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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, 1996
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: (504) 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
State the aggregate market value of the voting stock held by
non-affiliated of the registrant as of September 30, 1996; $2,659,964.
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, 1995
PART I.
Item 1. Description of Business.
(a) General development of business. Since inception in
1966, the Company has been engaged in the research and development
of a commercial process(es) for the production of aluminum, 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 Process") may be more
economical, and consume less energy in the production of aluminum
chloride, silicon tetrachloride, titanium tetrachloride, alumina
and aluminum than conventional methods. A study of domestic
aluminum resources commissioned by the U.S. General Accounting
Office and conducted by the Massachusetts Institute of Technology
in 1979, supports the Company's belief that the TAC
carbo-chlorination technology when combined with the ALCOA aluminum
smelting process may be economically superior to traditional
routes to the production of Aluminum.
The Company promotes it's technology through the formation of
joint ventures, partnerships and other forms of affiliated entities.
To date, the Company has constructed two plant facilities, through such
affiliated entities, designed to employ the TAC Process. However, from
inception through August 31, 1996, the Company has derived no revenue from
the operations.
In 1982, the Company, together with its joint venture
partner, Indian Magsee Alloys, Pvt., Ltd. (IMA), a company
organized under the laws of India, completed construction of a
plant in New Delhi, India, utilizing the TAC Process (the "Indian
Plant"). The plant was placed in limited operation by the joint
venture entity, TACMA India Limited (TACMA), which in production
test runs produced test quantities of commercial grade aluminum
chloride, thus confirming, in the Company's opinion, the
feasibility of the TAC Process on a limited scale. The TACMA plant
was shutdown in 1984 due to insufficient capital resources, and
currently there are no plans to restart the TACMA facility.
In November 1982, the Company, as general partner, formed
Armant, A Louisiana Limited Partnership (the "Armant Partnership"),
which raised approximately $5,600,000 through the offering of 35
limited partnership units, to construct and operate a metal
chlorides plant in Vacherie, Louisiana (the "Armant Plant") to
produce aluminum chloride, silicon tetrachloride, and titanium
tetrachloride from kaolin and flint clays and char utilizing the
TAC Process. Charles Toth, the Chairman of the Board of the
Company, is the owner of 15 of the 35 Partnership interests.
Initial construction phase was completed in December 1983. The
plant operated intermittently until 1988 when the plant was
shutdown due to insufficient financial resources. Since that time,
the Company, as general partner, has been attempting to secure
funding from the U.S. Department of Energy to continue testing and
restart the plant.
The Company, which has devoted itself primarily to the
research and development of the TAC Process, has incurred a net
loss of approximately $61,050,023 from inception through August 31, 1996.
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. There can be no assurance
that these events will ever occur. 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 Corporation which was changed to the Company's present
name on August 20, 1973. The principal office of the Company is
located at 2141 Toth Rd, Highway 18, River Road, P. O. Box 250,
Vacherie, LA 70090, and its telephone number is (504) 265-8181, fax
number is (504) 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 is engaged in the research and development of processes and
methods relating to clay carbo-chlorination technology for the production of
aluminum and aluminum intermediates and other valuable separable metal and
chemical products. It has obtained certain chemical and engineering patents
relating to that technology in the United States and many foreign countries.
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. Extensive deposits of
kaolin and flint clay occur throughout the United States, especially in
Georgia, South Carolina, Ohio, Pennsylvania and Colorado and in western
Canada. Other countries which have substantial deposits of these aluminum
bearing materials are England, France, Germany and India. 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 may
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.
From its formation in 1966 until 1974, the Company directed its research
and development activities toward the development of alternative methods of
producing aluminum, viz., from raw materials other than bauxite. Much of
this work was done at the University of Vesprem in Budapest, Hungary in
the period 1970 to 1974.
In 1974, the Company shifted its research and development focus to
emphasize the production of aluminum chloride, the principal intermediate
product in the manufacture of aluminum from clay via the TAC Process.
Laboratory and mini-plant facilities were constructed and operated in
New Orleans during the period 1974 to 1978. It was during this period
that the technology known today as the TAC Process was developed.
