THE TIREX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENTAL STAGE COMPANY)
Consolidated Statements of Cash Flows
Cumulative
Period from
March 26, 1993
Three months ended (Date of
September 30, Inception) to
2000 1999 September 30, 2000
------------------ ------------------ ------------------
Operating activities:
Net loss $ (826,113) $ (685,426) $ (20,278,948)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 17,247 143,098 155,796
Loss on disposal and abandonment of assets -- -- 22,339
Stock issued in exchange for interest 4,200 26,258 169,142
Stock issued in exchange for services and expenses 456,556 537,491 9,782,738
Stock options issued in exchange for services 254,725 41,552 2,825,738
Unrealized gain on foreign exchange 8,991 3,864 169,423
Change in assets and liabilities:
(Increase) decrease in :
Accounts receivable
Inventory 1,985 -- (107,971)
Sales tax receivable 7,321 38,082 (11,967)
R&D investment tax credit receivable (84,485) (126,921) (559,706)
Other assets 1,172 24,236 (335,840)
(Decrease) increase in :
Accounts payable and accrued expenses 153,940 (807,420) 1,355,496
Accrued salaries 38,039 122,795 451,015
Due to stockholders -- -- 5,000
------------------ ------------------ ------------------
Net cash used in operating activities 33,578 (682,391) (6,357,750)
------------------ ------------------ ------------------
Cash flow from investing activities:
Increase in notes receivable (117,985) (18,778) (247,416)
Equipment 0 (93,918) (2,260,599)
Organization cost -- -- 6,700
Reduction of security deposit -- -- (1,542)
------------------ ------------------ ------------------
Net cash used in investing activities (98,025) (112,696) (2,502,857)
------------------ ------------------ ------------------
Cash flows from financing activities:
Loans from officers -- 427,563 2,422,107
Proceeds from deposits -- -- 143,500
Issuance of convertible debentures -- -- 1,035,000
Proceeds from loan & leases payable -- 100,263 551,860
Proceeds from issuance of stock options -- -- 20,000
Proceeds from grants 94,777 127,263 2,613,096
Proceeds from issuance of common stock -- -- 74,716
Proceeds from additional paid-in capital -- -- 2,013,234
------------------ ------------------ ------------------
Sub total $ 94,777 $ 655,089 $ 8,873,513
------------------ ------------------ ------------------
See Notes to Consolidated Financial Statements
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THE TIREX CORPORATION AND SUBSIDIARIES
A DEVELOPMENTAL STAGE COMPANY
Consolidated Statements of Cash Flows (continued)
Cumulative
Period from
Three months ended March 26, 1993
September 30, (date of Inception) to
2000 1999 September 30,2000
---------------------- ---------------------- ----------------------
Net cash provided by financing activities $ 94,777 $ 655,089 $ 8,873,513
---------------------- ---------------------- ----------------------
Net (decrease) increase in cash and cash
equivalents 10,370 (139,998) 12,906
Cash and cash equivalents - beginning
of year 2,793 177,256 257
---------------------- ---------------------- ----------------------
Cash and cash equivalents - end of year $ 13,163 $ 37,258 $ 13,163
====================== ====================== ======================
Supplemental Disclosure of Non-Cash Activities:
In 2000 and 1999, the Company recorded an increase in common stock and in
additional paid-in capital of $726,033 and $6,000, respectively, which was in
recognition of the payment of debt. In 2000 and 1999 stock was issued in
exchange for services performed and expenses in the amount of $463,780 and
$1,338,040 respectively.
Convertible debentures were exchanged into stock totaling $20,000 during the
three months ended September 30, 2000. Accrued interest of $136,206 was also
converted into stock.
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 7,456 $ 6,391 $ 71,392
====================== ====================== ======================
Income taxes paid $ -- $ -- $ --
====================== ====================== ======================
See Notes to Consolidated Financial Statements
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THE TIREX CORPORATION AND SUBSIDIARIES INC.
(A DEVELOPMENTAL STAGE COMPANY)
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES
CHANGE OF NAME
In June1998 the Company changed its name from Tirex America, Inc. to
The Tirex Corporation.
