SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 2000
[ ] 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
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(Name of Small Business Issuer in Its Charter)
Delaware 22-3282985
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3828 St. Patrick
Montreal, Quebec H4E 1A4
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(Address of Principal Executive Offices) (Zip Code)
(514) 933-2518
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(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
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NONE NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
$0
(Issuer's revenues for its most recent fiscal year)
$31,871,485 (as of October 19, 2000)
(Aggregate market value of the voting stock held by
non-affiliates of the Issuer)
163,443,514 (as of ) October 1, 2000)
(Number of shares outstanding of each of the Issuer's classes of common stock)
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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DOCUMENTS INCORPORATED BY REFERENCE
INTO PART I
Annual Report of the Company on Form 10-KSB for
the year ended June 30, 1999
Quarterly Reports of the Company on
Form 10-QSB for the quarters ended September 30,
1999, December 31, 1999, and March 31, 2000
Current Reports on Forms 8-K of the Company
Dated September 3, 1999 and February 9, 2000
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ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Tirex Corporation (hereinafter, the "Company" or "Tirex") is
engaged in the business of developing for sale, license or lease an
environmentally safe patented "turn key" cryogenic tire recycling system (the
"TCS-1 Plant") designed and developed by Tirex, which separates tires into clean
and saleable rubber crumb, steel wire, and fiber. The Company was incorporated
in Delaware on August 19, 1987 under the name "Concord Enterprises, Inc." Its
name was changed to "Stopwatch Inc." on June 20, 1989 and to "Tirex America
Inc." on March 10, 1993. On July 11, 1997, in order to encompass the current and
projected international scope of its operations, the Company's name was changed
to "The Tirex Corporation". Since the beginning of 1993, the Company has devoted
the bulk of its efforts to completing the design and development of the TCS-1
Plant and raising the financing required to do so. Although the Company has
generated some limited revenues from operations, it is still in the development
stage.
THE TCS-1 PLANT
All major components of the TCS-1 Plant were successfully tested and
were operational on a non-continuous running basis by May 1998, with
approximately 85% of the TCS-1 Plant components meeting all of Tirex's
specifications. In the fourth quarter of fiscal 1999 the Company started the
construction of a second freezing tower and the second disintegrator unit.
However, problems were identified in the course of long-term testing of the
first freezing tower with respect to its internal materials conveying system,
and construction of the second tower was halted pending resolution of the
identified problems. The Company believes that during the third quarter of
fiscal 2000 it perfected the TCS-1 Plant to the point that the technology is
capable of successful replication and commercialization. The entire system has
operated trouble free through five tests of continuous operation from 80 to 100
hours. Further, the air plant has been operating with 100% reliability while the
problem of transporting treads and sidewalls in the freezing chamber has been
overcome by replacing the walking conveyor system with a belt system.
Improvements in the fracturing mill have caused the recovery of saleable rubber
to increase to 13 lbs. per tire which is 90% of the total amount of rubber (14.3
lbs.) in a 19 lb. (average weight) used auto tire. To the best knowledge of the
Company, the recycling industry currently recovers only 70-80% of the rubber.
The Company continues to test the TCS-1 Plant components to identify
opportunities to increase the TCS-1 Plant's operating efficiency. For example,
recent design changes in the tire preparation equipment will cause this section
to operate with high reliability and consume less than 50% of the previous
horsepower. The Company is currently developing a design for a second generation
system (the "TCS-2") which is to provide greater production capacity than the
TCS-1 Plant. No prototype of this second freezing tower has been constructed to
date.
The TCS-1 Plant comprises a complete, turn-key, environmentally safe,
cryogenic tire recycling system designed to: (i) disintegrate scrap tires, using
less energy than is required by existing ambient methods (which shred and/or
chop tires at "ambient" or normal room temperatures) or other currently
available cryogenic methods (which reduce the temperature of the materials for
at least a portion of the process, but which still rely on chopping and/or
shredding the tire), and (ii) produce commercially exploitable, high quality,
clean rubber crumb and unshredded steel and fiber.
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The functions and mechanisms of the TCS-1 Plant have been designed for
the exclusive purpose of disintegrating automobile tires, the components of
which basically consist of the following elements:
* Two types of rubber. The sidewalls of automobile tires are
constructed of material containing a higher percentage of
natural, as opposed to synthetic, rubber which is used in the
treads. The TCS-1 Plant has been designed to take advantage of
these differences to produce separate rubber powders from
sidewalls and treads, which separation enhances market
opportunities for the system output;
* Steel beads, which consist of steel wires tightly wound
together to a diameter of approximately 3/8 of an inch. These
beads are imbedded around the rims of the tire treads;
* Steel belting, which incorporates a thin layer of steel wires
laid out in a "herring bone" pattern and which underlies the
entire surface of the tread area; and
* Fiber threads which are incorporated into the rubber used
throughout the tire.
The TCS-1 Plant has been designed to operate continuously (with minimum
amounts of scheduled downtime for maintenance) and to require less energy than
is used, to the best of the Company's knowledge, by other presently existing
tire recycling equipment. The TCS-1 Plant is capable of processing automobile
tires at a rate equivalent to one million passenger tires per year on a
continuous, commercial operations basis.
Step-by-Step Operations
The step-by-step operations of the TCS-1 Plant encompass the following:
(a) The two sidewalls are cut off and the tread cut into lengths
of about one foot. (The sidewalls will be kept separate from
the tread sections throughout the process).
(b) The two steel beads which are contained within each tire
sidewall are pulled out;
(c) Sidewall and tread sections are placed onto separate conveying
systems which feed them separately into the TCS-1 Plant's
freezing chambers through separate air locks.
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(d) The frozen sections then pass through Tirex's patented
disintegrators ("Fracturing Mills") where the sidewall and
tread rubber are reduced to two separate output materials of
varying degrees of fineness. This operation does not involve
any chopping, shredding, or hammer-milling. Therefore, the
steel wires are not cut or broken. The fiber threads retain
their basic shapes and characteristics. No steel powder or
fiber fluff is produced.
(e) The steel wires are magnetically removed from the rubber
powders.
(f) The fiber and rubber powder is then passed through screens to
separate the powder from the fiber threads. The fiber threads
are then conveyed out of the machine.
(g) The rubber powders are then passed through a series of screens
to sort the powders by mesh size.
(h) 70% of the rubber powders yielded by the TCS-1 Plant will pass
through a ten mesh screen. Supplementary grinders will be
supplied for customers desiring finer powders which can pass
through 40 mesh or 80 mesh screens.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company's technical expertise and that of its consultants has been
an important factor in its development and is expected to serve as a basis for
future growth. Since its inception, the Company has devoted substantial
resources to the design and development of the TCS-1 Plant as well as to raising
the financing necessary for such activities. During the fiscal years ended June
30, 1999 and 2000 respectively, the Company expended approximately $1,449,550
and $820,770 on research and development activities applied to the design,
development, and construction of the first TCS-1 production model and product
development. Long-term testing was conducted in the third and fourth quarters of
fiscal 1999, which testing revealed design problems involving the conveying
system within the freezing tower. During the third quarter of fiscal 2000 the
Company identified and solved the technical problems associated with the first
design of the conveying system within the freezing tower and believes the TCS-1
Plant is ready for replication and commercialization. The Company continues to
seek to refine and enhance its tire disintegration technology and to enhance it
to comply with emerging regulatory or industry standards or the requirements of
a particular customer.
During the fiscal year ended June 30, 2000 all research and development
activities respecting the TCS-1 Plant were carried out by the Company's
engineering and technical staff, consisting of Louis V. Muro, Vice President in
Charge of Engineering, and two other Company employed engineers, who devoted
100% of their time to this project. Such activities were conducted in
conjunction with an outside consultant and the Company's outside subcontractors.
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MANUFACTURING
The Company's activities to date have focused primarily on the design
and development of the TCS-1 Plant. In connection with these activities, the
Company has been dependent and will continue to depend on arrangements with
subcontractors for the manufacture and assembly of the principal components
incorporated into the TCS-1 Plant. Components of the TCS-1 Plants, which are not
manufactured by subcontractors specifically for the TCS-1 Plant, will be
purchased, either directly by the Company or indirectly through subcontractors
from third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
With respect to the commercial manufacture of TCS-1 Plants, the Company
has identified various engineering and manufacturing subcontractors and
component suppliers, which Management believes will give the Company sufficient
production capacity to meet its needs. The Company believes that it will be able
contract with subcontractors which will have the requisite manufacturing
capabilities and the willingness to dedicate sufficient amounts of their
manufacturing capacity to the Company in order to allow the Company to meet all
of its needs. No assurance can be given that this will, in fact, be the case,
and failure on the part of the Company's subcontractors in these regards would
adversely affect the Company's ability to manufacture and deliver TCS-1 Plants
on a timely and competitive basis. There can be no assurance, that should it be
necessary to do so, the Company would be able to find capable replacements for
any subcontractors on a timely basis and on terms beneficial to the Company, if
at all. The Company's inability to do so would have a material adverse effect on
its business.
The Company may license the technology or enter into strategic
alliances to facilitate the bulk of product manufacturing when the need arises.
The Company does not anticipate that it will be in a position where it will be
unable to fill any order and expects it will not commit to any order without
first securing a manufacturing arrangement. At present, the Company has not
received any orders for the purchase, lease or license of a TCS-1 Plant, and
even though the Company has entered into various Memoranda of Understanding,
there is no assurance that any of these potential arrangements will result in
sales or leases or, if they do, that such sales or leases will be profitable to
the Company.
DISCONTINUED OPERATIONS
At the beginning of 1999, the Company began the process of putting into
place the production capacity for producing welcome mats using recycled rubber
crumb of the kind which the TCS-1 Plant would produce. Entering this new
business segment was expected to be profitable based on the estimated costing of
the rubber crumb. Technical difficulties in the freezing tower section of the
TCS-1 Plant were identified during the fourth quarter of fiscal 1999 which
reduced the availability of TCS-1 Plant rubber crumb and 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 Plant which was and remains the primary
focus of the Company. Therefore, during the summer of 1999, the Company
discontinued mat production operations and made available for sale the mat
production equipment. To date, it has not been sold and Management has reduced
the book values of these assets in the Company's financial statements to reflect
possible differences in market value verses book value.
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SUBSIDIARIES
The Company's wholly-owned subsidiary, The Tirex Corporation Canada
Inc. ("TCCI") was formed on June 1, 1998, and on June 3, 1998, 3143619 Canada
Inc.'s name was changed to Tirex Canada R & D Inc. (hereinafter referred to as
"Tirex R&D"). The purpose of these changes was to transfer all business
activities, except those which constitute research and development activities
exclusively, from Tirex R&D to TCCI. On April 22, 1998 the Company formed
another wholly owned Canadian subsidiary, now known as Tirex Advanced Products
Quebec, Inc. ("TAP"). This subsidiary is presently dormant. The Company also has
another dormant, wholly owned subsidiary, formed under the laws of the State of
Delaware, Tirex Acquisition Corp. ("TAC"), for which the Company has no present
plans.
TCS-1 PLANT FINANCING ARRANGEMENTS
On May 29, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"), a New Jersey corporation. Pursuant to the OTRP
L&P Agreement, OTRP was to purchase the first production model TCS-1 Plant with
an anticipated delivery date of September 15, 1997. However, while construction
of the first full scale prototype of the TCS-1 Plant began in February of 1997,
its completion was delayed because of the limited funds available for such
purpose. As a result, OTRP waived the delivery date and agreed to reschedule
delivery. In December 1997, OTRP and the Company agreed that, to the extent
necessary for OTRP to obtain sale and lease-back financing for the front-end
module ("Front-End") and for certain parts of the Air Plant portion of the
Plant, the said OTRP Agreement would be deemed to be modified, as required for
such purpose. In connection therewith OTRP arranged with an equipment financing
company for sale and lease-back financing, pursuant to which: (i) the said
financing company purchased the Front-End and certain designated portions of the
TCS-1 Plant's Air Plant directly from the Company; and (ii) leased such
equipment back to OTRP pursuant to its arrangements with OTRP and/or the OTRP
principals. The Company sold, pursuant to a lease purchase arrangement, the
Front-End for a total purchase price of $300,000, with irrevocable acceptance
and final payment being obtained in December of 1997. The designated portions of
the Air Plant were sold/leased to a financing company for a total purchase price
of $580,000, with irrevocable acceptance and final payment being obtained in
April of 1998.
Subsequent to the fiscal 2000 year end, the Company and OTRP/its
principals entered into a new agreement (the "New Agreement") modifying and
clarifying provisions of the prior agreement between the parties regarding
certain rights to the prototype model. Pursuant to the terms of the New
Agreement, the Company issued 4,553,102 shares of its Common Stock to OTRP's
principal officer and stockholder in exchange for forgiveness of approximately
$938,000 in advances to the Company or paid on its behalf through June 30, 2000.
The New Agreement confirmed OTRP's assignment to the Company of all its rights
to the prototype model and related technology, including all intellectual
property rights and any and all rights accruing to OTRP upon termination of the
financing lease/purchase arrangements. In addition, OTRP and its principal
agreed to make all lease payments to the financing companies in the event the
Company fails to do so and to convert all advances into Common Stock of the
Company at 50% of the market value on the date of conversion.
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OTRP has the exclusive right to manufacture and sell TCS-1 Plants in
the United States. To date, no products have been manufactured or sold.