In 1978 to 1982, the Company pursued various alternatives to
commercialize it's clay carbo-chlorination technology. Then in
January 1982, the Company and IMA of New Delhi, India, formed
TACMA, a company organized under the laws of India, which
constructed a metal chlorides plant in New Delhi, India. The
Indian Plant was designed to produce aluminum chloride from bauxite
and aluminum oxide dross, which is recovered as a waste product
from IMA's neighboring aluminum resmelting plant. In limited
production runs in October and November, 1982 and in calendar year
1984, the Indian Plant produced test quantities of crude aluminum
chloride, thus establishing the feasibility of the TAC Process on
a limited scale. The TACMA facility was shutdown in 1984, and as
of August 31, 1987, TAC has written off it's receivables from
TACMA. There are no plans to attempt to restart the TACMA plant.
The Armant Partnership, in which the Company is a general
partner, constructed a metal chlorides plant in Vacherie,
Louisiana, originally designed to produce up to 54 million pounds
per year of metal chloride intermediates utilizing the TAC Process.
The initial construction phase of the Armant Plant was completed in
December 1983, and since that time the Armant Plant has produced
market grade metal chlorides including aluminum chloride and
silicon tetrachloride, but has not achieved continuous commercial
production of such chlorides. Production at the plant site was
discontinued in 1988, by which time, Armant had conducted 57 test
runs. As a result of these test runs Armant has been able to
successfully produce approximately 550,000 pounds of crude aluminum
trichloride and has purified approximately 220,000 pounds and sold
approximately 122,000 pounds of purified aluminum chloride. In
addition Armant has sold approximately 46,000 pounds of silicon
tetrachloride (commonly referred to as silicon chloride). Despite
the difficulties encountered, the Company has been able to make
significant progress towards its goals through 1988, when Armant
achieved longer sustained plant operating runs, improved process
controls and reduced environmental problems. Management believes
that the tests runs at Armant demonstrated the economics and
feasibility of the TAC process for the production of metal
chlorides.
Since 1992, TAC has been evaluating the application of it's
clay carbo-chlorination technologies to the abundant raw materials
resources of western Canada. The Company acquired samples of waste
materials from the extraction of bitumen from oil sands in Alberta,
Canada, and testing had indicated that the materials were amenable
to the Company's process technology. In subsequent inquiries and
visits, the Company learned that vast reserves of low grade
kaolitic and other clays are present throughout western Canada. A
program was initiated in late 1993 to investigate the feasibility
of using these raw materials in a western Canadian clay
chlorination plant to manufacture metal chlorides (aluminum
chloride, silicon tetrachloride and titanium tetrachloride).
The Company retained Cominco Engineering Services Ltd.,
(CESL),in Calgary, Alberta, Canada as its engineering services
sub-contractor in Canada and undertook presentations to Canadian
industry and the Canadian federal government on a project to
construct plants in the region. In response to the high degree of
interest shown in the Company's proposed project in Canada, the
Company, through CESL, applied to the Canadian federal government
for financial assistance to evaluate western Canadian raw materials
for use in carbo-chlorination. A formal proposal was submitted by
CESL in the Company's behalf in December, 1993, and this was
approved by the federal government in May, 1994 under a Minerals
Development Agreement (MDA) to be completed by March 31, 1995.
Under the terms of the MDA the Canadian government would fund C$306,000
of project costs with the balance to be provided by industrial participants.
The MDA was completed in May 1995 and evaluated at least three
classes of western Canadian clays and two classes of western
Canadian coke resources. These raw material classes are:
Clay Sources:
Clays resulting from oil sands mining and processing
Clays resulting from coal mining and/or processing
Clays from naturally occurring kaolitic deposits
Coke Sources:
Cokes resulting from oil sands processing
Cokes that are commercially available in western Canada.
The MDA study concluded that the clays and cokes are adequate,
and are available in plentiful supply to serve as feed stock for
the company's process.
Development Plans
As in the previous years, the principal goal of the Company
is to commercialize its process to produce aluminum and
intermediate chloride and oxide products from clay. One of the
first steps in the commercialization process is the commercial
production of metal chlorides. The Company is currently engaged in
pursuing two options to achieve this first level of commercialization.
One, the construction of commercial facilities in Canada to take
advantage of abundant raw materials resources and low cost electrical
power, and two, the upgrading and completion of the Armant Plant, such
that it is capable of producing high-purity aluminum chloride and other
intermediates on a continuous basis.
On August 30, 1995, the Company executed a Letter of
Understanding with Fluor Daniel, an engineering company located in
Greenville, South Carolina, under which the company declared its
intent to appoint Fluor Daniel as the Project Manager and
Construction Manager 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.
