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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: August 31, 2002
Commission File Number: 0-7568
TOTH ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
LOUISIANA 72-064658
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Highway 18, River Road, P. O. Box 250, Vacherie, LA 70090
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (225) 265-8181
Securities registered pursuant to Section 12(b) of the Act:
NONE
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the receding 12 months (or for such
shorter periods that the registrant was required to file reports),
and (2) has been subject to such filing requirements for the past 90
days: Yes X No
State the aggregate market value of the voting stock held by non-
affiliated of the registrant as of September 30, 2001; $354,500.
The aggregate market value was computed using the average between the
closing bid and ask prices as reported by NASDAQ and does not take
into account the fact that many of the outstanding shares of common
stock are restricted and may not be freely traded.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common stock, without par value 35,466,193
Class Outstanding at Sept. 30, 2002
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PART I.
Item 1. Description of Business.
(a) General development of business. The Company is a Development
Stage Enterprise. Since inception in 1966, the Company has been
engaged in the research and development of a commercial process(es)
for the production of aluminum metal, alumina and aluminum trichloride
(commonly referred to as aluminum chloride), silicon tetrachloride,
titanium tetrachloride and other commercial grade byproducts by means
of patented chemical and engineering processes. The principal raw
materials used in the Company's proprietary processes are aluminum
bearing materials, such as kaolin and flint clays, of which there are
extensive deposits in North America and throughout the world. A variety
of such clays has been tested by the Company, demonstrating the
feasibility of producing commercial grades of aluminum chloride,
silicon tetrachloride, titanium tetrachloride, alumina and aluminum
from these clays. It is the Company's belief that its proprietary
clay carbo-chlorination process (the "TAC-ACS Process") will be more
economical, and consume less energy in the production of aluminum
chloride, silicon tetrachloride, titanium tetrachloride, alumina and
aluminum than conventional methods.
The Company promotes it's technology through private and indvidual
investors. To date, the Company has constructed two pilot plant
facilities. From inception through August 31, 2002, the Company has
derived no continuing revenues from the operations.
The Company, which has devoted itself primarily to the research and
development of the TAC Process, has incurred a net loss of
approximately $83,783,871 from inception through August 31, 2002.
The Company has obtained its working capital almost exclusively from
the private placement of its securities, a public stock offering, a
public offering of its convertible debentures and related party and
non-related party debt. The Company's continued existence is dependent
upon its ability to (1) generate sufficient cash flow to meet its
continuing obligations on a timely basis, (2) obtain additional
financing as may be required and (3) ultimately to attain successful
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company was incorporated under the laws of the State of Louisiana
on August 25, 1966, under the name Applied Aluminum Research Corp.
and was changed to the Company's present name on August 20, 1973. The
principal office of the Company is located at 2141 Toth St., Highway
18, River Road, P. O. Box 250, Vacherie, LA 70090, and its telephone
number is (225) 265-8181, fax number is (225) 265-7795. The Company's
Standard Industrial Classification Code Number is 8890.
Narrative description of business.
(1) Description of business done and intended to be done.
The Company had been engaged in the research and development of
processes and methods relating to clay carbo-chlorination technology
for the production of aluminum metal and aluminum intermediates and
other valuable separable metal and chemical products. The Company
is currently focusing on commercializing a combination of its clay
chlorination technology with aluminum chloride smelting ("ACS")
processing to manufacture aluminum metal from clay. The principal
raw materials used in the TAC Process are aluminum bearing
materials, such as kaolin and flint clays, of which there are
extensive deposits in North America and throughout the world. A
variety of such clays have been tested by the Company, demonstrating
to the Company the feasibility of producing a commercial grade of
metal chlorides from these clays. It is the Company's belief that
utilization of the TAC Process will be more economical, and consume
less energy in the production of aluminum chloride, silicon
tetrachloride, titanium tetrachloride, alumina and aluminum than
conventional methods currently used.
Development Plans
As in previous years, the principal goal of the Company is to
commercialize its process to produce aluminum metal and intermediate
chloride and oxides products from clay. One of the first steps in
the commercialization process is the commercial production of metal
chlorides. Among other things, the Company is engaged in pursuing
options to achieve this first level of commercialization.
In August 1995, Fluor Daniel Inc. undertook a feasibility study of
a project to construct a commercial Metal Chlorides Plant to
manufacture aluminum chloride, silicon tetrachloride, titanium
tetrachloride and other products from clay using the company's
proprietary carbo-chlorination technology. Fluor Daniel's asses-
sment was highly favorable, but the Company has not succeeded in
raising the funding needed to complete the project.
In March 1998, the Company negotiated with and entered into an
Engagement Agreement with a Denver, CO based financial brokerage
firm, Mercantile Resource Finance, Inc. (MRFI) for the sole purpose
of accelerating the efforts to fully commercialize the TAC Process.
As of this writing, nothing material or consequential has
materialized.
Plan for Aluminum Metal
The principal business goal of the Company is the commercialization
of its Clay-to-Aluminum technology. This will involve the incor-
poration of electrolytic cells for the direct conversion of
aluminum chloride to metallic aluminum. Such electrolytic
conversion has already been demonstrated successfully on large
scale, by other companies.
The TAC Process
Currently, aluminum is produced from bauxite by the conventional
Bayer-Hall processes. In the TAC Process, wet clay is heated in a
dryer until the free moisture is evaporated. Then the dried clay
is mixed with lignite char and a catalyst. Then sent to a calciner
where heating drives off the remaining moisture and activates the
clay. The calcined clay, together with lignite char, is fed
continuously into a fluid bed chlorinator where it reacts with
chlorine gas. The oxide compounds present in the clay, react
with chlorine and form gaseous chloride compounds. These are
condensed and separated into aluminum chloride, silicon chloride
and titanium chloride. Aluminum chloride may be smelted by
electrolysis to produce aluminum.
It is management's belief that the TAC-ACS Process will ultimately
produce aluminum and other metal intermediates at less cost, and at
lower energy consumption than conventional production methods
currently used.
The Products
The products from commercial application of TAC's technology will
include aluminum metal, aluminum chloride, high performance alumina,
silicon tetrachloride, titanium tetrachloride and other metal
chlorides and oxides. The market for aluminum metal is well-known.
Aluminum chloride is commonly used as a catalyst to make detergents,
dyes, pigments, plastics, pharmaceuticals, etc. Aluminum chloride
can be further oxided to produce a high grade alumina for use in
high grade ceramics.
Silicon tetrachloride is used principally as a feed stock for fumed
silica, which has a number of commercial applications. Today, it is
used most commonly as a component in silicon rubbers and household
caulking compounds, as a additive in powdered foods, and as a
thickening agent in products, such as non-drip paint, cosmetics and
ice cream.
Titanium tetrachloride is used in the production of titanium
dioxide pigment for paper and paints. In addition, for the manufac-
ture of titanium metal and alloys.
The Armant Plant
The Company is General Partner in a limited partnership (Armant)
formed in 1982 to construct and operate a metal chlorides plant
in Vacherie, Louisiana, which has been dormant since 1988.
Competition
Competing producers of aluminum metal, alumina, aluminum trichloride,
silicon tetrachloride and titanium tetrachloride include larger, more
established firms, some of which are divisions of international
corporations. These firms have established markets, and proven
technologies. There can be no assurance that the plants will
ultimately achieve such production, or if such production is
achieved, it will be at competitive market pricing.
Government Regulation
The manufacture, sale and installation of equipment in chemical
manufacturing facilities in the United States and abroad are subject
to stringent and broad regulations by federal, state and local
authorities concerning the environment, occupational safety and
health. Any plant that TAC would construct will be in full
compliance with all relevant federal, state, and local permitting
statutes.