CANADIAN GRANTS
The governments of Canada and Quebec, have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage such activities, the Government of Canada, on a national basis, and
the Government of Quebec, on a provincial basis, support private research and
development initiatives through the provision of scientific research tax
incentives to businesses and individuals. As a result of the combined efforts of
both levels of government, Quebec offers the most generous tax incentives for
research and development programs of which the Company is aware.
In May of 1995, in order to take advantage of such financial incentives
in connection with the research and development work on the first production
model of the TCS-1 Plant, the Company formed a Canadian corporation, 3143619
Canada Inc. (formerly referred to as "Tirex Canada Inc."). On June 3, 1998,
Tirex Canada Inc.'s name was changed to Tirex Canada R&D Inc. and is hereinafter
referred to as "Tirex R&D". On April 22, 1998, the Company formed a second
Canadian corporation, 3477584 Canada Inc., the name of which was changed to
Tirex Advanced Products Quebec Inc on June 3, 1998 ("TAP"). TAP is a
wholly-owned subsidiary of The Tirex Corporation and is presently dormant. On
June 1, 1998, the Company formed a third Canadian corporation, "The Tirex
Corporation Canada Inc.", referred to herein as "TCCI". TCCI is a wholly-owned
subsidiary of The Tirex Corporation. The purpose of the above described
corporate formations and name changes were to position the Company to dedicate
Tirex R&D's activities solely and exclusively to research and development and to
establish TCCI as the Company's manufacturing arm.
To qualify for Canadian Government grants and tax benefits, the record
owners of 51% of the issued and outstanding capital stock of Tirex R&D are John
L. Threshie, Jr. President of The Tirex Corporation and Louis V. Muro, Vice
President of engineering and a member of the Board of Directors of The Tirex
Corporation, both of whom are Canadian residents. John L. Threshie, Jr. also
serves as the Chairman of the Board of Directors and the Chief Executive Officer
of Tirex R&D while Louis V. Muro also serves as a vice president and a director
of Tirex R&D. The Tirex Corporation is the record holder of the balance of 49%
of the issued and outstanding capital stock of Tirex R&D. Messrs. Threshie and
Muro hold their Tirex R&D shares under the terms of the shareholders agreement,
dated July 3, 1995, as amended February 1996, August 1997 and July 2000 (The
"Tirex R&D Shareholder Agreement") which will require them to transfer all such
shares to the Company for no compensation in 2001 or earlier under certain
circumstances.
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THE TIREX R&D LICENSE
Tirex R&D holds an exclusive, ten year license from the Company, which
expires on July 2, 2005, to design, develop, and manufacture the TCS-1 Plant in
North America (the "Primary License"). The terms of the Primary License provide
that Tirex R&D may manufacture TCS-1 Plants only upon, and pursuant to, specific
purchase orders issued by The Tirex Corporation and requires that Tirex R&D sell
all TCS-1 Plants which it manufactures exclusively to, or as directed by, The
Tirex Corporation. To the extent necessary to insure that Tirex R&D's operations
are limited to pure research and development activities, Tirex R&D will
sublicense the Primary License to TCCI. Unless the context requires otherwise,
the terms of the sublicense will be identical to those of the Primary License.
To the extent necessary to achieve the aforesaid goals, all other contracts to
which Tirex R&D is a party, will be transferred and assigned, in whole or in
part, from Tirex R&D to TCCI, The Tirex Corporation, or any other existing or
future subsidiary or affiliate of The Tirex Corporation, as management shall
determine.
CANADIAN GOVERNMENT AND GOVERNMENT SPONSORED FINANCIAL ASSISTANCE
The Company's May 1995 transfer of its research and development and
manufacturing activities to Tirex R&D (then referred to as "Tirex Canada") made
the Company eligible for various Canadian and Quebec government programs which
provide loans, grants, and tax incentives, as well as government guarantees for
loans from private lending institutions, for eligible investment, research and
development, and employee-training activities.
The financial assistance which the Company received under these
programs is discussed briefly below, under the subcaptions "Tax Incentives" and
"Canadian Government and Government Sponsored Loans and Grants". A discussion in
more detail of the terms and provisions of these various types of financial
assistance, which the Company received, is included in Item 6 of this Report,
"Management's Discussion and Analysis".
Tax Incentives
Canadian and Quebec tax incentives take the form of deductions and tax
credits with respect to eligible research and development expenditures of Tirex
R&D. Certain tax credits are called "refundable" because to the extent that the
amount of the tax credit exceeds the taxes payable, they are paid over or
"refunded" to the taxpayer. Thus such credits function effectively as monetary
grants. To qualify for such tax credits, research and development activities
must comprise investigation or systematic technological or scientific research
conducted through pure or applied research, undertaken to advance science and
develop new processes, materials, products or devices or to enhance existing
processes, materials, products, or devices.
Canadian Government, and Government Sponsored Loans and Grants
The Company has in the past also received financial assistance by way
of loans and grants from Canadian and Quebec governmental agencies for the
design and development of the TCS-1 Plant and for export market development. All
of the activities for which these loans were approved have been completed and
the Company has received the funds approved.
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PATENT PROTECTION
The Company was issued a United States patent on its Cryogenic Tire
Disintegration Process and Apparatus on April 7, 1998 (Patent No. 5,735,471).
The duration of the patent is 20 years from the date the original application
was filed. In November 1998, the Company filed its patent, for review, with the
Canadian Patent Office. The Company is unable to state at this time how long the
Canadian review process will take and is unable to give any assurances that the
Canadian Patent will be granted. Prior to the issuance of such patent, the
Company relied solely on trade secrets, proprietary know-how and technological
innovation to develop its technology and the designs and specifications for the
TCS-1 Plant. In connection with a loan made by the Bank of Nova Scotia to the
Company, a lien on this patent was granted to the said bank (see below in Item I
of this Report "Management's Discussion and Analysis - Liquidity and Capital
Resources"). The Company does not presently hold any patents for its products or
systems outside of the United States.
The Company has entered into confidentiality and invention assignment
agreements with certain employees and consultants, which limit access to, and
disclosure or use of, the Company's technology. There can be no assurance,
however, that the steps taken by the Company to deter misappropriation or third
party development of its technology and/or processes will be adequate, that
others will not independently develop similar technologies and/or processes or
that secrecy will not be breached. In addition, although the Company believes
that its technology has been independently developed and does not infringe on
the proprietary rights of others, there can be no assurance that the Company's
technology does not and will not so infringe or that third parties will not
assert infringement claims against the Company in the future. The Company
believes that the steps it has taken to date will provide some degree of
protection, however, no assurance can be given that this will be the case.
COMPETITION
Management knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 Plant, which are
presently being sold or used anywhere in the world, nor is it aware of any
competing patents relating to the Company's disintegration technology.. However,
the TCS-1 Plant, may reasonably be expected to compete with related or similar
processes, machines, or devices for tire disintegration, cryogenic or otherwise.
There are presently many companies currently recycling tires which have
established business relationships. Moreover, prospective competitors which may
enter the field in the future may be considerably larger than the Company in
total assets and resources. This could enable them to bring their own
technologies to more advanced stages of development with more speed and
efficiency than the Company will be able to apply to the TCS-1 Plant.
Additionally, manufacturers of presently available equipment and systems are in
a position to operate research and development departments dedicated continually
to improving conventional systems and to developing new and improved systems.
There can be no assurance that the TCS-1 Plant, will successfully compete with
existing systems or with any improved or new systems which may be developed in
the future.
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EMPLOYEES
As of October 2000, the Company had seventeen persons employed either
directly or under consulting contracts including its two executive officers. The
balance of the Company's staff is comprised predominantly of mechanical and
other support personnel. All of the foregoing persons devote their full time to
the business and affairs of the existing and proposed businesses of the Company,
as required. At times, the Company also utilizes the services of part-time
consultants to assist them with market research and development and other
matters. The Company intends to hire additional personnel, as needed.
POTENTIAL MARKETS
The Company believes that the potential markets for itsTCS-1 Plant will
directly reflect the level of demand for economical, high quality rubber crumb
derived from the recycling of scrap tires. The following discussion of the
potential markets for rubber crumb assumes that the TCS-1 Plant will be capable
of economically producing high quality recycled rubber crumb and in a variety of
sizes, capable of being used in wide range of products. It should be noted,
however, that because of the lack of an operating history, the Company cannot,
at this time, give any assurance with respect to whether the TCS-1 Plant will in
fact perform as expected under continuous, commercial operating conditions.
Moreover, even if the demand for rubber crumb should increase in accordance with
the Company's expectations, there can be no assurance that a concomitant
development of demand for the TCS-1 Plant will develop.
Rubber is a valuable raw material and the Company believes that
recycling this valuable resource from scrap tires is an ideal way to recover
that value. Recycled scrap tire rubber is already used in a great variety of
products, promoting longevity by adding it to asphalt pavement, adding bulk and
providing drainage as a soil additive, providing durability as a carpet
underpadding, increasing resiliency in running track surfaces and gymnasium
floors, and absorbing shock and lessening the potential for injuries as a ground
cover for playgrounds and other recreational areas.
MARKETING ACTIVITIES
The Company's objective is to market the TCS-1 Plant worldwide, through
national and international sales representatives, licensees or strategic
partners. However, to a large extent the Company has to date concentrated its
efforts on completing the design, development, and construction of the first
production model of the TCS-1 Plant and raising adequate financing to support
such efforts. It has, therefore, only recently focused its efforts and
commercialization and marketing of its product and systems.
The Company can make no assurances with respect to the success of its
marketing and distribution strategy. Furthermore, the Company has limited
resources to achieve the distribution of its products and to date has made no
sales, leases or licenses. The Company believes that it will require additional
financing, which may not be available, to achieve such objectives.
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GOVERNMENT REGULATION
While the Company's equipment manufacturing operations may not be
directly subject to extraordinary government regulations, the Company's
continuing research and development activities, and the operation of the
Montreal T.A.P. Plant will involve, to varying degrees and for varying periods
of time, the storage of scrap tires which may subject the Company to stringent
environmental regulations.
The TCS-1 Plant is a "closed loop" system which does not use any
chemicals, solvents, gases or other substances which could result in emissions
of any kind from the operation of the Plant. Furthermore, to the best of the
Company's knowledge, operation of the TCS-1 Plant will not result in the
emission of air pollutants, the disposal of combustion residues, the storage of
hazardous substances (as is the case with other tire recycling processes such as
pyrolysis), or the production of any significant amounts of solid waste which
would have to be landfilled. However, the operation of a TCS-1 Plant will
involve, to varying degrees and for varying periods of time, the storage of
scrap tires which, with their size, volume and composition, can pose potentially
serious environmental problems. While the Company does not believe that such
storage will normally involve quantities of tires so large or storage periods so
extensive as to constitute the "stockpiling" of scrap tires, it should be noted
that stockpiling, should it occur, could constitute a particularly serious
environmental problem. Among the numerous problems relating to scrap tires, is
that when stockpiled above ground, tires create serious fire, public health, and
environmental hazards ranging from fires, which generate large and dense clouds
of black smoke and are extremely difficult to extinguish, to the creation of
vast breeding grounds for mosquitoes and vermin.
As a result, many US states and Canadian provinces have either passed
or have pending legislation regarding discarded tires including legislation
limiting the storage of used tires to specifically designated areas. The Company
and other operators of TCS-1 Plants will therefore be subject to various local,
state, and federal laws and regulations including, without limitation,
regulations promulgated by federal and state environmental, health, and labor
agencies. Establishing and operating a TCS-1 Plant for tire recycling will
require numerous permits and compliance with environmental and other government
regulations, on the part of the Company's customers, both in the United States
and Canada and in most other foreign countries. The process of obtaining
required regulatory approvals may be lengthy and expensive for both the Company
and for its TCS-1 Plant customers. Moreover, regulatory approvals, if granted,
may include significant limitations on either the Company's or its customer's
operations. The US-EPA and comparable US state and local regulatory agencies,
and similar government bodies in Canada and in other jurisdictions where TCS
systems will be marketed actively enforce environmental regulations and conduct
periodic inspections to determine compliance with government regulations.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspension of approvals, seizure or recall of products,
operating, restrictions, and criminal prosecutions.
The Company believes that existing government regulations, while
extensive, will not result in the disabling of its TCS-1 Plant customers to
operate profitably and in compliance with such regulations. The burden of
compliance with laws and regulations governing the installation and/or operation
of TCS-1 Plants could, however, discourage potential customers from purchasing a
TCS-1 Plant which would adversely affect the Company's business, prospects,
results, and financial condition. As a result, the business of the Company could
be directly and indirectly affected by government regulations.
10
<PAGE>
The Company has made, and will continue to make expenditures relating
to environmental compliance because at least a limited amount of storing and
processing of tires has been and will continue to be required for testing of the
TCS-1 Plant at the Montreal facility.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters and plant are located at 3828 St.
Patrick, Montreal, Quebec, H4E 1A4. On February 17, 1998, the Company entered
into a five-year term lease (the "Tri-Steel Lease") with Tri-Steel Industries
Inc. ("Tri-Steel"), effective as of March 1, 1998 for a 90,000 square foot
research and manufacturing facility on a completely fenced 180,000 square foot
contiguous lot located at 3828 Saint Patrick Street and 2200 Pitt Street in
Montreal, Canada. This site is situated adjacent to an interstate highway and a
Canadian National Railway line in an industrial area located approximately two
miles from the principal downtown Montreal business center.