Subsequently, on September 26, 1995, the company and Fluor
Daniel executed a Technical Services Agreement covering the work to
be performed in the first phase of the three-phased project. The
initial tasks cover a pre-feasibility study to determine the basic
parameters for commercial production of metal chloride chemicals
from clay. This study is expected to be completed in six to eight
weeks and lead to Phase 2, the preparation of the document package
needed to secure financing of the project. The second phase will
take up to one year after which the third phase of the project,
plant design, construction and start up will be undertaken. Fluor
Daniel estimates that the commercial plant can be in operation
within three years.
Canada
The western Canadian raw materials resources were found to be
economically suitable for the Company's clay carbo-chlorination
technology. The Company has formed a Canadian company by the name
of "WestCan Chemicals, Inc." which is licensed from the Company to
develop, construct, and operate a metal chlorides plant in Canada
utilizing western Canadian feedstocks. Management believes that
the successful manufacture of aluminum chloride, silicon
tetrachloride and titanium tetrachloride in Canada will provide a
substantial source of revenue to the company. Management further
believes that the successful operations of a metal chlorides plant
in Canada will eventually lead to the utilization of the Company's
technology to produce aluminum from clay. Western Canada is in an
opportune location for the furthering of the Company's technology
since not only are abundant quantities of raw materials available,
but also large supplies of low cost electrical power.
Armant
The Armant Plant, which was intended to be constructed so as
to operate on a continuous basis, was only capable of operating
in a "batch" mode when it was shutdown in 1988. The plant was then
capable of producing approximately 100,000 pounds of aluminum chloride
per batch. In order to operate on a continuous basis, additional
equipment must be installed, including a new condenser system, several
new conveyers, a revised silicon tetrachloride recovery and purification
system, plus other equipment, some of which needs to be specially built,
at a capital cost estimated by the Company to be up to $10,000,000 (1994).
Once this equipment is installed, and with the plant operating on a
continuous basis, the Company believes that the Vacherie plant's
production rate of aluminum chloride and silicon chloride will
increase to 1,000,000 pounds per month and 900,000 pounds per
month, respectively. Operation at this level of production would
clearly demonstrate the economical advantage of the TAC process
over other production methods for metal chlorides.
The plans for upgrading and bringing Armant into commercial
operation are part of the Company's proposal to the United States
Department of Energy (DOE) for cost shared commercialization of the
clay-to-aluminum technology. The Company has submitted three such
proposals to DOE under the "Steel and Aluminum Energy Conservation
and Technology Competitiveness Act of 1988", Public Law No.
100-680. The Company's first two proposals were rejected by DOE
for perceived inadequacies in addressing the requirements of the
Act in precise accordance with federal requirements. In order to
address DOE's concerns, the Company obtained the assistance of ICF
Kaiser Engineers, an engineering design company with extensive
experience in dealing with DOE, to revise its proposal to meet DOE
requirements. In addition, the Company obtained a commitment from
Alcoa to provide design and analytical assistance in the initial
phase of the commercialization effort, with the option of increased
participation in later phases. The revised proposal is currently
being held in abeyance at DOE pending TAC's compliance with a new
DOE request for additional participation by industry. TAC has
requested a full merit review of the proposal and of the proposed
process commercialization project without such increased industry
participation. However, the DOE has thus far refused to review the
proposal. The Company continues to request a full review by the
U.S. Department of Energy.
The project to commercialize TAC's proposed clay-to-aluminum
process, as presented to DOE, is subdivided into three phases. The
three phases are logically arranged into a sequence of progressively
larger development steps. The project begins with bench scale studies,
continues through the commercial scale production of metal chlorides,
and leads to the works scale production of aluminum metal, as shown
in the table of project phases below.
Phase I
Execute laboratory and engineering studies to generate design
data for upgrading TAC's clay chlorination pilot plant to
continuous production for aluminum chloride and silicon
tetrachloride.
Phase II
Generate the detailed design of the upgraded clay chlorination
pilot plant.
Phase III
Construct, commission, start up and run the upgraded clay
chlorination pilot plant in order to determine the economic
feasibility of chlorinating clay as the first stage of a two-stage
Clay-to-Aluminum process.
If ultimately approved by the DOE, up to 70% of project costs
could be provided from federal sources. There is no guarantee,
however, of any funding of the project by any government agency.
The company is also currently pursuing alternative funding avenues
for its commercialization program including collateralized loans.
