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

                                   FORM 10-QSB

(Mark One)

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

For the quarterly period ended December 31, 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 [X] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

      State the number of shares  outstanding of each of the issuer's classes of
common equity, as of __________________:_____________ shares

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


<PAGE>

                              The Tirex Corporation
                          (A Development Stage Company)
            
                                  ------------

                                TABLE OF CONTENTS
PART I

Item 1 - Financial Information (unaudited)                                  Page
                                                                            ----

         The Tirex Corporation and Subsidiaries
           Consolidated Balance Sheets as of
             December 31, 1998..........................................      3

         Consolidated Statements of Operations
           for the three and six month periods
             ended December 31, 1998 and 1997...........................      4

         Consolidated Statements of Cash Flows
           for the six-month periods
             ended December 31, 1998 and 1997...........................      5

         Notes to Financial Statements (unaudited)......................      6

Item 2  Management's Discussion and Analysis of
          Financial Condition and Results of Operations.................     18

PART II

Item 2 - Changes in Securities and Use of Proceeds......................     31
Item 3 - Defaults Upon Senior Securities................................     34
Item 4 - Submission of Matters
            to a Vote of Security Holders...............................
Item 6 - Exhibits and Reports on Form 8-K...............................     34

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

      The financial  statements  are unaudited.  However,  the management of the
issuer  believes  that all  necessary  adjustments  (which  include  only normal
recurring  adjustments)  have been  reflected  to present  fairly the  financial
position of  registrant  at December 31, 1998 and the results of its  operations
and changes in its financial  position for the three and six month periods ended
December 31, 1998 and 1997 and for the period from inception (July 15, 1987).


                                       2
<PAGE>

                              The Tirex Corporation
                           A Development Stage Company

                           Consolidated Balance Sheet
                                as at December 31

                                     Assets
                                                       (Unaudited)    (audited)
                                                          1998      June 30 1998
                                                          ----      ------------
                                                           $             $
Current Assets
Cash and cash equivalents                                129,699       398,971
Account receivables                                      150,000   
Notes receivable                                         334,984       225,969
Sales taxes receivable                                    54,374       133,868
R&D tax credit receivable                              1,105,651       855,818
Prepaid expenses and deposits                            488,214       618,266
                                                       ---------     ---------
                                                       2,262,922     2,232,892
Property and equipment, at cost, net of                            
  accumulated depreciation of $27,757                  1,535,011       977,288 
Other assets                                                       
  Licence                                                 19,602   
  Prepaids                                               239,880       445,677
  Organization costs net of accumulated amortization               
     of $ 826                                                515           536
  Deferred financing fees                                119,981       158,255
                                                       ---------     ---------
                                                         379,978       604,468
                                                       =========     =========
                                                       4,177,911     3,814,648
                                                       =========     =========
                                                                 
                      Liabilities and Stockholders' Equity

Current liabilities
  Notes payable                                          328,346       407,926
  Accrued liabilties                                   1,466,021     1,274,150
  Deposits payable                                        34,500       143,500
  Current portion of long-term debt                       34,120        34,118
                                                     -----------   -----------
                                                       1,862,987     1,859,694

Other liabilities
  Long term deposits                                     128,000
  Loan from investor                                      93,516
  Long-term debt (net of current portion                 551,170       465,894
  Convertible subordinated debentures
    long-term portion                                  1,035,000     1,035,000
                                                     -----------   -----------
                                                       1,807,686     1,500,894
                                                     -----------   -----------
                                                       3,670,673     3,360,588
                                                     -----------   -----------
Stockholders' equity
  Common stock,  $.001 par value, authorized
   120,000,000 shares, issued and outstanding
   78,378,307 shares                                      78,378        63,642
  Class A stock; .001 par value, authorized 5,000,000
   shares; issued and outstanding, 0 shares
  Additional paid-in capital                          12,539,943    10,258,116
Deficit accumulated during the development stage     (12,364,501)  (10,051,483)
Unrealized gain on foreign exchange                      253,418       183,785
                                                     -----------   -----------
                                                         507,238       454,060
                                                       4,177,911     3,814,648
                                                     ===========   ===========


                                       3
<PAGE>

                              The Tirex Corporation
                   A development stage corporation (unaudited)

