U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
    1934

For the quarterly period ended December 31, 1999

[ ] Transition  report under Section 13 or 15(d) of the Securities  Exchange Act
    of 1934

For the transition period from                      to
                               ---------------------   -------------------------

                       COMMISSION FILE NUMBER 33-17598-NY

                              THE TIREX CORPORATION
        (Exact Name of Small Business Issuer as Specified in Its Charter)

                   DELAWARE                                  22-2824362
         (State or other jurisdiction of                  (I.R.S. Employer
         Incorporation or Organization)                 Identification No.)


                   3828 ST. PATRICK, MONTREAL, QUEBEC H4E 1A4
                    (Address of Principal executive offices)

                                 (514) 933-2518
                (Issuer's telephone number, including area code)

              ----------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes  [X]    No   [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of February 9, 2000 :139,158,842 shares

         Transitional Small Business Disclosure Format (check one):

         Yes  [ ]    No  [X]

<PAGE>


                              THE TIREX CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)


                           --------------------------


                                TABLE OF CONTENTS

PART I

ITEM 1 - FINANCIAL INFORMATION (unaudited)                                 PAGE
                                                                           ----

         The Tirex Corporation and Subsidiaries
           Consolidated Balance Sheets as of
             December 31, 1999 and 1998.................................... 4
         Consolidated Statements of Operations
           for the three and six-month periods
             ended December 31, 1999 and 1998.............................. 5
         Consolidated Statements of Cash Flows
           for the three and six-month periods
             ended December 31, 1999 and 1998.............................. 8

         Notes to Financial Statements (unaudited)......................... 9

ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 23
PART II

Item 1 - Legal Proceedings................................................. 36
Item 2 - Changes in Securities and Use of Proceeds......................... 36
Item 3 - Defaults Upon Senior Securities................................... 37
Item 4 - Submission of Matters
            to a Vote of Security Holders.................................. 38
Item 6 - Exhibits and Reports on Form 8-K.................................. 38

                                       2
<PAGE>


          The financial statements are unaudited. However, the management of
registrant believes that all necessary adjustments (which include only normal
recurring adjustments) have been reflected to present fairly the financial
position of registrant at December 31, 1999 and the results of its operations
and changes in its financial position for the three and six-month periods ended
December 31, 1999 and 1998 and for the period from inception (July 15, 1987).

                                       3
<PAGE>
<TABLE>
<CAPTION>
                                 The Tirex Corporation and Subsidiaries
                                      (A Development Stage Company)

                                       Consolidated Balance Sheet
                                            as at December 31

                                    ASSETS                                  (UNAUDITED)      (AUDITED)
                                                                               1999        JUNE 30, 1999
                                                                           ------------    -------------
<S>                                                                        <C>             <C>
Current Assets
Cash and cash equivalents                                                  $     28,777    $    177,256
Accounts receivable & notes receivable                                          170,525         155,840
Sales taxes receivable                                                           20,682          81,244
Inventory                                                                       253,089          25,698
R&D tax credit receivable                                                       407,389         952,704
Prepaid expenses and deposits                                                   539,359         413,766
                                                                           ------------    ------------
                                                                              1,419,821       1,806,508

Property and equipment, at cost, net of
accumulated depreciation of $98,574                                           2,059,586       2,282,295

Other assets
  Licence                                                                        43,650
  Prepaids                                                                                      183,920
  Deferred financing fees                                                        75,842         125,281
                                                                           ------------    ------------
                                                                                119,492         309,201
                                                                           ------------    ------------
                                                                              3,598,899       4,398,004

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Notes payable                                                                 121,251         409,939
  Accrued liabilties                                                          1,128,420       1,825,913
  Current portion of long-term debt                                              92,435         131,532
                                                                           ------------    ------------
                                                                              1,342,106       2,367,384

Other liabilities
  Long term deposits                                                            143,500         143,500
  Long-term debt (net of current portion)                                       554,584         525,118
  Convertible subordinated debentures
     long-term portion                                                          556,600         766,600
  Loans from directors, officers, employees and investors                     1,116,968         149,406
                                                                           ------------    ------------
                                                                              2,371,652       1,584,624
                                                                           ------------    ------------
                                                                              3,713,758       3,952,008
                                                                           ------------    ------------
Stockholders' equity
  Common stock,  $.001 par value, authorized
   120,000,000 shares, issued and outstanding
   119, 516,126  shares                                                         119,516          97,360
  Class A stock; .001 par value, authorized 5,000,000
   shares; issued and outstanding, 0 shares
  Additional paid-in capital                                                 16,015,065      15,155,355
Deficit accumulated during the development stage                            (16,423,145)    (14,961,362)
Unrealized gain on foreign exchange                                             173,705         154,643
                                                                           ------------    ------------
                                                                               (114,859)        445,996

                                                                              3,598,899       4,398,004
                                                                           ============    ============
</TABLE>
                                                    4
<PAGE>
<TABLE>
<CAPTION>
                                       The Tirex Corporation and Subsidiaries
                                            (A Development Stage Company)

                                        Consolidated Statement of Operations
                                           Six months ending December 31,

                                    Three months ending   Three months ending     Cum. 6 months             Ytd
                                     September 30, 1999    December 31, 1999  ending December 31, 1999 December 1999
                                    -------------------   ------------------- ------------------------ -------------
<S>                                     <C>                   <C>                 <C>                  <C>
Revenues                                $          0          $          0        $          0         $          0
                                        ------------          ------------        ------------         ------------

Cost of Sales                                      0                     0                   0                    0
                                        ------------          ------------        ------------         ------------

Gross profit                                       0                     0                   0                    0
                                        ------------          ------------        ------------         ------------

Operations
  General and administrative                 335,654               434,989             770,643              770,643
  Depreciation and amortization              143,098               149,060             292,158              292,158
  Research and development                   178,022               247,335             425,357              425,357
                                        ------------          ------------        ------------         ------------

Total Expense                                656,774               831,384           1,488,158            1,488,158
                                        ------------          ------------        ------------         ------------

Loss before other income and expenses       (656,774)             (831,384)         (1,488,158)          (1,488,158)
                                        ------------          ------------        ------------         ------------

Other income (expenses)
  Interest expense                           (25,390)              (17,754)            (43,144)             (43,144)
  Interest income                                                        0                   0
  Income from stock options                                              0                   0
  Loss on disposal of equipment                                          0                   0
  Loss on foreign exchange                    (3,262)               72,791              69,529               69,529

                                             (28,652)               55,037              26,385               26,385

Net Loss                                    (685,426)             (776,347)         (1,461,773)          (1,461,773)
                                        ============          ============        ============         ============

Net loss per common share                      (0.03)                (0.03)              (0.61)               (0.50)
                                        ============          ============        ============         ============

Weighted average shares of common
  stock outstanding                       66,258,839            72,400,002          18,286,063           17,988,254
                                        ------------          ------------        ------------         ------------
</TABLE>
                                                         5
<PAGE>
<TABLE>
<CAPTION>
                                               The Tirex Corporation and Subsidiaries
                                                    (A Development Stage Company)

                                                            (UNAUDITED)


                                    Consolidated Statement of Operations  Consolidated Statement of Operations

                                                                                                                   Cumulative from
                                    Three months ending Six months ending Three months ending Six months ending     March 26, 1993
                                     December 31, 1999  December 31, 1999  December 31, 1998  December 31, 1998 to December 31, 1999
                                    ------------------- ----------------- ------------------- ----------------- --------------------
<S>                                     <C>                <C>                <C>                <C>                <C>
Revenues                                $          0       $          0       $    300,000       $    300,000       $  1,325,573

Cost of Sales                                      0                  0            130,676            130,676          1,015,830
                                        ------------       ------------       ------------       ------------       ------------

Gross profit                                       0                  0            169,324            169,324            309,743
                                        ------------       ------------       ------------       ------------       ------------

Operations
  General and administrative                 434,989            770,643            443,757          1,890,805          6,956,315
  Depreciation and amortization              149,060            292,158             84,657            410,793            363,408
  Research and development                   247,335            425,357              1,750             13,590          8,148,525
                                        ------------       ------------       ------------       ------------       ------------

Total Expense                                831,384          1,488,158            530,164          2,315,188         15,468,248
                                        ------------       ------------       ------------       ------------       ------------

Loss before other income and expenses       (831,384)        (1,488,158)          (360,840)        (2,145,864)       (15,158,505)

Other income (expenses)
  Interest expense                           (17,754)           (43,144)           (34,062)           (54,097)          (227,073)
  Interest income                                  0                  0                  0                  0             17,962
  Income from stock options                        0                  0                  0                  0             10,855
  Loss on disposal of equipment                    0                  0                  0                  0             (2,240)
  Gain (Loss) on foreign exchange             72,791             69,529            (17,902)          (121,672)            (6,778)
                                        ------------       ------------       ------------       ------------       ------------

                                              55,037             26,385            (51,964)          (175,769)          (207,274)
                                        ------------       ------------       ------------       ------------       ------------

Net Loss                                    (776,347)        (1,461,773)          (412,804)        (2,321,633)       (15,365,779)
                                        ============       ============       ============       ============       ============

Net loss per common share                      (0.01)             (0.02)             (0.01)             (0.03)             (0.84)
                                        ============       ============       ============       ============       ============

Weighted average shares of common
  stock outstanding                       66,151,179         66,151,179         63,722,410         63,722,410         18,286,063
                                        ------------       ------------       ------------       ------------       ------------
</TABLE>
                                                                 6
<PAGE>
<TABLE>
<CAPTION>
                                       The Tirex Corporation and Subsidiaries
                                           (A Development Stage Company)


                                        Consolidated Statement of Operations
                                           Six months ending December 31,

                                    Three months ending   Three months ending    Cum. 6 months            Ytd
                                    September 30, 1998     December 31, 1998   ending December 1998  December 1998
                                    -------------------   -------------------  --------------------  -------------
<S>                                     <C>                  <C>                   <C>                <C>
Revenues                                $          0         $    300,000          $    300,000       $    300,000
                                        ------------         ------------          ------------       ------------

Cost of Sales                                      0              130,676               130,676            130,676
                                        ------------         ------------          ------------       ------------

Gross profit                                       0              169,324               169,324            169,324
                                        ------------         ------------          ------------       ------------

Operations
  General and administrative               1,451,057              439,748             1,890,805          1,890,805
  Depreciation and amortization              232,630              178,163               410,793            410,793
  Research and development                    11,840                1,750                13,590             13,590
                                        ------------         ------------          ------------       ------------

Total Expense                              1,695,527              619,661             2,315,188          2,315,188
                                        ------------         ------------          ------------       ------------

Loss before other income and expenses     (1,695,527)            (450,337)           (2,145,864)        (2,145,864)
                                        ------------         ------------          ------------       ------------

Other income (expenses)
  Interest expense                           (20,035)             (34,062)              (54,097)           (54,097)
  Interest income                                                       0                     0
  Income from stock options                                             0                     0
  Loss on disposal of equipment                                         0                     0
  Loss on foreign exchange                  (103,770)             (17,902)             (121,672)          (121,672)
                                        ------------         ------------          ------------       ------------

                                            (123,805)             (51,964)             (175,769)          (175,769)
                                        ------------         ------------          ------------       ------------

Net Loss                                  (1,819,332)            (502,301)           (2,321,633)        (2,321,633)
                                        ============         ============          ============       ============