The Tri-Steel Lease provides for rental payments, as follows: (i)
year-one (commencing March 1, 1998): Cdn$10,000 per month (approximately
US$7,000); (ii) year-two: Cdn$20,000 per month (approximately US$14,000); and
(iii) years-three, four, and five: Cdn$25,000 per month (approximately US$17,500
US ). Quebec sales taxes ("QST") and (Canadian) Government sales taxes ("GST")
are also payable by the Company on all rental payments. Under present
regulations, these taxes are either refundable to the Company or are available
as reductions of required remissions of sales taxes collected on sales made to
other taxable Canadian entities. To date, such taxes have been refunded to the
Company or, on occasion, offset against amounts due by the Company in respect of
payroll taxes. It is estimated that year-one sales taxes will aggregate to
approximately 15% of all rental payments made. The Company's present sales tax
status is such, however, that QST and GST payments will be refunded to it by the
government. The Company is obligated to pay additional costs, including all fuel
and utility charges, real estate taxes. The Lease requires the Company to carry
insurance on the premises for not less than CA $4,000,000 (approximately
$2,800,000 US) and public liability insurance for not less than CA $3,000,000
(approximately $2,100,000 US). The Company estimates that the aggregate amount
of such additional costs will be approximately CA $10,265 (approximately $7,153
US) for temporary coverage for the first year of the lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently a party in the following two legal proceedings:
IM2 MERCHANDISING AND MANUFACTURING, INC. AND DAVID B. SINCLAIR V. TIREX
CORPORATION, TIREX CORPORATION CANADA, INC., ET AL.
11
<PAGE>
The Plaintiffs, a Canadian resident and a Canadian corporation sued in
the Delaware, U.S. Federal District Court claiming fraud, breach of contract,
unjust enrichment and other allegations, that the alleged Defendants, which
include Tirex Corporation Canada and Tirex Corporation, jointly conspired to
profit from the corporate Defendants' failure to comply with terms of a
manufacturing agreement. The monetary demand of this Complaint was unspecified.
The Defendants were prepared to move to dismiss Plaintiffs' Complaint, but after
consultations with the Plaintiffs' Attorneys, the Plaintiffs' withdrew this
Complaint voluntarily. Plaintiffs later filed a second action in the Chancery
Court of Delaware alleging certain of the same allegations; fraud, breach of
contract, unjust enrichment, breach of fiduciary duty and misrepresentation, but
eliminated other counts including the securities fraud allegations. The
Defendants in the State Court action are the same named in the Federal Court
action, and again the monetary damages are unspecified.
The Defendants moved to dismiss the State Court Chancery case alleging
defective service of process on Defendants and asserting that the Court had no
jurisdiction over the Defendants in Delaware and for removal of the case to
Canada based on forum non-convenience. Defendants' motion has been argued, but
no decision has been rendered. Counsel for the Company, both Delaware Counsel as
well as the undersigned firm, believe that the Company has meritorious defenses
to the Plaintiffs' claims and valid counter claims, which the Defendants can and
will assert when appropriate. Further, even if a recovery is awarded to the
Plaintiffs it will not, in the opinion of Counsel, be of an amount which will
have a material adverse effect upon the Company's financial condition.
SURGENT V. TIREX CORPORATION.
An action was brought by the Plaintiff against the Tirex Corporation,
alleging that the Corporation had agreed to issue 1,000,000 shares of its Common
Stock to the Plaintiff in consideration for expenses allegedly paid by the
Plaintiff in the amount of approximately $150,000. The Plaintiff's Complaint
sought to impose an equitable trust or lien on 1,000,000 of unissued shares of
the Company, demanded the issuance of 1,000,000 shares and for breach of
contract. Damages of $1,400,000 were alleged.
The Defendant moved to dismiss the case on various procedural grounds
and in September the Court granted Defendant's motion based upon the lack of
venue in Union County, New Jersey. Counsel for Tirex Corporation believes that
the Company has valid defenses against all of Plaintiff's claims. No new action
has been instituted by Plaintiff.
The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 2000 no
matters were submitted to a vote of the shareholders of the Company.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, is traded on a limited basis in the
over-the-counter market and quoted on the OTC Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board"). The following table sets forth representative high and low bid
prices by calendar quarters as reported in the OTC Bulletin Board during the
last two fiscal years. The level of trading in the Company's common stock has
been limited and the bid prices reported may not be indicative of the value of
the common stock or the existence of an active market. The OTC market quotations
reflect inter-dealer prices without retail markup, mark-down, or other fees or
commissions, and may not necessarily represent actual transactions.
Bid Prices
Period Common Stock
------ ------------
FISCAL YEAR ENDING JUNE 30, 1999 LOW HIGH
September 30, 1998 $0.12 $0.30
December 31, 1998 0.10 0.28
March 31, 1999 0.15 0.25
June 30, 1999 0.09 0.28
FISCAL YEAR ENDING JUNE 30, 2000 LOW HIGH
September 30, 1999 $0.04 $0.13
December 31, 1999 0.035 0.14
March 31, 2000 0.07 1.41
June 30, 2000 0.255 0.68
SHAREHOLDERS
As of September 28, 2000, the number of holders of record of the
Company's common stock, $.001 par value, was approximately 450, which does not
include shares held by persons or companies in street or nominee name.
DIVIDENDS
The Company has paid no cash dividends and has no present plan to pay
cash dividends, intending instead to reinvest its earnings, if any. Payment of
future cash dividends will be determined from time to time by its Board of
Directors, based upon its future earnings (if any), financial condition, capital
requirements and other factors, the company is not presently subject to any
contractual or similar restriction on its present or future ability to pay such
dividends.
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the fiscal years ended June 30, 2000 ("Fiscal 2000"), and June 30, 1999
("Fiscal 1999"). This discussion also includes events which occurred subsequent
to the end of Fiscal 2000 and contains both historical and forward- looking
statements. When used in this discussion, the words "expect(s)",
"feel(s)", "believe(s)", "will", "may", "anticipate(s)" "intend(s)" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors". Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Readers are
also urged to carefully review and consider the various disclosures elsewhere in
this Report which discuss factors which affect the Company's business, including
the discussion at the end of this Management's Discussion and Analysis, under
the subcaption "Risk Factors". This discussion should be read in conjunction
with the Company's Consolidated Financial Statements, respective notes and
Selected Consolidated Financial Data included elsewhere in this Report.
In late November of 1999, John L. Threshie Jr. replaced Terence C.
Byrne as president and Chief Executive Officer and Louis A. Sanzaro resigned as
an officer of the Company such that he could accept a licensing agreement with
the Company for marketing and manufacturing the TCS-1 for the US market without
a conflict of interest. Mr. Byrne had resigned to pursue other career interests.
The Company considers the accession to the presidency of the Company of Mr.
Threshie as a very positive move as the Company moves from its historical stance
as a developmental stage company to that of a fully commercial corporation,
while nonetheless recognizing the role which Mr. Byrne played during its
developmental stage.
The first three quarters of Fiscal 2000 were devoted primarily to the
completion of the Company's prototype TCS-1 System such that the Company would
have a demonstrable technology and thus the capability of concluding sales
agreements. While the Company would have preferred a more rapid progression to
the commercial stage, limitations on the availability of financial resources
imposed a more modest progression toward the Company's goal. It was not until
the beginning of March 2000 that the Company was in a position to state that its
tire recycling technology was ready for replication and thus commercialization.
Thus, while the Company now has a demonstrable technology to demonstrate to
potential customers, the Company nonetheless considers that it is still in the
very early stages of marketing and fabricating or arranging to have fabricated
the two versions of its patented cryogenic scrap tire recycling equipment (the
"TCS System").
During the first six months of Fiscal 2000, the Company was primarily
engaged in correcting those technological problems associated primarily with the
freezing tower component and its internal conveying system of its TCS System,
these problems having been identified in late Fiscal 1999 and in the beginning
of Fiscal 2000. These development efforts led to a much simplified approach for
the transportation of tire sections within the freezing tower which have solved
the previous problem of backslip and blockage within the tower. For the first
two months of calendar 2000, the Company engaged in intensive testing of its new
conveying system prior to announcing on March 2, 2000 that its system was ready
for commercialization.
14
<PAGE>
It was during these first two months of calendar 2000 that the Company
received the first delegation from the Peoples' Republic of China, the Hongli
Group from Shandong province, which expressed a strong interest in acquiring a
TCS-1 for installation in the vicinity of the city of Dezhou in Shandong
province. The Company and the Hongli Group were able to arrive at a Memorandum
of Understanding that, subject to their seeing the System in full operation,
this group would put into place those procedures required to complete a purchase
transaction and permit a receipt by the Company of a down payment thereon. The
Hongli Group has not yet been able to return to Montreal to witness the TCS-1 in
operation and, at the same time, is apparently seeking financial assistance from
international financial bodies to help defray the cost of such an installation.
During the first three weeks of July 2000, just days after the completion of the
fiscal period which is the subject of this report, the Company also received
visits from two other Chinese groups, these being the Nanjing Implements Factory
and Well Express International, the latter being based in Hong Kong. In both
cases the Company reached Memoranda of Understanding respecting the sale of
systems and possible distributorship arrangements, subject to their formalizing
purchase orders with the Company. The Company has yet to receive purchase orders
from any of the three Chinese groups and cannot provide any assurances that
enforceable purchase orders with deposits will, in fact, be received from any of
them.
On July 24, 2000, three weeks following the end of the fiscal period
covered by this report, the Company was visited by representatives of
Crioengineering s.r.l .from the Turin region of Italy. This group represents
that it has a mandate from the Government of Italy to engage in the use of
environmental technologies throughout that country to resolve numerous pollution
issues, one of which involves tire recycling. After having evaluated other
technologies, Crioengineering has selected the Tirex technology for its first
choice of tire recycling technologies and this choice has been approved by the
European Community in Brussels, Belgium. The visit and discussions with the
Crioengineering representatives led to the signing of a Memorandum of
Understanding on July 24, 2000 under which Crioengineering would be able to
order up to ten double capacity systems, named the TCS-2. The budget estimate
for each TCS-2, depending on the system configuration and the characteristics of
the input material and the specifications for the output material was agreed to
be US$7,000,000.
In the course of a subsequent meeting involving a representative of
Simpro S.p.a., an Italian public company whose business focus is the
engineering, fabrication and installation of turn-key industrial fabrication
systems, primarily for the automotive industry, the Company also concluded a
Letter of Intent respecting the fabrication of TCS Systems. Simultaneously, the
Company concluded a Letter of Intent with European Transformation Resources
(ETR), a company currently in process of being established under the laws of the
Duchy of Luxembourg for marketing of TCS Systems in certain regions of Europe,
notably Italy, and in other jurisdictions for the marketing of TCS Systems. The
purpose of this Letter of Intent was to establish the basis of an eventual
agreement under which ETR would acquire certain marketing and distribution
rights with respect to the Tirex technology and Simpro would assume
responsibility for the fabrication, assembly, installation and testing of TCS
Systems in regions of the world to be defined. Particularly insofar as European
15
<PAGE>
markets are concerned, the availability of locally established marketing and
manufacturing is considered by Management to be an important element in the
company's development strategy. Such capability should reduce System costs
through the elimination of significant shipping costs, European Community
customs duties and reduce the time to delivery through elimination of
substantial in-transit periods. The availability of local expertise for possible
after-sales service should also be a significant incentive for local operators
who will be able to count on more rapid service than were such service based in
North America. Simpro has worked with numerous Italian companies, the most
important of which has been Fiat with respect to facilities in Italy, Poland,
Brazil, Venezuela, Argentina and Morocco and with Karmann, Volvo, Audi and
Volkswagen. Simpro has its ISO 9001 and ISO 14001 Certifications and its EMAS
Registration (Ecomanagement and Audit Scheme) and its quality standards have
been attested to by Fiat.
In October of 2000 the Company received authorized representatives from
South Korean company, the Samho Group, a company already very actively engaged
in the materials recycling industry in Korea. The Samho Group is forecasting
gross revenues for the year in process at US$100 million, a 25% increase over
their 1999 activity. Samho has a mandate from the Korean government to engage in
the cleanup of pollution problems in that country. Management's preliminary
review of Samho's condensed financial information indicates that Samho has the
financial capability to acquire a Tirex TCS-2 System. Samho has indicated to
management that it intends to negotiate a purchase order prior to the end of
calendar 2000.
With respect to the US market, the Company signed a License Agreement
in the third week of November 1999 with Ocean Equipment Manufacturing and Sales
Co. (OEMS) of New Jersey for the marketing and for the manufacturing,
installation and service of Tirex tire recycling systems. This agreement covers
the entire US market. The Company will receive a royalty for each system sold,
which, subject to adjustments respecting actual manufacturing costs versus
preliminary budget estimated cost, would provide a royalty equal to 16.7% of the
sales price to the Company. Thus, if a system would be sold for US$3,000,000,
the royalty would be approximately US$500,000. As of September 30, 2000, OEMS
has not yet concluded any sales of TCS Systems to independent parties.
In summary, the Company has signed Memoranda of Understanding or
letters of Intent with three separate Chinese groups, the Crioengineering group
of Italy and Samho of Korea. While the Company is confident that purchase
contracts will result from one or more of these Memoranda, no guarantees can be
given that such purchase contracts will actually be signed or that even they
would be signed, the Company would actually realize a profit from such
contracts.
Because of the lengthy delay preceding the commencement of commercial
operations, the Company has had to, and will in the near future be forced to
continue to, cover its overhead costs from sources other than revenues from
operations. As of October 3, 2000, the Company estimates that overhead costs
from July 1, 2000 until the date that adequate revenues will be generated to
cover it overhead costs, will amount to approximately $400,000.
16
<PAGE>
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.