<TABLE>
<CAPTION>
                                                Consolidated Statement of Operations (unaudited)
                                     ------------------------------------ ------------------------------------   ----------------
                                          Three months     Six months       Three months          Six months     Cumulative from
                                            ending           ending            ending              ending         March 26, 1993
                                          December 31,    December 31,      December 31,         December 31,     to December 31,
                                             1998             1998              1997                1997               1998
                                        -----------------------------       ---------------------------------    ----------------
                                             1998             1998              1997               1997                1998
                                             ----             ----              ----               ----                ----
                                               $               $                  $                 $                   $
<S>                                         <C>               <C>                      <C>                <C>        <C>      
Revenues                                    300,000           300,000                  0                  0          1,234,725
Cost of Sales                               130,676           130,676                  0                  0            941,518
                                        -----------       -----------        -----------        -----------        -----------
Gross profit                                169,324           169,324                  0                  0            293,207
                                        -----------       -----------        -----------        -----------        -----------
Operations                                                                                                      
  General and administrative                443,757         1,890,805            430,948            917,513          4,847,145
  Depreciation and amortization              84,657           410,793                 77              4,786            434,821
  Research and development                    1,750            13,590            179,968            358,856          6,059,690
                                        -----------       -----------        -----------        -----------        -----------
Total Expense                               530,164         2,315,188            610,993          1,281,155         11,341,656
                                        -----------       -----------        -----------        -----------        -----------
Loss before other income and expenses      (360,840)       (2,145,864)          (610,993)        (1,281,155)       (11,048,449)
                                        -----------       -----------        -----------        -----------        -----------
Other income (expenses)                                                                                         
  Interest expense                          (34,062)          (54,097)            (3,358)            (3,998)          (118,103)
  Interest income                                 0                 0                  0                  0              2,540
  Income from stock options                       0                 0                  0                  0             10,855
  Loss on disposal of equipment                   0                 0                  0                  0             (2,240)
  Gain (Loss) on foreign exchange           (17,902)         (121,672)            19,012             15,353           (160,363)
                                        -----------       -----------        -----------        -----------        -----------
                                            (51,964)         (175,769)            15,654             11,355           (267,311)
                                        -----------       -----------        -----------        -----------        -----------
Net Loss                                   (412,804)       (2,321,633)          (595,339)        (1,269,800)       (11,315,760)
                                        ===========       ===========        ===========        ===========        ===========
Net loss per common share                     (0.03)            (0.03)             (0.03)             (0.03)             (0.61)
                                        ===========       ===========        ===========        ===========        ===========
Weighted average shares of common                                                                               
  stock outstanding                      72,400,002        72,400,002         38,607,926         38,607,926         18,286,063
                                        ===========       ===========        ===========        ===========        ===========
</TABLE>


                                       4
<PAGE>

                              The Tirex Corporation
                           A Development Stage Company

                         Consolidated statement of cash flow         (unaudited)
                               As of December 31,

                                                          Six months ended
                                                             December 30,
                                                      -------------------------
                                                         1998            1997
                                                         ----            ----
                                                           $               $
Operating activities 
Net  loss                                              2,321,633      1,269,800
                                                      ----------     ----------
Adjustments to reconcile net loss to net cash
  used in operating activities:
depreciation and amortization                            410,793          4,786
Proceeds from grants                                     446,571        433,539
stock issued in exchange for services                    996,255        403,049
stock issued in conversion and pmts                      853,737
Unrealized gain on foreign exchange                       69,633
Change in assets &  Liabilities
        increase in Notes receivable                    (109,015)       (30,000)
        decrease Sales tax receivables                    79,494         21,192
        increase in Tax credit receivable               (249,833)      (225,000)
        increase in Prepaid expenses                     (18,972)
        increase in Accrued expenses                     240,878         56,362
        increase in Loan payable                          64,685
        increase in Deposit payable                       19,000
        increase in Accounts receivables                (150,000)
        increase in Loan  director                        93,516         39,727
                                                      ----------     ----------
        Total Adjustments                              2,765,714        684,683
        Net cash operating Activities                    444,081       (585,117)
                                                      ----------     ----------
Investing Activities
        Property & equipment                            (673,279)      (256,160)
        licence                                          (19,602)
                                                      ----------     ----------
        Net cash investing activities                   (692,881)      (256,160)
Financing activities
        Proceeds from notes payables                      71,070
        Repayment of notes payables                     (133,340)       (98,551)
        Proceeds from loan payable                        48,131        237,081
        Proceeds from deposits payable                   483,500
        Repayment of long term debt                       (6,333)
                                                      ----------     ----------
        Net cash financing activities                    (20,472)       622,030
                                                      ----------     ----------
        Net Decrease in cash                            (269,272)      (219,247)

