SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended June 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _________ to _________
Commission File Number 33-17598-NY
The Tirex Corporation
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(Name of Small Business Issuer in Its Charter)
Delaware 22-3282985
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4055 Ste-Catherine St. West, Suite 151
Montreal (Westmount), Quebec H3Z 3J8
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(Address of Principal Executive Offices) (Zip Code)
(514) 935-2525
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
$nil
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(Issuer's revenues for its most recent fiscal year)
$4,998 (as of October 1, 2003)
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(Aggregate market value of the voting stock held by
non-affiliates of the Issuer)
249,895,892 (as of October 1, 2002)
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(Number of shares outstanding of each of the Issuer's
classes of common stock)
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
into Part I
Annual Report of the Company on Form 10-KSB for
the year ended June 30, 2002
Quarterly Reports of the Company on Form 10-QSB for the
quarters ended September 30, 2002, December 31, 2002,
and March 31, 2003
Current Reports on Forms 8-K of the Company
(none)
ITEM 1. DESCRIPTION OF BUSINESS
The Company
The Tirex Corporation (hereinafter referred to as "we", "us" or the
"Company") is engaged in the business of developing for sale, license or leasean
environmentally safe patented "turn key" cryogenic tire recycling system, known
as the "TCS System" The TCS System was designed and developed by us and
separates tires into clean and saleable rubber crumb, steel wire, and fiber. The
Company was incorporated in Delaware on August 19, 1987 under the name
"ConcordEnterprises, Inc." The Company's name was changed to "Stopwatch Inc." on
June 20, 1989 and to "Tirex America Inc." on March 10, 1993. On July 11, 1997,
the Company's name was changed to "The Tirex Corporation". Since 1993, our core
business has been to develop and to initiate marketing efforts by sale or
license of an environmentally friendly cryogenic tire recycling system, which we
intend to sell to recycling companies and governmental agencies to enable them
to recycle tires. We have devoted the bulk of our efforts to completing the
design and development of our first production model and raising the financing
required to do so. The Company has generated only very limited revenues from
operations and is still in the development stage.
The TCS-System
Our TCS-System comprises a complete, turn-key, environmentally safe,
cryogenic tire recycling system designed to: (i) disintegrate scrap tires, using
less energy than is required by existing ambient methods (which shred and/or
chop tires at "ambient" or normal room temperatures) or other currently
available cryogenic methods (which reduce the temperature of the materials
through the use of liquid nitrogen), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber. Disregarding
configuration variations related to tire feedstock preparation and possible
auxiliary grinding after processing through the System to obtain higher
proportions of fine mesh rubber, these variations not forming part of our
technology in any event, the TCS System is offered in two basic versions, these
being the TCS-1 and the TCS-2. These two versions have an annual throughput
capacity of approximately one million tires and two million tires
respectively,these numbers based on average automobile tires.
The freezing chamber of the TCS-1 Production Model previously located
in Montreal is a large tank through which the tire parts are circulated at
temperatures of approximately 170 degrees below zero, Fahrenheit. The second
version of the TCS has been designed to run approximately 20 degrees colder to
ensure that no pieces of rubber can warm up to the "glass point" before being
entirely processed by o ur patented fracturing mill. Frozen tire parts are
passed through another chamber that separates the component parts of all tires,
including rubber, wire and twine. This chamber contains crushing mechanisms and
other proprietary parts and processes that transform the rubber into very small
particles (mesh). The mesh is then physically separated from the metal and twine
and is finally subjected to other steps to achieve the desired mesh size.
The functions and mechanisms of the TCS-System have been designed for
the exclusive purpose of disintegrating automobile tires, although relatively
minor modifications could be introduced to accept other kinds of tires as well.
The components of a typical tire, which the TCS System is designed to cleanly
separate, basically consist of the following elements:
o Two types of rubber. The sidewalls of automobile tires are constructed
of material containing a higher percentage of natural, as opposed to
synthetic, rubber which is used in the treads. One of the several
possible configurations of the front-end tire preparation section of
the TCS-System has been designed to allow the entrepreneur to take
advantage of these differences to produce separate rubber powders from
sidewalls and treads, should the market for his output show such
separation to be advantageous;
o Steel beads, which consist of steel wires tightly wound together to a
diameter of approximately 3/8 of an inch. These beads are imbedded
around the edges of the tire which contact the wheel rims; Steel
belting, which incorporates a thin layer of steel wires laid out in a
"herring bone" pattern and which underlies the surface of the tread
area; and
o Fiber threads which are incorporated into the rubber used throughout
the tire.
The TCS System has been designed to operate continuously (with minimum
amounts of scheduled downtime for maintenance) and to require less energy than
is used, to the best of the Company's knowledge, by other presently existing
tire recycling equipment.
1
Step-by-Step Operations
The step-by step operations of the TCS-System comprise the following:
Tire Feedstock Preparation
The TCS System is not designed to accept whole tires; whole tires must
undergo preliminary preparation to produce pieces of tire having a dimension
which permits their introduction into the patented fracturing mill. Feedstock
preparation can be accomplished in a number of ways including chipping,
shredding and removal of sidewalls followed by diecutting. None of these
techniques form part of the TCS System technology and the technique ultimately
chosen by the tire recycling entrepreneur will revolve around issues of capital
and operating costs as well as possible issues of transportation costs
respecting whole tires.
Freezing the Tire Pieces
The prepared tire pieces are deposited on a conveyor belt which brings
a continuous stream of tire pieces to a freezing chamber. Supercooled air,
produced on-site by an Air Plant, is continuously blown into the freezing
chamber, and this cold air freezes the tire pieces moving through the chamber to
the point where these pieces can be made to shatter like glass when subjected to
forces such as pressure and bending. After approximately thirty minutes in the
Freezing Chamber the frozen pieces exit the Freezing Chamber and enter our
patented disintegrators ("Fracturing Mills").
Size Reduction and Materials Separation in the Fracturing Mill
The frozen tire pieces pass through our patented disintegrators
("Fracturing Mills") where the pieces are reduced to three separate output
materials, these being rubber crumb of varying degrees of fineness, intact
pieces of steel and intact pieces of fiber. This operation does not involve any
chopping, shredding, or hammer-milling. Therefore, the steel wires are neither
cut nor broken. The fiber threads retain their basic shapes and characteristics.
No steel powder or fiber fluff is produced.
Elimination of the Steel from the Fracturing Mill Output
Upon completion of processing in the Fracturing Mill, the output is
conveyed to a magnetic separation system where the intact steel wires are
magnetically removed from the remaining output of the Fracturing Mill, this
being the rubber crumb and the fiber. The steel can then be baled for either
disposal or sale.
Fiber Removal
The fiber and rubber crumb is then passed through screens to separate
the crumb from the fiber threads. The fiber threads are then conveyed out of the
machine. The fiber can then be baled or put into a container for either disposal
or sale.
Rubber Crumb Finishing
Rubber crumb finishing operations are dictated by the output
requirements of the entrepreneur and his or her customers. A basic TCS System
will produce rubber crumb which is virtually all 10 mesh or finer with virtually
all of the output falling between 10 mesh and 30 mesh and with the output
profile skewed toward the 10 to 15 mesh side of the spectrum. Market
considerations might incite the recycling entrepreneur to request greater
proportions of finer mesh rubber crumb than a basic TCS System is designed to
produce, such as 100% 30 mesh. This requires auxiliary grinding, which takes
place after the steel and fiber have been removed, and affects the configuration
of the post Fracturing Mill operations. Auxiliary processing equipment does not
form part of the TCS System technology. It is possible that some very small
pieces of steel and fiber can be trapped in the larger pieces of rubber coming
out of the Fracturing Mill. These small amounts of steel and fiber are released
during auxiliary processing and can be separated during the auxiliary processing
operation, magnetically for the steel and by an air separation system for the
residual fiber. The rubber crumb is then passed through a series of screens to
sort the rubber crumb by mesh size, which is thence packaged for customer
requirements.
2
Research and Development Activities
The Company's technical expertise and that of its consultants have been
an important factor in its development. Since its inception, the Company has
devoted substantial resources to the design and development of the TCS-1 Plant
as well as to raising the financing necessary for such activities. During the
fiscal years ended June 30, 2002 and 2003 respectively, the Company expended
approximately $751,251 and $450,000 on research and development activities
applied to the design, development, and construction of the first TCS-1
production model and to the design of the TCS-2 model, as well as to product
development involving rubber crumb. Long-term testing started in the third and
fourth quarters of fiscal 1999 and continued through to the end of Calendar
2001. This testing first revealed design problems involving the conveying system
within the freezing tower. Which were corrected during the third quarter of
fiscal 2000 Further testing revealed additional problems in materials separation
which were corrected during Fiscal 2002. The Company also became aware that the
output profile of rubber crumb in terms of mesh size from a basic TCS-1 System
was not consistent with the high proportions of fine mesh rubber crumb being
requested by our identified potential customers. Auxiliary processing equipment
was identified and, with the exception of two pieces of equipment, was acquired
and installed in late Calendar 2001. Financial considerations dictated that
certain of the pieces of equipment so acquired were used equipment and we
encountered problems with some of this used equipment. Regardless, Management
believes the TCS-1 System which was developed and installed in Montreal is ready
for replication and commercialization. In collaboration with our Licensee,
Simpro S.p.A. of Turing Italy, we continue to refine and enhance our tire
disintegration technology to comply with emerging regulatory or industry
standards or the requirements of any potential customer.
During the fiscal year ended June 30, 2003 all research and development
activities respecting the TCS-1 First Production Model and the design of the
TCS-2 were carried out by the Company's engineering and technical staff,
consisting of Louis V. Muro, Vice President in Charge of Engineering, and two
other Company contractually employed engineers.
Our current rate of recovery of saleable rubber per tire is
approximately 94% of the total amount of rubber (15 lbs.) in a 19 lb. (average
weight) used auto tire. To the best of our knowledge, the recycling industry
currently recovers only 70-80% of the rubber. Until January 2002, we continued
to test the TCS-1 First Production Model components to identify opportunities to
increase its operating efficiency.. During Fiscal 2002, we developed a design
for a second generation system (the "TCS-2") which is to provide approximately
double the scrap tire processing capacity of a TCS-1 System. Plant. No
Production Model of this second freezing tower has been constructed to date. Our
Licensee, Simpro S.p.A., is currently in construction of a demonstration
platform which will represent the second generation TCS technology.
Manufacturing
Our activities to date have focused primarily on the design and
development of the TCS-1 First Production Model, and, more recently, on the
design of a second generation version of this technology. In connection with
these activities, we have been dependent upon arrangements with subcontractors
for the manufacture and assembly of the principal components incorporated into a
TCS System Plant. Pursuant to our signing of the exclusive manufacturing license
agreement with Simpro, S.p.A., with the exception of those systems which Simpro
might choose to refuse to accept a contract from any particular potential
customer, all manufacturing activities of our company will be undertaken by this
Italian company. In the seemingly unlikely scenario where Simpro would refuse a
contract which we believe should be accepted, we would have the right to go to
alternate sources to have such systems manufactured and installed. . Management
believes that numerous alternative sources of supply for all such systems are
readily available.
We have licensed the manufacturing respecting our technology to our
Manufacturing Partner, Simpro S.p.A. of Turin, Italy. Simpro is a designer and
manufacturer of high-technology production systems, historically primarily for
the automobile industry, and is active internationally. Simpro has its ISO 9001,
ISO 14001 and EMAS certifications.
3
Operations
Until near the end of Fiscal 2002, we had one Production Model TCS-1
Plant which was composed of various proprietary and non-proprietary parts and
technology. During Calendar 2001 we converted the Production Model into a
full-scale commercial recycling center, with only two pieces of equipment
required to be added such that we would be able to produce the quantities of
fine mesh rubber crumb demanded by our identified customers. The lack of
financial resources forced Management to suspend crumb rubber operations at the
time of the calendar 2001 Christmas season. The continued lack of financial
resources in early calendar 2002 forced Management to prolong the shutdown
indefinitely. Near the end of Fiscal 2002, the Air Plant was returned to the
lessor, and, subsequently, the remaining components of the system were
dismantled. In order to satisfy the consulting fees and out-of-pocket costs
associated with the dismantling, relocation and storage of the First Production
Model, most of these components were assigned to the consultant for sale. The
Fracturing Mill was sent to the Simpro facility in Italy, where it remains, to
facilitate its redesign into a more compact unit.
On May 29, 1997, we entered into an Equipment Lease and Purchase
Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a New Jersey corporation. Pursuant to the OTRP L&P
Agreement, OTRP was to purchase the first production model TCS-1 Plant with an
anticipated delivery date of September 15, 1997. However, while construction of
the first full-scale Production Model of the TCS-1 Plant began in February of
1997, its completion was delayed because of the limited funds available for such
purpose. As a result, OTRP waived the delivery date and agreed to reschedule
delivery. In December 1997, OTRP and the Company agreed that, to the extent
necessary for OTRP to obtain sale and lease-back financing for the front-end
module ("Front-End") and for certain parts of the Air Plant portion of the
Plant, the OTRP Agreement would be deemed to be modified, as required for such
purpose. In connection therewith OTRP arranged with an equipment financing
company for sale and lease-back financing, pursuant to which: (i) the said
financing company purchased the Front-End and certain designated portions of the
TCS-1 Plant's Air Plant directly from us; and (ii) leased such equipment back to
OTRP pursuant to its arrangements with OTRP and/or the OTRP principals. We sold,
pursuant to a lease purchase arrangement, the Front-End for a total purchase
price of $300,000, with irrevocable acceptance and final payment being obtained
in December of 1997. The designated portions of the Air Plant were sold/leased
to a financing company for a total purchase price of $580,000, with irrevocable
acceptance and final payment being obtained in April of 1998.
In July 2000, we entered onto a new agreement with OTRP/its principals
(the "New Agreement") modifying and clarifying provisions of the prior agreement
between the parties regarding certain rights to the Production Model. Pursuant
to the terms of the New Agreement, we issued 4,553,102 shares of its Common
Stock to OTRP's principal officer and stockholder in exchange for forgiveness of
approximately $938,000 in advances to us or paid on its behalf through June 30,
2000. The New Agreement confirmed OTRP's assignment to us of all its rights to
the Production Model and related technology, including all intellectual property
rights and any and all rights accruing to OTRP upon termination of the financing
lease/purchase arrangements. In addition, OTRP and its principal agreed to make
all lease payments to the financing companies in the event we failed to do so
and to convert all advances into our Common Stock at 50% of the market value on
the date of conversion. During fiscal year ended June 30, 2001 OTRP advanced
$256,857 toward our lease payments, and continued to make lease payments in
Fiscal 2002 at the rate of $29,280 per month, until the expiration of the lease
in mid-April 2002. Insofar as the equipment was not being used after the expiry
of the lease, no further lease payments were made. As indicated previously, the
lessor requested the return of the equipment, which was accomplished when the
lessor provided us with an appropriate destination. In April of 2002, 2,250,000
shares were issued in partial payment against the lease payments made.
Subsidiaries
In May of 1995, in order to take advantage of financial incentives in
connection with the research and development work on the first production model
of the TCS-1 Plant, we formed a Canadian corporation, 3143619 Canada Inc. On
June 3, 1998, this entity's name was changed to Tirex Canada R&D Inc.