Net loss per common share                      (0.02)               (0.03)                (0.61)             (0.03)
                                        ============         ============          ============       ============

Weighted average shares of common
  stock outstanding                       45,816,877           38,607,926            18,286,063         72,400,002
                                        ------------         ------------          ------------       ------------
</TABLE>
                                                         7
<PAGE>


                     The Tirex Corporation and Subsidiaries
                          (A Development Stage Company)

                       Consolidated statement of cash flow
                               As of December 31,

                                                  (UNAUDITED)
                                                Six months ended
                                                  December 30,
                                               1999          1998
                                            ----------    ----------
Operating activities                        $             $
                                            ----------    ----------
Net  loss                                    1,461,773     2,321,633
                                            ----------    ----------

Adjustments to reconcile net loss to net
  cash used in operating activities:

depreciation and amortization                  292,158       410,793
Proceeds from grants                           212,684       446,571
stock issued in exchange for services           64,208       996,255
stock issued in conversion and pmts            604,974       853,737
Unrealized gain on foreign exchange             19,062        69,633
Change in assets &  Liabilities
       increase in  Notes receivable           (14,685)     (109,015)
       decrease in  Sales tax receivables       60,562        79,494
       increase in  Tax credit receivable      545,315      (249,833)
       increase in inventory                  (227,391)
       increase in  Prepaid expenses           (64,116)
       increase in  Accrued expenses           130,449       240,878
       increase in  Loan payable                (9,631)       64,685
       increase in  Deposit payable                           19,000
       increase in  Accounts receivable        (14,685)     (150,000)
       increase in  Loan  director                            93,516
                                            ----------    ----------

       Total Adjustments                     1,598,904     2,765,714

       Net cash operating Activities           137,131       444,081
                                            ----------    ----------

Investing Activities
       Property & equipment                    222,709      (673,279)
       licence                                               (19,602)
                                            ----------    ----------
       Net cash investing activities           222,709      (692,881)

Financing activities
       Proceeds from notes payable                            71,070
       Repayment of notes payable             (288,688)     (133,340)
       Proceeds from loan payable                             48,131
       Repayment of long term debt            (219,631)       (6,333)
                                            ----------    ----------
       Net cash financing activities          (508,319)      (20,472)
                                            ----------    ----------
       Net Decrease in cash                   (148,479)     (269,272)

       Cash beginning of period                177,256       398,971
                                            ----------    ----------
Cash end of period                              28,777       129,699
                                            ==========    ==========

                                       8
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


  Note 1 -        SUMMARY OF ACCOUNTING POLICIES

                  CHANGE OF NAME

                  In June, 1998 the Company changed its name from Tirex America,
                  Inc. to The Tirex Corporation and Subsidiaries.

                  NATURE OF BUSINESS

                  The Tirex Corporation and Subsidiaries (the "Company") was
                  incorporated under the laws of the State of Delaware on August
                  19, 1987. The Company originally planned to provide
                  comprehensive health care services to persons with Acquired
                  Immune Deficiency Syndrome, however due to its inability to
                  raise sufficient capital it was unable to implement its
                  business plan. The Company had been inactive since it ceased
                  operations in November 1990.

                  In the Fall of 1992, a group of shareholders lead by Edward
                  Mihal and including 16 other shareholders acting in concert
                  with Mr. Mihal along with Patrick McLaren and George Fattell,
                  individuals without any prior affiliation with the Company,
                  became interested in the Company as an entity potentially
                  suitable for merger or similar transaction with an operating
                  private company seeking to become public in this manner. This
                  group approached the Company's incumbent management with a
                  proposal whereby they agreed to assume management control,
                  make all delinquent filings with the Securities and Exchange
                  Commission, restore service by transfer agent and pay all
                  other expenses required to enable the Company to begin trading
                  its stock and completing a merger or similar transaction.

                  In furtherance of the foregoing, on November 5, 1992, J.
                  Richard Goldstein, MD, Peter R. Stratton and Robert Kopsack
                  resigned from their positions as officers and directors of the
                  Company. From June 1989 until the date of such resignations,
                  Dr. Goldstein was the Company's President and Chief Executive
                  Officer, Mr. Stratton was Vice-President, Chief Operating
                  Officer, Secretary and Treasurer, and Mr. Kopsack was the
                  Company's Vice President. In resigning their positions, Dr.
                  Goldstein and Messrs. Stratton and Kopsack acknowledged that
                  they acceded to their respective positions and had received
                  compensation in consideration of their representations that
                  they would, and their best efforts to, implement a business
                  plan for the Company which would encompass, among other
                  things, the establishment and operating of skilled nursing
                  care facilities for patients with Acquired Immune Deficiency
                  Syndrome. Compensation received by Dr. Goldstein and Messrs.
                  Stratton and Kopsack consisted of cash payments, stock
                  issuances, and the grants of stock options and/or stock
                  purchase warrants. As part of their resignations, Dr.
                  Goldstein and Messrs. Stratton and Kopsack each executed
                  releases whereby the Company was released and forever
                  discharged from all debts, obligations, covenants, agreements,
                  contracts, claims or demands in law or in equity, including
                  but not limited to any stock options or stock purchase
                  warrants granted or promised to them, which against the
                  Company, each ever had, or thereafter may have for or by
                  reason of any matter, cause or thing up to and through
                  November 5, 1992. Each of Dr. Goldstein and Messrs. Stratton
                  and Kopsack also acknowledged the termination and rescission
                  of their respective employment agreements with the Company to
                  such persons as the Company should direct for the purpose of
                  satisfying certain of the Company's obligations to third
                  parties. In consideration of the resignations and releases
                  executed by Dr. Goldstein and Messrs. Stratton and Kopsack,
                  Edward Mihal and each of the sixteen shareholders

                                       9
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


Note 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  the Company acting in concert with Mr. Mihal executed and
                  delivered reciprocal personal releases to and on behalf of Dr.
                  Goldstein and Messrs. Stratton and Kopsack. In connection with
                  the foregoing resignations, Dr. Goldstein and Messrs. Stratton
                  and Kopsack appointed, as an interim board of directors,
                  Patrick McLaren, George Fattell, and Edward Mihal (the
                  "Interim Management"). It was the goal of the Interim
                  Management to find suitable acquisition and/or development by
                  the Company. On December 29, 1992, Edward Mihal resigned his
                  position as an officer and a director of the Company and Louis
                  V. Muro was appointed as an officer and director of the
                  Company to fill the vacancy created thereby.

                  REORGANIZATION

                  On March 26, 1993, the Company entered into an acquisition
                  agreement (the "Acquisition Agreement") with Louis V. Muro,
                  Patrick McLaren and George Fattell, officers and directors of
                  the Company (collectively the "Sellers"), for the purchase of
                  certain technology owned and developed by the Sellers (the
                  "Technology") and extensive and detailed plans (the "Business
                  Plan") for a business which will engage in the exploitation of
                  the Technology. The Technology will be used to design, develop
                  and construct a prototype machine and thereafter a production
                  quality machine for the cryogenic disintegration of used
                  tires. Pursuant to the Acquisition Agreement, Sellers agreed
                  to assign, transfer and sell to the Company all of their
                  right, title and interest in the Technology and Business Plan
                  in exchange for fifteen million nine hundred thousand
                  (15,900,000) shares of the Company's common stock, $.001 par
                  value per share (the "Sellers' Stock") of which eleven million
                  nine hundred thousand (11,900,000) shares were put into
                  escrow. The Business Plan and Technology were developed by the
                  Sellers prior to their affiliation or association with the
                  Company. The Sellers were engaged as the Company's officers
                  and directors for the purpose of implementing the Business
                  Plan with the Technology or such other technology which they
                  believed could reasonably satisfy the requirements of the
                  Business Plan.

                  Effective with the March 26, 1993, closing date of the
                  Acquisition Agreement (the "Closing Date"), the Company
                  authorized an increase in the number of directors of the
                  Company from three to six. Pursuant thereto, the Company
                  appointed Messrs. Kenneth Forbes, Nicholas Campagna, and
                  Alfred J. Viscido to fill the vacancies created in the size of
                  the board. As an inducement to Messrs. Forbes, Campagna and
                  Viscido to join the board of directors, the Company issued
                  250,000 shares of its common stock, $.001 par value to each of
                  them. The Acquisition Agreement also provided for stock
                  issuances in the form of finder's fees. Pursuant thereto, the
                  Company issued 300,000 and 1,700,000 shares of its common
                  stock, $.001 par value, to Joseph Territo and Edward Mihal,
                  respectively.

                  Effective March 24, 1994, George Fattell resigned as an
                  officer and director of the Company. Per the terms of his
                  resignation any future shares of the Company's common stock
                  issued to Mr. Fattell are to be equally distributed to Louis
                  V. Muro and Patrick McLaren.

                                       10
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  Effective January 18, 1995, Louis V. Muro and Patrick McLaren
                  resigned their positions as officers and directors of the
                  Company. In addition to their resignations they acknowledged
                  that none of the requisite performance levels for the release
                  of any of the 11,900,000 escrow shares had been met and
                  renounced all rights to such shares.

                  DEVELOPMENTAL STAGE

                  At February 8, 2000 the Company is still in the development
                  stage. The operations to date have consisted mainly of raising
                  capital, obtaining financing, developing equipment, obtaining
                  customers and supplies, installing and testing equipment and
                  administrative activities.

                  BASIS OF CONSOLIDATION

                  The consolidated financial statements include the consolidated
                  accounts of The Tirex Corporation and its subsidiaries and
                  Tirex Canada R&D, Inc.. Tirex Canada R&D, Inc. is held 49% by
                  the Company and 51% by the shareholders of the Company. The
                  shares owned by the shareholders are held in escrow by the
                  Company's attorney and are restricted from transfer . All
                  inter-company transactions and accounts have been eliminated
                  in consolidation.

                  CASH AND CASH EQUIVALENTS

                  For purposes of the statement of cash flows all certificates
                  of deposits with maturities of 90 days or less, were deemed to
                  be cash equivalents.

                  ACCOUNTS RECEIVABLE

                  Management believes that all accounts receivable as of June
                  30, 1999 and which are still in the accounts of the Company as
                  of February 8, 2000, were fully collectible; therefore, no
                  allowance for doubtful accounts were recorded.

                  INVENTORY

                  The Company values inventory at the lower of cost (first-in,
                  first-out method) or market.

                  PROPERTY AND EQUIPMENT

                  Property and equipment are recorded at cost less accumulated
                  depreciation. Depreciation is computed provided using the
                  straight-line method over the estimated useful lives of five
                  years.

                  Repairs and maintenance costs are expensed as incurred while
                  additions and betterments are capitalized. The cost and
                  related accumulated depreciation of assets sold or retired are
                  eliminated from the accounts and any gain or losses are
                  reflected in earnings.

                                       11
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  ESTIMATES

                  Preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosures of
                  contingent assets and liabilities at the date of the financial
                  statements and the reported amounts of revenues and expenses
                  during the reporting period. Actual results could differ from
                  those estimates.

