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 September 30, 2001

[ ] 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, Canada, 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 for each of the issuer's classes of
common equity, as of October 31, 2001: 197,363,834 shares

Transitional Small Business Disclosure Format (check one):
Yes [ ]   No [X]

<PAGE>
                              The Tirex Corporation
                          (A Development Stage Company)


                                TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements (Unaudited)                                   Page
                                                                            ----

         The Tirex Corporation and Subsidiaries
          Consolidated Balance Sheets as of
           September 30, 2001 and June 30, 2001.............................   1

         Consolidated Statements of Operations
          for the three month periods
           ended September 30, 2001 and 2000................................   2

         Consolidated Statements of Cash Flows
          for the three month periods
           ended September 30, 2001 and 2000................................   3

         Notes to Financial Statements (Unaudited)..........................   4

Item 2 - Management's Discussion and Analysis of
          Financial Condition and Results of Operations.....................  17

PART II  OTHER INFORMATION

Item 1 - Legal Proceedings..................................................  20
Item 2 - Changes in Securities and Use of Proceeds..........................  21
Item 3 - Defaults Upon Senior Securities....................................  22
Item 4 - Submission of Matters to a Vote of Security Holders................  23
Item 6 - Exhibits and Reports on Form 8-K...................................  23

<PAGE>

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements (Unaudited)

         The financial statements are unaudited. However, pursuant to SEC
requirements, the consolidated financial statements have been reviewed by our
independent auditor. Readers are cautioned that a review engagement does not
constitute an audit. We believe that all necessary adjustments, including normal
recurring adjustments, have been reflected to present fairly the financial
position of the Company at September 30, 2001 and the results of its operations
and changes in its cash position for the three month periods ended September 30,
2001 and 2000 and for the period from inception (July 15, 1987).

<PAGE>

                             THE TIREX CORPORATION
                          A DEVELOPMENT STAGE COMPANY

                       CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2001
<PAGE>

                              THE TIREX CORPORATION
                           A DEVELOPMENT STAGE COMPANY

                           CONSOLIDATED BALANCE SHEET
                            AS AT SEPTEMBER 30, 2001
               ---------------------------------------------------

<TABLE>
<CAPTION>

                                                                    (Unaudited)        (Audited)
                                                                   September 30,        June 30,
                                                                       2001               2001
                                                                   -------------      -------------
<S>                                                                <C>                <C>
                                     ASSETS
                                     ------
Current Assets
  Cash and cash equivalents                                        $      (2,842)     $       1,356
  Notes receivable                                                        12,829             13,342
  Sales taxes receivable                                                   6,610             47,350
  Inventory                                                               73,031             75,959
  Research and Experimental Development tax credits receivable           328,673            361,029
  Prepaid expenses and deposits                                          136,681            126,639
                                                                   -------------      -------------
                                                                         554,982            625,675

Property and equipment, at cost, net of
  accumulated depreciation of $240,381                                 2,123,002          2,136,956
                                                                   -------------      -------------

Other assets
  Investment, at cost                                                     89,500                 --
  Prepaid expenses and deposits                                          209,000            309,614
                                                                   -------------      -------------
                                                                         298,500            309,614
                                                                   -------------      -------------

                                                                   $   2,976,484      $   3,072,245
                                                                   =============      =============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

Current Liabilities
  Accounts payable and accrued liabilties                          $     977,321      $   1,259,446
  Current portion of long-term debt                                      363,963            381,111
                                                                   -------------      -------------
                                                                       1,341,284          1,640,557

Other liabilities
  Long-term deposits and notes                                           217,500            217,500
  Government loans (net of current)                                       80,500             80,500
  Capital lease obligations (net of current)                              26,960             26,960
  Convertible notes                                                      750,000            750,000
  Convertible note                                                       185,556            185,556
  Loans from related parties                                             762,355          1,204,663
                                                                   -------------      -------------
                                                                       2,022,871          2,465,179
                                                                   -------------      -------------

                                                                       3,364,155          4,105,736
                                                                   -------------      -------------
Stockholders' Equity (Deficit)
  Common stock,  $.001 par value, authorized
   250,000,000 shares, issued and outstanding
   197,363,834 shares (June 30, 2001 - 176,366,408 shares)               197,364            176,366
  Additional paid-in capital                                          23,612,286         22,592,701
  Deficit accumulated during the development stage                   (24,041,250)       (23,622,329)
  Unrealized gain (loss) on foreign exchange                            (156,071)          (180,229)
                                                                   -------------      -------------
                                                                        (387,671)        (1,033,491)
                                                                   -------------      -------------

                                                                   $   2,976,484      $   3,072,245
                                                                   =============      =============
</TABLE>
                                       1
<PAGE>

                              THE TIREX CORPORATION
                           A DEVELOPMENT STAGE COMPANY

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
               ---------------------------------------------------

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        Three months ended            Cumulative from
                                                           September 30              March 26, 1993 to
                                                 --------------------------------      September 30,
                                                     2001               2000                2001
                                                 -------------      -------------      -------------
<S>                                              <C>                <C>                <C>
Revenues                                         $          --      $          --      $   1,325,573

Cost of Sales                                               --                 --          1,018,094

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

Gross profit                                                --                 --            307,479
                                                 -------------      -------------      -------------

Operations
  General and administrative                           289,954            430,957          9,735,945
  Depreciation and amortization                         13,954             17,247            301,355
  Research and development                              87,839            243,056         12,737,228
                                                 -------------      -------------      -------------

Total Expense                                          391,747            691,260         22,774,528
                                                 -------------      -------------      -------------

Loss before other expenses (income)                   (391,747)          (691,260)       (22,467,049)
                                                 -------------      -------------      -------------

Other expenses (income)
  Interest expense                                      26,093             35,739            461,376
  Interest income                                           --                 --            (45,443)
  Income from stock options                                 --                 --            (10,855)
  Loss on disposal of equipment                             --                 --              4,549
                                                 -------------      -------------      -------------

                                                        26,093             35,739            409,627
                                                 -------------      -------------      -------------

Net loss                                              (417,840)          (726,999)       (22,876,676)
                                                 -------------      -------------      -------------

Other comprehensive loss
  Loss (gain) on foreign exchange                        1,081             99,114            106,137
                                                 -------------      -------------      -------------


Net loss and comprehensive loss                  $    (418,921)     $    (826,113)     $ (22,982,813)
                                                 =============      =============      =============

Basic and Diluted net loss and comprehensive
  loss per common share                          $       (0.00)     $       (0.01)     $       (0.57)
                                                 =============      =============      =============

Weighted average shares of common
  stock outstanding                                181,615,765        154,210,768         40,099,915
                                                 =============      =============      =============
</TABLE>
                                       2
<PAGE>

                              THE TIREX CORPORATION
                           A DEVELOPMENT STAGE COMPANY

                      CONSOLIDATED STATEMENT OF CASH FLOWS
             -------------------------------------------------------

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Three months ended            Cumulative from
                                                                                 September 30             March 26, 1993 to
                                                                        ------------------------------      September 30,
                                                                            2001              2000              2001
                                                                        ------------      ------------      ------------
<S>                                                                     <C>               <C>               <C>
Cash flows from operating activities:

      Net loss                                                          $   (418,921)     $   (826,113)     $(22,983,894)
                                                                        ------------      ------------      ------------

