U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 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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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-2824362
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4055 Ste-Catherine Street West, Suite 142, Montreal (Westmount), Quebec,
Canada, H3Z 3J8
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(Address of Principal executive offices)
(514)
------------------------------------------------
(Issuer's telephone number, including area code)
---------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding for each of the issuer's classes of
common equity, as of April 30, 2003: 249,895,892 shares
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
The Tirex Corporation
(A Development Stage Company)
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
The Tirex Corporation and Subsidiaries
Consolidated Balance Sheets as of
March 31, 2003................................................. 1
Consolidated Statements of Operations
for the three and nine-month periods
ended March 31, 2003 and 2002.................................. 2
Consolidated Statements of Cash Flows
for the three and nine-month periods
ended March 31, 2003 and 2002.................................. 3
Notes to Financial Statements (Unaudited).......................... 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 16
PART II B OTHER INFORMATION
Item 1 - Legal Proceedings.................................................. 18
Item 2 - Changes in Securities and Use of Proceeds.......................... 21
Item 3 - Defaults Upon Senior Securities.................................... 21
Item 4 - Submission of Matters
to a Vote of Security Holders.................................... 22
Item 6 - Exhibits and Reports on Form 8-K................................... 22
The financial statements are unaudited. However, pursuant to SEC requirements,
the consolidated financial statements have been reviewed by the Company's
independent auditor. Readers are cautioned that a review engagement does not
constitute an audit. Management of registrant believes that all necessary
adjustments, including normal recurring adjustments, have been reflected to
present fairly the financial position of registrant at March 31, 2003 and the
results of its operations and changes in its cash position for the three and
nine-month periods ended March 31, 2003 and 2002 and for the period from
inception (July 15, 1987).
THE TIREX CORPORATION
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2003
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ --
Accounts receivable 30,902
Notes receivable 19,927
Sales taxes receivable 39,876
Inventory 67,314
Research and Experimental Development tax --
credits receivable
Prepaid expenses and deposits 36,394
------------
194,414
------------
Property and equipment,
salvage value 50,000
------------
Other assets
Investment, at cost 89,500
Prepaid expenses and deposits 209,000
------------
298,500
------------
$ 542,914
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued liabilties $ 1,839,642
Current portion of long-term debt 43,685
------------
1,883,327
------------
Other liabilities
Long-term deposits and notes 217,500
Government loans (net of current) 131,158
Capital lease obligations (net of current) 2,614
Convertible notes 932,240
Convertible note 185,556
Loans from related parties 558,423
------------
2,027,491
------------
3,910,818
------------
Stockholders' 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 (28,549,318)
Unrealized gain (loss) on foreign exchange (290,701)
------------
(3,367,903)
------------
$ 542,914
============
1
THE TIREX CORPORATION
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited) (Unaudited)
Three months ended Nine months ended
March 31 March 31 Cumulative from
-------------------------------- -------------------------------- March 26, 1993 to
2003 2002 2003 2002 March 31, 2003
-------------- -------------- -------------- -------------- --------------
Revenues $ -- $ -- $ 28,515 $ 1,424 $ 1,354,088
Cost of Sales -- -- 12,981 854 1,031,075
-------------- -------------- -------------- -------------- --------------
Gross profit -- -- 15,534 570 323,013
-------------- -------------- -------------- -------------- --------------
Operations
General and administrative 185,730 198,665 636,792 797,219 11,196,513
Depreciation and amortization -- 13,627 5,914 41,299 346,499
Research and development -- 120,791 450,000 362,805 14,946,966
-------------- -------------- -------------- -------------- --------------
Total Expense 185,730 333,083 1,092,706 1,201,323 26,489,978
-------------- -------------- -------------- -------------- --------------
Loss before other expenses (income) (185,730) (333,083) (1,077,172) (1,200,753) (26,166,965)
-------------- -------------- -------------- -------------- --------------
Other expenses (income)
Interest expense 22,838 25,401 82,473 79,680 739,958
Interest income -- -- -- -- (45,443)
Income from stock options -- -- -- -- (10,855)
Loss on disposal of equipment -- -- -- -- 4,549
-------------- -------------- -------------- -------------- --------------
22,838 25,401 82,473 79,680 688,209
-------------- -------------- -------------- -------------- --------------
Net loss (208,568) (358,484) (1,159,645) (1,280,433) (26,855,174)
Other comprehensive loss
Loss (gain) on foreign exchange -- 175 -- 2,139 106,137