                  ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123

                  In 1997, the Company adopted Statement of Financial Accounting
                  Standards No. 123, "Accounting for Stock-Based Compensation"
                  ("SFAS 123"). SFAS 123 encourages, but does not require
                  companies to record at fair value compensation cost for
                  stock-based compensation plans. The Company has chosen to
                  account for stock-based compensation using the intrinsic value
                  method prescribed in Accounting Principles Board Opinion No.
                  25, "Accounting for Stock Issued to Employees" and related
                  interpretations. Accordingly, compensation cost for stock
                  options is measured as the excess, if any, of the quoted
                  market price of the Company's common stock at the date of the
                  grant over the amount an employee must pay to acquire the
                  stock. The difference between the fair value method of
                  SFAS-123 and APB 25 is immaterial.

                  ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128

                  In February 1997, the Financial Accounting Standards Board
                  (FASB) issued Statement of Financial Accounting Standards No.
                  128, "Earnings per Share" (SFAS 128). SFAS 128 changes the
                  standards for computing and presenting earnings per share
                  (EPS) and supersedes Accounting Principles Board Opinion No.
                  15, "Earnings per Share." SFAS 128 replaces the presentation
                  of primary EPS with a presentation of basic EPS. It also
                  requires dual presentation of basic and diluted EPS on the
                  face of the income statement for all entities with complex
                  capital structures and requires a reconciliation of the
                  numerator and denominator of the basic EPS computation to the
                  numerator and denominator of the diluted EPS computation. SFAS
                  128 is effective for financial statements issued for periods
                  ending after December 15, 1997, including interim periods.
                  This Statement requires restatement of all prior-period EPS
                  data presented.

                  ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128

                  As it relates to the Company, the principal differences
                  between the provisions of SFAS 128 and previous authoritative
                  pronouncements are the exclusion of common stock equivalents
                  in the determination of Basic Earnings Per Share and the
                  market price at which common stock equivalents are calculated
                  in the determination of Diluted Earnings Per Share.

                                       12
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


Note 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  Basic earnings per common share is computed using the weighted
                  average number of shares of common stock outstanding for the
                  period. Diluted earnings per common share is computed using
                  the weighted average number of shares of common stock and
                  dilutive common equivalent shares related to stock options and
                  warrants outstanding during the period.

                  The adoption of SFAS 128 had no effect on previously reported
                  loss per share amounts for the year ended June 30, 1997. For
                  the years ended June 30, 1999 and 1998, and for the
                  three-month period ended September 30, 1999, primary loss per
                  share was the same as basic loss per share and fully diluted
                  loss per share was the same as diluted loss per share. A net
                  loss was reported in 1998 and 1997, and accordingly, in those
                  years the denominator was equal to the weighted average
                  outstanding shares with no consideration for outstanding
                  options and warrants to purchase shares of the Company's
                  common stock, because to do so would have been anti-dilutive.
                  Stock options for the purchase of 13,212,673 and 9,212,673
                  shares at June 30, 1999 and 1998, respectively, and warrants
                  for the purchase of 1,000,000 and 2,000,000 shares at June 30,
                  1999 and 1998 respectively, were not included in loss per
                  share calculations, because to do so would have been
                  anti-dilutive.

                  FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The carrying amount of the Company's financial instruments,
                  which principally include cash, note receivable, accounts
                  payable and accrued expenses, approximates fair value due to
                  the relatively short maturity of such instruments.

                  The fair value of the Company's debt instruments are based on
                  the amount of future cash flows associated with each
                  instrument discounted using the Company's borrowing rate. At
                  December 31, 1999 and June 30, 1999 respectively, the carrying
                  value of all financial instruments was not materially
                  different from fair value.

                  INCOME TAXES

                  The Company has net operating loss carry-overs of
                  approximately $18 million as of December 31, 1999, expiring in
                  the years 2004 through 2011. However, based upon present
                  Internal Revenue regulations governing the utilization of net
                  operating loss carry-overs where the corporation has issued
                  substantial additional stock, most of this loss carryover may
                  not be available to the Company.

                  The Company adopted Statement of Financial Accounting
                  Standards (SFAS) No. 109, Accounting for Income Taxes,
                  effective July 1993. SFAS No.109 requires the establishment of
                  a deferred tax asset for all deductible temporary differences
                  and operating loss carry-forwards. Because of the
                  uncertainties discussed in Note 2, however, any deferred tax
                  asset established for utilization of the Company's tax loss
                  carry-forwards would correspondingly require a valuation
                  allowance of the same amount pursuant to SFAS No. 109.
                  Accordingly, no deferred tax asset is reflected in these
                  financial statements.

                                       13
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


Note 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  The Company has research and development investment tax
                  credits receivable from the governments of Canada and Quebec
                  amounting to $407,389 at December 31, 1999.

                  FOREIGN EXCHANGE

                  Assets and liabilities of the Company which are denominated in
                  foreign currencies are translated at exchange rates prevailing
                  at the balance sheet date. Revenues and expenses are
                  translated at average rates throughout the year.

                  REVENUE RECOGNITION

                  Revenue is recognized when the product is shipped, installed
                  and accepted by the customer.

Note 2 -          GOING CONCERN

                  As shown in the accompanying financial statements, the Company
                  incurred a net loss of $4,910,000 during the year ended June
                  30, 1999, and incurred an additional loss of $1,461,773 for
                  the six-month period ended December 31, 1999.

                  In March 1993, the Company, which was still in the development
                  stage, developed a new Business Plan. As at December 31, 1999
                  the Company was in the process of constructing a production
                  quality machine for the cryogenic disintegration of used
                  tires. At February 8, 2000, the Company was testing the first
                  production model under operating conditions. Insofar as such
                  testing has not been completed, management considers the
                  Company to still be in the development stage.

                  The Company is currently in the process of formulating a plan
                  to effect an additional public offering, the proceeds of which
                  would be used for working capital and capital acquisitions.
                  The ability of the Company to continue as a going concern is
                  dependent on the success of the plan. The Company has received
                  an offer by The N.I.R. Group of Mineola, New York to secure
                  financing for the Company, subject to due diligence
                  examination, in an amount of up to $5,000,000. As of February
                  8, 2000, the due diligence examination had not been completed
                  and thus the Company cannot state with certainty that the
                  proposed financing which actually materialize. The financial
                  statements do not include any adjustments that might be
                  necessary if the Company is unable to continue as a going
                  concern.

                                       14
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 3 -          FINANCING COSTS

                  During the year ended June 30, 1998 the Company incurred costs
                  of $158,255 in connection with debt financing. These costs
                  have been capitalized in other assets and are being amortized
                  over the terms of the financing. Amortization of financing
                  costs for the fiscal year ended June 30, 1999 was $32,964, and
                  for the six-month period ended December 31, 1999 amortization
                  of deferred financing costs was $49,439.

Note 4-           PROPERTY AND EQUIPMENT FINANCING COSTS

                  As of December 31, 1999 plant and equipment consisted of the
                  following:

                  Furniture, fixtures and equipment                 $    23,776
                  Leasehold improvements                                134,384
                  Construction in progress - equipment                2,000,000
                                                                    -----------
                                                                    $ 2,158,160
                    Less accumulated depreciation and amortization       98,574
                                                                    -----------
                                                                    $ 2,286,514
                                                                    ===========

                  Depreciation and amortization expense charged to operations
                  was $42,770 and $12,361 for the years ended June 30, 1999 and
                  1998, respectively. For the three and six month periods ended
                  December 31, 1999, depreciation and amortization charged
                  against furniture, fixtures and equipment, Leasehold
                  Improvements and Construction in Progress was $25,142 and
                  $39,057 respectively. Other amortization of prepaid expenses
                  and deferred financing costs for the three and six-month
                  periods ending December 31, 1999 amounted to $135,145 and
                  $253,101 respectively.

Note 5-           NOTES PAYABLE

                  The Company had available as of June 30, 1999 a $510,000 line
                  of credit which bears interest at the Canadian prime rate plus
                  1.25% to finance 75% of its research and development
                  investment tax credits incurred for the fiscal year ended June
                  30, 1999. At June 30, 1999, $408,302 was outstanding against
                  this line of credit. As of December 31, 1999, the outstanding
                  balance was $121,251. The note is collateralized by the
                  personal guarantees of certain officers, certain equipment of
                  Tirex Canada and guaranteed by The Tirex Corporation and
                  Subsidiaries. The loan is guaranteed at a rate of 80% by the
                  Garantie-Quebec (Guarantee-Quebec), a subsidiary of a Quebec
                  Government-owned corporation, Investissements-Quebec
                  (Investments-Quebec) and is repayable from the research and
                  developmental investment tax credits received. The Canadian
                  prime rate of interest at June 30, 1999 was 6 1/4%.

                  Under the terms of the note payable to the bank, the Company
                  is required to maintain a current ratio of 1:1 by June 30,
                  1999 and 1.2:1 by June 30, 2000, a tangible net worth of
                  $750,000, and the furnishing of periodic financial statements.
                  During the year ended June 30, 1999, the Company failed to
                  comply with certain loan covenants. In the six-month period
                  ended December 31, 1999, the company had not complied with
                  certain loan covenants. Despite the bank's not having
                  exercised its rights in the past, there can be no assurance
                  that the bank will elect to not exercise its rights under the
                  loan agreement if the Company would not be in compliance with
                  all loan covenants.

                  The Company has two notes payable to investors at June 30,
                  1999 totaling $1,637 to pay for accrued interest on the debt
                  which was converted to stock.

                                       15
<PAGE>
<TABLE>
<CAPTION>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 6-           LONG-TERM DEBT
<S>               <C>                                                                   <C>
                  Federal Office of Regional Development (Ford-Q) Loan                     1999
                                                                                        ---------
                  payable under the Industrial Recovery Program amounting
                  to 20% of certain eligible costs incurred (maximum loan
                  $340,252) repayable in annual installments over a forty-
                  eight month period following completion of the project,
                  unsecured and non-interest bearing.  (If the Company
                  defaults the loans become interest bearing)                           $ 308,287

                  Loans payable under the Program for the Development

                  of Quebec SME's based on 50% of approved eligible costs for
                  the preparation of market development studies in certain
                  regions. Loans are unsecured and non-interest bearing. (If the
                  Company defaults the loans become interest bearing).

                  Loan payable over five years commencing
                     June 2000 due June 2004                                               64,648

                  Loan payable over five years, commencing
                     June 2001, due 2005                                                   60,020

                  Loan payable in amounts equal to 1% of annual sales
                     in Spain through June 30, 2007
                                                                                           13,610

                  Loan payable in amounts equal to 11/2% of annual sales in
                     Spain and Portugal through June 30, 2004
                                                                                           64,465
                                                                                        ---------
                                                                                          511,030
                  Less:  current portion                                                  106,385
                                                                                        ---------
                                                                                        $ 404,645
         Minimum principal repayments of each of the next five years as follows:

                  1999                                                                  $ 106,385
                  2000                                                                    114,697
                  2001                                                                    157,033
                  2002                                                                     29,243
                  2003                                                                     37,555
                         Thereafter
                                                                                           98,082
                                                                                        ---------
                                                                                        $ 542,995
                                                                                        =========
</TABLE>
                                       16
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 7-           CAPITALIZED LEASE OBLIGATIONS

                  The Company leases certain equipment under agreements
                  classified as capital leases. The cost and the accumulated
                  amortization for such equipment as of June 30, 1999 was
                  $122,609 and $12,289, respectively. The net amortized value as
                  of December 31, 1999 was $96,079.

                  The following is a schedule by years of future minimum lease
                  payments under capital leases of equipment together with the
                  obligations under capital leases (present value of future
                  minimum rentals) as of June 30, 1999.


