U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended December 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
--------------------- -------------------------
COMMISSION FILE NUMBER 33-17598-NY
THE TIREX CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 22-2824362
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3828 ST. PATRICK, MONTREAL, QUEBEC H4E 1A4
(Address of Principal executive offices)
(514) 933-2518
(Issuer's telephone number, including area code)
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of February 9, 2000 :139,158,842 shares
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
--------------------------
TABLE OF CONTENTS
PART I
ITEM 1 - FINANCIAL INFORMATION (unaudited) PAGE
----
The Tirex Corporation and Subsidiaries
Consolidated Balance Sheets as of
December 31, 1999 and 1998.................................... 4
Consolidated Statements of Operations
for the three and six-month periods
ended December 31, 1999 and 1998.............................. 5
Consolidated Statements of Cash Flows
for the three and six-month periods
ended December 31, 1999 and 1998.............................. 8
Notes to Financial Statements (unaudited)......................... 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 23
PART II
Item 1 - Legal Proceedings................................................. 36
Item 2 - Changes in Securities and Use of Proceeds......................... 36
Item 3 - Defaults Upon Senior Securities................................... 37
Item 4 - Submission of Matters
to a Vote of Security Holders.................................. 38
Item 6 - Exhibits and Reports on Form 8-K.................................. 38
2
<PAGE>
The financial statements are unaudited. However, the management of
registrant believes that all necessary adjustments (which include only normal
recurring adjustments) have been reflected to present fairly the financial
position of registrant at December 31, 1999 and the results of its operations
and changes in its financial position for the three and six-month periods ended
December 31, 1999 and 1998 and for the period from inception (July 15, 1987).
3
<PAGE>
<TABLE>
<CAPTION>
The Tirex Corporation and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheet
as at December 31
ASSETS (UNAUDITED) (AUDITED)
1999 JUNE 30, 1999
------------ -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 28,777 $ 177,256
Accounts receivable & notes receivable 170,525 155,840
Sales taxes receivable 20,682 81,244
Inventory 253,089 25,698
R&D tax credit receivable 407,389 952,704
Prepaid expenses and deposits 539,359 413,766
------------ ------------
1,419,821 1,806,508
Property and equipment, at cost, net of
accumulated depreciation of $98,574 2,059,586 2,282,295
Other assets
Licence 43,650
Prepaids 183,920
Deferred financing fees 75,842 125,281
------------ ------------
119,492 309,201
------------ ------------
3,598,899 4,398,004
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable 121,251 409,939
Accrued liabilties 1,128,420 1,825,913
Current portion of long-term debt 92,435 131,532
------------ ------------
1,342,106 2,367,384
Other liabilities
Long term deposits 143,500 143,500
Long-term debt (net of current portion) 554,584 525,118
Convertible subordinated debentures
long-term portion 556,600 766,600
Loans from directors, officers, employees and investors 1,116,968 149,406
------------ ------------
2,371,652 1,584,624
------------ ------------
3,713,758 3,952,008
------------ ------------
Stockholders' equity
Common stock, $.001 par value, authorized
120,000,000 shares, issued and outstanding
119, 516,126 shares 119,516 97,360
Class A stock; .001 par value, authorized 5,000,000
shares; issued and outstanding, 0 shares
Additional paid-in capital 16,015,065 15,155,355
Deficit accumulated during the development stage (16,423,145) (14,961,362)
Unrealized gain on foreign exchange 173,705 154,643
------------ ------------
(114,859) 445,996
3,598,899 4,398,004
============ ============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
The Tirex Corporation and Subsidiaries
(A Development Stage Company)
Consolidated Statement of Operations
Six months ending December 31,
Three months ending Three months ending Cum. 6 months Ytd
September 30, 1999 December 31, 1999 ending December 31, 1999 December 1999
------------------- ------------------- ------------------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------
Cost of Sales 0 0 0 0
------------ ------------ ------------ ------------
Gross profit 0 0 0 0
------------ ------------ ------------ ------------
Operations
General and administrative 335,654 434,989 770,643 770,643
Depreciation and amortization 143,098 149,060 292,158 292,158
Research and development 178,022 247,335 425,357 425,357
------------ ------------ ------------ ------------
Total Expense 656,774 831,384 1,488,158 1,488,158
------------ ------------ ------------ ------------
Loss before other income and expenses (656,774) (831,384) (1,488,158) (1,488,158)
------------ ------------ ------------ ------------
Other income (expenses)
Interest expense (25,390) (17,754) (43,144) (43,144)
Interest income 0 0
Income from stock options 0 0
Loss on disposal of equipment 0 0
Loss on foreign exchange (3,262) 72,791 69,529 69,529
(28,652) 55,037 26,385 26,385
Net Loss (685,426) (776,347) (1,461,773) (1,461,773)
============ ============ ============ ============
Net loss per common share (0.03) (0.03) (0.61) (0.50)
============ ============ ============ ============
Weighted average shares of common
stock outstanding 66,258,839 72,400,002 18,286,063 17,988,254
------------ ------------ ------------ ------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
The Tirex Corporation and Subsidiaries
(A Development Stage Company)
(UNAUDITED)
Consolidated Statement of Operations Consolidated Statement of Operations
Cumulative from
Three months ending Six months ending Three months ending Six months ending March 26, 1993
December 31, 1999 December 31, 1999 December 31, 1998 December 31, 1998 to December 31, 1999
------------------- ----------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 300,000 $ 300,000 $ 1,325,573
Cost of Sales 0 0 130,676 130,676 1,015,830
------------ ------------ ------------ ------------ ------------
Gross profit 0 0 169,324 169,324 309,743
------------ ------------ ------------ ------------ ------------
Operations
General and administrative 434,989 770,643 443,757 1,890,805 6,956,315
Depreciation and amortization 149,060 292,158 84,657 410,793 363,408
Research and development 247,335 425,357 1,750 13,590 8,148,525
------------ ------------ ------------ ------------ ------------
Total Expense 831,384 1,488,158 530,164 2,315,188 15,468,248
------------ ------------ ------------ ------------ ------------
Loss before other income and expenses (831,384) (1,488,158) (360,840) (2,145,864) (15,158,505)
Other income (expenses)
Interest expense (17,754) (43,144) (34,062) (54,097) (227,073)
Interest income 0 0 0 0 17,962
Income from stock options 0 0 0 0 10,855
Loss on disposal of equipment 0 0 0 0 (2,240)
Gain (Loss) on foreign exchange 72,791 69,529 (17,902) (121,672) (6,778)
------------ ------------ ------------ ------------ ------------
55,037 26,385 (51,964) (175,769) (207,274)
------------ ------------ ------------ ------------ ------------
Net Loss (776,347) (1,461,773) (412,804) (2,321,633) (15,365,779)
============ ============ ============ ============ ============
Net loss per common share (0.01) (0.02) (0.01) (0.03) (0.84)
============ ============ ============ ============ ============
Weighted average shares of common
stock outstanding 66,151,179 66,151,179 63,722,410 63,722,410 18,286,063
------------ ------------ ------------ ------------ ------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
The Tirex Corporation and Subsidiaries
(A Development Stage Company)
Consolidated Statement of Operations
Six months ending December 31,
Three months ending Three months ending Cum. 6 months Ytd
September 30, 1998 December 31, 1998 ending December 1998 December 1998
------------------- ------------------- -------------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 0 $ 300,000 $ 300,000 $ 300,000
------------ ------------ ------------ ------------
Cost of Sales 0 130,676 130,676 130,676
------------ ------------ ------------ ------------
Gross profit 0 169,324 169,324 169,324
------------ ------------ ------------ ------------
Operations
General and administrative 1,451,057 439,748 1,890,805 1,890,805
Depreciation and amortization 232,630 178,163 410,793 410,793
Research and development 11,840 1,750 13,590 13,590
------------ ------------ ------------ ------------
Total Expense 1,695,527 619,661 2,315,188 2,315,188
------------ ------------ ------------ ------------
Loss before other income and expenses (1,695,527) (450,337) (2,145,864) (2,145,864)
------------ ------------ ------------ ------------
Other income (expenses)
Interest expense (20,035) (34,062) (54,097) (54,097)
Interest income 0 0
Income from stock options 0 0
Loss on disposal of equipment 0 0
Loss on foreign exchange (103,770) (17,902) (121,672) (121,672)
------------ ------------ ------------ ------------
(123,805) (51,964) (175,769) (175,769)
------------ ------------ ------------ ------------
Net Loss (1,819,332) (502,301) (2,321,633) (2,321,633)
============ ============ ============ ============
Net loss per common share (0.02) (0.03) (0.61) (0.03)
============ ============ ============ ============
Weighted average shares of common
stock outstanding 45,816,877 38,607,926 18,286,063 72,400,002
------------ ------------ ------------ ------------
</TABLE>
7
<PAGE>
The Tirex Corporation and Subsidiaries
(A Development Stage Company)
Consolidated statement of cash flow
As of December 31,
(UNAUDITED)
Six months ended
December 30,
1999 1998
---------- ----------
Operating activities $ $
---------- ----------
Net loss 1,461,773 2,321,633
---------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities:
depreciation and amortization 292,158 410,793
Proceeds from grants 212,684 446,571
stock issued in exchange for services 64,208 996,255
stock issued in conversion and pmts 604,974 853,737
Unrealized gain on foreign exchange 19,062 69,633
Change in assets & Liabilities
increase in Notes receivable (14,685) (109,015)
decrease in Sales tax receivables 60,562 79,494
increase in Tax credit receivable 545,315 (249,833)
increase in inventory (227,391)
increase in Prepaid expenses (64,116)
increase in Accrued expenses 130,449 240,878
increase in Loan payable (9,631) 64,685
increase in Deposit payable 19,000
increase in Accounts receivable (14,685) (150,000)
increase in Loan director 93,516
---------- ----------
Total Adjustments 1,598,904 2,765,714
Net cash operating Activities 137,131 444,081
---------- ----------
Investing Activities
Property & equipment 222,709 (673,279)
licence (19,602)
---------- ----------
Net cash investing activities 222,709 (692,881)
Financing activities
Proceeds from notes payable 71,070
Repayment of notes payable (288,688) (133,340)
Proceeds from loan payable 48,131
Repayment of long term debt (219,631) (6,333)
---------- ----------
Net cash financing activities (508,319) (20,472)
---------- ----------
Net Decrease in cash (148,479) (269,272)
Cash beginning of period 177,256 398,971
---------- ----------
Cash end of period 28,777 129,699
========== ==========
8
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES
CHANGE OF NAME
In June, 1998 the Company changed its name from Tirex America,
Inc. to The Tirex Corporation and Subsidiaries.