Additional Plans Subject to Success in Canada and/or at Armant
In the period 1985-1987, the Company conducted research at
the Aluminum Research Institute in Budapest, Hungary to produce
high purity aluminum oxide from aluminum chloride produced by the
TAC process. Then in 1988, the Company completed the design of a
150 ton per year oxidation pilot unit and plans to construct this
facility at either the Armant plant or the Canadian plant after
continuous production of aluminum chloride is achieved. The total
cost of the pilot unit is estimated to be $4.5 million. Upon
attaining successful operations of the pilot oxidation unit and as
design data become available, the Company plans to begin design and
construction of the commercial scale oxidation unit, assuming funds
are available. Management currently estimates that the installed
cost of the commercial scale oxidation unit will be approximately
$7.5 million.
Subsequently, once an expanded clay chlorination plant is
operating profitably, the company intends to complete the
commercialization of its aluminum-from-clay technology. This will
involve incorporation 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 Alcoa
and other companies. Due to the large scale of the commercialization
effort the company believes that it will have to attract industrial
partners in a joint venture development of this technology.
However, even if and when the Vacherie Plant and any
subsequent plants become fully operational on a continuous basis,
they will be subject to all of the risk inherent in any untried
process, including operational delays during "shakedown" periods,
unforeseeable cost overruns, and/or the inability of the plants,
for whatever unforeseeable reason, to sustain profitable commercial
operations, in which event the Company would consider shut down of
operations.
The TAC Process
Currently, aluminum is produced from bauxite and alumina by
the conventional Bayer and Hall processes. Metal chlorides, such
as aluminum chloride, silicon chloride and titanium chloride, are
made from a variety of materials by several different methods. The
TAC Process is designed to produce aluminum and other metal
chlorides from aluminum-bearing materials, such as kaolin or flint
clays, bauxite or certain fly ash, with low grade lignite or
bituminous char and coke, chlorine, and certain other materials.
The Company considers all such raw materials utilized in the TAC
Process to be in adequate supply and readily available from
numerous sources in North America.
In the TAC Process, wet clay is heated in a dryer until the
free moisture is evaporated. The dried clay is then mixed with
lignite char and a catalyst and 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, or it can be oxidized to produce alumina and chlorine.
Alumina is utilized as feed stock in the conventional Hall process
to produce aluminum. Alternatively, the Alcoa smelting process
utilizes aluminum chloride itself as feed stock for producing
aluminum, thus making the oxidation of aluminum chloride
unnecessary in aluminum production. It is management's belief that
the TAC 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 is well-known
and includes structural items, automobile parts, bus and trailer
bodies, food wrapping, beverage cans and many other items.
At present, in management's belief, substantially all of the
domestic annual consumption of aluminum chloride and high-purity
alumina are used in applications outside the aluminum industry.
Aluminum chloride is commonly used as a catalyst to make
detergents, dyes, pigments and pharmaceuticals. The primary
end-products of non metallurgical alumina are abrasives (corundum),
catalysts, high-grade ceramics, and refractories (heat and
corrosion-resistant bricks and liners for smelters, kilns and
chemical reactors).
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 paint and cosmetics.
Additionally, high purity silicon tetrachloride can be a source of
high purity polycrystalline silicon metal which has
electrical/electronic applications in the semiconductor industry.
A 1995 market assessment concluded that the market for
aluminum chloride, silicon tetrachloride and titanium tetrachloride
is sufficiently large for the Company to market the projected
production of these products from a commercial metal chlorides
plant.
The Armant Plant
The Armant Partnership private placement offered 35 limited
partnership units, or fractions thereof, at $160,000 per unit,
payable with $100,000 cash and $60,000 made available to the
partnership as a letter of credit, or at the investor's option,
through the purchase of 30,000 restricted shares of the Company's
common stock at $2.00 per share. The Armant Partnership offering
closed in November, 1983 with 36 subscribers. Mr. Charles Toth,
the Company's founder and Chairman of the Board purchased 15 of the
35 limited partnership units. The Armant Partnership raised $3.5
million in cash commitments (of which $3,459,000 has been received)
and $105,000 in letters of credit. In addition, limited
partnership investors purchased 982,500 shares of the Company's
common stock andthe Company used the proceeds of such sale,
$1,965,000, to secure financing for Armant.
In addition, during calendar 1983, the Company raised
approximately $2,688,101 in cash from private placements of
approximately 917,800 shares of its common stock. The Company used
approximately $2,030,000 of the cash proceeds to secure financing
for Armant.