-------------- -------------- -------------- -------------- --------------
Net loss and comprehensive loss $ (208,568) $ (358,659) $ (1,159,645) $ (1,282,572) $ (26,961,311)
============== ============== ============== ============== ==============
Basic and Diluted net loss and
comprehensive loss per common share $ (0.00) $ (0.00) $ (0.01) $ (0.01) $ (0.48)
============== ============== ============== ============== ==============
Weighted average shares of common
stock outstanding 231,042,142 231,042,142 192,114,478 192,114,478 56,086,160
============== ============== ============== ============== ==============
2
THE TIREX CORPORATION
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (Unaudited)
Three months ended Nine months ended
March 31 March 31 Cumulative from
---------------------------- ---------------------------- March 26, 1993 to
2003 2002 2003 2002 March 31, 2003
------------ ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (208,568) $ (358,659) $ (1,159,645) $ (1,282,572) $(26,961,311)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization -- 13,627 5,914 41,299 345,258
(Gain) loss on disposal and
abandonment of assets -- -- 530,651 -- 1,474,847
Stock issued in exchange for interest -- -- -- -- 169,142
Stock issued in exchange for services and
expenses -- -- -- 367,273 10,531,722
Stock options issued in exchange for
services -- -- -- -- 3,083,390
Unrealized (loss) gain on foreign exchange (117,870) 1,953 (90,532) 21,180 (290,721)
Changes in assets and liabilities:
(Increase) decrease in:
Account receivable (2,151) 2 2,311 (1,623) (30,902)
Inventory (4,685) 64 (2,149) 3,646 (67,314)
Sales tax receivable (2,773) -- (17,787) 47,350 (39,876)
Research and experimental development tax
credits receivable 126,428 (27,447) 246,970 190,584 --
Other assets (5,317) 24,365 (2,438) 154,541 (255,514)
(Decrease) increase in:
Accounts payables and accrued liabilities 168,772 100,788 307,812 7,201 1,950,209
Accrued salaries 11,598 -- 27,716 (12,374) 322,693
Due to stockholders -- -- -- -- 5,000
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (34,566) (245,307) (151,177) (463,495) (9,763,377)
------------ ------------ ------------ ------------ ------------
Cash flow from investing activities:
Increase in notes receivable (1,387) 15 (636) (3,751) (258,442)
Reduction in notes receivable -- -- -- -- 238,515
Investment -- -- -- (89,500) (89,500)
Equipment -- -- -- -- (321,567)
Equipment assembly costs -- -- -- -- (1,999,801)
Organization cost -- -- -- -- 6,700
Reduction in security deposit -- -- -- -- (1,542)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (1,387) 15 180,557 (93,251) (2,425,637)
------------ ------------ ------------ ------------ ------------
Cash flow from financing activities:
Loans from related parties (74,897) 231,163 (31,139) 210,990 4,146,338
Deferred financing costs -- 12,303 -- 66,239 180,557
Proceeds from deposits -- -- -- -- 143,500
Payments on notes payable -- -- -- -- (409,939)
Proceeds from convertible notes -- -- -- -- 754,999
Proceeds from notes payable -- -- -- -- 409,939
Payments on lease obligations -- -- -- -- (86,380)
Proceeds from issuance of convertible
subordinated debentures -- -- -- -- 1,035,000
Proceeds from loan payable -- -- -- -- 624,735
Payments on loan payable -- -- (4,170) (292,293) (489,626)
Proceeds from issuance of stock options -- -- -- -- 20,000
Proceeds from grants 75,350 -- 187,122 569,111 3,628,277
Proceeds from issuance of common stock 4,283 -- -- -- 85,582
Proceeds from additional paid-in capital 31,217 -- -- -- 2,145,775
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 35,953 243,466 151,813 554,047 12,188,757
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents -- (1,826) $ -- (2,699) (257)
Cash and cash equivalents - beginning of period -- 483 1,356 257
------------ ------------ ------------ ------------
Cash and cash equivalents - end of period $ -- $ (1,343) $ -- $ (1,343) --
============ ============ ============ ============ ============
3
THE TIREX CORPORATION
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (Unaudited)
Three months Nine months Cumulative from Cumulative from
ended March 31 ended March 31 March 26, 1993 to March 26, 1993 to
December 31, September 30,
2003 2002 2003 2002 2002 2002
------------ ------------ ------------ ------------ ------------ ------------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ -- $ 7,191 $ 21,024 $ 40,504 $ 232,748 $ 232,748
============ ============ ============ ============ ============ ============
Income taxes paid $ -- $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============ ============
Supplemental Disclosure of Non-Cash Activities:
During the year ended June 30, 2002, the Company recorded an increase
in common stock and in additional paid-in capital of $1,673,518 which was in
recognition of the payment of debt. During the six month period ended December
31, 2002, the Company did not issue common stock in recognition of the payment
of debt. During the year ended June 30, 2002, stock was issued in exchange for
services performed and expenses in the amount of $333,325. During the six month
period ended December 31, 2002, the Company did not issue common stock in
exchange for services performed and expenses. No stock options were issued for
services performed and expenses during the year ended June 30, 2002. No stock
options were issued for services performed and expenses during the six month
period ended December 31, 2002.
