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, 1998

[ ] 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.)

                    740 St. Maurice, Montreal, Quebec H3C 1L5
                    (Address of Principal executive offices)

                                 (514) 878-0727
                (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 [ ] No [X]
                
                      APPLICABLE ONLY TO CORPORATE ISSUERS

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of March 10, 1999: 78,241,437 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 Statements (unaudited)                                   Page
                                                                            ----

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

       Consolidated Statements of Operations
         for the three-month periods
           ended September 30, 1998 and 1997...............................   5

       Consolidated Statements of Cash Flows
         for the three-month periods
           ended September 30, 1998 and 1997...............................   6

       Notes to Financial Statements.......................................   7

Item 2  Management's Discussion and Analysis of
          Financial Condition and Results of Operations....................  20

PART II

Item 2 - Changes in Securities and Use of Proceeds.........................  33
Item 3 - Defaults Upon Senior Securities...................................  35
Item 4 - Submission of Matters
          to a Vote of Security Holders....................................  35
Item 6 - Exhibits and Reports on Form 8-K..................................  36


                                       2
<PAGE>

      The financial statements are unaudited. However, the management of
registrant believes that all necessary adjustments (which include only normal
recurring adjustments) have been reflected to present fairly the financial
position of registrant at September 30, 1998 and the results of its operations
and changes in its financial position for the three-month periods ended
September 30, 1998 and 1997 and for the period from inception (July 15, 1987).


                                       3
<PAGE>

                              The Tirex Corporation
                           A Development Stage Company

                           Consolidated Balance Sheet
                               As at September 30,

                            Assets                  (Unaudited)      (Audited)
Current Assets                                          1998       June 30, 1998
                                                        ----       -------------
                                                        $              $
Cash and cash equivalents                               150,133        398,971
Notes receivable                                        264,008        225,969
Sales taxes receivable                                   64,389        133,868
R&D tax credit receivable                               902,098        855,818
Prepaid expenses and deposits                           520,005        618,266
                                                    -----------    -----------
                                                      1,900,633      2,232,892

Property and equipment, at cost, net of
  accumulated depreciation of $24,231                 1,499,036        977,288

Other assets
  Prepaids                                              346,146        445,677
  Organization costs net of accumulated
     amortization of $1,264                                 515            536
  Deferred financing fees                               139,118        158,255
                                                    -----------    -----------
                                                        485,779        604,468
                                                    -----------    -----------
                                                      3,885,448      3,814,648
                                                    ===========    ===========

             Liabilities and Stockholders' Equity

Current liabilities
  Notes payable                                         391,811        407,926
  Accrued liabilties                                  1,357,427      1,274,150
  Deposits payable                                       34,500        143,500
  Current portion of long-term debt                      34,120         34,118
Stock options
                                                    -----------    -----------
                                                      1,817,858      1,859,694

Other liabilities
  Long term deposits                                    128,000
  Long-term debt (net of current portion                556,305        465,894
  Convertible subordinated debentures
    long-term portion                                 1,035,000      1,035,000
                                                    -----------    -----------
                                                      1,719,305      1,500,894
Stockholders' equity
  Common stock,  $.001 par value, authorized
    120,000,000 shares, issued and
    outstanding 73,736,495 shares                        73,737         63,642
  Class A stock; .001 par value,
    authorized 5,000,000 shares;
    issued and outstanding, 0 shares
  Additional paid-in capital                         11,887,773     10,258,116
Deficit accumulated during the
  development stage                                 (11,870,817)   (10,051,483)
Unrealized gain on foreign exchange                     257,592        183,785
                                                    -----------    -----------
                                                        348,285        454,060
                                                    -----------    -----------
                                                      3,885,448      3,814,648
                                                    ===========    ===========


                                       4
<PAGE>

                              The Tirex Corporation
                          A developmental stage company

                Consolidated Statement of Operations (unaudited)
                                                                
                                                                Cumulative from
                                Three months ended September 30 March 26, 1993
                                ------------------------------- to September 30,
                                         1998           1997    1998
                                         ----           ----    ----
                                         $              $       $
Revenues                                    0              0        934,725
                                                                
Cost of Sales                               0              0        810,842
                                  -----------    -----------    -----------
                                                                
Gross profit                                0              0        123,883
                                                                
Operations                                                      
  General and administrative        1,451,057        486,565      4,407,397
  Depreciation and amortization       232,630          4,709        256,658
  Research and development             11,840        178,888      6,057,940
                                  -----------    -----------    -----------
                                                                
Total Expense                       1,695,527        670,162     10,721,995
                                                                
Loss before other income and                                    
  expenses                         (1,695,527)      (670,162)   (10,598,112)
                                  -----------    -----------    -----------
                                                                