In connection with the establishment of the Armant Plant and
during November 1984, the Company loaned $3,995,000 to Armant,
resulting in the Company now having a receivable from Armant in the
amount of $3,995,000 bearing interest at 13.5% per annum. The Company
has also liquidated $240,000 of Armant's notes payable plus accrued
interest due to a corporation controlled by a member of the Company's
Board of Directors by issuing 240,000 shares of the Company's restricted
common stock. As a result the Company recorded a receivable from
Armant of $276,000 bearing interest at 12% per annum. The Company
had additional non-interest bearing receivables from Armant
totaling $141,000 which were incurred in fiscal 1984, resulting
from billing under a service agreement. Subsequent to that date all
costs, including general and administrative cost, incurred by the
Company related to the construction and operation of the Armant
Plant, have been absorbed by the Company and expensed as incurred.
The delay in securing the necessary funding to restart the Armant
Plant has forced the Company to write down a significant portion of
its investment in Armant. This write down does not reflect the
company's belief that it will secure the necessary funding to
modify the Armant Plant and attain commercial production. The
collectability of the receivable from and advances to Armant
totaling in $4,267,350, and is dependent on Armant achieving
sufficiently profitable commercial operations. As of August 31,
1995, the Company had guaranteed a principal $525,000 of Armant's
bank debt plus accrued interest.
The Vacherie, Louisiana plant site consists of approximately
104 acres located adjacent to the Mississippi River approximately
an equal distance between Baton Rouge and New Orleans, Louisiana
(the "Armant Site"). The Armant Site is wholly owned by Empresas
Lince, S.A. (Empresas), a corporation organized under the laws of
Panama, of which the late Mr. Enrique Uribe, a former director and
shareholder of the Company, was a principal stockholder and
officer. In August 1983, the Company and Empresas entered into an
agreement whereby Empresas purchased 281,353 restricted shares of
the Company's common stock at $2.00 per share for an aggregate of
$562,706, and with the proceeds thereof the Company paid the
balance of Empresas' mortgage note on the Armant Site in the amount
of $525,000 and received a ten-year lease of the 104 acres and
improvements, with the right to encumber the property as security
for a bank loan the Company intended to negotiate for the Armant
Partnership. On September 10, 1983, the Company paid the balance
of Empresas' mortgage note and obtained a ten-year lease on the
Armant Site and the right to pledge the property as security for a
loan. The Company has an option to purchase the leased property at
a price determined by independent appraisal at any time during the
ten-year lease term. In connection with the above described
transactions, two prior prepaid leases for a 25-acre portion of the
Armant Site, entered into between Empresas and the Company in 1981
for an aggregate consideration of 144,000 restricted shares of
common stock were canceled upon execution of the above described
ten year lease. Empresas retained the 144,000 shares of common
stock it had received in prepayment of the prior prepaid leases.
On August 31, 1983, the Company entered into a 63-month sublease
agreement with the Armant Partnership for the 25 acres originally
leased by the Company in 1981. The Company receives no
consideration for the sublease and the parties have treated the
sublease as a partial contribution by the Company to the Armant
Partnership for the Company's interest in the Partnership. Based
upon the known appraised value of the site, the Company is
confident that the transactions with Mr. Uribe were equally
favorable to the Company had the Company purchased or leased a site
from an unaffiliated party.
From inception in November 1982 through August 31, 1988,
construction costs of the Armant Plant, were approximately $23
million. This cost substantially exceeded the Partnership's
estimate by $15 million as a result of significant start-up costs
incurred in attempting to achieve continuous commercial production.
In the same period, the Armant Partnership realized only nominal
revenue since continuous commercial production had not been
achieved.
Under the terms of the Partnership agreement, the Company has
a 2% ownership interest and under a separate non-exclusive license
agreement, a right to royalty payments based on positive cash flow
of the Partnership. The license agreement provides for royalty
payments to the Company equal to 28.6% of net positive cash flow
until each limited partnership interest has received its respective
investment of $160,000. Thereafter, royalty payments to the
Company increase to 49% of net positive cash flow. The Company
applies the equity method in accounting for its investment in the
Armant Partnership.
The Company's initial contribution to the Armant Partnership
consisted of certain improvements to the Armant Site, a
non-exclusive licensing agreement providing for the Partnership's
use of the TAC Process for producing metal chlorides and prepaid
leases, as described in this section.
