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, 1999

[ ] Transition  report under Section 13 or 15(d) of the Securities  Exchange Act
    of 1934 For the transition period from to

                       COMMISSION FILE NUMBER 33-17598-NY

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

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


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

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


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


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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of November 18, 1999: 118,481,528 shares

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

                              THE TIREX CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)


                                TABLE OF CONTENTS

PART I

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

         The Tirex Corporation and Subsidiaries
           Consolidated Balance Sheets as of
             September 30, 1999 and 1998............................     4

         Consolidated Statements of Operations
           for the three-month periods
             ended September 30, 1999 and 1998......................     5

         Consolidated Statements of Cash Flows
           for the three-month periods
             ended September 30, 1999 and 1998......................     6


         Notes to Financial Statements (unaudited)..................     7

ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS............    20

PART II

Item 1 - Legal Proceedings..........................................    32
Item 2 - Changes in Securities and Use of Proceeds..................    32
Item 3 - Defaults Upon Senior Securities............................    33
Item 4 - Submission of Matters
            to a Vote of Security Holders...........................    33
Item 6 - Exhibits and Reports on Form 8-K...........................    33


                                       2
<PAGE>
                                     PART I


ITEM 1 - FINANCIAL INFORMATION (UNAUDITED)

          The financial statements  incorporated herein are unaudited.  However,
Management  believes that all necessary  adjustments  (which include only normal
recurring  adjustments)  have been  reflected  to present  fairly the  financial
position  of the  Company  as of  September  30,  1999  and the  results  of its
operations  and changes in its financial  position for the  three-month  periods
ended  September 30, 1999 and 1998 and for the period from  inception  (July 15,
1987).


                                       3
<PAGE>
<TABLE>
<CAPTION>
                     THE TIREX CORPORATION AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30,

                                   ASSETS                                     (Unaudited)       (Audited)
                                                                                  1999       June 30, 1999
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Current Assets
Cash and cash equivalents                                                     $     37,258    $    177,256
Account receivable & Notes receivable                                              174,618         155,840
Sales taxes receivable                                                              43,162          81,244
Inventory                                                                           25,698          25,698
R&D tax credit receivable                                                        1,079,625         952,704
Prepaid expenses and deposits                                                      555,313         413,766
                                                                              ------------    ------------
                                                                                 1,915,674       1,806,508
Property and equipment, at cost net of
Accumulated depreciation of $73,432                                              2,376,213       2,282,295

Other assets
  Prepaids                                                                          42,858         183,920
  Deferred financing fees                                                          100,560         125,281
                                                                              ------------    ------------
                                                                                   143,418         309,201
                                                                              ------------    ------------
                                                                                 4,435,305       4,398,004
                                                                              ============    ============


                                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Notes payable                                                                    510,202         409,939
  Accrued liabilities                                                            1,268,668       1,825,913
  Current portion of long-term debt                                                130,328         131,532
                                                                              ------------    ------------

Other liabilities
  Long term deposits                                                               143,500         143,500
  Long-term debt (net of current portion)                                          759,740         525,118
  Convertible subordinated debentures
   long-term portion                                                               556,600         766,600
Loan from officers/investors                                                       576,969         149,406
                                                                              ------------    ------------
Stockholders' equity
  Common stock, $.001 par value, authorized
  120,000,000 shares, issued and outstanding
  118,005,850 shares                                                               118,006          97,360
  Class A stock; .001 par value, authorized 5,000,000
  Shares; issued and outstanding, 0 shares
  Additional paid-in capital                                                    15,867,311      15,155,355
  Deficit accumulated during the development stage                             (15,646,798)    (14,961,362)
  Unrealized gain on foreign exchange                                              150,779         154,643
                                                                              ------------    ------------
                                                                                   489,298         445,996
                                                                              ------------    ------------
                                                                                 4,435,305       4,398,004
                                                                              ============    ============
</TABLE>

                                       4
<PAGE>
<TABLE>
<CAPTION>
                     THE TIREX CORPORATION AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
                                                                     Cumulative from
                                             Three Months            March 26, 1993
                                         Ended September 30       to September 30, 1999
                                    ----------------------------  ---------------------
                                        1999            1998             1999
                                    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>
Revenues                            $          0    $          0    $          0

Cost of Sales                                  0               0               0
                                    ------------    ------------    ------------
Gross Profit                                   0               0               0

Operations
   General and administrative            335,654       1,451,057         335,654
    Depreciation and amortization        143,098         232,630         143,098
    Research and development             178,022          11,840         178,022
                                    ------------    ------------    ------------

Total Expense                            656,774       1,695,527         656,774

Loss before other income and
  Expenses                              (656,774)     (1,695,527)       (656,774)
                                    ------------    ------------    ------------

Other income (expenses)
   Interest expense                      (25,390)        (20,035)        (25,390)
   Interest Income                                                             0
   Income from stock options                                                   0
  Loss on disposal of equipment                                                0
  Loss on foreign exchange                (3,262)       (103,770)         (3,262)
                                    ------------    ------------    ------------

                                         (28,652)       (123,805)        (28,652)

Net Loss                                (685,426)     (1,819,332)       (685,426)
                                    ============    ============    ============

  Net loss per common share                (0.01)          (0.03)          (0.80)
                                    ============    ============    ============
 Weighted average shares of
Common stock outstanding              66,258,839      45,816,877      18,209,531
                                    ============    ============    ============
</TABLE>


                                       5
<PAGE>

                     THE TIREX CORPORATION AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                       CONSOLIDATED STATEMENT OF CASH FLOW

                                                    (Unaudited)
                                          Three Months Ended September 30
                                          -------------------------------
                                                 1999           1998
                                             -----------    -----------

Operating activities
Net Loss                                     $   685,426    $ 1,819,332
                                             -----------    -----------

Adjustments to reconcile net loss to
net cash used in operation activities

depreciation and amortization                    143,098        232,630
Proceeds from grants                             127,263        241,002
Stock issued in exchange for services             41,552        980,000
Stock issued in conversion and pmts              563,749        418,750
Unrealized gain on foreign exchange                3,864         73,807
Change in assets and liabilities
         increase in Notes receivable            (18,778)       (38,039)
         increase in Sales tax receivables        38,082         69,479
         increase in Tax credit receivable      (126,921)       (46,280)
         increase in Prepaid expenses             24,236           (650)
         increase in Accrued expenses           (684,625)        83,277
         increase in Loan payable                 64,884
         increase in Deposit payable              19,000

         increase in Loan Director
                                                 427,563
                                             -----------    -----------
         Total Adjustments                       539,083      2,097,860