(hereinafter referred to as "Tirex R&D"). To qualify for Canadian Government
grants and tax benefits, the record owners of 51% of the issued and outstanding
capital stock of Tirex R&D are John L. Threshie, Jr. our President and Chairman
of our Board of Directors and Louis V. Muro, our Vice President of Engineering
4
and a member of our Board of Directors, both of whom are Canadian residents.
John L. Threshie, Jr. also serves as the Chairman of the Board of Directors and
the Chief Executive Officer of Tirex R&D while Louis V. Muro also serves as a
vice president and a director of Tirex R&D. We are the record holder of the
balance of 49% of the issued and outstanding capital stock of Tirex R&D. Messrs.
Threshie and Muro hold their Tirex R&D shares under the terms of a shareholders
agreement, which we can require them to transfer all such shares to us for no
compensation.
On April 22, 1998, we formed a second Canadian corporation, 3477584
Canada Inc., the name of which was changed to Tirex Advanced Products Quebec
Inc. on June 3, 1998 (hereinafter referred to as "TAP"). TAP is a wholly owned
subsidiary of ours, but is presently dormant.
On June 1, 1998, we formed a third Canadian corporation, The Tirex
Corporation Canada Inc., referred to herein as "TCCI". TCCI is also a wholly
owned subsidiary of ours. TCCI was established to operate as our manufacturing
arm, but is presently dormant. We do not have any current plans to re-activate
TCC.
We also have another dormant, wholly owned subsidiary, formed under the
laws of the State of Delaware, Tirex Acquisition Corp. ("TAC"), for which we
have no present plans.
Canadian Grants
The governments of Canada and Quebec, have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage such activities, the Government of Canada, on a national basis, and
the Government of Quebec, on a provincial basis, support private research and
development initiatives through the provision of scientific research tax
incentives to businesses and individuals. As a result of the combined efforts of
both levels of government, the Quebec location has offered the most generous tax
incentives for research and development programs in North America of which we
are aware.
In May of 1995, in order to take advantage of such financial incentives
in connection with the research and development work on the first production
model of the TCS-1 Plant, we formed Tirex R&D. (See "Subsidiaries").
The Tirex R&D License
Tirex R&D holds an exclusive, ten year license from the Company, which
expires on July 2, 2005. This license, which was modified in June of 2002,
permits Tirex R&D to design, develop, and manufacture the TCS-Systems on a
worldwide basis (the "Primary License"). To the extent necessary to ensure that
Tirex R&D's operations are focussed on pure research and development activities,
Tirex R&D may sublicense the Primary License to TCCI or such other corporate
entity as would be deemed appropriate and beneficial. Unless the context
requires otherwise, the terms of the sublicense will be identical to those of
the Primary License. To the extent necessary to achieve the aforesaid goals, all
other contracts to which Tirex R&D is a party, will be transferred and assigned,
in whole or in part, from Tirex R&D to us, TCCI, or any other existing or future
subsidiary or affiliate of ours.
Canadian Government and Government Sponsored Financial Assistance
Our May 1995 transfer of our research and development and manufacturing
activities to Tirex R&D (then referred to as "Tirex Canada") made us eligible
for various Canadian and Quebec government programs which provide loans, grants,
and tax incentives, as well as government guarantees for loans from private
lending institutions, for eligible investment, research and development, and
employee-training activities.
5
Tax Incentives
Canadian and Quebec tax incentives take the form of deductions and tax
credits with respect to eligible research and development expenditures of Tirex
R&D. Certain tax credits are called "refundable" because, to the extent that the
amount of the tax credit exceeds the taxes payable, they are paid over or
"refunded" to the taxpayer. Thus such credits function effectively as monetary
grants. To qualify for such tax credits, research and development activities
must comprise investigation or systematic technological or scientific research
conducted through pure or applied research, undertaken to advance science and
develop new processes, materials, products or devices or to enhance existing
processes, materials, products, or devices. In the period following June 30,
2002, the Company's claim for tax credits in respect of Fiscal 2002 was audited
by Revenue Canada, which organization recently changed is name to Canada Customs
and Revenue Agency, or CCRA. For purposes of ease of reading, the old name of
Revenue Canada will continue to be used. As a result of this assessment, Revenue
Canada determined that Cdn193,936 (approximately US$124,000) was due to us.
After deducting arrearages on payroll taxes and amounts due to other government
departments, the Company received a net amount of Cdn$132,038 (approximately
US$84,500). As a function of reciprocal arrangements between Revenue Canada and
Revenue Quebec, the Revenue Canada audit result becomes the basis of the
calculation of the tax credit granted by Revenue Quebec. The calculated Quebec
credit is Cdn$180,520 (approximately US$115,500) After deduction of payroll tax
arrearages and payroll tax audit adjustments, an amount die to us in the amount
of Cdn$119,365 was established (approximately US$76,400). Rather than release
this amount, Revenue Quebec withheld the amount on account of taxes owed by the
President of the Company.
Canadian Government, and Government Sponsored Loans and Grants
We have in the past also received financial assistance by way of loans
and grants from Canadian and Quebec governmental agencies for the design and
development of the TCS-1 Plant and for export market development. All of the
activities for which these loans were approved have been completed and we have
received the funds approved. Approximately 80% of the loans previously received
have been repaid. Of the remaining approximately CA$150,000 (approximately
US$111,000 using a $0.74 exchange rate) US$66,500 will be foregiven if the
Company does not realize any sales in Spain and Portugal prior to June 30, 2004
and a further approximately US$14,800 will also be forgiven if there are no
sales in Spain and / or Portugal prior to June 30, 2007.
Patent Protection
We were issued a United States patent on our Cryogenic Tire
Disintegration Process and Apparatus on April 7, 1998 (Patent No. 5,735,471).
The duration of the patent is 20 years from the date the original application
was filed. In November 1998, we filed our patent, for review, with the Canadian
Patent Office. We are unable to state at this time how long the Canadian review
process will take and is unable to give any assurances that the Canadian Patent
will be granted. Prior to the issuance of such patent, we relied solely on trade
secrets, proprietary know-how and technological innovation to develop our
technology and the designs and specifications for the TCS-1 Plant. In connection
with a loan made by the Bank of Nova Scotia to the Company, a lien on this
patent was granted to the bank. With the loan having been paid off, the lien was
lifted and at present, the patent is free of liens. We do not presently hold any
patents for our products or systems outside of the United States. A Canadian
patent has been applied for and remains pending. We have lacked the financial
resources to apply for a process patent on an international basis, but the
Company intends to file for additional patent protection, in accordance with our
Agreement with Simpro S.p.A. of Turin, Italy, once sufficient financial
resources will become available.
We have entered into confidentiality and invention assignment
agreements with certain employees and consultants, which limit access to, and
disclosure or use of, our technology. There can be no assurance, however, that
the steps we have taken to deter misappropriation of our intellectual property
or third party development of our technology and/or processes will be adequate,
that others will not independently develop similar technologies and/or processes
or that secrecy will not be breached. In addition, although Management believes
that our technology has been independently developed and does not infringe on
the proprietary rights of others, there can be no assurance that our technology
does not and will not so infringe or that third parties will not assert
infringement claims against us in the future. Management believes that the steps
they have taken to date will provide some degree of protection, however, no
assurance can be given that this will be the case.
6
Competition
At present, there are various methods available to recycle tires,
either to produce rubber crumb or to extract their energy value. We know of no
devices, apparatus or equipment, utilizing technology which is identical or
comparable to the TCS-System technology, which are presently being sold or used
anywhere in the world, nor are we aware of any competing patents relating to our
disintegration technology. However, the TCS-System technology may reasonably be
expected to have to compete with related or similar processes, machines, or
devices for tire disintegration, cryogenic or otherwise. There are presently
many companies currently recycling tires which have established business
relationships. Moreover, prospective competitors which may enter the field in
the future may be considerably larger than us in total assets and resources.
This could enable them to bring their own technologies to more advanced stages
of development with more speed and efficiency than we will be able to apply to
the TCS-System. Additionally, manufacturers of presently available equipment and
systems are in a position to operate research and development departments
dedicated continually to improving conventional systems and to developing new
and improved systems. There can be no assurance that the TCS-System will
successfully compete with existing systems or with any improved or new systems
which may be developed in the future.
Employees
As of October 2002, we have four persons employed either directly or
under consulting contracts including its three executive officers.. All of the
foregoing persons devote their full time to our business and affairs, as
required. At times, we also utilize the services of part-time consultants to
assist us with market research and development and other matters. We intend to
hire additional personnel, as needed.
Potential Markets
We believe that the potential markets for our TCS System will directly
reflect the level of demand for economical, high quality rubber crumb derived
from the recycling of scrap tires. The following discussion of the potential
markets for rubber crumb assumes that the TCS System will be capable of
economically producing high quality recycled rubber crumb and in a variety of
sizes, capable of being used in wide range of products. It should be noted,
however, that because of the limited operating history of our heretofore
Production Model TCS-1 Plant, we cannot, give any assurance that our TCS Systems
will in fact perform as expected under continuous, commercial operating
conditions. Moreover, even if the demand for rubber crumb should increase in
accordance with our expectations, there can be no assurance that a demand for
TCS Systems will likewise develop.
Rubber is a valuable raw material and we believe that recycling this
valuable resource from scrap tires is an ideal way to recover that value.
Recycled scrap tire rubber is already used in a great variety of products,
promoting longevity by adding it to asphalt pavement, adding bulk and providing
drainage as a soil additive, providing durability as a carpet underpadding,
increasing resiliency in running track surfaces and gymnasium floors, absorbing
shock and lessening the potential for injuries as a ground cover for playgrounds
and other recreational areas, and as a significant component added to plastic
resins for making extruded or injection molded products.
Marketing Activities
To a large extent, we have in the past concentrated our efforts on
completing the design, development, and construction of our heretofore First
Production Model TCS-1 Plant and raising adequate financing to support such
efforts. Our long-term objective, however, is to market TCS Systems worldwide,
through national and international sales representatives, licensees or strategic
partners.. Pursuant to an extensive technical audit, our heretofore First
Production Model permitted our company to be certified as an Accredited Tire
Recycler by Recyc-Quebec, a quasi-governmental agency of the Quebec Government,
and should we re-establish crumb rubber production operations, we would be
entitled to tipping fees paid by Recycle Quebec. In the meantime, Management
believes that this accreditation will be beneficial to our marketing efforts
respecting our technology.
7
We can make no assurances with respect to the success of our marketing
and distribution strategy of our TCS Systems. Furthermore, we have limited
resources to achieve the distribution of our TCS Systems and to date we have
made no sales, leases or licenses. We believe that we will need additional
financing, which may not be available, to achieve our long-term objectives.
Government Regulation
Insofar as the Company is not actually a tire recycler, government
regulations have little direct effect on our activities. Of greater importance
is the possible effect on our customers for the TCS technology. The TCS-System
is a "closed loop" system which does not use any chemicals, solvents, gases or
other substances which could result in emissions of any kind from the operation
of the Plant. To the best of the Company's knowledge, operation of a TCS-System
will not result in the emission of any pollutants, the disposal of combustion
residues, the storage of hazardous substances, or the production of any
significant amounts of solid waste which would have to be landfilled. However,
the operation of a TCS System will involve, to varying degrees and for varying
periods of time, the storage of scrap tires or tire pieces representing the
feedstock to the System, and limited storage of crumb rubber prior to shipment
to customers. Rubber, regardless of its physical dimensions or form, is widely
defined as being a fire hazard by fire protection services in most
industrially-advanced countries. Whole tires, with their size, volume and
composition, can pose potentially serious environmental problems. While the
Company does not believe that such storage will normally involve quantities of
tires so large or storage periods so extensive as to constitute the
"stockpiling" of scrap tires, it should be noted that stockpiling, should it
occur, could constitute a particularly serious environmental problem. Among the
numerous problems relating to scrap tires, is that when stockpiled above ground,
tires create serious public health and environmental hazards. These range from
scrap tire fires, which generate large and dense clouds of black smoke and cause
serious soil pollution and are extremely difficult to extinguish, to the
creation of vast breeding grounds for mosquitoes and vermin.
As a result, many US states and Canadian provinces have either passed
or have pending legislation regarding discarded tires including legislation
limiting the storage of used tires to specifically designated areas. Operators
of TCS Systems will therefore be subject to various local, state, and federal
laws and regulations including, without limitation, regulations promulgated by
federal and state environmental, health, and labor agencies. Establishing and
operating a TCS System for tire recycling will require numerous permits and
compliance with environmental and other government regulations, on the part of
our customers, both in the United States and Canada and in most other foreign
countries. The process of obtaining required regulatory approvals may be lengthy
and expensive for customers of our TCS Systems. Moreover, regulatory approvals,
if granted, may include significant limitations on operations. The US-EPA and
comparable US state and local regulatory agencies, and similar government bodies
in Canada and in other jurisdictions where TCS Systems will be marketed actively
enforce environmental regulations and conduct periodic inspections to determine
compliance with government regulations. Failure to comply with applicable
regulatory requirements can result in, among other things, fines, suspension of
approvals, seizure or recall of products, operating, restrictions, and criminal
prosecutions.
We believe that existing government regulations, while extensive, will
not result in the disenabling of its TCS System customers to operate profitably
and in compliance with such regulations. While these regulations are usually
stringent, the huge scrap tire problem must also be dealt with on a daily basis
and the need for economic and environmentally friendly recycling operations is
critical. The burden of compliance with laws and regulations governing the
installation and/or operation of TCS Systems could, nonetheless, discourage
potential customers from purchasing a TCS System. This would adversely affect
our business, prospects, results, and financial condition. As a result, our
business could be directly and indirectly affected by government regulations.
8
ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters is located at 4055 Ste-Catherine St. West in
the Westmount Borough of the City of Montreal, Suite 151, Montreal, Quebec,
Canada H3Z 3J8. We have occupied offices at this address since March 2003. The
space is provided free of charge, including electricity, heating and local
telephone service. During Fiscal 2002, the Company occupied premises in an
industrial building on St. Patrick Street in Montreal, where our heretofore
First Production Model was located. After having accumulated very substantial
arrearages in rent and property taxes for which we were financially responsible,
our former landlord instructed us to vacate these premises such that he could
rent the space out to another company. As part of the settlement agreement with
this former landlord, we agreed to pay to this former landlord the sum of
US$540,000 out of the proceeds of the first four sales of TCS Systems, at the
rate of US$140,000 per system sold.
ITEM 3. LEGAL PROCEEDINGS
We are presently a party in the following legal proceedings:
IM2 Merchandising and Manufacturing, Inc and David B. Sinclair v. The
Tirex Corporation, Tirex Corporation Canada, Inc., et al.
The Plaintiffs, a Canadian resident and a Canadian corporation sued in
the Delaware, U.S. Federal District Court claiming fraud, breach of contract,
unjust enrichment and other allegations, that the alleged Defendants, which
include Tirex Corporation Canada and The Tirex Corporation, jointly conspired to
profit from their failure to comply with terms of a manufacturing agreement. The
monetary demand of this complaint was unspecified. We were prepared to move to
dismiss Plaintiffs' Complaint, but after consultations with the Plaintiffs'
Attorneys, the Plaintiffs' withdrew this complaint voluntarily. Plaintiffs later
filed a second action in the Chancery Court of Delaware alleging certain of the
same allegations; fraud, breach of contract, unjust enrichment, breach of
fiduciary duty and misrepresentation, but eliminated other counts including the
securities fraud allegations. The Defendants in the State Court action are the
same named in the Federal Court action, and again the monetary damages are
unspecified. We moved to dismiss the State Court Chancery case alleging
defective service of process and asserting that the Court had no jurisdiction
over the Defendants in Delaware and for removal of the case to Canada based on
forum non convenience and other considerations. Our motion was granted and the
case dismissed.