      Adjustments to reconcile net loss to net cash
        used in operating activities:
      Depreciation and amortization                                           13,943            17,247           300,103
      (Gain) loss on disposal and abandonment of assets                           --                --           (25,153)
      Stock issued in exchange for interest                                       --             4,200           169,142
      Stock issued in exchange for services and expenses                     367,273           456,556        10,565,670
      Stock options issued in exchange for services                               --           254,725         3,083,390
      Unrealized (loss) gain on foreign exchange                              24,158             8,991          (156,091)

Changes in assets and liabilities:
      (Increase) decrease in:
      Account receivable                                                         514                --               514
      Inventory                                                                2,928             1,985           (73,031)
      Sales tax receivable                                                     5,175             7,321           (42,175)
      Research and experimental development tax credits receivable            32,356           (84,485)         (328,673)
      Other assets                                                            90,572             1,172          (355,801)
      (Decrease) increase in :
      Accounts payables and accrued liabilities                             (269,751)          153,940         1,217,317
      Accrued salaries                                                       (12,374)           38,039           186,824
      Due to stockholders                                                         --                --             5,000
                                                                        ------------      ------------      ------------

Net cash used in operating activities                                       (164,127)           33,578        (8,436,858)
                                                                        ------------      ------------      ------------

Cash flow from investing activities:
      Increase in notes receivable                                                --          (117,985)         (250,994)
      Reduction in notes receivable                                               --                --           237,652
      Investment                                                             (89,500)               --           (89,500)
      Equipment                                                                   --                --          (321,567)
      Equipment assembly costs                                                    --                --        (1,999,801)
      Organization cost                                                           --                --             6,700
      Reduction in security deposit                                               --                --            (1,542)
                                                                        ------------      ------------      ------------

Net cash used in investing activities                                        (89,500)         (117,985)       (2,419,052)
                                                                        ------------      ------------      ------------

Cash flow from financing activities:
      Loans from related parties                                                  --                --         3,150,412
      Deferred financing costs                                                26,968                --           106,911
      Proceeds from deposits                                                      --                --           143,500
      Payments on notes payable                                                   --                --          (409,939)
      Proceeds from convertible notes                                             --                --           754,999
      Proceeds from notes payable                                                 --                --           409,939
      Payments on lease obligations                                          (17,148)               --           (95,860)
      Proceeds from issuance of convertible subordinated debentures               --                --         1,035,000
      Proceeds from loan payable                                                  --                --           591,619
      Payments on loan payable                                                    --                --           (93,533)
      Proceeds from issuance of stock options                                     --                --            20,000
      Proceeds from grants                                                   239,609            94,777         3,111,653
      Proceeds from issuance of common stock                                      --                --            75,449
      Proceeds from additional paid-in capital                                    --                --         2,052,661
                                                                        ------------      ------------      ------------

Net cash provided by financing activities                                    249,429            94,777        10,852,811
                                                                        ------------      ------------      ------------

Net (decrease) increase in cash and cash equivalents                          (4,198)           10,370            (3,099)

Cash and cash equivalents -  beginning of period                               1,356             2,793               257
                                                                        ------------      ------------      ------------

Cash and cash equivalents - end of period                               $     (2,842)     $     13,163      $     (2,842)
                                                                        ============      ============      ============
</TABLE>
                                       3
<PAGE>

                              THE TIREX CORPORATION
                           A DEVELOPMENT STAGE COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)
              ----------------------------------------------------


Note 1 -  SUMMARY OF ACCOUNTING POLICIES

          CHANGE OF NAME
          On July 11, 1997, the Company changed its name from Tirex America,
          Inc. to The Tirex Corporation.

          NATURE OF BUSINESS
          The Tirex Corporation and Subsidiaries (the "Company") was
          incorporated under the laws of the State of Delaware on August 19,
          1987. The Company was originally organized to provide comprehensive
          health care services, but due to its inability to raise sufficient
          capital, was unable to implement its business plan. The Company became
          inactive in November 1990.

          REORGANIZATION
          On March 26, 1993, the Company entered into an acquisition agreement
          (the "Acquisition Agreement") with Louis V. Muro, currently a director
          of the Company, and former Officers and Directors of the Company
          (collectively the "Seller"), for the purchase of certain technology
          owned and developed by the Sellers (the "Technology") to be used to
          design, develop and construct a prototype machine and thereafter a
          production quality machine for the cryogenic disintegration of used
          tires. The Technology was developed by the Seller prior to their
          affiliation or association with the Company.

          Currently, the Company's Board of Directors has three members, John L.
          Threshie, Jr., Louis V. Muro and Loius A. Sanzaro.

          DEVELOPMENTAL STAGE

          At September 30, 2001, the Company is still in the development stage.
          The operations consist mainly of raising capital, obtaining financing,
          developing equipment, obtaining customers and supplies, installing and
          testing equipment and administrative activities.

          BASIS OF CONSOLIDATION
          The consolidated financial statements include the consolidated
          accounts of The Tirex Corporation, Tirex Canada R&D Inc., The Tirex
          Corporation Canada Inc., Tirex Advanced Products Quebec Inc. and Tirex
          Acquisition Corp. Tirex Canada R&D Inc. is held 51% by certain
          shareholders of the Company. The shares owned by the certain
          shareholders are held in escrow by the Company's attorney and are
          restricted from transfer thereby allowing for a full consolidation of
          this Company. The Tirex Corporation Canada Inc., Tirex Advanced
          Products Quebec Inc. and Tirex Acquisition Corp. are 100% held by the
          Company. All subsidiary companies except Tirex Canada R&D Inc. are
          dormant. All inter-company transactions and accounts have been
          eliminated in consolidation.

                                       4
<PAGE>

          CASH AND CASH EQUIVALENTS
          For purposes of the statement of cash flows, all highly liquid debt
          instruments purchased with a maturity of three months or less, were
          deemed to be cash equivalents.

          INVENTORY
          The Company values inventory, which consists of finished goods held
          for resale, 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 using the straight-line method
          over the estimated useful lives of five years.

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

          INVESTMENT
          An investment made by the Company, in which the Company owns less than
          a 20% interest, is stated at cost value. The cost value approximates
          the fair market value of the investment.

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

          ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123
          In 1997, the Company adopted Statement of Financial Accounting
          Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
          SFAS 123 encourages, but does not require, companies to record
          stock-based compensation and other costs paid by the issuance of stock
          at fair value. The Company has chosen to account for stock-based
          compensation, stock issued for non-employee services and stock issued
          to obtain assets or in exchange for liabilities using the fair value
          method prescribed in SFAS 123. Accordingly, compensation cost for
          stock options is measured as the excess, if any, of the quoted market
          price of the Company's stock at the date of the grant over the amount
          an employee must pay to acquire the stock.

          ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128
          In 1997, the Company adopted Statement of Financial Accounting
          Standards ("SFAS") No. 128, Earnings per Share. SFAS 128 changes the
          standards for computing and presenting earnings per share (EPS) and
          supersedes Accounting Principles Board Opinion No. 15, Earnings per
          Share. SFAS 128 replaces the presentation of Primary EPS with a
          presentation of Basic EPS and replaces the presentation of Fully
          Diluted EPS with a presentation of Diluted EPS. It also requires dual
          presentation of Basic and Diluted EPS on the face of the income
          statement for all entities with complex capital structures and
          requires a reconciliation of the numerator and denominator of the
          Basic EPS computation to the numerator and denominator of the Diluted
          EPS computation. SFAS 128 is effective for financial statements issued
          for periods ending after December 15, 1997, including interim periods.
          SFAS 128 also requires restatement of all prior-period EPS data
          presented.
                                       5
<PAGE>

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

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

          The adoption of SFAS 128 had no effect on previously reported loss per
          share amounts for the year ended June 30, 1997. For the years ended
          June 30, 2001 and 2000, 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 2001 and 2000, and
          accordingly, in those years, the denominator for the Basic EPS
          calculation was equal to the weighted average of outstanding shares
          with no consideration for outstanding options and warrants to purchase
          shares of the Company's common stock because to do so would have been
          anti-dilutive.