During the four fiscal years starting with Fiscal 1997 and up to Fiscal
2000 inclusive, the Company received additional funding from Quebec and Canadian
government grants, loans, loan guarantees and refundable tax credits for
purposes of completing the development of the TCS-1 Plant and for the
international marketing of such plants. Canadian and Quebec government research
and development tax incentives take the form of both tax deductions from
otherwise taxable income and tax credits respecting the eligible research and
development expenditures of the Company (see "Existing and Proposed Businesses -
Canadian Operations"). Insofar as tax credits for scientific research and
experimental development are concerned, such credits are offered by both the
governments of Canada and of Quebec. The tax credits are calculated as a
percentage of research and development expenditures deemed eligible by the
Revenue Departments of each government. The percentages vary according to the
size of the company (defined according to the asset base and revenues generated
by the company), the residency of the majority of the voting control and other
factors. In the case of both the provincial and the federal governments, where
the amount of the tax credit exceeds other tax liabilities, such as taxes on
income and on capital, and subject to certain other conditions which a company
meets, the amount of any difference is paid to the company, thus the term,
"Refundable Tax Credits". The effective rate of the credit varies from one
company to another as a function of a number of factors, including: (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 four 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.
In consideration of the fact that tax credits are only approved
following the filing of tax returns and that such a disbursement pattern does
not match the cash flow requirements of companies engaged in research and
development, as a further measure to stimulate such research and development,
the Quebec Government, through its agency, Guarantee Quebec ("GQ") and
previously through the Societe de developpement industriel du Quebec, a public
sector corporation wholly owned by the Government of Quebec, (the "SDI") (a
former English version of this name was the Quebec Industrial Development
Corporation), has established a loan guarantee program (the "GQ / SDI Loan
Guarantee Program") which provides a loan guarantee for repayment of 75% of the
amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. Without such guarantees, the obtaining of such
bank loans is very difficult, and for developmental stage companies, is
fundamentally impossible.
17
<PAGE>
In connection with Refundable Tax Credits for the fiscal year ending
June 30, 1999, the Company received on May 9, 1999 an offer of tax credit
financing to a maximum amount of Cdn$750,000 (approximately US$525,000) from the
Bank of Nova Scotia ("ScotiaBank"), subject to the provision of a loan guarantee
by GQ, which guarantee was issued on June 6, 1999. As at June 30, 1999,
Cdn.$600,000 (approximately US$420,000) had been lent to the Company pursuant to
the ScotiaBank Tax Credit Loan. In the first quarter of Fiscal 2000, the Company
drew down the remaining Cdn$150,000. Repayments of the loan were made in
accordance with the conditions of the loan guarantee issued by Garantie-Quebec.
The ScotiaBank Tax Credit Loan was secured by: (i) a first-ranking lien on all
of the assets, tangible and intangible, present and future, of the Company's
Canadian subsidiary, Tirex R&D; (ii) a lien on the Company's patent for the
cryogenic tire disintegration process and apparatus of the TCS-1 Plant; and
(iii) personal guarantees of two officers and directors of the Company.
Borrowings drawn down under the ScotiaBank Tax Credit Loan bore
interest, from the date the funds were drawn down until the outstanding
principal and all accrued and unpaid interest thereon were repaid, at an annual
rate equal to the Bank of Montreal Prime Rate (which, for reasons of inter-bank
competition, is usually equivalent to Canadian Prime Rate) plus 1.25%. Interest
on the outstanding balance of the ScotiaBank Tax Credit Loan is due and payable
monthly. The outstanding principal amount was repayable upon the Company's
receipt of tax credit refunds from the Canadian and/or Quebec tax authorities
and the release of the funds by GQ to ScotiaBank.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Amount of R&D Cumulative
Period Amount of R&D Expenditures Amount of Tax Amount Borrowed Amount of Outstanding Balance
R&D Expenses Were Expenditures Eligible for Credits Estimated Against Estimated Tax Credit of Loan as At End
Incurred Incurred Tax Credits by Banks and Sdi Tax Credits Received of Period
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
----------------------------------------------------------------------------------------------------------------------------------
As of n/a n/a n/a Cdn$150,000 n/a nil
June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the last four fiscal years, the Company also received additional
financial assistance by way of loans and grants from Quebec governmental
agencies, for the design and development of the TCS-1 Plant and for export
market development as follows:
1. In March of 1996, the Company qualified for an interest-free,
unsecured loan (the "FORD-Q Loan") of up to $500,000 (Canadian), or
approximately $ 350,000 (U.S.). This loan was made available by the Government
of Canada under the Industrial Recovery Program for Southwest Montreal, which is
administered by the federal government agency, Canada Economic Development for
Quebec Regions ("CEDQR"), 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.
18
<PAGE>
The proceeds of the CEDQR Loan were paid to the Company during the
fiscal years ended June 30, 1997 and 1998, as follows:
Canadian Dollars Us Dollar Approximation
---------------- -----------------------
Fiscal 1997 $246,752 $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 (Paid)
March 31, 2000 $100,000 $ 70,000 (Now due)
March 31, 2001 $150,000 $105,000
March 31, 2002 $200,000 $140,000
2. The Company has also qualified for five interest-free, unsecured
loans from the Government of Canada in the aggregate amount of $ 232,773
Canadian (approximately $ 162,900 U.S.). These loans were made available by
CEDQR, under the Innovation, Development, Entrepreneurship Assistance - Small
and Medium Enterprises Program ("IDEA-SME Program"). Under these loan
agreements, during Fiscal 1997 and 1998, the Company received $30,000 Canadian
(approximately $ 21,000 U.S.) and $ 202,773 Canadian (approximately $ 141,900
U.S.) respectively. The IDEA-SME Program loans represent up to 50% of approved
Company expenditures, based on submitted claims, subject to maximum amounts for
each loan. Expenditures are required to have been made for the purposes of
identifying and developing export markets for Canadian products. All of the
projects which gave rise to these loans have been declared completed by CEDQR
and the repayment terms have accordingly been established. The following table
identifies the nature of the projects for which these loans were granted, the
maximum amount of the loans approved the government agency, the aggregate
amounts received by the Company as of October 31, 1998 and the repayment terms
of each loan.
19
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Amount of
Funds
Received by
Company Repayment Terms
Maximum as of =========================================================================
Amount December 31, Amount of Rate of
Nature of Project of Loan 1998 Date Due Payment Interest
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Feasibility Cdn Cdn At the end of any fiscal year 1% of gross annual None
Study for Iberian Peninsula $20,000 $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 Cdn At the end of any fiscal year 1% of gross annual None
Study for India $20,000 $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 Cdn June 30, 2001 Cdn$6,333 None
Potential United States $95,000 $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
------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Cdn Cdn At the end of any fiscal year 1.5% of gross annual None
Activities Related to $95,000 $95,000 in which the Company has revenue from sales in
Positioning the Company to revenues from sales of TCS-1 Iberia
Market TCS-1 Plants, Rubber Plants in Iberia
Crumb, and Related Products
in Iberia
------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Cdn $98,000 June 30, 2001 Cdn $ 6,533.33 None
Respecting the Feasibility $98,000 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>
20
<PAGE>
These loans and the projects which they supported are discussed in more
detail in "Description of Business".
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 and
TCS-2 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 TCS Systems
in Europe and in the USA; (ii) Canadian and Quebec government and governmental
agency grants, loans, and refundable tax credits; (iii) sale and lease back
financing on equipment owned by the Company; (iv) conventional asset based debt
financing against receivables and inventory; (v) refunds of all of the 15% sales
taxes paid by the Company on all goods and services purchased in connection with
the Company's manufacturing activities, which the Company, as a manufacturer and
exporter of goods is entitled to (vi) subcontractor financing; (vii) vendor
financed equipment purchases and/or (viii) a research and development tax credit
facility from ScotiaBank for the 2000 calendar year (yet to be consummated). 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 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) the receipt of firm
purchase orders from Crioengineering (Italy) and from Samho (Korea) and from
interests in France and West Germany with whom the Company has had preliminary
discussions; 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.
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 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 manifest themselves over the next several months. 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.
21
<PAGE>
There can be no assurance that the Company will be able to obtain
outside financing on a debt or equity basis on terms favorable to it, if at all.
In the event that there is a failure in any of the finance-related contingencies
described above, the funds available to the Company may not be sufficient to
cover the costs of its operations, capital expenditures and anticipated growth
during the next twelve months. In such case, it would be necessary for the
Company to raise additional equity capital. During Fiscal 1998, in an effort to
put such funding into place, the Company entered into a non-binding letter of
intent with H.J. Meyers & Co., Inc. ("Meyers"), for a proposed public offering
of its securities in an amount of not less than $8,000,000. On or about
September 16, 1998, however, Meyers abruptly ceased doing business. During
Fiscal 2000 and in the subsequent months until the date of this Report, the
Company has undertaken negotiations with several potential sources of private
placement capital to ensure the adequacy of financial resources to permit the
Company to move expeditiously into the commercial stage of operations. While
several offers of financing have been received, the Company has not yet
concluded any agreements on terms which are acceptable to Management and
Management cannot offer any guarantees that any such agreement or agreements
will be reached.
As of June 30, 2000, the Company had total assets of $3,287,384 as
compared to$4,398,004 at June 30, 1999 reflecting a decrease of $1,110,620.
Fiscal year-end total assets at June 30, 1999 had reflected a previous increase
of $583,306 over $3,814,698 at June 30, 1998. Management attributes the decrease
in total assets at June 30, 2000 principally to (i) a decrease of $477,483 in
Tax Credits Receivable from $952,704 as of June 30, 1999 to $475,221 as of June
30, 2000, (ii) a decrease of $307,382 in Prepaid Expenses and deposits from
$413,766 as of June 30, 1999 to $106,384 as of June 30, 2000; and (iii) a
decrease in Cash and Cash equivalents of $174,463 from the balance as of June
30, 1999 in the amount of $177,256 to the balance as of June 30, 2000 in the
amount of $2,793. The reduction in tax credits receivable is attributed to
primarily to a faster receipt of tax credit refunds. The reduction of prepaid
expenses and deposits is attributable to amortization of previously incurred
amounts.
As of June 30, 1999, the Company had total liabilities of $4,121,223 as
compared to $3,952,008 at June 30, 1999, reflecting a marginal increase in
liabilities of $169,215. Total liabilities at June 30, 1999 had reflected a
previous increase of $591,420 over $3,360,588 in total liabilities at June 30,
1998. Management attributes such increases in total liabilities at June 30, 2000
primarily to: (i) increases in loans from officers in an amount of $1,944,388
from $149,406 as of June 30, 1999 to $2,093,954 as of June 30, 2000. This
increase in loans from officers was offset by a general and across the board
decrease in most other liability accounts, reflecting the fact that officers
were fundamentally replacing debts to third parties with debts owed to
themselves.
Reflecting the foregoing, the financial statements indicate that as at
June 30, 2000, the Company had a working capital deficit (current assets minus
current liabilities) of $715,649 and that as at June 30, 1999, the Company had a
working capital deficit of $704,376 a marginal difference of $11,273.
Analytically, there were significant reductions in current assets as noted in
the second preceding paragraph, particularly in Tax Credits Receivable, which
reductions were offset by commensurate reductions in current liabilities due to
third parties, which liabilities were replaced by liabilities to officers,
almost all of which was subsequently converted to equity in the Company.
22
<PAGE>
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 Plant's ability to
meet anticipated performance specifications on a continuous, long term,
commercial basis.
RESULTS OF OPERATIONS
As noted above, the Company is presently in the very early stages of
the business of manufacturing and selling TCS Plants. The Company intends to
begin manufacturing TCS Plants by November of 2000 or to have such plants
manufactured by licensees. The Company had no income from operations during
Fiscal 2000; it generated $390,848 in revenues during fiscal 1999. However,
unless and until the Company successfully develops and commences TCS 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 $1,270,069 for fiscal 2000 which
reflects a decrease of $1,959,263 over Fiscal 1999, when general and
administrative expenses were $3,229,332. During fiscal 2000, the Company's total
operating costs increased by $503,938, from $4,953,622 for fiscal 1999 to
$5,457,560 for fiscal 2000. The majority of such increase is the result of
increased research and development expenditures, which rose from $1,677,068 in
Fiscal 1999 to $4,118,950 in Fiscal 2000, an increase of $2,441,882. This
increase was largely offset by a significant decrease in general and
administrative expenses, as noted above, in the amount of $1,959,263.
Management believes that the amounts accrued in respect of the shares
issued to compensate the executive officers and corporate counsel reflect the
fair value of the services rendered, and that the recipients of such shares
accepted such numbers of shares as a function of a combination of their
perceived valuation of both present and possible future value of the shares,
rather than the actual value of the stock at the time it was issued. Management
believes that, as of the dates such shares were issued in lieu of cash
compensation, their actual and potential value, if any, could not be determined,
and that any attempt to specify a current valuation with any reasonable
assurance, would be flawed, without substance, and highly contingent upon, and
subject to, extremely high risks including but not limited to the following
factors: (i) the absence of a reliable, stable, or substantial trading market
for the Company's common stock, the possibility that such a market might never
be developed, and the resultant minimal, or total absence of, market value for
any substantial block of common stock; (ii) the very high intrinsic risks
associated with early development stage businesses, such as the Company's; (iii)
the Company's lack of sufficient funds, as at such issuance dates, to implement
its business plan and the absence of any commitments, at such times, from
potential investors to provide such funds; (iv) the restrictions on transfer
arising out of the absence of registration of such shares; and (v) the
uncertainty respecting the Company's ability to continue as a going concern,
(See "Description of Business", "Market for the Company's Common Equity and
Related Stockholder Matters", and "Management").