For the year ended June 30, 2002, there were no convertible debentures
or accrued interest converted into common stock. Also, for the six month period
ended December 31, 2002, there were no convertible debentures or accrued
interest converted into common stock.
4
THE TIREX CORPORATION
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
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, 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 an officer and 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 March 31, 2003, the Company is still in the development stage. The operations
has consisted mainly of raising capital, obtaining financing, developing
equipment, obtaining customers and supplies, installing and testing equipment
and administrative activities. Since the signing of the License Agreement with
Simpro, the Company has evolved into being a marketing and sales company
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 of cost (first-in, first-out method) or market.
5
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation and
provisions for write-downs. 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 gains 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.
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 of 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 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, 2002 and
June 30, 2001, 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
6
was reported in 2002 and 2001, and accordingly, in those years, the denominator
for the Basic EPS calculation was equal to the weighted average of 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.
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 March 31, 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 $28.0 million as
of March 31, 2003, expiring in the years 2004 through 2018. 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 carryforwards. Because of the uncertainties discussed in Note
2, however, any deferred tax asset established for utilization of the Company's
tax loss carryforwards would correspondingly require a valuation allowance of
the same amount pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company does not currently have research and experimental development tax
credits receivable from the Canadian Federal government and the Quebec
Provincial government at March 31, 2003 compared to $246,970 as of June 30,
2002. 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 exchange 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.
Note 2 GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $3,767,344 during the year ended June 30, 2002 and an additional net
loss for the nine month period ended March 31, 2003 in the amount of $1,159,645.
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
7
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 six month
period ended June 30, 2002, 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 March 31, 2003, the Company had not yet consummated an
unconditional purchase order for a TCS System.
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, 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 years ended June 30, 2002 and June 30, 2001 was $100,614
and $79,943, respectively, reducing this account balance to zero.
Note 4 PROPERTY AND EQUIPMENT, SALVAGE VALUE
As at December 31, 2002, Management vacated its former premises where theTCS-1
Production Model had been constructed. All of the production equipment was
either returned to lessors, abandoned or stored. Management has decided to
suspend indefinitely its efforts to re-acquire these components of the Air Plant
which had been shipped to the United States. Without these components, the TCS-1
First Production Model cannot be used. Bearing in mind that management could not
predict when, if ever, the First Production Model would be put back into
service, Management decided to further write down, as of September 30, 2002,
those assets owned by the Company to net realizable salvage value which
Management believes to be approximately $50,000. As at June 30, 2002, these
assets were being carried at a net value of $580,651. The write-down thus
amounted to $530,651.
Depreciation and amortization expense charged to operations for the year ended
June 30, 2002 was $53,184. Depreciation and amortization expense charged to
operations for the nine month period ended March 31, 2003 was $5,914.
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).
8
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 repayable over five years commencing June 30, 2000 and ending June 30,
2004 $ 39,122
Loan repayable over five years commencing June 30, 2001 and ending June 30,
2005 40,814
Loan repayable in amounts equal to 1% of annual sales in Spain and / or
Portugal throughout 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 14,000
Loan repayable in amounts equal to 11/2% 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
---------
160,436
Less: Current portion 29,278
---------
Long-term portion $ 131,158
=========
Principal repayments are as follows:
June 30 Amount
------- ---------
2003 $ 29,278
2004 96,578
2005 20,580
2006 --
2007 14,000
---------
$ 160,436
=========
During the year ended June 30, 2002, the Company was declared in default, with
respect to the loan under the Industrial Recovery Program for Southwest
Montreal, as a result of a 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 and the accumulated amortization for such equipment
as of June 30, 2002 was $62,400 and $37,440, respectively. The value of such
equipment as of March 31, 2003 is included in property and equipment salvage
value 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.