Patents
The primary asset of the Company is its proprietary technology,
commonly referred to as the TAC-ACS process, the Clay-to-Aluminum
Process. TAC has developed its proprietary clay chlorination and
purification technology, the TAC Process, from laboratory, through
bench scale, to large scale pilot plant and is now poised to
commercialize its breakthrough, low cost continuous manufacturing
process. Several prestigious engineering companies have evaluated
the technology, and have declared it ready for commercialization.
TAC intends to combine the TAC Process with other aluminum chloride
smelting, ACS, technology, creating a new integrated TAC-ACS Process,
the Clay-to-Aluminum Process, to manufacture primary aluminum and
titanium tetrachloride from clays. TAC protects part of the
technology as Trade Secrets under Intellectual Property Law. TAC
has patented parts of the technology and applied for a patent of
the continuous process and other parts of the Clay-to-Aluminum
Process. Effectively, TAC has collected, created and maintains
unique control over the information that will enable them to
commercialize and exploit the Clay-to-Aluminum Process Technology
more efficiently than any other party.
Research and Development Activities
At the present time, Research and Development activites center
around continued technical support for the commercialization of the
Clay-to Aluminum Process.
Fiscal Years Ended August 31,
2002 2001 2000
Research and development $6,850 $4,900 $16,600
Employees
At September 30, 2002, the Company had 4 contracted employees.
Item 2. Properties.
The Company believes that its current offices are sufficient
to house its existing operations. See "Investments--Armant"
for a description of the properties utilized by the Armant
Partnership.
Item 3. Legal Proceedings.
See Item 8 - "Involvement in Legal Proceedings."
PART II
Item 4. Market for Common Stock and Related Security Holder Matters.
The Company's common stock is traded on the NASDAQ Bulletin
Board Market. The table below sets forth the closing high
and low bid prices for the common stock. The prices shown
represent prices between dealers and do not include retail
mark-up, mark-down, or commission. They may not represent
actual transactions.
Bid Price
Low High
----- ------
2002:
First Quarter, 1/128 1/64
Second Quarter, 1/128 1/64
Third Quarter, 1/128 1/64
Fourth Quarter, 1/128 1/64
2001:
First Quarter, 1/128 1/64
Second Quarter, 1/128 1/64
Third Quarter, 1/128 1/64
Fourth Quarter, 1/128 1/64
As of September 30, 2002, there were approximately 12,000
shareholders of record of the Company's common stock. It is
estimated that an equal number of stockholders' shares
are held in "nominee" or "street" name.
Item 5. Selected Financial Data.
The following selected financial data has been derived from the
Company's unaudited financial statements. This selected
financial data should be read in conjunction with the unaudited
financial statements of the Company and notes related thereto
appearing elsewhere herein. The financial statement of the
Company has been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company
has incurred a net loss from its inception in 1966 through
August 31, 2002 of approximately $83,783,871. The recover
ability of the Company's investment in and receivables from
Armant is dependent on the applicable investee achieving
sufficiently profitable commercial operations. These factors,
among others, may indicate hat the Company will be unable to
continue in existence. The financial statements do not include
any adjustments relating to the recover ability and classi-
fication of recorded asset amounts or the amount and classifica-
tion of liabilities that might be necessary should the Company
be unable to continue in existence. The Company's continuation
in existence is dependent upon its ability to generate suf-
ficient cash flow to meet its continuing obligations on a timely
basis, to obtain additional financing as may be required, and
ultimately to attain successful operations. See "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" and the unaudited Financial Statements of the
Company and Notes thereto.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the fiscal year ended August 31, 2002, total assets increased to
$20,649 from $18,648 at August 31, 2001 and $34,566 at August 31, 2000.
The primary asset of the Company is its proprietary technology, commonly
referred to as the TAC-ACS Process, the Clay-to-Aluminum Process. TAC
protects part of the technology as Trade Secrets under Intellectual
Property Law. TAC has patented parts of the technology and applied
for a patent of the continuous process and other parts of the
Clay-to-Aluminum Process. Effectively, TAC has collected, created and
maintains unique control over the information that will enable them
to commercialize and exploit the Clay-to-Aluminum Process Technology more
efficiently than any other party.
Total liabilities, including new Series "A-1" Convertible Promissory
Notes increased from $33,308,623 at August 31, 1999 to $36,662,830 at
August 31, 2000 to $40,648,052 at August 31, 2001 to 45,362,080 at August
31, 2002. Cash on hand decreased from $2,431 at August 31, 2001 to $430
at August 31, 2002.
Working Capital Meeting Operating Needs and Commitments
From inception, the Company has sustained its operations primarily
through funds provided by private placements and public offerings of its
common stock and short term borrowings from individual sources and
from creditors, with a commitment to continue into the foreseeable
future. Due to the length of its development stage activities,
liquidity has always been a continuing concern. The Company has incurred
net losses from its inception in 1966 through August 31, 2002, to
approximately $83,783,871. The Company's continuation in existence
is dependent upon its ability to generate sufficient cash flow to meet
its continuing obligations on a timely basis, to obtain additional
financing as may be required, and ultimately to attain successful
operations.
In August 1995, Fluor Daniel Inc. undertook a feasibility study of a
project to construct a commercial Metal Chlorides Plant to manufacture
aluminum chloride, silicon tetrachloride, titanium tetrachloride and
other products from clay using the company's proprietary carbo-
chlorination technology. Fluor Daniel's assessment was highly favorable,
but the Company has not succeeded in raising the funding needed to
complete the project.
In March 1998, the Company negotiated with and entered into an Engagement
Agreement with a Denver, CO based financial brokerage firm, Mercantile
Resource Finance, Inc. (MRFI) for the sole purpose of accelerating the
efforts to fully commercialize the TAC Process. Some interest had been
shown by prospective investors, but nothing significant and as of this
writing, nothing material or consequential has materialized.
The Company's intention, in the near-term, is to focus its efforts and
resources on completing a project to commercialize the Clay-to-Aluminum
Process, and is to be undertaken in multiple steps.
In the first step, which TAC has designated Phase 1, TAC proposes that a
demonstration plant be built and operated. Operation of this plant will
permit engineers to fine tune the design of the subsequent larger
facility in Phase 2. Equally important, the Phase 1 plant will provide a
hands-on training facility for plant staff. Phase 2 of the project will
comprise the design and construction of a full scale commercial Clay-to-
Aluminum chloride plant, including a 5,000 ton/year aluminum metal cell.
Cost of Phase 1 is estimated to be $45 million and the cost of Phase 2
will be determined after Phase 1 has been completed.
There will be two principal goals in executing Phase 1. The first goal is
to refine TAC's clay chlorination procedures for implementation in
commercial production facilities. TAC has already developed these
procedures to an advanced stage in its pilot plant, but the design of
that pilot plant did not permit long duration, continuous operation runs.
Refinement of procedures will permit confident scale-up to full scale
commercial plant capacity.
The second goal will be the generation of refined designs for full scale
commercial smelting cells. This will be accomplished by constructing and
operating a complete ACS smelting facility which will consume a portion
of the aluminum chloride produced in clay chlorination. The balance of
production will be marketed as high purity anhydrous aluminum chloride to
generate revenues to help defray plant operating costs.
The project will start as soon as TAC has secured the financing for
Phase 1. Initial tasks includes detailed engineering design of clay
chlorination and small smelting facilities to produce 1,000 pounds of
aluminum metal per day, and the selection of a suitable plant site.