TACMA
In January 1982, the Company and Indian Magsee Alloys Pvt.,
Ltd. (IMA), a non-affiliated privately held company organized under
the laws of India, entered into an agreement providing for, among
other things, the formation of TACMA, an Indian corporation. TACMA
was formed to construct a plant in New Delhi, India, designed to
produce metal chlorides through the use of the TAC Process. The
agreement provided for initial capital contributions by the Company
and IMA of approximately $42,800 and $53,500, respectively, in
exchange for 40% and 50% equity interests in TACMA. Under the laws
of India, the Company, as a foreign entity, is prevented from
owning a majority interest in TACMA. Accordingly, the remaining
10% of TACMA is held by an Indian national. As of August 31, 1988,
the Company had also made cash advances to TACMA totaling
approximately $218,600. In addition, during December 1984, the
Company acquired from Empresas Lince, S.A. a receivable from TACMA
of $60,000 in exchange for 60,000 shares of the Company's
restricted common stock.
On May 2, 1983, the Company and IMA assigned to a third
party, an individual not otherwise affiliated with the Company, the
right, exercisable until 120 days after the effective date of the
registration of the underlying shares to acquire approximately
31.25% and 25% of their respective equity interests on a pro-rata
basis in TACMA in exchange for the third party's payment of
$200,000 directly to TACMA. A transfer of equity interest to the
third party, which is subject to the prior approval of the Indian
government, would reduce the Company's equity interest in TACMA to
27.5% from 40%. The Company and the third party also entered into
a separate agreement on August 31, 1983, which provides that the
third party may unilaterally convey to the Company its right to
such equity interest in TACMA in exchange for 200,000 shares of the
Company's common stock. During July 1987 the third party exercised
their right granted in the separate agreement with the Company.
Ownership rights to the 25% equity interest in TACMA were assigned
to the Company in exchange for 200,000 shares of the Company's
common stock, valued at $325,000. A transfer to the Company of
this additional equity interest in TACMA, which is subject to the
prior approval of the Indian government, would increase the
Company's equity interest in TACMA to approximately 52.5%. Based
upon the Company's decision to indefinitely postpone attempts to
bring the TACMA plant to commercial production, the Company, during
1988, reversed its previously recorded investment in the TACMA
facility.
Under a service agreement between the Company and TACMA dated
March 29, 1983, the Company provided technical assistance to TACMA
with respect to the design, construction and operation of the
Indian Plant at a cost to TACMA equal to the Company's cost for the
work and services performed by the Company or subcontracted by the
Company. At August 31, 1988, the Company's receivable for such
work and services performed was approximately $815,000. TACMA has
not recorded a corresponding payable for such costs because the
approvals of the Indian government, including The Reserve Bank of
India, are required before TACMA can make payment to the Company.
The collectability of this receivable is further dependent on
TACMA's commencing and sustaining sufficiently profitable
commercial operations. Because of the continuing delays in
obtaining government approval, the Company has reversed the
recorded receivable from TACMA during fiscal year 1987.
In May 1982, the Company and a non-affiliated privately held
Swiss corporation entered into an agreement whereby the Swiss
corporation acquired a portion of the Company's interest in TACMA's
net profits as consideration for the payment of $50,000 to TACMA by
the Swiss corporation. "Net profits" is defined as the excess of
TACMA's revenues over expenses, excluding depreciation expense. The
agreement, which has a 20-year term, provides that the Swiss
corporation will receive 10% of the Company's interest in TACMA's
net profits until payments to the Swiss corporation total $50,000.
Thereafter, the Swiss corporation will receive 5% of the Company's
interest in TACMA's net profits. Upon the occurrence of any of the
following events, the Swiss corporation may require that the
Company replace or supplement the Swiss corporation's interest in
TACMA with a similar interest in other entities in which the
Company has an interest:
(1) if the TACMA plant is destroyed, nationalized, expropriated or
otherwise rendered inoperable, or if by virtue of any government
regulation the Company must forfeit or sell its interest in TACMA,
(2) the profitability of the TACMA plant fails due to the
completion of subsequent phases of TACMA's programs or because of
competition in the world's markets from other plants in which the
Company has an interest,
(3) the Company's interest in TACMA declines by fifty (50%)
percent or more, or
(4) payments equal to $50,000 have not been received within four
(4) years of the date of the agreement.