        Cash beginning of period                         398,971        155,037
                                                      ----------     ----------
        Cash end of period                               129,699        (64,210)
                                                      ==========     ==========


                                       5
<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


                                       6
<PAGE>

            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 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.


                                       7
<PAGE>

            Developmental Stage

            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.


                                       8
<PAGE>

            Organization Costs

            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.

            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.


                                       9
<PAGE>

            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 $1,105,651.

            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 $2,232,136 for the six-month period ended
            December 31, 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
            December 31, 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.


                                       10
<PAGE>

Note 3 -    Financing Costs

            During the six months ended December 31, 1998 the Company incurred
            $50,006 in connection with debt financing . Amortization of
            financing costs capitalized as of June 30, 1998 amounted to $38,274
            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  December  31,  1998  plant  and  equipment  consisted  of the
            following:

            Furniture, fixtures and equipment                     $   98,915
            Leasehold improvements                                   142,817
            Construction in progress                               1,321,036
                                                                  ----------
                                                                   1,562,765
            Less accumulated depreciation and amortization            27,757
                                                                  ----------
                                                                  $1,535,011
                                                                  ==========

            Depreciation and amortization expense charged to operations was
            $27,757 for the six months ended December 31 1998.

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 December 31,
            1998, $328,347 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)
            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).


                                       11
<PAGE>

            - 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 11/2% of annual
               sales in Spain and Portugal through June 30, 2004       $ 64,823
                                                                       --------

                                                                       $558,307
            Less: current portion                                        34,118
                                                                       --------

                                                                       $524,189
                                                                       ========

            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
                                                                       ========


                                       12
<PAGE>

Note 7 -    Convertible Subordinated Debentures

            Convertible subordinated debentures consist of the following:

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


                                       13
<PAGE>

            The Company entered into various employment agreements with the
            executive officers and general Counsel whereby the Company will pay
            a total of $565,000 a year plus benefits. All of the employment
            agreements call for terms ranging from 3 - 8 years. In addition to
            the employment services, the officers agree not to compete with the
            Company for the two year period following the termination of
            employment. If an officer is terminated other than for cause or for
            "good reason", the terminated officer will be paid twice the amount
            of their base salary for twelve months.

Note 8 -    Related Party Transactions

            Included in accrued expenses at September 30, 1998 is $111,658 of
            salary to officers which the company subsequently issued common
            stock for.

            At December 31, 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 six months ended December 31, 1998, the Company issued
            common stock to individuals in exchange for services performed
            totaling $1,508,196. 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 $1,115,696. The dollar amounts assigned to such
            transactions


                                       14
<PAGE>

            have been recorded at the fair value of the services received,
            because the fair value of the services received was more evident
            than the fair value of the stock surrendered.

Note 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 ended June 30, 1998            15,712,673                 2,185,413

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


                                       15
<PAGE>

Note 12 -   Acquisition by Merger of RPM Incorporated

            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 six-month period
            ended December 31, 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:

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

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


                                       16
<PAGE>

            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



                                       17
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

      The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the three and six months periods ended December 31, 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


                                       18
<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-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 


                                       19
<PAGE>

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:


                                       20
<PAGE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
    Period          Amount of R&D   Amount of R&D     Amount of Tax      Amount Borrowed     Amount of Tax        Cumulative
R&D Expenses Were    Expenditures    Expenditures   Credits Estimated   Against Estimated   Credit Received   Outstanding Balance
    Incurred           Incurred      Eligible for    by BOM and SDI        Tax Credits                         of 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.


                                       21
<PAGE>

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


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

(3)   As of February 17, 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, 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 


                                       22
<PAGE>

      respect of research and development expenditures made during the fiscal
      year ended June 30, 1998, on a "preliminary advance payment" basis. 