Other income (expenses)                                         
  Interest expense                    (20,035)          (640)       (84,041)
  Interest income                       2,540                   
  Income from stock options            10,855                   
  Loss on disposal of equipment        (2,240)                  
  Loss on foreign exchange           (103,770)        (3,659)      (142,461)
                                  -----------    -----------    -----------
                                                                
                                     (123,805)        (4,299)      (215,347)
                                                                
Net Loss                           (1,819,332)      (674,461)   (10,813,459)
                                  ===========    ===========    ===========
                                                                
Net loss per common share               (0.02)         (0.02)         (0.57)
                                  ===========    ===========    ===========
Weighted average shares of                                      
  common stock outstanding         70,188,967     38,112,298     18,209,531
                                  ===========    ===========    ===========


                                       5
<PAGE>

                              The Tirex Corporation
                           A Development Stage Company

                       Consolidated statement of cash flow

                                                             (Unaudited)
                                                          Three months ended
                                                             September 30
                                                      -------------------------
                                                         1998            1997
                                                         ----            ----
Operating activities                                      $                $
Net loss                                               1,819,332        674,461
                                                      ----------       --------

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

depreciation and amortization                            232,630          4,709
Proceeds from grants                                     241,002        307,123
stock issued in exchange for services                    980,000        193,581
stock issued in conversion and pmts                      418,750
Unrealized gain on foreign exchange                       73,807
Change in assets & liabilities
  increase in Notes receivable                           (38,039)       (30,000)
  increase in Sales tax receivables                       69,479         (4,623)
  increase in Tax credit receivable                      (46,280)
  increase in Prepaid expenses                              (650)       (13,929)
  increase in Accrued expenses                            83,277          9,932
  increase in Loan payable                                64,884        183,148
  increase in Deposit payable                             19,000        283,500
  increase in Notes payable                                             (98,551)
  increase in Loan  director                                             10,881

                                                      ----------       --------
  Total Adjustments                                    2,097,860        845,771

  Net cash operating Activities                          278,528        171,310
                                                      ----------       --------

Investing Activities
  Property & equipment                                  (556,532)      (257,911)
  Licence
                                                      ----------       --------
  Net cash investing activities                         (556,532)      (257,911)

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

                                                      ----------       --------
  Net cash financing activities                           29,166              0

                                                      ----------       --------
  Net Decrease in cash                                  (248,838)       (86,601)

  Cash beginning of period                               398,971        155,037

                                                      ----------       --------
  Cash end of period                                     150,133         68,436
                                                      ==========       ========


                                       6
<PAGE>

THE TIREX CORPORATION INC. AND SUBSIDIARY
(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.

            Nature  of  Business

            The Tirex Corporation (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 of the Company acting


                                       7
<PAGE>

            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, Gerge 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 finders fees. Pursuant thereto, the Company
            issued 300,000 and 1,700,000 shares of its common stock, $.001 par
            value, to Joseph Territo and Edward Mihal, respectively.

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

            Effective January 18, 1995, Louis V. Muro and Patrick McLaren resign
            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


                                       8
<PAGE>

            At June 30, 1998 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, Inc.. Tirex Canada, 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 intercompany 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

            Property and Equipment

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

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

            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 required 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.

            Organization Costs


                                       9
<PAGE>

            Organization costs are being amortized on a straight-line basis over
            a sixty month period.

            Adoption of Statement of Accounting Standard No. 128

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

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


                                       10
<PAGE>

            Adoption of Statement of Accounting Standard No. 128

            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, 1998 and 1997, 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 9,212,673 and 2,000,000 shares at June
            30, 1998 and 1997, respectively, and warrants for the purchase of
            2,000,000 shares at June 30, 1998 and 1997 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, 1998 and
            1997, respectively, the carrying value of all financial instruments
            was not materially different from fair value.

            Income Taxes

            The Company has net operating loss carryovers of approximately $4
            million as of June 30, 1998, expiring in the years 2004 through
            2011. However, based upon present Internal Revenue regulations
            governing the utilization of net operating loss carryovers where the
            corporation has issued substantial additional stock, most of this
            loss carryover may not be available to the Company.

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

            The Company has research and development investment tax credits
            receivable from Canada and Quebec amounting to $902,098.


                                       11
<PAGE>

            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.

Note 2 -    Going Concern

            As shown in the accompanying financial statements, the Company
            incurred a net loss of $1,729,831 for the three-month period ended
            September 30, 1998. . In March 1993, the Company, which was still in
            the development stage, developed a new Business Plan. The Company is
            in the process of constructing a production quality machine for the
            cryogenic disintegration of used tires. The Company also plans to
            recycle used tires using ambient temperature disintegration
            equipment. At June 30, 1998, the Company is still in the development
            stage. Fees generated from tipping and culling were insufficient to
            fund the current operations of the Company. All of these factors
            create an uncertainty about the Company's ability to continue as a
            going concern.