NATURE OF BUSINESS
The Tirex Corporation and Subsidiaries (the "Company") was
incorporated under the laws of the State of Delaware on August
19, 1987. The Company originally planned to provide
comprehensive health care services to persons with Acquired
Immune Deficiency Syndrome, however due to its inability to
raise sufficient capital it was unable to implement its
business plan. The Company had been inactive since it ceased
operations in November 1990.
In the Fall of 1992, a group of shareholders lead by Edward
Mihal and including 16 other shareholders acting in concert
with Mr. Mihal along with Patrick McLaren and George Fattell,
individuals without any prior affiliation with the Company,
became interested in the Company as an entity potentially
suitable for merger or similar transaction with an operating
private company seeking to become public in this manner. This
group approached the Company's incumbent management with a
proposal whereby they agreed to assume management control,
make all delinquent filings with the Securities and Exchange
Commission, restore service by transfer agent and pay all
other expenses required to enable the Company to begin trading
its stock and completing a merger or similar transaction.
In furtherance of the foregoing, on November 5, 1992, J.
Richard Goldstein, MD, Peter R. Stratton and Robert Kopsack
resigned from their positions as officers and directors of the
Company. From June 1989 until the date of such resignations,
Dr. Goldstein was the Company's President and Chief Executive
Officer, Mr. Stratton was Vice-President, Chief Operating
Officer, Secretary and Treasurer, and Mr. Kopsack was the
Company's Vice President. In resigning their positions, Dr.
Goldstein and Messrs. Stratton and Kopsack acknowledged that
they acceded to their respective positions and had received
compensation in consideration of their representations that
they would, and their best efforts to, implement a business
plan for the Company which would encompass, among other
things, the establishment and operating of skilled nursing
care facilities for patients with Acquired Immune Deficiency
Syndrome. Compensation received by Dr. Goldstein and Messrs.
Stratton and Kopsack consisted of cash payments, stock
issuances, and the grants of stock options and/or stock
purchase warrants. As part of their resignations, Dr.
Goldstein and Messrs. Stratton and Kopsack each executed
releases whereby the Company was released and forever
discharged from all debts, obligations, covenants, agreements,
contracts, claims or demands in law or in equity, including
but not limited to any stock options or stock purchase
warrants granted or promised to them, which against the
Company, each ever had, or thereafter may have for or by
reason of any matter, cause or thing up to and through
November 5, 1992. Each of Dr. Goldstein and Messrs. Stratton
and Kopsack also acknowledged the termination and rescission
of their respective employment agreements with the Company to
such persons as the Company should direct for the purpose of
satisfying certain of the Company's obligations to third
parties. In consideration of the resignations and releases
executed by Dr. Goldstein and Messrs. Stratton and Kopsack,
Edward Mihal and each of the sixteen shareholders
9
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
the Company acting in concert with Mr. Mihal executed and
delivered reciprocal personal releases to and on behalf of Dr.
Goldstein and Messrs. Stratton and Kopsack. In connection with
the foregoing resignations, Dr. Goldstein and Messrs. Stratton
and Kopsack appointed, as an interim board of directors,
Patrick McLaren, George Fattell, and Edward Mihal (the
"Interim Management"). It was the goal of the Interim
Management to find suitable acquisition and/or development by
the Company. On December 29, 1992, Edward Mihal resigned his
position as an officer and a director of the Company and Louis
V. Muro was appointed as an officer and director of the
Company to fill the vacancy created thereby.
REORGANIZATION
On March 26, 1993, the Company entered into an acquisition
agreement (the "Acquisition Agreement") with Louis V. Muro,
Patrick McLaren and George Fattell, officers and directors of
the Company (collectively the "Sellers"), for the purchase of
certain technology owned and developed by the Sellers (the
"Technology") and extensive and detailed plans (the "Business
Plan") for a business which will engage in the exploitation of
the Technology. The Technology will be used to design, develop
and construct a prototype machine and thereafter a production
quality machine for the cryogenic disintegration of used
tires. Pursuant to the Acquisition Agreement, Sellers agreed
to assign, transfer and sell to the Company all of their
right, title and interest in the Technology and Business Plan
in exchange for fifteen million nine hundred thousand
(15,900,000) shares of the Company's common stock, $.001 par
value per share (the "Sellers' Stock") of which eleven million
nine hundred thousand (11,900,000) shares were put into
escrow. The Business Plan and Technology were developed by the
Sellers prior to their affiliation or association with the
Company. The Sellers were engaged as the Company's officers
and directors for the purpose of implementing the Business
Plan with the Technology or such other technology which they
believed could reasonably satisfy the requirements of the
Business Plan.
Effective with the March 26, 1993, closing date of the
Acquisition Agreement (the "Closing Date"), the Company
authorized an increase in the number of directors of the
Company from three to six. Pursuant thereto, the Company
appointed Messrs. Kenneth Forbes, Nicholas Campagna, and
Alfred J. Viscido to fill the vacancies created in the size of
the board. As an inducement to Messrs. Forbes, Campagna and
Viscido to join the board of directors, the Company issued
250,000 shares of its common stock, $.001 par value to each of
them. The Acquisition Agreement also provided for stock
issuances in the form of finder's fees. Pursuant thereto, the
Company issued 300,000 and 1,700,000 shares of its common
stock, $.001 par value, to Joseph Territo and Edward Mihal,
respectively.
Effective March 24, 1994, George Fattell resigned as an
officer and director of the Company. Per the terms of his
resignation any future shares of the Company's common stock
issued to Mr. Fattell are to be equally distributed to Louis
V. Muro and Patrick McLaren.
10
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Effective January 18, 1995, Louis V. Muro and Patrick McLaren
resigned their positions as officers and directors of the
Company. In addition to their resignations they acknowledged
that none of the requisite performance levels for the release
of any of the 11,900,000 escrow shares had been met and
renounced all rights to such shares.
DEVELOPMENTAL STAGE
At February 8, 2000 the Company is still in the development
stage. The operations to date have consisted mainly of raising
capital, obtaining financing, developing equipment, obtaining
customers and supplies, installing and testing equipment and
administrative activities.
BASIS OF CONSOLIDATION
The consolidated financial statements include the consolidated
accounts of The Tirex Corporation and its subsidiaries and
Tirex Canada R&D, Inc.. Tirex Canada R&D, Inc. is held 49% by
the Company and 51% by the shareholders of the Company. The
shares owned by the shareholders are held in escrow by the
Company's attorney and are restricted from transfer . All
inter-company transactions and accounts have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows all certificates
of deposits with maturities of 90 days or less, were deemed to
be cash equivalents.
ACCOUNTS RECEIVABLE
Management believes that all accounts receivable as of June
30, 1999 and which are still in the accounts of the Company as
of February 8, 2000, were fully collectible; therefore, no
allowance for doubtful accounts were recorded.
INVENTORY
The Company values inventory at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed provided using the
straight-line method over the estimated useful lives of five
years.
Repairs and maintenance costs are expensed as incurred while
additions and betterments are capitalized. The cost and
related accumulated depreciation of assets sold or retired are
eliminated from the accounts and any gain or losses are
reflected in earnings.
11
<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 common 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.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
As it relates to the Company, the principal differences
between the provisions of SFAS 128 and previous authoritative
pronouncements are the exclusion of common stock equivalents
in the determination of Basic Earnings Per Share and the
market price at which common stock equivalents are calculated
in the determination of Diluted Earnings Per Share.
12
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the
period. Diluted earnings per common share is computed using
the weighted average number of shares of common stock and
dilutive common equivalent shares related to stock options and
warrants outstanding during the period.
The adoption of SFAS 128 had no effect on previously reported
loss per share amounts for the year ended June 30, 1997. For
the years ended June 30, 1999 and 1998, and for the
three-month period ended September 30, 1999, primary loss per
share was the same as basic loss per share and fully diluted
loss per share was the same as diluted loss per share. A net
loss was reported in 1998 and 1997, and accordingly, in those
years the denominator was equal to the weighted average
outstanding shares with no consideration for outstanding
options and warrants to purchase shares of the Company's
common stock, because to do so would have been anti-dilutive.
Stock options for the purchase of 13,212,673 and 9,212,673
shares at June 30, 1999 and 1998, respectively, and warrants
for the purchase of 1,000,000 and 2,000,000 shares at June 30,
1999 and 1998 respectively, were not included in loss per
share calculations, because to do so would have been
anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments,
which principally include cash, note receivable, accounts
payable and accrued expenses, approximates fair value due to
the relatively short maturity of such instruments.
The fair value of the Company's debt instruments are based on
the amount of future cash flows associated with each
instrument discounted using the Company's borrowing rate. At
December 31, 1999 and June 30, 1999 respectively, the carrying
value of all financial instruments was not materially
different from fair value.