                     Years Ended
                      June 30,
                     -----------
                       2000                                          $    34,605
                       2001                                               28,075
                       2002                                               28,075
                       2003                                               28,075
                       2004                                               20,955
                                                                     -----------
                       Total minimum lease payments                      139,785
                       Less amount representing interest                  26,130
                                                                     -----------
                       Total obligations under capital lease             113,655
                       Less current installments of obligations
                        under capital leases                              25,147
                                                                     -----------
                       Long-term obligation under capital leases,
                        with interest rate of 9.3%                   $    88,508
                                                                     ===========

                                       17
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 8-           CONVERTIBLE SUBORDINATED DEBENTURES

                  Convertible subordinated debentures consist of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                        TYPE A                              TYPE B
----------------------------------------------------------------------------------------------
<S>                        <C>                                   <C>
Balance Dec 31, 1999       $176,600                              $380,000
----------------------------------------------------------------------------------------------
Interest rate              10%                                   10%
----------------------------------------------------------------------------------------------
Maturity                   Earlier of (i) the completion of a    Earlier of (i) two years from
                           public offering yielding gross        the issue date or (ii) the
                           proceeds of not less than             completion of a public
                           $8,000,000, (ii) the closing on       offering of its securities by
                           financing in excess of $4,500,000.    the Maker.  These debentures
                           These debentures are subordinated     are subordinated to all
                           to all current and future bank debt.  current and future bank debt.
----------------------------------------------------------------------------------------------
Redemption rights          If not converted, the holder may      If not converted the holder
                           require the Company to redeem at      may require the Company to
                           any time after maturity at a          redeem at any time after
                           premium of 125% of the principal      maturity for the principal
                           amount plus interest.                 amount plus interest
----------------------------------------------------------------------------------------------
Conversion ratio           61.5% of the average closing bid      $0.20 per share.  During the
                           price of the common stock as          year ended June 30, 1999,
                           reported by NASDAQ during the         $155,000 of convertible
                           five-day period preceding the         debentures were converted to
                           Company's receipt of a notice of      common stock.
                           conversion by a debenture holder.
                           During the year ended June 30, 1999,
                           debentures totaling $113,400 were
                           converted to common stock.
----------------------------------------------------------------------------------------------
Warrants                   As part of the debenture package,
                           the Company issued 2,000,000
                           warrants to purchase a like number
                           of shares of common stock at $.001
                           per share
                           During the year ended June 30, 1999,
                           1,000,000 warrants were exercised.
----------------------------------------------------------------------------------------------
</TABLE>
                                               18
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


Note 9 -          RELATED PARTY TRANSACTIONS

                  On July 22, 1994, 3,000,000 shares of The Tirex Corporation
                  and Subsidiaries, Inc. were released from escrow and issued to
                  Louis V. Muro and Patrick McLaren (1,500,000 shares each) in
                  accordance with the terms and provisions of the Acquisition
                  Agreement dated March 26, 1993.

                  The Company entered into various employment agreements with
                  the executive officers and general Counsel whereby the Company
                  will pay a total of $565,000 a year plus benefits. All of the
                  employment agreements call for terms ranging from 3 - 8 years.
                  In addition to the employment services, the officers agree not
                  to compete with the Company for the two year period following
                  the termination of employment. If an officer is terminated
                  other than for cause or for "good reason", the terminated
                  officer will be paid twice the amount of their base salary for
                  twelve months. During the year ended June 30, 1999, two
                  employees were terminated and received severance pay totaling
                  $500,000 which was paid in stock. The employees also received
                  options to buy 4,000,000 shares of stock for par value or
                  $4,000. The options were exercised July 31, 1999. The value of
                  the options were recorded as paid in capital at June 30, 1999
                  for 50% of the average price of the stock or $381,600.

                  Included in accrued salaries at September 30, 1999 is $328,930
                  of salary to officers and employees which the company will
                  issue common stock for. Various loans due to the officers
                  totaling $149,406 will be paid in stock during the year ended
                  June 30, 2000.

                  At June 30, 1999 and 1998, the Company had notes receivable
                  from various officers in the amount of $74,406 and $195,969,
                  respectively. One note in the amount of $70,405 bears interest
                  at an annual rate of 8% above prime through September 1998 and
                  2% above prime since that date and is collateralized by
                  400,000 shares of Tirex Corporation which is held by the
                  officer. The remaining notes are non-interest bearing and are
                  payable on demand.

                  At September 30, 1999 the Company had a note receivable for
                  $30,000 from a Company in which a director has a financial
                  interest. The note bears interest at prime plus 2% and is due
                  on demand.

                  Deposits payable included an amount of $118,500 which are
                  payable to companies which are owned by a director of the
                  Company.

                  The revenue recognized during the year ended June 30, 1998 was
                  received by a Company in which a director in the Company has a
                  financial interest.

                                       19
<PAGE>


                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 10-          EXCHANGE OF DEBT FOR COMMON STOCK

                  During the year ended June 30, 1999, the Company recorded
                  increases in common stock and paid-in capital of $343,952,
                  which was in recognition for the exchange of common stock for
                  debt owed. Debt totaling $164,000 was payable to certain
                  related parties to the Company.

Note 11-          COMMON STOCK

                  During the years ended June 30, 1999 and 1998, the Company
                  issued common stock to individuals in exchange for services
                  performed totaling $2,759,744 and $926,576, respectively.
                  Included in these amounts are payments to officers of the
                  Company and in house counsel in exchange for salary and
                  consulting in the amount of $2,210,502 and $361,945,
                  respectively. Also included in the amounts paid in stock
                  during the year ended June 30, 1999 was an exclusive rights
                  contract payable to an officer totaling $406,250. During the
                  six-month period ended December 31, 1999, the Company issued
                  common shares to officers, employees and corporate counsel in
                  exchange for services rendered in the amount of $792,896. The
                  dollar amounts assigned to such transactions have been
                  recorded at the fair value of the services received, because
                  the fair value of the services received was more evident than
                  the fair value of the stock surrendered.

Note 12 -         STOCK OPTION

                  On May 19, 1995, the Company sold to a director of the Company
                  an option to purchase 20,000 shares of Cumulative Convertible
                  Preferred Stock at an exercise price of $10 per share,
                  exercisable during the two year period beginning May 19, 1995,
                  and ending May 18, 1997. The director paid $20,000 for the
                  option. The terms of the Preferred Stock purchasable under the
                  option call for cumulative cash dividends at a rate of $1.20
                  per share and conversion into 2,000,000 or more shares of
                  common stock. The conversion to common stock ratio varies
                  depending on when the conversion is made. At May 29, 1997, the
                  exercise period was extended until May 18, 1999. During the
                  year ended June 30, 1999, the director exercised the option to
                  buy 1,234,567 shares of common stock for $40,000. The balance
                  of these options have expired.

                                       20
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                        COMPENSATORY COMMON STOCK OPTIONS

                                                               Compensation Cost

                                                                           For the Year
                                                                              Ended
                                                          Number of Shares June 30, 1999
                                                          ---------------- -------------
<S>                                                            <C>           <C>
                  Balance at July 1, 1998                      9,212,673            --

                  Stock options granted during the year
                    ended June 30, 1999                        4,000,000       381,600

                  Stock options exercised during the year
                    ended June 30, 1999                               --            --
                                                              ----------     ---------

                  Balance at June 30, 1999                    13,212,673     $ 381,600
                                                              ==========     =========
</TABLE>
                  The options expire at various dates through April 2000. The
                  exercise price ranges from $.001 to $.50 with the weighted
                  average exercise price equal to $.14.

Note 13 -         ACQUISITION BY MERGER OF RPM INCORPORATED

                  During November 1997, the Company entered into a merger
                  agreement with RPM Incorporated ("RPM"). The Company acquired
                  all of the assets and liabilities of RPM by acquiring all of
                  the outstanding common stock of RPM in exchange for common
                  stock in the Company on a unit for unit basis. RPM ceased to
                  exist following the exchange.

                  The assets and liabilities acquired by the Company from RPM
                  consist of the proceeds from the sale of debentures as well as
                  the debentures of $535,000. The financing fees on the issuance
                  of the debentures totaling $61,755 is included in the
                  statement of operations for the year ended June 30, 1998. A
                  total of 535,000 shares were issued as a result of the merger
                  valued at $16,050. A total of $16,050 was received for this
                  stock.

                  The Company entered into an additional agreement with the
                  former shareholders of RPM for a consulting agreement for a
                  period of 5 years expiring in June, 2002. In exchange for this
                  consulting agreement, 3,000,000 shares of common stock were
                  issued valued at $240,000. Other than the consulting agreement
                  and the issuance of the debentures, RPM was inactive.

                  For accounting purposes the Company recorded the merger as a
                  purchase and not as a pooling of interests.

Note 14 -         GOVERNMENT ASSISTANCE

                  The Company receives financial assistance from Revenue Canada
                  and Revenue Quebec in the form of scientific research tax
                  credit. During the year ended June 30, 1999 the Company
                  received approximately $1,058,000 which has been recorded as
                  paid in capital.

Note 15 -         COMMITMENTS

                  The Company leases office and warehouse space at an annual
                  minimum rent of $82,000 for the first year, $169,000 for the
                  second year and $211,000 per year for the third through the
                  fifth year. The lease expires 2003. The Company is also
                  responsible for its proportionate share of any increase in
                  real estate taxes and utilities. Under the terms of the lease,
                  the Company is required to obtain adequate public liability
                  and property damage insurance.

                                       21
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

                  The minimum future rental payments under this lease are as
                  follows:

                               June 30,                             Amount
                               --------                           ---------
                                 2000                             $ 176,900
                                 2001                               204,100
                                 2002                               204,100
                                 2003                               170,100
                                                                  ---------
                                                                  $ 755,200
                                                                  =========

                  Rental expense for the year ended June 30, 1999 and 1998
                  amounted to $111,930 and $55,532, respectively. One of these
                  leases contains a second ranking moveable hypothec in the
                  amount of $300,000 on the universality of the Company's
                  moveable property.

Note 16-          RESTATED FINANCIAL STATEMENTS

                  The financial statements for June 30, 1998 and for the
                  cumulative period from March 26, 1983 to June 30, 1999 have
                  been restated to break out other comprehensive income.

Note 17-          CONTINGENCY

                  The Company is involved with a lawsuit with a prior
                  consultant. The complaint alleged that the Company breached
                  its consulting agreement by failing to pay compensation due
                  there under and sought damages in the amount of $221,202
                  including interest and legal costs. The Company filed a
                  counter claim for fraud, breach of contact and unjust
                  enrichment on the part of the consultant. The Company sought
                  relief consisting of compensatory damages in the amount of
                  $28,800 and cancellation of the stock certificate issued to
                  the plaintiff for 263,529 shares; a declaratory judgment that
                  the consulting agreement is of no force and effect; punitive
                  damages; and interest and legal costs. The Company's position
                  is that this case is completely without merit.

Note 18-          ACCUMULATED OTHER COMPREHENSIVE INCOME

                  The deficit accumulated during the development stage included
                  other accumulated comprehensive income totaling $76,307.

                                       22
<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

         The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the three and six month periods ended December 31, 1999. This discussion
also includes events which occurred subsequent to the end of such quarter and
contains both historical and forward- looking statements. When used in this
discussion, the words "expect(s)", "feel(s)","believe(s)", "will", "may",
"anticipate(s)" "intend(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected.