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

          The fair values of the Company's debt instruments are based on the
          amount of future cash flows associated with each instrument discounted
          using the Company's borrowing rate. At September 30, 2001 and 2000,
          respectively, the carrying value of all financial instruments was not
          materially different from fair value.

          INCOME TAXES
          The Company has net operating loss carryovers of approximately $24.0
          million as of September 30, 2001, expiring in the years 2004 through
          2017. However, based upon present Internal Revenue Service regulations
          governing the utilization of net operating loss carryovers where the
          corporation has issued substantial additional stock and there has been
          a change in control as defined by the Internal Revenue Service
          regulations, a substantial portion of this loss carryover may not be
          available to the Company.

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

          The Company has research and experimental development tax credits
          receivable from the Canadian Federal government and the Quebec
          Provincial government amounting to $328,673 at September 30, 2001
          compared to $361,029 as of June 30, 2001. These are the result of tax
          credits for research and experimental development expenditures made by
          the Company which are not contingent upon any offset against any
          income taxes otherwise payable.
                                       6
<PAGE>

          FOREIGN CURRENCY TRANSLATION

          Assets and liabilities of non-U.S. subsidiaries that operate in a
          local currency environment are translated to U.S. dollars at exchange
          rates in effect at the balance sheet date for monetary items and
          historical rates of exchange for non-monetary items with the resulting
          translation adjustment recorded directly to a separate component of
          shareholders' equity. Income and expense accounts are translated at
          average exchange rates during the year. Currency transaction gains or
          losses are recognized in current operations.

          REVENUE RECOGNITION

          Revenue from the sale of TCS Systems will be recognized when the
          installed product is accepted by the customer. All other revenue from
          other products will be recognized when shipped to the customer.

Note 2 -  GOING CONCERN
          As shown in the accompanying financial statements, the Company
          incurred a net loss of $3,112,138 during the year ended June 30, 2001
          and an additional net loss for the three month period ended September
          30, 2001 in the amount of $418,921.

          In March 1993, the Company had begun its developmental stage with a
          new business plan. As of March 2000, the Company had developed a
          production quality prototype of its patented system for the
          disintegration of scrap tires, but nonetheless continued its research
          and development efforts to improve the machine's performance and to
          permit greater flexibility in design for specific customer
          applications. While the Company has engaged the process of marketing
          the TCS System to numerous potential clients since the beginning of
          the fiscal year commencing July 1, 2000, as of September 30, 2001, the
          Company had not yet consumated an unconditional purchase order for a
          TCS System. Until such an unconditional purchase order will have been
          received, Management considers the Company to still be in the
          developmental stage.

          The Company is dependent on the success of its marketing of its TCS
          Plants, and/or raising funds through equity sales, bank or investor
          loans, governmental grants or a combination of these, to continue as a
          going concern. The Company's uncertainty as to its productivity and
          its ability to raise sufficient capital, raise substantial doubt about
          the entity's ability to continue as a going concern. The financial
          statements do not include any adjustments that might be necessary if
          the Company is unable to continue as a going concern.

Note 3 -  FINANCING COSTS
          During the year ended June 30, 1999, the Company incurred costs of
          $158,255 in connection with debt financing. These costs have been
          capitalized in other assets and are being amortized over the terms of
          the financing. Amortization of financing costs for the year ended June
          30, 2000 was $125,291, reducing this account balance to zero. During
          the year ended June 30, 2001, the Company incurred costs of $180,557
          in connection with debt financing. These costs have been capitalized
          in other assets and are being amortized over the terms of the
          financing. Amortization of financing costs for the year ended June 30,
          2001 was $79,943. Amortization of financing costs for the three month
          period ended September 30, 2001 was $26,968.
                                       7
<PAGE>

Note 4 -  PROPERTY AND EQUIPMENT
          As of September 30, 2001, plant and equipment consisted of the
          following:

          Furniture, fixtures and equipment                        $    159,889

          Leasehold improvements                                        175,161

          Construction in progress - equipment                        2,000,000
                                                                   ------------

                                                                      2,335,050

          Less: Accumulated depreciation and amortization               212,048
                                                                   ------------

                                                                   $  2,123,002
                                                                   ============

          Depreciation and amortization expense charged to operations for the
          year ended June 30, 2001 was $147,611. Depreciation and amortization
          expense charged to operations for the three month period ended
          September 30, 2001 was $13,954.

Note 5 -  GOVERNMENT LOANS

          Canada Economic Development

          -  Loan payable under the Industrial Recovery Program
             amounting to 20% of certain eligible costs incurred
             (maximum loan $333,300) repayable in annual
             instalments over a forty-eight month period
             commencing March 31, 1999, due March 31, 2002,
             unsecured and non-interest bearing. (If the Company
             defaults, the loans become interest bearing)          $    242,695

          -  Loans payable under the Program for the Development
             of Quebec SMEs based on 50% of approved eligible
             costs for the preparation of market development
             studies in certain regions. Loans are unsecured and
             non-interest bearing. (If the Company defaults the
             loans become interest bearing)
               -Loan repayable over five years commencing
                June 30, 2000, due June 30, 2004                         56,170
               -Loan repayable over five years commencing
                June 30, 2001, due June 30, 2005                         55,874

          -  Loan repayable in amounts equal to 1% of annual
             sales in Spain and Portugal through June 30, 2007           14,000

          -  Loan repayable in amounts equal to 11/2% of annual
             sales in Spain and Portugal through June 30, 2004           66,500
                                                                   ------------

                                                                        435,239

          Less: Current portion                                         354,739
                                                                   ------------

          Long-term portion                                        $     80,500
                                                                   ============
                                       8
<PAGE>

          Principal repayments are as follows:

                    June 30,                                          Amount
                  ------------                                     ------------

                      2002                                         $    368,962
                      2003                                                    -
                      2004                                               66,500
                      2005                                                    -
                      2006                                                    -
                      2007                                               14,000
                                                                   ------------

                                                                   $    449,462
                                                                   ============

Note 6 -  CAPITAL LEASE OBLIGATIONS
          The Company leases certain manufacturing equipment under agreements
          classified as capital leases. The cost and the accumulated
          amortization for such equipment as of June 30, 2001 was $62,400 and
          $24,960, respectively. The cost and accumulated amortization for such
          equipment as of September 30, 2001 was $62,400 and $28,080,
          respectively. The equipment under capital leases has been included in
          property and equipment on the balance sheet.