         Net cash operating Activities          (146,343)       278,528
                                             -----------    -----------

Investing Activities
                                             -----------    -----------
         Property & equipment                    (93,918)      (556,532)
         License
         Net Cash investing activities           (98,918)      (556,532)

Financing Activities
         Repayment of notes payables             (16,115)
         Proceeds from loan payable              100,263         48,278
         Repayment of long term debt              (2,997)

         Net cash financing activities
                                             -----------    -----------
                                                 100,263         29,166
                                             -----------    -----------
         Net Decrease in cash                   (139,998)      (248,838)
         Cash beginning of period                177,256        398,971
                                             -----------    -----------

         Cash end of period                       37,258        150,133
                                             -----------    -----------

                                       6
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


Note 1 - SUMMARY OF ACCOUNTING POLICIES

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

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

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

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

                                       7
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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

         REORGANIZATION

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

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

                  Effective  March  24,  1994,  George  Fattell  resigned  as an
                  officer  and  director  of the  Company.  Per the terms of his
                  resignation  any future shares of the  Company's  common stock

                                       8
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements


                  issued to Mr.  Fattell are to be equally  distributed to Louis
                  V. Muro and Patrick McLaren.

Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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

         DEVELOPMENTAL STAGE

                  At December  15, 1999 the Company is still in the  development
                  stage.  The  operations  consist  mainly of  raising  capital,
                  obtaining financing, developing equipment, obtaining customers
                  and   supplies,   installing   and   testing   equipment   and
                  administrative activities.

         BASIS OF CONSOLIDATION

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

         CASH AND CASH EQUIVALENTS

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

         ACCOUNTS RECEIVABLE

                  Management  believes  that all accounts  receivable as of June
                  30, 1999 and which are still in the accounts of the Company as
                  of December 15, 1999, were fully  collectible;  therefore,  no
                  allowance for doubtful accounts were recorded.

         INVENTORY

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

         PROPERTY AND EQUIPMENT

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

                                       9
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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

         ESTIMATES

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

         ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123

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

         ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128

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

                                       10
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

         ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128

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

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

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

         FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                  The fair value of the Company's debt  instruments are based on
                  the  amount  of  future  cash  flows   associated   with  each
                  instrument  discounted using the Company's  borrowing rate. At
                  June 30, 1999 and 1998,  respectively,  the carrying  value of
                  all financial  instruments  was not materially  different from
                  fair value.

         INCOME TAXES

                  The   Company   has  net   operating   loss   carry-overs   of
                  approximately $14 million as of June 30, 1999, expiring in the
                  years 2004 through 2011. However,  based upon present Internal
                  Revenue regulations governing the utilization of net operating

                                       11
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  loss carry-overs where the corporation has issued  substantial
                  additional  stock,  most of  this  loss  carryover  may not be
                  available to the Company.

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

                  The  Company  has  research  and  development  investment  tax
                  credits   receivable  from  Canada  and  Quebec  amounting  to
                  $1,079,625 at September 30, 1999.

         FOREIGN EXCHANGE

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

         REVENUE RECOGNITION

                  Revenue  is  recognized  when the  product  is  shipped to the
                  company.

Note 2 - GOING CONCERN

                  As shown in the accompanying financial statements, the Company
                  incurred a net loss of  $4,910,000  during the year ended June
                  30, 1999, and incurred an additional  loss of $685,426 for the
                  three-month period ended September 30, 1999.

                  In March 1993, the Company, which was still in the development
                  stage, developed a new Business Plan. As at December 15,, 1999
                  the Company was in the process of  constructing  a  production
                  quality  machine  for  the  cryogenic  disintegration  of used
                  tires.  At  December  15,  1999,  the Company was still in the
                  development stage.

                  The Company is currently in the process of  formulating a plan
                  to effect an additional public offering, the proceeds of which
                  would be used for working  capital  and capital  acquisitions.
                  The ability of the  Company to continue as a going  concern is
                  dependent on the success of the plan. The financial statements
                  do not include any adjustments  that might be necessary if the
                  Company is unable to continue as a going concern.

                                       12
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 3 - FINANCING COSTS

                  During  the year  ended  June 30,  1998 the  Company  incurred
                  $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, 1999 was $32,964.

Note 4-  PROPERTY AND EQUIPMENT
         FINANCING COSTS

         As of June 30, 1999 plant and equipment consisted of the following:

         Furniture, fixtures and equipment                          $    188,890
         Leasehold improvements                                          176,716
         Construction in progress - equipment                          2,084,039
                                                                    ------------
                                                                       2,449,645
                  Less accumulated depreciation and amortization          73,432
                                                                    ------------
                                                                    $  2,376,213
                                                                    ============

Note 4 - PROPERTY AND EQUIPMENT (Continued)
         FINANCING COSTS

                  Depreciation  and  amortization  expense charged to operations
                  was  $42,770 and $12,361 for the years ended June 30, 1999 and
                  1998, respectively. For the three-month period ended September
                  30,  1999,   depreciation  and  amortization  charged  against
                  furniture, fixtures and equipment,  Leasehold Improvements and
                  Construction  in Progress was $13,915.  Other  amortization of
                  prepaid  expenses and  deferred  financing  costs  amounted to
                  $129,183.

Note 5 - NOTES PAYABLE

                  The Company had  available as of June 30, 1999 a $510,000 line
                  of credit which bears interest at the Canadian prime rate plus
                  1.25%  to  finance  75%  of  its  research   and   development
                  investment tax credits incurred for the fiscal year ended June
                  30, 1999. At June 30, 1999,  $408,302 was outstanding  against
                  this line of credit. As of September 30, 1999, the outstanding
                  balance was $510,000. As of December 15, 1999, the outstanding
                  balance  was  $119,000.  The  note  is  collateralized  by the
                  personal guarantees of certain officers,  certain equipment of
                  Tirex Canada and guaranteed by The Tirex  Corporation  Canada,
                  Inc.  The  loan  is  guaranteed  at  a  rate  of  80%  by  the
                  Garantie-Quebec  (Guarantee-Quebec),  a subsidiary of a Quebec
                  Government-owned      corporation,      Investissements-Quebec
                  (Investments-Quebec)  and is  repayable  from the research and
                  developmental  investment tax credits  received.  The Canadian
                  prime rate of interest at June 30, 1999 was 6 1/4%.