INCOME TAXES
The Company has net operating loss carry-overs of
approximately $18 million as of December 31, 1999, expiring in
the years 2004 through 2011. However, based upon present
Internal Revenue regulations governing the utilization of net
operating loss carry-overs where the corporation has issued
substantial additional stock, most of this loss carryover may
not be available to the Company.
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes,
effective July 1993. SFAS No.109 requires the establishment of
a deferred tax asset for all deductible temporary differences
and operating loss carry-forwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax
asset established for utilization of the Company's tax loss
carry-forwards would correspondingly require a valuation
allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these
financial statements.
13
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
The Company has research and development investment tax
credits receivable from the governments of Canada and Quebec
amounting to $407,389 at December 31, 1999.
FOREIGN EXCHANGE
Assets and liabilities of the Company which are denominated in
foreign currencies are translated at exchange rates prevailing
at the balance sheet date. Revenues and expenses are
translated at average rates throughout the year.
REVENUE RECOGNITION
Revenue is recognized when the product is shipped, installed
and accepted by the customer.
Note 2 - GOING CONCERN
As shown in the accompanying financial statements, the Company
incurred a net loss of $4,910,000 during the year ended June
30, 1999, and incurred an additional loss of $1,461,773 for
the six-month period ended December 31, 1999.
In March 1993, the Company, which was still in the development
stage, developed a new Business Plan. As at December 31, 1999
the Company was in the process of constructing a production
quality machine for the cryogenic disintegration of used
tires. At February 8, 2000, the Company was testing the first
production model under operating conditions. Insofar as such
testing has not been completed, management considers the
Company to still be in the development stage.
The Company is currently in the process of formulating a plan
to effect an additional public offering, the proceeds of which
would be used for working capital and capital acquisitions.
The ability of the Company to continue as a going concern is
dependent on the success of the plan. The Company has received
an offer by The N.I.R. Group of Mineola, New York to secure
financing for the Company, subject to due diligence
examination, in an amount of up to $5,000,000. As of February
8, 2000, the due diligence examination had not been completed
and thus the Company cannot state with certainty that the
proposed financing which actually materialize. The financial
statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
14
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 3 - FINANCING COSTS
During the year ended June 30, 1998 the Company incurred costs
of $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 fiscal year ended June 30, 1999 was $32,964, and
for the six-month period ended December 31, 1999 amortization
of deferred financing costs was $49,439.
Note 4- PROPERTY AND EQUIPMENT FINANCING COSTS
As of December 31, 1999 plant and equipment consisted of the
following:
Furniture, fixtures and equipment $ 23,776
Leasehold improvements 134,384
Construction in progress - equipment 2,000,000
-----------
$ 2,158,160
Less accumulated depreciation and amortization 98,574
-----------
$ 2,286,514
===========
Depreciation and amortization expense charged to operations
was $42,770 and $12,361 for the years ended June 30, 1999 and
1998, respectively. For the three and six month periods ended
December 31, 1999, depreciation and amortization charged
against furniture, fixtures and equipment, Leasehold
Improvements and Construction in Progress was $25,142 and
$39,057 respectively. Other amortization of prepaid expenses
and deferred financing costs for the three and six-month
periods ending December 31, 1999 amounted to $135,145 and
$253,101 respectively.
Note 5- NOTES PAYABLE
The Company had available as of June 30, 1999 a $510,000 line
of credit which bears interest at the Canadian prime rate plus
1.25% to finance 75% of its research and development
investment tax credits incurred for the fiscal year ended June
30, 1999. At June 30, 1999, $408,302 was outstanding against
this line of credit. As of December 31, 1999, the outstanding
balance was $121,251. The note is collateralized by the
personal guarantees of certain officers, certain equipment of
Tirex Canada and guaranteed by The Tirex Corporation and
Subsidiaries. The loan is guaranteed at a rate of 80% by the
Garantie-Quebec (Guarantee-Quebec), a subsidiary of a Quebec
Government-owned corporation, Investissements-Quebec
(Investments-Quebec) and is repayable from the research and
developmental investment tax credits received. The Canadian
prime rate of interest at June 30, 1999 was 6 1/4%.
Under the terms of the note payable to the bank, the Company
is required to maintain a current ratio of 1:1 by June 30,
1999 and 1.2:1 by June 30, 2000, a tangible net worth of
$750,000, and the furnishing of periodic financial statements.
During the year ended June 30, 1999, the Company failed to
comply with certain loan covenants. In the six-month period
ended December 31, 1999, the company had not complied with
certain loan covenants. Despite the bank's not having
exercised its rights in the past, there can be no assurance
that the bank will elect to not exercise its rights under the
loan agreement if the Company would not be in compliance with
all loan covenants.
The Company has two notes payable to investors at June 30,
1999 totaling $1,637 to pay for accrued interest on the debt
which was converted to stock.
15
<PAGE>
<TABLE>
<CAPTION>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 6- LONG-TERM DEBT
<S> <C> <C>
Federal Office of Regional Development (Ford-Q) Loan 1999
---------
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) $ 308,287
Loans payable under the Program for the Development
of Quebec SME's based on 50% of approved eligible costs for
the preparation of market development studies in certain
regions. Loans are unsecured and non-interest bearing. (If the
Company defaults the loans become interest bearing).
Loan payable over five years commencing
June 2000 due June 2004 64,648
Loan payable over five years, commencing
June 2001, due 2005 60,020
Loan payable in amounts equal to 1% of annual sales
in Spain through June 30, 2007
13,610
Loan payable in amounts equal to 11/2% of annual sales in
Spain and Portugal through June 30, 2004
64,465
---------
511,030
Less: current portion 106,385
---------
$ 404,645
Minimum principal repayments of each of the next five years as follows:
1999 $ 106,385
2000 114,697
2001 157,033
2002 29,243
2003 37,555
Thereafter
98,082
---------
$ 542,995
=========
</TABLE>
16
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 7- CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under agreements
classified as capital leases. The cost and the accumulated
amortization for such equipment as of June 30, 1999 was
$122,609 and $12,289, respectively. The net amortized value as
of December 31, 1999 was $96,079.
The following is a schedule by years of future minimum lease
payments under capital leases of equipment together with the
obligations under capital leases (present value of future
minimum rentals) as of June 30, 1999.
Years Ended
June 30,
-----------
2000 $ 34,605
2001 28,075
2002 28,075
2003 28,075
2004 20,955
-----------
Total minimum lease payments 139,785
Less amount representing interest 26,130
-----------
Total obligations under capital lease 113,655
Less current installments of obligations
under capital leases 25,147
-----------
Long-term obligation under capital leases,
with interest rate of 9.3% $ 88,508
===========
17
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 8- CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
TYPE A TYPE B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance Dec 31, 1999 $176,600 $380,000
- ----------------------------------------------------------------------------------------------
Interest rate 10% 10%
- ----------------------------------------------------------------------------------------------
Maturity Earlier of (i) the completion of a Earlier of (i) two years from
public offering yielding gross the issue date or (ii) the
proceeds of not less than completion of a public
$8,000,000, (ii) the closing on offering of its securities by
financing in excess of $4,500,000. the Maker. These debentures
These debentures are subordinated are subordinated to all
to all current and future bank debt. current and future bank debt.
- ----------------------------------------------------------------------------------------------
Redemption rights If not converted, the holder may If not converted the holder
require the Company to redeem at may require the Company to
any time after maturity at a redeem at any time after
premium of 125% of the principal maturity for the principal
amount plus interest. amount plus interest
- ----------------------------------------------------------------------------------------------
Conversion ratio 61.5% of the average closing bid $0.20 per share. During the
price of the common stock as year ended June 30, 1999,
reported by NASDAQ during the $155,000 of convertible
five-day period preceding the debentures were converted to
Company's receipt of a notice of common stock.
conversion by a debenture holder.
During the year ended June 30, 1999,
debentures totaling $113,400 were
converted to common stock.
- ----------------------------------------------------------------------------------------------
Warrants As part of the debenture package,
the Company issued 2,000,000
warrants to purchase a like number
of shares of common stock at $.001
per share
During the year ended June 30, 1999,
1,000,000 warrants were exercised.
- ----------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 9 - RELATED PARTY TRANSACTIONS
On July 22, 1994, 3,000,000 shares of The Tirex Corporation
and Subsidiaries, Inc. were released from escrow and issued to
Louis V. Muro and Patrick McLaren (1,500,000 shares each) in
accordance with the terms and provisions of the Acquisition
Agreement dated March 26, 1993.
The Company entered into various employment agreements with
the executive officers and general Counsel whereby the Company
will pay a total of $565,000 a year plus benefits. All of the
employment agreements call for terms ranging from 3 - 8 years.
In addition to the employment services, the officers agree not
to compete with the Company for the two year period following
the termination of employment. If an officer is terminated
other than for cause or for "good reason", the terminated
officer will be paid twice the amount of their base salary for
twelve months. During the year ended June 30, 1999, two
employees were terminated and received severance pay totaling
$500,000 which was paid in stock. The employees also received
options to buy 4,000,000 shares of stock for par value or
$4,000. The options were exercised July 31, 1999. The value of
the options were recorded as paid in capital at June 30, 1999
for 50% of the average price of the stock or $381,600.
Included in accrued salaries at September 30, 1999 is $328,930
of salary to officers and employees which the company will
issue common stock for. Various loans due to the officers
totaling $149,406 will be paid in stock during the year ended
June 30, 2000.
At June 30, 1999 and 1998, the Company had notes receivable
from various officers in the amount of $74,406 and $195,969,
respectively. One note in the amount of $70,405 bears interest
at an annual rate of 8% above prime through September 1998 and
2% above prime since that date and is collateralized by
400,000 shares of Tirex Corporation which is held by the
officer. The remaining notes are non-interest bearing and are
payable on demand.