The Swiss corporation has not received payments equal to $50,000,
and in 1994 they have requested action requiring the Company to
replace or supplement its interest in TACMA. During 1995 the
company issued a Series "A-1" Convertible Promissory Note to the
Swiss Corporation for the original $50,000 accrued interest of
$98,200 for a total of $148,000.
Competition
Competing producers of 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, proven
technology, and, in some cases, larger production facilities than
the Company's. In addition, neither of the plants utilizing the
TAC Process has yet to achieve sustained commercial production.
There can be no assurance that the plants will ultimately achieve
such production, or if such production is achieved, it will be at
competitive costs.
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. Like any chemical facility, the Armant plant is
required to meet such standards on a continuing basis. It is
estimated when in full operations that the annual yearly cost to
operate and maintain equipment and otherwise comply with
environmental, occupational safety and health regulations imposed
on the Company is expected to be approximately $750,000.
Patents
The Company currently owns approximately three (3) patents on
significant aspects of the TAC Process in the United States and has
applications on file to register approximately five (5) additional
such patents. In addition, the Company has approximately forty
(40) foreign patents registered in countries such as England,
Hungary, Venezuela and Canada, and pending applications to register
approximately seventeen (17) additional patents in those and other
foreign countries. Generally, patents vary in duration from ten
(10) to twenty (20) years, with some dating from date of
application and others from date of issuance. For example, in
European countries such as Belgium, France and Great Britain, the
duration of patents is twenty (20) years from the date of filing of
the patent application.
The duration of United States patents extends for seventeen
(17) years from the date of issuance. Of the remaining U.S.
patents, three will still be in force after the year 2000. As in
most countries, a United States patent prevents anyone from making,
using or selling the patented process in the United States without
a valid license.
Once the Company has attained a source of steady funding, it
intends to vigorously pursue patenting of new process improvements
and designs which would be aimed at preventing others from
potentially competing against the company. In addition to patent
protection, the technical know how and experience the Company has
attained in operating both of its investees serves as a hindrance
to others who would attempt to utilize this carbo chlorination
technology.
Research and Development Activities
From inception, the Company's primary business has been
research and development of the TAC Process. For the three years
ended August 31, 1996, the Company has spent and depreciated an
aggregate of $266,662 in continuing research and development in the
United States, Canada and overseas. These expenditures are shown
by year in the following table:
Fiscal Years Ended August 31,
1996 1995 1994
Research and development $ 47,821 $ 65,384 $153,457
Employees
At September 30, 1995, the Company had 4 full time employees.
(d) Financial information about foreign and domestic
operations and export sales. Reference is made to Item 1(c) (1)
"Narrative Description of Business TACMA."
Item 2. Properties.
The Company believes that its current offices are sufficient
to house its existing operations. See "BUSINESS-The Armant Plant;
TACMA" for a description of the properties utilized by the Armant
Partnership and by TACMA, respectively.
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 Over-the-Counter
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
----- ------
1995:
First Quarter, 3/16 5/16
Second Quarter, 1/8 9/32
Third Quarter, 5/32 11/32
Fourth Quarter, 1/8 5/16
1996:
First Quarter, 1/8 3/16
Second Quarter, 1/8 3/16
Third Quarter, 1/16 1/8
Fourth Quarter, 1/16 3/32
As of September 30, 1995, there were approximately 12,000
shareholders of record of the Company's common stock. Not included
in the number of stockholders are those whose shares are held in
"nominee" or "street" name.
The Company has never paid nor declared any dividends on its
common stock. The Louisiana corporation laws permit the declaration
of a dividend from a corporation's capital surplus, except if the
corporation is insolvent or would be made insolvent thereby. If no
surplus exists, a corporation may pay dividends from net profits
from the current or the preceding fiscal year, or both, but no
dividend may be declared at any time when a corporation's assets
are exceeded by its liabilities (or if the payment of a dividend
would result in the corporation's liabilities exceeding its assets)
or at any time when the net assets are less than the aggregate
amount payable on liquidation to shareholders holding preferential
rights upon liquidation.
Item 5. Selected Financial Data.
The following selected financial data has been derived from
the Company's financial statements. This selected financial data
should be read in conjunction with the financial statements of the
Company and notes related thereto appearing elsewhere herein. The
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 a net loss from its inception in 1966 through
August 31, 1995 of approximately $61,050,023. Although the
Company's investee (Armant) has constructed a facility that will
employ the Company's patented processes, Armant has not achieved
sustained commercial production, and the commercial viability of
the processes has not been demonstrated. The recoverability 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
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.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements of the
Company and Notes thereto.