Subsequently, on or about April 25, 2001, the Plaintiffs instituted a
lawsuit in Superior Court, judicial district of Montreal alleging breach of
contract and claims damages of Canadian$794,690 (approximately US$508,600)
representing expenses and an additional Canadian$5,411,158 (approximately
US$1,874,000) in loss of profits. We have filed a detailed answer denying all
liability, stating further that Plaintiffs failed to comply with their
obligations. We believe we have meritorious defenses to all of the Plaintiffs'
claims. The action is still pending.
Surgent v. The Tirex Corporation
An action was brought by the Plaintiff against us, alleging that we had
agreed to issue 1,000,000 shares of our Common Stock to the Plaintiff in
consideration for expenses allegedly paid by the Plaintiff on our behalf in the
amount of approximately $150,000. These expenses allegedly were incurred in
relation to the rental of certain office space and performance of administrative
services. The Plaintiff's complaint sought to impose an equitable trust or lien
on 1,000,000 of our unissued common shares, demanded the issuance of the
1,000,000 shares and alleged breach of contract and claimed damages of
$1,400,000.
We moved to dismiss the case on various procedural grounds and in
September 2000 the Court granted our motion based upon the lack of venue in
Union County, New Jersey. A new action was instituted by Plaintiff in the
Superior Court of New Jersey, Bergen County in April 2001 alleging similar
claims as set forth in the previous action (Docket L-08060-00). We denied all of
plaintiff's allegations. On July 24, 2002, The Superior Court of New Jersey,
Bergen County, dismissed, with prejudice, the plaintiff,s complaint for "Lack of
Prosecution". Plaintiff was granted right to appeal, which was undertaken.
However, Plaintiff's appeal was rejected by the Appellate Court.
9
Lefebvre Freres Limited v. The Tirex Corporation
Lefebvre Freres Limited instituted an action against us on August 13,
2001 in the Superior Court, judicial district of Montreal claiming Canadian
$98,513 (approximately US$63,000) is due and owing for the manufacture and
delivery of car tire disintegrators. We are preparing a defense and cross claim
against Plaintiff as the product delivered was defective and we believe we are
entitled to a reimbursement of sums paid. The action is still pending.
Tri-Steel Industries Inc. v. The Tirex Corporation
Our landlord Tri-Steel Industries Inc. instituted an action against us,
and our subsidiaries Tirex Canada and Tirex Canada R & D Inc., on or about June
22, 2001 for arrears of rent in the amount of Canadian $177,973.62 Subsequent to
the Plaintiff's instituting this action, we continued to accumulate very
substantial arrearages for rent and property taxes for which we were financially
responsible. Subsequent to our vacating the premises which had been the object
of the lease, we settled with our former landlord for a total amount of
US$560,000, to be paid at the rate of $140,000 from each of our first four TCS
System sales.
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 us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended June 30, 2003 no matters were submitted to
a vote of the shareholders of the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, is traded on a limited basis in the
over-the-counter market and, since January 2003, has been listed on the "Gray
Sheets". We are currently attempting to have our stock re-quoted on the OTC
Electronic Bulletin Board, maintained by the National Association of Securities
Dealers, Inc. (the "OTC Bulletin Board"). The following table sets forth
representative high and low bid prices by calendar quarters as reported in the
OTC Bulletin Board during the last two fiscal years. The level of trading in the
Company's common stock has been limited and the bid prices reported may not be
indicative of the value of the common stock or the existence of an active
market. The OTC market quotations reflect inter-dealer prices without retail
markup, mark-down, or other fees or commissions, and may not necessarily
represent actual transactions.
10
Bid Prices
Period Common Stock
Fiscal Year Ending June 30, 2002 High Low
September 29, 2001 $ 0.08 $ 0.02
December 29, 2001 0.03 0.01
March 30, 2002 0.02 0.01
June 29, 2002 0.03 0.01
Fiscal Year Ending June 30, 2002 High Low
September 30, 2002 $ 0.01 $ 0.01
December 30, 2002 0.01 0.01
March 31, 2003 See note following
June 30, 2003 See note following
Since being relegated to the Gray Sheets, bid prices are not posted.
Shareholders
As of October 1, 2003, the number of holders of record of the Company's
common stock, $.001 par value, was less than 500, which does not include shares
held by persons or companies in street or nominee name.
Dividends
The Company has paid no cash dividends and has no present plan to pay
cash dividends, intending instead to reinvest its earnings, if any. Payment of
future cash dividends will be determined from time to time by its Board of
Directors, based upon its future earnings (if any), financial condition, capital
requirements and other factors, the company is not presently subject to any
contractual or similar restriction on its present or future ability to pay such
dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and notes
thereto included elsewhere in this prospectus. This document contains certain
forward-looking statements including, among others, anticipated trends in our
financial condition and results of operations and our business strategy. These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties. Actual results could differ
materially from these forward-looking statements. Important factors to consider
in evaluating such forward-looking statements include (i) changes in external
competitive market factors or in our internal budgeting process which might
impact trends in the our results of operations; (ii) unanticipated working
capital or other cash requirements; (iii) changes in the our business strategy
or an inability to execute its strategy due to unanticipated changes in the
industries in which we operates; and (iv) various competitive factors that may
prevent the us from competing successfully in the marketplace.
In March 2000, we announced that our tire recycling technology was
ready for replication and commercialization. Since Fiscal 2001, we have
demonstrated our technology to numerous groups from Asia, Europe, North and
South and America and the Caribbean, as well as to some shareholders and
potential strategic alliance partners. While numerous Letters of Intent have
been signed, as of September 30, 2003, no purchase/sale contracts had been
written.
11
Marketing Structure
We entered into a conditional agreement with Tirex-Europe in April 2001
respecting market development activities to be undertaken in most of Europe, the
Middle East and those North African countries bordering on the Mediterranean
Sea. This agreement originated from a previous letter of intent we entered into
with European Transformation Resources (ETR), a company to be incorporated under
the laws of the Grand Duchy of Luxembourg, for the marketing of TCS Systems in
these same regions. Under the terms of the conditional agreement with
Tirex-Europe, the Gross Revenue and Cost of Systems Sold numbers resulting from
the sales of TCS Systems by Tirex Europe would be recorded on their books rather
than on ours. Revenue would thus be attributed to us on the basis of a gross
profit sharing proportion applied to such sales concluded by Tirex-Europe. These
gross profit sharing proportions are variable as a function of whether or not
the sale is being made to a new customer or an existing customer and how many
sales are being made to the same customers. The variable scale is not
country-specific. Also under the terms of the Tirex-Europe Agreement,
Tirex-Europe will pay to us the sum of $500,000, payable over the sale of the
first ten TCS Systems but with an overall deadline of twelve months. The
contract with Tirex-Europe does not come into effect until Tirex-Europe delivers
to us a first firm purchase order for a TCS System. To date, Tirex Europe has
not delivered any firm purchase orders and thus the Tirex Europe Agreement
remains ineffective. The Agreement has not, however, been cancelled. In the
interim, we are completely at liberty to undertake any marketing activities we
feel appropriate in those countries and regions where Tirex Europe was to be
active.
In January 2000, we signed a License Agreement with Ocean Equipment
Manufacturing and Sales Co. ("OEMS") of New Jersey, a company owned by Louis A.
Sanzaro who is also a director and a significant shareholder of Tirex, for the
marketing and for the manufacturing, installation and service of our tire
recycling systems in the U.S. market. Under the terms of the Agreement, we would
receive a royalty for each system sold, subject to adjustments respecting actual
manufacturing costs. As of June 30, 2003, OEMS had not yet concluded any sales
of TCS Systems to independent parties. As reported ina previous 10-K, Mr.
Sanzaro had accepted to relinquish his exclusivity with respect to the US
market. We are now dealing with potential US customers directly or through
go-betweens on a case-by-case basis, and as such the Company has not had to pay
any up-front fees or commissions or assume any marketing expenses incurred by
such independent persons.
On January 31, 2001, we entered into an Agreement with James Conway, an
Australian national, under which he was named Business Development Manager Asia.
Under this Agreement, Mr. Conway was directed to find a Japanese licensee to
produce and sell TCS Systems. The Japanese company eventually selected would
have exclusive rights to the Japanese market and non-exclusive rights in other
Asian markets. This five-year agreement with Mr. Conway provides for the payment
of 10% of the License Fee paid by the Japanese company plus a 1% commission on
sales made within five years on all sales made by the licensed Japanese
manufacturer. On August 10, 2001, we further appointed Mr. Conway as a Sales
Representative in Asian markets which would be outside of Japan, the territory
which would be attributed to an eventual Japanese licensee. Under the terms of
this three-year agreement, Mr. Conway would receive a commission equal to 5% of
the selling price, before any sales or value-added taxes, customs and excise
taxes and similar levies which might be imposed by a government. This Agreement
will expire on August 8, 2004, but can be renewed. We remain free to undertake
whatever marketing activities it deems appropriate in the Asian market,
regardless of any activities of Mr. Conway
In January 2003, the Company entered into a License Agreement with
Simpro S.p.A. for exclusive manufacturing rights and for non-exclusive marketing
rights with respect to TCS Systems. Simpro is actually in construction of a new
demonstration model in Italy which it plans to use to supporet their marketing
efforts. To date, Simpro has not sold any systems.
During Fiscal 2002 and 2003, the Company received several expressions
of interest to market our systems in worldwide markets but the Company is
unwilling to give market exclusivity to anybody except on a customer-by-customer
basis.
12
The lack of a significant track record relative to the operation and
output of the TCS System has proven to be difficult hurdle to overcome in making
TCS System sales. The installed cost of a TCS-1 System to an entrepreneur,
depending on the system configuration, the condition of the feedstock and the
output requirements and excluding building and infrastructure costs, is in the
vicinity of $3,300,000. For a TCS-2, the comparable cost to the entrepreneur is
in the vicinity of $5,650,000. This represents a substantial investment for an
entrepreneur and, without performance guarantees to substitute for the lack of a
significant operating history, entrepreneurs or their financial backers have
heretofore been unwilling to accept the risk of purchasing a new technology.
Simpro has been able to obtain insurance backing to support their offer of
limited performance guarantees, and such potential is expected to assist the
marketing effort. Simpro is now offering limited Performance Guarantees.
Potential System Sales Initiated Prior to Fiscal 2003
Puerto Rico - A letter of intent was signed to set up a TCS-2 facility and joint
venture on a crumb rubber product manufacturing facility in Puerto Rico. The
Puerto Rican representatives presented their project, which includes our
technology, to the Government of Puerto Rico in June 2001 to secure approval to
proceed, and again in September of 2001 for purposes of securing public funding
for the project.. The Puerto Rican group was able to secure substantial partial
funding from the Puerto Rican Development Bank but throughout was unable to
obtain the necessary financial backing to meet the cash injection requirements
of the bank. Subsequent to June 30, 2003, the Puerto Rican project developer was
able to find an investor with the means and the interest to invest in the Puerto
Rican project. In August of 2003, the investor sent to us a Letter of Intent
indicating his intent to provide the necessary financing to ensure the
realization of the Puerto Rican project.. However, as of the date of this
Report, the Investor had not made any funds available.
Recycletron Inc. - We entered into a letter of intent with Recycletron in July
of 1997 wherein Recycletron agreed to purchase a TCS-1 upon our completing the
design of the system and demonstrating its performance on a 24-hour basis over a
significant period of time. Although it has taken us longer than expected to
establish a fully operational prototype, Recycletron continues to indicate
interest in our technology.
Marketing Efforts initiated or Pursued During Fiscal 2003
During 2003, the Company responded to numerous requests for
information. Out of these requests, several opportunities presented themselves
which merited the expenditure of considerable effort to close a Purchase and
Sales Agreement. In addition to the Puerto Rican project, Management actively
pursued other initiatives relative to proposed installations in eastern Canada,
the USA, Europe, Russia, Brazil, the Middle East, the Republic of South Africa,
and in southeast Asia..
The consultants who had been working with a previous potential
customer, 1457213 Ontario Inc. , a Montreal-based firm operating under the name
Group Comagest, remained of the opinion that this project was attractive enough
to attract other investors. The project business plan was completed and a new
development company (hereinafter, NEWCO) , organized, with key management
personnel identified and ready and willing to start the NEWCO venture. NEWCO
would purchase a TCS-2 from Simpro and install the system in the Province of
Quebec. As of the date of this Report, Comagest was in the process of presenting
this proposal to public sector funding sources, to be followed by securing the
requisite private sector capital to complete the project financing package.
However, as of the date of this Report, no commitments had been secured from
either the public sector or the private sector and the Company cannot predict
when, if ever, a contract for a Quebec-based system will be concluded.
The finalizing of the License Agreement with Simpro means that the
gross revenues from these sales will be recorded on Simpro's books, not in the
books of Tirex. The amount remitted back to Tirex will take the form of a
royalty and will be accounted for as such. Even if these sales would have been
set up in such a way as to be recordable on the books of Tirex, generally
accepted accounting principles in effect in the USA would have prevented the
Company from recognizing the revenue as such until the systems would have been
accepted by the customers. Given the time line required to manufacture, install
and have accepted these systems, it is quite unlikely that these revenues would
13
become recognizable during our fiscal year which will end June 30, 2004. By
extension, the same principles would apply to the royalty to be received by
Tirex. While the Company will benefit from the periodic cash inflows resulting
from progress payments during the next approximately ten months, the royalty
will, in fact, not have been earned until the systems are accepted by the
customers.
In February of 2001, we concluded a private financing with an investor
group. Under the terms of the Agreement, we had the contractual right to require
the Investor to purchase up to US$5,000,000 of put notes. We drew down
US$750,000 of this amount and used the proceeds of this financing toward legal
and consulting fees due, normal operating expenses such as payroll, rent and
taxes and the acquisition of equipment for our prototype TCS-1 Plant. In July of
2001, the Company entered into a technical default with respect to the Agreement
by not having an SB-2 Registration Statement declared effective by the SEC.
After several months of negotiations, the Company entered into a Settlement
Agreement with the Investor Group which provided for a cash paydown of the
amount owed, including interest and penalties over a period of approximately two
years starting with the date the Settlement Agreement was signed, the right of
the Investor Group to continue to be able to sell up to 600,000 collateral and
Rule 144 shares per month and the issuance of three series of warrants, 500,000
each, exercisable at prices of one cent, five cents and ten cents over a three
year period. This Settlement Agreement was announced in April of 2002, and
details of the terms of the Agreement are filed as an Exhibit to this Report.
The Company, in the absence of having completed its first sales of TCS Systems
according to our expectations, was unable to generate the cash flow necessary to
pay dowm the Convertible Note in accordance with the terms of the Settlement
Agreement. Thus, the Company once again finds itself in a position of default.
Numerous recourses are available to the holders of the Convertible Notes, but to
date, these recourses have not been exercised. Such recourses can be exercised
at any time and the fact that they have not been exercised so far does not
preclude their being exercised now or in the future. The Company has kept the
Convertible Note holders apprised of its efforts to sell TCS Systems and thus
restart the repayments on the Convertible Notes.