                  Under the terms of the note  payable to the bank,  the Company
                  is  required  to  maintain a current  ratio of 1:1 by June 30,
                  1999 and  1.2:1 by June 30,  2000,  a  tangible  net  worth of
                  $750,000, and the furnishing of periodic financial statements.
                  During the year ended June 30,  1999,  the  Company  failed to
                  comply with certain loan covenants.

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

                                       13
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

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

                                                                     $   340,252

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



Note 6 - LONG-TERM DEBT (Continued)

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

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

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

          Loan payable in amounts equal to 11/2% of annual
              sales in Spain and Portugal through June 30, 2004           64,465
                                                                     -----------
                                                                         542,995
          Less:  current portion                                         106,385
                                                                     -----------
                                                                     $   436,610
                                                                     ===========
          Minimum  principal  repayments of each of the next five
          years as follows:

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

Note 7 -  CAPITALIZED LEASE OBLIGATIONS

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

                                       14
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

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

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

                                       15
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 8 - CONVERTIBLE SUBORDINATED DEBENTURES

            Convertible subordinated debentures consist of the following:
<TABLE>
<CAPTION>

            --------------------------------------------------------------------------------------------------------
                                                             TYPE A                             TYPE B
            --------------------------------------------------------------------------------------------------------
<S>         <C>                               <C>                                   <C>
             Balance June 30, 1999            $386,600                              $380,000
            --------------------------------------------------------------------------------------------------------
             Interest rate                    10%                                   10%
            --------------------------------------------------------------------------------------------------------
             Maturity                         Earlier of (i) the completion of a    Earlier of (i) two years from
                                              public offering yielding gross        the issue date or (ii) the
                                              proceeds of not less than             completion of a public
                                              $8,000,000, (ii) the closing on       offering of its securities by
                                              financing in excess of $4,500,000.    the Maker.  These debentures
                                              These debentures are subordinated     are subordinated to all
                                              to all current and future bank debt.  current and future bank debt.
            --------------------------------------------------------------------------------------------------------
             Redemption rights                If not converted, the holder may      If not converted the holder
                                              require the Company to redeem at      may require the Company to
                                              any time after maturity at a          redeem at any time after
                                              premium of 125% of the principal      maturity for the principal
                                              amount plus interest.                 amount plus interest
            --------------------------------------------------------------------------------------------------------

             Conversion ratio                 61.5% of the average closing bid      $0.20 per share.  During the
                                              price of the common stock as          year ended June 30, 1999,
                                              reported by NASDAQ during the         $155,000 of convertible
                                              five-day period preceding the         debentures were converted to
                                              Company's receipt of a notice of      common stock.
                                              conversion by a debenture holder.
                                              During  the  year  ended  June 30,
                                              1999, debentures totaling $113,400
                                              were converted to common stock.
            --------------------------------------------------------------------------------------------------------
             Warrants                         As part of the debenture package,
                                              the Company issued 2,000,000
                                              warrants to purchase a like number
                                              of shares of common stock at $.001
                                              per share.  During the year
                                              ended June 30, 1999,
                                              1,000,000 warrants were exercised.
            --------------------------------------------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>

                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 9 -            RELATED PARTY TRANSACTIONS

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

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

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

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

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

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

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

Note 10 -           EXCHANGE OF DEBT FOR COMMON STOCK

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

                                       17
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 11 - COMMON STOCK

                    During the years ended June 30,  1999 and 1998,  the Company
                    issued common stock to  individuals in exchange for services
                    performed  totaling  $2,759,744 and $926,576,  respectively.
                    Included in these  amounts  are  payments to officers of the
                    Company  and in house  counsel  in  exchange  for salary and
                    consulting  in  the  amount  of  $2,210,502   and  $361,945,
                    respectively.  Also  included in the  amounts  paid in stock
                    during the year ended June 30, 1999 was an exclusive  rights
                    contract payable to an officer totaling $406,250. During the
                    three-month  period ended  September  30, 1999,  the Company
                    issued  common  shares to officers,  employees and corporate
                    counsel in exchange for  services  rendered in the amount of
                    $64,376.  The dollar amounts  assigned to such  transactions
                    have  been  recorded  at the  fair  value  of  the  services
                    received,  because the fair value of the  services  received
                    was  more   evident   than  the  fair  value  of  the  stock
                    surrendered.

Note 12 - STOCK OPTION

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

              COMPENSATORY COMMON STOCK OPTIONS
                                                                   Compensation
                                                                       Cost
                                                          Number   For the Year
                                                            of         Ended
                                                          Shares   June 30, 1999
                                                        ---------- -------------

              Balance at July 1, 1998                    9,212,673           --

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

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

              Balance at June 30, 1999                  13,212,673   $  381,600
                                                        ==========   ==========

              The  options  expire at various  dates  through  April  2000.  The
              exercise  price ranges from .001 to .50 with the weighted  average
              exercise price equal to .14.

                                       18
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 13 -     ACQUISITION BY MERGER OF RPM INCORPORATED

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

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


Note 13 -     ACQUISITION BY MERGER OF RPM INCORPORATED (Continued)

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

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

Note 14 -     GOVERNMENT ASSISTANCE

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

Note 15 -     COMMITMENTS

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

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

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

                                       19
<PAGE>
                     The Tirex Corporation and Subsidiaries
                         (A Developmental Stage Company)

                   Notes to Consolidated Financial Statements

Note 16 -     RESTATED FINANCIAL STATEMENTS

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

Note 17 -     CONTINGENCY
              The Company is involved  with a lawsuit  with a prior  consultant.
              The  complaint  alleged that the Company  breached its  consulting
              agreement  by  failing  to pay  compensation  due there  under and
              sought  damages in the amount of $221,202  including  interest and
              legal costs.  The Company filed a counter claim for fraud,  breach
              of contact and unjust  enrichment  on the part of the  consultant.
              The Company sought relief  consisting of  compensatory  damages in
              the amount of $28,800 and  cancellation  of the stock  certificate
              issued to the plaintiff for 263,529 shares; a declaratory judgment
              that the consulting agreement is of no force and effect;  punitive
              damages;  and interest and legal costs. The Company's  position is
              that this case is completely without merit.

