SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: November 30, 2003
Commission File Number: 0-7568
TOTH ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0646580
(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 preceding 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
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 November 30, 2003
TOTH ALUMINUM CORPORATION
INDEX TO FORM 10-Q
For the Quarter Ended November 30, 2003
Page
Part I Financial Information (Unaudited)
Balance Sheets - November 30, 2003
and August 31, 2003....................................
Statements of Operations - Three Months
Ended November 30, 2003 and 2002 ......................
Statements of Cash Flows - Three Months
Ended November 30, 2003 and 2002.......................
Notes to Financial Statements..........................
Management's Discussion and Analysis
of the Financial Conditions and Results
of Operations..........................................
Part II Other Information......................................
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
COMBINED BALANCE SHEETS (Unaudited)
November 30, August 31,
2003 2003
ASSETS
CURRENT ASSETS:
Cash .............................. $ 660 $ 570
Accounts receivable:
Other........................... 0 0
Prepaid:
Leases ......................... - -
Other........................... _________ __________
Total current assets............... 660 570
INVESTMENTS IN AND
ADVANCES TO:
Armant Partnership.............. - -
PROPERTY, PLANT AND
EQUIPMENT - Net................. - -
PREPAID LEASES..................... - -
PATENTS AND PATENT
RIGHTS (net of
accumulated amortization:...... 27,561 27,998
TOTAL.............................. $ 28,221 $ 28,568
November 30, August 31,
2003 2003
LIABILITIES
CURRENT LIABILITIES:
Notes payable-related parties.... $ 23,100 23,100
Notes payable-bank.............. - -
Notes payable-other ............ 300,000 300,000
Accounts payable:
Trade.......................... 1,156,392 1,109,555
Officers and employees......... 1,097,421 1,062,427
Accrued salaries ............. 3,700,247 3,517,660
Accrued expenses .............. 963,550 935,140
Accrued interest payable...... 6,761,465 6,206,906
Total current liabilities....... 14,004,175 13,154,788
DEFERRED CREDIT ................... 0 0
Series "A-1" Convertible
Promissory Note1 (CPN)
CPN Related Parties
Principal.................... 12,080,096 12,080,096
Accrued interest payable..... 10,614,179 10,251,777
CPN Other Parties
Principal.................... 5,978,421 5,978,421
Accrued interest payable..... 9,001,172 8,821,820
Total Series "A-1" Notes.... 37,673,868 37,132,114
CONVERTIBLE DEBENTURES PAYABLE
(net of discounts, commissions,
and offering costs of:........ 20,437 20,437
STOCKHOLDERS' EQUITY:
Common stock - no par value........ 38,258,096 38,258,096
Common stock warrants..............
Common stock subscribed............ 20,000 20,000
Paid in capital.................... 164,774 164,774
Deficit accumulated
during the development stage...... (90,113,129) (88,721,641)
Total stockholders' equity........ (51,670,259) (50,278,771)
TOTAL............................... $ 28,221 $ 28,568
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE FOR THE QUARTER ENDED NOVEMBER 30, 2003
(Unaudited)
Three Months Ended From Inception
November 30 To November 30,
2003 2002 2003
COSTS AND EXPENSES:
Research and Development........... $ 1,100 $ 960 7,788,960
Promotional, general and
administrative.................. 294,828 339,021 20,671,786
Interest.......................... 1,096,313 667,221 31,128,667
Total............................. $ 1,392,241 $1,007,202 59,589,413
OTHER (INCOME) EXPENSE:
Loss in Investment and Advances
To Armant........................ 17,661,102
Equity in loss of Armant........ 12,862,614
NET LOSS............ .................. $ 1,392,241 $ 1,007,202 90,113,129
LOSS PER
COMMON SHARE....................... $ .03 $ .03
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOW
Three Months Ended From Inception
November 30, To November 30,
2003 2002 2003
OPERATING ACTIVITIES
NET LOSS.......................... $(1,392,241) $(1,007,202) ($ 90,113,129)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and
amortization.................... - 1,214,879
Amortization and write
off of patents.................. 437 432 443,297
Amortization of prepaid leases... - - 302,424
Amortization of financing Cost... 95,000
Loss on divesture of Subsidiaries. 912,586
Loss from joint venture........... 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:
Increases in accounts
receivable..................... (10,787)
Decrease (Increase) in
Prepaid expenses............... (27,371)
Increase in accounts payable
and accrued expenses........... 541,754 339,021 19,523,388
Increase (decrease) in notes
notes payable.................. 850,140 667,221 35,657,674
90 (80) ($ 20,575,587)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
Three Months Ended From Inception
November 30, To November 30,
2003 2002 2003
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 investment in and
Advances to TACMA............ (1,076,595)
Write off of Investments
And Cash Advances to Armant.. 17,138,202
Cash investments in and
advances to Armant........... (20,751,082)
Redemption of Certificates
of Deposit................... 3,995,000
Proceeds from sale of net
Profit interest................ 50,000
($6,241,996)
FINANCING ACTIVITIES:
Stock issued or subscribed
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
cost........................ (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 90 (80) 90
CASH BEGINNING OF PERIOD 570 430
CASH END OF PERIOD 660 350 660
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying condensed
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
financial position of Toth Aluminum Corporation (the Company) as
of November 30, 2003, and the results of its operations and
changes in financial position for the three months then ended.
The accounting policies followed by the Company are set
forth in Note 1 to the Company's financial statements in Form 10-
K, dated August 31, 2003.
2. 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 November 30,
2003, and August 31, 2003, of $90,113,129 and $88,721,641,
respectively.