Because of the lengthy delay preceding the commencement of commercial
operations, we have historically had to cover our overhead costs from sources
other than from commercial revenues. We expect that some portion of our future
overhead costs, which may be quite significant, will continue to be covered from
sources other than commercial revenues. Until December of 2001, our monthly
operating costs were about US$100,000 per month. With the cessation of
production activities and the scaling back of research and development
expenditures starting in January of 2002, our monthly costs were reduced to
approximately US$35,000 per month. Since March of 2003, our monthly
our-of-pocket cash costs have been reduced to negligeable amounts. Our cash flow
deficit condition will continue until such time as the Company will start
generating revenues from the sale of TCS Systems.
While we have initiated marketing of TCS Systems and have in place a
License Agreement, as of September 30, 2003, no unconditional sales orders for
TCS Systems had been received and manufacturing of TCS Systems has not been
initiated. We do anticipate that we will begin selling or licensing out the sale
of TCS Systems and thus initiating the manufacturing of these systems on a
commercial basis in the near future., We did not generate any gross sales during
either Fiscal 2002 or Fiscal 2003. Unless and until we successfully develop and
commence TCS System manufacturing and sales operations on a full-scale
commercial level, we will not generate significant revenues from operations.
Accordingly, we would be obligated to attempt to seek non-commercial sources of
revenues to support operations until TCS Systems sales and manufacturing
operations would become a reality. In the event of such a circumstance, there
can further be no assurance that such non-commercial revenue funding would be
available at all or on terms acceptable to management. Except for the foregoing,
we have never engaged in any significant business activities.
Liquidity and Capital Resources
As of June 30, 2003, we had total assets of $233,335 as compared to
$1,302,955 as at June 30, 2002 reflecting a decrease of $1,069,620. Fiscal
year-end total assets at June 30, 2002 had reflected a previous decrease of
$1,769,290 over $3,072,245 at June 30, 2001. We attribute the decrease in total
assets at June 30, 2003 mainly to the further write down of the carrying value
of the TCS-1 prototype from its carrying value of $500,000 to the further
revised value of $50,000, a reduction of $450,000.This further write down was
the result of the failure of the Air Plant during the fourth quarter of Fiscal
2002 and the coming to the end of the capital lease on the Air Plant at the same
14
time. Prior to the Air Plant failure, the Company intended to acquire legal
ownership of the Air Plant. Funding was not available to repair the Air Plant
and thus the buyback of the Air Plant was not warranted. In such circumstances,
rubber crumb operations would not be restarted, thus impairing the value of the
prototype TCS-1. A decision was made to further write down this asset on the
books of Fiscal 2003 to its revised estimated Net Realizable Value. Further
changes in assets include (i) a decrease of $246,970 in Tax Credits Receivable
from $246,970 as of June 30, 2002 to Nil as of June 30, 2003, and (ii) a
decrease of $242,956 in Prepaid Expenses and Deposits from $242,956 as of June
30, 2002 to Nil as of June 30, 2003. The reduction in Tax Credits Receivable is
attributed to the suspension of Research and Development activities by the
Company in Fiscal 2003. The reduction in Prepaid expenses and deposits is
attributable to amortization and reclassifications against payables during the
fiscal year ended June 30, 2003.
As of June 30, 2003, the Company had total liabilities of $4,094,800 as
compared to $4,049,140 at June 30, 2002, reflecting a marginal increase in
liabilities of $45,660. Total liabilities at June 30, 2002 had reflected a
previous decrease of $56,596 over $4,105,736 in total liabilities at June 30,
2001. We attribute such increases in total liabilities at June 30, 2003
primarily to: (i) increases in Accounts Payable and Accrued Liabilities and
current portion of long-term debt in an amount of $329,703 from $1,547,799 as of
June 30, 2002 to $1,877,502 as of June 30, 2003, and (ii) decreases in Loans
from Related Parties in an amount of $217,855 from $1,012,778 as of June 30,
2002 to $794,923 as of June 30, 2003.
Reflecting the foregoing, the financial statements indicate that as at
June 30, 2003, the Company had a working capital deficit (current assets minus
current liabilities) of $1,783,667 and that as at June 30, 2002, the Company had
a working capital deficit of $1,127,115, a difference of $656,552. There were
reductions in current assets as noted above, particularly in Tax Credits
Receivable and Prepaid Expenses and Deposits, along with additions to current
liabilities due to third parties represented by Accounts Payable and Accrued
Liabilities.
The success of our tire recycling equipment manufacturing business and
our ability to continue as a going concern will be dependent upon our ability to
obtain adequate financing to commence profitable, commercial manufacturing and
sales activities and the TCS Systems' ability to meet anticipated performance
specifications on a continuous, long term, commercial basis. At present, the
Company has no liquidity at all and has disposed of all of its production
equipment and other operating assets.
Results of OperationsResults of Operations
As noted above, we are presently in the very early stages of the
business of marketing TCS Systems. Rubber crumb operations were suspended at the
end of the second quarter of Fiscal 2002, because of financial considerations,
and the failure of the Air Plant during preparation for a System demonstration
in the fourth quarter, have raised doubt if rubber crumb production operations
will be restarted. As a result of these uncertainties, Management further wrote
down the carrying value of the Air Plant from the previous $500,000 to its
current estimated Net Realizable Value of $50,000 giving a writedown amount of
$450,000. We will initiate manufacturing operations with respect to TCS Systems,
either directly or through licensees, upon receipt of firm purchase orders,
either directly or through strategic market development partners. While progress
to this end has proven frustrating so far, we believe that we will be able to
secure such purchase orders during Fiscal 2004. We had only incidental revenues
from operations during Fiscal years 2002 related to the sale of a relatively
small quantity of crumb rubber and no revenues for Fiscal 2003. Unless and until
we successfully develop our marketing and manufacturing operations related to
TCS Systems on a full-scale commercial basis, we will continue to generate
inadequate revenues from operations to support our monthly cash requirements.
Except for the incidental revenues from the sale of a relatively small quantity
of crumb rubber, 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 $981,170 for fiscal 2003, which
reflects an decrease of $228,743 over Fiscal 2002, when general and
administrative expenses were $1,209,913. During fiscal 2003, the Company's total
operating costs increased by $2,104,544, from $3,560,674 for fiscal 2002 to
$1,456,130 for fiscal 2003. The majority of such decrease is the result of the
$1,500,000 write down of the carrying value of the TCS-1 prototype in Fiscal
2002 and the suspension of Research and Development activities during Fiscal
2003. Research and Development expenditures, excluding the write down, fell from
$797,577 in Fiscal 2002 to Nil in Fiscal 2003, a decrease of $797,577. The
decrease in total operating costs also was the result of a decrease in general
and administrative expenses, as noted above, in the amount of $228,743.
15
We believe that the amounts accrued to date in respect of the shares
issued to compensate the executive officers and consultants reflect the fair
value of the services rendered, and that the recipients of such shares received
such shares at an appropriate and reasonable discount from the then current
public market price. We believe that the discount is warranted due to the fact
that there are often restrictions on the transfer of said shares arising out of
the absence of registration, and the uncertainty respecting our ability to
continue as a going concern.
From inception (July 15, 1987) through June 30, 2003, we have incurred
a cumulative net loss of $28,951,048. Approximately $1,057,356 of such
cumulative net loss was incurred prior to the inception of our present business
plan in connection with the Company's discontinued proposed health care business
and was due primarily to the expending of costs associated with the unsuccessful
attempt to establish such health care business. The Company never commenced the
proposed health care operations and therefore, generated no revenues therefrom.
Pursuant to an agreement dated December 18, 2002, our Company has
licensed the manufactruing rights to Simpro S.p.A. of Turin, Italy, and our own
operations will be restricted to receiving license fees and royalties and
marketing the product in conjunction with Simpro.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements required to be included in this Report
pursuant to Item 310(a) of Regulation S-B, are set forth below.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There was no resignation or dismissal of our principal independent
accountant during the two most recent fiscal years and the interim period
subsequent thereto.
16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors, Executive Officers and Significant Employees
The following sets forth, as of June 30, 2003 the names and ages of all
directors, executive officers, and other significant employees of the Company;
and all positions and offices in the Company held by each, and the terms of said
offices. Each director will hold office until the next annual meeting of
shareholders and until his or her successor has been elected and qualified:
Offices Term of
Name Age Held Office
---- --- ---- ------
John L. Threshie, Jr. 49 Chairman of the Board November 1999 -
of Directors, President, and present
Chief Executive Officer
Director June 1995 -
February 1999
Vice President June 1995-
November 1999
Secretary December 1996
February 1999
Louis V. Muro 71 Vice President January 1996 -
of Engineering present
and Director
President March 1994 -
January 1995
Director December 1992 -
January 1995
Secretary December 1992 -
March 1994
Louis Sanzaro 54 Director January 1997 -
present
President February 1999 -
November 1999
Vice President January 1998 -
of Operations February 1999
Michael D.A. Ash 54 Secretary, Treasurer, February 1999-
and Chief Financial present
and Accounting Officer
The Board of Directors has no standing committees.
Family Relationships
No family relationships exist between any director or executive officer
of Company or any person contemplated to become such.
Business Experience
The following summarizes the occupation and business experience during
the past five years for each director, executive officer and significant
employee of the Company. A significant employee is a person who is not an
executive officer of the Company but who is expected to make a significant
contribution to the business of the Company.
17
JOHN L. THRESHIE, JR. Mr. Threshie has served as President and Chief Executive
Officer of the Company since November of 1999. Prior to that time he served as a
Vice President of the Company since June 1995. He was appointed Assistant
Secretary of the Company on February 11, 1999. From December 1996 until February
11, 1999, Mr. Threshie held the position of Secretary, and from June 1995 until
February 11, 1999, as a Director, of the Company. He also served as a Director
for The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc. from June 1998
and June 1995, respectively, until February 11, 1999. He has more than fourteen
years of experience in the areas of management, marketing and sales primarily in
the field of advertising. Mr. Threshie holds a Bachelor's Degree in Political
Science from the University of North Carolina. He was employed as an insurance
and financial broker by Primerica Financial Services from 1991 through 1994.
From 1988 to 1990, Mr. Threshie was an advertising account supervisor for
Ammirati & Puris Inc., an advertising firm in New York. From 1983 to 1988 Mr.
Threshie was employed as a senior account executive at the advertising firm of
Saatchi and Saatchi, Inc. From 1979 to 1983 Mr. Threshie was employed by
Milliken & Co. as a sales representative.
LOUIS V. MURO. Mr. Muro acted as an engineering consultant to the Company from
January 18, 1995 until January 1, 1996 when he was appointed as a Director and
as Vice President in charge of engineering. Mr. Muro served as a Director of the
Company from December 29, 1992 until January 18, 1995. He also served as the
Company's Secretary from December 29, 1992 until March 1994 when he was
appointed President of the Company, a position he held until January 18, 1995.
He has also served as the Vice President in charge of engineering and as a
director of The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc. since
June 1998 and May 1995 respectively. Mr. Muro received a B.S. degree in Chemical
Engineering from Newark College of Engineering in 1954, since which time he has
continually been employed as a chemical engineer. From 1974 to 1993 Mr. Muro has
been the sole proprietor of Ace Refiners Corp. of New Jersey, a precious metals
refinery. From 1971 to 1974, he worked as an independent consultant and from
1964 until 1971, he was director of research and development for Vulcan
Materials Corporation in Pittsburgh, Pa., a public company engaged in the
business of recovering useable tin and clean steel from scrap tin plate. From
1960 to 1964, Mr. Muro was the sole proprietor of Space Metals Refining Co. in
Woodbridge, NJ, a company involved in the purification of scrap germanium to
transistor grade metal. From 1959 to 1960 he was employed by Chemical
Construction Co., of New Brunswick, NJ, where he developed a process for the
waste-free production of urea from ammonia, carbon dioxide and water. From 1954
to 1959, Mr. Muro worked in the research and development department at U.S.
Metals Refining Co. in Carteret, NJ where he was involved with the refinement of
precious metals.
LOUIS SANZARO. Mr. Sanzaro has been a Director of the Company since January 1997
and a Director of The Tirex Corporation Canada Inc. since June 1998. He served
as a consultant to the Company from January 1, 1997 until June 1998, when he was
appointed Vice President of Operations and Chief Operating Officer. On February
11, 1999, Mr. Sanzaro resigned as Vice President of Operations and was appointed
to the position of President of the Company. Effective November 23, 1999, and to
avoid a possible future conflict of interest, Mr. Sanzaro resigned as President
of the Company. Mr. Sanzaro holds a degree in marketing from Marquette
University. In 1997, he was named "Recycler of the Year" for the State of New
Jersey and was also awarded the distinction of being named "Recycling Processor
of the Decade" by Ocean County, New Jersey. He is the President and a member of
the Board of Directors of the nation-wide, Construction Material Recycling
Association. Since 1986, Mr. Sanzaro has served as President and CEO of Ocean
County Recycling Center, Inc. ("Ocean County Recycling"), in Tom's River, New
Jersey. Ocean County Recycling is in the business of processing construction and
demolition debris for reuse as a substitute for virgin materials in the
construction and road building industries. In addition, since 1989, Mr. Sanzaro
has served as Vice President and COO of Ocean Utility Contracting Co., Inc., a
New Jersey company engaged in the installation of sewer and water main pipelines
and the construction of new roadway infrastructure. From 1973 until 1990, Mr.
Sanzaro was the President and CEO of J and L Excavating and Contracting Co.,
Inc., a company engaged in the construction of residential, commercial,
industrial, and government buildings.
MICHAEL D.A. ASH. Mr. Ash joined the Company on January 11, 1999. On February
11, 1999, Mr. Ash was appointed Secretary, Treasurer, and Chief Financial and
Accounting Officer of the Company. Mr. Ash graduated with a Bachelor's Degree in
Business Administration, Magna Cum Laude, from Bishop's University in Quebec in
1970, and with an MBA, With Distinction, from Harvard Business School in 1975.
Mr. Ash is also a Chartered Accountant, (Canadian equivalent to a CPA), having
qualified for this professional designation in 1972 while employed by Coopers &
Lybrand (now PriceWaterhouseCoopers). Since graduation from Harvard, Mr. Ash has
spent most of his career with the Government of Canada, first with the Office of
the Comptroller General in Ottawa and, for the subsequent eighteen years, with a
federal regional economic and industrial development agency in Montreal where he
gained exposure to a very large number of companies and industrial sectors,
ranging from developmental companies to major multi-national corporations. For
ten years during this time period, Mr. Ash was also a part-time lecturer in
accountancy at Concordia University in Montreal for students registered in the
program leading to the Chartered Accountancy designation.
18
Compliance With Section 16(a) of the Exchange Act.
None of the securities have been registered pursuant to Section 12 of
the Exchange Act of 1934, as amended (the "Exchange Act"). Therefore, Section
16(a) of the Exchange Act is not applicable.