            The Company is currently in the process of formulating a plan to
            obtain capital through an additional public offering, which will
            provide working capital while the Company constructs its cryogenic
            disintegration machine. The ability of the Company to continue as
            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.

Note 3 -    Financing Costs

            During the quarter ended September 30, 1998 the Company incurred
            $11,429 in connection with debt financing . Amortization of
            financing costs capitalized as of June 30, 1998 amounted to $19,137
            and this figure is included in the figure of $143,130 for
            depreciation and amortization for the three-month period ended
            September 30, 1998.

Note 4 -    Property and Equipment Financing Costs

            As of September 30, 1998 plant and equipment consisted of the
            following:

            Furniture, fixtures and equipment                         $   97,772
            Leasehold improvements                                        97,852
            Construction in progress                                   1,324,987
                                                                      ----------
                                                                       1,520,611
            Less accumulated depreciation and amortization                21,575
                                                                      ----------
                                                                      $1,499,036
                                                                      ==========

            Depreciation and amortization expense charged to operations was
            $9,214 for the three months ended September 30, 1998.


                                       12
<PAGE>

Note 5 -    Notes Payable

            The Company has available a $700,000 line of credit which bears
            interest at the Canadian prime rate plus 1.25% . At June 30, 1998,
            $391,811 was outstanding against this line of credit. The note is
            collateralized by the personal guarantees of certain officers,
            certain equipment of Tirex Canada and guaranteed by The Tirex
            Corporation. The loan is guaranteed at a rate of 80% by the Societe'
            de Developpement industriel du Quebec and is repayable from the
            research and developmental investment tax credits received. The
            Canadian prime rate of interest at June 30, 1998 was 8%.

Note 6 -    Long-Term Debt                                             1998
                                                                       ----

            Federal Office of Regional Development (Ford-Q)
            1998 Loan payable under the Industrial Recovery
            Program amounting to 20% of certain eligible
            costs incurred (maximum loan $500,000) 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)                                                $ 341,180

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

            - Loan payable over five years commencing
              June 2000 due June 2004                                  64,823

            - Loan payable over five years, commencing
              June 2001, due 2005                                      60,187

            - Loan payable in amounts equal to 1% of the
              annual sales in India through June 30, 2002              13,647

            - Loan payable in amounts equal to 1% of annual
              sales in Spain through June 30, 2007                     13,647

            - Loan payable in amounts equal to 1 1/2% of
              annual sales in Spain and Portugal through
              June 30, 2004                                            64,823 
                                                                     --------
                                                                     $558,307
            Less:  current portion                                     34,118
                                                                     --------
                                                                     $524,189
                                                                     ========


                                       13
<PAGE>

            Minimum principal repayments of each of the next five years as
            follows:

                     1999                                         $ 34,118
                     2000                                           90,415
                     2001                                          129,517
                     2002                                          168,617
                     2003                                           32,581
                     Thereafter                                     44,764
                                                                  --------
                                                                  $500,012
                                                                  ========

                                       14
<PAGE>

Note 7 -    Convertible Subordinated Debentures

            Convertible subordinated debentures consist of the following:

--------------------------------------------------------------------------------
                              Type A                          Type B
--------------------------------------------------------------------------------
Balance as of                $500,000                        $530,000
September 30, 1998
--------------------------------------------------------------------------------
Interest Rate                   10%                             10%
--------------------------------------------------------------------------------
Maturity              Earlier of (i) - the            Earlier of (i)- two years
                      completion of a public          from the issue date or
                      offering yielding gross         (ii)- the completion of a
                      proceeds of not less than       public offering of its
                      $8,000,000, (ii) - the          securities by the Maker
                      closing on financing in
                      excess of $4,500,000,
                      (iii)- December 31, 1999
--------------------------------------------------------------------------------
Redemption rights     If not converted, the holder    If not converted, the
                      may require the Company         holder may require the
                      to redeem at any time after     Company to redeem at
                      maturity at a premium of        any time after maturity at
                      125% of the principal           a premium of 125% of the
                      amount plus interest            principal amount plus
                                                      interest
--------------------------------------------------------------------------------
Conversion ratio      75% of the average of the       $0.20 per share
                      closing bid price of the
                      common stock as reported
                      by NASDAQ during the
                      five-day period preceding
                      the Company's receipt of a
                      notice of conversion by a
                      debenture holder.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------

Note 8 -    Related Party Transactions 

            On July 22, 1994, 3,000,000 shares of The Tirex Corporation, 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 


                                       15
<PAGE>

            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.

            Included in accrued expenses at September 30, 1998 is $17,076 of
            salary to officers which the company subsequently issued common
            stock for.

            At September 30, 1998, the Company had notes receivable from various
            officers in the amount of $74,405. 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 through September 1999 (the due date).The
            remaining notes are non-interest bearing and will be repaid during
            the year ending June 30, 1999.

            At September 30, 1998 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.