9
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 at March 31, 2003:
Years ended June 30 Amount
------------------- ---------
2003 $ 3,878
2004 15,514
---------
Total minimum lease payments 19,392
Less: Amount representing interest 2,372
---------
Total obligations under capital lease 17,020
Less: Current portion of obligations under capital leases 14,406
---------
Long-term obligation portion of under capital leases, with interest rate of 10% 2,614
=========
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 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 draw downs
were made. The original terms of the convertible note were:
Balance at June 30, 2001 $ 750,000
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 pus 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.
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 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
10
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 been withdrawn.
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 $932,240
30, 2002 and penalties to date, and deducting
proceeds from the sale of collateral shares in the
amount of $16,260
Interest rate on the debt 8%
$1,000 on May 15, 2002
Repayment terms $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 exerciseable
immediately at a price of $0.01 per share.
500,000 two-year warrants exerciseable one year
from the date of the Settlement Agreement at a
price of $0.05 per share.
500,000 one-year warrants exerciseable two years
from the date of the Settlement Agreement at a
price of $0.10 per share.
Right to sell collateral shares and Rule 144 shares The Investors have the 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.
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. As of May 12, 2003, the investors
had 8,344,811 shares in their possession.
11
Note 9 CONVERTIBLE NOTE
A convertible note, under a private arrangement, consists of the following:
Balance at March 31, 2003 and June 30, 2002 $ 185,556
Interest rate 8%
Issue date July 19th, 2000
Maturity date January 19th, 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 19th, 2001, at 20%
discount to market between July 19th, 2001 and
January 19th, 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 March 31, 2003 and June 30, 2002, the balances owing to Directors
and Officers was $509,310 and $796,429, respectively. These amounts are without
interest or terms of repayment.
Long-term deposits and notes included an amount of $118,500 at March 31, 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 period 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.
Note 11 EXCHANGE OF DEBT FOR COMMON STOCK
During the year ended June 30, 2002, the Company recorded increases in common
stock and paid-in capital of $1,673,518, reflecting the exchange of common stock
for debts owed. During the nine month period ended March 31, 2003, the Company
recorded increases in common stock and paid-in capital of $628,458.
Note 12 COMMON STOCK
During the year ended June 30, 2002, the Company issued common stock in exchange
for services performed totalling $333,325. Included in this amount are payments
to Officers of the Company in exchange for salary and expenses in the amount of
$57,796. During the nine month period ended March 31, 2003, the Company issued
common stock in exchange for services performed totaling $43,250. This amount
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.
12
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 at March 31, 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 an additional 2,000,000 shares
allocated to be given as Options. On May 30, 2001, the Stock Plan was further
amended reallocating the 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.
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 Nil -- --
beginning of year
Granted and exercised during 9,698,228 $ 0.131 $ 1,273,334
the year
Granted and unexercised at end Nil -- --
of year
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 ended June 30, 2002.
There were no Options granted or exercised during the nine month period ended
March 31, 2003.
Note 14 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.
13
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 15 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, 2002, the Company received approximately
$569,111 which has been recorded as an increase in additional paid-in capital.
Also, during the nine month period ended March 31, 2003, the Company received
approximately $187,122 which has also been recorded as an increase in additional
equity paid-in capital. During the nine month period ended March 31, 2003, the
Company did not record any additional tax credits, bringing the reported
receivable balance from these governments from $246,970 as of June 30, 2002 to
zero as of March 31, 2003.
Note 16 COMMITMENTS
The Company does not currently have any minimum future rental payments under
leases.
Rental expense for the year ended June 30, 2002 amounted to $205,141. Rent
expense for the nine month period ended March 31, 2003 amounted to $113,708.
At December 31, 2002, the Company was in arrears of rent, including interest and
related charges, in the approximate amount of Cdn$876,269. The Company has come
to a settlement with the landlord which has the debt converted to US$560,000,
and will not bear interest providing that the Company directs partial payment of
the proceeds otherwise due to it to be paid directly to the landlord, such
amount being US$140,000 in respect of each of the Company first four TCS System
sales.