23
<PAGE>
From inception (July 15, 1987) through June 30, 1999, the Company has incurred a
cumulative net loss of $18,514,438. 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.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, required to be included in
this Report pursuant to Item 310(a) of Regulation S-B, are set forth below.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There was no resignation or dismissal of the Company's principal
independent accountant during the two most recent fiscal years and the interim
period subsequent thereto.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following sets forth, as of June 30, 2000, the names and ages of
all directors, executive officers, and other significant employees of the
Company; and all positions and offices in the Company held by each, and the
terms of said offices. Each director will hold office until the next annual
meeting of shareholders and until his or her successor has been elected and
qualified:
Offices Term of
Name Age Held Office
---- --- ------- -------
John L. Threshie, Jr. 46 Chairman of the November 1999 -
Board of Directors and present
Chief Executive Officer
Director June 1995 -
February1999
Vice President June 1995-
November 1999
Secretary December 1996
February 1999
24
<PAGE>
Offices Term of
Name Age Held Office
---- --- ------- -------
Louis V. Muro 68 Vice President January 1996-
of Engineering present
and Director
President March 1994-
January 1995
Director December 1992-
January 1995
Secretary December 1992-
March 1994
Louis Sanzaro 49 Director January 1997-
Present
President February 1999-
November 1999
Vice President January 1998-
Of Operations February 1999
Michael D.A. Ash 51 Secretary, Treasurer, and February 1999-
Chief Financial and present
Accounting Officer
The Board of Directors has no standing committees.
In November of 1999 John L. Threshie, Jr. replaced Terence C. Byrne as
President and Chief Executive Officer and Louis A. Sanzaro resigned as an
officer of the Company. These management changes did not involve any
disagreements among management members or between the Company and any such
individuals. The Company believes that the reorganization of its management will
maximize and enhance its ability to meet the changing needs and requirements of
its business as it grows and develops.
FAMILY RELATIONSHIPS
No family relationships exist between any director or executive officer
of Company or any person contemplated to become such.
25
<PAGE>
BUSINESS EXPERIENCE
The following summarizes the occupation and business experience during
the past five years for each director, executive officer and significant
employee of the Company. A significant employee is a person who is not an
executive officer of the Company but who is expected to make a significant
contribution to the business of the Company.
JOHN L. THRESHIE, JR. Mr. Threshie has served as President and Chief Executive
Officer of the Company since November of 1999. Prior to that time he served as a
Vice President of the Company since June 1995. He was appointed Assistant
Secretary of the Company on February 11, 1999. From December 1996 until February
11, 1999, Mr. Threshie held the position of Secretary, and from June 1995 until
February 11, 1999, as a Director, of the Company. He also served as a Director
for The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc. from June 1998
and June 1995, respectively, until February 11, 1999. He has more than fourteen
years of experience in the areas of management, marketing and sales primarily in
the field of advertising. Mr. Threshie holds a Bachelor of Science Degree in
Business from the University of North Carolina. He was employed as an insurance
and financial broker by Primerica Financial Services from 1991 through 1994.
From 1988 to 1990, Mr. Threshie was an advertising account supervisor for
Ammirati & Puris Inc., an advertising firm in New York. From 1983 to 1988 Mr.
Threshie was employed as a senior account executive at the advertising firm of
Saatchi and Saatchi, Inc. From 1979 to 1983 Mr. Threshie was employed by
Milliken & Co. as a sales representative.
LOUIS V. MURO. Mr. Muro acted as an engineering consultant to the Company from
January 18, 1995 until January 1, 1996 when he was appointed as a Director and
as Vice President in charge of engineering. Mr. Muro served as a Director of the
Company from December 29, 1992 until January 18, 1995. He also served as the
Company's Secretary from December 29, 1992 until March 1994 when he was
appointed President of the Company, a position he held until January 18, 1995.
He has also served as the Vice President in charge of engineering and as a
director of The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc. since
June 1998 and May 1995 respectively. Mr. Muro received a B.S. degree in Chemical
Engineering from Newark College of Engineering in 1954, since which time he has
continually been employed as a chemical engineer. From 1974 to 1993 Mr. Muro has
been the sole proprietor of Ace Refiners Corp. of New Jersey, a precious metals
refinery. From 1971 to 1974, he worked as an independent consultant and from
1964 until 1971, he was director of research and development for Vulcan
Materials Corporation in Pittsburgh, Pa., a public company engaged in the
business of recovering useable tin and clean steel from scrap tin plate. From
1960 to 1964, Mr. Muro was the sole proprietor of Space Metals Refining Co. in
Woodbridge, NJ, a company involved in the purification of scrap germanium to
transistor grade metal. From 1959 to 1960 he was employed by Chemical
Construction Co., of New Brunswick, NJ, where he developed a process for the
waste-free production of urea from ammonia, carbon dioxide and water. From 1954
to 1959, Mr. Muro worked in the research and development department at U.S.
Metals Refining Co. in Carteret, NJ where he was involved with the refinement of
precious metals.
26
<PAGE>
LOUIS SANZARO. Mr. Sanzaro has been a Director of the Company since January 1997
and a Director of The Tirex Corporation Canada Inc. since June 1998. He served
as a consultant to the Company from January 1, 1997 until June 1998, when he was
appointed Vice President of Operations and Chief Operating Officer. On February
11, 1999, Mr. Sanzaro resigned as Vice President of Operations and was appointed
to the position of President of the Company. Effective November 23, 1999, and to
avoid a possible future conflict of interest, Mr. Sanzaro resigned as President
of the Company. Mr. Sanzaro holds a degree in marketing from Marquette
University. In 1997, he was named "Recycler of the Year" for the State of New
Jersey and was also awarded the distinction of being named "Recycling Processor
of the Decade" by Ocean County, New Jersey. He is the President and a member of
the Board of Directors of the nationwide, Construction Material Recycling
Association. Since 1986, Mr. Sanzaro has served as President and CEO of Ocean
County Recycling Center, Inc. ("Ocean County Recycling"), in Tom's River, New
Jersey. Ocean County Recycling is in the business of remanufacturing
construction and demolition debris for reuse as a substitute for virgin
materials in the construction and road building industries. In addition, since
1989, Mr. Sanzaro has served as Vice President and COO of Ocean Utility
Contracting Co., Inc., a New Jersey company engaged in the installation of sewer
and water main pipelines and the construction of new roadway infrastructure.
From 1973 until 1990, Mr. Sanzaro was the President and CEO of J and L
Excavating and Contracting Co., Inc., a company engaged in the construction of
residential, commercial, industrial, and government buildings.
MICHAEL D.A. ASH. Mr. Ash joined the Company on January 11, 1999. On February
11, 1999, Mr. Ash was appointed Secretary, Treasurer, and Chief Financial and
Accounting Officer of the Company. Mr. Ash graduated with a Bachelor's Degree in
Business Administration, Magna Cum Laude, from Bishop's University in Quebec in
1970, and with an MBA, with Distinction, from Harvard Business School in 1975.
Mr. Ash is also a Chartered Accountant, (Canadian equivalent to a CPA), having
qualified for this professional designation in 1972 while employed by Coopers &
Lybrand. Since graduation from Harvard, Mr. Ash has spent most of his career
with the Government of Canada, first with the Office of the Comptroller General
in Ottawa and, for the last eighteen years, with a federal regional economic and
industrial development agency in Montreal where he gained exposure to a very
large number of companies and industrial sectors, ranging from developmental
companies to major multi-national corporations. For ten years during this time
period, Mr. Ash was also a part-time lecturer in accountancy at Concordia
University in Montreal for students registered in the program leading to the
Chartered Accountancy designation.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
None of the Company's securities have been registered pursuant to
Section 12 of the Exchange Act of 1934, as amended (the "Exchange Act").
Therefore, Section 16(a) of the Exchange Act is not applicable.
27
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
CURRENT REMUNERATION
The following table sets forth information concerning the annual
compensation received or accrued for services provided in all capacities to the
Company for the fiscal years ended June 30, 1998, 1999 and 2000 by the Company's
chief executive and all executive officers of the Company serving as such as at
June 30, 2000 or at any time during the year ended June 30, 2000. Stock issued
in lieu of cash salary payments was valued at one-half the average market price
of such stock during the periods in which such salary was earned. Determination
of the market price for such purpose was based upon the average of the bid and
ask prices of such stock, as traded in the over-the-counter market and quoted in
the OTC Bulletin Board. The 50% discount from the market price was determined
arbitrarily, by negotiation between the Company and its executive officers and
did not bear any relationship to any established valuation criteria such as
assets, book value, or prospective earnings. The market prices of the Company's
common stock and the liquidity of such market has historically been volatile.
Future announcements concerning the Company or its competitors, including the
results of testing, technological innovations or new commercial products may
have a significant impact on the market price of the Company's securities.
Management believes that, as of the dates when such shares were issued, the
actual market value of such shares was, and as of the date hereof remains,
highly contingent upon, and subject to, extremely high risks.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE:
-----------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
-----------------------------------------------------------------------------------------------
Name and
Principal Position Year Salary $ Bonus $ Other $
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $125,000 (1)(5)
John L. Threshie, Jr. -----------------------------------------------------------
President and Chief 1999 $ 62,500
Executive Officer -----------------------------------------------------------
1998 $ 62,500
-----------------------------------------------------------------------------------------------
2000 $150,000 (2)(5)
Louis V. Muro, Vice President -----------------------------------------------------------
of Engineering 1999 $150,000
-----------------------------------------------------------
1998 $150,000
-----------------------------------------------------------------------------------------------
Louis V. Sanzaro 2000 $175,000 (3)(5)
Chief Operating Officer -----------------------------------------------------------
(Resigned November 1999) 1999 $175,000
-----------------------------------------------------------------------------------------------
Terence C. Byrne 2000 $250,000 (4)(5)
President and Chief Executive -----------------------------------------------------------
Officer (Resigned November 1999) 1999 $250,000
-----------------------------------------------------------
1998 $250,000
-----------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
(1) In lieu of cash payment of salary, reimbursable expenses and other benefits,
Mr. Threshie accepted shares of the Company's Common Stock and was permitted to
purchase shares at a discount of 50% of the then current market price. The
number of shares issued to Mr. Threshie pursuant thereto during fiscal 2000
aggregated 4,865,995 shares. It is the intention of the Company and Mr. Threshie
to continue to enter into similar transactions during fiscal year 2001.
(2) In lieu of cash payment of salary, reimbursable expenses and other benefits,
Mr. Muro, from time to time, accepted shares of the Company's Common Stock and
was permitted to purchase shares at a discount of 50% of the then current market
price. The number of shares issued to Mr. Muro pursuant thereto during fiscal
2000 aggregated 1,194,811 shares. It is the intention of the Company and Mr.
Muro to continue to enter into similar transactions during fiscal year 2001.
(3) In lieu of cash payment of salary, reimbursable expenses and other benefits,
Mr. Sanzaro accepted shares of the Company's Common Stock at a discount of 50%
of the then current market price. The number of shares issued to Mr. Sanzaro
pursuant thereto during fiscal 2000 aggregated 632,308 shares.
(4) In lieu of cash payment of salary, reimbursable expenses and other benefits,
Mr. Byrne accepted shares of the Company's Common Stock and was permitted to
purchase shares at a discount of 50% of the then current market price. The
number of shares issued to Mr. Byrne pursuant thereto during fiscal 2000
aggregated 2,544,556 shares.
(5) Management believes that it is impossible to determine the actual current or
potential value, if any, of such shares in light of the fact that, as of the
dates when such shares were issued to the executive officers, they had no or
only very minimal actual market value and the actual potential market value of
such shares, if any, was at such dates, and as at the date hereof remains,
highly contingent upon, and subject to, extremely high risks including but not
limited to the following factors: (I) the very early stage of development of the
Company's business; (ii) the Company's lack of sufficient funds to implement its
business plan and the absence of any commitments from potential investors to
provide such funds; (iii) the absence of a reliable, stable, or substantial
trading market for such shares; and (iv) the uncertainty respecting the
Company's ability to continue as a going concern.
THE TIREX CORPORATION STOCK PLAN
On June 23, 2000 the Company adopted the Tirex Corporation Stock Plan
(the "Plan"). The Plan has been adopted by the Company to advance the interests
of the Company and its shareholders by affording to key personnel of the
Company, consultants and other persons who have made substantial contributions
to the Company an opportunity to acquire or increase their proprietary interest
in the Company by the issuance to such individuals of Awards, Options or Grants
under the terms set forth in the Plan. By thus encouraging such individuals to
become owners of Company shares, the Company seeks to motivate, retain, and
attract those highly competent individuals upon whose judgment, initiative,
leadership, and continued efforts the success of the Company in large part
depends.
29
<PAGE>
The Plan provides that up to 21,000,000 shares can be issued for this
purpose, 7 million shares to be given as awards, 7 million shares to underlie
options to purchase Common Stock, and 7 million shares to be given as grants.
Awards and Options can only be given to individuals who have been either in the
employ of the Company, an officer, director or consultant for the preceding 6
months. Awards are not fully vested until the end of three years with the 1/12th
of the aggregate award vesting at the end of each quarter. If the Awardee is
terminated for cause or resigns the unvested portion of the award is forfeited.