At September 30, 1999 the Company had a note receivable for
$30,000 from a Company in which a director has a financial
interest. The note bears interest at prime plus 2% and is due
on demand.
Deposits payable included an amount of $118,500 which are
payable to companies which are owned by a director of the
Company.
The revenue recognized during the year ended June 30, 1998 was
received by a Company in which a director in the Company has a
financial interest.
19
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 10- EXCHANGE OF DEBT FOR COMMON STOCK
During the year ended June 30, 1999, the Company recorded
increases in common stock and paid-in capital of $343,952,
which was in recognition for the exchange of common stock for
debt owed. Debt totaling $164,000 was payable to certain
related parties to the Company.
Note 11- COMMON STOCK
During the years ended June 30, 1999 and 1998, the Company
issued common stock to individuals in exchange for services
performed totaling $2,759,744 and $926,576, respectively.
Included in these amounts are payments to officers of the
Company and in house counsel in exchange for salary and
consulting in the amount of $2,210,502 and $361,945,
respectively. Also included in the amounts paid in stock
during the year ended June 30, 1999 was an exclusive rights
contract payable to an officer totaling $406,250. During the
six-month period ended December 31, 1999, the Company issued
common shares to officers, employees and corporate counsel in
exchange for services rendered in the amount of $792,896. The
dollar amounts assigned to such transactions have been
recorded at the fair value of the services received, because
the fair value of the services received was more evident than
the fair value of the stock surrendered.
Note 12 - STOCK OPTION
On May 19, 1995, the Company sold to a director of the Company
an option to purchase 20,000 shares of Cumulative Convertible
Preferred Stock at an exercise price of $10 per share,
exercisable during the two year period beginning May 19, 1995,
and ending May 18, 1997. The director paid $20,000 for the
option. The terms of the Preferred Stock purchasable under the
option call for cumulative cash dividends at a rate of $1.20
per share and conversion into 2,000,000 or more shares of
common stock. The conversion to common stock ratio varies
depending on when the conversion is made. At May 29, 1997, the
exercise period was extended until May 18, 1999. During the
year ended June 30, 1999, the director exercised the option to
buy 1,234,567 shares of common stock for $40,000. The balance
of these options have expired.
20
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
COMPENSATORY COMMON STOCK OPTIONS
Compensation Cost
For the Year
Ended
Number of Shares June 30, 1999
---------------- -------------
<S> <C> <C>
Balance at July 1, 1998 9,212,673 --
Stock options granted during the year
ended June 30, 1999 4,000,000 381,600
Stock options exercised during the year
ended June 30, 1999 -- --
---------- ---------
Balance at June 30, 1999 13,212,673 $ 381,600
========== =========
</TABLE>
The options expire at various dates through April 2000. The
exercise price ranges from $.001 to $.50 with the weighted
average exercise price equal to $.14.
Note 13 - ACQUISITION BY MERGER OF RPM INCORPORATED
During November 1997, the Company entered into a merger
agreement with RPM Incorporated ("RPM"). The Company acquired
all of the assets and liabilities of RPM by acquiring all of
the outstanding common stock of RPM in exchange for common
stock in the Company on a unit for unit basis. RPM ceased to
exist following the exchange.
The assets and liabilities acquired by the Company from RPM
consist of the proceeds from the sale of debentures as well as
the debentures of $535,000. The financing fees on the issuance
of the debentures totaling $61,755 is included in the
statement of operations for the year ended June 30, 1998. A
total of 535,000 shares were issued as a result of the merger
valued at $16,050. A total of $16,050 was received for this
stock.
The Company entered into an additional agreement with the
former shareholders of RPM for a consulting agreement for a
period of 5 years expiring in June, 2002. In exchange for this
consulting agreement, 3,000,000 shares of common stock were
issued valued at $240,000. Other than the consulting agreement
and the issuance of the debentures, RPM was inactive.
For accounting purposes the Company recorded the merger as a
purchase and not as a pooling of interests.
Note 14 - GOVERNMENT ASSISTANCE
The Company receives financial assistance from Revenue Canada
and Revenue Quebec in the form of scientific research tax
credit. During the year ended June 30, 1999 the Company
received approximately $1,058,000 which has been recorded as
paid in capital.
Note 15 - COMMITMENTS
The Company leases office and warehouse space at an annual
minimum rent of $82,000 for the first year, $169,000 for the
second year and $211,000 per year for the third through the
fifth year. The lease expires 2003. The Company is also
responsible for its proportionate share of any increase in
real estate taxes and utilities. Under the terms of the lease,
the Company is required to obtain adequate public liability
and property damage insurance.
21
<PAGE>
The Tirex Corporation and Subsidiaries
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
The minimum future rental payments under this lease are as
follows:
June 30, Amount
-------- ---------
2000 $ 176,900
2001 204,100
2002 204,100
2003 170,100
---------
$ 755,200
=========
Rental expense for the year ended June 30, 1999 and 1998
amounted to $111,930 and $55,532, respectively. One of these
leases contains a second ranking moveable hypothec in the
amount of $300,000 on the universality of the Company's
moveable property.
Note 16- RESTATED FINANCIAL STATEMENTS
The financial statements for June 30, 1998 and for the
cumulative period from March 26, 1983 to June 30, 1999 have
been restated to break out other comprehensive income.
Note 17- CONTINGENCY
The Company is involved with a lawsuit with a prior
consultant. The complaint alleged that the Company breached
its consulting agreement by failing to pay compensation due
there under and sought damages in the amount of $221,202
including interest and legal costs. The Company filed a
counter claim for fraud, breach of contact and unjust
enrichment on the part of the consultant. The Company sought
relief consisting of compensatory damages in the amount of
$28,800 and cancellation of the stock certificate issued to
the plaintiff for 263,529 shares; a declaratory judgment that
the consulting agreement is of no force and effect; punitive
damages; and interest and legal costs. The Company's position
is that this case is completely without merit.
Note 18- ACCUMULATED OTHER COMPREHENSIVE INCOME
The deficit accumulated during the development stage included
other accumulated comprehensive income totaling $76,307.
22
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the three and six month periods ended December 31, 1999. This discussion
also includes events which occurred subsequent to the end of such quarter and
contains both historical and forward- looking statements. When used in this
discussion, the words "expect(s)", "feel(s)","believe(s)", "will", "may",
"anticipate(s)" "intend(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected.
The Company is in the very early stages of the business of
manufacturing its patented cryogenic scrap tire recycling equipment (the "TCS-1
Plant"). Management presently estimates that commencement of full-scale
commercial manufacture of TCS-1 Plants operations will occur early in the new
year.
Since the beginning of 1993, the Company has devoted the bulk of its
efforts to completing the design and development, and commencing the
manufacture, of the TCS-1 Plant and raising the financing required for such
project. In December 1998, the Company began successfully operating the first
fully integrated TCS-1 Plant on a continuous-running basis for scheduled periods
of up to four hours, at 50% of capacity with one of its two freezing towers and
fracturing mills. This allows the TCS-1 Plant to process only the tread portion
of the tires. In the fourth quarter of fiscal 1999 the Company started the
construction of the second freezing tower and the second disintegrator unit.
However, certain problems were identified in the course of long-term testing of
the first freezing tower with respect to the TCS-1's internal materials
conveying system. Accordingly, construction of the second tower was halted
pending resolution of the problems. The Company believes that it has found
appropriate solutions to the problems. Construction of the redesigned freezing
tower commenced in November 1999 and is expected to be completed on or about the
end of the current calendar year.
In early 1999 the Company began the process of putting into place the
production capacity for producing welcome mats using recycled rubber crumb of
the kind which the TCS-1 would produce. Entering this new business segment was
expected to be profitable based on the estimated cost of the rubber crumb. In
addition, entering this segment was considered strategically useful to
demonstrate to possible buyers of TCS-1 systems that there was a use and market
for the rubber crumb. The Company's initial operations in this segment were
conducted pursuant to an agreement (the "IM2/Tirex Agreement") with IM2
Merchandising and Manufacturing, Inc. ("IM2"), in Quebec. Shipments of limited
quantities of mats commenced at the beginning of April 1999. These mats were
produced using recycled rubber crumb purchased from other companies because the
TCS-1 could not, at that time, produce sufficient quantities of rubber crumb to
meet the requirement. Furthermore, the technical difficulties in the freezing
tower section of the TCS-1 referred to in the previous paragraph further reduced
the availability of TCS-1 rubber crumb. The price difference between externally
purchased rubber crumb and the forecast cost to the Company of TCS-1 produced
crumb, taking into account tire recycling subsidies available from the
Government of Quebec, was and remains very substantial, and makes the difference
between being profitable and unprofitable on mat production at the prices the
Company was able to obtain for such mats. In addition, it became apparent in
June and July of 1999 that capital asset requirements and the financial and
human resources being consumed by the mat production operation were impeding
progress on the completion of the TCS-1 which was and remains the primary focus
of the Company. In August 1999, the Company began negotiations for the sale of
the mat production assets and the majority of the inventory to IM2. This
divestiture was announced on September 7, 1999. As of February10, 2000, the sale
of these assets to IM2 had not been completed and the Company cannot provide any
assurances at this time that the sale will, in fact, be completed. However,
should this sale not be consummated, the Company has been approached by other
credible possible purchasers of such equipment. The Company will evaluate such
23
<PAGE>
other offers and will proceed with a transaction if such is to the benefit to
the Company. Pursuant to this divestiture, the Company will continue with its
primary points of focus, these being the manufacture and sale of TCS-1 tire
Disintegration Systems and the development of rubber-thermoplastic compounds.