(6)   The annual Canadian federal government audit of eligible research and
      development expenditures for the fiscal year ending June 30, 1998 took
      place in January 1999. 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.

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

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

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

                   Canadian Dollars          US Dollar Approximation
                   ----------------          -----------------------
Fiscal 1997           $246,752                      $172,725
Fiscal 1998           $253,248                      $177,275

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


                                       23
<PAGE>

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

March 31, 1999        $ 50,000                      $ 35,000
March 31, 2000        $100,000                      $ 70,000
March 31, 2001        $150,000                      $105,000
March 31, 2002        $200,000                      $140,000

      The terms and purposes of the CEDQR Loan are discussed in more detail in
"Existing and Proposed Businesses - Canadian Operations - Canadian Financial
Assistance - Grants, Loans, and Commitments".

      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.


                                       24
<PAGE>

<TABLE>
<CAPTION>

=================================================================================================================
                                          Amount of 
                                           Funds                  
                                         Received By                 
                              Maximum   Company as of                                                    Rate of
                              Amount     December 31,                                                    Interest
                              of Loan       1998
     Nature of Project                                                Repayment Terms

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

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


                                       25
<PAGE>

      The Company believes it will be able to cover the balance of the capital
investments and expenditures which it will be required to make in connection
with: (i) modifications which were 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 America Distribution Limited ("Enercon") of Westerville, Ohio. (see
Item 1 of this Report "Existing and Proposed Businesses - Sales and Marketing -
The Enercon Agreements"); (ii) Canadian and Quebec government and governmental
agency grants, loans, and refundable tax credits; (iii) sale and lease back
financing on 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 (see, below, in this Item 6, "Risk Factor
No. 2 - "Need For Substantial Additional Capital" and Item 1 of this Report,
"Existing and Proposed Businesses - Equipment Manufacturing - The TCS-1 Plant",
and "Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - The Enercon Contracts").

      Any failure or delay in the Company's receipt of the required financing
would be directly reflected in a commensurate delay or failure in the
commencement of: (i) full scale manufacturing of TCS-1 Plants; and (ii) the
commercial operation of the First Production Model 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 


                                       26
<PAGE>

$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 berequired 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 December 31, 1998, the Company had total assets of $4,177,911, as
compared to $3,814,648 as at the end of the last fiscal year (June 30, 1998) and
$1,782,096 at the end of the analogous period ending December 31, 1997.

      Management attributes the increase of $363,263 in total assets during the
six-month period ended December 31, 1998 principally to the following: (i) an
increase in R&D tax credits receivable which, as of December 31, 1998 totaled
$1,105,651 as compared to $855,818 at June 30, 1998, reflecting an increase of
$249,883; and (ii) an increase in property, plant and equipment, which was
$1,535,011 at December 31, 1998 as compared to $977,288 at June 30, 1998.

      Management attributes the increase of $2,395,815 in total assets during
the twelve-month period ended December 31, 1998 principally to the following:

      (i)   prepaid expenses and deposits in the aggregate amount of $728,094,
            reflecting an increase of $798,622 over prepaid expenses and
            deposits of $18,972 at December 31, 1997; Such increase primarily
            reflects the attributed value of stock and stock options issued by
            the Company as compensation under certain pre-paid consulting
            agreements which has been recorded as prepaid expenses on the
            Balance Sheet in the approximate amount of $970,000; all
            compensation payable under these consulting agreements was paid by
            way of the issuance of an aggregate of 4,000,000 share of Common
            Stock to two consultants and the granting of an option to CG TIRE,
            Inc (the "CGT Option);(1)

      (ii)  Property and Equipment in the amount of $1,535,011 which represents
            an increase of $493,469 over Property and Equipment of $1,041,542 at
            December 31, 1997;

      (iii) cash assets in the amount $129,699 at December 31, 1998 as compared
            to no cash assets at December 31, 1997;

      (iv)  research and development tax credit receivables in the amount of
            $1,105,651 at December 31, 1998, which reflects an increase over
            $494,918 in such tax credit receivables at December 31, 1997.
            Research and development tax credit receivables at 

      ------------
      (1)   The terms of the CGT Option are discussed in Risk Factor No. 6
            "Dilutive and Other Adverse Effects of Presently Outstanding
            Debentures, Warrants, and Options", included in Item 6.
            "Management's Discussion and Analysis" in the Company's annual
            report on Form 10-KSB for the fiscal year ended June 30, 1998, which
            is incorporated herein by reference.