After confirmation of the economic viability of the Clay-to-Aluminum
Process, work will begin on the second phase of the project, namely the
design, construction and operation of a commercial Clay-to-Aluminum
chloride plant.
In light of the Company's net operating loss carry-forwards of
approximately $66,384,174 at August 31, 2002, management believes that
none of the provisions of the Tax Reform Act of 1986 will, in any respect
have a material impact upon the Company's liquidity or earnings for the
foreseeable future.
Results of Operations
TAC's Clay Chlorination Pilot Plant, at the Armant site in Vacherie, was
completed in 1983 and was operated in block (continuous chlorination and
condensation to produce crude aluminum chloride, followed by continuous
operation of the purification system) mode through 1988. Approximately
150 pilot plant runs were made, and tonnage lots of high purity aluminum
chloride and commercial grade silicon tetrachloride were successfully
marketed. TAC made several major breakthroughs in systems operation,
and the plant sections finally achieved smooth, controlled operation in
1987. In l988, the Pilot Plant was shut down and TAC planned to
undertake the next stages of its process commercialization program
(higher capacity, continuous mode clay chlorination, and aluminum
chloride electrolysis) in expanded facilities to be acquired from Alcoa.
The planned transaction with Alcoa was not completed, however, and no
furthers Pilot Plant operations have occurred since then. The Company
had no operating revenues and reported net losses. The Company had been
considered a development stage enterprise; start-up activities had
commenced, but the Company has received no continued revenue therefrom.
2002 Compared to 2001
The net loss for the fiscal year ended August 31, 2002 was 4,711,597
compared to 4,001,140 in 2001. Total expenses increased from 3,985,270
in 2001 to 4,707,547 in 2002. During the same period, promotional,general
and administrative expenses increased to$1,126,689. During the year ended
August 31,2002, the company recognized 3,574,008 in interest expense
compared to 3,146,500 in 2001.
2001 Compared to 2000
The net loss for the fiscal year ended August 31, 2001 was 4,001,140
compared to 3,357,799 in 2000. Total expenses increased from 3,325,933
in 2000 to 3,985,270 in 2001. During the same period, promotional,general
and administrative expenses decreased to 833,820. During the year ended
August 31,2001, the company recognized 3,146,500 in interest expense
compared to 2,342,803 in 2000. Also, during fiscal year ended August 31,
2001, the company recognized 15,920 loss from Armant. Due to the prolong
delays in attaining the necessary funding to restart the Armant Plant
the company was forced to write off a major part of its investment in the
Armant Partnership. Armant has had no operation during this year, except
for routine maintnance and upkeep, and the company recognizes the related
loss.
2000 Compared to 1999
The net loss for the fiscal year ended August 31, 2000 was $3,357,799
compared to $3,496,071 in 1999. Total expenses increased from $3,147,457
in 1999 to $3,325,935 in 2000. During the same period, promotional,
general and administrative expenses increased to $966,530. During the
year ended August 31, 2000, the company recognized $2,342,803 in
interest expense compared to $1,288,405 in 1999. Also, during fiscal
year ended August 31, 2000, the company recognized $31,866 loss from
Armant. Again due to the prolong delays in attaining the necessary
funding to restart the Armant Plant the company was force to write off a
major part of its investment in the Armant Partnership. Armant has
had no operation during this year, except for routine maintenance
and upkeep, and the Company recognizes the related loss.
Item 7. Financial Statements and Supplementary Data.
Please refer to the Company's unaudited Financial
Statements attached.
PART III
Item 8. Directors and Officers of the Company.
The directors and officers of the Company and their ages
are as follows:
Name Age Position with the Company
------------------ ---- ---------------------------
Charles Toth 70 Chairman of the Board of
Directors and Chief
Executive Officer
Gervase M. Chaplin 65 Sr. Vice President
Engineering and Technology
Glenn A. Nesty 90 Director
Calvin J. Laiche 71 Director
Russell F. Haas 65 Director and Chief Financial Officer
Simon Mexic 71 Director
Charles Toth, the Company's Chairman of the Board, founded
the Company in 1966. Mr. Toth served as President from 1966
to 1974, when he resigned as President and was elected Chairman
of the Board of Directors.
Gervase M. Chaplin was employed in January 1976, and currently
holds the position of Senior Vice President, Engineering and
Technology. He had previously been Manager of Process
Development. Dr. Chaplin has B.S. degrees in Chemistry,
Geology, and Metallurgical Engineering and holds a Ph.D. in
Chemical Engineering. He had previously served as Plant Manager
for Newmont Mining and as Senior Research Specialist with Exxon
Production Research of Houston.
Glenn A. Nesty, a director since 1979, was Vice President for
Research at International Paper Company between 1969 and 1976,
when he retired. Between 1955 and 1968 he was Vice President
for Research and Development and a member of the Board of
Directors of Allied Chemical Corporation. Dr. Nesty holds a
Ph.D. in Organic Chemistry.
Calvin J. Laiche, Director and Attorney at Law, Member of
Louisiana Bar, Civil Practice, State and Federal Attorney for
Jefferson Parish, Magistrate for the Town of Jean Lafitte,
Registered Mechanical Engineer State of Louisiana, Registered
Patent Attorney, House Counsel for Toth Aluminum Corporation,
and former Project Engineer for Shell Chemical Corporation.
Russell F. Haas, Director and Chief Financial Officer, has
served as bank president for two local banks, during his 36
year tenure in the industry. For the past 7 years, Mr. Haas
has turned his attention to management consulting, performing
work for local entrepreneurs. He brings to the board, a vast
array of knowledge in the financial and management field.
Simon Mexic joined the company's board of directors in December
of 1997. He is a retired New Orleans businessman who was
involved in the local jewelry retail, real estate and insurance
industries.
Involvement in Legal Proceedings
Under little known prior law, insiders of a corporation could not
buy and sell any company's stock within a six month period of time.
Such a transaction, at that time, was considered a violation of
Rule 16 (b) of the Securities Exchange Act of 1934. This provision
has since been re-enacted and this type of transaction is now
completely in compliance with the new Rule 16 (b).
Between 1983 and 1989, this Corporation has been unable to raise
sufficient capital from any outside source to keep it in operation.
Consequently, its CEO, while holding substantial amounts of stock at
the time, sold his private stock, under the "Dribble Out Rules",
shares that were released from Escrow after almost 12 years, where
he could only sell small amounts of stock at a time, and loaned the
proceeds to the Corporation and/or purchased equipment needed in the
Corporation's operation. Several years later, a new minority
stockholder purchased less than 50 shares of the Corporation's stock,
and employed an attorney, who specialized in Rule 16 (b) violations,
filed a suit in Federal Court, challenging this procedure. Our
research indicated that the new and now current law was not made
retroactive upon re-enactment, because this opposing attorney
lobbied Congress and prevailed, keeping the old law in tact, for his
existing cases. Today, there are legal provision in Rule 16 (b) for
transactions of this nature, making them in total compliance of
the law.
Even under the old Rule 16 (b) law, various exceptions existed, such
as the sale of Stock that was acquired in good faith in connection
with a debt previously contracted, as was urged in the legal
proceeding by the Corporation's CEO. While the transaction was very
legal, only the recordation of the transaction on the Corporate
books was not specific enough to comply with this complicated,
archaic Rule 16 (b), which has since been modified. Because the
specific language was not employed between the CEO and the
Corporation, an oversight on the part of the Corporate Secretary, in
other words, all officers in TAC's organziation had a total lack of
knowledge over this quirk in the law. This allowed the minority
stockholder to argue against the exception that the Corporation had
relied upon in support of these transactions, after having expended
considerable legal fees and having filed many legal proceedings
prior to the trial.