Note 9 -    Common Stock
            
            During the three months ended September 30, 1998, the Company issued
            common stock to individuals in exchange for services performed
            totaling $1,398,750. Included in these amounts are payments to
            officers of the Company in exchange for financial accommodations and
            other services rendered without benefit of cash payment in the
            amount of $1,006,250. 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.


                                       16
<PAGE>

Note 10 -   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 shares
            2,000,000 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.

Compensatory Common Stock Options

Compensation                                                  For the Year Ended
                                          Number of Shares      June 30, 1998
                                          ----------------      -------------
Balance July 1, 1998                               --            $      
                                                               
Stock options granted during the year        15,712,673            2,185,413
ended June 30, 1998                                            
                                                               
Stock options exercised during the year                        
 ended June 30, 1998                         (6,500,000)            (948,500)
                                            -----------          -----------
Balance at June 30, 1998                      9,212,673          $ 1,236,913
                                            ===========          ===========

            The options expire at various dates through April 2000. The exercise
            price ranges from .001 to .40 with the weighted average exercise
            price equal to .1177.


Note 12 -   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 


                                       17
<PAGE>

            of RPM in exchange for common stock in the Company on a unit for
            unit basis. RPM ceased to exist following the exchange.

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

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

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

Note 13 -   Government Assistance
            
            The Company receives financial assistance from Revenue Canada and
            Revenue Quebec in the form of scientific research tax credits.
            During the year ended June 30, 1998, the Company received
            approximately $670,000 which has been recorded as paid in capital.
            No additional amounts were received during the three-month period
            ended September 30, 1998.



Note 14 -   Commitments
            
            The Company leases office space under an agreement for a term from
            July 1, 1997 to June 30, 2000. The Company has an option to renew
            this lease for an additional three years. Minimum rentals in each of
            the next three years is as follows: 


                                       18
<PAGE>

                                                                          Amount
                                                                          ------
          June 30,
          --------
            1999                                                         $18,967
            2000                                                          18,967
                                                                         -------
                                                                         $37,934
                                                                         =======

            The Company also leases 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:

                                                                          Amount
                                                                          ------
          June 30,
          --------
           1999                                                         $108,800
           2000                                                          176,900
           2001                                                          204,100
           2002                                                          204,100
           2003                                                          170,100
                                                                        --------
                                                                        $864,000
                                                                        ========

            Rental expense for the year ended June 30, 1998 amounted to $55,532.

Note 15 -   Subsequent Event

            Subsequent to the year end, the Company received an additional
            $55,000 Program for the Development of Quebec SME's.

Note 16 -   Warrants
            
            Note 6 and note 10 address stock warrants and options that are
            outstanding at June 30, 1998. The Company also has warrants and
            options outstanding to purchase 843,750 shares of common stock which
            expire at various dates through July 1999. These rights can be
            exercised at various rates from .125 through .40


                                       19
<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 month period ended September 30, 1998. 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"). It is also currently in the process of establishing and initiating
operations in a second business segment which will involve owning and operating,
directly or indirectly, on exclusive or joint venture bases, product
manufacturing plants which will manufacture finished products out of recycled
rubber crumb. The first of such operations will involve the establishment of a
rubber mat molding and flocking plant at the Company's Montreal facility for the
production of rubber floor mats. Management presently estimates that
commencement of both full-scale commercial manufacture of TCS-1 Plants and the
commencement of rubber mat molding operations will occur in April of 1999.

            The Company will be required to make new capital investments and
expenditures over the next twelve months in connection with the establishment at
the Company's Montreal facility of rubber mat molding operations. Management
estimates that costs for the entire project will aggregate to approximately
$925,000. Because of the lengthy delays in the commencement of commercial
operations, the Company has also had to, and may in the near future be forced to
continue to, cover its overhead costs from sources other than revenues from
operations. Subsequent to the period covered by this Report, as at January 15,
1999, the Company estimated that overhead costs, which will be incurred prior to
the generation of revenues adequate to cover them, will aggregate to
approximately $250,000.

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:

                                          Proceeds From
Year Ended                                  Sales of
June 30th                                  Securities
---------                                  ----------
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