Note 18 -     ACCUMULATED OTHER COMPREHENSIVE INCOME

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


                                       20
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

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

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

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

         In early 1999,  the Company began the process of putting into place the
production  capacity for producing  welcome mats using recycled  rubber crumb of
the kind which the TCS-1 would produce.  Entering this new business  segment was
expected to be profitable based on the estimated costing of the rubber crumb. In
addition,   entering  this  segment  was  considered   strategically  useful  to
demonstrate to possible  buyers of TCS-1 systems that there was a use and market
for the rubber  crumb.  The  Company's  initial  operations in this segment were
conducted  pursuant  to  an  agreement  (the  "IM2/Tirex  Agreement")  with  IM2
Merchandising and Manufacturing,  Inc. ("IM2"), in Quebec.  Shipments of limited
quantities  of mats  commenced at the  beginning of April 1999.  These mats were
produced using recycled rubber crumb purchased from other companies  because the
TCS-1 could not, at that time, produce sufficient  quantities of rubber crumb to
meet the requirement.  Furthermore,  the technical  difficulties in the freezing
tower section of the TCS-1 referred to in the previous paragraph further reduced
the availability of TCS-1 rubber crumb. The price difference  between externally
purchased  rubber crumb and the forecast  cost to the Company of TCS-1  produced
crumb,   taking  into  account  tire  recycling  subsidies  available  from  the
Government of Quebec, was and remains very substantial, and makes the difference
between being  profitable and  unprofitable  on mat production at the prices the
Company was able to obtain for such mats.  In  addition,  it became  apparent in
June and July of 1999 that capital  asset  requirements  and the  financial  and
human  resources  being consumed by the mat  production  operation were impeding
progress on the  completion of the TCS-1 which was and remains the primary focus
of the Company.  In August 1999, the Company began  negotiations for the sale of
the mat  production  assets  and the  majority  of the  inventory  to IM2.  This
divestiture  was  announced on September 7, 1999.  As of December 12, 1999,  the
sale of  these  assets  to IM2 had not been  completed  and the  Company  cannot
provide any  assurances  at this time that the sale will, in fact, be completed.
However, should this sale not be consummated, the Company has been approached by
other credible  possible  purchasers of such equipment and expects to complete a
transaction in the near future.  Pursuant to this divestiture,  the Company will
continue with its primary points of focus,  these being the manufacture and sale
of TCS-1 tire Disintegration Systems and the development of rubber-thermoplastic
compounds.

                                       21
<PAGE>

On  December  9,  1999,  the  Company  negotiated  and  signed a  Memorandum  of
Understanding with Shandong Hongli Group Company,  Ltd. ("Hongli") from the city
of Dezhou in Shandong Province in The Peoples'  Republic of China respecting the
sale of the principal components of a TCS-1 System, excluding the front-end tire
preparation   system  which  the  customer  does  not  require  because  of  the
substantial  availability  of rubber  tire chips in their  region.  This sale is
expected to be completed  early in the new  calendar  year once Hongli will have
witnessed the integrated  TCS-1 in operation.  The  Memorandum of  Understanding
also provides that the Company and Hongli will,  over the very short term,  work
toward the completion of a licensing  agreement under which Hongli would acquire
the exclusive  right to  manufacture  and  distribute  the TCS-1 in the Peoples'
Republic of China.  The Company intends that any such licensing  agreement would
include numerous  clauses  designed to protect the proprietary  interests of the
Company in the  technology,  and that the agreement  would include a performance
clause which would permit the Company to withdraw the element of  exclusivity in
the event that certain sales targets are not met.  Hongli is a rapidly  growing,
diversified  company in China  currently  employing  about 4500 persons.  Hongli
manufactures  tractors and farm  implements,  diesel  engines  gears and textile
machinery.  Hongli  also is  involved  with  real  estate  development,  service
stations,  restaurants and retail sales and service of scooters.  Hongli reports
total assets of 5.2 Billion Yuan which is equal to approximately US$621 million


LIQUIDITY AND CAPITAL RESOURCES

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

             --------------------------------------------------
             Year Ended                        Proceeds From
             June 30th                      Sale of Securities
             --------------------------------------------------
             1999                                    $  286,500
             --------------------------------------------------
             1998                                     2,063,795
             --------------------------------------------------
             1997                                       345,391
             --------------------------------------------------
             1996                                        80,872
             --------------------------------------------------
             1995                                        22,316
             --------------------------------------------------
             1994                                       237,430
             --------------------------------------------------
             1993                                        76,055
             --------------------------------------------------
             1990                                        80,812
             --------------------------------------------------
             1989                                        77,000
             --------------------------------------------------

During the fiscal  years  ended June 30,  1998 and June 30, 1999 and the interim
five-month  period  ended  November 30, 1999,  the Company  received  additional
funding from Quebec and Canadian  government grants,  loans, loan guarantees and
refundable tax credits for purposes of completing  the  development of the TCS-1

                                       22
<PAGE>

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

         As a further measure to stimulate research and development,  the Quebec
Government,  through "Garantie-Quebec"  (Guarantee Quebec), hereinafter referred
to as G-Q, a subsidiary of  "Investissements  Quebec"  (Investments  Quebec),  a
successor to the Societe de developpement  industriel du Quebec, a public sector
corporation  wholly  owned by the  Government  of Quebec,  (the "SDI") (A FORMER
ENGLISH VERSION OF THIS NAME WAS THE QUEBEC INDUSTRIAL DEVELOPMENT CORPORATION),
has continued a loan guarantee  program formerly operated by SDI, (the "G-Q Loan
Guarantee  Program")  which provides G-Q's  guarantee of repayment of 75% of the
amount  of bank  loans  made to  companies  in  anticipation  of such  companies
receiving  refundable  tax  credits.  G-Q's  Loan  Guarantee  Program  therefore
enhances a company's ability to borrow from financial  institutions up to 75% of
the  amount of the  anticipated  tax credit for  expenditures  already  incurred
("Allowable  Post-Expenditure  Loans"),  prior to the receipt of the anticipated
tax  credit.  This  provides  the  cash  flow  essential  to  the  research  and
development  efforts.  In the absence of any tax liabilities,  these tax credits
have functioned as monetary grants and constituted  receivables which were used,
prior to their being paid to the Company, to secure conventional bank financing,
supported in part by the G-Q guarantee noted above.