A Settlement Agreement was reached, whereby the Corporation's CEO
agreed to reimburse the Corporation the amount of $1,700,000. For
more details, see the appropriate section of the 10K, for the prior
year.
Item 9. Executive Compensation
(a) Cash Compensation.
The following table sets forth, as of the fiscal year ended August
31, 2002, all remuneration paid by the Company during the last fiscal
year to each officer whose aggregate cash compensation exceeded
$60,000 to all officers of the Company, as a group.
Other
Compensation,
Cash Securities
Name of Individual Compensation, Properties
or NO. of Persons Capacities in Salaries, Personal
in Group which served Fees, Bonus Benefits
------------------ -------------- ----------- -------------
Gervase M. Chaplin Sr. Vice. President $120,000 (1)
Technology &
Development
Charles Toth Chairman of the $150,000 (1)
Board & CEO
Russell F. Haas Director and CFO $1 (1&2)
(1) Due to the company's chronic cash shortage, these officers
elected to accrue all of their salaries.
(2) Mr. Haas works for a management company that currently
performs work for the Company, on the basis of $120,000
annually, but due to the company's cash position, elected
to accrue all of the fee, except for $4,000 per month.
(b) Compensation of Directors.
The Company does not have a standard arrangement for
compensation of directors. Except for services performed for
the Company, other than normal attendance at board meetings,
they will be compensated at a per diem rate equal to their
normal business compensation.
(c) Termination of employment and change of control arrangement.
There are no arrangements for termination of employment or
change of control.
Item 10. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners.
The following table sets forth certain information as of
September 30, 2002, with respect to the beneficial ownership
of the Company's common stock by all stockholders known by
the Company to be the beneficial owners of more than 5% of
its outstanding common stock, by directors who own common
stock and by all officers and directors as a group:
Number of Percent
Name Shares Owned (1) of Class
---------------------- ---------------- ---------
Charles Toth 1,416,750 (2) 4.0%
Dr. Gervase M. Chaplin 140,000 *
Glenn A. Nesty 34,000 *
Calvin J. Laiche 0 *
Russell F. Haas 20,000 (3) *
All officers and directors
as a group (5 persons) 1,610,750 5.0%
*Less than 1%
1 All shares are beneficially owned and the sole investment
and voting power is held by the person, except as otherwise
indicated.
2 Includes 91,570 shares originally issued and owned by Mr.
Toth but for which Mr. Toth no longer holds certificates.
Neither Mr. Toth's nor the Company's stock transfer records
indicate a disposition of these shares.
3 The 20,000 shares listed under Mr. Haas are owned by his
son.
Item 11. Certain relationships and related transactions.
None.
PART IV
Item 12. Exhibits and financial statements.
a) Exhibits: Exhibits numbered one through nine for
Toth Aluminum Corporation are incorporated by
reference to the Annual Report on 10-K of the Company
filed for the fiscal years ended August 31, 1983 and
1985 respectively.
1. Amended and Restated Articles of Incorporation of
the Registrant, dated January 31, 1972.
2. Amendment to Articles of Incorporation of Registrant
dated April 24, 1973.
3. Amendment to Articles of Incorporation of Registrant
dated August 20, 1973.
4. Amendment to Articles of Incorporation of Registrant
date November 17, 1976.
5. By-Laws of Registrant dated November 22, 1976.
6. Specimen certificate of the Registrant's Common
Stock, no par value.
7. Specimen certificate of the Registrant's 6%
Convertible Participating Preferred Stock.
8. Promotion Agreement between Registrant and Indian
Magsee Alloy, Inc.
9. Stock Option Waiver Agreement dated December 4, 1985.
SIGNATURE
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
TOTH ALUMINUM CORPORATION
BY: Charles Toth November 29, 2002
CHARLES TOTH
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the date indicated.
Charles Toth November 29, 2002
Charles Toth
Chairman of the Board
of Directors and Chief
Executive Officer
Charles Ernest Toth Jr. November 29, 2002
Charles Ernest Toth Jr.
Treasurer
Glenn Nesty November 29, 2002
Glenn Nesty
Director
Calvin J. Laiche November 29, 2002
Calvin J. Laiche
Director
Russell F. Haas November 29, 2002
Russell F. Haas
Director and CFO
Simon Mexic November 29, 2002
Simon Mexic
Director
TOTH ALUMINUM CORPORATION
FORM 10-K
ITEMS 8, 14(a)(1) AND (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following unaudited financial statements, of the Registrant,
Required to be included in Item 8 and 14(a)(1),are listed below:
Page
Financial Statements:
Balance Sheets...................... 17
Statements of Operations and 19
Deficit Accumulated During
the Development Stage...........
Statements of Stockholders' Equity. 20
Statements of Cash Flows........... 22
Notes To Financial Statements...... 24
The following financial statement schedule of the
Registrant is included in Item 14(a)(2):
IV - Indebtedness of and to Related 35
Parties....................
Schedules, other than the above mentioned,
are omitted because the conditions requiring
their filing do not exist or because the
required information is given in the unaudited
financial statements, including the notes
thereto.
TOTH ALUMINUM CORPORATION
COMBINED BALANCE SHEETS, AUGUST 31, 2002 AND 2001 (Unaudited)
2002 2001
------ ------
ASSETS
CURRENT ASSETS:
Cash .................................... $ 430 $ 2,431
Accounts receivable:
Officers and employees................
Other................................. 0 0
Total current assets..................... $ 430 $ 2,431
INVESTMENTS IN AND ADVANCES TO:
TACMA India Limited...................