On December 9, 1999, the Company negotiated and signed a Memorandum of
Understanding with Shandong Hongli Group Company, Ltd. ("Hongli") from the city
of Dezhou in Shandong Province in The Peoples' Republic of China respecting the
sale of the principal components of a TCS-1 System, excluding the front-end tire
preparation system which the customer does not require because of the
substantial availability of rubber tire chips in their region. This sale is
expected to be completed during the third quarter of Fiscal 2000. The Company
has been informed that, subject to the witnessing of the TCS-1 working, all
necessary approvals and allocations of funds from the Chinese government have
been obtained. The Memorandum of Understanding also provides that the Company
and Hongli will work toward the completion of a licensing agreement under which
Hongli would acquire the exclusive right to manufacture and distribute the TCS-1
in the Peoples' Republic of China. The Company intends that any such licensing
agreement would include numerous clauses designed to protect the proprietary
interests of the Company in the technology, and that the agreement would include
a performance clause which would permit the Company to withdraw the element of
exclusivity in the event that certain sales targets are not met. Hongli is a
rapidly growing, diversified company in China currently employing about 4,500
persons. Hongli manufactures tractors and farm implements, diesel engines gears
and textile machinery. Hongli also is involved with real estate development,
service stations, restaurants and retail sales and service of scooters. Hongli
reports total assets of 520 million Yuan which is equal to approximately US$62
million
The Company has undergone certain changes in its management structure
during the quarter ended December 31, 1999 and in the ensuing weeks to the date
of this report. In November 1999, Louis A. Sanzaro resigned as President of the
Company such that he could sign a licensing agreement with the Company without
conflict of interest. Mr. Sanzaro continues as a director of the Company and the
Company continues to benefit from his expertise in the recycling industry. Mr.
John Threshie Jr., formerly occupying the position of Vice-President, Logistics
for the Company was named to succeed Mr. Sanzaro as President of the Company. In
January 2000, Mr. Terence C. Byrne resigned as Chief Executive officer of the
Company in order to pursue other interests in corporate financing and
consulting. However, Mr. Byrne has agreed to provide similar services to the
Company for the foreseeable future and is also active on behalf of the Company
in Investor Relations. Mr. Byrne has been instrumental in the negotiations of
the private placement with NIR, which private placement is discussed elsewhere
in this Report. In November 1999, John Hartley resigned as a director of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The activities of the Company since its formation in 1987 and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions, including three private placements to a
limited number of accredited investors, which the Company completed on May 11,
1998, and which yielded aggregate net proceeds of $2,063,795 (see "The Company -
Material Financing Activities"). In total, funds raised by the Company from
private sales of its securities are as follows:
-----------------------------------------------------
Year Ended Proceeds From Sales
June 30th of Securities
-----------------------------------------------------
1999 $ 286,500
-----------------------------------------------------
1998 2,063,795
-----------------------------------------------------
24
<PAGE>
-----------------------------------------------------
Year Ended Proceeds From Sales
June 30th of Securities
-----------------------------------------------------
1997 345,391
-----------------------------------------------------
1996 80,872
-----------------------------------------------------
1995 22,316
-----------------------------------------------------
1994 237,430
-----------------------------------------------------
1993 76,055
-----------------------------------------------------
1990 80,812
-----------------------------------------------------
1989 77,000
-----------------------------------------------------
During the fiscal years ended June 30, 1998 and June 30, 1999 and the
interim six-month period ended December 31, 1999, the Company received
additional funding from Quebec and Canadian government grants, loans, loan
guarantees and refundable tax credits for purposes of completing the development
of the TCS-1 Plant and for the international marketing of such plants (see Item
1. of this Report, "Existing and Proposed Businesses - Canadian Operations -
Canadian Financial Assistance - Grants, Loans, and Commitments"). Canadian and
Quebec government research and development tax incentives take the form of both
tax deductions from otherwise taxable income and tax credits respecting the
eligible research and development expenditures of the Company (see "Existing and
Proposed Businesses - Canadian Operations"). Insofar as tax credits for
scientific research and experimental development are concerned, such credits are
offered by both the governments of Canada and of Quebec. The tax credits are
calculated as a percentage of research and development expenditures deemed
eligible by the Revenue Departments of each government. The percentages vary
according to the size of the company (defined according to the asset base and
revenues generated by the company), the residency of the majority of the voting
control and other factors. In the case of both the provincial and the federal
governments, where the amount of the tax credit exceeds other tax liabilities,
such as taxes on income and on capital, and subject to certain other conditions
which the company meets, the amount of any difference is paid to the company,
thus the term, "Refundable Tax Credits". The effective rate of the credit varies
from one company to another as a function of a number of factors, not least of
which are: (i) the nature of the costs being claimed such as labor costs versus
non-labor costs (the credit for labor costs is higher than for non-labor costs);
and (ii) the proportion of expenditures which can be attributed to research and
development but which are not deemed eligible for the tax credits by their
nature. Insofar as the Company is concerned, the tax credits have varied from
approximately 25% to 30% of total research and development expenditures,
including certain types of expenditures deemed ineligible for tax credits.
During the last three fiscal years, virtually all of the activities connected
with the development and construction of the First Production Model of the TCS-1
Plant have qualified as expenses eligible for refundable tax credits.
As a further measure to stimulate research and development, the Quebec
Government, through "Garantie-Quebec" (Guarantee Quebec), hereinafter referred
to as G-Q, a subsidiary of "Investissements Quebec" (Investments Quebec), a
successor to the Societe de developpement industriel du Quebec, a public sector
corporation wholly owned by the Government of Quebec, (the "SDI") (A FORMER
ENGLISH VERSION OF THIS NAME WAS THE QUEBEC INDUSTRIAL DEVELOPMENT CORPORATION),
has continued a loan guarantee program formerly operated by SDI, (the "G-Q Loan
Guarantee Program") which provides G-Q's guarantee of repayment of 75% of the
amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. G-Q's Loan Guarantee Program therefore
25
<PAGE>
enhances a company's ability to borrow from financial institutions up to 75% of
the amount of the anticipated tax credit for expenditures already incurred
("Allowable Post-Expenditure Loans"), prior to the receipt of the anticipated
tax credit. This provides the cash flow essential to the research and
development efforts. In the absence of any tax liabilities, these tax credits
have functioned as monetary grants and constituted receivables which were used,
prior to their being paid to the Company, to secure conventional bank financing,
supported in part by the G-Q guarantee noted above.
In connection with the Refundable Tax Credits, during the first quarter
of 1998, the Bank of Montreal ("BOM") approved a loan to the Company of up to
Cdn$937,000, or approximately US$655,900 ("the BOM Tax Credit Loan") to be used
to pay expenses which would then be eligible for refundable tax credits. By
December 1998, the Company had borrowed the entire amount authorized and, in
accordance with the terms of the SDI Loan Guarantee Agreement, by the end of
March 1999, the Company had reimbursed the entire amount. On May 9, 1999, the
Company received a similar offer of financing from ScotiaBank, conditional upon
the receipt of a loan guarantee from G-Q, the successor to SDI. This offer was
for an amount of up to Cdn$750,000 (approximately US$510,000). The loan
guarantee from G-Q was obtained in June of 1999 and the Company proceeded to
borrow Cdn$600,000, (approximately7 US$420,000), which amount was outstanding as
of the end of Fiscal 1999. The remaining Cdn$150,000 was drawn down in September
of 1999. In November of 1999, the Company received a check from the Government
of Quebec in respect of research and development tax credits in the amount of
Cdn$606,948 form which amount the sum of Cdn$300,000 was deducted to reduce the
ScotiaBank Tax Credit Loan balance. On November 23, 1999, the Company received
an advance check from the Government of Canada, also in respect of research and
development tax credits for the fiscal year which ended June 30, 1999. The check
was based on an approved advance of Cdn$450,000. However, the Government
deducted from this check Cdn$50,000 in respect of an amount due under a loan
received under the Southwest Montreal Industrial Redevelopment Program and
another amount due in respect of payroll source deductions of approximately
Cdn$35,000. Partially offsetting these deductions was an element of interest
income to the Company. The net amount of the check received was Cdn$381,339
(approximately US$259,310). From this amount, the sum of Cdn$175,000 was
deducted to further reduce the ScotiaBank Tax Credit Loan balance such that, as
of December 8, 1999, the outstanding balance due to ScotiaBank is now
Cdn$175,000 (approximately US$119,000). The ScotiaBank Tax Credit Loan is
secured by: (i) a first-ranking lien on all of the assets, tangible and
intangible, present and future of the Company's Canadian subsidiary, Tirex R&D;
(ii) a lien on the Company's patent for the cryogenic tire disintegration
process and apparatus of the TCS-1 Plant; and (iii) personal guarantees of two
officers and directors of the Company.