ITEM 10. EXECUTIVE COMPENSATION
Current Remuneration
The following table sets forth information concerning the annual
compensation received or accrued for services provided in all capacities for the
fiscal years ended June 30, 2001, 2002 and 2003 by our chief executive and all
our executive officers serving as such as at June 30, 2003 or at any time during
the year ended June 30, 2003. Common stock issued in lieu of cash salary
payments was valued at a 30-50% discount from the average market price of such
stock during the periods in which such salary was earned. Determination of the
market price for such purpose was based upon the average of the bid and ask
prices of such stock, as traded in the over-the-counter market and quoted in the
OTC Bulletin Board. With respect to the issuance of shares during the fourth
quarter of Fiscal 2003, this issuance representing but partial compensation to
those directors and officers to whom sums were due, the period involved was
prior to the company's stock being demoted to the gray sheets, and thus
reference to the Bulletin Board prices still applied. The discount from the
market price was determined arbitrarily, by negotiation between the Company and
our executive officers and did not bear any relationship to any established
valuation criteria such as assets, book value, or prospective earnings. The
market prices of our common stock and the liquidity of such market has
historically been volatile. Future announcements concerning us, our competitors,
results of testing, technological innovations or new commercial products may
have a significant impact on the market price of our common stock. We believe
that, as of the dates when such shares were issued, the actual market value of
such shares was, and as of the date hereof remains, highly contingent upon, and
subject to, extremely high risks.
SUMMARY COMPENSATION TABLE:
ANNUAL COMPENSATION
Name and Principal Position Year Salary $ Bonus $ Other $
--------------------------- ---- -------- ------- -------
John L. Threshie Jr. 2003 $125,000 (1) Nil nil
President 2002 $125,000 (2)
2001 $125,000 (3)
Louis V. Muro 2003 $150,000 (4) Mil nil
Vice President - Engineering 2002 $150,000 (5)
2001 $150,000 (6)
Michael D.A. Ash 2003 $100,000 (7) Nil nil
Secretary-Treasurer & CFO 2002 $100,000 (8)
2001 Note below
19
In 1999, Mr. Ash abrogated his then existing Employment Agreement. This
was replaced by a Consulting Agreement for a period of sixteen (16) months to
the end of Calendar 2000. Under this consulting agreement, Mr. Ash received
2,000,000 shares of the common stock of the Company. A new employment Agreement
with an effective date of January 2001 was put into effect and the prior
Consulting Agreement was allowed to lapse. Under the existing Employment
Agreement, Mr. Ash earns a salary of $100,000 and Mr. Ash also has options to
purchase stock of the company at the lesser of 20(cent) for the first year
option, 40(cent) for the second year option and 50(cent) for the third year
option, or 50% of market applicable to each series. The options can be exercised
on a cashless basis.. Prorating the stock issuance over the sixteen month term
of the prior Consulting Agreement, in Fiscal 2000, Mr. Ash was entitled to
1,250,000 shares of stock. There was no cash salary in Fiscal 2000 for Mr. Ash.
For Fiscal 2001, Mr. Ash received the balance of his stock entitlement, i.e.
750,000 shares, and was entitled to receive $50,000 in cash. For Fiscal 2002 and
2003, Mr. Ash was entitled to receive $100,000 annually.
(1) During Fiscal 2003, Mr. Threshie received 2,500,000 commons shares of
the stock of our Company in partial compensation for salary and
expenses, issued at a 35% discount to market.
(2) In lieu of cash payment of salary, reimbursable expenses and other
benefits, Mr. Threshie was issued shares of our Common Stock and was
permitted to purchase shares during FY 2002 at a discount of 35%
currently in effect versus 50% in prior years, of the then current
market price. The number of shares issued to Mr. Threshie pursuant
thereto during fiscal 2002 aggregated 6,555,709 shares. It is our
intention and that of Mr. Threshie to continue to enter into similar
transactions during fiscal year 2003 for all or part of his salary and
for reimbursement of expenses.
(3) In lieu of cash payment of salary, reimbursable expenses and other
benefits, Mr. Threshie was issued shares of our Common Stock and was
permitted to purchase shares in FY2001 and prior at a discount of 50%
of the then current market price. The rate of discount was reduced
effective the beginning of Fiscal 2002. The number of shares issued to
Mr. Threshie pursuant thereto during fiscal 2001 aggregated 4,634,642
shares.
(4) During Fiscal 2003, Mr. Muro received 2,000,000 commons shares of the
stock of our Company in partial compensation for salary and expenses,
issued at a 35% discount to market.
(5) In lieu of cash payment of salary, reimbursable expenses and other
benefits, Mr. Muro, from time to time, was issued shares of our Common
Stock and purchased shares during FY 2002 at a discount of 35%
currently in effect, versus 50% in prior years, of the then current
market price. The number of shares issued to Mr. Muro pursuant thereto
during fiscal 2002 aggregated 2,250,000 shares.
(6) In lieu of cash payment of salary, reimbursable expenses and other
benefits, Mr. Muro, from time to time, was issued shares of our Common
Stock and purchased shares during FY 2001 at a discount of 50% of the
then current market price. There were no issuances in respect of unpaid
salaries and unreimbursed expenses during fiscal 2001.
(7) In lieu of cash payment of salary, reimbursable expenses and other
benefits, Mr. Ash received 2,100,000 common shares of our Company, as
partial compensation, during Fiscal 2003, issued at a 35% discount to
market. During Fiscal 2003, Mr. Ash notified the Company of his desire
to exercise his first option under his Employment Agreement. The
Company has not yet issued the 500,000 shares necessary to satisfy this
exercise on a cashless basis, as provided for in the Employment
Agreement.
(8) In lieu of cash payment of salary, reimbursable expenses and other
benefits, Mr. Ash received 3,468,603 common shares of our Company
during Fiscal 2002 , issued at a 35% discount to market,
(9) We believe that it is impossible to determine the actual current or
potential value of such shares in light of the fact that, as of the
dates when such shares were issued to the executive officers, the
actual potential market value of such shares were highly contingent
upon, and subject to, extremely high risks including but not limited to
the following factors: (i) the very early stage of development of our
business; (ii) our lack of sufficient funds to implement our business
plan and the absence of any commitments from potential investors to
provide such funds; (iii) the absence of a reliable, stable, or
substantial trading market for such shares; and (iv) the uncertainty
respecting our ability to continue as a going concern.
20
The Tirex Corporation Stock Plan
On June 23, 2000 we adopted the Tirex Corporation Stock Plan (the
"Plan") to advance our interests and those of our shareholders by affording to
our key personnel, consultants and other persons who have made substantial
contributions to us an opportunity to acquire or increase their proprietary
interest in the Company by the issuance to such individuals of Awards, Options
or Grants under the terms set forth in the Plan. By thus encouraging such
individuals to become owners of our common stock we seek to motivate, retain,
and attract those highly competent individuals upon whose judgment, initiative,
leadership, and continued efforts our success in large part depends.
The Plan originally provided that up to 21,000,000 shares could be
issued for this purpose, 7 million shares to be given as awards, 7 million
shares to underlie options to purchase common stock, and 7 million shares to be
given as grants. Awards and Options can only be given to individuals who have
been either in our employ, an officer, director or consultant for the preceding
6 months. Awards are not fully vested until the end of three years with the
1/12th of the aggregate award vesting at the end of each quarter. If the Awardee
is terminated for cause or resigns the unvested portion of the award is
forfeited. Options can be exercised at any time and upon exercise the underlying
stock is fully vested with the purchaser. The Options are not transferable and
are exerciseable for two (2) years after which time they expire. If the Optionee
is terminated for cause or resigns all unexercised options are forfeited. A
Grant of Stock pursuant to the terms of the Plan can only be given to persons
who have made a substantial contribution to us and the shares are not
forfeitable. Subsequent to the Plan's adoption an additional 5,000,000 shares of
common stock were added to it and up to the 26,000,000 shares were made eligible
to be given as either Awards, Grants or Options.
As discussed elsewhere in this Report, the following is a summary of
those options and warrants outstanding with respect to the purchase of the
common stock of the Company:
-------------------------------------------------------------------------------------------------------------
Beneficiary Issuable Exercise Window Price
----------- -------- --------------- -----
-------------------------------------------------------------------------------------------------------------
John L. Threshie Jr. 1,000,000 share options at Two (2) years from date of Series 1: lesser of 20
the beginning of each of issue cents or 50% of market
Calendar Years 2002, 2003 Series 2: lesser of 40
and 2004 cents or 50% of market
Series 3: lesser of 50
cents or 50% of market
-------------------------------------------------------------------------------------------------------------
Michael Ash 1,000,000 share options at Two (2) years from date of Series 1: lesser of 20
the beginning of each of issue cents or 50% of market
Calendar Years 2001, 2002 Series 2: lesser of 40
and 2003 cents or 50% of market
Series 3: lesser of 50
cents or 50% of market
-------------------------------------------------------------------------------------------------------------
Convertible Debenture 1,500,000 in three series Series 1: At any time Series 1 at one (1)
of 500,000 each during the 3-year period cent each
following the date of the Series 2 at five (5)
Settlement Agreement, to cents each
wit, April 26, 2002 Series 3 at ten (10)
Series 2: During the cents each
second and third years
following April 26, 2002
Series 3: During the third
year following April 26,
2002
-------------------------------------------------------------------------------------------------------------
21
Compensation of Directors
The Directors of the Company were not compensated for their services as
such in fiscal 2000.
Employment Agreements
We seek to maintain employment agreements with all of our executive
officers (the "Executive Agreements"). We currently have an employment agreement
with Mr. Threshie that provides for an annual salary of $125,000 and is in
effect until December 31, 2003. Mr. Threshie also has options , as noted above,
to purchase shares of the Company. Mr. Threshie is granted options to purchase
1,000,000 shares at each anniversary date of his Employment Agreement for the
next three years, and, for each series of options, has a two-year period to
exercise that option. The options are exercisable at the lesser of 50% of market
and 20(cent) for the first series, 40(cent) for the second series and 50(cent)
for the third series. We currently employ Mr. Muro on a month-to-month basis,
based on an annual salary projection of $150,000. During fiscal 2000 Mr. Ash
voluntarily abrogated his Executive Agreement with us and entered into a new
agreement under which his compensation is in the form of shares. Under this new
agreement, Mr. Ash continued to act as Secretary-Treasurer and Chief Financial
Officer on a consulting basis. Under the terms of the original Executive
Agreement, Mr. Ash's annual compensation was US$125,000. The consulting
agreement extended to December 31, 2000 and was renewable by mutual consent of
the Company and Mr. Ash. Mr. Ash's compensation for the sixteen-month period
ended December 31, 2000 was 2,000,000 common shares, subject to prorated
adjustment in the event of a stock split. At the beginning of Calendar 2001, Mr.
Ash's consulting agreement was converted back to an Employment Agreement under
which Mr. Ash earns an annual salary of $100,000 and has options, as noted
above, to purchase company stock on terms identical identical to the options
granted to Mr. Threshie.
All of the above agreements provide for the payment of bonuses at the
sole discretion of the Board of Directors based upon an evaluation of the
executive's performance, with payment of any such bonuses to be reviewed
annually. The Executive Agreements also provide for the participation by each of
the foregoing persons in any pension plan, profit-sharing plan, life insurance,
hospitalization or surgical program, or insurance program hereafter adopted by
us, reimbursement of business related expenses, the non-disclosure of
information which we deem to be confidential to it, non-competition by the
executive with us for the one-year period following termination of employment
with us and for various other terms and conditions of employment.
The Executive Agreements with Messrs. Threshie, Muro and Ash also
include severance provisions which provide, among other things, for severance
compensation in the event that the employment of the executive is terminated by
us other than for cause, or by the executive for "good reason", as that term is
defined in the Executive Agreements, or pursuant to a change in control of the
Company. The various Executive Agreements provide for severance compensation, as
follows:
In the case of Messrs. Threshie and Muro, 200% of the amount of the
base salary for a period of twelve months; In the case of Mr. Ash, the
amount of severance compensation for termination other than for cause,
or by the executive for "good reason", as that term is defined in the
Executive Agreements, or pursuant to a change in control of the
Company, amounts to twice his annual base salary plus four months of
base salary for each year of service following February 11, 1999.
Because of the early stage of our development, our lack of operations
and insignificant cash flow, since January 18, 1995, we have not had the
resources to meet fully our financial obligations under the Executive
Agreements. As a result, the major portion of compensation which has been
available to our executive officers has consisted of shares of our common stock,
which such individuals accepted, in lieu of cash compensation, for a substantial
portion of salary and/or consulting fees due to them.
22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of October 1, 2003, with
respect to the persons known to the Company to be the beneficial owners of more
than 5% of the common stock, $.001 par value of the Company and of more than 5%
of the Class A Common Stock of the Company's subsidiary, Tirex R&D and of all
Officers and Directors of the Company as that term is defined in Item 402(a)(2)
of Regulation S-B. Neither the Company nor Tirex R&D have any shares of any
other class issued or outstanding.
Name and Amount and
Title Address of Nature of Percent
of Beneficial Beneficial of
Class Owner Ownership Class (1)
----- ----- --------- ---------
Common John L. Threshie, Jr. 2,502,901(2) 1.00%
The Tirex 151 Francois, Apt. 607
Corporation Nun's Island (Montreal), Quebec
Canada, H3E 1G5
Class A
Common 34(5) 34%
Tirex
R&D
Common Louis V. Muro 5,978,957(2)(3) 2.39%
The Tirex 374 Oliver Avenue
Corporation Westmount, Quebec
Canada H3Z 3C9
Class A
Common 17(5) 17%
Tirex
R&D
Common Louis V. Sanzaro 16,281,088(2) 6.52%
The Tirex 1497 Lakewood Road
Corporation Toms River, NJ 08755
Common Michael Ash 2,980,000(4) 1.19%
The Tirex 310 Montee Sabourin
Corporation St. Bruno, Quebec
Canada, J3V 4P6
Common All directors and 27,742,946 11.10%
The Tirex officers as a group
Corporation (4 persons)
Class A All directors and 51 51.0%
Common officers as a group
Tirex (2 persons)
R&D
-------------------------
23
(1) The percentages listed in the table is calculated on the basis of
249,895,892 shares of the common stock, $.001 par value, of the Company
outstanding as at October 1, 2003.
(2) Our executive officers, directors and principal shareholders have pledged an
aggregate of 11,986,315 (approximately 6% of our then outstanding shares) of
their personal shareholdings in the Company as a security interest for our
recent issuance of $750,000 of 8% convertible notes, pursuant to a Subscription
Agreement and Security Agreement dated February 26, 2001. Specifically, John L.
Threshie, Jr. pledged 1,891,204 shares, Louis Muro pledged 1,723,514 shares and
Louis Sanzaro pledged 8,371597 shares of our common stock. These shares are
currently being held in escrow, pending satisfaction of the terms of the notes.
We were served a notice of default by the investors of the notes in July 2001. A
Settlement Agreement was reached in April of 2002. The Company has been unable
to respect its financial obligations undser the terms of the Settlement
Agreement and negotiations with respect to a new settlement have not been
completed. As of the date of this Report, 3,190,977 collateral shares remained
in the hands of the Investors. This represents approximately 1.3% of our current
outstanding stock. The Investors also possess 4,000,000 of non-collateral stock,
representing an additional 1.6% of our stock outstanding.
(3) Includes: (i) 5,244,957 shares held of record by Mr. Muro as of October 1,
2003; and (ii) 734,000 shares held of record by Mr. Muro's wife, Nina Aviles
Muro.
(4) Includes: (i) 2,750,000 shares held of record by Mr. Ash as of June 30,
2003; and (ii) 230,000 shares held of record in the name of Loryta Investments
Limited an entity beneficially owned by the family of Mr. Ash.