                                       27
<PAGE>

            December 31, 1997 had, in turn, represented an increase over the
            previous year, when the Company had no research and development tax
            credit receivables as at December 31, 1996; and

      (v)   the recognition of deferred financing costs in the amount of
            $119,981, net of accumulated amortization in the amount of $38,274.

      As at December 31, 1998, the Company had total liabilities of $3,670,673,
reflecting an increase of $310,084 over total liabilities of $3,360,588 at June
30, 1998 (the end of the last fiscal year), and an increase of $1,232,721 over
$2,437,952 on December 31, 1997. Accordingly, the increase of $1,232,721 in
total liabilities since December 31, 1997, was primarily attributable to
increases which occurred during the six-months ended June 30, 1998. Management
attributes increases in total liabilities over the three and six month periods
ended December 31, 1998, principally to the following:

      (i)   the issuance during Fiscal 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;

      (ii)  notepayable in the amount of $328,347, which represents a decrease
            of $79,579 in bank indebtedness from $407,926 at June 30, 1998 and a
            net increase of $264,137 over bank indebtedness of $64,210 at June
            30, 1997. These amounts reflect a decrease of $929,000 in short-term
            notes payable from $963,500 at December 31, 1997 to $34,500 at
            December 31, 1998

      (iii) an increase of $191,871 in accrued expenses from $1,274,150 at June
            30, 1998 to 1,466,021 at December 31, 1998; and

      (iv)  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 $58,931 over CEDQR balances of $500,012 at June 30, 1998, and an
            aggregate increase of $121,317 over CEDQR balances of $437,626 at
            December 31, 1997;

      (v)   an increase of $85,276 in long-term debt from $465,894 at June 30,
            1998 to $551,170 (net of current portion in the amount of $34,120)

      Reflecting the foregoing, the financial statements indicate that as at
December 31, 1998, the Company had a working capital surplus (current assets
minus current liabilities) of $399,935, reflecting an increase of $26,737 over
working capital of $373,198 at June 30, 1998, and an increase of $1,660,454 from
December 31, 1997, when the Company had a working capital deficit of
($1,260,519). The primary causes of the aggregate increase in net working
capital since December 31, 1997 were:

      (i)   an aggregate increase since December 31, 1997, in research and
            development tax credits receivable in the amount of $610,733;


                                       28
<PAGE>

      (ii)  an increase of prepaid expenses and deposits respecting on-going
            consulting agreements included on the balance sheet in the amount of
            $728,094; and

      (iii) a decrease in short-term deposits payable in the amount of $929,000.

      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 $443,757 and $1,890,805, respectively,
for the three and six-month periods ended December 31, 1998. These amounts
reflect increases of $12,809 and $973,292 over general and administrative
expenses of $430,948 and $917,513 for the analogous three and six-month periods
ended December 31, 1997. The Company's total operating expenses for the three
and six-month periods ended December 31, 1998 were $582,128 and $2,490,957,
respectively. These amounts reflect a decrease of $13,851 over total operating
expenses for the analogous three month period in 1997 and an increase of
$1,221,151 over total operating expenses of $595,979 and $1,269,806 for the
analogous three and six-month periods ended December 31, 1997. These increases
are attributed primarily to the following factors:

      (i)   $980,000 in values attributed to 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,
            reflecting an increase of $786,419 over the analogous three month
            period ended September 30, 1997 when such amount was $193,581; These
            stock issuances were made to a corporate officer and corporate
            counsel in recognition of certain financial accommodations made by
            them for, and on behalf of, the Company 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. For a discussion of the details respecting these stock
            issuances, including the consideration received by the Company for
            the shares issued, reference is made to Part 2, Item 2 "Changes in
            Securities and Use of Proceeds - Recent Sales of Unregistered
            Securities" in the Company's quarterly report on Form 10-QSB for the
            fiscal quarter ended September 30,


                                       29
<PAGE>

            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 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;