         In connection with the Refundable Tax Credits, during the first quarter
of 1998,  the Bank of Montreal  ("BOM")  approved a loan to the Company of up to
Cdn$937,000,  or approximately US$655,900 ("the BOM Tax Credit Loan") to be used
to pay expenses  which would then be eligible  for  refundable  tax credits.  By
December  1998,  the Company had borrowed the entire amount  authorized  and, in
accordance  with the terms of the SDI Loan  Guarantee  Agreement,  by the end of
March 1999, the Company had  reimbursed  the entire amount.  On May 9, 1999, the
Company received a similar offer of financing from ScotiaBank,  conditional upon
the receipt of a loan  guarantee  from G-Q, the successor to SDI. This offer was
for  an  amount  of up  to  Cdn$750,000  (approximately  US$510,000).  The  loan
guarantee  from G-Q was  obtained in June of 1999 and the Company  proceeded  to
borrow Cdn$600,000,  (approximately US$420,000), which amount was outstanding as
of the end of Fiscal 1999. The remaining Cdn$150,000 was drawn down in September
of 1999. In November of 1999,  the Company  received a check from the Government
of Quebec in respect of research  and  development  tax credits in the amount of
Cdn$606,948  from which amount the sum of Cdn$300,000 was deducted to reduce the
ScotiaBank Tax Credit Loan balance.  On November 23, 1999, the Company  received

                                       23
<PAGE>

an advance check from the Government of Canada,  also in respect of research and
development tax credits for the fiscal year which ended June 30, 1999. The check
was based on an approved  advance of  approximately  Cdn$410,000.  However,  the
Government  deducted and amount due for payroll source deductions,  plus a minor
amount of  interest  thereon.  The net  amount  of the  check  was Cdn  $381,339
(approximately  US  $259,310).  From this  amount,  the sum of  Cdn$175,000  was
deducted to further  reduce the ScotiaBank Tax Credit Loan balance such that, as
of  December  8,  1999,  the  outstanding  balance  due  to  ScotiaBank  is  now
Cdn$175,000  (approximately  US$119,000).  The  ScotiaBank  Tax  Credit  Loan is
secured  by:  (i) a  first-ranking  lien  on  all of the  assets,  tangible  and
intangible,  present and future of the Company's Canadian subsidiary, Tirex R&D;
(ii) a lien on the  Company's  patent  for  the  cryogenic  tire  disintegration
process and apparatus of the TCS-1 Plant;  and (iii) personal  guarantees of two
officers and directors of the Company.

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

                                       24
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
           PERIOD      AMOUNT OF R&D   AMOUNT OF R&D       AMOUNT OF TAX       AMOUNT BORROWED   AMOUNT OF TAX       CUMULATIVE
        R&D EXPENSES   EXPENDITURES    EXPENDITURES      CREDITS ESTIMATED    AGAINST ESTIMATED CREDIT RECEIVED OUTSTANDING BALANCE
            WERE         INCURRED      ELIGIBLE FOR      BY BANKS AND G-Q        TAX CREDITS                     OF LOAN AS AT END
          INCURRED                     TAX CREDITS       (FORMERLY SDI)                                             OF PERIOD
------------------------------------------------------ -------------------- --------------------------------------------------------
<S>                      <C>             <C>                  <C>                    <C>              <C>                <C>
RE: BOM                    -0-             -0-                 -0-                  -0-              -0-               -0-
July 1, 1995 to
June 30, 1996
------------------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to       Cdn$1,576,761   Cdn$1,576,761        Cdn$579,305              -0-(1)           -0-(2)             -0-
June 30, 1997
------------------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to       Cdn$2,723,443   Cdn$2,723,443        Cdn$982,113         Cdn$828,230(1)   Cdn$307,208(2)     Cdn$597,820
June 30, 1998
------------------------------------------------------------------------------------------------------------------------------------
July 1, 1998 to       Cdn$1,167,892        (3)                 (4)             Cdn$108,770(1)   Cdn$245,517(5)   BOM Loan = zero
June 30, 1999                                                                                        (6)
------------------------------------------------------------------------------------------------------------------------------------
RE: SCOTIABANK        Cdn$2,512,604   Cdn$2,163,508       Cdn$1,000,000         Cdn$600,000          n/a         ScotiaBank Loan
July 1, 1998 to                                                                                                    Cdn$600,000
June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
Five months to             n/a             n/a                 n/a              Cdn$150,000     Cdn$1,016,948    ScotiaBank Loan
November 30, 1999                                                                                                Cdn$175,000 (7)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Notes to this table appear on the following page.


                                       25
<PAGE>
         (1)      Prior  to  June  30,   1998,   the  Company   received   three
                  disbursements   from  the  BOM  in  the  aggregate  amount  of
                  Cdn$828,230 (approximately US$579,761) with the first of these
                  disbursements received on January 30, 1998. These amounts were
                  based upon  estimated tax credit  receivables in the following
                  amounts:  (i)  Cdn$579,305   (approximately   US$405,514)  for
                  research  and  development  expenditures  made by the  Company
                  during the fiscal year ended June 30, 1997; and (ii) a portion
                  of the Cdn$982,113 (approximately US$687,479) for research and
                  development expenditures made by the Company during the fiscal
                  year ended June 30, 1998.  Subsequent  to June 30,  1998,  the
                  Company  received a further cash  disbursement  of Cdn$108,770
                  (approximately  US$76,139),  in respect of eligible tax credit
                  expenditures  incurred  prior to June 30, 1998,  effecting the
                  complete  draw down of the entire  authorized  loan  amount of
                  Cdn$937,000  against tax credit receivables for the cumulative
                  period ended June 30, 1998.