         The Company is in the very early stages of the business of
manufacturing its patented cryogenic scrap tire recycling equipment (the "TCS-1
Plant"). Management presently estimates that commencement of full-scale
commercial manufacture of TCS-1 Plants operations will occur early in the new
year.

         Since the beginning of 1993, the Company has devoted the bulk of its
efforts to completing the design and development, and commencing the
manufacture, of the TCS-1 Plant and raising the financing required for such
project. In December 1998, the Company began successfully operating the first
fully integrated TCS-1 Plant on a continuous-running basis for scheduled periods
of up to four hours, at 50% of capacity with one of its two freezing towers and
fracturing mills. This allows the TCS-1 Plant to process only the tread portion
of the tires. In the fourth quarter of fiscal 1999 the Company started the
construction of the second freezing tower and the second disintegrator unit.
However, certain problems were identified in the course of long-term testing of
the first freezing tower with respect to the TCS-1's internal materials
conveying system. Accordingly, construction of the second tower was halted
pending resolution of the problems. The Company believes that it has found
appropriate solutions to the problems. Construction of the redesigned freezing
tower commenced in November 1999 and is expected to be completed on or about the
end of the current calendar year.

         In early 1999 the Company began the process of putting into place the
production capacity for producing welcome mats using recycled rubber crumb of
the kind which the TCS-1 would produce. Entering this new business segment was
expected to be profitable based on the estimated cost of the rubber crumb. In
addition, entering this segment was considered strategically useful to
demonstrate to possible buyers of TCS-1 systems that there was a use and market
for the rubber crumb. The Company's initial operations in this segment were
conducted pursuant to an agreement (the "IM2/Tirex Agreement") with IM2
Merchandising and Manufacturing, Inc. ("IM2"), in Quebec. Shipments of limited
quantities of mats commenced at the beginning of April 1999. These mats were
produced using recycled rubber crumb purchased from other companies because the
TCS-1 could not, at that time, produce sufficient quantities of rubber crumb to
meet the requirement. Furthermore, the technical difficulties in the freezing
tower section of the TCS-1 referred to in the previous paragraph further reduced
the availability of TCS-1 rubber crumb. The price difference between externally
purchased rubber crumb and the forecast cost to the Company of TCS-1 produced
crumb, taking into account tire recycling subsidies available from the
Government of Quebec, was and remains very substantial, and makes the difference
between being profitable and unprofitable on mat production at the prices the
Company was able to obtain for such mats. In addition, it became apparent in
June and July of 1999 that capital asset requirements and the financial and
human resources being consumed by the mat production operation were impeding
progress on the completion of the TCS-1 which was and remains the primary focus
of the Company. In August 1999, the Company began negotiations for the sale of
the mat production assets and the majority of the inventory to IM2. This
divestiture was announced on September 7, 1999. As of February10, 2000, the sale
of these assets to IM2 had not been completed and the Company cannot provide any
assurances at this time that the sale will, in fact, be completed. However,
should this sale not be consummated, the Company has been approached by other
credible possible purchasers of such equipment. The Company will evaluate such

                                       23
<PAGE>
other offers and will proceed with a transaction if such is to the benefit to
the Company. Pursuant to this divestiture, the Company will continue with its
primary points of focus, these being the manufacture and sale of TCS-1 tire
Disintegration Systems and the development of rubber-thermoplastic compounds.

         On December 9, 1999, the Company negotiated and signed a Memorandum of
Understanding with Shandong Hongli Group Company, Ltd. ("Hongli") from the city
of Dezhou in Shandong Province in The Peoples' Republic of China respecting the
sale of the principal components of a TCS-1 System, excluding the front-end tire
preparation system which the customer does not require because of the
substantial availability of rubber tire chips in their region. This sale is
expected to be completed during the third quarter of Fiscal 2000. The Company
has been informed that, subject to the witnessing of the TCS-1 working, all
necessary approvals and allocations of funds from the Chinese government have
been obtained. The Memorandum of Understanding also provides that the Company
and Hongli will work toward the completion of a licensing agreement under which
Hongli would acquire the exclusive right to manufacture and distribute the TCS-1
in the Peoples' Republic of China. The Company intends that any such licensing
agreement would include numerous clauses designed to protect the proprietary
interests of the Company in the technology, and that the agreement would include
a performance clause which would permit the Company to withdraw the element of
exclusivity in the event that certain sales targets are not met. Hongli is a
rapidly growing, diversified company in China currently employing about 4,500
persons. Hongli manufactures tractors and farm implements, diesel engines gears
and textile machinery. Hongli also is involved with real estate development,
service stations, restaurants and retail sales and service of scooters. Hongli
reports total assets of 520 million Yuan which is equal to approximately US$62
million

         The Company has undergone certain changes in its management structure
during the quarter ended December 31, 1999 and in the ensuing weeks to the date
of this report. In November 1999, Louis A. Sanzaro resigned as President of the
Company such that he could sign a licensing agreement with the Company without
conflict of interest. Mr. Sanzaro continues as a director of the Company and the
Company continues to benefit from his expertise in the recycling industry. Mr.
John Threshie Jr., formerly occupying the position of Vice-President, Logistics
for the Company was named to succeed Mr. Sanzaro as President of the Company. In
January 2000, Mr. Terence C. Byrne resigned as Chief Executive officer of the
Company in order to pursue other interests in corporate financing and
consulting. However, Mr. Byrne has agreed to provide similar services to the
Company for the foreseeable future and is also active on behalf of the Company
in Investor Relations. Mr. Byrne has been instrumental in the negotiations of
the private placement with NIR, which private placement is discussed elsewhere
in this Report. In November 1999, John Hartley resigned as a director of the
Company.

LIQUIDITY AND CAPITAL RESOURCES

         The activities of the Company since its formation in 1987 and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions, including three private placements to a
limited number of accredited investors, which the Company completed on May 11,
1998, and which yielded aggregate net proceeds of $2,063,795 (see "The Company -
Material Financing Activities"). In total, funds raised by the Company from
private sales of its securities are as follows:

                -----------------------------------------------------
                      Year Ended               Proceeds From Sales
                      June 30th                    of Securities
                -----------------------------------------------------
                        1999                        $  286,500
                -----------------------------------------------------
                        1998                         2,063,795
                -----------------------------------------------------

                                       24
<PAGE>


                -----------------------------------------------------
                      Year Ended               Proceeds From Sales
                      June 30th                    of Securities
                -----------------------------------------------------
                        1997                           345,391
                -----------------------------------------------------
                        1996                            80,872
                -----------------------------------------------------
                        1995                            22,316
                -----------------------------------------------------
                        1994                           237,430
                -----------------------------------------------------
                        1993                            76,055
                -----------------------------------------------------
                        1990                            80,812
                -----------------------------------------------------
                        1989                            77,000
                -----------------------------------------------------

         During the fiscal years ended June 30, 1998 and June 30, 1999 and the
interim six-month period ended December 31, 1999, the Company received
additional funding from Quebec and Canadian government grants, loans, loan
guarantees and refundable tax credits for purposes of completing the development
of the TCS-1 Plant and for the international marketing of such plants (see Item
1. of this Report, "Existing and Proposed Businesses - Canadian Operations -
Canadian Financial Assistance - Grants, Loans, and Commitments"). Canadian and
Quebec government research and development tax incentives take the form of both
tax deductions from otherwise taxable income and tax credits respecting the
eligible research and development expenditures of the Company (see "Existing and
Proposed Businesses - Canadian Operations"). Insofar as tax credits for
scientific research and experimental development are concerned, such credits are
offered by both the governments of Canada and of Quebec. The tax credits are
calculated as a percentage of research and development expenditures deemed
eligible by the Revenue Departments of each government. The percentages vary
according to the size of the company (defined according to the asset base and
revenues generated by the company), the residency of the majority of the voting
control and other factors. In the case of both the provincial and the federal
governments, where the amount of the tax credit exceeds other tax liabilities,
such as taxes on income and on capital, and subject to certain other conditions
which the company meets, the amount of any difference is paid to the company,
thus the term, "Refundable Tax Credits". The effective rate of the credit varies
from one company to another as a function of a number of factors, not least of
which are: (i) the nature of the costs being claimed such as labor costs versus
non-labor costs (the credit for labor costs is higher than for non-labor costs);
and (ii) the proportion of expenditures which can be attributed to research and
development but which are not deemed eligible for the tax credits by their
nature. Insofar as the Company is concerned, the tax credits have varied from
approximately 25% to 30% of total research and development expenditures,
including certain types of expenditures deemed ineligible for tax credits.
During the last three fiscal years, virtually all of the activities connected
with the development and construction of the First Production Model of the TCS-1
Plant have qualified as expenses eligible for refundable tax credits.

         As a further measure to stimulate research and development, the Quebec
Government, through "Garantie-Quebec" (Guarantee Quebec), hereinafter referred
to as G-Q, a subsidiary of "Investissements Quebec" (Investments Quebec), a
successor to the Societe de developpement industriel du Quebec, a public sector
corporation wholly owned by the Government of Quebec, (the "SDI") (A FORMER
ENGLISH VERSION OF THIS NAME WAS THE QUEBEC INDUSTRIAL DEVELOPMENT CORPORATION),
has continued a loan guarantee program formerly operated by SDI, (the "G-Q Loan
Guarantee Program") which provides G-Q's guarantee of repayment of 75% of the
amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. G-Q's Loan Guarantee Program therefore

                                       25
<PAGE>


enhances a company's ability to borrow from financial institutions up to 75% of
the amount of the anticipated tax credit for expenditures already incurred
("Allowable Post-Expenditure Loans"), prior to the receipt of the anticipated
tax credit. This provides the cash flow essential to the research and
development efforts. In the absence of any tax liabilities, these tax credits
have functioned as monetary grants and constituted receivables which were used,
prior to their being paid to the Company, to secure conventional bank financing,
supported in part by the G-Q guarantee noted above.

         In connection with the Refundable Tax Credits, during the first quarter
of 1998, the Bank of Montreal ("BOM") approved a loan to the Company of up to
Cdn$937,000, or approximately US$655,900 ("the BOM Tax Credit Loan") to be used
to pay expenses which would then be eligible for refundable tax credits. By
December 1998, the Company had borrowed the entire amount authorized and, in
accordance with the terms of the SDI Loan Guarantee Agreement, by the end of
March 1999, the Company had reimbursed the entire amount. On May 9, 1999, the
Company received a similar offer of financing from ScotiaBank, conditional upon
the receipt of a loan guarantee from G-Q, the successor to SDI. This offer was
for an amount of up to Cdn$750,000 (approximately US$510,000). The loan
guarantee from G-Q was obtained in June of 1999 and the Company proceeded to
borrow Cdn$600,000, (approximately7 US$420,000), which amount was outstanding as
of the end of Fiscal 1999. The remaining Cdn$150,000 was drawn down in September
of 1999. In November of 1999, the Company received a check from the Government
of Quebec in respect of research and development tax credits in the amount of
Cdn$606,948 form which amount the sum of Cdn$300,000 was deducted to reduce the
ScotiaBank Tax Credit Loan balance. On November 23, 1999, the Company received
an advance check from the Government of Canada, also in respect of research and
development tax credits for the fiscal year which ended June 30, 1999. The check
was based on an approved advance of Cdn$450,000. However, the Government
deducted from this check Cdn$50,000 in respect of an amount due under a loan
received under the Southwest Montreal Industrial Redevelopment Program and
another amount due in respect of payroll source deductions of approximately
Cdn$35,000. Partially offsetting these deductions was an element of interest
income to the Company. The net amount of the check received was Cdn$381,339
(approximately US$259,310). From this amount, the sum of Cdn$175,000 was
deducted to further reduce the ScotiaBank Tax Credit Loan balance such that, as
of December 8, 1999, the outstanding balance due to ScotiaBank is now
Cdn$175,000 (approximately US$119,000). The ScotiaBank Tax Credit Loan is
secured by: (i) a first-ranking lien on all of the assets, tangible and
intangible, present and future of the Company's Canadian subsidiary, Tirex R&D;
(ii) a lien on the Company's patent for the cryogenic tire disintegration
process and apparatus of the TCS-1 Plant; and (iii) personal guarantees of two
officers and directors of the Company.