Options can be exercised at any time and upon exercise the underlying stock is
fully vested with the purchaser. The Options are not transferable and are
exerciseable for two (2) years after which time they expire. If the Optionee is
terminated for cause or resigns all unexercised options are forfeited. A Grant
of Stock pursuant to the terms of the Plan can only be given to persons who have
made a substantial contribution to the Company and the shares are not
forfeitable.
At June 30, 2000 no awards, options or grants were given. Subsequent to
the fiscal year end, through October 1, 2000 an aggregate of approximately
10,000,000 shares were issued as a result of awards, options or grants made
pursuant to the terms of the Plan.
COMPENSATION OF DIRECTORS
The Directors of the Company were not compensated for their services as such in
fiscal 2000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with all of its executive
officers (the "Executive Agreements"). The respective commencement and
termination dates, and annual salaries under the Executive Agreements, as
amended, are as follows:
ANNUAL
OFFICER COMMENCEMENT DATE TERMINATION DATE SALARY
------- ----------------- ---------------- ------
Mr. Threshie November 23, 1999 December 31, 2003 $125,000
Mr. Muro January 1, 1996 December 31, 2000 $150,000
Mr. Sanzaro June 15, 1998 November 23, 1999 $175,000
Mr. Byrne January 18, 1995 December 31, 2003 $250,000
Mr. Ash August 1, 1999 December 31, 2000 2,000,000
Shares of
Common
Stock (1)
--------------------
(1) During fiscal 2000 Mr. Ash voluntarily abrogated his Executive Agreement
with the Company and entering into a new agreement under which his compensation
is in the form of shares. Under this new agreement, Mr. Ash continues to act as
Secretary-Treasurer and Chief Financial Officer on a consulting basis. Under the
terms of the original Executive Agreement, Mr. Ash's annual compensation was
US$125,000. The consulting agreement extends to December 31, 2000 and is
renewable by mutual consent of the Company and Mr. Ash. Mr. Ash's compensation
is payable only in shares of the Company, thus permitting a substantial cash
flow benefit to the Company. Mr. Ash's compensation for the sixteen-month period
to end December 31, 2000 is established at 2,000,000 common shares or such other
number of shares which would be derived in the event of a stock split or reverse
stock split.
30
<PAGE>
All of the above agreements provide for the payment of bonuses at the
sole discretion of the Board of Directors based upon an evaluation of the
executive's performance, with payment of any such bonuses to be reviewed
annually. The Executive Agreements also provide for the participation by each of
the foregoing persons in any pension plan, profit-sharing plan, life insurance,
hospitalization or surgical program, or insurance program hereafter adopted by
the Company (there are no such programs in effect at the present time),
reimbursement of business related expenses, the non-disclosure of information
which the Company deems to be confidential to it, non-competition by the
executive with the Company for the one-year period following termination of
employment with the Company and for various other terms and conditions of
employment.
The Executive Agreements with Messrs. Threshie, Muro, and Ash also
include severance provisions which provide, among other things, for severance
compensation in the event that the employment of the executive is terminated by
the Company other than for cause, or by the executive for "good reason", as that
term is defined in the Executive Agreements, or pursuant to a change in control
of the Company. The various Executive Agreements provide for severance
compensation, as follows: (i) In the case of Messrs. Threshie and Muro, 200% of
the amount of the base salary for a period of twelve months; (ii) In the case of
Mr. Ash, the amount of severance compensation for termination other than for
cause, or by the executive for "good reason", as that term is defined in the
Executive Agreements, or pursuant to a change in control of the Company, amounts
to 1,000,000 common shares of the Company.
Because of the early stage of development of the Company, its lack of
operations and insignificant cash flow, since January 18, 1995, the Company has
not had the resources to meet fully its financial obligations under the
Executive Agreements. As a result, the major portion of the compensation which
has been available to the Company's executive officers has consisted of
unregistered shares of the Company's common stock ("Compensation Shares"), which
such individuals accepted, in lieu of cash compensation, for a substantial
portion of salary and/or consulting fees due to them (see "Certain Relationships
and Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees").
All of the Executive Agreements, as amended, provide that, as
compensation, and in lieu of payment in cash of salary, due thereunder, the
Company may issue and the respective executive officers will accept unregistered
shares of the Company's common stock, valued at fifty percent (50%) of the
average of the bid and ask prices of such stock, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, during part or all
of the period in which the salary was earned under the Executive Agreement
31
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of October 1, 2000, with respect
to the persons known to the Company to be the beneficial owners of more than 5%
of the common stock, $.001 par value of the Company and of more than 5% of the
Class A Common Stock of the Company's subsidiary, Tirex R&D and of all Officers
and Directors of the Company as that term is defined in Item 402(a)(2) of
Regulation S-B. Neither the Company nor Tirex R&D have any shares of any other
class issued or outstanding.
Title Name and Amount and
of Address of Nature of
Class Beneficial Beneficial Percent of
Owner Ownership Class (1)
------------------------------------------------------------------------------
Common John L. Threshie, Jr. 2,638,996 1.62%
The Tirex 38 Cours Du Flueve
Corporation Nun's Island (Verdun), Quebec
Canada, H3E 1X1
Class A
Common 17 (2) 17%
Tirex
R&D
Common Louis V. Muro 3,999,084 (3) 2.45%
The Tirex 374 Oliver Avenue
Corporation Westmount, Quebec
Canada H3Z 3C9
Class A
Common 17 (2) 17%
Tirex
R&D
Common Louis V. Sanzaro 16,047,865 9.82%
The Tirex 1497 Lakewood Road
Corporation Toms River, NJ 08755
Common Michael Ash 421,709 (4) .26%
The Tirex 310 Montee Sabourin
Corporation St. Bruno, Quebec
Canada, J3V 4P6
Common Terence C. Byrne 2,223,502 (5) 1.36%
The Tirex 466 Cote St. Antoine
Corporation Westmount, Quebec
Canada, H3Y 2G9
Common All directors and 28,945,542 15.51%
The Tirex officers as a group
Corporation (5 persons)
Class A All directors and 34 34.0%
Common officers as a group
Tirex (5 persons)
R&D
32
<PAGE>
-------------------
Notes:
(1) The percentages listed in the table is calculated on the basis of
163,443,541 shares of the common stock, $.001 par value, of the Company
outstanding as at October 1, 2000.
(2) Messrs. Threshie and Muro hold all shares of Tirex R&D Class A Common Stock
pursuant to the terms of a Shareholders agreement among them and the Company
(the "Tirex R&D Shareholders Agreement"), pursuant to which they will be
obligated to transfer all such shares to the Company, for no consideration, on
May 2, 2001, unless the term of such Agreement is unilaterally extended by the
Company. The Company does not intend to take any actions of any kind with
respect to such shares which would be in violation of any Canadian government
regulations governing tax and other financial incentives which may be available
to Tirex R&D.
(3) Includes: (i) 3,515,084 shares held of record by Mr. Muro as of October 1,
2000; and (ii) 484,000 shares held of record by Mr. Muro's wife, Nina Aviles
Muro
(4) Includes: (i) 421,709 shares held of record by Mr. Ash as of October 1,
2000; and (ii) 300,000 shares held of record in the name of Loryta Investments
Limited an entity beneficially owned by Mr. Ash.
(5) Includes: (i) 1,318,402 shares held of record by Mr. Byrne as of October 1,
2000; and (ii) 69,883 shares held of record by Mr. Byrne's wife, Darla Sapone
Byrne, over which shares Mr. Byrne has voting power pursuant to an irrevocable
proxy granted to him on September 27, 1996; and (iii) 835,217 shares held of
record by Bartholomew International Investments, Ltd. the beneficiaries of which
are Terence C. Byrne, his spouse, and his children.
CHANGES IN CONTROL
The Company is not aware of any arrangements, which may at a subsequent date,
result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions during the last two
fiscal years or any presently proposed transactions to which the Company was or
is to be a party, in which the amount involved in such transaction (or series of
transactions) was $60,000 or more and which any of the following persons had or
is to have a direct or indirect material interest: (i) any director or executive
officer of the Company; (ii) any person who owns or has the right to acquire 5%
or more of the issued and outstanding common stock of the Company; and (iii) any
member of the immediate family of any such persons.
During the years ended June 30, 1999 and 2000, the Company's executive
officers and certain consultants to the Company have waived substantial portions
of their salaries, fees and/or unreimbursed expenses made by them on behalf, and
for the account, of the Company, and have accepted shares of the Company's
common stock in lieu thereof. In connection therewith shares have been issued as
follows:
33
<PAGE>
During fiscal 2000 various officers and former officers received Common
Stock in lieu of salaries and expense reimbursements and purchased shares of
Common Stock totaling 9,237,670 shares. The shares issued or sold to officers
were valued at fifty (50%) percent of the then current market price. (See, Item
10. Executive Compensation)
During fiscal 2000 the Company modified its agreement with Oceans Tire
Recycling & Processing Co., Inc. ("OTRP") to clarify various terms of the
parties prior agreements and to obtain a commitment by OTRP to pay future lease
payments on the prototype system, if necessary. The Company also exchanged its
debt obligation to OTRP for 4,553,102 shares of its Common Stock, which was
issued, pursuant to OTRP's request, to its principal shareholder and President.
(See, Item 1. Description of Business, TCS-1 Plant Financing Arrangements)
For the three month period ended September 30, 1998, Mr. Byrne waived
payment of $28,486; Ms. Levine waived payment of $41,492; Mr. Muro waived
payment of $14,763; Mr. Threshie waived payment of $325; Ms. Kachru waived
payment of $338; and Mr. Sanzaro waived payment of $43,750. In December 1998 the
Company authorized the issuance of 269,589 shares to Mr. Byrne, 392,679 shares
to Ms. Levine; 139,716 shares to Mr. Muro; 3,076 shares to Mr. Threshie; 3,195
shares to Ms. Kachru; and 414,046 shares to Mr. Sanzaro. The number of shares
issued at such time was calculated on the basis of 50% of the average of the bid
and ask price for the Company's common stock (50% of $.2113293 or approximately
$.1056646 per share) during the three month period ended September 30, 1998.
For the three-month period ended December 31, 1998, Mr. Byrne waived
payment of $34,201, Ms. Levine waived payment of $23,500 and Mr. Muro waived
payment of $18,259, Mr. Threshie waived payment of $787, Ms. Kachru waived
payment of $539, Mr. Sanzaro waived payment of $43,750 and Mr. Frechette waived
payment of $13,060
For the three month period ended March 31, 1999, Mr. Byrne waived
payment of $41,395, Ms. Levine waived payment of $23,250 in respect of salary
and $36,825 in respect of expenses for the six-month period ended March 31,
1999, Mr. Muro waived payment of $18,523, Mr. Threshie waived payment of $2,203,
Ms. Kachru waived payment of $2,087, Mr. Sanzaro waived payment of $43,750 in
respect of salary and $47,366 in respect of expenses for the eight-month period
ended February 1999, Mr. Frechette waived payment of $13,432 and Mr. Ash waived
payment of $19,678 In connection with the cash payments waived for the second
and third quarters of fiscal 1999, on April 6, 1998,and in respect of the period
from October 1, 1998 to March 15, 1999, with the exception of the period covered
for the expenses of Mr. Sanzaro, which period was a nine-month period, the
Company authorized the issuance of 858,030 shares to Mr. Byrne, 970,143 shares
to Ms. Levine, 417,676 shares to Mr. Muro, 34,320 shares to Mr. Threshie,
1,297,748 shares to Mr. Sanzaro, 301,045 shares to Mr. Frechette and 201,145
shares to Mr. Ash, not including the signing bonus of 1,000,000 to Mr. Ash which
was issued on the same date.. The number of shares issued at such time was
calculated on the basis of 50% of the average of the bid and ask price for the
Company's stock or approximately $0.0882 per share) during the six-month period
ended March 31, 1999, with the exception of the 1,000,000 shares issued to Mr.
Ash as a signing bonus which were issued at $0.09125 per share.
For the three-month period ended June 30, 1999, Mr. Byrne waived
payment of $72,916, Ms. Levine waived payment of $43,750 for salary and $29,310
for expenses, Mr. Muro waived payment of $43,750, Mr. Threshie waived payment of
$601, Ms. Kachru waived payment of $18,958.22, Mr. Sanzaro waived payment of
$43,750, Mr. Frechette waived payment of $8,854 and Mr. Ash waived payment of
$33,218. In connection therewith, in June 1999 the Company authorized the
34
<PAGE>
issuance of 903,294 shares to Mr. Byrne; 1,074,861 shares to Ms. Levine; 541,976
shares to Mr. Muro; 2,901 shares to Mr. Threshie; 219,175 shares to Ms. Kachru;
632,306 shares to Mr. Sanzaro, 99,057 shares to Mr. Frechette and 404,818 shares
to Mr. Ash. The number of shares issued at such time was calculated on the basis
of 50% of the average of the bid and ask price for the Company's common stock
(50% of $.18266 or approximately $.09133 per share) during the three month
period ended June 30, 1999.