Borrowings drawn down under the ScotiaBank Tax Credit Loan bear
interest, from the date the funds are drawn down until the outstanding principal
and all accrued and unpaid interest thereon are repaid, at an annual rate equal
to the ScotiaBank Prime Rate (which, for reasons of inter-bank competition, is
usually equivalent to Canadian Prime Rate) plus 1.25%. Interest on the
outstanding balance of the ScotiaBank Tax Credit Loan is due and payable
monthly. During the last three fiscal years, and the five-month interim period
ended November 30, 1999, the Company made research and development expenditures,
generated tax credit claims, and received funds by way of borrowings under the
BOM Tax Credit Loan, as set forth in the following table:
26
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT OF R&D AMOUNT OF TAX CUMULATIVE
PERIOD AMOUNT OF R&D EXPENDITURES CREDITS ESTIMATED AMOUNT BORROWED OUTSTANDING BALANCE
R&D EXPENSES EXPENDITURES ELIGIBLE FOR BY BANKS AND G-Q AGAINST ESTIMATED AMOUNT OF TAX OF LOAN AS
WERE INCURRED INCURRED TAX CREDITS (FORMERLY SDI) TAX CREDITS CREDIT RECEIVED AT END OF PERIOD
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RE: BOM -0- -0- -0- -0- -0- -0-
July 1, 1995 to
June 30, 1996
- -------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to Cdn$1,576,761 Cdn$1,576,761 Cdn$ 579,305 -0-(1) -0-(2) -0-
June 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to Cdn$2,723,443 Cdn$2,723,443 Cdn$ 982,113 Cdn$828,230(1) Cdn$307,208(2) Cdn$597,820
June 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
July 1, 1998 to Cdn$1,167,892 (3) (4) Cdn$108,770(1) Cdn$245,517(5) BOM Loan = zero
June 30, 1999 (6)
- -------------------------------------------------------------------------------------------------------------------------
RE: SCOTIABANK Cdn$2,512,604 Cdn$2,163,508 Cdn$1,000,000 Cdn$600,000 n/a ScotiaBank Loan
July 1, 1998 to Cdn$600,000
June 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
Six months to n/a n/a n/a Cdn$150,000 Cdn$1,056,948 ScotiaBank Loan
December 31, 1999 Cdn$175,000 (7)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.
27
<PAGE>
(1) Prior to June 30, 1998, the Company received three
disbursements from the BOM in the aggregate amount of
Cdn$828,230 (approximately US$579,761) with the first of these
disbursements received on January 30, 1998. These amounts were
based upon estimated tax credit receivables in the following
amounts: (i) Cdn$579,305 (approximately US$405,514) for
research and development expenditures made by the Company
during the fiscal year ended June 30, 1997; and (ii) a portion
of the Cdn$982,113 (approximately US$687,479) for research and
development expenditures made by the Company during the fiscal
year ended June 30, 1998. Subsequent to June 30, 1998, the
Company received a further cash disbursement of Cdn$108,770
(approximately US$76,139), in respect of eligible tax credit
expenditures incurred prior to June 30, 1998, effecting the
complete draw down of the entire authorized loan amount of
Cdn$937,000 against tax credit receivables for the cumulative
period ended June 30, 1998.
(2) All funds by way of Tax credits received by the Company during
fiscal 1998 were attributable to research and development
expenditures made by the Company during fiscal 1997 and Tax
Credits received during fiscal 1999 were attributable to
research and development expenditures made by the Company
during fiscal 1998.
(3) On or about October 20, 1999, and in accordance with the tax
laws of the governments of Canada and of Quebec, the Company
submitted a claim for tax credits based upon any research and
development expenditures made during fiscal 1999. The Company
expects that a portion of such expenditures will be eligible
for Refundable Tax Credits. In connection therewith, the
Company obtained credit facilities from ScotiaBank, similar to
the BOM Tax Credit Loan, based upon estimated tax credit
receivables.
(4) The Company made research and development expenditures in the
amount of Cdn$2,163,508 during fiscal 1999, and the Company
believes that a portion of such expenditures will be eligible
for Refundable Tax Credits. It should be noted further that
the entire amount available to the Company under the
ScotiaBank Tax Credit Loan has already been borrowed by the
Company in connection with research and development
expenditures made by the Company during the year ended June
30, 1999.
(5) Tax credits received by the Company during fiscal 1999, are
attributable to research and development expenditures made by
the Company during the fiscal year ended June 30, 1997 and
1998, whereas amounts received in the current fiscal year
(Fiscal 2000) are in respect of tax credits for the fiscal
year which ended June 30, 1999.
(6) The annual Canadian federal government audit of eligible
research and development expenditures for the fiscal year
ending June 30, 1998 took place in January 1999. As a result
of the audit, the Company received approval for tax credits in
the amount of Cdn$637,033 from the Government of Canada and
Cdn$490,927 from the Government of Quebec. The tax credits
received were used to reduce the BOM Tax Credit Loan balance
to zero in March of 1999.
(7) On November 5, 1999, the Company received and cashed a check
from the Revenue Department of the Government of Quebec in
respect of research and development tax credits for the fiscal
year ended June 30, 1999. This check amounted to Cdn$606,948
(approximately US$413,000). In accordance with the
requirements of the loan guarantee provided by
Garantie-Quebec, an amount of Cdn$400,000 (approximately
US$272,000) was given that same day to ScotiaBank to reduce
the loan balance. On November 23, 1999, an advance check was
28
<PAGE>
received from the Government of Canada in respect of research
and development tax credits. This advance was made available
pending final determination of the tax credit due, and was
based on an approved advance amount of Cdn$408,000 plus
interest thereon in the amount of Cdn$2,039. The Government
took offsets from this amount in respect payroll taxes due in
the amount of Cdn$28,700. The net amount of the check was
Cdn$381,339 (approximately US$263,000). In December 1999, the
Company received a second tax refund advance check from
Revenue Canada. This check was based on a refund due in the
amount of Cdn$104,013 plus interest thereon in the amount of
Cdn$8,573. From this check was deducted an amount of
Cdn$50,000 plus interest thereon in the amount of Cdn$1,678.
The Cdn$50,000 was in respect of the amount due to CEDQR under
the loan agreement with the Company which had been made
available under the Industrial Recovery Program for South-West
Montreal to undertake the development of the TCS-1, as
discussed in the second paragraph following. The net amount of
the check was thus Cdn$51,678 (approximately US$35,600. As of
February 8, 2000, the loan balance due to ScotiaBank is thus
Cdn$175,000 (approximately US$119,000).
During the last three fiscal years and the six month interim period
ended December 31, 1999, the Company also received additional financial
assistance by way of loans and grants from Quebec governmental agencies, for the
design and development of the TCS-1 Plant and for export market development as
follows:
1. In March of 1996, the Company qualified for an interest-free,
unsecured loan (the "FORD-Q Loan") of up to $500,000 (Canadian), or
approximately $ 350,000 (U.S.). This loan was made available by the Government
of Canada under the Industrial Recovery Program for Southwest Montreal, which is
administered by the federal government agency, Canada Economic Development for
Quebec Regions ("CEDQR"), which was previously known as the Federal Office of
Regional Development - Quebec or "FORD-Q". Under the terms of the loan, the
Company received funds in the total amount of Cdn$500,000 or approximately
US$350,000, representing 20% of eligible expenditures made by the Company to
design, develop, and manufacture the first full-scale model of the TCS-1 Plant.
The loan money was disbursed pursuant to the submission of claims of eligible
expenses incurred. The Company did not have funds available to expend for these
purposes until February of 1997. Because of the limited funds available to the
Company at that time, the Bank of Montreal agreed to make short-term loans (the
"BOM Secured Loans") to the Company, secured by CEDQR's acceptance of the
Company's claims for reimbursement of expenditures. All of the BOM Secured Loans
were repaid by the Company as funds were released to the Company under the CEDQR
Loan.
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:
29
<PAGE>
- --------------------------------------------------------------------------------
Canadian Dollars US Dollar Approximation
---------------- -----------------------
March 31, 1999 $ 50,000 $ 35,000
- --------------------------------------------------------------------------------
March 31, 2000 $100,000 $ 70,000
- --------------------------------------------------------------------------------
March 31, 2001 $150,000 $105,000
- --------------------------------------------------------------------------------
March 31, 2002 $200,000 $140,000
- --------------------------------------------------------------------------------
The terms and purposes of the CEDQR Loan are discussed in more detail
in "Existing and Proposed Businesses - Canadian Operations - Canadian Financial
Assistance - Grants, Loans, and Commitments". The Cdn$50,000 which was due on
March 31, 1999 was offset against the tax credit advance check which was
received in December 1999, as discussed earlier. The Company is thus current in
respect to this loan repayment schedule.
2. In April of 1996, the Company qualified for a grant from Societe
Quebecoise de Recuperation et de Recyclage ("Recyc-Quebec"), a self-financed,
Quebec Government-owned corporation established to facilitate and promote
materials recovery and recycling. The amount of such grant was $75,000 Canadian
(approximately U.S. $52,500). Of this amount, the Company received $50,000
Canadian (approximately U.S. $35,000) during the fiscal year ended June 30,
1997. The terms of the grant provide that the Company will receive the balance
of $25,000 Canadian (approximately U.S. $17,500) when the Company files a final
report on the completion of the project. The Company anticipates that such
report will be filed in or about February 1999. The terms and purposes of this
grant are discussed in more detail in "Existing and Proposed Businesses -
Canadian Operations - Canadian Financial Assistance - Grants, Loans, and
Commitments".
3. The Company has also qualified for five interest-free, unsecured
loans from the Government of Canada in the aggregate amount of $ 232,773
Canadian (approximately U.S. $162,900). 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 U.S. $21,000) and $ 202,773 Canadian (approximately U.S.
$141,900.) 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.
30
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AMOUNT OF FUNDS
RECEIVED BY REPAYMENT TERMS
MAXIMUM AMOUNT COMPANY AS OF ====================================================== RATE OF
NATURE OF PROJECT OF LOAN DECEMBER 31, 1998 DATE DUE AMOUNT OF PAYMENT INTEREST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Feasibility Study for Cdn $20,000 Cdn $20,000 At the end of any fiscal year 1% of gross annual None
Iberian Peninsula in which the Company has revenue from sales in
revenues from sales of TCS-1 Iberia
Plants in the Iberian Peninsula
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Feasibility Study for Cdn $20,000 Cdn $20,000 At the end of any fiscal year 1% of gross annual None
India in which the Company has revenue from sales in
revenues from sales of TCS-1 India
Plants in India
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting Potential Cdn $95,000 Cdn $95,000 June 30, 2001 Cdn $ 6,333 None
United States Markets for Rubber Crumb June 30, 2002 Cdn $12,666
June 30, 2003 Cdn $18,999
June 30, 2004 Cdn $25,333
June 30, 2005 Cdn $31,666
- ------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Activities Cdn $95,000 Cdn $95,000 At the end of any fiscal year 1.5% of gross annual None
Related to Positioning the Company to in which the Company has revenue from sales in
Market TCS-1 Plants, Rubber Crumb, and revenues from sales of TCS-1 Iberia
Related Products in Iberia Plants in Iberia
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Respecting Cdn $98,000 Cdn $98,000 June 30, 2001 Cdn $ 6,533.33 None
the Feasibility of using Rubber Crumb June 30, 2002 Cdn $13,066.66
in Thermoplastic Elastomer Compounds June 30, 2003 Cdn $19,600.00
in the United States and Canada. June 30, 2004 Cdn $26,133.33
June 30, 2005 Cdn $32,666.66
====================================================================================================================================
</TABLE>
These loans and the projects which they supported are discussed in more
detail in "Existing and Proposed Businesses - Canadian Operations" and "Existing
and Proposed Businesses - Sales and Marketing".