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

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

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

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

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

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

                                       26
<PAGE>

                  and development  tax credits.  This advance was made available
                  pending  final  determination  of the tax credit due,  and was
                  based on an advance amount of Cdn$410,000. The Government took
                  offsets  from this  amount in respect  of  payroll  taxes due,
                  which amounts were offset by interest credited to the Company.
                  The net amount of the check was Cdn$381,339. As of December 8,
                  1999,  the loan balance due to ScotiaBank is thus  Cdn$175,000
                  (approximately US$119,000).

         During the last three  fiscal  years and the six month  interim  period
ended  December  31,  1998,  the  Company  also  received  additional  financial
assistance by way of loans and grants from Quebec governmental agencies, for the
design and  development of the TCS-1 Plant and for export market  development as
follows:

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

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

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

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

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

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

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

         2. In April  1996,  the  Company  qualified  for a grant  from  Societe
Quebecoise de Recuperation et de Recyclage  ("Recyc-Quebec"),  a  self-financed,
Quebec  Government-owned  corporation  established  to  facilitate  and  promote

                                       27
<PAGE>

materials recovery and recycling.  The amount of such grant was $75,000 Canadian
(approximately  $52,500  U.S.).  Of this amount,  the Company  received  $50,000
Canadian  (approximately $35,000 US) during the fiscal year ended June 30, 1997.
The terms of the grant  provide  that the  Company  will  receive the balance of
$25,000  Canadian  (approximately  $17,500  U.S.) when the Company files a final
report on the  completion  of the  project.  The Company  anticipates  that such
report will be filed in or about  February  1999. The terms and purposes of this
grant are  discussed  in more detail in  "Existing  and  Proposed  Businesses  -
Canadian  Operations  -  Canadian  Financial  Assistance  - Grants,  Loans,  and
Commitments".

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

                                       28
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                             AMOUNT OF FUNDS
                                               RECEIVED BY
                                 MAXIMUM      COMPANY AS OF                         REPAYMENT TERMS
                                 AMOUNT        DECEMBER 31,    ----------------------------------------------------------   RATE OF
      NATURE OF PROJECT          OF LOAN           1998                   DATE DUE                 AMOUNT OF PAYMENT        INTEREST
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>                                  <C>                      <C>
Market Research Feasibility     Cdn $20,000        Cdn          At the end of any fiscal year      1% of gross annual          None
Study for Iberian Peninsula                      $20,000           in which the Company has       revenue from sales in
                                                                 revenues from sales of TCS-1            Iberia
                                                               Plants in the Iberian Peninsula
------------------------------------------------------------------------------------------------------------------------------------
Market Research Feasibility     Cdn $20,000        Cdn          At the end of any fiscal year      1% of gross annual          None
Study for India                                  $20,000           in which the Company has       revenue from sales in
                                                                 revenues from sales of TCS-1             India
                                                                       Plants in India
------------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting      Cdn $95,000        Cdn                  June 30, 2001                   Cdn$6,333              None
Potential United States                          $95,000                June 30, 2002                  Cdn$12,666
Markets for Rubber Crumb                                                June 30, 2003                  Cdn$18,999
                                                                        June 30, 2004                  Cdn$25,333
                                                                        June 30, 2005                  Cdn$31,666
------------------------------------------------------------------------------------------------------------------------------------
                                Cdn $95,000        Cdn          At the end of any fiscal year     1.5% of gross annual         None
Iberian Market Development                       $95,000          in which the Company has       revenue from sales in
Activities Related to                                            revenues from sales of TCS-1            Iberia
Positioning the Company to                                             Plants in Iberia
Market TCS-1 Plants, Rubber
Crumb, and Related Products
in Iberia
------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities      Cdn $98,000      $98,000                June 30, 2001                Cdn $ 6,533.33            None
Respecting the Feasibility                         Cdn                  June 30, 2002                Cdn $13,066.66
of using Rubber Crumb in                                                June 30, 2003                Cdn $19,600.00
Thermoplastic Elastomer                                                 June 30, 2004                Cdn $26,133.33
Compounds in the United                                                 June 30, 2005                Cdn $32,666.66
States and Canada.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         These loans and the projects which they supported are discussed in more
detail in "Existing and Proposed Businesses - Canadian Operations" and "Existing
and Proposed Businesses - Sales and Marketing".

                                       29
<PAGE>

         The  Company  believes  it will be able to  cover  the  balance  of the
capital  investments  and  expenditures  which  it will be  required  to make in
connection  with:  (i)  modifications  which  were and will be made to the TCS-1
Plant;(ii)  commencement of full scale,  commercial manufacture of TCS-1 Plants;
and (iii) meeting its overhead on a level  sufficient to sustain the Company for
at least  the  next  twelve  months,  from a  combination  of some or all of the
following  sources:  (i)  expected  cash flow from sales of four TCS-1 Plants to
ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. (see Item
1 of this Report  "Existing and Proposed  Businesses - Sales and Marketing - The
Enercon  Agreements");  (ii)  Canadian and Quebec  government  and  governmental
agency grants,  loans,  and  refundable  tax credits;  (iii) sale and lease back
financing on equipment owned by the Company;  (iv) conventional asset based debt
financing against receivables and inventory; (v) refunds of all of the 15% sales
taxes paid by the Company on all goods and services purchased in connection with
the Company's manufacturing activities, which the Company, as a manufacturer and
exporter of goods is  entitled to (vi)  subcontractor  financing;  (vii)  vendor
financed equipment purchases and/or (viii) a research and development tax credit
facility from ScotiaBank  currently in place. The Company is presently  actively
pursuing all of the  foregoing  avenues of  financing.  In addition,  management
believes that the Company will be able to obtain sufficient production financing
to  cover  the  costs  of  constructing   subsequent  TCS-1  Plants,  using  the
constituent  components  of the Plant to be  financed,  as  collateral  for debt
financing to cover its construction costs.