                                       20
<PAGE>

            During the fiscal years ended June 30, 1997 and June 30, 1998 and
the interim six-month period ended December 31, 1998, the Company received
additional funding from Quebec and Canadian government grants, loans, loan
guarantees and refundable tax credits for purposes of completing the development
of the TCS-1 Plant and for the international marketing of such plants (see Item
1. of this Report, "Existing and Proposed Businesses - Canadian Operations -
Canadian Financial Assistance Grants, Loans, and Commitments"). Canadian and
Quebec government research and development tax incentives take the form of both
tax deductions from otherwise taxable income and tax credits respecting the
eligible research and development expenditures of the Company (see "Existing and
Proposed Businesses - Canadian Operations"). Insofar as tax credits for
scientific research and experimental development are concerned, such credits are
offered by both the governments of Canada and of Quebec. The tax credits are
calculated as a percentage of research and development expenditures deemed
eligible by the Revenue Departments of each government. The percentages vary
according to the size of the company (defined according to the asset base and
revenues generated by the company), the residency of the majority of the voting
control and other factors. In the case of both the provincial and the federal
governments, where the amount of the tax credit exceeds other tax liabilities,
such as taxes on income and on capital, and subject to certain other conditions
which a 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 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 put into place a loan guarantee program (the "SDI Loan
Guarantee Program") which provides the SDI's guarantee of repayment of 75% of
the amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. The SDI 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. Alternatively, the SDI Loan Guarantee Program allows companies to
borrow, prior to making any expenditures, up to 60% of the amount of the
anticipated tax credit based on budgeted expenditures not yet incurred (80% of
the amount of an Allowable Post-


                                       21
<PAGE>

Expenditure Loan). 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 SDI 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. As
at June 30, 1998, Cdn.$828,230 (approximately US$579,761) had been lent to the
Company pursuant to the BOM Tax Credit Loan. Subsequent to the period covered by
this Report, during the six-months ended December 31, 1998, the Company borrowed
an additional Cdn.$108,770 (approximately US$76,139) under the BOM Tax Credit
Loan. As at June 30, 1998 and December 31, 1998, respectively, the outstanding
balance payable on the BOM Tax Credit Loan was Cdn$597,820 (approximately
US$418,474) and Cdn$502,520 (approximately US$351,764). The BOM Tax Credit Loan
was 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.

            The SDI, under its above described Loan Guarantee Program,
guaranteed repayment of 75% of the BOM Tax Credit Loan ("the SDI Guarantee").
The SDI Guarantee was secured by a lien on the Company's projected tax credit
receivables.

            Borrowings drawn down under the BOM 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
Bank of Montreal 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 BOM Tax Credit Loan is due and payable monthly. The
outstanding principal amount is repayable upon the Company's receipt of tax
credit refunds from the Canadian and/or Quebec tax authorities and the release
of the funds by SDI to the Bank of Montreal. During the last three fiscal years,
and the six-month interim period ended December 31, 1998, 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:


                                       22
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
   Period                  Amount of       Amount of R&D     Amount of Tax        Amount        Amount of Tax        Cumulative
 R&D Expenses                 R&D          Expenditures         Credits          Borrowed      Credit Received       Outstanding
Were Incurred            Expenditures      Eligible for       Estimated by       Against                             Balance of
                           Incurred         Tax Credits       BOM and SDI       Estimated                          Loan as at End
                                                                                Tax Credits                            of Period
---------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                <C>                <C>             <C>               <C>                   <C>
July 1, 1995 to              -0-                -0-               -0-              -0-               -0-                 -0-
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
---------------------------------------------------------------------------------------------------------------------------------
Interim Period          Cdn$1,167,892           (3)               (4)         Cdn$108,770(1)    Cdn$245,517(5)       Cdn$502,520
July 1, 1998 to                                                                                      (6)
December 31, 1998
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Notes to this table appear on the following page.


                                       23
<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 from the BOM 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.

(3)   As of March 9, 1999, and in accordance with the tax laws and procedures of
      the Revenue Departments of the governments of Canada and of Quebec, the
      Company had not yet submitted a claim for tax credits based upon any
      research and development expenditures made since July 1, 1998. The Company
      expects that a portion of such expenditures will be eligible for
      Refundable Tax Credits. In connection therewith, the Company will seek
      credit facilities similar to the BOM Tax Credit Loan, with one or more
      lending institutions, based upon estimated tax credit receivables.

(4)   Although the Company made research and development expenditures in the
      amount of Cdn$1,167,892 during the six-month period,


                                       24
<PAGE>

      July 1, 1998 through December 31, 1998, and while the Company believes
      that a portion of such expenditures will be eligible for Refundable Tax
      Credits, it should be noted that no credit facilities were or have yet
      been made available to the Company to finance these expenditures. The SDI
      Loan Guarantee Program, which guaranteed repayment of 75% of the BOM Tax
      Credit Loan, was available only for bank loans based on estimated tax
      credit receivables for research and development expenditures made on or
      before June 30, 1998. It should be noted further that the entire amount
      available to the Company under the BOM Tax Credit Loan has already been
      borrowed by the Company in connection with research and development
      expenditures made by the Company during the years ended June 30, 1997 and
      1998. However, the SDI Loan Guarantee Program is still in existence and
      may be available to guarantee new loans which may be made to the Company
      by other Canadian lending institutions. Accordingly, (as noted above in
      footnote 3 to this table), the Company intends to seek new credit
      facilities, similar to the BOM Tax Credit Loan, to finance research and
      development expenditures made after June 30, 1998.