          The following is a schedule by years of future minimum lease payments
          under capital leases of equipment together with the obligations under
          capital leases (present value of future minimum rentals) as at
          September 30, 2001:

            Years ended
              June 30,                                                Amount
          -----------------                                        ------------

                2002                                               $     11,635
                2003                                                     15,513
                2004                                                     15,513
                                                                   ------------

          Total minimum lease payments                                   42,661
          Less: Amount representing interest                              6,477
                                                                   ------------

          Total obligations under capital lease                          36,184
          Less: Current portion of obligations
              under capital leases                                        9,224
                                                                   ------------

          Long-term obligation portion of under
              capital leases, with interest
              rate of 10%                                          $     26,960
                                                                   ============

Note 7 -  CONVERTIBLE SUBORDINATED DEBENTURES
          Convertible subordinated debentures consist of the following:

                                                                       Type B
                                                                   ------------

          Balance at June 30, 2000                                 $     75,000

          Balance at September 30, 2001 and June 30, 2001          $         --

                                       9
<PAGE>

          Interest rate                                                     10%

          Maturity                   Earlier of (i) - two years from the issue
                                     date, or (ii) - the completion of a public
                                     offering of its securities by the Maker.
                                     These debentures are subordinated
                                     to all current and future bank debt.

          Redemption rights          If not converted, the holder may require
                                     the Company to redeem at any time
                                     after maturity for the principal amount
                                     plus interest.

          Conversion ratio           $.20 per share.

          During the year ended June 30, 2000, $305,000 of convertible
          debentures were converted into common stock. During the year ended
          June 30, 2001, $20,000 of convertible debentures were converted into
          common stock. At September 30, 2001, $55,000 of convertible debentures
          had matured and were not converted into common stock and have been
          included in long term deposits and notes. These convertible debentures
          were originally issued between December 1997 and February 1998.


Note 8 -  CONVERTIBLE NOTES
          Convertible notes consist of an investment arrangement with a group of
          institutional investors involving a multi-stage financing under which
          the Company may obtain, at its option, up to $5,000,000. A first
          tranche of $750,000 has been completed and, under the terms of the
          investment arrangement, further tranches may be completed under
          certain conditions and as required by the Company.

          Balance at September 30, 2001 and
          June 30, 2001 (First tranche)                            $    750,000

          Interest rate              8%, payable quarterly, commencing
                                     June 30, 2001.

          Issue date                                          February 26, 2001

          Maturity date                                       February 26, 2003

          Redemption rights          If not converted, the holder may require
                                     the Company to redeem at any time
                                     after maturity for the principal amount
                                     plus interest.

                                       10
<PAGE>

          Conversion ratio           Lower of (i) - 80% of the average of the
                                     three lowest closing bid prices for the
                                     thirty trading days prior to the issue
                                     date, which equals $.073, or (ii) - 80% of
                                     the average of the three lowest closing bid
                                     prices for the sixty trading days prior to
                                     the conversion date.

          Common stock warrants      The Convertible notes carry an option to
                                     purchase Common stock warrants at the rate
                                     of one Warrant for each $1.25 of purchase
                                     price. The exercise price on the first
                                     tranche of $750,000 is $.077 per share.

          Certain Directors and Officers of the Company have pledged
          approximately 12,000,000 of their personal shares of Common stock of
          the Company as security for the Convertible notes until such time as
          the Company files with the Securities and Exchange Commission a
          Registration Statement on Form SB-2, to register common stock and
          warrants issuable upon the conversion of the notes, no later than 150
          days after the issue date of the Convertible notes. This deadline was
          not met and, as such, the investors served a notice of default to the
          Company on July 19, 2001. The matter is currently under negotiation
          with the investors to attempt to resolve the various issues. The
          Registration Statement has still not been declared effective by the
          Securities and Exchange Commission and until such occurs, the
          Convertible notes cannot be converted to Common stock nor may the the
          Common stock warrants be exercised.


Note 9 -  CONVERTIBLE NOTE

          A Convertible note, under a private arrangement, consists of the
          following:

          Balance at September 30, 2001 and June 30, 2001          $    185,556

          Interest rate                                                      8%

          Issue date                                              July 19, 2000

          Maturity date                                        January 19, 2002

          Redemption rights          If not converted, the holder may require
                                     the Company to redeem at any time after
                                     maturity for the principal amount plus
                                     interest.

          Conversion ratio           Not convertible prior to July 19, 2001, at
                                     20% discount to market between July 19,
                                     2001 and January 19, 2002 or at 25% to
                                     market if held to maturity, to a maximum of
                                     not more than 2,500,000 shares.

                                       11
<PAGE>

Note 10 - RELATED PARTY TRANSACTIONS

          Convertible loans include amounts primarily from Directors, Officers
          and employees that will ordinarily be repaid through the issuance of
          stock. At September 30, 2001 and June 30, 2001, the balances owing to
          Directors and Officers was $713,920 and $1,120,828, respectively.
          These amounts are without interest or terms of repayment.

          Various Notes Receivable from Officers, separately reported on the
          audited Balance Sheet of June 30, 2000, plus accrued interest thereon,
          were offset against amounts due to these Officers as of June 30, 2001.

          Long-term deposits and notes included an amount of $118,500 at
          September 30, 2001, which is payable to Ocean Tire Recycling &
          Processing Co., Inc., a company owned by a Director of the Company.

          Subsequent to June 30, 2000, the Company modified an agreement with
          Ocean Tire Recycling & Processing Co., Inc. to clarify various terms
          of the parties' prior agreements and to obtain a commitment by Ocean
          Tire Recycling & Processing Co., Inc. to pay, when necessary, lease
          payments on the prototype TCS System. As part of the agreement, the
          Company will repay Ocean Tire Recycling & Processing Co., Inc. in cash
          or through the issuance of stock. The lease payments, under the
          accounting provisions for an operating lease, have been recorded as a
          Research and Development expense and the debt obligation included in
          loans from related parties. During the year ended June 30, 2001,
          6,500,000 common shares were issued under the agreement as a partial
          settlement and, pursuant to Ocean Tire Recycling & Processing Co.,
          Inc.'s request, were issued to its principal shareholder and
          President, who is also a Director of the Company. During the three
          month period ended September 30, 2001, an additional 4,553,102 common
          shares were issued under the agreement to a designated person assigned
          by Ocean Tire Recycling & Processing Co., Inc.


Note 11 - EXCHANGE OF DEBT FOR COMMON STOCK
          During the year ended June 30, 2001, the Company recorded an increase
          in common stock and additional paid-in capital of $1,905,838
          representing issuances of stock in lieu of cash payments for debts
          owed. During the three month period ended September 30, 2001, the
          Company recorded increases in common stock and paid-in capital of
          $772,596, which was in recognition for the exchange of common stock
          for debts owed.

Note 12 - COMMON STOCK
          During the three month period ended September 30, 2001 and the year
          ended June 30, 2001, the Company issued common stock in exchange for
          services performed totalling $367,273 and $1,388,792, respectively.
          Included in these amount are payments to Officers of the Company in
          exchange for salary and expenses in the amount of $56,337 and
          $1,115,784, respectively. 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.

          On January 31, 2001, the Company's stockholders approved an amendment
          to the Articles of Incorporation of the Company to increase the number
          of authorized shares of common stock, par value $0.001, from
          165,000,000 shares to 250,000,000 shares.