         Borrowings drawn down under the ScotiaBank Tax Credit Loan bear
interest, from the date the funds are drawn down until the outstanding principal
and all accrued and unpaid interest thereon are repaid, at an annual rate equal
to the ScotiaBank Prime Rate (which, for reasons of inter-bank competition, is
usually equivalent to Canadian Prime Rate) plus 1.25%. Interest on the
outstanding balance of the ScotiaBank Tax Credit Loan is due and payable
monthly. During the last three fiscal years, and the five-month interim period
ended November 30, 1999, the Company made research and development expenditures,
generated tax credit claims, and received funds by way of borrowings under the
BOM Tax Credit Loan, as set forth in the following table:

                                       26
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                  AMOUNT OF R&D    AMOUNT OF TAX                                           CUMULATIVE
     PERIOD       AMOUNT OF R&D    EXPENDITURES   CREDITS ESTIMATED  AMOUNT BORROWED                  OUTSTANDING BALANCE
  R&D EXPENSES    EXPENDITURES     ELIGIBLE FOR   BY BANKS AND G-Q  AGAINST ESTIMATED  AMOUNT OF TAX       OF LOAN AS
 WERE INCURRED      INCURRED        TAX CREDITS    (FORMERLY SDI)     TAX CREDITS     CREDIT RECEIVED   AT END OF PERIOD
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>              <C>              <C>               <C>              <C>                <C>
RE: BOM                -0-              -0-              -0-               -0-              -0-                -0-
July 1, 1995 to
June 30, 1996
-------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to   Cdn$1,576,761    Cdn$1,576,761     Cdn$ 579,305          -0-(1)           -0-(2)             -0-
June 30, 1997
-------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to   Cdn$2,723,443    Cdn$2,723,443     Cdn$ 982,113      Cdn$828,230(1)   Cdn$307,208(2)     Cdn$597,820
June 30, 1998
-------------------------------------------------------------------------------------------------------------------------
July 1, 1998 to   Cdn$1,167,892         (3)              (4)           Cdn$108,770(1)   Cdn$245,517(5)   BOM Loan = zero
June 30, 1999                                                                                (6)
-------------------------------------------------------------------------------------------------------------------------
RE: SCOTIABANK    Cdn$2,512,604    Cdn$2,163,508    Cdn$1,000,000      Cdn$600,000          n/a          ScotiaBank Loan
July 1, 1998 to                                                                                             Cdn$600,000
June 30, 1999
-------------------------------------------------------------------------------------------------------------------------
Six months to          n/a              n/a              n/a           Cdn$150,000     Cdn$1,056,948     ScotiaBank Loan
December 31, 1999                                                                                         Cdn$175,000 (7)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.

                                       27
<PAGE>
         (1)      Prior to June 30, 1998, the Company received three
                  disbursements from the BOM in the aggregate amount of
                  Cdn$828,230 (approximately US$579,761) with the first of these
                  disbursements received on January 30, 1998. These amounts were
                  based upon estimated tax credit receivables in the following
                  amounts: (i) Cdn$579,305 (approximately US$405,514) for
                  research and development expenditures made by the Company
                  during the fiscal year ended June 30, 1997; and (ii) a portion
                  of the Cdn$982,113 (approximately US$687,479) for research and
                  development expenditures made by the Company during the fiscal
                  year ended June 30, 1998. Subsequent to June 30, 1998, the
                  Company received a further cash disbursement of Cdn$108,770
                  (approximately US$76,139), in respect of eligible tax credit
                  expenditures incurred prior to June 30, 1998, effecting the
                  complete draw down of the entire authorized loan amount of
                  Cdn$937,000 against tax credit receivables for the cumulative
                  period ended June 30, 1998.

         (2)      All funds by way of Tax credits received by the Company during
                  fiscal 1998 were attributable to research and development
                  expenditures made by the Company during fiscal 1997 and Tax
                  Credits received during fiscal 1999 were attributable to
                  research and development expenditures made by the Company
                  during fiscal 1998.

         (3)      On or about October 20, 1999, and in accordance with the tax
                  laws of the governments of Canada and of Quebec, the Company
                  submitted a claim for tax credits based upon any research and
                  development expenditures made during fiscal 1999. The Company
                  expects that a portion of such expenditures will be eligible
                  for Refundable Tax Credits. In connection therewith, the
                  Company obtained credit facilities from ScotiaBank, similar to
                  the BOM Tax Credit Loan, based upon estimated tax credit
                  receivables.

         (4)      The Company made research and development expenditures in the
                  amount of Cdn$2,163,508 during fiscal 1999, and the Company
                  believes that a portion of such expenditures will be eligible
                  for Refundable Tax Credits. It should be noted further that
                  the entire amount available to the Company under the
                  ScotiaBank Tax Credit Loan has already been borrowed by the
                  Company in connection with research and development
                  expenditures made by the Company during the year ended June
                  30, 1999.

         (5)      Tax credits received by the Company during fiscal 1999, are
                  attributable to research and development expenditures made by
                  the Company during the fiscal year ended June 30, 1997 and
                  1998, whereas amounts received in the current fiscal year
                  (Fiscal 2000) are in respect of tax credits for the fiscal
                  year which ended June 30, 1999.

         (6)      The annual Canadian federal government audit of eligible
                  research and development expenditures for the fiscal year
                  ending June 30, 1998 took place in January 1999. As a result
                  of the audit, the Company received approval for tax credits in
                  the amount of Cdn$637,033 from the Government of Canada and
                  Cdn$490,927 from the Government of Quebec. The tax credits
                  received were used to reduce the BOM Tax Credit Loan balance
                  to zero in March of 1999.

         (7)      On November 5, 1999, the Company received and cashed a check
                  from the Revenue Department of the Government of Quebec in
                  respect of research and development tax credits for the fiscal
                  year ended June 30, 1999. This check amounted to Cdn$606,948
                  (approximately US$413,000). In accordance with the
                  requirements of the loan guarantee provided by
                  Garantie-Quebec, an amount of Cdn$400,000 (approximately
                  US$272,000) was given that same day to ScotiaBank to reduce
                  the loan balance. On November 23, 1999, an advance check was

                                       28
<PAGE>

                  received from the Government of Canada in respect of research
                  and development tax credits. This advance was made available
                  pending final determination of the tax credit due, and was
                  based on an approved advance amount of Cdn$408,000 plus
                  interest thereon in the amount of Cdn$2,039. The Government
                  took offsets from this amount in respect payroll taxes due in
                  the amount of Cdn$28,700. The net amount of the check was
                  Cdn$381,339 (approximately US$263,000). In December 1999, the
                  Company received a second tax refund advance check from
                  Revenue Canada. This check was based on a refund due in the
                  amount of Cdn$104,013 plus interest thereon in the amount of
                  Cdn$8,573. From this check was deducted an amount of
                  Cdn$50,000 plus interest thereon in the amount of Cdn$1,678.
                  The Cdn$50,000 was in respect of the amount due to CEDQR under
                  the loan agreement with the Company which had been made
                  available under the Industrial Recovery Program for South-West
                  Montreal to undertake the development of the TCS-1, as
                  discussed in the second paragraph following. The net amount of
                  the check was thus Cdn$51,678 (approximately US$35,600. As of
                  February 8, 2000, the loan balance due to ScotiaBank is thus
                  Cdn$175,000 (approximately US$119,000).

         During the last three fiscal years and the six month interim period
ended December 31, 1999, the Company also received additional financial
assistance by way of loans and grants from Quebec governmental agencies, for the
design and development of the TCS-1 Plant and for export market development as
follows:

         1. In March of 1996, the Company qualified for an interest-free,
unsecured loan (the "FORD-Q Loan") of up to $500,000 (Canadian), or
approximately $ 350,000 (U.S.). This loan was made available by the Government
of Canada under the Industrial Recovery Program for Southwest Montreal, which is
administered by the federal government agency, Canada Economic Development for
Quebec Regions ("CEDQR"), which was previously known as the Federal Office of
Regional Development - Quebec or "FORD-Q". Under the terms of the loan, the
Company received funds in the total amount of Cdn$500,000 or approximately
US$350,000, representing 20% of eligible expenditures made by the Company to
design, develop, and manufacture the first full-scale model of the TCS-1 Plant.
The loan money was disbursed pursuant to the submission of claims of eligible
expenses incurred. The Company did not have funds available to expend for these
purposes until February of 1997. Because of the limited funds available to the
Company at that time, the Bank of Montreal agreed to make short-term loans (the
"BOM Secured Loans") to the Company, secured by CEDQR's acceptance of the
Company's claims for reimbursement of expenditures. All of the BOM Secured Loans
were repaid by the Company as funds were released to the Company under the CEDQR
Loan.

         The proceeds of the CEDQR Loan were paid to the Company during the
fiscal years ended June 30, 1997 and 1998, as follows:

                             Canadian Dollars            US Dollar Approximation
                             ----------------            -----------------------

Fiscal 1997                      $246,752                        $172,725
Fiscal 1998                      $253,248                        $177,275

Under the terms of the CEDQR Loan, repayment must commence twelve months from
the date CEDQR declares that the project has been completed. This occurred on
March 31, 1998. The repayment schedule therefore calls for four, graduated
annual payments as follows:

                                       29
<PAGE>

--------------------------------------------------------------------------------
                             Canadian Dollars            US Dollar Approximation
                             ----------------            -----------------------
March 31, 1999                   $ 50,000                       $ 35,000
--------------------------------------------------------------------------------
March 31, 2000                   $100,000                       $ 70,000
--------------------------------------------------------------------------------
March 31, 2001                   $150,000                       $105,000
--------------------------------------------------------------------------------
March 31, 2002                   $200,000                       $140,000
--------------------------------------------------------------------------------

         The terms and purposes of the CEDQR Loan are discussed in more detail
in "Existing and Proposed Businesses - Canadian Operations - Canadian Financial
Assistance - Grants, Loans, and Commitments". The Cdn$50,000 which was due on
March 31, 1999 was offset against the tax credit advance check which was
received in December 1999, as discussed earlier. The Company is thus current in
respect to this loan repayment schedule.

         2. In April of 1996, the Company qualified for a grant from Societe
Quebecoise de Recuperation et de Recyclage ("Recyc-Quebec"), a self-financed,
Quebec Government-owned corporation established to facilitate and promote
materials recovery and recycling. The amount of such grant was $75,000 Canadian
(approximately U.S. $52,500). Of this amount, the Company received $50,000
Canadian (approximately U.S. $35,000) during the fiscal year ended June 30,
1997. The terms of the grant provide that the Company will receive the balance
of $25,000 Canadian (approximately U.S. $17,500) when the Company files a final
report on the completion of the project. The Company anticipates that such
report will be filed in or about February 1999. The terms and purposes of this
grant are discussed in more detail in "Existing and Proposed Businesses -
Canadian Operations - Canadian Financial Assistance - Grants, Loans, and
Commitments".