On several occasions during the fiscal year ended June 30, 1999 and in
the period subsequent thereto, the Company required immediate cash infusions to
meet its financial obligations. To assist the Company on such occasions, Terence
C. Byrne, or an entity with which Mr. Byrne is affiliated, made loans to the
Company, as follows:
On October 27, 1998, at the behest of Terence C. Byrne, Bartholomew
International Investments Limited ("Bartholomew"), a corporation owned by The
Bartholomew Trust, the beneficiaries of which are Mr. Byrne and his spouse and
children, made a loan to the Company in the amount of $150,000. The loan was
made pursuant to the Company's promissory note which bore interest at an annual
rate of 2% over the Bank of Montreal's Prime Rate and which was due and payable
on July 26, 1999. On or about November 30, 1998, Mr. Byrne personally lent the
Company an additional $14,000 on identical terms. On or about December 2, 1998,
as part of the Company's negotiations to obtain short term bank debt financing,
Bartholomew agreed to forego any interest on, and repayment in cash of, the
$150,000 loan, and Mr. Byrne agreed to forego any interest on, and repayment in
cash of, the $14,000 loan and both parties accepted in full satisfaction of such
loan, unregistered shares of the Company's common stock valued at fifty percent
(50%) of the average of the high ask and low bid prices of such stock, as traded
in the over-the-counter market and quoted in the OTC Electronic Bulletin Board
on December 1, 1998. In connection therewith, on December 2, 1998, the Company
authorized the issuance of a total of 2,523,077 shares of this corporation's
unregistered common stock to Bartholomew. In March of, 1999, at the behest of
Terence C. Byrne, Bartholomew invested the sum of $50,000 in the Company for
which 677,966 shares were issued
ITEM 13. EXHIBITS
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
The financial statements filed as a part of this report are as follows:
Consolidated Balance Sheet - June 30, 2000
Consolidated Statements of Operations for the years ended June 30, 1999 and
2000, and cumulative for the period from inception (July 15, 1987) to
June 30, 2000
Consolidated Statements of Owners' Equity (Deficit) as at July 15, 1988 and
June 30, 1989 - 2000
Consolidated Statements of Cash Flows for the years ended June 30, 1999 and
2000 and cumulative for the period from inception (July 15,1987) to June
30, 2000
35
<PAGE>
FINANCIAL STATEMENT SCHEDULES
Financial statements schedules have been omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
EXHIBITS
The exhibits filed as a part of this Report or incorporated herein by
reference are as follows:
Exhibits Incorporated
Herein by Reference,
Exhibit No. as Filed
With Document
Indicated
---------------------
3. (a) Certificate of Incorporation filed August 19, 1987 3(a)
(b) Certificate of Amendment filed June 20, 1989 3(b)
(c) Certificate of Amendment filed March 10, 1993 3
(d) Certificate of Amendment filed December 5, 1995 3(e)
(e) By-Laws 3(b)
(f) Certificate of Amendment filed August 11, 1997
(g) Certificate of Amendment filed February 3, 1998 3
(h) Certificate of Incorporation of Tirex Acquisition
Corp., filed with the Secretary of State of Delaware
on December 15, 1997 3(h)
(k) Certificate of Amendment to the Certificate of
Incorporation, filed with the Secretary of State
of Delaware on July 10, 1998 3
REPORTS ON 8-K
The Company did not file any current reports on Form 8-K during the
last quarter of the period covered by this Report.
36
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
I N D E X
PAGE
Report of Independent Auditors 1
Consolidated Balance Sheet 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity (Deficit) 4 - 6
Consolidated Statements of Cash Flows 7 - 8
Notes to Consolidated Financial Statements 9 - 18
<PAGE>
Report of Independent Auditors
Board of Directors
The Tirex Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of The Tirex
Corporation and Subsidiaries (a development stage company) as of June 30, 2000,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended, June 30, 2000 and 1999 and for the
cumulative period from March 26, 1993, (date of inception) to June 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Tirex
Corporation and Subsidiaries (a development stage company) at June 30, 2000, and
the results of their operations, and their cash flows for the years ended June
30, 2000 and 1999, and for the cumulative period from March 26, 1993, (date of
inception) to June 30, 2000, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is still in the development stage and it
cannot be determined at this time that the technology acquired will be developed
to a productive stage. The Company's uncertainty as to its productivity and its
ability to raise sufficient capital raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Pinkham & Pinkham, P.C.
Certified Public Accountants
September 13, 2000
Cranford, New Jersey
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Balance Sheet
June 30, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 2,793
Inventory 109,961
Notes receivable 129,431
Sales tax receivable 19,288
R & D Investment tax credit receivable 475,221
Prepaid expenses and deposits 106,384
------------
843,078
------------
Property and equipment, at cost, net of accumulated
depreciation of $127,234 2,223,798
------------
Other assets
Prepaid expenses and deposits 220,508
------------
$ 3,287,384
============
LIABILITY AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt 204,754
Current obligations under capitalized lease 22,762
Accounts payable and accrued expenses 774,735
Accrued salaries 412,976
Deposits payable 143,500
------------
1,558,727
------------
Other liabilities
Long term debt (net of current portion) 319,855
Capital lease (net of current portion) 73,687
Convertible subordinated debentures 75,000
Loan from officers 2,093,954
------------
2,562,496
------------
Stockholders' equity
Common stock, $.001 par value, authorized
165,000,000 shares, issued and outstanding,
151,133,177 shares 151,133
Class A stock;.001 par value, authorized 5,000,000
shares issued and outstanding, 0 shares -
Additional paid-in capital 19,364,787
Deficit accumulated during the development stage (20,510,191)
Unrealized gain on foreign exchange 160,432
------------
(833,839)
------------
$ 3,287,384
============
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Cumulative
Period from
March 26, 1993
(Date of
Year Ended June 30, Inception) to
2000 1999 June 30, 2000
--------------- ---------------- --------------
<S> <C> <C> <C>
Revenues $ - $ 390,848 $ 1,325,573
Cost of sales 2,264 204,988 1,018,094
--------------- ---------------- --------------
Gross (loss) profit (2,264) 185,860 307,479
--------------- ---------------- --------------
Operations
General and administrative 1,270,069 3,229,332 7,455,741
Depreciation and amortization 68,541 47,222 139,791
Research and development 4,118,950 1,677,068 11,842,118
--------------- ---------------- --------------
Total expense 5,457,560 4,953,622 19,437,650
--------------- ---------------- --------------
Loss before other income and expenses (5,459,824) (4,767,762) (19,130,171)
--------------- ---------------- --------------
Other income (expenses)
Interest expense (89,397) (119,923) (273,326)
Interest income 27,481 15,422 45,443
Income from stock options - - 10,855
Loss on disposal of equipment - - (2,240)
--------------- ---------------- --------------
(61,916) (104,501) (219,268)
--------------- ---------------- --------------
Net loss (5,521,740) (4,872,263) (19,349,439)
Other comprehensive loss
Loss on foreign exchange (27,089) (37,616) (103,396)
--------------- ---------------- --------------
Comprehensive loss ($ 5,548,829) $ (4,909,879) $ (19,452,835)
=============== ================ ==============
Net loss per common share $ (.06) $ (.07) $ (.71)
=============== ================ ==============
Weighted average shares of common
stock outstanding 101,827,474 66,029,439 27,579,959
=============== ================ ==============
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Unrealized
-------------------------- Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 3,383,020 $ 3,383 $ 194,980 $ (1,057,356) $ - $ (858,993)
Stock issued for reorganization 18,650,000 18,650 76,155 - - 94,805
Stock issued for services 100,000 100 (100) - - -
Stock issued in exchange for
warrants 363,656 364 (364) - - -
Forgiveness of debt - - 728,023 - - 728,023
Net loss for the year - - - (165,296) - (165,296)
------------ ---------- ------------ ------------ ---------- -----------
Balance at June 30, 1993 22,496,676 22,497 998,694 (1,222,652) - (201,461)
Stock issued 2,000 2 (2) - - -
Exchange for debt - - 149,170 - - 149,170
Payments received for stock
previously issued - - 237,430 - - 237,430
Net loss for year - - - (179,296) - (179,296)
------------ ---------- ------------ ------------ ---------- -----------
Balance at June 30, 1994 22,498,676 22,499 1,385,292 (1,401,948) - 5,843
Revision of common stock (11,900,000) (11,900) 11,900 - - -
Stock issued for services 5,592,857 5,592 513,908 - - 519,500
Shares issued in exchange
for debt 200,000 200 24,300 - - 24,500
Issuance of common stock 402,857 401 21,915 - - 22,316
Net loss for year - - - (575,771) - (575,771)
------------ ---------- ------------ ------------ ---------- -----------
Balance at June 30, 1995 16,794,390 $16,792 $1,957,315 $ (1,977,719) $ - $ (3,612)
------------ ---------- ------------ ------------ ---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 16,794,390 $ 16,792 $ 1,957,315 $ (1,977,719) $ - $ (3,612)
Stock issued for services 3,975,662 5,090 846,612 - - 851,702
Shares issued in exchange
for debt 391,857 392 29,008 - - 29,400
Issuance of common stock 710,833 710 80,161 - - 80,871
Net loss for year - - - (1,127,044) - (1,127,044)
------------ ---------- ------------ ------------ ----------- -----------
Balance at June 30, 1996 21,872,742 22,984 2,913,096 (3,104,763) - (168,683)
Stock issued for options - - 912,838 - - 912,838
Stock issued for services 5,067,912 3,955 690,234 - - 694,189
Shares issued in exchange
for debt 251,382 252 43,965 - - 44,217
Issuance of common stock 10,257,936 10,259 335,132 - - 345,391
Grants issued - - 408,597 - - 408,597
Net loss for year - - - (2,376,279) - (2,376,279)
------------ ---------- ------------ ------------ ----------- -----------
Balance at June 30, 1997 37,449,972 37,450 5,303,862 (5,481,042) - (139,730)
Stock issued for services 4,396,466 4,396 922,180 - - 926,576
Stock issued for options - - 948,500 - - 948,500
Issuance of common stock 21,795,000 21,796 1,176,755 - - 1,198,551
Unrealized foreign exchange - - - - 183,785 183,785
Stock options issued and
outstanding - - 1,236,913 - - 1,236,913
Grants issued - - 669,906 - - 669,906
Net loss for year - - - (4,570,441) - (4,570,441)
------------ ---------- ------------ ------------ ----------- -----------
Balance at June 30, 1998 63,641,438 $ 63,642 $ 10,258,116 $(10,051,483) $ 183,785 $ 454,060
------------ ---------- ------------ ------------ ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 63,641,438 $ 63,642 $ 10,258,116 $ (10,051,483) $ 183,785 $ 454,060
Stock issued for services 24,200,439 24,200 2,735,544 - - 2,759,744
Stock issued for options 2,234,567 2,235 38,765 - - 41,000
Shares issued in exchange
for debt 3,787,947 3,788 340,164 - - 343,952
Conversion of debentures 2,816,966 2,817 290,102 - - 292,919
Issuance of common stock 677,966 678 49,322 - - 50,000
Unrealized foreign exchange - - - - (29,142) (29,142)
Stock options issued and
outstanding - - 385,600 - - 385,600
Grants issued - - 1,057,742 - - 1,057,742
Net loss for year - - - (4,909,879) - (4,909,879)
------------ ---------- ------------ ------------ ----------- -----------
Balance at June 30, 1999 97,359,353 97,360 15,155,355 (14,961,362) 154,643 445,996
Stock issued for services 28,873,210 28,873 2,217,758 - - 2,246,631
Stock issued for options 5,327,486 5,327 381,600 - - 386,927
Shares issued in exchange
for debt 7,342,055 7,342 382,556 - - 389,898
Conversion of debentures 12,010,073 12,010 815,796 - - 827,806
Issuance of common stock 221,000 221 16,039 - - 16,260
Unrealized foreign exchange - - - - 5,789 5,789
Grants issued - - 395,683 - - 395,683
Net loss for year - - - (5,548,829) - (5,548,829)
------------ ---------- ------------ ------------ ----------- -----------
Balance at June 30, 2000 151,133,177 $ 151,133 $ 19,364,787 $(20,510,191) $ 160,432 $ (833,839)
============ ========== ============ ============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from
March 26, 1993
(Date of
Year Ended June 30, Inception) to
2000 1999 June 30, 2000
--------------- ---------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,548,829) $ (4,909,879) $ (19,452,835)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 67,707 47,222 138,549
Loss on disposal and abandonment of assets 6,780 - 22,339
Stock issued in exchange for interest 136,206 24,519 164,942
Stock issued in exchange for services and expenses 2,632,231 2,759,744 9,326,182
Stock options issued in exchange for services - 385,600 2,571,013
Unrealized gain on foreign exchange 5,789 (29,142) 160,432
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 51,434 (51,434) -
Inventory (84,263) (25,698) (109,961)
Sales tax receivable 61,956 52,624 (19,288)
R&D investment tax credit receivable 477,483 (96,886) (475,221)
Other assets 270,794 462,337 (337,012)
(Decrease) increase in :
Accounts payable and accrued expenses (366,480) 272,762 1,201,556
Accrued salaries (209,977) 622,953 412,976
Due to stockholders - - 5,000
--------------- ---------------- --------------
Net cash used in operating activities (2,499,169) (485,278) (6,391,328)
--------------- ---------------- --------------
Cash flow from investing activities:
Increase in notes receivable (25,025) - (250,994)
Reduction in notes receivable - 121,563 121,563
Equipment (16,000) (131,166) (260,798)
Equipment assembly costs - (1,098,790) (1,999,801)
Organization cost - - 6,700
Reduction of security deposit - - (1,542)
--------------- ---------------- --------------
Net cash used in investing activities (41,025) (1,108,393) (2,384,872)
--------------- ---------------- --------------
Cash flows from financing activities:
Loans from officers 2,272,701 149,406 2,422,107
Deferred financing costs 125,291 32,964 -
Proceeds from deposits - - 143,500
Payments on notes payable (409,939) - (409,939)
--------------- ---------------- --------------
Sub-total $ 1,988,053 $ 182,370 $ 2,155,668
--------------- ---------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements
-7-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
A DEVELOPMENTAL STAGE COMPANY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from
March 26, 1993
(Date of
Year Ended June 30, Inception) to
2000 1999 June 30, 2000
--------------- ---------------- --------------
<S> <C> <C> <C>
Sub-total from prior page $ 1,988,053 $ 182,370 $ 2,155,668
Proceeds from notes payable - 2,013 409,939
Payments on lease obligations (17,206) (4,167) (21,373)
Proceeds from issuance of convertible
subordinated debentures - - 1,035,000
Proceeds from loan payable - 56,607 591,619
Payments on loan payable (18,386) - (18,386)
Proceeds from issuance of stock options - - 20,000
Proceeds from grants 395,683 1,044,133 2,518,319
Proceeds from issuance of common stock 17,587 2,913 74,716
Proceeds from additional paid-in capital - 88,087 2,013,234
--------------- ---------------- --------------
Net cash provided by financing activities 2,365,731 1,371,956 8,778,736
--------------- ---------------- --------------
Net (decrease) increase in cash and cash
equivalents (174,463) (221,715) 2,536
Cash and cash equivalents - beginning
of year 177,256 398,971 257
--------------- ---------------- --------------
Cash and cash equivalents - end of year $ 2,793 $ 177,256 $ 2,793
=============== ================ ==============
</TABLE>
Supplemental Disclosure of Non-Cash Activities:
In 2000 and 1999, the Company recorded an increase in common stock and in
additional paid-in capital of $389,898 and $343,952, respectively, which was
in recognition of the payment of debt. In 2000 and 1999 stock was issued in
exchange for services performed and expenses in the amount of $2,632,231 and
$2,759,744 respectively. In 1999 stock options were issued in exchange for
services totaling $385,600.