Armant Partnership.................... 0 $ 0
Total.................................... 0 $ 0
PROPERTY, PLANT AND
EQUIPMENT - Net....................... 0 $ 0
PATENTS AND PATENT RIGHTS (net of
accumulated amortization: ............ $ 20,949 $ 16,217
========= ==========
TOTAL................................... $ 21,649 $ 18,648
See notes to financial statement
TOTH ALUMINUM CORPORATION
COMBINED BALANCE SHEETS, AUGUST 31, 2002 AND 2001 (Unaudited)
2002 2001
LIABILITIES ------ ------
CURRENT LIABILITIES:
Notes payable-related parties............ $ 23,100 $ 23,100
Notes payable-other ..................... 300,000 300,000
Accounts payable:
Trade................................. 974,555 850,550
Officers and employees................ 934,826 616,510
Accrued salaries ........................ 2,797,660 2,323,018
Accrued expenses ........................ 863,920 640,863
Accrued interest payable................. 4,482,489 3,075,499
Total current liabilities................ 10,376,550 7,829,540
DEFERRED CREDIT ......................... 0 0
SERIES "A-1" Convertible
Promissory Note (CPN)1
CPN Related Parties
Principal........................... 12,080,096 12,080,096
Accrued interest payable............ 8,802,166 7,352,557
CPN Other Parties
Principal........................... 5,978,421 5,978,421
Accrued interest payable............ 8,104,410 7,387,001
Total Series "A-1" Notes............$ 34,965,093 $ 32,798,075
CONVERTIBLE DEBENTURES PAYABLE
(net of discounts, commissions,
and offering costs of)...............$ 20,437 $ $20,437
STOCKHOLDERS' EQUITY:
Common stock - no par value;
Authorized 36,000,000 shares;
issued and outstanding:
35,466,193 shares in 1998
and 35,466,193 shares in 1997.........$ 38,258,096* $ 38,258,096*
Common stock subscribed.................. 20,000 20,000
Paid in capital.......................... 164,774 164,774
Deficit accumulated during
the development stage.................. (83,783,871) (79,072,274)
Total stockholders' equity............... (45,341,001) (40,629,404)
=========== ==========
TOTAL....................................$ 21,079 $ 18,648
*See section 11 of the "Notes to Financial Statements"
TOTH ALUMINUM CORPORATION STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED AUGUST 31, 2002, 2001, AND 2000 AND CUMULATIVE FOR THE
PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 2002
(Unaudited)
FROM
INCEPTION TO
.......FOR THE YEARS ENDED AUGUST 31 ... AUGUST 31,
2002 2001 2000 2002
---- ---- ---- ----
COSTS AND EXPENSES:
Research and
development...... $ 6,850 $ 4,900 $ 16,600 $7,771,590
Promotional,
general and
administrative... 1,126,689 833,820 966,530 19,461,415
Interest........... 3,574,008 3,146,500 2,342,803 26,304,848
--------- --------- --------- ----------
Total.............. 4,707,547 3,985,270 3,325,933 53,537,853
========== ========== ========== ==========
OTHER (INCOME) EXPENSE:
Loss in Investment
and advances to
Armant...........(A) 4,050 5,788 9,466 17,481,673
Equity in Loss
in Armant........ 0 10,132 22,400 12,764,345
-------- ---------- ---------- -----------
NET LOSS........... 4,711,597 4,001,140 3,357,799 83,783,871
========= ========== ========= ===========
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
BEGINNING OF
PERIOD............ $79,072,274 $75,071,134 $71,713,335
------------ ----------- -----------
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
END OF PERIOD..... $83,783,871 $79,072,274 $75,071,134 $83,783,871
=========== =========== =========== ===========
LOSS PER
COMMON SHARE $.13 $.11 $.09
=========== =========== ===========
(A) Due to the prolonged delay in attaining the necessary
funding, the company was forced to write down $17,419,163 of its
investment and advances in Armant.
See notes to financial statements.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF STOCKHOLDER'S
EQUITY FOR THE YEARS ENDED AUGUST 31, 2002, 2001, AND 2000 AND CUMULATIVE FOR THE
PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31,2002 (Unaudited)
..............FOR THE YEARS ENDED AUGUST 31........................ FROM INCEPTION
.......2002...................2001....................2000 ........ TO AUGUST 31, 2001
SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARES AMOUNT
PREFERRED STOCK:
Balance beginning of period ............. -------- $ ------ ----- $ ----- ----- $ ----- ----- $ ----
Issued for cash to Louisiana residents
($25 per share)........................ 10,656 266,400
Issued to officers,
employees and consultants
for services (assigned
value of $25 per share)................ 1,344 33,600
Conversion of preferred
stock to common stock.................. (11,989) (299,725)
Redeemed for cash ....................... (11) (275)
------- ------ ------ ------ ----- ----- -------- ---------
Balance, end of period................... - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
======= ====== ====== ====== ===== ===== ======== =========
COMMON STOCK:
Balance, beginning
of period.............................. 35,446,193 38,428,176 35,446,193 38,428,176 35,446,19338,428,176 35,446,196 38,428,176
Issued at inception
(August 1966) to the founders
for patent rights and services......... 4,400,000 27,500
Issued for cash on initial offering to
Louisiana residents.................... 80,000 4,875
Issued for cash pursuant to offering under
Regulation A of Securities Act of 1933.. 232,740 290,925
Issued for Cash........................... 11,417,494 17,538,195
Issued to officers, employees,
directors and consultants
for services............................. 2,462,576 2,225,807
Issued for merchant banking services...... 98,800 247,000
Issued for underwriting commissions
of common stock sale.................... 87,860 233,806
Issued for commission on sales of
Armant Partnership units................ 26,812 53,625
Issued in the acquisition of subsidiary... 500,000 1,830,000
Returned on divestiture of subsidiary..... (500,000)(1,400,000)
Issued upon divestiture of subsidiary..... 131,854 482,586
Issued upon cancellation of indebtedness.. 4,139,731 4,936,561
Issued upon conversion of debenture....... 3,222,479 3,946,307
Issued upon exercise of warrants and options. 6,253,950 6,473,943
Issued for prepaid leases.................. 497,353 778,706
Issued upon conversion of preferred
stock to common stock.................... 1,195,940 299,725
Issued for the acquisition of assets........ 118,934 89,200
Issued in satisfaction of prepaid royalties. 200,000 172,760
Issued in settlement of litigation ......... 130,000 157,000
Common stock subject to rescission.......... 1,096,900 1,371,125
---------- ---------- ---------- ---------- ---------- -------- --------- ---------
Common stock subscribed...................
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------
Balance, end of period....................35,466,193 38,428,176 35,466,193 38,428,176 35,446,193 38,428,176 35,466,193 38,428,176
========== ---------- ========== ---------- ========== ---------- ========== ----------
See notes to financial statements.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY (Continued) (Unaudited)
.............FOR THE YEARS ENDED AUGUST 31............................. FROM INCEPTION
.........2002.......................2001....................2000....... TO AUGUST 31, 2002
SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARES AMOUNT
COMMON STOCK WARRANTS:
Balance, beginning
of period................
--- ---
Warrants issued
for cash................ 727,966 72,718
Warrants exercised........ (26,594) (3,577)
Warrants expired.......... (701,372) (69,141)
_____ _____ _____ _____ _____ _____ ________ _______
Balance, end of period.... - 0 - - 0 - - 0 - - 0 -
===== ----- ===== ----- ===== ----- ======== -------
PAID IN CAPITAL:
Balance, beginning
of period................. 164,774 164,774 164,774
In conjunction
with financing........... 95,000
In connection with
acquisition of subsidiary. 140,356
In connection with
divestiture of subsidiary. (140,356)
Common stock warrants
expired and exercised..... 69,774
________ ________ ________ ________
Balance, end of period..... 164,774 164,774 164,774 164,774
________ ________ ________ ________
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE:
Balance, beginning
of period................ (79,072,274) (71,713,335) (68,473,960)
New Loss................... (4,711,597) (3,357,799) (3,239,375) (4,711,597)
------------ ------------ ------------ ------------
Balance, end of period..... (83,783,871) (79,072,274) (71,713,335) (83,783,871)
TOTAL STOCKHOLDERS EQUITY.. (45,341,001) (40,629,404) (36,628,264) (45,341,001)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 2002, 2001,AND 2000
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 2002
(Unaudited)
FROM INCEPTION
.......FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31,
2002 2001 2000 2002
------ ------ ------ ------
OPERATING ACTIVITIES
NET LOSS................ $(4,711,597) $(4,001,140) $(3,357,335) $(83,783,871)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and
amortization.......... 0 10,000 12,654 1,214,879
Amortization and write
off of patents........ 1,024 1,023 620 442,755
Amortization of
financing costs....... 95,000
Loss on divestiture
of subsidiaries....... 912,586
Amortization of prepaid
leases................ 302,424
Losses from joint
venture.............. 0 6,500 14,600 11,130,435
Other.................. 111,616
Proceeds from royalty
prepayments........... 172,760
Prepayment of leases... (16,104)
Disposition of property,
plant and equipment... 27,745
CHANGES IN OPERATING ASSETS
AND LIABILITIES:
Decrease (Increase)
in accounts receivable. (10,787)
Decrease (Increase)in
prepaid expenses...... (27,371)
Increase (Decrease) in
accounts payable...... 1,130,514 852,090 987,699 17,954,111
Increase (Decrease) in
notes payable......... 3,574,008 3,116,500 2,311,614 30,916,096
--------- ----------- --------- ----------
$ (6,051) $(15,027) $(30,768) $(20,557,726)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS - (Continued
(Unaudited)
FROM INCEPTION
......FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31,
2002 2001 2000 2002
------ ------ ------ ------
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment.... (1,159,046)
Acquisition of patents... (443,475)
Investment of
certificates of deposit. (3,995,000)
Cash investments in and
advances to TACMA..... (1,076,595)
Cash investments in and
advances to Armant.... 4,050 5,788 9,466 (20,762,286)
Write off of Investments
and Cash advances to
Armant................ 0 10,132 22,400 17,129,454
Redemption of certif.-
cates of deposit...... 3,995,000
Proceeds from sale of
net profit interest... 50,000
--------- ---------- ---------- ----------
4,050 15,920 31,866 (6,261,948)
--------- ---------- ---------- ----------
FINANCING ACTIVITIES:
Stock issued for cash.... 18,481,076
Preferred stock issued
for cash............... 266,400
Proceeds from long
term obligations....... 1,430,349
Proceeds from warrants
issued for cash........ 6,236,507
Common stock
issuance costs......... (166,550)
Issuance of convertible
debentures............. 1,913,963
Cash received upon
conversion of debentures
to common stock........ 112,999
Payment of long term
obligations............. (1,457,071)
--------- --------- ---------- -----------
26,817,673
--------- --------- ---------- -----------
INCREASE (DECREASE) IN CASH $ (2,001) 893 1,098 (2,001)
CASH BEGINNING OF PERIOD 2,431 1,538 440
--------- --------- ---------- -----------
CASH END OF PERIOD $ 430 $ 2,431 $ 1,538 $ 430
========= ========= ========== ===========
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL
STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000 AND CUMULATIVE
FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 2002 (Unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Going Concern Basis
This being a Development Stage Enterprise, the accompanying financial
statements of the Company have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
net losses from its inception in August 1966 through August 31, 2002,
and August 31, 2001, of $83,783,871 and $79,072,274, respectively.