(5) Messrs. Threshie and Muro hold all shares of Tirex R&D Class A Common Stock
pursuant to the terms of a Shareholders agreement among them and the Company
(the "Tirex R&D Shareholders Agreement"), pursuant to which they will be
obligated to transfer all such shares to the Company, for no consideration, on
May 2, 2001, unless the term of such Agreement is unilaterally extended by the
Company. The Company does not intend to take any actions of any kind with
respect to such shares which would be in violation of any Canadian government
regulations governing tax and other financial incentives which may be available
to Tirex R&D. The Company is in the process of preparing appropriate
documentation the effect of which would be to extend the duration of the
Agreement.
Changes in Control
On February 26, 2001 we issued $750,000 worth of convertible notes at
an annual rate of eight percent (8%) to certain investors. Interest payable on
these notes is payable quarterly commencing June 30, 2001. In addition, all
principal and unpaid interest due on the outstanding notes is immediately due
and payable on February 26, 2003, or earlier in the event of a default. One of
the conditions of this transaction was that we would file with the Securities
and Exchange Commission a Registration Statement on Form SB-2 to register
various securities issuable upon the conversion of notes by a date certain and
that the Registration Statement would be effective by August 15, 2001. We failed
to meet these deadlines and the investors served a notice of default on us on
July 19, 2001. Negotiations were undertaken throughout the remainder of Calendar
2001 and into 2002 until a Settlement Agreement was reached on April 26, 2002.
Under the terms of the Agreement, a copy of which is included as an Exhibit to
this Report, the Company is obligated to pay down the amount owed to the
Investor Group, including interest and penalties, over a period of approximately
two years. During the time when an amount continues to be owed to the Investor
Group, the Investor Group will have the right to sell up to 600,000 collateral
or Rule 144 shares per month and apply the proceeds to interest due, fees and
finally to reduction of the principle amount outstanding. Any remaining
collateral shares at the time the debt will have been totally repaid will be
returned to the original owners of the shares. The Investor Group was also given
three series of warrants for 500,000 shares each, exercisable at prices of
$0.01, $0.05 and $0.10 respectively and exercisable within pre-defined time
windows over a three year period starting with the date of signature of the
Settlement Agreement. . As of October 24, 2002, the Investor Group had
6,081,597collateral shares in their possession. As to the failure to have an
SB-2 Registration Statement effective by August 15, 2001, the signing of the
Settlement Agreement negated the default. Due to a lack of financial resources,
the Company was forced to default on the terms of the Settlement Agreement. To
date, the Investors have sold 8,795,338 shares of the original 11,986,315
collateral shares held by them.
24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions during the last two
fiscal years or any presently proposed transactions to which the Company was or
is to be a party, in which the amount involved in such transaction (or series of
transactions) was $60,000 or more and which any of the following persons had or
is to have a direct or indirect material interest: (i) any director or executive
officer of the Company; (ii) any person who owns or has the right to acquire 5%
or more of the issued and outstanding common stock of the Company; and (iii) any
member of the immediate family of any such persons.
Pursuant to a Subscription Agreement dated February 26, 2001 we issued
$750,000 of 8% convertible notes, due February 26, 2003 to three investors.
Under the Subscription Agreement, we had the option, subject to conditions, to
require the investors to purchase additional convertible put notes up to
$4,250,000. Interest only payments are due quarterly commencing June 30, 2001,
and the principal is due in one lump sum on February 26, 2003, or upon certain
events of default. The number of shares of common stock issuable upon conversion
of the convertible notes is 15,000,000, based on a conversion price of $0.05 per
share. One of the conditions of this transaction was that we would file with the
Securities and Exchange Commission a Registration Statement on Form SB-2 to
register various securities issuable upon the conversion of the notes by a date
certain and that the Registration Statement would be effective by August 15,
2001. We failed to meet these deadlines and the investors served a notice of
default on us on July 19, 2001. The conversion price for the convertible notes
is the lesser of (i) 80% of the average of the three lowest closing bid prices
of the common stock for the twenty-two (22) trading days prior to the closing
date, or (ii) 80% of the average of the five lowest closing bid prices of the
common stock for the sixty (60) trading days prior to the conversion date, as
defined in the convertible note. The maximum number of shares of common stock
that any subscriber or group of affiliated subscribers may own after conversion
at any given time is 4.99%.
During the years ended June 30, 2002 and 2003, the Company's executive
officers and certain consultants to the Company have waived substantial portions
of their salaries, fees and/or unreimbursed expenses made by them on behalf, and
for the account, of the Company, and have accepted shares of the Company's
common stock in lieu thereof. In connection therewith shares have been issued as
follows:
During fiscal 2003 various officers and former officers received Common
Stock in partial compensation with respect to salaries and expense
reimbursements and purchased shares of Common Stock totaling 6,600,000 shares.
The shares issued or sold to officers were valued at thirty-five per cent (35%)
of the then current market price. During Fiscal 2002, the number of shares
issued for these reasons was 14,524,312.
During fiscal 2000 the Company modified its agreement with Oceans Tire
Recycling & Processing Co., Inc. ("OTRP") to clarify various terms of the
parties prior agreements and to obtain a commitment by OTRP to pay future lease
payments on the Production Model system, if necessary. The Company also
exchanged its debt obligation to OTRP for 4,553,102 shares of its Common Stock,
which was issued, pursuant to OTRP's request, to its principal shareholder and
President.
25
ITEM 13. EXHIBITS
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
The financial statements filed as a part of this report are as follows:
Consolidated Balance Sheet - June 30, 2003
Consolidated Statements of Operations for the years ended June 30, 2002
and 2003, and cumulative for the period from inception (July 15, 1987)
to June 30, 2003
Consolidated Statements of Owners' Equity (Deficit) as at July 15, 1987
and June 30, 2000 - 2003
Consolidated Statements of Cash Flows for the years ended June 30, 2002
and 2003 and cumulative for the period from inception (July 15,1987) to
June 30, 2003
Financial Statement Schedules
Financial statements schedules have been omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
Exhibits
The exhibits filed as a part of this Report or incorporated herein by
reference are as follows:
Exhibits Incorporated
Herein By Reference,
Exhibit No. As Filed
With Document
Indicated
3. (a) Certificate of Incorporation filed August 19, 1987 3(a)
(b) Certificate of Amendment filed June 20, 1989 3(b)
(c) Certificate of Amendment filed March 10, 1993 3
(d) Certificate of Amendment filed December 5, 1995 3(e)
(e) By-Laws 3(b)
(f) Certificate of Amendment filed August 11, 1997
(g) Certificate of Amendment filed February 3, 1998 3
(h) Certificate of Incorporation of Tirex Acquisition Corp.,
filed with the Secretary of State of Delaware on
December 15, 1997 3(h)
(k) Certificate of Amendment to the Certificate of
Incorporation, filed with the Secretary of State
of Delaware on July 10, 1998 3
Reports on 8-K
The Company filed a current reports on Form 8-K on December 24, 2002
with respect to the License Agreement signed with Simpro S.p.A..
26
SIGNATURES
In accordance with Section 15(d) of the Exchange Act of 1934, the
Company has caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE TIREX CORPORATION
By /s/ JOHN L. THRESHIE, JR.
--------------------------------------
Date: October 15, 2003 John L. Threshie, Jr.
Chairman of the Board of Directors and
Chief Executive Officer
In accordance with Section 15(d) of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Company in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
Principal Executive Officer:
/s/ JOHN L. THRESHIE, JR Chairman of the Board October 15, 2003
------------------------------ of Directors and Chief
John L. Threshie, Jr Executive Officer
Principal Financial and Accounting Officer:
/s/ MICHAEL D.A. ASH Secretary, Treasurer, October 15, 2003
------------------------------ and Chief Financial and
Michael D.A. Ash Accounting Officer
A Majority of the Board of Directors:
/s/ JOHN L. THRESHIE, JR. Chairman of the Board October 15, 2003
------------------------------ of Directors
John L. Threshie, Jr.
/s/ LOUIS SANZARO Director October 15, 2003
------------------------------
Louis Sanzaro
/s/ LOUIS V. MURO Director October 15, 2003
------------------------------
Louis V. Muro
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy materials have been sent to security-holders
during the fiscal year ended June 30, 2003 or the subsequent interim period. As
at the date hereof, the Company plans to furnish proxy materials relating to its
annual meeting, which is presently intended to be held during the current fiscal
year. All such materials will be furnished to the Commission at the same time as
they are sent to securities holders.
27
Report of Independent Auditors
Board of Directors
The Tirex Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of The Tirex
Corporation and Subsidiaries (a development stage company) as of June 30, 2003,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended June 30, 2003 and 2002 and for the
cumulative period from March 26, 1993, (date of inception) to June 30, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Tirex
Corporation and Subsidiaries (a development stage company) at June 30, 2003, and
the results of their operations, and their cash flows for the years ended June
30, 2003 and 2002, and for the cumulative period from March 26, 1993, (date of
inception) to June 30, 2003, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is still in the development stage and it
cannot be determined at this time that the technology acquired will be developed
to a productive stage. The Company's uncertainty as to its productivity and its
ability to raise sufficient capital raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ PINKHAM & PINKHAM, P.C.
--------------------------------------
Pinkham & Pinkham, P.C.
Certified Public Accountants
October 10, 2003
Cranford, New Jersey
F-1
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Balance Sheet
June 30, 2003
Assets
------
Current assets
Cash and cash equivalents $ --
Accounts receivable --
Notes receivable 20,475
Sales tax receivable 36
Inventory 73,323
Research and Experimental Development tax credits receivable --
Prepaid expenses and deposits --
------------
93,835
------------
Property and equipment, at cost, net of accumulated
depreciation of $251,279 50,000
------------
Other assets
Investment, at cost 89,500
Prepaid expenses and deposits --
------------
89,500
------------
$ 233,335
============
Liability and Stockholders' Equity (Deficit)
--------------------------------------------
Current liabilities
Accounts payable and accrued liabilities 1,792,432
Current portion of long-term debt 85,070
------------
1,877,502
------------
Other liabilities
Long-term deposits and notes 217,500
Government loans (net of current) 87,080
Capital lease obligations (net of current) --
Convertible notes 932,240
Convertible note 185,556
Loans to related parties 794,923
------------
2,217,299
------------
4,094,800
------------
Stockholder' Equity (Deficit)
Common stock, $.001 par value. Authorized
250,000,000 shares, issued and outstanding
249,895,892 shares 249,896
Additional paid-in capital 25,222,219
Deficit accumulated during the development stage (28,951,048)
Unrealized gain (loss) on foreign exchange (382,534)
------------
(3,861,465)
------------
$ 233,335
============
See Notes to Consolidated Financial Statements
F-2
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Operations and Comprehensive Loss
Cumulative
Period from
March 26, 1993
Year Ended June 30, (Date of
------------------------------ Inception) to
2003 2002 June 30, 2003
------------- ------------- -------------
Revenues $ -- $ 28,515 $ 1,354,088
Cost of sales -- 12,981 1,031,075
------------- ------------- -------------
Gross profit -- 15,534 323,013
------------- ------------- -------------
Operations
General and administrative 981,170 1,209,913 11,637,075
Depreciation and amortization 24,960 53,184 365,545
Research and development 450,000 2,297,577 15,396,966
------------- ------------- -------------
Total expenses 1,456,130 3,560,674 27,399,586
------------- ------------- -------------
Loss before other expenses and income (1,456,130) (3,545,140) (27,076,573)
------------- ------------- -------------
Other income (expenses)
Interest expense 105,245 (222,204) 762,731
Interest income -- -- (45,443)
Income from stock options -- -- (10,885)
Loss on disposal of equipment -- -- 4,549
------------- ------------- -------------
105,245 (222,204) 710,982
------------- ------------- -------------
Net loss (1,561,375) (3,767,344) (27,787,555)
------------- ------------- -------------
Other comprehensive loss
Loss on foreign exchange -- -- (106,137)
------------- ------------- -------------
Net loss and comprehensive loss $ (1,561,375) $ (3,767,344) $ (27,893,692)
============= ============= =============
Basic and Diluted net loss and comprehensive
loss per common share $ (0.01) $ (0.02) $ (0.47)
============= ============= =============
Weighted average shares of common
stock outstanding 237,326,726 204,212,265 59,348,651
============= ============= =============
See Notes to Consolidated Financial Statements
F-3
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Common Stock Additional During Unrealized
-------------------------- Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1992 3,383,020 $ 3,383 $ 194,980 $(1,057,356) $ -- $ (858,993)
Stock issued for reorganization 18,650,000 18,650 76,155 -- -- 94,805
Stock issued for services 100,000 100 (100) -- -- --
Stock issued in exchange for
warrants 363,656 364 (364) -- -- --
Forgiveness of debt -- -- 728,023 -- -- 728,023
Net loss and comprehensive loss
for the year -- -- -- (165,296) -- (165,296)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1993 22,496,676 22,497 998,694 (1,222,652) -- (201,461)
Stock issued 2,000 2 (2) -- -- --
Exchange for debt -- -- 149,170 -- -- 149,170
Payments received for stock
previously issued -- -- 237,430 -- -- 237,430
Net loss and comprehensive loss
for the year -- -- -- (179,296) -- (179,296)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1994 22,498,676 22,499 1,385,292 (1,401,948) -- 5,843
Revision of common stock (11,900,000) (11,900) 11,900 -- -- --
Stock issued for services 5,592,857 5,592 513,908 -- -- 519,500
Shares issued in exchange
for debt 200,000 200 24,300 -- -- 24,500
Issuance of common stock 402,857 401 21,915 -- -- 22,316
Net loss and comprehensive loss
for the year -- -- -- (575,771) -- (575,771)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 16,794,390 $ 16,792 $ 1,957,315 $(1,977,719) $ -- $ (3,612)
----------- ----------- ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements
F-4
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Common Stock Additional During Unrealized
--------------------------- Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1995 16,794,390 $ 16,792 $ 1,957,315 $ (1,977,719) $ -- $ (3,612)
Stock issued for services 3,975,662 5,090 846,612 -- -- 851,702
Shares issued in exchange
for debt 391,857 392 29,008 -- -- 29,400
Issuance of common stock 710,833 710 80,161 -- -- 80,871
Net loss and comprehensive loss
for the year -- -- -- (1,127,044) -- (1,127,044)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1996 21,872,742 22,984 2,913,096 (3,104,763) -- (168,683)
Stock issued for options -- -- 912,838 -- -- 912,838
Stock issued for services 5,067,912 3,955 690,234 -- -- 694,189
Shares issued in exchange
for debt 251,382 252 43,965 -- -- 44,217
Issuance of common stock 10,257,936 10,259 335,132 -- -- 345,391
Grants issued -- -- 408,597 -- -- 408,597
Net loss and comprehensive loss
for the year -- -- -- (2,376,279) -- (2,376,279)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 37,449,972 37,450 5,303,862 (5,481,042) -- (139,730)
Stock issued for services 4,396,466 4,396 922,180 -- -- 926,576
Stock issued for options -- -- 948,500 -- -- 948,500
Issuance of common stock 21,795,000 21,796 1,176,755 -- -- 1,198,551
Unrealized foreign exchange -- -- -- -- 183,785 183,785
Stock options issued and
outstanding -- -- 1,236,913 -- -- 1,236,913
Grants issued -- -- 669,906 -- -- 669,906
Net loss and comprehensive loss
for the year -- -- -- (4,570,441) -- (4,570,441)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 63,641,438 $ 63,642 $ 10,258,116 $(10,051,483) $ 183,785 $ 454,060
------------ ------------ ------------ ------------ ------------ ------------