Equipment was purchased via leases totaling $117,821 during the year ended June
30, 1999.
Convertible debentures were exchanged into stock totaling $691,600 during the
year ended June 30, 2000. Accrued interest of $136,206 was also converted into
stock.
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information:
<S> <C> <C> <C>
Interest paid $ 12,974 $ 20,530 $ -
=============== ================ ==============
Income taxes paid $ - $ - $ -
=============== ================ ==============
</TABLE>
See Notes to Consolidated Financial Statements
-8-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES INC.
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES
CHANGE OF NAME
In June1998 the Company changed its name from Tirex America, Inc. to
The Tirex Corporation.
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 organized to provide comprehensive health care services, but
due to its inability to raise sufficient capital it was unable to
implement its business plan. The Company became inactive in November
1990.
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") to be used to design, develop and
construct a prototype machine and thereafter a production quality
machine for the cryogenic disintegration of used tires. The Technology
was developed by the Sellers prior to their affiliation or association
with the Company.
Currently, the company's board of directors has three members, John L.
Threshie, Jr., Louis V. Muro, and Louis A. Sanzaro.
DEVELOPMENTAL STAGE
At June 30, 2000 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
certain shareholders of the Company. The shares owned by the
shareholders are held in escrow by the Company's attorney and are
restricted from transfer. All intercompany transactions and accounts
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less, were
deemed to be cash equivalents.
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 using the straight-line method
over the estimated useful lives of five years.
Repairs and maintenance costs are expensed as incurred while additions
and betterments are capitalized. The cost and related accumulated
depreciation of assets sold or retired are eliminated from the accounts
and any gain or losses are reflected in earnings.
-9-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 encourages, but does not require companies to record at
fair value compensation cost for stock-based compensation plans. The
Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. The difference between the fair value
method of SFAS-123 and APB 25 is immaterial.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128). SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS 128
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. This Statement requires restatement of all
prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are
the exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock
equivalents are calculated in the determination of Diluted Earnings Per
Share.
A 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.
-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 - CONTINUED
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, 2000 and 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 2000 and 1999, 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 shares at June 30, 1999 and warrants for the
purchase of 1,000,000 shares at June 30, 1999 were not included in loss
per share calculations, because to do so would have been anti-dilutive.
4,553,102 shares of common stock issued subsequent to year end, to
Ocean Tire Recycling & Processing Co., Inc were not included in loss
per share calculations
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 values 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, 2000 and 1999,
respectively, the carrying value of all financial instruments was not
materially different from fair value.
INCOME TAXES
The Company has net operating loss carryovers of approximately $20
million as of June 30, 2000, expiring in the years 2004 through 2015.
However, based upon present Internal Revenue regulations governing the
utilization of net operating loss carryovers where the corporation has
issued substantial additional stock, most of this loss carryover may
not be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1993. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company has research and development investment tax credits
receivable from Canada and the Providence of Quebec amounting to
$475,221 at June 30, 2000.
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.
-11-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 2 - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred
a net loss of $5,548,829 during the year ended June 30, 2000.
In March 1993, the Company, which was still in the development stage,
developed a new Business Plan. As at June 30, 2000 the Company was in
the process of constructing a production quality machine for the
cryogenic disintegration of used tires. At June 30, 2000, the Company
was still in the development stage.
The ability of the Company to continue as a going concern is dependent
on the success of its marketing its TSC Plants, and /or raising funds
through equity sales, bank loans, governmental grants or a combination
of these. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
Note 3 - FINANCING COSTS
During the year ended June 30, 1999 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, 2000 and
1999 was $125,291 and $32,964, respectively.
Note 4- PROPERTY AND EQUIPMENT
As of June 30, 2000 plant and equipment consisted of the following:
Furniture, fixtures and equipment $ 175,932
Leasehold improvements 175,100
Construction in progress - equipment 2,000,000
-----------
2,351,032
Less accumulated depreciation and amortization 127,234
-----------
$ 2,223,798
===========
Depreciation and amortization expense charged to operations was $67,717
and $42,770 for the years ended June 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Note 5- LONG-TERM DEBT
<S> <C>
Federal Office of Regional Development (Ford-Q) Loan 2000
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).
</TABLE>
-12-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
Note 5- 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 46,079
-----------
524,609
Less: current portion 204,754
$ 319,855
</TABLE>
<TABLE>
<CAPTION>
Minimum principal repayments of each of the next five years as follows:
<S> <C>
2000 $ 204,754
2001 157,033
2002 29,243
2003 37,555
2004 96,024
-----------
$ 524,609
===========
</TABLE>
Note 6- CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under agreements classified as
capital leases. The cost and the accumulated amortizations for such
equipment as of June 30, 2000 and 1999 was $ 90,233 and $122,609,
respectively.
The following is a schedule by years of future minimum lease payments
under capital leases of equipment together with the obligations under
capital leases (present value of future minimum rentals) as of June 30,
2000.
<TABLE>
<CAPTION>
Years Ended
June 30,
-----------
<S> <C>
2001 $ 28,075
2002 28,075
2003 28,075
2004 20,955
-----------
Total minimum lease payments 105,180
Less amount representing interest 8,731
-----------
Total obligations under capital lease 96,449
Less current installments of obligations
under capital leases 22,762
-----------
Long-term obligation under capital leases,
with interest rate of 9.3% $ 73,687
===========
</TABLE>
-13-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 7 - CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures consist of the following:
Type B
------
Balance at June 30, 2000 75,000
Interest rate 10%
Maturity Earlier of (i)-two years from
the issue date or (ii)-the
completion of a public offering
of its securities by the Maker.
These debentures are
subordinated to all current and
future bank debt.
Redemption rights If not converted the holder may
require the Company to redeem
at any time after maturity for
the principal amount plus
interest
Conversion ratio $.20 per share. During the year
ended June 30, 2000, $305,000
of convertible debentures were
converted to common stock.
Note 8 - 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 former
executive officers and general Counsel whereby the Company was
obligated to pay a total of $565,000 a year plus benefits. All of the
employment agreements called 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 shares of the company's common 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.
-14-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 8 - RELATED PARTY TRANSACTIONS - CONTINUED
Various loans due to the officers totaling $328,153 will be paid in
stock during the year ended June 30, 2000.
At June 30, 2000, the Company had notes receivable from various
officers in the amount of $74,406 . One note in the amount of $70,405
bears interest at an annual rate of 8% above prime through September
1998 and 2% above prime since that date and is collateralized by
400,000 shares of Tirex Corporation which is held by the officer. The
remaining notes are non-interest bearing and are payable on demand.
At June 30, 2000 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.
A total of $25,000 of interest was accrued to notes receivable during
the year ended June 30, 2000.
Deposits payable included an amount of $118,500 which are payable to
companies which are owned by a director of the Company.
Note 9 - EXCHANGE OF DEBT FOR COMMON STOCK
During the year ended June 30, 2000, the Company recorded increases in
common stock and paid-in capital of $389,898, which was in recognition
for the exchange of common stock for debt owed. Debt totaling $328,153
was payable to certain related parties to the Company.
Note 10- COMMON STOCK
During the years ended June 30, 2000 and 1999, the Company issued
common stock to individuals in exchange for services performed totaling
$2,246,631 and $2,759,744, 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 $1,115,784 and $2,210,502,
respectively. Also included in the amounts paid in stock during the
year ended June 30, 1999 was an exclusive rights contract payable to an
officer totaling $406,250. The dollar amounts assigned to such
transactions have been recorded at the fair value of the services
received, because the fair value of the services received was more
evident than the fair value of the stock surrendered.
Note 11- 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.
-15-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Note11 -STOCK OPTION - CONTINUED
COMPENSATORY COMMON STOCK OPTIONS Compensation
For the Year Ended
Number of Shares June 30, 2000
---------------- -------------
<S> <C> <C>
Balance at July 1, 1999 13,212,673 -
Stock options expiring during the
year ended June 30, 2000 (7,885,187) -
Stock options exercised during the
year ended June 30, 2000 (5,327,486) -
------------- ------------
Balance at June 30, 2000 - $ -
============= ============
</TABLE>
A stock plan was adopted in June of 2000. No options were issued until
after June 30.
Note 12- ACQUISITION BY MERGER OF RPM INCORPORATED
During November 1997, the Company entered into a merger agreement with
RPM Incorporated ("RPM"). The Company acquired all of the assets and
liabilities of RPM by acquiring all of the outstanding common stock of
RPM in exchange for common stock in the Company on a unit for unit
basis. RPM ceased to exist following the exchange.
The assets and liabilities acquired by the Company from RPM consist of
the proceeds from the sale of debentures as well as the debentures of
$535,000. The financing fees on the issuance of the debentures totaling
$61,755 is included in the statement of operations for the year ended
June 30, 1998. A total of 535,000 shares were issued as a result of the
merger valued at $16,050. A total of $16,050 was received for this
stock.
The Company entered into an additional agreement with the former
shareholders of RPM for a consulting agreement for a period of 5 years
expiring in June, 2002. In exchange for this consulting agreement,
3,000,000 shares of common stock were issued valued at $240,000. Other
than the consulting agreement and the issuance of the debentures, RPM
was inactive.
For accounting purposes the Company recorded the merger as a purchase
and not as a pooling of interests.
Note 13- GOVERNMENT ASSISTANCE
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit. During
the year ended June 30, 2000 the company received approximately
$395,683 which has been recorded as paid in capital.
-16-
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 14- 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
-------- ----------
2001 $ 204,100
2002 204,100
2003 170,100
----------
$ 578,300
==========
Rental expense for the year ended June 30, 2000 and 1999 amounted to
$176,900 and $111,930, respectively. One of these leases contains a
second ranking moveable hypothec in the amount of $300,000 on the
universality of the corporation's moveable property.
Note 15- 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 16- ACCUMULATED OTHER COMPREHENSIVE INCOME
The deficit accumulated during the development stage included other
accumulated comprehensive income totaling $103,396.
Note 17 -SUBSEQUENT EVENT
Subsequent to year end the Company modified its agreement with Ocean
Tire Recycling & Processing Co., Inc ("OTRP") to clarify various terms
of the parties prior agreements and to obtain a commitment by OTRP to
pay future lease payments on the prototype system, if necessary. The
Company also exchanged its debt obligation to OTRP for 4,553,102 shares
of its Common Stock, which was issued, pursuant to OTRP's request, to
its principal shareholder and President.
-17-
SIGNATURES
In accordance with Section 15(d) of the Exchange Act of 1934, the
Company has caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE TIREX CORPORATION
By /s/ JOHN L. THRESHIE, JR.
--------------------------------------
Date: October 20, 2000 John L. Threshie, Jr. Chairman of the Board
of Directors and Chief Executive Officer
In accordance with Section 15(d) of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Company in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
/s/ JOHN L. THRESHIE, JR. Chairman of the Board October 20, 2000
-------------------------------- of Directors and Chief
John L. Threshie, Jr. Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ MICHAEL D.A. ASH Secretary, Treasurer, October 20, 2000
-------------------------------- and Chief Financial
Michael D.A. Ash and Accounting Officer
A MAJORITY OF THE BOARD OF DIRECTORS:
/s/ JOHN L. THRESHIE, JR. Chairman of the Board October 20, 2000
-------------------------------- of Directors
John L. Threshie, Jr.
/s/ LOUIS SANZARO Director October 20, 2000
--------------------------------
Louis Sanzaro
/s/ LOUIS V. MURO Director October 20, 2000
--------------------------------
Louis V. Muro
37
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy materials have been sent to security-holders
during the fiscal year ended June 30, 2000 or the subsequent interim period. As
at the date hereof, the Company plans to furnish proxy materials relating to its
annual meeting, which is presently intended to be held during the current fiscal
year. All such materials will be furnished to the Commission at the same time as
they are sent to securities holders.
38
