 per share; to 115,000,000 shares of Common Stock, par value $.001 per
share and 5,000,000 shares of Class A Stock, par value $.001 per share. The
Board of Directors has the power to designate the Class A Stock in one or more
classes and/or series, with such rights and preferences as the Board of
Directors shall determine.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith:
None
(b) Current Reports on Forms 8-K filed during quarter ended September
30, 1999.
Current Report on Form 8-K dated September 3, 1999 filed with the
Commission on September 3, 1999.
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.
35
<PAGE>
THE TIREX CORPORATION
Date: December 20, 1999 By /s/ JOHN L. THRESHIE, JR.
----------------------------------------
John L. Threshie, Jr. President
Date: December 20, 1999 By /s/ MICHAEL ASH
----------------------------------------
Michael Ash, Treasurer and
Chief Accounting and Financial Officer
36
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000823072
<NAME> THE TIREX CORPORATION
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 37,258
<SECURITIES> 0
<RECEIVABLES> 174,618
<ALLOWANCES> 0
<INVENTORY> 25,698
<CURRENT-ASSETS> 1,915,674
<PP&E> 2,376,213
<DEPRECIATION> 73,432
<TOTAL-ASSETS> 4,435,305
<CURRENT-LIABILITIES> 1,909,198
<BONDS> 556,600
0
0
<COMMON> 118,006
<OTHER-SE> 371,292
<TOTAL-LIABILITY-AND-EQUITY> 4,435,305
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 656,774
<OTHER-EXPENSES> 3,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,390
<INCOME-PRETAX> (685,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (685,426)
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