      (ii)  $406,000 in value attributed to stock issued in consideration for
            the release of certain exclusive distributor rights;

      (iii) $174,157 for the three months, and $317,287 for the six months,
            ended December 31, 1998 in depreciation and amortization, a non-cash
            charge, as compared to depreciation and amortization totalling $77
            and $4,786 for the analogous three and six month period ended
            December 31, 1997;

      (iv)  Interest expenses of $34,062 for the three months, and $54,097 for
            the six months, ended December 31, 1998, as compared to interest
            expenses of $3,358 and $3,996 for the analogous three and six month
            periods ended December 31, 1997; and


      (iv)  Losses on foreign exchange in the amounts of $17,902 for the three
            months, and $121,672 for the six months, ended December 31, 1998, as
            compared to gains on foreign exchange in the respective amounts of
            $19,012 and $15,353 for the analogous three and six month periods
            ended December 31, 1997.

      From inception (July 15, 1987) through December 31, 1998, the Company has
incurred a cumulative net loss of $12,364,501, $2,321,633 of which was incurred
during the six months ended December 31, 1998. 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.


                                       30
<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 2 - Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

      During the fiscal quarter ended December 31, 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.

Sale Pursuant to Settlement Agreement

      On or about November 12, 1998, Registrant authorized the issuance of one
hundred ninety two thousand, eight hundred fifty seven (192,857) shares of
Common Stock to Terry Bentley pursuant to the terms of a negotiated settlement
agreement, dated as of October 13, 1998, arising out of an action which Mr.
Bentley had brought against the Company with respect to a claim against the
Company for approximately US$40,000.

Sales to Executive Officers in Respect of Services Rendered

      During the quarter ended December 31, 1998, Registrant authorized the
following stock issuances to its executive officers and employees in
consideration of unpaid salaries and unreimbursed expenses, due and owing to
them under their respective employment agreements with Registrant:

      1. On December 1, 1998, in consideration of unpaid executive services
rendered to, and unreimbursed expenditures made for and on behalf of, the
Company during the fiscal quarter ended June 30, 1998, the Company authorized
the issuance of an aggregate of 626,524 shares to five of its executive officers
and its in-house corporate counsel at a per share price of approximately $0.152,
representing 50% of the average of the bid and ask price for the Common Stock of
approximately $0.305 per share, as traded in the over-the-counter market and
reported in the electronic bulletin board of the NASD, during the said fiscal
quarter, as follows:

                            Amount of Unpaid
                            Salary and Unreimbursed            No. Of
Employee                    Expenses Owed                      Shares Issued
--------                    -----------------------            -------------

Terence C. Byrne               US $ 31,707                        208,177

Louis V. Muro                  US $ 16,916                        111,027


                                       31
<PAGE>

                            Amount of Unpaid
                            Salary and Unreimbursed            No. Of
Employee                    Expenses Owed                      Shares Issued
--------                    -----------------------            -------------

John L. Threshie, Jr.          US $ 1,307.10(2)                     8,579

Louis Sanzaro                  US $7,291.67                        47,859

Frances Katz Levine            US $ 36,615.90(3)                  240,327  

Vijay Kachru                   US $  1,608.22(4)                   10,550  

      2. On December 2, 1998, in consideration of unpaid executive services
rendered to, and unreimbursed expenditures made for and on behalf of, the
Company during the fiscal quarter ended September 30, 1998, the Company
authorized the issuance of an aggregate of 1,299,354 shares to six of its
executive officers and its in-house corporate counsel at a per share price of
approximately $0.106, representing 50% of the average of the bid and ask price
for the Common Stock of approximately $0.223 per share, as traded in the
over-the-counter market and reported in the electronic bulletin board of the
NASD, during the said fiscal quarter, as follows:

                            Amount of Unpaid
                            Salary and Unreimbursed            No. Of
Employee                    Expenses Owed                      Shares Issued
--------                    -----------------------            -------------

Terence C. Byrne               US $  28,486                       269,589

Louis V. Muro                  US $  14,763                       139,716

John L. Threshie, Jr.          US $     325                         3,076

Louis Sanzaro                  US $  43,750                       414,046

Frances Katz Levine            US $ 41,492.23(1)                  392,679

Vijay Kachru                   US $  337.65                         3,195

Jean Frechette                 US $  8,141.76                      77,053

------------
(2) Reduced by $712.63 reflecting a balance owed to the corporation from a prior
    period.