                                       12
<PAGE>

Note 13 - STOCK PLAN
          The Company established a Stock Plan in June of 2000 whereby key
          personnel of the Company, consultants and other persons who have made
          substantial contributions to the Company are afforded the opportunity
          to acquire or increase their proprietary interest in the Company by
          the issuance to such individuals of Awards, Options or Grants under
          the terms set forth in the Stock Plan. The Stock Plan originally
          called for the issuance of a maximum of 7,000,000 shares of stock as
          Awards, the issuance of a maximum of 7,000,000 shares of stock to
          underlie Options and the issuance of a maximum of 7,000,000 shares of
          stock that may be issued as Grants. Awards and Options can only be
          given to individuals who have been either in the employ of the
          Company, an Officer, Director or consultant for the preceding six
          months. Awards are not fully vested until the end of three years with
          one-twelveth of the aggregate award vesting at the end of each
          quarter. If the Awardee is terminated for cause or resigns, the
          unvested portion of the award is forfeited. Options can be exercised
          at any time and upon exercise, the underlying stock is fully vested
          with the purchaser. The Options are not transferable and are
          exercisable for two years after which time they expire. If the
          Optionee is terminated for cause or resigns, all unexercised options
          are forfeited. A Grant can only be given to persons who have made a
          substantial contribution to the Company and the shares are not
          forfeitable. On January 31, 2001, the Company amended the Stock Plan
          providing for an additional 3,000,000 shares being allocated as Grants
          and an additional 2,000,000 shares allocated to be given as Options.
          On May 30, 2001, the Stock Plan was further amended reallocating the
          7,000,000 shares to be given as Awards to allow 5,000,000 of the
          shares to be used for Options and 2,000,000 of the shares to be used
          as Grants. There were no stock issuances under the Stock Plan for the
          year ended June 30, 2000.

          During the year ended June 30, 2001, the Company issued 9,300,000
          shares as Grants under the Stock Plan at an average stock price of
          $.093 for an aggregate consideration of $867,374. During the three
          month period ended September 30, 2001, the Company issued 750,000
          shares as Grants under the Stock Plan at an average stock price of
          $.016 for an aggregate consideration of $12,031.

          During the year ended June 30, 2001, the Company had the following
          transactions as Options under the Stock Plan:

<TABLE>
<CAPTION>
                                                   Number of          Avg. Exercise             Aggregate
                                                    Shares                Price               Consideration
                                               -------------------------------------------------------------------
<S>                                              <C>                   <C>                    <C>
          Granted and unexercised at
             beginning of year                        Nil                   -                       -

          Granted and exercised
             during the year                       9,698,228             $0.131                 $ 1,273,334

          Granted and unexercised at
             end of year                              Nil                   -                       -
</TABLE>

          The exercise price at the time the Options were granted and exercised
          was approximately equal to the market price at that time.

          There were no Options granted or exercised during the three month
          period ended September 30, 2001.

                                       13
<PAGE>

Note 14 - ACQUISITION BY MERGER OF RPM INCORPORATED
          During November 1997, the Company entered into a merger agreement with
          RPM Incorporated ("RPM"). The Company acquired all of the assets and
          liabilities of RPM by acquiring all of the outstanding common stock of
          RPM in exchange for common stock in the Company on a unit for unit
          basis. RPM ceased to exist following the exchange.

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

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

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

Note 15 - GOVERNMENT ASSISTANCE
          The Company is eligible for and has made claims for tax credits
          related to scientific research and experimental development
          expenditures made in Canada. These amounts, under Canadian Federal and
          Provincial tax law in conjunction with its annual tax return filings,
          need not be offset against taxes otherwise payable to become
          refundable to the Company at the end of its fiscal year. As such,
          during the year ended June 30, 2001, the Company received
          approximately $353,725 which has been recorded as an increase in
          stockholders' equity paid-in capital. Also, during the three month
          period ended September 30, 2001, the Company received approximately
          $239,609 which has also been recorded as an increase in stockholders'
          equity paid-in capital. During the three month period ended September
          30, 2001, the Company recorded additional tax credits in the amount of
          $76,098, bringing the reported receivable balance from these
          governments from $361,029 as of June 30, 2001 to $328,673 as of
          September 30, 2001.

Note 16 - COMMITMENTS
          The Company leases office and warehouse space at an annual minimum
          rent of $80,000 for the first year, $160,000 for the second year and
          $200,000 per year for the third through the fifth years. The lease
          expires in 2003. The Company is responsible for its proportionate
          share of any increase in real estate taxes and utilities. Also under
          the terms of the lease, the Company is required to obtain adequate
          public liability and property damage insurance. The minimum future
          rental payments under this lease are as follows:

                     June 30,                              Amount
                 ----------------                       ------------

                       2002                             $    148,250
                       2003                                  148,250
                                                        ------------

                                                        $    296,500
                                                        ============

          Rental expense for the year ended June 30, 2001 amounted to $215,237.
          Rental expense for the three month period ended September 30, 2001
          amounted to $49,600.

          The lease contains a second ranking moveable hypothec in the amount of
          $300,000 on the universality of the Company's moveable property.

                                       14
<PAGE>

          At September 30, 2001, the Company was in arrears of rent of $180,510.
          The arrears of rent is currently a matter under litigation between the
          landlord of the premises and the Company.

Note 17 - LITIGATION
          An action was instituted by Plaintiffs, a Canadian resident and a
          Canadian corporation, in a Canadian court alleging a breach of
          contract and claims damages of approximately $508,600 representing
          expenses and an additional approximate amount of $1,874,000 in loss of
          profits. The current action follows two similar actions taken in
          United States courts, the first of which was withdrawn and the second
          of which was dismissed based on forum non convenience and other
          considerations. An detailed answer has been filed by the Company
          denying all liability, stating further that Plaintiffs failed to
          comply with their obligations. Counsel for the Company believes that
          the Company has meritorious defenses to all of the Plaintiff's claims.
          The action is still pending.

          An action was brought by a Plaintiff against the Company, alleging
          that the Company had agreed to issue 1,000,000 shares of its Common
          stock to the Plaintiff in consideration for expenses allegedly paid by
          the Plaintiff in the amount of approximately $150,000. These expenses
          allegedly were incurred in relation to the rental of certain office
          space and performance of administrative services. The Plaintiff's
          complaint seeks to impose an equitable trust or lien on 1,000,000 of
          unissued shares of the Company, demands the issuance of 1,000,000
          shares to the Plaintiff and seeks for breach of contract, monetary
          damages of $1,400,000. Counsel for the Company believes that the
          Company has valid defenses to all of the Plaintiff's claims and has
          denied all of the Plaintiff's allegations. The Plaintiff is presently
          in default of its production of documents and the Company intends to
          enforce its rights, including moving to dismiss Plaintiff's complaint,
          if appropriate. The case is in the pretrial discovery stage.

          An action was instituted by a Plaintiff, a Canadian corporation, in
          August 2001 in a Canadian court claiming approximately $63,000 is due
          and owing for the manufacture and delivery of tire disintegrators. The
          Company is preparing its defense and a cross claim against the
          Plaintiff as the product delivered was defective and the Company
          believes it is entitled to a reimbursement of sums paid. The action is
          still pending.

          The Company's landlord, a Canadian corporation, instituted an action
          in June 2001 in resiliation of the lease and the arrears of rent in
          the amount of approximately $113,900. The Company has filed defenses
          claiming breach of contract and negligence on the part of the
          landlord. The action is still pending.

                                       15
<PAGE>

Note 18 - ACCUMULATED OTHER COMPREHENSIVE INCOME
          The deficit accumulated during the development stage included
          accumulated comprehensive other income totaling $103,396.