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

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

         There  can be no  assurance  that the  Company  will be able to  obtain
outside  financing on a debt or equity basis on terms  favorable to the Company,
if at all.  In the event that  there is a failure in any of the  finance-related
contingencies  described  above,  the funds  available to the Company may not be
sufficient  to cover  the  costs of its  operations,  capital  expenditures  and
anticipated  growth  during the next twelve  months.  In such case,  it would be
necessary  for the Company to raise  additional  equity  capital.  During Fiscal
1998,  in an effort to put such funding into place,  the Company  entered into a
non-binding  letter of intent with H.J.  Meyers & Co.,  Inc.  ("Meyers"),  for a
proposed  public  offering  of its  securities  in an  amount  of not less  than
$8,000,000.  On or about  September 16, 1998,  however,  Meyers  abruptly ceased
doing business.  Therefore,  if the Company should wish to raise funds through a
public  offering,  it will be required to locate another  broker-dealer,  ready,
willing,  and able to underwrite a public offering of the Company's  securities.
At this time,  the  Company  is not able to give any  assurances  that,  in such
event, it will be successful in locating an underwriter or that its efforts will
ultimately result in a public offering. If the proceeds from the above described
potential   sources  of  funding  should  be  insufficient   for  the  Company's

                                       30
<PAGE>

requirements  and it is not able to effect a public  offering of its  securities
within the next twelve  months,  or find other sources of outside  funding,  the
Company's  financial  position and its prospects  for  beginning and  developing
profitable business operations could be materially adversely affected.

         As of September 30, 1999, the Company had total assets of $4,435,305 as
compared to $3,814,648 at September 30, 1998 reflecting an increase of $620,657,
and a marginal  increase  of $37,301  over  total  assets as of the last  fiscal
year-end, June 30, 1999, which total amounted to $4,398,004.  Thus, of the total
increase in total  assets from June 30, 1998 to June 30,  1999,  $583,356 or 94%
was applicable to activities  which occurred  during the course of the last nine
months  of Fiscal  1999.  Fiscal  year-end  total  assets  at June 30,  1999 had
reflected a previous  increase of $583,356  over  $3,814,648  at June 30,  1998.
Management  attributes the increase in total assets at June 30, 1999 versus June
30, 1998  principally  to (i) an increase of $1,305,007  in Property,  Plant and
Equipment  from  $977,288 as of June 30, 1998 to $2,282,295 as of June 30, 1999,
and (ii) an  increase  of  $96,886  in  Research  and  development  tax  credits
receivable  from  $855,818 as of June 30, 1998 to $952,704 as of June 30,  1999.
These  increases  were  partially  offset  by (i)  decreases  in cash  and  cash
equivalents  which went from $398,971 as of June 30, 1998 to $177,256 as of June
30, 1999, a decease of $221,715,  (ii) a decrease of $204,500 in current prepaid
expenses and deposits  from  $618,226 as of June 30, 1998 to $413,766 as of June
30, 1999, resulting from amortization of such prepaid expenses, and similarly in
long-term  prepaid  expenses  and  deposits  which  decreased  by $261,757  from
$445,677 as of June 30, 1998 to $183,920 as of June 30, 1999.

         As of  September  30,  1999,  the  Company  had  total  liabilities  of
$3,946,007  as compared to  $3,537,163  on  September  30, 1998,  reflecting  an
increase in liabilities of $408,844. Total liabilities as of the end of June 30,
1999 (Fiscal  1999) were  $3,952,008  which is actually  $6,001  higher than the
September 30, 1999  balance.  The June 30, 1999 balance had reflected a previous
increase of $591,420 over  $3,360,588 in total  liabilities as of June 30, 1998.
Management  attributes such increases in total liabilities at September 30, 1999
versus the balance of twelve months earlier,  September 30, 1998,  primarily to:
(i) outstanding  loans and advances from officers and investors in the aggregate
amount of $576,979,  which  represents  an increase of $277,126 over $299,853 in
outstanding loans at September 30, 1998, and (ii) an increase in Long-Term Debt,
net of the current  portion  thereof which, as of September 30, 1999 amounted to
$759,740  versus  $556,305 as of September  30, 1998,  reflecting an increase of
$203,435 and (iii) an increase in Notes  Payable  from  $391,811 as of September
30,  1998 to $510,202  as of  September  30,  1999,  an  increase  of  $118,391.
Compensating for these increases was a decrease in Convertible Subordinated Debt
as a result of  conversions  of same into common  shares of the  Company.  As of
September 30, 1998, the balance of such debt was $1,035,000  whereas the balance
as of September 30, 1999 was $556,600,  reflecting a decrease of $453,100  which
was added to Shareholders' Equity.

         Reflecting the foregoing,  the financial statements indicate that as of
September 30, 1999, the Company had a working  capital  surplus  (current assets
minus  current  liabilities)  of $6,476 and that as of September  30, 1998,  the
Company had a working capital surplus of $82,959. The primary causes of this net
decrease in net working  capital was an increase in notes  payable in the amount
of $118,391, offset by minor decreases in other accounts.

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

                                       31
<PAGE>

RESULTS OF OPERATIONS

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

         The  financial  statements  which are  included in this Report  reflect
total general and administrative expenses of $656,774 for the three-month period
ended September 30, 1999 versus $1,695,527 for the analogous  three-month period
ended  September  30,  1998,  reflecting  a  decrease  of  $1,038,753.  The most
important  reason for this decrease  relates to one-time charges recorded in the
three-month  period  ended  September  30,  1998,  which  were  reported  in the
Company's Report 10-KSB for the year ended June 30, 1999. These one-time charges
related to issuances of shares to officers  and previous  corporate  counsel and
also  included a signing bonus for a former  officer of the  Company's  Canadian
operations. The total amount expensed relative to such share issuances last year
was $1,398,750. Total general and administrative,  depreciation and amortization
and  research  and  development  costs for Fiscal  1999 were  $4,953,622  versus
$4,564,566 for the fiscal year which ended June 30, 1998, reflecting an increase
of  $389,056.  Taking into account the  one-time  charges  recorded in the first
quarter of Fiscal 1999 which is the three-month period ended September 30, 1998,
these one-time  charges  amounting to  $1,398,750,  one can surmise that, in the
absence  of  such  one-time   charges,   the  total  expenses  for  general  and
administrative,  depreciation  and amortization and research and development for
Fiscal 1999 would have been  considerably less than the amount actually recorded
and considerably less than the amount recorded for Fiscal 1998.