31
<PAGE>
On January 27, 2000, the Company received an offer to secure financing
via a private placement from The N.I.R. Group, LLC ("NIR"), located in Mineola,
New York. Pursuant to consultation with legal counsel, the Company entered into
an agreement in principle with NIR, subject to a due diligence examination,
under which NIR would provide consulting services to the Company in terms of
structuring an investment of up to US$5,000,000 in the common shares of the
Company. The Company will compensate NIR at the rate of 10% of the gross amount
funded plus 3% in non-accountable expenses from the proceeds of the funding.
Under this investment proposal, all shares to be issued and all shares issuable
upon the exercise of the warrants are requested to be registered and freely
tradable. Pending such registration, NIR will structure a preliminary investment
in the Company in an amount of up to US$500,000 in the form of a secured
convertible debenture carrying a twelve per cent (12%) annual interest rate with
a one-year maturity date. There is no assurance that the transaction will be
consummated.
The Company believes it will be able to cover the balance of the
capital investments and expenditures required to be made in connection with: (i)
modifications which were and will be made to the TCS-1 Plant;(ii) commencement
of full scale, commercial manufacture of TCS-1 Plants; and (iii) meeting its
overhead on a level sufficient to sustain the Company for at least the next
twelve months, from a combination of some or all of the following sources: (i)
proceeds from the NIR private placement as discussed in the previous paragraph;
(ii) expected cash flow from sales of four TCS-1 Plants to ENERCON America
Distribution Limited ("Enercon") of Westerville, Ohio. (see Item 1 of this
Report "Existing and Proposed Businesses - Sales and Marketing - The Enercon
Agreements"); (iii) Canadian and Quebec government and governmental agency
grants, loans, and refundable tax credits; (iv) sale and lease back financing on
equipment owned by the Company; (v) conventional asset based debt financing
against receivables and inventory; (vi) 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 (vii) subcontractor financing; (viii) vendor
financed equipment purchases and/or (ix) a research and development tax credit
facility from ScotiaBank currently in place. The Company is presently actively
pursuing all of the foregoing avenues of financing. In addition, management
believes that the Company will be able to obtain sufficient production financing
to cover the costs of constructing subsequent TCS-1 Plants, using the
constituent components of the Plant to be financed, as collateral for debt
financing to cover its construction costs, although there can be no assurance
that financing will be received from any of these sources.
Whether the funds, which the Company obtains, from any of the above
proposed sources, will be sufficient to enable the Company to reach a profitable
operating stage, will be entirely dependent upon: (i) the amount of such
financing which the Company is actually able to raise; (ii) Enercon's receipt of
its funding; and (iii) the as yet unproven ability of the TCS-1 Plant to operate
continuously on a long-term commercial basis in accordance with its anticipated
performance specifications; (see, below, in this Item 6, "Risk Factor No. 2 -
"Need For Substantial Additional Capital" and Item 1 of this Report, "Existing
and Proposed Businesses - Equipment Manufacturing - The TCS-1 Plant", and
"Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - The Enercon Contracts").
32
<PAGE>
Any failure or delay in the Company's receipt of the required financing
would be directly reflected in a commensurate delay or failure in the
commencement of: (i) full scale manufacturing of TCS-1 Plants; and (ii) the
commercial operation of the First Production Model. It should be noted also that
the period of time during which any funds raised will be available to cover
normal overhead costs could be significantly reduced if the Company is required
to make substantial, presently unanticipated, expenditures to correct any
further flaws or defects in the design or construction of the First Production
Model, which may become apparent when it is subjected to continuous operation on
a long term, commercial basis. Moreover, given the early stage of development of
the Company, it is impossible at this time to estimate with any certainty the
amount of income from operations, if any, during the next twelve months.
In the event that the NIR private placement is not obtained, there can
be no assurance that the Company will be able to obtain other 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. Therefore, if the NIR private placement is not
completed and if the Company should wish to raise funds through a public
offering, it will be required to locate another broker-dealer, ready, willing,
and able to underwrite a public offering of the Company's securities. At this
time, the Company is not able to give any assurances that, in such event, it
will be successful in locating an underwriter or that its efforts will
ultimately result in a public offering. If the proceeds from the above described
potential sources of funding should be insufficient for the Company's
requirements and it is not able to effect a public offering of its securities
within the next twelve months, or find other sources of outside funding, the
Company's financial position and its prospects for beginning and developing
profitable business operations could be materially adversely affected.
As of December 31, 1999, the Company had total assets of $3,598,899 as
compared to $4,177,977 on December 31, 1998 reflecting a decrease of $579,078,
and a decrease of $799,105 versus total assets as of the last fiscal year-end,
June 30, 1999, which totaled $4,398,004. Management attributes the decrease from
June 30, 1999 to December 31, 1999 primarily to the following factors: (i) a
decrease of $545,315 in Tax Credits Receivable from the balance as of June 30,
1999 in the amount of $952,704 to the December 31, 1999 balance of $407,389.
While counter-balanced by increases in estimated tax credit receivables based on
research and development actually undertaken in the first six months of Fiscal
2000, the receipt from the governments of Quebec and of Canada of approximately
US$770,000 was the primary cause of this decrease, and (ii) a reduction of cash
and cash equivalents from the balance as of June 30, 1999 in the amount of
$177,256 to $28,777 as of December 31, 1999, a decrease of $148,479. Similarly,
the reduction in total assets of $579,078 from December 31, 1998 to December 31,
1999 is also primarily attributable to the reduction in tax credit receivables.
The December 31, 1999 balance of tax credit receivables in the amount of
$407,389 was $698,262 less than the $1,105,651 balance as of December 31, 1998,
this being attributed to the quicker receipt of tax credit refund checks from
the governments of Canada and of Quebec. Fiscal year-end total assets at June
30, 1999 had reflected a previous increase of $583,356 over $3,814,648 at June
30, 1998. Management attributes the increase in total assets at June 30, 1999
versus June 30, 1998 principally to (i) an increase of $1,305,007 in Property,
Plant and Equipment from $977,288 as of June 30, 1998 to $2,282,295 as of June
30, 1999, and (ii) an increase of $96,886 in Research and development tax
credits receivable from $855,818 as of June 30, 1998 to $952,704 as of June 30,
1999. These increases were partially offset by (i) decreases in cash and cash
equivalents which went from $398,971 as of June 30, 1998 to $177,256 as of June
30, 1999, a decease of $221,715, (ii) a decrease of $204,500 in current prepaid
expenses and deposits from $618,226 as of June 30, 1998 to $413,766 as of June
30, 1999, resulting from amortization of such prepaid expenses, and similarly in
long-term prepaid expenses and deposits which decreased by $261,757 from
$445,677 as of June 30, 1998 to $183,920 as of June 30, 1999.
33
<PAGE>
As of December 31, 1999, the Company had total liabilities of
$3,713,758 as compared to $3,690,673 at December 31, 1998, reflecting an
increase in liabilities of $43,085. Total liabilities as of the end of June 30,
1999 (Fiscal 1999) were $3,952,008 which is $238,250 higher than the December
31, 1999 balance. The June 30, 1999 total had reflected a previous increase of
$591,420 over $3,360,588 in total liabilities as of June 30, 1998. While there
was no material difference in total liabilities from December 31, 1998 to
December 31, 1999 there has been a reduction in convertible subordinated debt.
As of December 31, 1998, the balance of such debt was $1,035,000 whereas the
balance as of December 31, 1999 was $556,600, reflecting a decrease of $453,100
which was added to Shareholders' Equity. This was compensated by a commensurate
increase in loans and advances from Directors, Officers employees and investors.
As of December 31, 1999 this amounted to $1,116,968, reported on a single line
item. In December 1998, this caption was divided between two different captions,
these being loans from investors ($93,516) and accrued liabilities which
included amounts due to directors, officers and employees in an amount of
$101,045.
Reflecting the foregoing, the financial statements indicate that as of
December 31, 1999, the Company had a working capital surplus (current assets
minus current liabilities) of $77,715 and that as of December 31, 1998, the
Company had a working capital surplus of $399,935. The primary cause of this net
decrease in net working capital was related to the decrease in tax credit
receivables.
The Company currently has limited material assets. The success of the
Company's tire recycling equipment manufacturing business, and its ability to
continue as a going concern will be dependent upon the Company's ability to
obtain adequate financing to commence profitable, commercial manufacturing and
sales activities and the TCS-1 Plant's ability to meet anticipated performance
specifications on a continuous, long term, commercial basis.