(3) Includes $13,115.90 of documented unreimbursed cash disbursements.

(4) Reduced by $236.17 reflecting a balance owed to the corporation from a prior
    period.

(1) Includes $17,992.23 of documented unreimbursed cash disbursements.


                                       32
<PAGE>

Issuance in Respect of Conversion of Debt to Equity

      1. On December 2, 1998, Registrant issued an aggregate of two million,
five hundred twenty three thousand, seventy seven (2,523,077) shares of Common
Stock to Bartholomew International Investments Ltd. ("BIIL"), a corporation
owned by the Bartholomew Trust. Terence C. Byrne, Registrant's chairman and
chief executive officer, and his spouse are the beneficiaries under the
Bartholomew Trust. These shares were issued in consideration for the conversion
of an aggregate of US$164,000 in unpaid debts owed to Mr. Byrne and BIIL. Such
debts consisted of: (i) $14,000 lent by Mr. Byrne to Registrant, pursuant to
Registrant's promissory note, dated November 30, 1998 (the "Byrne Promissory
Note"); the Byrne Promissory Note provided for interest at an annual rate of 2%
over the Prime Rate charged by Citibank, NA and was due and payable on demand by
Mr. Byrne; and (ii) $150,000 lent by BIIL to Registrant pursuant to Registrant's
promissory note, dated October 27, 1998 (the "BIIL Promissory Note"); the BILL
Promissory Note provided for interest at an annual rate of 2% over the Prime
Rate charged by The Bank of Montreal and was due and payable on July 26, 1999.
Conversion of the Byrne and the BIIL Promissory Notes was effected at the
request of the Registrant in connection with its efforts to obtain short term
bank debt financing. The terms of the conversion required Mr. Byrne and BIIL to
forego any interest on, and repayment in cash of, the aforesaid debts and to
accept in full satisfaction thereof, unregistered shares of Registrant's common
stock valued at fifty percent (50%) of the average of the high ask and low bid
prices of such stock, as traded in the over-the-counter market and quoted in the
OTC Electronic Bulletin Board on the day immediately preceding the conversion
date (the "Average Market Price"). Pursuant to the foregoing agreements, these
shares were valued at 50% of the average of the closing bid and ask price for
Registrant's Common Stock on November 30, 1998, (50% of $0.13 or $0.065 per
share).

      2. On December 18, 1998, Registrant issued an aggregate of ninety seven
thousand and fifteen (97,015) shares of common stock, $.001 par value, of this
corporation to each of Les Immobilieres Serge Beaudoin Inc. and Objectif 2007
Inc., both of which are Canadian corporations. These shares were issued in
consideration for the conversion of a debt owed by Registrant, for design and
engineering services rendered by Beaudoin, Hurens & Associates, Inc., in the
aggregate amount of thirty-two thousand, five hundred United States dollars
(US$32,500). Pursuant to the agreement negotiated by the parties, the 97,015
shares were valued at the average of the closing bid and ask price for
Registrant's Common Stock on December 16, 1998, ($0.335 per share).

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 current or former
            executive officers and directors, or consultants, all of whom are
            sophisticated investors; Such persons had continuing access to all
            relevant information concerning the Registrant and/or have such
            knowledge and experience in financial and business matters that they
            are capable of evaluating the merits and risks of such investment
            and are able to bear the economic risk thereof.


                                       33
<PAGE>

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

Item 3 - Defaults Upon Senior Securities

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

Item 6 - Exhibits and Reports on Form 8-K

      (a)   No Exhibits are being filed herewith:

      (b)   No Current Reports on Forms 8-K were filed during the quarter ended
            December 31, 1998

                                   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 15, 1999                        By /s/ Terence C. Byrne
                                            ------------------------------------
                                            Terence C. Byrne, Chairman of the 
                                            Board of Directors and Chief 
                                            Executive Officer


Date: March 15, 1999                        By /s/ Michael Ash
                                            ------------------------------------
                                            Michael Ash, Treasurer and
                                            Chief Accounting and 
                                            Financial Officer


                                       34