See Notes to Consolidated Financial Statements
F-5
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Common Stock Additional During Unrealized
--------------------------- Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 63,641,438 $ 63,642 $ 10,258,116 $(10,051,483) $ 183,785 $ 454,060
Stock issued for services 24,200,439 24,200 2,735,544 -- -- 2,759,744
Stock issued for options 2,234,567 2,235 38,765 -- -- 41,000
Shares issued in exchange
for debt 3,787,947 3,788 340,164 -- -- 343,952
Conversion of debentures 2,816,966 2,817 290,102 -- -- 292,919
Issuance of common stock 677,966 678 49,322 -- -- 50,000
Unrealized foreign exchange -- -- -- -- (29,142) (29,142)
Stock options issued and
outstanding -- -- 385,600 -- -- 385,600
Grants issued -- -- 1,057,742 -- -- 1,057,742
Net loss and comprehensive loss
for the year -- -- -- (4,909,879) -- (4,909,879)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 97,359,353 97,360 15,155,355 (14,961,362) 154,643 445,996
Stock issued for services 28,873,210 28,873 2,217,758 -- -- 2,246,631
Stock issued for options 5,327,486 5,327 381,600 -- -- 386,927
Shares issued in exchange
for debt 7,342,055 7,342 382,556 -- -- 389,898
Conversion of debentures 12,010,073 12,010 815,796 -- -- 827,806
Issuance of common stock 221,000 221 16,039 -- -- 16,260
Unrealized foreign exchange -- -- -- -- 5,789 5,789
Grants issued -- -- 395,683 -- -- 395,683
Net loss and comprehensive loss
for the year -- -- -- (5,548,829) -- (5,548,829)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 151,133,177 151,133 19,364,787 (20,510,191) 160,432 (833,839)
Stock issued for services 7,375,483 7,375 864,840 -- -- 872,215
Stock issued for options 5,378,507 5,379 506,998 -- -- 512,377
Shares issued in exchange
for debt 11,646,312 11,646 1,547,455 -- -- 1,559,101
Conversion of debentures 100,000 100 19,900 -- -- 20,000
Issuance of common stock 732,929 733 39,427 -- -- 40,160
Unrealized foreign exchange -- -- -- -- (340,661) (340,661)
Grants issued -- -- 249,294 -- -- 249,294
Net loss and comprehensive loss
for the year -- -- -- (3,112,138) -- (3,112,138)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2001 176,366,408 $ 176,366 $ 22,592,701 $(23,622,329) $ (180,229) $ (1,033,491)
------------ ------------ ------------ ------------ ------------ ------------
See Notes to Consolidated Financial Statements
F-6
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Common Stock Additional During Unrealized
--------------------------- Paid-in Developmental Foreign
Shares Amount Capital Stage Exchange Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2001 176,366,408 $ 176,366 $ 22,592,701 $(23,622,329) $ (180,229) $ (1,033,491)
Stock issued for services 18,466,162 18,466 314,859 -- -- 333,325
Stock issued in exchange
for debt 24,075,502 24,076 1,145,090 -- -- 1,169,166
Issuance of common stock 5,849,487 5,850 61,897 -- -- 67,747
Unrealized foreign exchange -- -- -- -- (19,940) (19,940)
Grants issued -- -- 504,352 -- -- 504,352
Net loss and comprehensive
loss for the year -- -- -- (3,767,344) -- (3,767,344)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2002 $224,757,559 $ 224,758 $ 24,618,899 $(27,389,673) $ (200,169) $ (2,746,185)
============ ============ ============ ============ ============ ============
Stock issued for services 5,455,000 5,455 130,920 -- -- 136,375
Stock issued in exchange
for debt 15,400,000 15,400 441,183 -- -- 456,583
Issuance of common stock 4,283,333 4,283 31,217 -- -- 35,500
Unrealized foreign exchange -- -- -- -- (182,365) (182,365)
Grants issued -- -- -- -- -- --
Net loss and comprehensive
loss for the year -- -- -- (1,561,375) -- (1,561,375)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2003 $249,895,892 $ 249,896 $ 25,222,219 $(28,951,048) $ (382,534) $ (3,861,465)
============ ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements
F-7
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Cash Flows
Cumulative
Period from
March 26, 1993
Year Ended June 30, (Date of
---------------------------- Inception) to
2003 2002 June 30, 2003
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (1,561,375) $ (3,767,344) $(27,893,692)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 24,960 53,184 364,304
(Gain) loss on disposal and abandonment of assets 530,651 1,500,000 2,005,498
Stock issued in exchange for interest -- -- 169,142
Stock issued in exchange for services and expenses 43,250 333,325 10,574,972
Stock options issued in exchange for services -- -- 3,083,390
Unrealized gain on foreign exchange (182,365) (19,940) (382,554)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 33,213 (33,213) --
Inventory (8,158) (51,823) (73,323)
Sales tax receivable 22,053 53,870 (36)
Research and experimental development tax
credits receivable 246,970 114,059 --
Other assets 242,956 193,297 (10,120)
(Decrease) increase in:
Accounts payable and accrued liabilities 273,586 135,447 1,896,101
Accrued salaries 33,080 90,874 323,152
Due to stockholders -- -- 5,000
------------ ------------ ------------
Net cash used in operating activities (301,179) (1,398,264) (9,938,166)
------------ ------------ ------------
Cash flow from investing activities:
Change in notes receivable (2,415) 28,059 (259,358)
Reduction in notes receivable -- -- 237,652
Investment -- (89,500) (89,500)
Equipment -- -- (321,567)
Equipment assembly costs -- -- (1,999,801)
Organization cost -- -- 6,700
Reduction of security deposit -- -- (1,542)
------------ ------------ ------------
Net cash used in investing activities (2,415) (61,441) (2,427,416)
------------ ------------ ------------
Cash flows from financing activities:
Loans from related parties 133,600 1,070,823 4,354,835
Deferred financing costs -- 100,614 180,557
Proceeds from deposits -- -- 143,500
Payments on notes payable -- -- (409,939)
------------ ------------ ------------
Sub-total $ 133,600 $ 1,171,437 $ 4,268,953
------------ ------------ ------------
See Notes to Consolidated Financial Statements
F-8
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Consolidated Statements of Cash Flows
Cumulative
Period from
March 26, 1993
Year Ended June 30, (Date of
---------------------------- Inception) to
2003 2002 June 30, 2003
------------ ------------ ------------
Sub-total from prior page $ 133,600 $ 1,171,437 $ 4,268,953
Proceeds from convertible notes -- -- 754,999
Proceeds from notes payable -- -- 409,939
Payments on lease obligations -- (7,668) (86,380)
Proceeds from issuance of convertible
subordinated debentures -- -- 1,035,000
Proceeds from loan payable -- -- 591,619
Payments on loan payable -- (342,278) (488,439)
Proceeds from issuance of stock options -- -- 20,000
Proceeds from grants -- 569,111 3,628,277
Proceeds from issuance of common stock -- 5,850 85,582
Proceeds from additional paid-in capital 31,217 61,897 2,145,775
------------ ------------ ------------
Net cash provided by financing activities 303,594 1,458,349 12,364,325
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents -- (1,356) (257)
Cash and cash equivalents - beginning
of year -- 1,356 257
------------ ------------ ------------
Cash and cash equivalents - end of year $ -- $ -- $ --
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 21,024 $ 59,456 $ 232,748
============ ============ ============
Income taxes paid $ -- $ -- $ --
============ ============ ============
Supplemental Disclosure of Non-Cash Activities:
During the years ended June 30, 2003 and June 30, 2002, the Company recorded an
increase in common stock and in additional paid-in capital of $456,583 and
$1,169,166, respectively, which was in recognition of the payment of debt.
During the years ended June 30, 2003 and June 30, 2002, stock was issued in
exchange for services performed and expenses in the amount of $136,375 and
$333,325, respectively.
See Notes to Consolidated Financial Statements
F-9
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
------------------------------
Change of Name
--------------
On July 11, 1997, the Company changed its name from Tirex America, Inc.
to The Tirex Corporation.
Nature of Business
------------------
The Tirex Corporation and Subsidiaries (the "Company") was incorporated
under the laws of the State of Delaware on August 19, 1987. The Company
was originally organized to provide comprehensive health care services,
but due to its inability to raise sufficient capital it was unable to
implement its business plan. The Company became inactive in November
1990.
Reorganization
--------------
On March 26, 1993, the Company entered into an acquisition agreement
(the "Acquisition Agreement") with Louis V. Muro, currently a director
of the Company, and former officers and directors of the Company
(collectively the "Seller"), for the purchase of certain technology
owned and developed by the Seller (the "Technology") to be used to
design, develop and construct a prototype machine and thereafter a
production quality machine for the cryogenic disintegration of used
tires. The Technology was developed by the Seller prior to their
affiliation or association with the Company.
Developmental Stage
-------------------
At June 30, 2003 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
Basis of Consolidation
----------------------
The consolidated financial statements include the consolidated accounts
of The Tirex Corporation, Tirex Canada R&D Inc., The Tirex Corporation
Canada Inc., Tirex Advanced Products Quebec Inc. and Tirex Acquisition
Corp. Tirex Canada R&D Inc. is held 51% by certain shareholders of the
Company. The shares owned by the certain shareholders are held in
escrow by the Company's attorney and are restricted from transfer
thereby allowing for a full consolidation of this Company. The Tirex
Corporation Canada Inc., Tirex Advanced Products Quebec Inc. and Tirex
Acquisition Corp. are 100% held by the Company. All subsidiary
companies except Tirex Canada R&D Inc. are dormant. All inter-company
transactions and accounts have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less, were
deemed to be cash equivalents.
Inventory
---------
The Company values inventory, which consists of finished goods and
equipment held for resale, at the lower cost (first-in, first-out
method) or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of five years.
Repairs and maintenance costs are expensed as incurred while additions
and betterments are capitalized. The cost and related accumulated
depreciation of assets sold or retired are eliminated from the accounts
and any gain or losses are reflected in earnings.
Investment
----------
An investment made by the Company, in which the Company owns less than
a 20% interest, is stated at cost value. The cost value approximates
the fair market value of the investment.
F-10
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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
Adoption of Statement of Accounting Standard No. 123
----------------------------------------------------
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
SFAS 123 encourages, but does not require companies to record
stock-based compensation and other costs paid by the issuance of stock
at fair value. The Company has chosen to account for stock-based
compensation, stock issued for non-employee services and stock issued
to obtain assets or in exchange for liabilities using the fair value
method prescribed in SFAS 123. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
Adoption of Statement of Accounting Standard No. 128
----------------------------------------------------
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share. 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 and replaces the presentation Fully Diluted
EPS with a presentation of Diluted 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. SFAS
128 also requires restatement of all prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are
the exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock
equivalents are calculated in the determination of Diluted Earnings Per
Share.
A Basic Earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the period.
Diluted Earnings per 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, 2003 and June 30, 2002, 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 2003and 2002, and
accordingly, in those years the denominator for the Basic EPS
calculation 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.
F-11
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments, which
principally include cash, note receivable, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity
of such instruments.
The fair values of the Company's debt instruments are based on the
amount of future cash flows associated with each instrument discounted
using the Company's borrowing rate. At June 30, 2003 and June 30, 2002,
respectively, the carrying value of all financial instruments was not
materially different from fair value.
Income Taxes
------------
The Company has net operating loss carryovers of approximately $28.9
million as of June 30, 2003, expiring in the years 2004 through 2023.
However, based upon present Internal Revenue Service regulations
governing the utilization of net operating loss carryovers where the
corporation has issued substantial additional stock and there has been
a change in control as defined by the Internal Revenue Service
regulations, a substantial portion of this loss carryover may not be
available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1993. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carry forwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carry forwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company does not have research and experimental development tax
credits receivable from the Canadian Federal government and the Quebec
Provincial government at June 30, 2003. At June 30, 2002 the company
had a receivable of $246,970. These are the result of tax credits for
research and experimental development expenditures made by the Company
which are not contingent upon any offset against any income taxes
otherwise payable.
Foreign Currency Translation
----------------------------
Assets and liabilities of non-U.S. subsidiaries that operate in a local
currency environment are translated to U.S. dollars at exchange rates
in effect at the balance sheet date for monetary items and historical
rates of exchange for non-monetary items with the resulting translation
adjustment recorded directly to a separate component of shareholders'
equity. Income and expense accounts are translated at average rates
during the year. Currency transaction gains or losses are recognized in
current operations.
Revenue Recognition
-------------------
Revenue from the sale of TCS Systems will be recognized when the
installed product is accepted by the customer. All other revenue from
other products will be recognized when shipped to the customer.
F-12
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 2 - Going Concern
-------------
As shown in the accompanying financial statements, the Company incurred
a net loss of $1,561,375 and $3,767,344 during the years ended June 30,
2003 and June 30, 2002, respectively.
In March 1993, the Company had begun its developmental stage with a new
business plan. As of March 2000, the Company had developed a production
quality prototype of its patented system for the disintegration of
scrap tires, but nonetheless continued its research and development
efforts to improve the machine's performance and to permit greater
flexibility in design for specific customer applications. Due to the
Company's lack of working capital during the year ended June 30, 2003,
all rubber crumb production has ceased and research and development
efforts have been hampered. Pending receipt of funding from operations,
government assistance, loans or equity financing, crumb rubber
production and previous research and development efforts will not be
resumed. While the Company has engaged the process of marketing the TCS
System to numerous potential clients since the beginning of the fiscal
year commencing July 1, 2000, as of June 30, 2003, the Company had not
yet consummated an unconditional purchase order for a TCS System. Until
such an unconditional purchase order is received, Management considers
the Company to still be in the developmental stage.
The Company is dependent on the success of its marketing of its TCS
Plants, and/or raising funds through equity sales, bank or investor
loans, governmental grants or a combination of these, to continue as a
going concern. The Company's uncertainty as to its ability to generate
revenue and its ability to raise sufficient capital, raise substantial
doubt about the entity's ability to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
Note 3 - Financing Cost
--------------
During the year ended June 30, 1999 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 year ended June
30, 2000 was $125,291, reducing this account balance to zero. During
the year ended June 30, 2001, the Company incurred costs of $180,557 in
connection with debt financing. These costs have been capitalized in
other assets and are being amortized over the terms of the financing.
Amortization of financing costs for the year ended June 30, 2002 was
$100,614.
Note 4 - Property and Equipment
----------------------
As of June 30, 2003 plant and equipment consisted of the following:
Furniture, fixtures and equipment $ 37,520
Manufacturing equipment 62,400
----------
Subtotal 99,920
Less: Accumulated depreciation and amortization 49,920
----------
Total $ 50,000
==========
Depreciation and amortization expense charged to operations for the
years ended June 30, 2003 and 2002 respectively was $24,960 and $
53,184, respectively.