(5)   Tax credits received by the Company during this interim period, July 1,
      1998 through December 31, 1998, are attributable to research and
      development expenditures made by the Company during the fiscal year ended
      June 30, 1997. As at December 31, 1998, the Company had not yet received
      any tax credits for research and development expenditures made from July
      1, 1997 through December 31, 1998. However, as described below in footnote
      6 to this table, subsequent to December 31, 1998, some funds were received
      in respect of research and development expenditures made during the fiscal
      year ended June 30, 1998, on a "preliminary advance payment" basis.

(6)   In February 1999 the Company received a check in the amount of Cdn
      $491,000 from 


                                       25
<PAGE>

      the Government of Quebec respecting a tax credit payment. The Company used
      Cdn $222,000 of this amount to reduce the balance on the BOM Tax Credit
      Loan. 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. Results of the audit are expected prior to March
      31, 1999. However, as a result of a preliminary, cursory review of the
      accounts, a preliminary advance payment check in the amount of
      Cdn$320,000, representing approximately half of the amount of the Canadian
      federal tax credit claimed on the Government of Canada, was received by
      the Company in January 1999, of which amount, the sum of Cdn$175,000 was
      used to reduce the outstanding balance of the BOM Tax Credit Loan, in
      accordance with the terms and conditions of the SDI Loan Guarantee. On
      March 2, 1999 a second advance payment check in the amount of Cdn $153,492
      was received. A final check in a similar amount is expected to be received
      by the end of March 1999. As required by the SDI Loan Guarantee Program
      part of the proceeds from the second and final payments described above
      will be used to eliminate the balance of the BOM Tax Credit Loan.

      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. 


                                       26
<PAGE>

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

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

Dollar Approximation                           Canadian Dollars            US
--------------------                           ----------------            --
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".

2. In April of 1996, the Company qualified for a grant from Societe Quebecoise
de Recuperation et de Recyclage ("Recyc-Quebec"), a self-financed, Quebec
Government-owned corporation established to facilitate and promote materials
recovery and recycling. The amount of such grant was $75,000 Canadian
(approximately $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.


                                       27
<PAGE>

<TABLE>
<CAPTION>
====================================================================================================================================
                                                       Amount of
                                                         Funds
                                                      Received By
                                           Maximum   Company as of                                                          Rate of
                                          Amount of   December 31,                                                          Interest
       Nature of Project                    Loan         1998                          Repayment Terms
                                                                   --------------------------------------------------------
                                                                             Date Due                 Amount of Payment
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>       <C>                                 <C>                     <C>
Market Research Feasibility Study for    Cdn $20,000      Cdn     At the end of any fiscal year in    1% of gross annual      None
Iberian Peninsula                                       $20,000    which the Company has revenues     revenue from sales
                                                                 from sales of TCS-1 Plants in the        in Iberia
                                                                         Iberian Peninsula
------------------------------------------------------------------------------------------------------------------------------------
Market Research Feasibility Study for    Cdn $20,000      Cdn     At the end of any fiscal year in    1% of gross annual      None
India                                                   $20,000    which the Company has revenues     revenue from sales
                                                                   from sales of TCS-1 Plants in           in India
                                                                               India
------------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting Potential     Cdn $95,000      Cdn              June 30, 2001                   Cdn$6,333          None
United States Markets for Rubber Crumb                  $95,000            June 30, 2002                  Cdn$12,666
                                                                           June 30, 2003                  Cdn$18,999
                                                                           June 30, 2004                  Cdn$25,333
                                                                           June 30, 2005                  Cdn$31,666
------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Activities    Cdn $95,000      Cdn     At the end of any fiscal year in   1.5% of gross annual     None 
Related to Positioning the Company to                   $95,000    which the Company has revenues     revenue from sales           
Market TCS-1 Plants, Rubber Crumb,                                 from sales of TCS-1 Plants in           in Iberia               
and Related Products in Iberia                                                 Iberia                                              
------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Respecting    Cdn $98,000    $98,000             June 30, 2001                Cdn $ 6,533.33       None
the Feasibility of using  Rubber Crumb                    Cdn               June 30, 2002                Cdn $13,066.66
in Thermoplastic Elastomer Compounds                                        June 30, 2003                Cdn $19,600.00
in the United States and Canada.                                            June 30, 2004                Cdn $26,133.33
                                                                            June 30, 2005                Cdn $32,666.66
====================================================================================================================================
</TABLE>

      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 made to the TCS-1 Plant; (ii) the
establishment, and commencement of operations, of the rubber mat molding and
flocking plant; (iii) commencement of full scale, commercial manufacture of
TCS-1 Plants; and (iv) 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


                                       28
<PAGE>

America Distribution Limited ("Enercon") of Westerville, Ohio; (ii) Canadian and
Quebec government and governmental agency grants, loans, and refundable tax
credits; (iii) sale and lease back financing on inventory and 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 (in September 1998, the Company received Cdn $200,000 by way of such
tax refunds for the quarter ended June 30, 1998); (vi) subcontractor financing;
(vii) vendor financed equipment purchases and/or (viii) a research and
development tax credit facility from the Bank of Montreal for the 1999 calendar
year. 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; (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; and (iv) the ability of the proposed rubber mat
molding facility to operate profitably.