Note 17 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 Plaintiff's claims. The action is still
pending.
An action was brought by a Plaintiff against the Company, alleging that the
Company had agreed to issue 1,000,000 shares of its Common stock to the
Plaintiff in consideration for expenses allegedly paid by the Plaintiff in the
amount of approximately $150,000. These expenses allegedly were incurred in
relation to the rental of certain office space and performance of administrative
services. The Plaintiff's complaint seeks to impose an equitable trust or lien
on 1,000,000 of unissued shares of the Company, demands the issuance of
1,000,000 shares to the Plaintiff and seeks for breach of contract, monetary
14
damages of $1,400,000. Counsel for the Company denied all of the Plaintiff's
allegations and on July 24, 2002, a court dismissed the complaint for "Lack of
Prosecution". The Plaintiff has appealed.
An action was instituted by a Plaintiff, a Canadian corporation, in August 2001
in a Canadian court claiming approximately $63,000 is due and owing for 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 was evicted from its facility in December 2002 but is
still in negotiation with its landlord with respect to the amounts owing under
the action. As at December 31, 2002, the Company was in arrears of rent and
property taxes to its previous landlord in the then currency converted amount of
approximately US$560,000. This US dollar amount became the object of a
settlement with the landlord and will not bear interest providing the Company
directs that US$140,000 be paid directly to the landlord out of each of the
first four TCS System sales.
Note 18 ACCUMULATED OTHER COMPREHENSIVE INCOME
The deficit accumulated during the development stage included accumulated
comprehensive other income totaling $103,396.
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of significant factors
which have affected the Company's financial position and operations during the
three month period ended March 31, 2003. This discussion also includes events
which occurred subsequent to the end of the last quarter and contains both
historical and forward-looking statements. When used in this discussion, the
words "expect(s)", "feel(s)","believe(s)", "will", "may", "anticipate(s)"
"intend(s)" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected.
As reported in the Company's Annual Report for the year ended June 30, 2002,
recently filed on Form 10-KSB, the Company's TCS Tire Recycling System has been
ready for market since March of 2000, although further refinements were made to
the technology during the remainder of Fiscal 2001 and throughout Calendar 2002.
Throughout that period the availability of funds necessary to permit
developmental stage companies, such as ours, to make the transition to the
commercial stage has been very restricted. The Company was late in filing its
September Form 10-QSB on a timely basis, which resulted in our stock being
deleted from the Bulletin Board and at the present time our common stock is
quoted on OTC-pink sheets which does not show "Bid" and "Ask" prices. The
Company has recently taken steps to attempt to rectify this situation and hopes
to be re-listed on the OTC Bulletin Board in the near future.
Throughout the first quarter of Calendar 2003, our Company has been working with
potential customers in Puerto Rico and in Canada in an attempt to assist them to
close their respective project financings. The Puerto Rican Project's promoters
still have not been able to raise enough equity capital to satisfy their lending
institutions. The Canadian project continues to move forward in terms of project
location and financial backing. Our Company has evolved into primarily a
marketing and sales company, after licensing Simpro S.p.A. of Turin, Italy as
our worldwide exclusive manufacturer.
Our Licensee, Simpro S.p.A., notified us in April 2003 that it was proceeding
with the fabrication and installation of a demonstration unit in Italy financed
with public funding and in association with the Italian university community. We
are hopeful that this will open a market in Europe for our technology.
With our suspension of rubber crumb production operations in January of 2002 and
the concurrent cessation of R&D activity, we are devoting all of our efforts to
conclude the sale of a TCS System and to the raising funds necessary to maintain
operations until revenue from sales can be realized.
In February of 2001, we concluded a private financing with an Investor group
managed by a New York-based company. Under the terms of the Agreement, we drew
down $750,000 of the available $5,000,000 amount. The initial $750,000 was
provided pursuant to a Convertible Note. We defaulted by not having an SB-2
Registration Statement declared effective within 150 days of the date of the
Note. Following lengthy negotiations, we reached a Settlement Agreement with the
Investors on April 26, 2002 under which the Company agreed to a revised
repayment schedule and provided three series of warrants, 500,000 each,
exercisable at different prices to the investors. The lack of financial
resources prevented us from being able to honor the reimbursement schedule, and
thus we are currently in default with respect the Settlement Agreement. On March
5, 2003, the Investors demanded the payments due on the two-year anniversary
date of their investment. The total sum due, including interest, penalties and
fees, was $1,408,648.53 as of that date. The Company is not in a position to pay
any of this sum. The Investors also requested that shares of common stocks be
issued to them pursuant to conversion rights relating to a portion of the debt.