NATURE OF BUSINESS
The Tirex Corporation and Subsidiaries (the "Company") was incorporated
under the laws of the State of Delaware on August 19, 1987. The Company
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 (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 September 30, 2000 the Company is still in the development stage.
The operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
BASIS OF CONSOLIDATION
The consolidated financial statements include the consolidated accounts
of The Tirex Corporation and its subsidiaries and Tirex Canada R&D,
Inc. Tirex Canada R&D, Inc. is held 49% by the Company and 51% by the
certain shareholders of the Company. The shares owned by the
shareholders are held in escrow by the Company's attorney and are
restricted from transfer. All 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 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.
ESTIMATES
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and
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assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 encourages, but does not require companies to record at
fair value compensation cost for stock-based compensation plans. The
Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. The difference between the fair value
method of SFAS-123 and APB 25 is immaterial.
ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128). SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS 128
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. This Statement requires restatement of all
prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are
the exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock
equivalents are calculated in the determination of Diluted Earnings Per
Share.
A basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the period.
Diluted earnings per common share is computed using the weighted
average number of shares of common stock and dilutive common equivalent
shares related to stock options and warrants outstanding during the
period.
The adoption of SFAS 128 had no effect on previously reported loss per
share amounts for the year ended June 30, 1997. For the years ended
June 30, 2000 and 1999, primary loss per share was the same as basic
loss per share and fully diluted loss per share was the same as diluted
loss per share. A net loss was reported in 2000 and 1999, and
accordingly, in those years the denominator was equal to the weighted
average 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. Stock options for the
purchase of 13,212,673 shares at June 30, 1999 and warrants for the
purchase of 1,000,000 shares at June 30, 1999 were not included in loss
per share calculations and neither were options to purchase 1,694,447
shares, issued under the Company's Stock Option Plan during the
three-month period ended September 30, 2000, because to do so would
have been anti-dilutive. Further, 4,553,102 shares of common stock
issued subsequent to year end, to an employee of Ocean Tire Recycling &
Processing Co., Inc were not included in loss per share calculations
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
principally include cash, note receivable, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity
of such instruments.
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The fair values of the Company's debt instruments are based on the
amount of future cash flows associated with each instrument discounted
using the Company's borrowing rate. At June 30, 2000 and September 30,
2000, 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 $21.3
million as of September 30, 2000, expiring in the years 2004 through
2015. However, based upon present Internal Revenue regulations
governing the utilization of net operating loss carryovers where the
corporation has issued substantial additional stock, most of this loss
carryover may not be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1993. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company has research and development investment tax credits
receivable from Canada and the Province of Quebec amounting to $559,706
at September 30, 2000 compared to $475,221 as of June 30, 2000.
FOREIGN EXCHANGE
Assets and liabilities of the Company, which are denominated in foreign
currencies, are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
REVENUE RECOGNITION
Revenue is recognized when the product is shipped to the company.
Note 2 - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred
a net loss of $5,548,829 during the year ended June 30, 2000 and an
additional net loss for the three-month period ended September 30, 2000
in the amount of $826,113.
In March 1993, the Company was still in the development stage and had
developed a new Business Plan. As at June 30, 2000 the Company had
constructed a production quality machine for the cryogenic
disintegration of used tires, but continues to engage in research and
development activities on this machine in an effort to enhance its
performance. As of September 30, 2000, Management considers the Company
to be still in the development stage.
The ability of the Company to continue as a going concern is dependent
on the success of its marketing its TSC Plants, and /or raising funds
through equity sales, bank loans, governmental grants or a combination
of these. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
Note 3 - FINANCING COSTS
During the year ended June 30, 1999 the Company incurred $158,255 in
connection with debt financing. These costs have been capitalized in
other assets and are being amortized over the terms of the financing.
Amortization of financing costs for the year ended June 30, 2000 and
1999 was $125,291 and $32,964, respectively, reducing this account
balance to zero. Thus there were no deferred financing costs to
amortize during the three-month period ended September 30, 2000.
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