Due to the length of its development stage activities, liquidity has
always been a continuing concern. The Company has incurred net losses
from its inception in 1966 through August 31, 2002, of approximately
$83,783,871. The Company's continuation in existence is dependent upon
its ability to generate sufficient cash flow to meet its continuing
obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain successful operations. Management
believes that the plants constructed by Armant and TACMA demonstrate
that the production of metal chlorides and aluminum intermediates
through the Company' s patented processes is possible. This was further
confirmed by a study in 1996 prepared by Fluor Daniel, Inc.
TAC is committed to provide the highest-grade technology to empower the
world's lowest cost, most energy efficient production of primary
aluminum metal and titanium tetrachloride, and associated by-products,
and to generate robust returns for its investors. Today, the world
consumes approximately 20 million short tons of primary aluminum
annually, with demand growing at approximately 3% to 5% per year,
creating a need for 600,000 additional tons of primary aluminum, every
year. TAC's initial goal is to capture the growth market with aluminum
produced from clay via its new chloride processing technology. In the
future, as existing Bayer-Hall aluminum plants eventually become
uncompetitive, TAC foresees that they will be replaced with new Clay-
to-Aluminum facilities.
TAC intends to be the catalyst for this evolutionary change in the
aluminum industry.
TAC's plans include not only the provision of processing technology, but
also the development and supply of operating know how, engineering
designs and construction expertise, in order to accomplish this vision.
TAC is totally committed to producing the highest quality of primary
aluminum metal and associated chemical products, at lowest cost through
conservation of energy and the use of abundant low cost raw materials.
TAC intends that its Clay-to-Aluminum processing will become the
recognized technology for manufacturing primary aluminum.
TAC's future plans call for expanding its technology into other fields,
including recovery of metals from wastes and extraction of other metals
from their ores.
TAC had endeavored to commercialize its technology since 1987 but
despite the apparent advantages of clay based processing; the technology
has yet to be commercially implemented. There are several reasons for
TAC's lack of success in attracting development Participants, but two
hurdles are clearly evident.
Firstly, TAC is not a significate player in aluminum and its financial
condition does not promote confidence in its perceived ability to see
the Project through to a successful conclusion. Secondly, in its past
commercialization efforts, TAC had insisted on maintaining total
ownership of the technology, which was not acceptable to some
prospective participants. A third reason is that Clay-to-Aluminum
technology does not enhance today's bauxite and alumina based aluminum
processes - it replaces them instead. TAC's technology is not suitable
to retrofit existing facitilies. Successful commercialization of the
Clay-to-Aluminum process would mean that industry's hugh investments in
existing Bayer and Hall-Heroult plants would eventually be made obsolete,
and the value of industry's installed capital assets, and the value of
its bauxite reserves would be drastically reduced. A fourth hurdle
results from Alcoa's decision to abandon its own chloride based ASP
process. TAC's approach to potential project Participants has invariably
elicited responses similar to the following: "Alcoa expensed enormous
resources on their aluminum chloride smelting process, and yet they
abandoned it. If the largest aluminum company in the world, Alcoa, will
not support the technology, why should I?"
While this is a logical response, Alcoa's approach was very different
from TAC's, and our approach has some very significant cost and
environmental advantages over Alcoa's, which make us confident of
success. There are fundamental technical differences between TAC's
Clay-to-Aluminum process and Alcoa's ASP technology. There were also
marked differences between Alcoa's and TAC's research and development
philosophies, especially in regard to the crucial question of
purification of aluminum chloride. Several of the technical problems
that contributed to Alcoa' s cost escalations do not occur in TAC's
processes.
In 1987, TAC management decided to purchase the ASP technology from
Alcoa, and TAC and Alcoa reached agreement on the terms by which TAC
would acquired both the ASP technology and the ASP Plant and site in
Texas. Subsequently, when virtually all that remained was for Alcoa to
provide a certificate of environmental release, Alcoa suddenly changed
the terms and the deal fell through.
It is significant to note that Alcoa's decision to cancel their Palestine
smelting program was made just a few years before TAC was successful in
producing high purity aluminum chloride from clay in its Vacherie pilot
plant.
Later, when TAC brought its achievements to the attention of Alcoa's
President, he acknowledged that their decision to end process
development might have been different if our breakthroughs had come
earlier. However, he declared emphatically that Alcoa's new course was
set firmly in a different direction; that basic research within Alcoa
was being severely curtailed; and, finally, that he would not authorize
reopening a project whose write-off had caused "blood to be spilled"
in Alcoa.
The Company's intention in the near-term is to focus its efforts and
resources on completing a project to commercialize the Clay-to-Aluminum
Process be undertaken in several steps.
There will be two principal goals in executing Phase 1. The first goal
is to refine TAC's clay chlorination procedures for implementation in
commercial production facilities. TAC has already developed these
procedures to an advanced stage in its pilot plant, but the design of
that pilot plant did not permit long duration, continuous operation
runs. Refinement of procedures will permit confident scale-up to full
scale commercial plant capacity.
The second goal will be the generation of refined designs for full scale
commercial smelting cells. This will be accomplished by constructing
and operating a complete ACS smelting facility which will consume a
portion of the aluminum chloride produced in clay chlorination. The
balance of production will be marketed as high purity anhydrous aluminum
chloride to generate revenues to help defray plant operating costs.
Smelting specialists foresee rapid development of a final design for
commercial cells in Phase 1, and anticipate that this will consume nine
to twelve months of development time.