Supplemental Disclosure of Non-Cash Activities:
      During the three month period ended September 30, 2001 and the year ended
      June 30, 2001, the Company recorded an increase in common stock and in
      additional paid-in capital of $231,001 and $1,559,101, respectively, which
      was in recognition of the payment of debt. During the three month period
      ended September 30, 2001 and the year ended June 30, 2001, stock was
      issued in exchange for services performed and expenses in the amount of
      $367,273 and $872,215, respectively. During the year ended June 30, 2001,
      stock options were issued in exchange for services totalling $512,377. No
      stock options were issued for services performed and expenses during the
      three month period ended September 30, 2001.

Convertible debentures were exchanged into common stock totaling $20,000 during
the year ended June 30, 2001.
      Accrued interest of $4,200 was also converted into common stock during the
      year ended June 30, 2001. For the three month period ended September 30,
      2001, there were no convertible debentures or accrued interest converted
      into common stock.

Supplemental Disclosure of Cash Flow Information:

           Interest paid            $    26,094     $     6,391     $   178,362
                                    ===========     ===========     ===========

           Income taxes paid        $        --     $        --     $        --
                                    ===========     ===========     ===========

                                       16
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following is management's discussion and analysis of significant
factors, which have affected the Company's financial position and operations
during the three-month period ended September 30, 2001. This discussion also
includes events, which occurred subsequent to the end of the last quarter and
contains both historical and forward-looking statements. When used in this
discussion, the words "expect(s)", "feel(s)","believe(s)", "will", "may",
"anticipate(s)" "intend(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected.

Results of Operations

         During Fiscal 2001, we demonstrated our tire recycling technology to
numerous groups from several different countries as well as to some shareholders
and potential strategic alliance partners. Although many parties indicated
interest, no sales have yet been consummated. We believe that a weakened global
economy, exacerbated by generally substantial stock market losses has manifested
itself in a dissipated confidence by our potential customers to invest in
unproven technology, and further has resulted in greater difficulty in their
ability to raise the necessary funds to establish rubber crumb production
facilities. While we are frustrated that our efforts to date have not yet
resulted in unconditional sales contracts, we remain optimistic, given our
continuing dialog with many potential customers, either directly or through our
market development partners. While we cannot provide any guarantees that any of
the prospective customers with whom we have had discussions will actually result
in an unconditional Purchase and Sales Agreement, we remain confident that our
past and future efforts will result in a sale to either an existing potential
customer or a new customer in the relatively near future.

         To generate cash flow, and in an attempt to demonstrate the
functionality of our principal product, the TCS System, we engaged the process
of converting the prototype TCS-1, located in Montreal, to a commercial
recycling operation. This conversion was completed during the first quarter of
Fiscal 2002 and the weeks following up to the date of this Report. In connection
with this conversion, we entered into supply contracts with various companies,
under which we have agreed to supply these customers with certain amounts of
rubber crumb. To date no revenues have been realized although initial small
orders have been delivered.

         The last step in the conversion of the TCS-1 prototype unit into a
commercial recycling center was the obtaining of an Operating Permit from the
municipality. These were granted on November 5, 2001. The securing of these
permits should bring an additional benefit to us, as we have now become eligible
to be designated an accredited tire recycling center by Recyc-Quebec, the Quebec
government agency which oversees recycling initiatives. On September 20th,
Recyc-Quebec wrote to inform us that this accreditation would be granted upon
their receipt of copies of our Operating Permit (referred to above) and an
analysis of our tire input / rubber output ratio which is used to calculate the
subsidy. This analysis has since been given to Recyc-Quebec. At current foreign
exchange rates, the subsidy, which should be available to us, will be
approximately US$0.60 per tire.

         We have been able to identify a potentially significant requirement for
large volumes of fine mesh crumb rubber, finer than the output profile of mesh
sizes that the TCS was originally designed to produce in substantial quantities.
This customer requirement necessitated the addition of supplementary grinding
equipment to the original TCS configuration. We have completed the addition of
such equipment and are now in a position to meet this identified market demand.
The revised configuration of the System with this additional equipment, while
permitting the meeting of an existing demand, is not the configuration which we
would employ if the System were completely rebuilt. The ideal configuration
would provide an increase in capacity to produce cold air and thus minimize
operating costs. We have completed the conceptual design of such a new system,
incorporating this increase in cold production capacity.

                                       17
<PAGE>

         In February of 2001, we concluded a private financing with an investor
group managed by a New York-based company. Under the terms of the Agreement, we
had the contractual right to require the Investor to purchase up to US$5,000,000
of put notes. To date, we have drawn down US$750,000 of this amount. The initial
$750,000 was provided in the form of a Convertible Note. In addition to the
conversion feature, warrants are also issuable as a function of the actual
amount of the funds drawn down by us. Under the terms of the Agreement, we were
required to file and have declared effective a Registration Statement on Form
SB-2 within 150 days of the Closing Date of the Agreement. As of June 25, 2001,
we were in technical default for having failed to have an effective Registration
Statement on record with the SEC. We were officially advised of the default in
mid-July 2001. We continue to negotiate with the note holders in an attempt to
resolve this matter and intend to file an amendment to our SB-2 Registration
Statement and use our best efforts to cause such Statement to become effective
and hopefully cure any technical defaults. We cannot, at this time, predict with
any reasonable degree of certainty, the ultimate outcome of negotiations with
the note holders or whether the SB-2 Registration Statement, currently in
revision, will ever become effective.

         On September 13, 2001, the Canada Customs and Revenue Agency (Canadian
equivalent to the IRS) approved the issuance of a check to us in the amount of
Cdn$461,998 (approximately US$295,679 using a 64(cent) exchange rate),
representing the scientific research & development tax credit due to the
Company, net of Cdn$57,175 (US$36,592) due from us with respect to payroll
taxes. At that point in time, we were past due on reimbursements to Canada
Economic Development for Quebec Regions (CEDQR) in respect of loans previously
received from that Canadian federal government agency, (formerly known and
referred to in previous Company filings as FORD-Q) under the Industrial Recovery
Program for Southwest Montreal (IRPSWM) and under the IDEA program, in an amount
of approximately Cdn$210,290 (US$134,585). In view of our being past due on
these reimbursements, CEDQR declared the Company to be in default. Having done
so, CEDQR seized the entire balance of the tax credit cheque, rather than only
the amount past due to them. Thus, the amount seized by CEDQR in excess of the
amount past due was approximately Cdn$251,708 (US$161,093). CEDQR, the Agency
having declared the default, has the power to reverse such a declaration, but,
so far, has not done so. We have been attempting to secure such a reversal of
the Declaration of Default but have not yet succeeded and cannot provide any
assurances that our efforts in this regard will, in fact, prove successful. The
effect of the action of CEDQR is to reduce the availability of immediately
available funds required for the timely implementation of our business plan, and
any failure by us to secure the release of these funds will require us to seek
other sources of funds. We cannot provide any assurances that we will be
successful in securing such other sources of funds either in terms of the
amounts required or within a reasonable time delay, or at all. Total amount due
to CEDQR under these loans including past due payments, is Cdn$568,608
(approximately US$363,909), which amount is reduced to the extent of the excess
funds seized by CEDQR. In the event that CEDQR does not release the seized
excess funds, the net amount remaining due to CEDQR would thus be approximately
Cdn$106,610 (US$68,230).