RESULTS OF OPERATIONS
As noted above, the Company is presently in the very early stages of
the business of manufacturing and selling TCS-1 Plants. The Company intends to
begin manufacturing TCS-1 Plants on commercial basis early in calendar year
2000. The Company had $390,848 of gross sales during Fiscal 1999, but, with the
halting of operations in the rubber mat molding, the Company did not generate
any gross sales during this first quarter of Fiscal 2000. Unless and until the
Company successfully develops and commences TCS-1 Plant manufacturing and sales
operations on a full-scale commercial level, it will continue to generate no or
only limited revenues from operations. Except for the foregoing, the Company has
never engaged in any significant business activities.
The financial statements which are included in this Report reflect
total general and administrative expenses of $335,654 for the three-month period
ended December 31, 1999 versus $1,447,048 for the analogous three-month period
ended December 31, 1998, reflecting a decrease of $1,111,394. The most important
reason for this decrease relates to one-time charges recorded in the three-month
period ended December 31, 1998, which were reported in the Company's Report
10-KSB for the year ended June 30, 1999. These one-time charges related to
issuances of shares of common stock to Officers and previous corporate counsel
and to a former officer of the Company's Canadian operations. The total amount
expensed relative to such share issuances last year was $1,398,750. Total
general and administrative, depreciation, amortization, research and development
costs for Fiscal 1999 were $4,953,622 versus $4,564,566 for the fiscal year
which ended June 30, 1998, reflecting an increase of $389,056. The costs
recorded for Fiscal 1999 reflect a one time charge totaling $1,398,750.
34
<PAGE>
Management believes that the amounts accrued to date in respect of the
shares of common stock issued to compensate the executive officers and corporate
counsel reflect the fair value of the services rendered, and that the recipients
of such shares accepted such numbers of shares as a function of a combination of
their perceived valuation of both present and possible future value of the
shares, rather than the actual value of the stock at the time it was issued.
Management believes that, as of the dates such shares were issued in lieu of
cash compensation, their actual and potential value, if any, could not be
determined, and that any attempt to specify a current valuation with any
reasonable assurance, would be flawed, without substance, and highly contingent
upon, and subject to, extremely high risks including but not limited to the
following factors: (i) the absence of a reliable, stable, or substantial trading
market for the Company's common stock, the possibility that such a market might
never be developed, and the resultant minimal, or total absence of, market value
for any substantial block of common stock; (ii) the very high intrinsic risks
associated with early development stage businesses, such as the Company's; (iii)
the Company's lack of sufficient funds, as at such issuance dates, to implement
its business plan and the absence of any commitments, at such times, from
potential investors to provide such funds; (iv) the restrictions on transfer
arising out of the absence of registration of such shares; and (v) the
uncertainty respecting the Company's ability to continue as a going concern,
(See "Existing and Proposed Businesses", "Market for the Company's Common Equity
and Related Stockholder Matters", and "Management - Certain Relationships and
Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees").
From inception (July 15, 1987) through December 31, 1999, the Company
has incurred a cumulative net loss of $18,286,063. 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 attempt to establish a
health care business. The Company discontinued its proposed health care
operations while still in the planning stage and therefore, generated no
revenues therefrom.
35
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended December 31, 1999, the Company issued a total
of 1,057,402 common shares in respect of services rendered and under consulting
agreements. Of this amount, 425,845 shares were issued to Frances K. Levine Esq.
and 256,557 shares to Scott Rapfogel Esq. in compensation for legal services
rendered previously. The remaining 375,000 shares were issued to Alan Epstein in
respect of consulting services related to the development of a market in Puerto
Rico for TCS-1 Systems.
As of the quarter ended September 30, 1999, the Company had issued
11,127,550 shares of common stock, of which 8,472,819 shares were issued against
accrued liabilities reported on the annual financial statements of June 30,
1998. The remaining 2,654,731 were issued to an officer, an employee and
corporate counsel for services rendered and as a signing bonus, which expenses,
recorded in the amount of $64,377, were recorded in the three-month period ended
December 31, 1999. Of the 8,472,819 shares of common stock issued in respect of
accrued liabilities as of June 30, 1999, 530,921 of such shares were issued to
officers and employees in lieu of cash payments for loans made to the Company.
The remaining 7,941,898 shares of common stock were issued to officers and
employees in lieu of cash payments for salaries, which totaled $272,251. Insofar
as it is pertinent to the discussion of the reduction of operating costs in the
three-month period ended December 31, 1999 versus the analogous three-month
period ended September 30, 1998, and to enhance understanding of the reduction,
the following information relative to the three-month period ended December 31,
1998 is also presented below:
95,057 shares issued to Scott Rapfogel in lieu of $12,500 in
salary due to Mr. Rapfogel under the terms of his employment
agreement with the Company whereby he agreed to serve as the
Company's Assistant U.S. Corporate and Securities Counsel. For
purposes of such issuance, the stock was valued at 50% of the
average bid and ask price for the Company's common stock
during the period in which such stock was earned.
36
<PAGE>
In February 2000, following the period covered by this Report, the
Company issued a total of 19,619,912 shares of common stock as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NUMBER OF TOTAL SHARES
INDIVIDUALS ISSUED CATEGORY OF REASON FOR ISSUANCE OF SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
7 929,000 Type "A" and Type "B" Debenture conversions
--------------------------------------------------------------------------------
3 1,264,000 Payment of Invoices
--------------------------------------------------------------------------------
1 700,000 Direct cash investment
--------------------------------------------------------------------------------
2 200,000 In lieu of Interest and Late Payment Charges
--------------------------------------------------------------------------------
16 16,526,912 Salaries, Consulting Agreements and Expenses
--------------------------------------------------------------------------------
29 19,619,912 T O T A L
--------------------------------------------------------------------------------
</TABLE>
BASIS FOR SECTION 4(2) EXEMPTION CLAIMED
With respect to all sales and other issuances of securities as
hereinabove described, which Registrant claims to have been exempt from the
registration requirements of Section 5 of the Securities Act by reason of
Section 4(2) thereof :
(i) Registrant did not engage in general advertising or general
solicitation and paid no commission or similar remuneration, directly
or indirectly, with respect to such transactions.
(ii) The persons who acquired these securities were executive officers and
directors, or employees of the Registrant, all of whom are
sophisticated investors; Such persons had continuing access to all
relevant information concerning the Registrant and/or have such
knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of such investment and
are able to bear the economic risk thereof.
(iii) The persons who acquired these securities advised Registrant that the
Shares were purchased for investment and without a view to their resale
or distribution unless subsequently registered and acknowledged that
they were aware of the restrictions on resale of the Shares absent
subsequent registration and that an appropriate legend would be placed
on the certificates evidencing the Shares reciting the absence of their
registration under the Securities Act and referring to the restrictions
on their transferability and resale.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
During the period January 7, 1998 through May 11, 1998, the Company
issued an aggregate of $535,000 of convertible, subordinated debentures bearing
37
<PAGE>
interest at the rate of 10% which are due two (2) years from their respective
dates of issuance. Interest thereon was due and payable semi-annually commencing
six months from the issuance date of such debentures. As of March 9, 1999, the
Company was in arrears on interest payments accrued on these debentures since
their issuances, in the aggregate amount of $49,000, and intends to pay all such
interest as soon as the resources therefor are available.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In accordance with the Delaware General Corporation Law, on July 9,
1998, the holders of record of approximately 50.7% of the issued and outstanding
shares of common stock, $.001 par value, of the issuer, in person or by proxy,
by their consent in writing authorized, approved and adopted a resolution
respecting the amendment of the Company's Certificate of Incorporation. Pursuant
thereto, effective July 10, 1998, the Certificate of Incorporation of the
Company was amended so as to change the amount of capital stock, which the
issuer is authorized to issue, from 69,900,000 shares of Common Stock, par value
$.001 per share and 100,000 shares of Open Stock, par value $.001 per share; to
115,000,000 shares of Common Stock, par value $.001 per share and 5,000,000
shares of Class A Stock, par value $.001 per share. The Board of Directors of
the Company has the power to designate the Class A Stock in one or more classes
and/or series, with such rights and preferences as the Board of Directors shall
determine. In October 1999, pursuant to Delaware General Corporation Law, the
Board of Directors authorized the designation of the 5,000,000 shares of Class A
Stock as 5,000,000 shares of common stock, par value $.001 per share.
On January 23, 2000, the holders of record of approximately 51% of the
issued and outstanding shares of common stock, $.001 par value, of the Company,
in person or by proxy, by their consent in writing authorized, approved and
adopted a resolution respecting an amendment of the Company's certificate of
incorporation . Pursuant thereto, effective January 28, 2000, the Certificate of
Incorporation was amended to increase the number of shares of capital stock
which the Company is authorized to issue, from 120,000,0000 shares of Common
Stock, par value $.001 per share to 165,000,000 shares of common stock, par
value $.001 per share.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Current Report on Form 8-K dated February 9, 2000 filed with the Commission
on February 9, 2000.
38
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE TIREX CORPORATION
Date: February 17, 2000
By /s/ JOHN L. THRESHIE, JR.
------------------------------------------
John L. Threshie, Jr. President
Date: February 17, 2000
By /s/ MICHAEL ASH
------------------------------------------
Michael Ash, Treasurer and
Chief Accounting and Financial Officer
39
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000823072
<NAME> THE TIREX CORPORATION
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 28,777
<SECURITIES> 0
<RECEIVABLES> 598,596
<ALLOWANCES> 0
<INVENTORY> 253,089
<CURRENT-ASSETS> 1,419,821
<PP&E> 2,059,586
<DEPRECIATION> 98,574
<TOTAL-ASSETS> 3,598,899
<CURRENT-LIABILITIES> 1,342,106
<BONDS> 556,600
0
0
<COMMON> 119,516
<OTHER-SE> (234,375)
<TOTAL-LIABILITY-AND-EQUITY> 3,598,899
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 656,774
<OTHER-EXPENSES> (28,652)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,390
<INCOME-PRETAX> (685,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (685,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (685,426)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