         3. The Company has also qualified for five interest-free, unsecured
loans from the Government of Canada in the aggregate amount of $ 232,773
Canadian (approximately U.S. $162,900). These loans were made available by
CEDQR, under the Innovation, Development, Entrepreneurship Assistance - Small
and Medium Enterprises Program ("IDEA-SME Program"). Under these loan
agreements, during Fiscal 1997 and 1998, the Company received $30,000 Canadian
(approximately U.S. $21,000) and $ 202,773 Canadian (approximately U.S.
$141,900.) respectively. The IDEA-SME Program loans represent up to 50% of
approved Company expenditures, based on submitted claims, subject to maximum
amounts for each loan. Expenditures are required to have been made for the
purposes of identifying and developing export markets for Canadian products. All
of the projects which gave rise to these loans have been declared completed by
CEDQR and the repayment terms have accordingly been established. The following
table identifies the nature of the projects for which these loans were granted,
the maximum amount of the loans approved the government agency, the aggregate
amounts received by the Company as of October 31, 1998 and the repayment terms
of each loan.

                                       30
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
                                                     AMOUNT OF FUNDS
                                                       RECEIVED BY                       REPAYMENT TERMS
                                      MAXIMUM AMOUNT   COMPANY AS OF  ====================================================== RATE OF
          NATURE OF PROJECT              OF LOAN     DECEMBER 31, 1998          DATE DUE               AMOUNT OF PAYMENT    INTEREST
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>           <C>                            <C>                       <C>
Market Research  Feasibility Study for  Cdn $20,000     Cdn $20,000   At the end of any fiscal year    1% of gross annual      None
Iberian Peninsula                                                     in which the Company has       revenue from sales in
                                                                      revenues from sales of TCS-1           Iberia
                                                                      Plants in the Iberian Peninsula
------------------------------------------------------------------------------------------------------------------------------------
Market Research  Feasibility Study for  Cdn $20,000     Cdn $20,000   At the end of any fiscal year    1% of gross annual      None
India                                                                 in which the Company has       revenue from sales in
                                                                      revenues from sales of TCS-1           India
                                                                      Plants in India
------------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting Potential    Cdn $95,000     Cdn $95,000         June 30, 2001                  Cdn $ 6,333         None
United States Markets for Rubber Crumb                                      June 30, 2002                  Cdn $12,666
                                                                            June 30, 2003                  Cdn $18,999
                                                                            June 30, 2004                  Cdn $25,333
                                                                            June 30, 2005                  Cdn $31,666
------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Activities   Cdn $95,000     Cdn $95,000   At the end of any fiscal year     1.5% of gross annual   None
Related to Positioning the Company to                                 in which the Company has         revenue from sales in
Market TCS-1 Plants, Rubber Crumb, and                                revenues from sales of TCS-1           Iberia
Related Products in Iberia                                            Plants in Iberia
------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Respecting   Cdn $98,000     Cdn $98,000         June 30, 2001                  Cdn $ 6,533.33      None
the Feasibility of using Rubber Crumb                                       June 30, 2002                  Cdn $13,066.66
in  Thermoplastic Elastomer Compounds                                       June 30, 2003                  Cdn $19,600.00
in the United States and Canada.                                            June 30, 2004                  Cdn $26,133.33
                                                                            June 30, 2005                  Cdn $32,666.66
====================================================================================================================================
</TABLE>
         These loans and the projects which they supported are discussed in more
detail in "Existing and Proposed Businesses - Canadian Operations" and "Existing
and Proposed Businesses - Sales and Marketing".

                                       31
<PAGE>


         On January 27, 2000, the Company received an offer to secure financing
via a private placement from The N.I.R. Group, LLC ("NIR"), located in Mineola,
New York. Pursuant to consultation with legal counsel, the Company entered into
an agreement in principle with NIR, subject to a due diligence examination,
under which NIR would provide consulting services to the Company in terms of
structuring an investment of up to US$5,000,000 in the common shares of the
Company. The Company will compensate NIR at the rate of 10% of the gross amount
funded plus 3% in non-accountable expenses from the proceeds of the funding.
Under this investment proposal, all shares to be issued and all shares issuable
upon the exercise of the warrants are requested to be registered and freely
tradable. Pending such registration, NIR will structure a preliminary investment
in the Company in an amount of up to US$500,000 in the form of a secured
convertible debenture carrying a twelve per cent (12%) annual interest rate with
a one-year maturity date. There is no assurance that the transaction will be
consummated.

         The Company believes it will be able to cover the balance of the
capital investments and expenditures required to be made in connection with: (i)
modifications which were and will be made to the TCS-1 Plant;(ii) commencement
of full scale, commercial manufacture of TCS-1 Plants; and (iii) meeting its
overhead on a level sufficient to sustain the Company for at least the next
twelve months, from a combination of some or all of the following sources: (i)
proceeds from the NIR private placement as discussed in the previous paragraph;
(ii) expected cash flow from sales of four TCS-1 Plants to ENERCON America
Distribution Limited ("Enercon") of Westerville, Ohio. (see Item 1 of this
Report "Existing and Proposed Businesses - Sales and Marketing - The Enercon
Agreements"); (iii) Canadian and Quebec government and governmental agency
grants, loans, and refundable tax credits; (iv) sale and lease back financing on
equipment owned by the Company; (v) conventional asset based debt financing
against receivables and inventory; (vi) refunds of all of the 15% sales taxes
paid by the Company on all goods and services purchased in connection with the
Company's manufacturing activities, which the Company, as a manufacturer and
exporter of goods is entitled to (vii) subcontractor financing; (viii) vendor
financed equipment purchases and/or (ix) a research and development tax credit
facility from ScotiaBank currently in place. The Company is presently actively
pursuing all of the foregoing avenues of financing. In addition, management
believes that the Company will be able to obtain sufficient production financing
to cover the costs of constructing subsequent TCS-1 Plants, using the
constituent components of the Plant to be financed, as collateral for debt
financing to cover its construction costs, although there can be no assurance
that financing will be received from any of these sources.

         Whether the funds, which the Company obtains, from any of the above
proposed sources, will be sufficient to enable the Company to reach a profitable
operating stage, will be entirely dependent upon: (i) the amount of such
financing which the Company is actually able to raise; (ii) Enercon's receipt of
its funding; and (iii) the as yet unproven ability of the TCS-1 Plant to operate
continuously on a long-term commercial basis in accordance with its anticipated
performance specifications; (see, below, in this Item 6, "Risk Factor No. 2 -
"Need For Substantial Additional Capital" and Item 1 of this Report, "Existing
and Proposed Businesses - Equipment Manufacturing - The TCS-1 Plant", and
"Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - The Enercon Contracts").

                                       32
<PAGE>


         Any failure or delay in the Company's receipt of the required financing
would be directly reflected in a commensurate delay or failure in the
commencement of: (i) full scale manufacturing of TCS-1 Plants; and (ii) the
commercial operation of the First Production Model. It should be noted also that
the period of time during which any funds raised will be available to cover
normal overhead costs could be significantly reduced if the Company is required
to make substantial, presently unanticipated, expenditures to correct any
further flaws or defects in the design or construction of the First Production
Model, which may become apparent when it is subjected to continuous operation on
a long term, commercial basis. Moreover, given the early stage of development of
the Company, it is impossible at this time to estimate with any certainty the
amount of income from operations, if any, during the next twelve months.

         In the event that the NIR private placement is not obtained, there can
be no assurance that the Company will be able to obtain other outside financing
on a debt or equity basis on terms favorable to it, if at all. In the event that
there is a failure in any of the finance-related contingencies described above,
the funds available to the Company may not be sufficient to cover the costs of
its operations, capital expenditures and anticipated growth during the next
twelve months. In such case, it would be necessary for the Company to raise
additional equity capital. Therefore, if the NIR private placement is not
completed and if the Company should wish to raise funds through a public
offering, it will be required to locate another broker-dealer, ready, willing,
and able to underwrite a public offering of the Company's securities. At this
time, the Company is not able to give any assurances that, in such event, it
will be successful in locating an underwriter or that its efforts will
ultimately result in a public offering. If the proceeds from the above described
potential sources of funding should be insufficient for the Company's
requirements and it is not able to effect a public offering of its securities
within the next twelve months, or find other sources of outside funding, the
Company's financial position and its prospects for beginning and developing
profitable business operations could be materially adversely affected.

         As of December 31, 1999, the Company had total assets of $3,598,899 as
compared to $4,177,977 on December 31, 1998 reflecting a decrease of $579,078,
and a decrease of $799,105 versus total assets as of the last fiscal year-end,
June 30, 1999, which totaled $4,398,004. Management attributes the decrease from
June 30, 1999 to December 31, 1999 primarily to the following factors: (i) a
decrease of $545,315 in Tax Credits Receivable from the balance as of June 30,
1999 in the amount of $952,704 to the December 31, 1999 balance of $407,389.
While counter-balanced by increases in estimated tax credit receivables based on
research and development actually undertaken in the first six months of Fiscal
2000, the receipt from the governments of Quebec and of Canada of approximately
US$770,000 was the primary cause of this decrease, and (ii) a reduction of cash
and cash equivalents from the balance as of June 30, 1999 in the amount of
$177,256 to $28,777 as of December 31, 1999, a decrease of $148,479. Similarly,
the reduction in total assets of $579,078 from December 31, 1998 to December 31,
1999 is also primarily attributable to the reduction in tax credit receivables.
The December 31, 1999 balance of tax credit receivables in the amount of
$407,389 was $698,262 less than the $1,105,651 balance as of December 31, 1998,
this being attributed to the quicker receipt of tax credit refund checks from
the governments of Canada and of Quebec. Fiscal year-end total assets at June
30, 1999 had reflected a previous increase of $583,356 over $3,814,648 at June
30, 1998. Management attributes the increase in total assets at June 30, 1999
versus June 30, 1998 principally to (i) an increase of $1,305,007 in Property,
Plant and Equipment from $977,288 as of June 30, 1998 to $2,282,295 as of June
30, 1999, and (ii) an increase of $96,886 in Research and development tax
credits receivable from $855,818 as of June 30, 1998 to $952,704 as of June 30,
1999. These increases were partially offset by (i) decreases in cash and cash
equivalents which went from $398,971 as of June 30, 1998 to $177,256 as of June
30, 1999, a decease of $221,715, (ii) a decrease of $204,500 in current prepaid
expenses and deposits from $618,226 as of June 30, 1998 to $413,766 as of June
30, 1999, resulting from amortization of such prepaid expenses, and similarly in
long-term prepaid expenses and deposits which decreased by $261,757 from
$445,677 as of June 30, 1998 to $183,920 as of June 30, 1999.