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

         From inception (July 15, 1987) through  September 30, 1999, the Company
has incurred a cumulative net loss of $15,646,798.  Approximately  $1,057,356 of
such  cumulative net loss was incurred,  prior to the inception of the Company's
present  business plan, in connection with the Company's  discontinued  proposed
health care business and was due primarily to the expending of costs  associated
with the  unsuccessful  attempt to  establish  such  health care  business.  The
Company  never  commenced its proposed  health care  operations  and  therefore,
generated no revenues therefrom.

                                       32
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

         THREATENED LITIGATION WITH DR. LAURA GABIGER

         On November  18, 1998,  attorneys  for Dr.  Laura  Gabiger  advised the
Company that they had been  authorized  by Dr.  Gabiger to file suit against the
Company for breach of contract. It is the position of the Company that it has no
obligations  whatsoever to Dr.  Gabiger and,  moreover,  that Dr. Gabiger should
return compensation paid to her in stock and in cash, for services which she was
either unwilling or unable to render to the Company. This matter arises out of a
consulting  agreement,  dated June 18,  1997,  between the Company and Dr. Laura
Gabiger (the "Gabiger Agreement").

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


ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS

         RECENT SALES OF UNREGISTERED SECURITIES

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

         On or about  July 9, 1998,  the  Company  authorized  the  issuance  of
4,000,000  shares of its common  stock to Terence C. Byrne,  the chairman of the
board of  directors  and CEO of the Company and  2,000,000  shares of its common
stock to Frances Katz Levine,  formerly the secretary  and a director,  and (now
formerly)  chief  corporate  and US  securities  counsel  of the  Company.  Such

                                       33
<PAGE>

issuances were made in  consideration of financial  accommodations  made by such
persons  for the  benefit of the  Company  including,  but not  limited  to, the
following: since January of 1995, on behalf, and for the benefit, of the Company
and without any cash  compensation  therefor,  Terence C. Byrne, the chairman of
the board of directors and CEO of the Company and Frances Katz Levine,  formerly
the secretary and a director,  and presently corporate and US securities counsel
of the  Company,  had  made  substantial  financial  accommodations  and had put
themselves at  significant  financial  risk,  including,  but not limited to the
following: Mr. Byrne's; (i) having made personal loans to the Company, including
a loan in the  amount of  $102,000  made in January of 1998;  (ii)  having  been
personally  responsible  for all credit card debt of the  Company,  covering all
travel,  entertainment,  and significant  day-to-day  operating  expenses of the
Company;  (iii) being the  co-guarantor  of all bank debt of the Company and its
subsidiaries;  and (iv) being the  co-guarantor  on all equipment  leases of the
Company;  and Ms.  Levine  having for a continuous  period of three and one-half
years,  provided,  rent-free  and with no charge for the costs of  utilities,  a
fully-equipped law office,  dedicated solely and exclusively to the requirements
of the  Company  and  throughout  such  period,  having  paid,  without any cash
reimbursement  ever having been made to her, all costs and expenses  incurred by
the Company in connection with its legal service requirements, including but not
limited to: (i)  telephone  charges  (ii)  office  furnishings,  equipment,  and
supplies;  (iii) Federal  Express and other postage;  and (iv)  secretarial  and
clerical staff salaries.

         On or about July 28, 1998 the Company  issued an aggregate of 4,095,057
shares of its common stock to three individuals, as follows:

         1.       3,000,000  shares were issued to Louis Sanzaro pursuant to the
                  terms of his employment agreement with the Company, dated July
                  23,  1998,  which  provided  for the  issuance of: (i) 500,000
                  shares as a signing bonus in  consideration  for Mr. Sanzaro's
                  agreeing to discontinue his other business activities in order
                  to  enter  into  the  said  employment  agreement;   and  (ii)
                  2,500,000 shares in consideration for Mr. Sanzaro's release of
                  his right to serve as the Company's  exclusive  distributor of
                  TCS-1 Plants in North  America and to receive  commissions  of
                  any kind in connection with sales of TCS-1 Plants  theretofore
                  or thereafter made by the Company in North America.

         2.       1,000,000  shares  issued to Jean  Frechette  pursuant  to the
                  terms of his employment agreement with the Company, dated July
                  24, 1998,  which provided for the issuance of such shares as a
                  signing bonus in consideration for Mr. Frechette's agreeing to
                  discontinue  his other  business  activities in order to enter
                  into the said employment  agreement and serve as the president
                  and chief  operating  officer  of the  Company's  wholly-owned
                  subsidiary, The Tirex Corporation Canada Inc.

         3.       95,057 shares  issued to Scott  Rapfogel in lieu of $12,500 in
                  salary due to Mr.  Rapfogel  under the terms of his employment
                  agreement  with the Company  whereby he agreed to serve as the
                  Company's Assistant U.S. Corporate and Securities Counsel. For
                  purposes of such issuance,  the stock was valued at 50% of the
                  average  bid and ask  price  for the  Company's  common  stock
                  during the period in which such stock was earned.

BASIS FOR SECTION 4(2) EXEMPTION CLAIMED

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

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

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

                                       34
<PAGE>

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

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

         During the period  January 7, 1998  through May 11,  1998,  the Company
issued an aggregate of $535,000 of convertible,  subordinated debentures bearing
interest  at the rate of 10% which are due two (2) years from  their  respective
dates of issuance. Interest thereon was due and payable semi-annually commencing
six months from the issuance date of such  debentures.  As of March 9, 1999, the
Company was in arrears on interest  payments  accrued on these  debentures since
their issuance,  in the aggregate amount of $49,000, and intends to pay all such
interest as soon as the resources therefor are available.

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

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


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits filed herewith:

                  None

         (b) Current  Reports on Forms 8-K filed during quarter ended  September
30, 1999.

         Current  Report on Form 8-K dated  September  3,  1999  filed  with the
Commission on September 3, 1999.

                                   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.

                                       35
<PAGE>

                                      THE TIREX CORPORATION


Date: December 20, 1999               By /s/ JOHN L. THRESHIE, JR.
                                        ----------------------------------------
                                             John L. Threshie, Jr. President


Date: December 20, 1999               By /s/ MICHAEL ASH
                                        ----------------------------------------
                                             Michael Ash, Treasurer and
                                        Chief Accounting and Financial Officer


                                       36