F-13
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 5 - Government Loans
----------------
Canada Economic Development
Loan payable under the Industrial Recovery Program for Southwest
Montreal amounting to 20% of certain eligible costs incurred (maximum
loan $333,300) repayable over four years commencing March 31, 1999, and
ending March 31, 2002, unsecured and non-interest bearing. (If the
Company defaults the loans become interest bearing)
Loans payable under the Program for the Development of Quebec SMEs
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 30, 2000 and
ending June 30, 2004 $ 36,363
Loan payable over five years commencing June 30, 2001 and
ending June 30, 2005 45,188
Loan payable in amounts equal to 1% of annual sales in
Spain and/or Portugal through June 30, 2007, to a maximum
of the balance of the loan outstanding. If no sales occur
on or before this date in Spain and Portugal, the loan will
become non-repayable 14,842
Loan repayable in amounts equal to 1 1/2% of annual sales
in Spain and/or Portugal through June 30, 2004 to a maximum
of the balance of the loan outstanding. If no sales occur
before this date in Spain and Portugal, the loan will
become non-repayable. 66,500
---------
162,893
Less: Current portion 75,813
---------
Long- term portion $ 87,080
=========
Principal repayments are as follows:
June 30,
--------
2003 --
2004 75,813
2005 20,580
2006 --
2007 66,500
---------
$ 162,893
=========
During the year ended June 30, 2003, the Company was declared in
default, with respect to the loan under the Industrial Recovery Program
for Southwest Montreal, as a result of the late installment repayment
and as such was obligated to repay the entire remaining balance due on
the loan at an earlier date than the March 31, 2002 maturity date.
Note 6 - Capital Lease Obligations
-------------------------
The Company leases certain manufacturing equipment under agreements
classified as capital leases. The cost for such equipment as of June
30, 2003 and 2002 was $62,400. The accumulated amortization for such
equipment as of June 30, 2003 and 2002 was $49,920 and $37,440,
respectively. The equipment under capital leases has been included in
property and equipment on the balance sheet. The Company is in arrears
on payment of these leases but default has not been declared. The
leased equipment is not part of the Company's TCS System prototype.
F-14
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 6 - Capital Lease Obligations (continued)
-------------------------------------
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,
2003
Years Ended
June 30,
--------
2003 $ -
2004 15,514
----------
Total minimum lease payments 15,514
Less amount representing interest 1,955
----------
Total obligations under capital lease 13,559
Less current portion of obligations
under capital leases 13,559
----------
Long-term obligation under capital leases,
with interest rate of 10% $ --
==========
Note 7 - Convertible Subordinated Debentures
-----------------------------------
The Company issued Type B Convertible Subordinated Debentures between
December 1997 and February 1998. These debentures bore interest at 10%
and were convertible into common shares of the Company at $0.20 per
share. The conversion privilege on the remaining $55,000 of these
debentures expired and the amount is now included on the Balance Sheet
in Long term deposits and notes.
Note 8 - Convertible Notes
-----------------
The Convertible Notes appearing on the balance sheet as of June 30,
2003 consisted of an investment arrangement with a group of
institutional investors involving a multi-stage financing under which
the Company had access to, at its option, up to $5,000,000. A first
tranche of $750,000 was completed but no further drawdowns were made.
The terms of the convertible note were:
Balance at June 30, 2003 and June 30, 2002 $ --
Interest rate 8%, payable quarterly,
commencing June 30, 2001
Issue date February 26, 2001
Maturity date February 26,2003
Redemption rights If not converted, the
holder may require the
Company to redeem at any
time after maturity for
the principal amount
plus interest.
Conversion ratio Lower of (i) - 80% of
the average of the three
lowest closing bid
prices for the thirty
trading days prior to
the issue date, which
equals $.073, or (ii) -
80% of the average of
the three lowest closing
bid prices for the sixty
trading days prior to
the conversion date.
F-15
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 8 - Convertible Notes (continued)
-----------------------------
Common stock warrants The Convertible Notes
carried an option to
purchase Common stock
warrants at the rate of
one Warrant for each
$1.25 of purchase price.
The exercise price on
the first tranche of
$750,000 is $.077 per
share.
Certain Directors and Officers of the Company have pledged
approximately 12,000,000 of their personal shares of Common stock of
the Company as security for the Convertible notes until such time as
the Company files with the Securities and Exchange Commission a
Registration Statement on Form SB-2, to register common stock and
warrants issuable upon the conversion of the notes, no later than 150
days after the issue date of the Convertible notes. This deadline was
not met and, as such, the investors served a notice of default to the
Company on July 19, 2001. The Registration Statement has still not been
declared effective by the Securities and Exchange Commission as of this
date, and until such occurs, the Convertible notes cannot be converted
to Common stock nor may the Common stock warrants be exercised.
On April 24, 2002 the Company entered into a Settlement Agreement with
the Note holders. In the event of a default under the Settlement
Agreement, the term of the Convertible Notes would become effective
once again. The conclusion of the Settlement Agreement has negated the
default. The main terms of the Settlement Agreement are as follows:
Amount due including interest calculated to
June 30, 2002 and penalties to date, and
deducting proceeds from the sale of
collateral shares in the amount of $16,260 $ 932,240
Interest rate on the debt 8%
Repayment terms $1,000 on May 15, 2002
$1,000 on June 15, 2002
$38,843.33 each month
for up to twenty-four
months starting August
1, 2002
Warrants for purchase of common shares 500,000 three-year
warrants exercisable
immediately at a price
of $0.01 per share.
500,000 two-year
warrants exercisable
one year from the date
of the Settlement
Agreement at a price of
$0.05 per share.
500,000 one-year
warrants exercisable
two years from the date
of the Settlement
Agreement at a price of
$0.10 per share.
Right to sell collateral shares and Rule The Investors have the
144 shares right to sell up to
600,000 collateral
shares and/or Rule 144
shares per month, with
proceeds to be first
applied against interest
and fees and thereafter
against principal.
Right of prepayment The Company has the
right to pay amounts in
excess of the prescribed
monthly amount, without
penalty.
F-16
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 8 - Convertible Notes (continued)
-----------------------------
Collateral shares As of the date of
signing of the
Settlement Agreement,
the Investors had
10,790,885 Collateral
Shares in their
possession.
During the year ended June 30, 2002, the Company authorized the
investors to sell 1,800,000 of the shares held as security.
Note 9 - Convertible Note
----------------
A Convertible note, under a private arrangement consists of the
following:
Balance at June 30,2003 $ 185,556
Interest rate 8%
Issue date July 19, 2000
Maturity date January 19,2002
Redemption rights If not converted, the
holder may require the
Company to redeem at any
time after maturity for
the principal amount
plus interest.
Conversion ratio Not convertible prior to
July 19, 2001, at 20%
discount to market
between July 19, 2001
and January 19, 2002 or
at 25% to market if held
to maturity, to a
maximum of not more than
2,500,000 shares.
Note 10- Related Party Transactions
--------------------------
Convertible loans include amounts primarily due to Directors, Officers
and employees. Historically, such amounts due have been repaid through
the issuance of stock. At June 30, 2003 and June 30, 2002, the balances
owing to Directors and Officers were $794,923 and $919,462. These
amounts are without interest or term of repayment.
Various Notes Receivable from Officers, separately reported on the
audited Balance Sheet as of June 30, 2000, plus accrued interest
thereon, were offset against amounts due to these Officers as of June
30, 2001.
Long-term deposits and notes included an amount of $118,500 at June 30,
2003, which is payable to Ocean Tire Recycling & Processing Co., Inc.,
a company owned by a Director of the Company.
Subsequent to June 30, 2000, the Company modified an agreement with
Ocean Tire Recycling & Processing Co., Inc. to clarify various terms of
the parties' prior agreements and to obtain a commitment by Ocean Tire
Recycling & Processing Co., Inc. to pay, when necessary, lease payments
on the prototype TCS System. As part of the agreement, the Company will
repay Ocean Tire Recycling & Processing Co., Inc. in cash or through
the issuance of stock. The lease payments, under the accounting
provisions for an operating lease, have been recorded as a Research and
Development expense and the debt obligation included in loans from
related parties. During the year ended June 30, 2001, 6,500,000 common
shares were issued under the agreement as a partial Settlement. During
the year ended June 30, 2002, an additional 4,553,102 common shares
were issued under the agreement to a designated person assigned by
Ocean Tire Recycling & Processing Co., Inc.
F-17
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 11- Exchange of Debt for Common Stock
---------------------------------
During the fiscal year ended June 30, 2002, the Company recorded an
increase in common stock and additional paid-in capital of $1,169,166
representing issuances of stock in lieu of cash payments for debts
owed. During the year ended June 30, 2003, the Company recorded
increases in common stock and additional paid-in capital of $456,583
reflecting the exchange of common stock for debts owed.
Note 12- Common Stock
------------
During the years ended June 30, 2003 and the year ended June 30, 2002,
the Company issued common stock in exchange for services performed
totaling $136,375 and $ 333,325, respectively. Included in the year
ended June 30, 2002 are payments to Officers of the Company for salary
and expenses in the amount of $57,796. During the year ended June 30,
2003, the Company issued common stock in exchange of services performed
totaling $43,250. The amount for the year ended June 30, 2003 did not
include any payments to Officers of the Company in exchange for salary
and expenses. The dollar amounts assigned to such transactions have
been recorded at the fair value of the services received.
On January 31, 2001, the Company's stockholders approved an amendment
to the Articles of Incorporation of the Company to increase the number
of authorized shares of common stock, par value $0.001, from
165,000,000 shares to 250,000,000 shares.
As of June 30, 2003, the Company had 249,895,892 Common shares issued
and outstanding.
Note 13- Stock Plan
----------
The Company established a Stock Plan in June of 2000 whereby key
personnel of the Company, consultants and other persons who have made
substantial contributions to the Company may be issued shares as
compensation and incentives through Awards, Options or Grants under the
terms set forth in the Stock Plan. The Stock Plan originally called for
the issuance of a maximum of 7,000,000 shares of stock as Awards, the
issuance of a maximum of 7,000,000 shares of stock to underlie Options
and the issuance of a maximum of 7,000,000 shares of stock that may be
issued as Grants. Awards and Options can only be given to individuals
who have been either in the employ of the Company, an Officer, Director
or consultant for the preceding six months. Awards are not fully vested
until the end of three years with one twelfth of the aggregate award
vesting at the end of each quarter. If the Awardee is terminated for
cause or resigns, the unvested portion of the award is forfeited.
Options can be exercised at any time and upon exercise, the underlying
stock is fully vested with the purchaser. The Options are not
transferable and are exercisable for two years after which time they
expire. If the Optionee is terminated for cause or resigns, all
unexercised options are forfeited. A Grant can only be given to persons
who have made a substantial contribution to the Company and the shares
are not forfeitable. On January 31, 2001, the Company amended the Stock
Plan providing for an additional 3,000,000 shares being allocated as
Grants and additional 2,000,000 shares allocated to be given as
Options. On May 30, 2001, the Stock Plan was further amended
reallocating 7,000,000 shares to be given as Awards to allow 5,000,000
of the shares to be used for Options and 2,000,000 of the shares to be
used as Grants. There were no stock issuances under the Stock Plan for
the year ended June 30, 2000.
During the year ended June 30, 2001, the Company issued 9,300,000
shares as Grants under the Stock Plan at an average stock price of
$.093 for an aggregate consideration of $867,374. During the year ended
June 30, 2002, the Company issued 750,000 shares as Grants under the
Stock Plan at an average stock price of $.016 for an aggregate
consideration of $12,031.
F-18
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 13- Stock Plan (continued)
----------------------
During the year ended June 30, 2001, the Company had the following
transactions as Options under the Stock Plan:
Number of Avg. Exercise Aggregate
Shares Price Consideration
----------- ----------- -----------
Granted and unexercised at
beginning of year Nil -- --
Granted and exercised
during the year 9,698,228 $ 0.131 $ 1,273,334
Granted and unexercised at
end of year Nil -- --
The exercise price at the time the Options were granted and exercised
was approximately equal to the market price at that time.
There were no Options granted or exercised during the year period ended
June 30, 2003.
Note 14- Convertible Debt
----------------
In the event that holders of convertible rights of option exercise such
rights of conversion the Company does not have a sufficient number of
authorized shares conversion stock to fulfill such obligations and a
shareholder meeting would be required to approve the additional
authorized number of shares. There is no assurance that the
shareholders would approve the increase to the number of authorized
shares of stock to meet the conversion obligations under the various
conversion agreements or options.
Note 15- 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 consisted
of the proceeds from the sale of debentures of $535,000. The financing
fees on the issuance of the debentures, totaling $61,755, were included
as an expense 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 consulting services for a period of 5 years
expiring in June 2002. Pursuant to 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 16- Government Assistance
---------------------
The Company is eligible for and has made claims for tax credits related
to scientific research and experimental development expenditures made
in Canada. These amounts, under Canadian Federal and Provincial tax law
in conjunction with its annual tax return filings, need not be offset
against taxes otherwise payable to become refundable to the Company at
the end of its fiscal year. As such, during the year ended June 30,
2003, the Company received approximately $504,000, which has been
recorded as an increase in stockholders' equity paid-in capital. Also,
during the year ended June 30, 2001, the Company received approximately
$353,725, which has also been recorded as an increase in stockholders'
equity paid-in capital. During the year ended June 30, 2002, the
Company recorded additional tax credits in the amount of $246,970,
bringing the reported receivable balance from these governments from
$246,970 as of June 30, 2002 to zero as of June 30, 2003.
F-19
THE TIREX CORPORATION AND SUBSIDIARIES
--------------------------------------
(A Developmental Stage Company)
-------------------------------
Notes to Consolidated Financial Statements
Note 17- Commitments
-----------
The Company leased office and warehouse space at an annual minimum rent
of $80,000 for the first year, $160,000 for the second year and
$200,000 per year for the third through the fifth years. The lease
expired in 2003. The Company was responsible for its proportionate
share of any increase in real estate taxes and utilities. Also, under
the terms of the lease, the Company was required to obtain adequate
public liability and property damage insurance.
Rental expense for the years ended June 30, 2003 and June 30, 2002
amounted to $124,442 and $205,141, respectively.
The lease contains a second ranking moveable hypothec in the amount of
$300,000 on the universality of the Company's moveable property.
At June 30, 2003 the Company was in arrears of rent, including interest
and related charges, in the amount of $560,000.
Note 18- Litigation
----------
An action was instituted by Plaintiffs, a Canadian resident and a
Canadian corporation, in a Canadian court alleging a breach of contract
and claims damages of approximately $508,600 representing expenses and
an additional approximate amount of $1,874,000 in loss of profits. The
current action follows two similar actions taken in United States
courts, the first of which was withdrawn and the second of which was
dismissed based on forum non-convenience and other considerations. A
detailed answer has been filed by the Company denying all liability,
stating further that Plaintiffs failed to comply with their
obligations. Counsel for the Company believes that the Company has
meritorious defenses to all of the Plaintiffs claims. The action is
still pending.
A Plaintiff instituted an action, a Canadian corporation, in August
2001 in a Canadian court claiming approximately $63,000 is due and
owing from the manufacture and delivery of tire disintegrators. The
Company is preparing its defense and a cross claim against the
Plaintiff as the product delivered was defective and the Company
believes it is entitled to a reimbursement of sums paid. The action is
still pending.
An action was instituted by a Plaintiff, the Company's landlord,
against the Company in June 2001 for arrears of rent in the amount of
approximately $113,900. The Company is currently in negotiation with
its landlord and the action is still pending. As of June 30, 2003, the
Company was in arrears of rent and property taxes to its landlord in
the amount of approximately $560,000.
Note 19- Accumulated Other Comprehensive Loss
------------------------------------
The deficit accumulated during the development stage included other
accumulated comprehensive loss totaling $106,137.
F-20