The project will start as soon as TAC has secured the financing for
Phase 1. Initial tasks includes detailed engineering design of clay
chlorination and smelting facilities, and the selection of a suitable
plant site. Construction will begin with site preparation, approximately
nine months after the project start.
After confirmation of the economic viability of the Clay-to-Aluminum
Process, work will begin on the second phase of the project, namely the
design, construction and operation of a commercial Clay-to-Aluminum
Chloride and a full scale 5,000 tons per year of aluminum metal smelting
cell. TAC proposes that a modular design concept be adopted for Phase
2 smelting operation, such that the eventual full scale commercial plant
will consist of parallel plant modules.
In light of the Company's net operating loss carry-forwards of approxi-
mately $66,384,174 at August 31, 2002, management believes that none of
the provisions of the Tax Reform Act of 1986 will, in any respect, have
a material impact upon the Company's liquidity or earnings for the
foreseeable future.
The Company's continuation in existence is dependent upon its ability to
generate sufficient cash flow to meet its continuing obligations on a
timely basis, and to fund the purposed projects and ultimately to
attain successful operations. These factors, among others, may indicate
that the Company will be unable to continue in existence. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
Related Party Transactions
A significant aspect of the Company's business activities consists of
transactions with related parties. The following summarizes significant
assets at August 31, 2002 and 2001 arising from transactions with
related parties:
August 31,
2002 2001
------- -------
Advances to Armant (Note 2) $ 17,131,056 $17,131,056
Less write off due to the
Prolonged delay in
Obtaining funding (17,131,056 (17,131,056)
Prepaid leases (Note 4) --- ---
---------- -----------
Total $ 0 $ 0
========== ===========
Development Stage Enterprise
The Company was incorporated in August 1966. Since inception, the
Company's activities have consisted primarily of the development of
processes for the commercial production of aluminum intermediates
together with marketable byproducts. The Company is considered to be
a Development Stage Enterprise, but the Company has received only
nominal revenues therefrom.
Property and Depreciation
Property, plant and equipment is stated on a cost basis. Depreciation
for book purposes is provided by use of the straight-line method over
the estimated useful lives of the assets, which range from 4 to 20
years. Depreciation for tax purposes is provided by use of the MACRS
method for the current year and ACRS method for previous years.
Improvements on leased property are amortized over the lesser of the
lease term or useful life of the asset. Renewals and betterments of
property and equipment are capitalized and maintenance and repairs are
charged to operations, as incurred. Upon retirement or sale of property,
the cost and accumulated depreciation are removed from the accounts and
any gain or loss is recognized. Investment tax credits are accounted
for using the flow-through method.
Patents, Trade Secrets and Intellectual Property
Patent costs include legal and other costs incurred in filing for and
obtaining patents; such costs are amortized using the straight-line
basis over the lesser of the legal or estimated useful life of the
patent.
The primary asset of the Company is its proprietary technology,
commonly referred to as the TAC-ACS process, the Clay-to-Aluminum
Process. TAC has developed its proprietary clay chlorination and
purification technology, the TAC Process, from laboratory, through
bench scale, to large scale pilot plant and is now poised to
commercialize its breakthrough, low cost continuous manufacturing
process. Several prestigious engineering companies have evaluated the
technology, and have declared it ready for commercialization.
TAC intends to combine the TAC Process with other aluminum chloride
smelting, ACS, technology, creating a new integrated TAC-ACS Process,
the Clay-to-Aluminum Process, to manufacture primary aluminum and
titanium tetrachloride from clays. TAC protects part of the technology
as Trade Secrets under Intellectual Property Law. TAC has patented
parts of the technology and applied for a patent of the continuous
process and other parts of the Clay-to-Aluminum Process. Effectively,
TAC has collected, created and maintains unique control over the
information that will enable them to commercialize and exploit the
Clay-to-Aluminum Process Technology more efficiently than any other
party.
Loss Per Common Share
Loss per common share is computed based upon the weighted average
number of shares of common stock outstanding. The weighted average
number of shares outstanding for the fiscal years ended August 31,
2002, and 2001 was 35,466,193, and 35,466,193, respectively. The
Company has options outstanding that are common stock equivalents
which are not considered in the computation of loss per share since
the effect would be anti-dilutive.
Common Stock Issued in Exchange for Assets Acquired or Services Rendered
The Company at times issues common stock in exchange for assets
acquired or services rendered. The amounts recorded for assets
acquired or services rendered are based on the estimated fair value of
the assets or services, or if such fair value is not readily
determinable, on the estimated fair value of the common stock issued.
All issuances of common stock are approved by the Company's Board of
Directors.
Statement of Cash Flows
In November, 1987, the Financial Accounting Standards Board issued
Statement No. 95, "Statement of Cash Flows". The Company adopted
provisions of the statement in its 1988 financial statements and
restated previously reported statements of changes and are reflected
in financial position for 2002, 2001 and the statement from inception
to August 31, 2002.
2. INVESTMENTS
General
The Company has historically maintained investments in two affiliates,
TACMA and Armant. The investment in TACMA was expensed during 1988.
The Company applies the equity method of accounting for its investment
in Armant. The collectibiilty of the advances to and the recovery of
the investment in, and advances to Armant and recoverability of the
capitalized cost of Armant is doubtful.
TACMA
In January 1982, the Company and an Indian company entered into a
Promotion Agreement providing for the formation of TACMA. TACMA was
formed to construct a plant in India designed to produce metal chloride
through the use of the Company's carbo-chlorination processes. During
the fiscal year ended August 31, 1987, because of the continuing delays
in obtaining government approval, the Company reversed the previously
recorded receivable from TACMA. During 1988, based upon the Company's
decision to indefinitely postpone attempts to bring the TACMA plant to
full commercial production, its previously recorded investment in the
TACMA facility was also reversed.
Armant
The Company is General Partner in a limited partnership (Armant) formed
in 1982 to construct and operate a metal chlorides plant in Vacherie,
Louisiana. The plant, which through August 31, 1988, has cost
approximately $22.9 million to construct, has been built on land (the
Armant site) owned by Empresas Lince, S.A., (ELSA), a Central American
corporation controlled by a former member of the Company's Board of
Directors.
Costs capitalized and deferred by Armant consisted of the following:
(Unaudited)
August 31,
2002 2001
------ ------
Direct carbo-chlorination
plant costs:
Process equipment............. $ 770,000 $1,120,000
Other equipment............... 0 0
Leasehold improvements........ 0 8,000
----------- ----------
770,000 1,777,000
Self-construction and start-up costs:
Salaries:
Engineering ..................
Plant construction and
operations................ 55,000 147,000
Indirect labor and
overhead.................
----------- ----------
55,000 147,000
----------- ----------
$ 825,000 $1,275,000
Presented below is summarized financial information of Armant.
Beginning September 1, 1986, Armant elected to discontinue
capitalizing costs not directly associated with plant construction.
Prior to September 1, 1986, all costs were capitalized and
deferred.