      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 and the establishment and
initiation of rubber mat molding operations. 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 it, if at all. In the
event that there is a failure in any of the finance-related contingencies
described above, the funds available to the Company may not be sufficient to
cover the costs of its operations, capital expenditures and anticipated growth
during the next twelve months. In such case, it would be necessary for the
Company to raise additional equity capital. 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 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 at September 30, 1998, the Company had total assets of $3,885,448 as compared
to $3,814,648 at 


                                       29
<PAGE>

June 30, 1998 reflecting an increase of $70,600. Total assets at September 30,
1998 had reflected an increase of $2,200,239 over $1,685,209 in total assets at
September 30, 1997. Management attributes such increases in total assets at
September 30, 1998 as compared to total assets at June 30, 1998 principally to
increases of $38,019 in notes receivable, of $46,280 in research and development
tax credit receivables and of $521,748 in property and equipment that outpaced
declines of $248,838 in cash, of $68,479 in sales taxes receivable, of $108,292
in prepaid expenses and deposits, and of $18,622 in deferred financing fees.
Management attributes the increase in total assets at September 30, 1998 from
total assets at September 30, 1997 principally to: (i) continuing consulting
agreements which have been recorded as prepaid expenses on the balance sheet in
the approximate amount of $970,000; all compensation payable under such
agreements was paid by way of the issuance of an aggregate of 4,000,000 shares
of common stock to two consultants and the granting of an option to CG Tire Inc.
(the "CGT Option"), the attributed value of all shares of Common Stock issued as
compensation under such consulting agreements and the CGT Option has been
included in paid-in capital; (ii) property and equipment in the amount of
$1,499,036 which represents an increase of $448,012 over property and equipment
of $1,051,524 at September 30, 1997; (iii) cash assets in the amount of $150,133
at September 30, 1998, which reflects an increase of $81,697 over cash assets in
the amount of $68,436 at September 30, 1997; (iv) research and development tax
credit receivables ("R&D TCR's") in the amount of $902,098 at September 30,
1998, which reflects an increase of $632,180 over R&D TCR's in the amount of
$269,918 at September 30, 1997; and (v) the recognition of deferred, financing
costs in the net amount of $139,118 after deduction of amortization in the
amount of $19,137.

      As at September 30, 1998, the Company had total liabilities of $3,537,163
as compared to $3,360,588 at June 30, 1998 and $2,073,379 at September 30, 1997,
reflecting an increase in total liabilities of $176,575 and $1,463,784 over
total liabilities at June 30, 1998 and at September 30, 1997 respectively.
Management attributes such increase in total liabilities at September 30, 1998
when compared to total liabilities at June 30, 1998 primarily to an increase of
$83,277 in accrued liabilities; an increase of $90,111 in long term debt; and
$128,000 in long term deposits as compared to no long term deposits at June 30,
1998; that exceeded declining liabilities of $109,000 in deposits payable.
Management attributes the increase in total liabilities at September 30, 1998 as
compared to total liabilities at September 30, 1997 primarily to: (i) advances
from the Canadian federal government agency, Canada Economic Development- Quebec
Regions (CEDQR), formerly known as, and sometimes referred to herein as, the
Federal Office for Regional Development-Quebec (FORD-Q), pursuant to loans
contributed by such agency under the Industrial Recovery Program for Southwest
Montreal (IRPSWM) and the Innovation, Development, Entrepreneurship and Access
Program for Quebec Small and Medium-Size Enterprises (IDEA-SME) in the amount of
$558,943, which represents an increase of $175,250 over CEDQR balances of
$383,693 at September 30, 1997; (ii) the issuance during the first half of 1998,
in two of the Private Placements (including debentures assumed in the merger
with RPM) of 10% Convertible Subordinated Debentures in the aggregate principal
amount of $1,035,000; (iii) bank indebtedness in the amount of approximately
$418,000 versus a zero balance in bank indebtedness as at September 30, 1997.

Reflecting the foregoing, the financial statements indicate that as at September
30, 1998, the Company had a working capital surplus (current assets minus
current liabilities) of $82,775, that as at June 30, 1998 the Company had a
working capital surplus of $373,198, and that as at September 30, 1997 the
Company had a working capital deficit of $1,056,825. The primary causes of this
net increase in net working capital at September 30, 1998 as compared to net
working capital at June 30, 1998 were increases in notes receivable, research
and development tax credit receivables, and property and equipment together with
declines in notes payable and deposits payable. The primary causes of the net
increase in net working capital at September 30, 1998 as compared to net working
capital at September 30, 1997 were (i) an increase in research and development
tax credits receivable in the amount of $632,180, (ii) an increase of prepaid
expenses and deposits respecting on-going consulting agreements in the amount of
$970,000, and, (iii) a decrease in deposits payable of $729,000.