Our Company issued 4,000,000 shares to the Investors. In addition, the Investors
continue to hold 8,344,811 collateral shares as of May 12, 2003. The Company
continues to negotiate with the Investors in an attempt to establish conditions
for a revised Settlement Agreement.
16
In connection with the original requirement of this financing, of our having an
SB-2 Registration Statement declared effective within 150 days of the original,
the Company has withdrawn its filing.
As reported in the quarterly report for the period ended December 31, 2002, the
Company was granted research & development tax credits with respect to the
fiscal year ended June 30, 2002. After deduction of payroll taxes in arrears and
an overdue payment on a loan from a federal government agency, CEDQR, the
remaining approximately Cdn$132,000 (about US$84,500 using the then prevailing
exchange rates) was used to pay creditors. The tax credit from Quebec became
Cdn$180,520 (approximately US$115,500). After deduction of payroll taxes which
became due as a result of a payroll tax audit, the net amount of the tax credit
was Cdn$119,936. In Quebec, there exists a tax on corporate capital. For us, the
tax for Fiscal 2002 amounted to Cdn$25,499 (approximately US$16,300). After
deducting the capital tax, the net amount due to us became Cdn$94,437
(approximately US$60,400). Rather than disburse these amounts, the Quebec
government withheld them because of personal income taxes due from the Company's
President. While we are continuing our efforts to secure the release of these
funds there is little or no is no likelihood that a release of all or even part
of these funds will occur.
Because of the lengthy delay preceding the commencement of commercial
operations, particularly insofar as regards the sale and manufacturing of TCS
Systems is concerned, we have had to, and in the foreseeable near future, will
be forced to continue to cover a substantial part of our overhead costs from
sources other than revenues from operations. For the first quarter of Fiscal
2003, our monthly expenses were approximately US$67,000 per month, although much
of this does not represent current cash outflow. Cash amounts payable to third
parties amounted to approximately US$27,000 including approximately US$16,000
for building rent. With the temporary relocation to the Ashbyrne office, monthly
expenses were reduced by approximately US$12,800 per month and monthly cash
liabilities were reduced to approximately US$14,000 per month including
approximately US$6,000 per month in accumulating interest on the Convertible
Notes. The Company has relocated to Montreal on a rent free, month to month
basis for the next six months will remain insignificant with rent and local
telephone service for that six-month period being provided free of charge.
Liquidity and Capital Resources
The activities of the Company, since its formation in 1987, and the inception of
its current business in 1993 have been financed by sources other than
operations. Such financing was principally provided by the sale of securities in
private transactions and by additional capital investments by our directors,
officers and employees. During the Fiscal year ended June 30, 2002, direct cash
investments made by the directors, officers, shareholders and consultants
amounted to $950,713.but no such investments have occurred since.
The Company has no working capital and is not paying any salaries or fees to its
employees, offices or directors. It has only limited operations and no
production or research activities.
As of March 31, 2003, the Company had total assets of $542,914 as compared to
$2,727,001 at March 31, 2002 reflecting a decrease of $2,184,087, and a decrease
of $760,041 versus total assets as of the last fiscal year end, June 30, 2002,
which amounted to $1,302,955. Management attributes the decrease from March 31,
2002 to March 31, 2003 primarily to the following factors: (i) a decrease of
$170,445 in Tax Credits Receivable from the balance as of March 31, 2002 in the
amount of $170,445 to the March 31, 2003 balance of $0, and (ii) a decrease of
17
$4,999 in Inventory from the balance as of March 31, 2002 in the amount of
$72,313 to the March 31, 2003 balance of $67,314, and (iii) a decrease of
$36,318 in Prepaid Expenses and Deposits from the balance as of March 31, 2002
in the amount of $371,212 to the March 31, 2003 balance of $334,894, and (iv) a
decrease of $2,045,657 in Property and Equipment from the balance as of March
31, 2002 in the amount of $2,095,657 to the March 31, 2003 balance of $50,000
attributable to the write-down of assets to salvage value, and (v) an increase
of $39,876 in an Sales Tax Receivable from the zero balance as of March 31, 2002
to the March 31, 2003 balance of $39,876. Management attributes the decrease
from June 30, 2002 to March 31, 2003 primarily to the following factors: (i) a
decrease of $246,970 in Tax Credits Receivable from the balance as of June 30,
2002 in the amount of $246,970 to the March 31, 2003 balance of $0 and, (ii) a
decrease of $533,771 in Property and Equipment from the balance as of June 30,
2002 in the amount of $583,771 to the March 31, 2003 balance of $50,000
attributable to the write-down of assets to salvage value.