         Because of the lengthy delay preceding the commencement of commercial
operations, particularly insofar as regards the sale and manufacturing of TCS
Systems is concerned, and the failure to realize any revenues from the sale of
crumb rubber, we have had to, and in the foreseeable near future, will be forced
to continue to cover a substantial part of our overhead costs from sources other
than revenues from operations. As of September 30, 2001, we estimate that
monthly overhead costs, prior to any revenues generated from the sales of rubber
crumb and from tire recycling subsidies, will continue to be approximately
$100,000 per month. We anticipate that revenues from the sale of rubber crumb
and tire recycling subsidies will generate between $60,000 and $75,000 per month
in the upcoming early months of commercial crumb production. Management is
unable to predict, at this time, when rubber crumb operations and tire recycling
subsidies alone, if any, will be adequate to cover monthly overhead costs.

                                       18
<PAGE>

Liquidity and Capital Resources

         The activities of the Company, since its formation in 1987, and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions and by additional capital investments by
directors, officers and employees. We are currently experiencing considerable
liquidity problems due to our lack of operating revenues, difficulties in
raising capital funds from the sale of securities and the absence of available
bank lines of credit. In addition and as noted above, Canada Economic
Development for Quebec Regions (CEDQR) seized an entire tax refund in the amount
of Cdn$461,998 (approximately US$295,679) issued by the Canada Customs and
Revenue Agency, rather than simply the amounts past due to them. We had counted
on receiving these funds to discharge ongoing payroll or trade obligations, and
until the release of these excess seized funds can be secured, if ever, the
Company will have to attempt to secure financing from other internal and
external sources.

         During the three month period ended September 30, 2001, directors,
officers, employees and consultants made direct cash investments into the
Company for an amount of $264,170. During the Fiscal year ended June 30, 2001,
direct cash investments made by the directors, officers, shareholders and
consultants amounted to $950,713.

         As of September 30, 2001, we had total assets of $2,976,484 as compared
to $3,234,812 at September 30, 2000 reflecting a decrease of $258,328, and a
decrease of $95,761 versus total assets as of the last fiscal year end, June 30,
2001, which amounted to $3,072,245. Management attributes the decrease from
September 30, 2000 to September 30, 2001 primarily to the following factors: (i)
a decrease of $231,033 in Tax Credits Receivable from the balance as of
September 30, 2000 in the amount of $559,706 to the September 30, 2001 balance
of $328,673, and (ii) a decrease of $34,945 in Inventory from the balance as of
September 30, 2000 in the amount of $107,976 to the September 30, 2001 balance
of $73,031, and (iii) a decrease of $19,999 in Sales Tax Receivable from the
balance as of September 30, 2000 in the amount of $26,609 to the September 30,
2001 balance of $6,610, and (iv) a decrease of $80,836 in Property and Equipment
from the balance as of September 30, 2000 in the amount of $$2,203,838 to the
September 30, 2001 balance of $2,123,002, and (v) an increase of $89,500 in an
Investment from the zero balance as of September 30, 2000 to the September 30,
2001 balance of $89,500. Management attributes the decrease from June 30, 2001
to September 30, 2001 primarily to the following factors: (i) a decrease of
$32,356 in Tax Credits Receivable from the balance as of June 30, 2001 in the
amount of $361,029 to the September 30, 2001 balance of $328,673 and, (ii) a
decrease of $90,572 in Prepaid Expenses and Deposits from the balance as of June
30, 2001 in the amount of $436,253 to the September 30, 2001 balance of
$345,681, and (iii) a decrease of $40,740 in Sales Tax Receivable from the
balance as of June 30, 2001 in the amount of $47,350 to the September 30, 2001
balance of $6,610, and (iv) an increase of $89,500 in an Investment from the
zero balance as of June 30, 2001 to the September 30, 2001 balance of $89,500.

         As of September 30, 2001, we had total liabilities of $3,364,155 as
compared to $3,060,246 at September 30, 2000, reflecting an increase of
$303,909, and reflecting a decrease of $741,581 versus total liabilities as of
the last fiscal year end, June 30, 2001, which total amounted to $4,105,736. The
increase in total liabilities from September 30, 2000 to September 30, 2001 is
primarily attributable to an increase of $880,556 in Convertible Securities
offset by a decrease in Loans from Related Parties in the amount of $482,602.
The decrease in total liabilities from June 30, 2001 to September 30, 2001 is
primarily attributable to a decrease of $282,125 in Accounts Payable and Accrued
Liabilities through the use of Government tax credits received during the three
month period ended September 30, 2001, and to a decrease of $442,308 in Loans
from Related Parties which was the result of conversions of debt obligations
into common stock.

         Reflecting the foregoing, the financial statements indicate that as at
September 30, 2001, we had a working capital deficit (current assets minus
current liabilities) of $786,302 compared to a working capital deficit of
$411,726 as at September 30, 2000, reflecting an increase of $374,576. The
working

                                       19
<PAGE>

capital deficit of $786,302 as at September 30, 2001 compares to a working
capital deficit of $1,014,882 as at June 30, 2001, reflecting a decrease of
$228,580.

         The financial statements which are included in this report reflect
total operating costs and other expenses of $418,921 for the three month period
ended September 30, 2001 versus $826,113 for the comparative three month period
ended September 30, 2000, reflecting a decrease of $407,192. The primary reasons
for this decrease relate to decreased personnel expenses, a decrease in the
amount relating to foreign exchange losses and a decrease in the amount recorded
for Research and Development.

PART II  OTHER INFORMATION

Item 1 - Legal Proceedings

         We are presently a party in the following legal proceedings, the status
of which has not changed since the Company filed its Annual Report on Form
10-KSB on October 15, 2001:

IM2 Merc handising and Manufacturing, Inc and David B. Sinclair v. The Tirex
Corporation, Tirex Corporation Canada, Inc., et al.

         The Plaintiffs, a Canadian resident and a Canadian corporation sued in
the Delaware, U.S. Federal District Court claiming fraud, breach of contract,
unjust enrichment and other allegations, that the alleged Defendants, which
include Tirex Corporation Canada and The Tirex Corporation, jointly conspired to
profit from their failure to comply with terms of a manufacturing agreement. The
monetary demand of this complaint was unspecified. We were prepared to move to
dismiss Plaintiffs' Complaint, but after consultations with the Plaintiffs'
Attorneys, the Plaintiffs' withdrew this complaint voluntarily. Plaintiffs later
filed a second action in the Chancery Court of Delaware alleging certain of the
same allegations; fraud, breach of contract, unjust enrichment, breach of
fiduciary duty and misrepresentation, but eliminated other counts including the
securities fraud allegations.. The Defendants in the State Court action are the
same named in the Federal Court action, and again the monetary damages are
unspecified. We moved to dismiss the State Court Chancery case alleging
defective service of process and asserting that the Court had no jurisdiction
over the Defendants in Delaware and for removal of the case to Canada based on
forum non convenience and other considerations. Our motion was granted and the
case dismissed.

         Subsequently, on or about April 25, 2001, the Plaintiffs instituted a
lawsuit in Superior Court, judicial district of Montreal alleging breach of
contract and claims damages of Canadian$794,690 (approximately US$508,600)
representing expenses and an additional Canadian$5,411,158 (approximately
US$1,874,000) in loss of profits. We have filed a detailed answer denying all
liability, stating further that Plaintiffs failed to comply with their
obligations. We believe we have meritorious defenses to all of the Plaintiffs'
claims. The action is still pending.