                                       30
<PAGE>

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

Results of Operations

      As noted above, the Company is presently in the very early stages of the
business of manufacturing and selling TCS-1 Plants and is also currently engaged
in establishing a complete rubber mat molding and flocking facility in which it
intends to utilize the First Production Model of the TCS-1 Plant. The Company
intends to begin manufacturing TCS-1 Plants and operating its rubber mat molding
facility on commercial bases by March of 1999. The Company had no income from
operations during Fiscal 1997; It generated $880,000 in revenues during fiscal
1998 from the sale of the single front-end module and the single fracturing mill
of the First Production Model of the TCS-1 Plant. However, unless and until the
Company successfully develops and commences TCS-1 Plant manufacturing and sales
operations and/or profitable rubber mat molding 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 $1,451,057 for the quarter ended
September 30, 1998 which reflects an increase of $964,492 over the analogous
period in 1997, when general and administrative expenses were $486,565. During
the quarter ended September 30, 1998 the Company had no operating revenues, had
total operating costs of $1,819,332 and incurred a net operating loss of
$1,819,332. During the analogous quarter ended September 30, 1997 the Company
had no operating revenues, had total operating costs of $674,461 and incurred a
net operating loss of $674,461. The $1,055,371 increase in total operating costs
and net operating loss during the quarter ended September 30, 1998 as compared
to the quarter ended September 30, 1997 is primarily attributable to three
factors. These factors are (i) stock issuances in exchange for services
(excluding amounts paid in stock rather than cash as part of salaries) during
the three month period ended September 30, 1998 in the amount of $980,000
reflecting an increase of $786,419 over the analogous three month period ended
September 30, 1997 when such amount was $193,581; (ii) an increase of
approximately $406,000 in respect of valuations attributable to stock issued in
consideration for the release of an exclusive distributor rights agreement and
(iii) an increase of $138,421 in depreciation and amortization, a non-cash
charge, from the amount charged for the three month period ended September 30,
1997 where depreciation and amortization was $4,709. The stock issuances in
exchange for services during the quarter ended September 30, 1998, as referred
to above, consisted of a bonus payment to a corporate officer and corporate
counsel respecting certain financial accommodations made by them on the
Company's behalf during the approximately three year period preceding the date
of payment of such stock bonuses and signing bonuses paid to two corporate
officers in connection with their respective employment agreements with the
Company. Also reflected in total operating costs and net operating loss for the
quarter ended September 30, 1998 as compared to the quarter ended September 30,
1997 is a $167,048 decrease in research and development expenses from $178,888
in research and development expenses during the quarter ended September 30, 1997
to $11,840 during the quarter ended September 30, 1998.

      Management believes that the amounts accrued 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


                                       31
<PAGE>

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.

      From inception (July 15, 1987) through September 30, 1998, the Company has
incurred a cumulative net loss of $11,870,817. 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 2 - Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

      During the fiscal quarter ended September 30, 1998, Registrant made the
following sales of its common stock, $.001 par value, per share ("Common Stock")
without registration under the Securities Act of 1933, as amended (the
"Securities Act"). The following sets forth information respecting the dates,
purchasers, and consideration involved in such sales and the bases for
Registrant's claim that all such sales were exempt from the registration
provisions of Section 5 of the Securities Act by reason of Section 4(2) thereof,
for the reasons described below.

      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 presently chief
corporate and US securities counsel of the Company. Such 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 


                                       33
<PAGE>

            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


                                       34
<PAGE>

      information concerning the Registrant and/or have such knowledge and
      experience in financial and business matters that they are capable of
      evaluating the merits and risks of such investment and are able to bear
      the economic risk thereof.

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

Item 3 - Defaults Upon Senior Securities

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

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

      In accordance with the Delaware General Corporation Law, 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.


                                       35
<PAGE>

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, 1998

      Current Report on Form 8-K dated September 14, 1998 filed with the
Commission on September 18, 1998 reporting Item 5. Other Events respecting the
issuer's retention of the Canadian engineering firm of Beaudoin, Hurens &
Associates, Inc. and the extension of the stage two test phase on the issuer's
TCS- 1 Plant for approximately two additional months.

                                   SIGNATURES

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

                                       THE TIREX CORPORATION


Date: March 11, 1999                   By /s/ Terence C. Byrne
                                          --------------------------------------
                                          Terence C. Byrne, Chairman of the
                                          Board of Directors and
                                          Chief Executive Officer


Date: March 11, 1999                   By /s/ Michael Ash
                                          --------------------------------------
                                          Michael Ash, Treasurer and
                                          Chief Accounting and Financial Officer


                                       36