August 31,
2002 2001
------ ------
(Unaudited)
Assets:
Plant and equipment........ $ 825,000 $ 1,275,000
Other...................... 14,000
----------- -----------
Total.................. $ 825,000 $ 1,289,000
=========== ===========
Liabilities and Equity:
Notes payable - Toth Aluminum
Corporation................. $ 3,240,000 $ 3,240,000
Payables - Toth
Aluminum Corp......... 17,420,000 17,420,000
Other payables.......... 890,000 842,000
Equity - Toth Aluminum
Corporation.......... (20,712,000) (20,200,000)
- Other.............. (13,000) (13,000)
(20,725,000) (20,213,000)
----------- -----------
Total.................... $ 825,000 $ 1,289,000
=========== ===========
Year Ended August 31,
2002 2001
------ ------
(Unaudited)
Statement of Plant Expenses
Direct plant costs........... $ 2,500 $ 2,000
Interest Expense.......... 16,000 271,000
General and
administrative costs.... 17,000 8,000
---------- -----------
Net Loss $ 35,500 $ 281,000
========== ===========
August 31,
2002 2001
------ ------
(Unaudited)
Payable to and Equity of
Toth Aluminum Corporation
Notes payable.................... $20,013,000 $ 20,013,000
Payables......................... 4,689,000 4,689,000
Beginning equity of
the Company................... (5,560,000) (5,560,000)
Less: Loss from Armant.......... (10,989,000) (10,989,000)
Affiliates interest
capitalized by Armant, but
not accrued by the Company.. (5,620,000) (5,620,000)
Expensed by Armant, but not
accrued by the Company...... (2,533,000) (2,553,000)
----------- ------------
Investment in and advances to
Armant...................... $ 0 $ 0
=========== ============
3. PROPERTY, PLANT AND EQUIPMENT
At August 31, 2002 and 2001, the Company's property, plant
and equipment consisted of the following:
August 31,
2002 2001
------ ------
(Unaudited)
Equipment........................ $ 15,325 $ 15,325
Furniture and fixtures........... 99,636 99,636
Leasehold improvements........... 355,127 355,127
Autos, tractors and trucks....... 39,800 39,800
-------- --------
509,888 509,888
Accumulated depreciation and
amortization................... (509,888) (509,888)
-------- --------
Property, plant
and equipment - net............ $ 0 $ 0
========= =========
4. NOTES PAYABLE
Notes payable consisted of the following:
August 31,
2001 2000
------ ------
(Unaudited)
Demand notes, and payable to
related parties, unsecured (A):
At 12%.......................... $ 323,100 $ 323,100
---------- ----------
Series "A-1" Convertible
Promissory Notes
Payable to related parties...... 12,080,096 12,080,096
Payable to others............... 5,978,421 5,978,421
Interest Payable................ 16,906,576 14,739,558
=========== ===========
Total............................... $ 34,965,093 $32,798,075
5. INCOME TAXES
The Company has net tax operating loss carry-forwards available which
may be used to offset future taxable income. Potential tax benefits
of the loss carry-forwards have not been recognized for accounting
purposes since realization of the carry-forwards is not assured. The
principal differences between losses recognized for tax and book
purposes are research and development expenses, which are capitalized
for tax purposes and the method of calculating the Company's equity in
loss of Armant. At August 31, 2002, the amounts and expiration dates
of the net operating loss carry-forwards were as follows:
(Unaudited)
Expires in Year
Ending August 31, Amount
------------------ ----------
2002 1,407,200
2003 8,045,300
2004 1,931,000
2005 1,524,000
2006 1,234,000
2007 3,618,000
2008 2,204,000
2009 2,313,000
2010 16,157,300
2011 6,864,124
2012 3,927,868
2013 3,496,071
2014 3,239,375
2015 3,357,799
2016 4,711,597
------- ------------
Total $ 66,384,174
===========
6. STOCK OPTIONS AND WARRANTS
Stock Option Plans:
The Company's Board of Directors has, at various dates, awarded options
to individuals to purchase the Company's common stock. During fiscal
year 2002 no options were exercised. The following information is
furnished with respect to options and warrants outstanding.
Number of Shares at
August 31, August 31,
2002 2001
-------- ---------
Exercise Price
Options:
$2.00-2.84 30,000 30,000
$4.00-5.00 5,000 5,000
Warrants: ---------- ----------
Total 35,000 35,000
========== ==========
7. COMMON STOCK ISSUANCES
On September 29, 1986, the shareholders of the Company approved an
increase in the authorized common stock of the Company from 23,976,000
to 36,000,000.
The table below sets forth common stock issuances from inception of the
Company to August 31, 2002, and together with the nature of the
consideration received, the range of per share prices, and the average
per share price. The number of shares issued and per share prices have
been adjusted, where applicable, for stock splits.
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
(Unaudited)
From September 1, 1992
to August 31, 2001:
Beginning Balance.............. 35,466,193 $38,428,176
Issued for cash................ - -
Issued to officers, employees,
directors and consultants for
services...................... - -
Issued upon payment of common
stock subscribed.............. - -
Total
---------- -----------
Total at August 31, 2002 35,466,193 $38,428,176
========== ===========
8. SERIES "A-1" CONVERTIBLE PROMISSORY NOTE
In May of 1995, the Company elected to convert the majority of its
indebtedness into shareholder equity. At that time, there existed a
Convertible Promissory Note, which provided for the existing
indebtedness to be converted into stock based upon the conversion price
of $.50 per share plus a warrant to purchase an additional equal number
of shares at $.75 per share. The new Series "A-1" Convertible
Promissory Note's conversion price remains the same at $.50 per shares,
with a warrant to purchase an additional equal number of shares,
however, the price has changed and is now at $.10 cents per share.
There are several limitations, primarily, the Company does not have
sufficient shares of Common Stock authorized to permit conversion of
the Series "A-1" Notes. Accordingly, the Notes is not convertible into
Common Stock, until such time as there has been an amendment to the
Articles of Incorporation of the Company, approved by its shareholders,
increasing the number of authorized shares of Common Stock to an amount
sufficient to cover the number of shares subject to conversion under
the Series "A-1" Notes. This Series "A-1" Convertible Promissory Note
had a maturity of 5 years, which has subsequently been extended for an
additional 5 years by the Board of Directors.
If, as intended, the holders of the Series "A-1" Convertible
Promissory Note were to convert today, and all warrants exercised,
this would enhance the Stockholder's Equity section by increasing
the Common Stock by $41,958,111 thereby increasing the share of Common
Stock to 139,860,372 eliminating the same dollar value from the
Company's liability. Management believes that of the total outstanding
debt, more than 90% will eventually convert their debt into shareholder
equity. Of the 10% who will not convert are companies or individuals
which can not accept payment of the company's equity, such as lawyers
and auditors.
If at the next regular shareholders meeting the Company has failed to
amend its Articles of Incorporation to authorize the issuance of
additional shares of Common Stock, the Noteholder shall have the right
and option to tender the Series "A-1" Note to the Company to be
exchanged for a new non-convertible promissory note payable on demand
in cash in a principle amount equal to the greater of the principal
amount and interest due under this Note, or the product of the total
number of shares of Common Stock into which the Note is convertible,
multiplied by the average of the mean bid and ask prices of the
Company's Common Stock at the close of business over the ten business
days immediately preceding the date of tendering of the Note.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
Schedule IV - Indebtedness of and to Related Parties - Not Current
COL. A COL. B COL. C COL. D COL.E
----------------------Indebtedness of------------------------
Name of Balance at Balance
Related Party Beginning Additions Deductions at End
For the fiscal years
ended August 31,
2002
Armant $ 0 $ - $ 0 $ 0
2001
Armant $ 5,788 $ - $ 5,788A $ 0
2000
Armant $ 551,000 $ - $ 545,212A $ 5,788
A -Due to the continued delay in obtaining the necessary funding
the company wrote off this amount.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
Schedule IV - Indebtedness of and to Related Parties - Not Current (Continued)
Col. F Col. G Col.H Col. I
------------------------Indebtedness to---------------------------
Name of Balance at Balance
Related Party Beginning Additions Deductions at End
For the fiscal years
ended August 31,
2002
Armant $ - - - -
2001
Armant $ - - - -
2000
Armant $ - - - -