Surgent v. The Tirex Corporation

         An action was brought by the Plaintiff against us, alleging that we had
agreed to issue 1,000,000 shares of our Common Stock to the Plaintiff in
consideration for expenses allegedly paid by the Plaintiff on our behalf in the
amount of approximately $150,000. These expenses allegedly were incurred in
relation to the rental of certain office space and performance of administrative
services. The Plaintiff's complaint sought to impose an equitable trust or lien
on 1,000,000 of our unissued common shares, demanded the issuance of the
1,000,000 shares and alleged breach of contract and claimed damages of
$1,400,000.

         We moved to dismiss the case on various procedural grounds and in
September 2000 the Court granted our motion based upon the lack of venue in
Union County, New Jersey. A new action was instituted by Plaintiff in the
Superior Court of New Jersey, Bergen County in April 2001 alleging similar

                                       20
<PAGE>

claims as set forth in the previous action. We denied all of plaintiff's
allegations. Our Counsel believes we have valid defenses to all of Plaintiff's
claims and the case is in the pretrial discovery stage. The Plaintiff is
presently in default of its production of documents and we intend to enforce our
rights, including moving to dismiss Plaintiff's complaint, if appropriate.

Lefebvre Freres Limited v. The Tirex Corporation

         Lefebvre Freres Limited instituted an action against us on August 13,
2001 in the Superior Court, judicial district of Montreal claiming Canadian
$98,513 (approximately US$63,000) is due and owing for the manufacture and
delivery of car tire disintegrators. We are preparing a defense and cross claim
against Plaintiff as the product delivered was defective and we believe we are
entitled to a reimbursement of sums paid. The action is still pending.

Tri-Steel Industries Inc. v. The Tirex Corporation

         Our landlord Tri-Steel Industries Inc. instituted an action against us,
and our subsidiaries Tirex Canada and Tirex Canada R & D Inc., on or about June
22, 2001 for arrears of rent in the amount of Canadian$230,050 (approximately
US$147,232 using a 64(cent) exchange rate). We are currently in negotiation with
Tri-Steel Industries and the action is still pending.

         No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to us.



Item 2 - Changes in Securities and Use of Proceeds

Share Issuance Continuity Schedule - Issuances of Shares by Reason

--------------------------------------------------------------------------------
Shares issued and outstanding as of June 30, 2001                    176,366,408
--------------------------------------------------------------------------------
For salaries and Expenses                               6,524,312
--------------------------------------------------------------------------------
For Professional Fees                                  11,523,114
--------------------------------------------------------------------------------
For Loans                                               1,000,000
--------------------------------------------------------------------------------
For Grants                                              1,950,000
                                                        ---------
--------------------------------------------------------------------------------
Total Issuances for the Quarter                        20,997,426     20,997,426
                                                       ----------     ----------
--------------------------------------------------------------------------------
Total Outstanding as of September 30, 2001                           197,363,834
                                                                     ===========
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

Share Issuances by Recipient

                      Salaries &     Professional
Individual            Expenses           Fees          Loans         Grants         TOTAL
----------            -----------    ------------    ---------     ----------     ----------
<S>                    <C>            <C>            <C>            <C>           <C>
John Threshie          4,305,709                                                   4,305,709

Linda Pellegrino                       2,791,944                                   2,791,944

John Frohling                                                       1,200,000      1,200,000

Louis V. Muro          1,000,000                                                   1,000,000

</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>

<S>                    <C>            <C>            <C>            <C>           <C>
Michael Ash            1,218,603                                                   1,218,603

Francois Lafortune                       953,068                                     953,068

Michel Babeu                             100,000                                     100,000

Vijay Kachru                                         1,000,000        750,000      1,750,000

Daniel Pizzuti                         4,553,102                                   4,553,102

Philip Romanoff                          125,000                                     125,000

Mark Lazar                             3,000,000                                   3,000,000
                                      ----------                                  ----------
         TOTAL         6,524,312      11,523,114     1,000,000      1,950,000     20,997,426
                       =========      ==========     =========      =========     ==========
</TABLE>

         No common shares were issued between September 30, 2001 and the date of
this Report.

With respect to sales and other issuances of restricted securities, the Company
claims to have been exempt from the registration requirements of Section 5 of
the Securities Act by reason of Section 4(2) thereof:

(i)      We 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 restricted securities were executive officers
and directors, employees or consultants of the Company, all of whom are
sophisticated investors; such persons had continuing access to all relevant
information concerning the Company 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 restricted securities advised us that the
Shares were acquired 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 1998, we issued an aggregate of $535,000 of two (2) year convertible,
subordinated debentures bearing interest at the rate of 10%. Interest thereon
was due and payable semi-annually commencing six months from the date of
issuance. All debentures have either been converted or repaid, except for
debentures in the principal amount of US$55,000, which remain outstanding and on
which principal and interest, which has accrued since the issuance of the
debentures, are now due. On debentures converted subsequent to December 1999,
interest was capitalized and converted to equity. Although the conversion option
on the outstanding debentures has lapsed, we intend to extend the conversion
dates of these debentures upon the request of the holders.

As indicated above, in February of 2001, we concluded a private financing with
an investor group managed by a New York-based company. Under the terms of the
Agreement, we had the contractual right to require the Investor to purchase up
to US$5,000,000 of put notes. To date, we have drawn down US$750,000 of this
amount. The initial $750,000 was provided in the form of a Convertible Note. In
addition to the conversion feature, warrants are also issuable as a function of
the actual amount of the funds drawn down by us. Under the terms of the
Agreement, we were required to file and have declared

                                       22
<PAGE>

effective a Registration Statement on Form SB-2 within 150 days of the Closing
Date of the Agreement. As of June 25, 2001, we were in technical default for
having failed to have an effective Registration Statement on record with the
SEC. We were advised of the default in mid-July 2001. We have maintained regular
communication with the New York manager of the Investment Group and have been
working with him to arrive at a mutually acceptable solution to resolving the
situation between the parties. Concurrently, we are continuing to redraft the
SB-2 Registration Statement in such a fashion as to address all of the questions
and comments communicated to us by the Securities and Exchange Commission as a
result of the first filing of the SB-2 Registration Statement. We anticipate
that the revised Registration Statement will be filed shortly. It is possible
that further modifications may be required either as a result of additional
questions and comments from the SEC, or as a result of negotiations with the
manager of the Investor Group, which could modify the eventual structure of the
investment vehicle. We cannot, at this point, predict with any reasonable degree
of certainty, the ultimate outcome of negotiations with the manager of the
Investor Group or whether the SB-2 Registration Statement, currently in
revision, will ever become effective.

Item 4 - Submission of Matters to a Vote of Security Holders

During the three-month period ended September 30, 2001, there were no
submissions of matters to a vote of Security Holders.

Item 6 - Exhibits and Reports on Form 8-K

Exhibits - No exhibits are being filed as a part of this Report.

Reports on Form 8-K - No Reports on Form 8-K were filed during the quarter ended
September 30, 2001

                                       23
<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: November 14, 2001                By /s/ JOHN L. THRESHIE,JR.
                                          --------------------------------------
                                       John L. Threshie, Jr. President


Date: November 14, 2001                By /s/ MICHAEL ASH
                                          --------------------------------------
                                       Michael Ash, Treasurer and
                                       Chief Accounting and Financial Officer

                                       24