                                       33
<PAGE>


         As of December 31, 1999, the Company had total liabilities of
$3,713,758 as compared to $3,690,673 at December 31, 1998, reflecting an
increase in liabilities of $43,085. Total liabilities as of the end of June 30,
1999 (Fiscal 1999) were $3,952,008 which is $238,250 higher than the December
31, 1999 balance. The June 30, 1999 total had reflected a previous increase of
$591,420 over $3,360,588 in total liabilities as of June 30, 1998. While there
was no material difference in total liabilities from December 31, 1998 to
December 31, 1999 there has been a reduction in convertible subordinated debt.
As of December 31, 1998, the balance of such debt was $1,035,000 whereas the
balance as of December 31, 1999 was $556,600, reflecting a decrease of $453,100
which was added to Shareholders' Equity. This was compensated by a commensurate
increase in loans and advances from Directors, Officers employees and investors.
As of December 31, 1999 this amounted to $1,116,968, reported on a single line
item. In December 1998, this caption was divided between two different captions,
these being loans from investors ($93,516) and accrued liabilities which
included amounts due to directors, officers and employees in an amount of
$101,045.

         Reflecting the foregoing, the financial statements indicate that as of
December 31, 1999, the Company had a working capital surplus (current assets
minus current liabilities) of $77,715 and that as of December 31, 1998, the
Company had a working capital surplus of $399,935. The primary cause of this net
decrease in net working capital was related to the decrease in tax credit
receivables.

         The Company currently has limited material assets. The success of the
Company's tire recycling equipment manufacturing business, and its ability to
continue as a going concern will be dependent upon the Company's ability to
obtain adequate financing to commence profitable, commercial manufacturing and
sales activities and the TCS-1 Plant's ability to meet anticipated performance
specifications on a continuous, long term, commercial basis.


RESULTS OF OPERATIONS

           As noted above, the Company is presently in the very early stages of
the business of manufacturing and selling TCS-1 Plants. The Company intends to
begin manufacturing TCS-1 Plants on commercial basis early in calendar year
2000. The Company had $390,848 of gross sales during Fiscal 1999, but, with the
halting of operations in the rubber mat molding, the Company did not generate
any gross sales during this first quarter of Fiscal 2000. Unless and until the
Company successfully develops and commences TCS-1 Plant manufacturing and sales
operations on a full-scale commercial level, it will continue to generate no or
only limited revenues from operations. Except for the foregoing, the Company has
never engaged in any significant business activities.

         The financial statements which are included in this Report reflect
total general and administrative expenses of $335,654 for the three-month period
ended December 31, 1999 versus $1,447,048 for the analogous three-month period
ended December 31, 1998, reflecting a decrease of $1,111,394. The most important
reason for this decrease relates to one-time charges recorded in the three-month
period ended December 31, 1998, which were reported in the Company's Report
10-KSB for the year ended June 30, 1999. These one-time charges related to
issuances of shares of common stock to Officers and previous corporate counsel
and to a former officer of the Company's Canadian operations. The total amount
expensed relative to such share issuances last year was $1,398,750. Total
general and administrative, depreciation, amortization, research and development
costs for Fiscal 1999 were $4,953,622 versus $4,564,566 for the fiscal year
which ended June 30, 1998, reflecting an increase of $389,056. The costs
recorded for Fiscal 1999 reflect a one time charge totaling $1,398,750.

                                       34
<PAGE>


         Management believes that the amounts accrued to date in respect of the
shares of common stock issued to compensate the executive officers and corporate
counsel reflect the fair value of the services rendered, and that the recipients
of such shares accepted such numbers of shares as a function of a combination of
their perceived valuation of both present and possible future value of the
shares, rather than the actual value of the stock at the time it was issued.
Management believes that, as of the dates such shares were issued in lieu of
cash compensation, their actual and potential value, if any, could not be
determined, and that any attempt to specify a current valuation with any
reasonable assurance, would be flawed, without substance, and highly contingent
upon, and subject to, extremely high risks including but not limited to the
following factors: (i) the absence of a reliable, stable, or substantial trading
market for the Company's common stock, the possibility that such a market might
never be developed, and the resultant minimal, or total absence of, market value
for any substantial block of common stock; (ii) the very high intrinsic risks
associated with early development stage businesses, such as the Company's; (iii)
the Company's lack of sufficient funds, as at such issuance dates, to implement
its business plan and the absence of any commitments, at such times, from
potential investors to provide such funds; (iv) the restrictions on transfer
arising out of the absence of registration of such shares; and (v) the
uncertainty respecting the Company's ability to continue as a going concern,
(See "Existing and Proposed Businesses", "Market for the Company's Common Equity
and Related Stockholder Matters", and "Management - Certain Relationships and
Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees").

         From inception (July 15, 1987) through December 31, 1999, the Company
has incurred a cumulative net loss of $18,286,063. Approximately $1,057,356 of
such cumulative net loss was incurred prior to the inception of the Company's
present business plan, in connection with the Company's attempt to establish a
health care business. The Company discontinued its proposed health care
operations while still in the planning stage and therefore, generated no
revenues therefrom.

                                       35
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

         The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS

RECENT SALES OF UNREGISTERED SECURITIES

         During the quarter ended December 31, 1999, the Company issued a total
of 1,057,402 common shares in respect of services rendered and under consulting
agreements. Of this amount, 425,845 shares were issued to Frances K. Levine Esq.
and 256,557 shares to Scott Rapfogel Esq. in compensation for legal services
rendered previously. The remaining 375,000 shares were issued to Alan Epstein in
respect of consulting services related to the development of a market in Puerto
Rico for TCS-1 Systems.

         As of the quarter ended September 30, 1999, the Company had issued
11,127,550 shares of common stock, of which 8,472,819 shares were issued against
accrued liabilities reported on the annual financial statements of June 30,
1998. The remaining 2,654,731 were issued to an officer, an employee and
corporate counsel for services rendered and as a signing bonus, which expenses,
recorded in the amount of $64,377, were recorded in the three-month period ended
December 31, 1999. Of the 8,472,819 shares of common stock issued in respect of
accrued liabilities as of June 30, 1999, 530,921 of such shares were issued to
officers and employees in lieu of cash payments for loans made to the Company.
The remaining 7,941,898 shares of common stock were issued to officers and
employees in lieu of cash payments for salaries, which totaled $272,251. Insofar
as it is pertinent to the discussion of the reduction of operating costs in the
three-month period ended December 31, 1999 versus the analogous three-month
period ended September 30, 1998, and to enhance understanding of the reduction,
the following information relative to the three-month period ended December 31,
1998 is also presented below:


                  95,057 shares issued to Scott Rapfogel in lieu of $12,500 in
                  salary due to Mr. Rapfogel under the terms of his employment
                  agreement with the Company whereby he agreed to serve as the
                  Company's Assistant U.S. Corporate and Securities Counsel. For
                  purposes of such issuance, the stock was valued at 50% of the
                  average bid and ask price for the Company's common stock
                  during the period in which such stock was earned.

                                       36
<PAGE>


         In February 2000, following the period covered by this Report, the
Company issued a total of 19,619,912 shares of common stock as follows:
<TABLE>
<CAPTION>
       --------------------------------------------------------------------------------
           NUMBER OF    TOTAL SHARES
          INDIVIDUALS     ISSUED        CATEGORY OF REASON FOR ISSUANCE OF SHARES
       --------------------------------------------------------------------------------
<S>            <C>         <C>          <C>
               7           929,000      Type "A" and Type "B" Debenture conversions
       --------------------------------------------------------------------------------
               3         1,264,000                              Payment of Invoices
       --------------------------------------------------------------------------------
               1           700,000                           Direct cash investment
       --------------------------------------------------------------------------------
               2           200,000     In lieu of Interest and Late Payment Charges
       --------------------------------------------------------------------------------
              16        16,526,912     Salaries, Consulting Agreements and Expenses
       --------------------------------------------------------------------------------
              29        19,619,912                                        T O T A L
       --------------------------------------------------------------------------------
</TABLE>
BASIS FOR SECTION 4(2) EXEMPTION CLAIMED

         With respect to all sales and other issuances of securities as
hereinabove described, which Registrant claims to have been exempt from the
registration requirements of Section 5 of the Securities Act by reason of
Section 4(2) thereof :

(i)      Registrant did not engage in general advertising or general
         solicitation and paid no commission or similar remuneration, directly
         or indirectly, with respect to such transactions.

(ii)     The persons who acquired these securities were executive officers and
         directors, or employees of the Registrant, all of whom are
         sophisticated investors; Such persons had continuing access to all
         relevant information concerning the Registrant and/or have such
         knowledge and experience in financial and business matters that they
         are capable of evaluating the merits and risks of such investment and
         are able to bear the economic risk thereof.

(iii)    The persons who acquired these securities advised Registrant that the
         Shares were purchased for investment and without a view to their resale
         or distribution unless subsequently registered and acknowledged that
         they were aware of the restrictions on resale of the Shares absent
         subsequent registration and that an appropriate legend would be placed
         on the certificates evidencing the Shares reciting the absence of their
         registration under the Securities Act and referring to the restrictions
         on their transferability and resale.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

         During the period January 7, 1998 through May 11, 1998, the Company
issued an aggregate of $535,000 of convertible, subordinated debentures bearing

                                       37
<PAGE>


interest at the rate of 10% which are due two (2) years from their respective
dates of issuance. Interest thereon was due and payable semi-annually commencing
six months from the issuance date of such debentures. As of March 9, 1999, the
Company was in arrears on interest payments accrued on these debentures since
their issuances, in the aggregate amount of $49,000, and intends to pay all such
interest as soon as the resources therefor are available.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         In accordance with the Delaware General Corporation Law, on July 9,
1998, the holders of record of approximately 50.7% of the issued and outstanding
shares of common stock, $.001 par value, of the issuer, in person or by proxy,
by their consent in writing authorized, approved and adopted a resolution
respecting the amendment of the Company's Certificate of Incorporation. Pursuant
thereto, effective July 10, 1998, the Certificate of Incorporation of the
Company was amended so as to change the amount of capital stock, which the
issuer is authorized to issue, from 69,900,000 shares of Common Stock, par value
$.001 per share and 100,000 shares of Open Stock, par value $.001 per share; to
115,000,000 shares of Common Stock, par value $.001 per share and 5,000,000
shares of Class A Stock, par value $.001 per share. The Board of Directors of
the Company has the power to designate the Class A Stock in one or more classes
and/or series, with such rights and preferences as the Board of Directors shall
determine. In October 1999, pursuant to Delaware General Corporation Law, the
Board of Directors authorized the designation of the 5,000,000 shares of Class A
Stock as 5,000,000 shares of common stock, par value $.001 per share.

         On January 23, 2000, the holders of record of approximately 51% of the
issued and outstanding shares of common stock, $.001 par value, of the Company,
in person or by proxy, by their consent in writing authorized, approved and
adopted a resolution respecting an amendment of the Company's certificate of
incorporation . Pursuant thereto, effective January 28, 2000, the Certificate of
Incorporation was amended to increase the number of shares of capital stock
which the Company is authorized to issue, from 120,000,0000 shares of Common
Stock, par value $.001 per share to 165,000,000 shares of common stock, par
value $.001 per share.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

     Current Report on Form 8-K dated February 9, 2000 filed with the Commission
on February 9, 2000.

                                       38
<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


                                                        THE TIREX CORPORATION


                                                        Date:  February 17, 2000
By  /s/ JOHN L. THRESHIE, JR.
    ------------------------------------------
        John L. Threshie, Jr. President


                                                        Date:  February 17, 2000
By  /s/ MICHAEL ASH
    ------------------------------------------
        Michael Ash, Treasurer and
        Chief Accounting and Financial Officer

                                       39