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 fund the operating
and capital needs, obtain additional financing as may be
required, and ultimately to attain successful operations. Should
the Company be unable to obtain a joint venture partner(s) it may
experience significant difficulty raising funds. 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.
3. 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, 1989, has cost approximately $23 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:
November 30 August 31
2003 2003
Direct carbo-chlorination plant costs:
Process equipment................. $ 0 $ 540,000
Other equipment................... 0 0
Leasehold improvements............
0 540,000
Self-construction and start-up costs:
Salaries
Engineering....................... - -
Plant construction
and operations................. 0 0
Indirect labor and overhead....... - -
0 0
$ 0 $ 540,000
Presented below is summarized financial information of Armant.
November 30, August 31,
2003 2003
Assets:
Plant and equipment................. $ 0 $ 540,000
Other............................... -
Total............................... $ 0 $ 540,000
Liabilities and Equity
Notes payable - Toth Aluminum
Corporation..................... $ 3,240,000 $ 3,240,000
Notes payable - Banks............. 0 0
Payables - Toth Aluminum
Corporation..................... 17,420,000 17,420,000
Other payables.................... 890,000 890,000
Equity - Toth Aluminum
Corporation..................... (21,537,000) (20,997,000)
- Others........................ (13,000) (13,000)
(21,550,000) (21,000,000)
Total........................... $ 0 $ 540,000
Three Months Ended
November 30,
2003 2002
Statement of Plant Expenses
Direct plant costs................. $ - $ -
General and administrative costs... 6,000 500
Interest Expense................... 8,000 14,000
Net Loss........................... $ 14,000 $ 14,500
November 30, August 31,
2003 2003
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)
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) (2,533,000)
Investment in and advances to
Armant............................. $ 0 $ 0
4. NOTES PAYABLE
Notes payable consisted of the following:
November 30, August 31,
2003 2003
Notes payable to bank,
collateralized (A):............... - -
Demand notes payable to related
parties, unsecured (A): At 12%... 323,100 323,100
Demand notes payable to
other parties,
unsecured (A): At 12%............ - -
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................. 19,615,352 19,073,597
Total................................... $ 37,673,869 $ 37,455,214
A) Collateralized by a pledge of personal assets owned by
the Company's Chairman of the Board.
5. The financial statements are summarized and reference is
made to the "NOTES TO FINANCIAL STATEMENTS" included in the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2003, as filed with the Securities and Exchange
Commission.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources.
During the quarter ended November 30, 2003, total assets
decreased from $28,568 to $28,221.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.
Total Liabilities, including the Series "A-1" Convertible
Promissory Note, increased from $37,132,114 to $37,673,863 during
the same period.
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. 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 November 30, 2003, of approximately
$90,113,129. 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.
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.
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 major 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. 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.
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 multiple steps.
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. Through the end of the fiscal year, some interest
had been shown by prospective investors, but nothing significant
and as of this writing, nothing material or consequential has
materialized.
In the first step, which TAC has designated as Phase 1,TAC
proposes that a semi-commercial demonstration plant be built and
operated. Operation of this semi-commercial plant will permit
engineers to fine tune the design of the subsequent full
commercial facility in Phase 2. Equally important, the Phase 1
plant will provide a hands-on training facility for commercial
plant staff. Phase 2 of the project will comprise the design and
construction of a full scale commercial Clay-to-Aluminum plant.
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 continous operation runs. Refinement of procedures
will permit confident scale-up to full scale commercial plant
capacity.
The second goal will be 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 an initial ramp-up period, the Phase 1 plant
is expected to reach full design capacity within 36 months after
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 plant. TAC proposes that a modular
design concept be adopted for Phase 2, such that the eventual
full scale commercial plant will consist of a set of duplicate
plant modules, operating in parallel. TAC estimates that the
first plant module will be completed in year seven of the
project, with additional modules constructed in parallel in
subsequent years.
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.
TAC also undertook construction of an aluminum dross
chlorination plant in New Delhi, India, in partnership with
TACMA and a local secondary aluminum producer. The plant
succeeded in demonstrating dross chlorination and the production
of crude aluminum chloride from secondary aluminum dross, but the
crude product was never purified. Due to a lack of local investor
financing, the purification system and other sections of the
plant were never completed, and TAC withdrew from the project.
The Company had no operating revenues and reported net
losses. The Company is considered to be a development stage
enterprise; start-up activities have commenced, but the Company
has received no revenue therefrom. The net loss for the three
months ended November 30, 2003, was $ 1,392,241 compared to
$1,007,202 for the corresponding period in 2002.
The net loss recognized by Armant during the three months
ended November 30, 1987, resulted primarily from expensing start-
up costs. The net loss recognized by Armant during the year
ended August 31, 1987, was first allocated to the partners'
equity accounts based upon their respective percentage interests
in the total partnership equity. To the extent that this loss
exceeded the total partners' equity, all additional losses were
allocated to the Company's equity interest in the partnership,
since the Company is the sole general partner in the limited
partnership and is at risk for these losses in the form of
advances to Armant.
PART II. Other Information
Item 1. Legal Proceedings
See Item 10 of the Company's Form 10-K for the year ended
August 31, 2003, concerning legal proceedings.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TOTH ALUMINUM CORPORATION
(Registrant)
BY: Charles E. Toth Jr.
Charles E. Toth Jr.
Treasurer Date: January 15, 2004
BY: Charles Toth
Charles Toth
Chairman of the
Board of Directors Date: January 15, 2004
and Chief Executive Officer