As of March 31, 2003, the Company had total liabilities of $3,910,818 compared
to $3,884,062 at March 31, 2002, reflecting an increase of $26,756, and
reflecting an decrease of $138,322 versus total liabilities as of the last
fiscal year end, June 30, 2002, which total amounted to $4,049,140. The increase
in total liabilities from March 31, 2002 to March 31, 2003 is primarily
attributable to an increase of $585,369 in Accounts Payable and Accrued
Liabilities and by an increase in Convertible Notes in the amount of $182,240,
offset by a decrease in Loans from Related Parties in the amount of $699,112.
The decrease in total liabilities from June 30, 2002 to December 31, 2002 is
primarily attributable to a decrease of $454,355 in Loans from Related Parties,
offset by an increase of $353,876 in Accounts Payable and Accrued Liabilities.
Reflecting the foregoing, the financial statements indicate that as at March 31,
2003, the Company had a working capital deficit (current assets minus current
liabilities) of $1,688,913 compared to a working capital deficit of $943,876 as
at March 31, 2002, reflecting an increase of $745,037. The working capital
deficit of $1,688,913 as at March 31, 2003 compares to a working capital deficit
of $1,127,115 as at June 30, 2002, reflecting an increase of $561,798.
The financial statements which are included in this report reflect total
operating and other expenses of $1,159,645 for the nine month period ended March
31, 2003 versus $1,282,572 for the comparative nine month period ended March 31,
2002, reflecting a decrease of $122,927. During this same period the Company
incurred a charge of $530,651 resulting from the write down of Property and
Equipment.
PART II: OTHER INFORMATION
Item 1:
------
Item 1 - Legal Proceedings
We are presently a party in the following legal proceedings, the status of
which has not changed since the Company filed its Quarterly Report on Form
10-QSB for the second quarter of Fiscal 2003.
18
IM(2) 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 un-issued 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. This action was dismissed with prejudice and the Plaintiff has
filed a notice of appeal, which is now awaiting a Court hearing. Our counsel has
advised us that in its opinion, the Company will prevail on appeal.
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.
19
Tri-Steel Industries Inc. v. The Tirex Corporation
Our former landlord Tri-Steel Industries Inc. instituted an action against
us, and our subsidiaries Tirex Corporation Canada Inc. and Tirex Canada R & D
Inc., on or about June 22, 2001 for arrears of rent in the amount of
Canadian$230,050 (approximately US$147,232 using the then prevailing approximate
exchange rate of $0.64 ). The premises were vacated by us as of November 2002.
The former landlord has accepted that he would be repaid out of future cash
flows and that the premises lease would be terminated effective December 31,
2002. As at December 31, 2002, the Company was in arrears of rent and property
taxes to its previous landlord in the amount of Cdn$876,268.79 (approximately
US$5690,000 at the then prevailing exchange rates). The Company came to an
agreement with the landlord under which the debt would be fixed in US dollars at
$560,000, thus cancelling exchange rate fluctuation risks, and that this amount
would not be interest-bearing providing Tirex would direct the payment directly
to the landlord of US$140,000 out of the Company's share of the proceeds on the
first four sales of TCS Systems. Each $140,000 will be progressively paid out as
a function of cash inflows from progress payments made by the customers.
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.
20
Item 2 - Changes in Securities and Use of Proceeds
Share Issuance Continuity Schedule
----------------------------------------------------------------------
Shares issued and outstanding as of June 30, 2002 224,757,559
----------------------------------------------------------------------
Total Issuances in the Third Quarter of FY 2003 25,138,333
----------------------------------------------------------------------
Total Outstanding as of March 31, 2003 249,895,892
===========
----------------------------------------------------------------------
Change in Third Quarter Issuance made in May 2003.
----------------------------------------------------------------------
Shares issued to consultants in 3rd quarter cancelled (4,000,000)
----------------------------------------------------------------------
Shares re-issued to Investors to effect debt conversion 4,000,000
-----------
----------------------------------------------------------------------
Shares outstanding as of May 12, 2003 249,895,892
----------------------------------------------------------------------
Shares Issued by Reason for Issuance
-----------------------------------------------------------------------------------------
Reason for Issuance (taking into account May 2003 adjustment) Number of Shares
-----------------------------------------------------------------------------------------
Partial payment of legal fees 2,300,000
-----------------------------------------------------------------------------------------
Partial payment of salaries and expenses to Directors, Officers and 10,505,000
Employees
-----------------------------------------------------------------------------------------
Consulting fees 3,550,000
-----------------------------------------------------------------------------------------
Consideration to avoid pursuit of legal action 500,000
-----------------------------------------------------------------------------------------
Investment 4,283,333
-----------------------------------------------------------------------------------------
For debt conversion 4,000,000
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
TOTAL 25,138,333
-----------------------------------------------------------------------------------------
Item 3 - Defaults Upon Senior Securities
During 1998, we issued an aggregate of $535,000 of two (2) year convertible,
subordinated debentures bearing interest at the rate of 10%. Interest thereon
was due and payable semi-annually commencing six months from the date of
issuance. All debentures have either been converted or repaid, except for
debentures in the principal amount of US$55,000, which remain outstanding and on
which principal and interest, which has accrued since the issuance of the
debentures, are now due. With respect to debentures converted subsequent to
December 1999, interest was capitalized and converted to equity. Although the
conversion option on the outstanding debentures has lapsed, we intend to extend
the conversion dates of these debentures upon the request of the holders.
21
As indicated above, in February of 2001, we concluded a private financing with
an investor group managed by a New York-based company. 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 and we drew down US$750,000, which was provided in
the form of a Convertible Note. Under the terms of the Agreement, we were
required to file and have declared effective a Registration Statement on Form
SB-2 within 150 days of the Closing Date of the Agreement. As of June 25, 2001,
we were in technical default for failing to have an effective Registration
Statement on record with the Securities and Exchange Commission.
Following lengthy negotiations, we reached a Settlement Agreement with the
investors on April 26, 2002 under which we agreed to a reimbursement schedule
and provided three series of warrants, 500,000 each, exercisable at different
prices to the investors. The lack of financial resources prevented us from being
able to honor the reimbursement schedule, and thus we are currently in default
with respect the Settlement Agreement.
On March 5, 2003, the Investors demanded payments due for each of the three
investor funds involved in the initial transaction, these letters being dated
February 25 and February 26, 2003, being the two-year anniversary date of their
investment. The total sum due, including interest, penalties and fees, was
$1,408,648.53. The Company is not in a position to pay any of this sum. The
Investors requested the right to convert a portion of its debt. In May of 2003,
following the cancellation of shares previously issued under consulting
agreements to others 4,000,000 shares issued to the Investors for conversion.
The Company continues to negotiate with the Investors to attempt to enter into a
revised Settlement Agreement.
Item 4 - Submission of Matters to a Vote of Security Holders
During the three-month period ended March 31, 2003, there were no submissions of
matters to a vote of Security Holders.
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
(a) Exhibits
--------
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C.ss.1350.
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C.ss.1350.
(b) Reports on Form 8-K
-------------------
During the three month period ended March 31, 2003, there were no Reports on
Form 8-K filed by the Company.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE TIREX CORPORATION
Date: May 20, 2003 By /s/ JOHN L. THRESHIE, JR.
--------------------------------------
John L. Threshie, Jr. President
Date: May 20, 2003 By /s/ MICHAEL ASH
--------------------------------------
Michael Ash, Treasurer and
Chief Accounting and Financial Officer
23
CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, John L. Threshie, Jr., President, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The Tirex
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003 /s/ JOHN L. THRESHIE, JR.
-------------------------
John L. Threshie, Jr.
President
24
CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael Ash, Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The Tirex
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003 /s/ MICHAEL ASH
-------------------------------------
Michael Ash
Treasurer and Chief Financial Officer
25