Selected Financial Data
Years Ended August 31.
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Total
assets......... $1,049,282 $4,507,997 $17,381,210 $17,363,976 $17,252,634
Net
loss........... $6,864,124 $16,157,338 $2,313,295 $2,204,346 $3,618,120
Loss per
share of
common stock... $.19 $.46 $.07 $.06 $.10
Long-term debt:
Convertible
Debenture...... $ 20,437 $20,437 $20,437 $20,437 $20,437
Long term debt:
Series "A-1"
debt........... $19,866,905 $17,248,303 $14,292,931
Total
stockholders
equity......... ($22,607,153) ($15,743,029) $414,309 $2,727,574 $4,931,950
The significant decrease in the Total stockholders equity is
directly attributed to the Company's forced write down of its
investment in Armant thereby increasing its loss while it seeks
funding for Armant and its Canadian Operations.
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, 1996, total assets
decreased to $1,049,282 from $4,507,997 at August 31, 1995 and
$17,381,210 at August 31, 1994. The recoverability of the
Company's investment in and advances to Armant of $894,425 is
dependent on the Armant Partnership achieving and sustaining
sufficiently profitable commercial operations (see note 2 of Notes
to Financial Statements). Total liabilities, including the new
Series "A-1" Convertible Promissory Note increased from $14,292,931
at August 31, 1994 to $17,248,303 at August 31, 1995 to $19,866,905
at August 31, 1996. Cash on hand decreased from $5,051 at August 31,
1995 to $3,750 at August 31, 1996.
On December 24, 1985, the Company commenced an offering of
its 10% Convertible Debentures due August 1, 1990 (the
"Debentures"). The offering contemplated the sale of a maximum of
$4,320,000 of Debentures, convertible, at the election of the
Debenture holders, into 3,175,000 shares of common stock, no par
value, of the Company. The purchase price of each Debenture was
$1,000, payable in cash. No minimum offering of Debentures was
established and Offerees were apprised of the fact that the
proceeds of the offering would not be placed into escrow, but would
be applied directly to the Company.
The Debenture offering was closed as of May 31, 1986,
resulting in net proceeds of $3,852,963 (after deducting offering
costs of $467,037). As of August 31, 1991, 4,298 debentures were
converted into 3,152,995 shares of the Company's common stock,
resulting in an increase in common stock of $3,833,307 (net
offering costs of $464,693) and a balance in debentures payable of
$20,437 (net offering costs of $1,563).
The Company, as general partner of Armant, has granted a
continuing guarantee of Armant's outstanding bank debt of
approximately $525,000 plus accrued interest.
Working Capital Meeting Operating Needs and Commitments
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,
1996, of approximately $61,050,023. Although the Company's
investees (Armant and TACMA) have constructed facilities that
employ the Company's patented processes, Armant has not achieved
continuous commercial production, and the commercial viability of
the processes has not been demonstrated. TACMA has not commenced
commercial production and no such activities are currently planned.
The recoverability of the Company's investments in and advances to
Armant, is dependent on Armant achieving sufficiently profitable
commercial 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. 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.
The Company's intention in the near-term is to focus its
efforts and resources on completing raw materials evaluation
project now underway in Canada and securing an investment
partner(s) to construct and conduct successful commercial
operations of a metal chlorides plant in Canada. It is estimated
that a 50,000 ton/year commercial facility in Canada, if funded,
could be constructed and started-up at a cost of $45,000,000 in two
years. The Company will continue its request to the Department of
Energy (DOE) for funding under the "Steel and Aluminum Energy
Conservation and Technology competitiveness Act of 1988" public law
No. 100-680 as a source of funding. In addition to the DOE
source, the Company continues to seek other sources of funding
either through a joint venture partnership or equity sales as a
means for attaining the funding for the Armant plant. It is
estimated that modifications to achieve continuous metal chlorides
production of 10,000 tons per year at the Armant plant would cost
$10,000,000, and require from inception, approximately 13-15 months
to complete.
There are currently no capital expenditures planned for
Armant unless and until funding is received from the DOE or other
sources. Capital expenditures in Canada will depend upon the
success of the Company's fund raising efforts.
The Company believes that metal chlorides production provides
the quickest source of external funding and operating profits. The
Company further believes that the remaining sources available to it
are limited and that the Company's ability to continue as a going
concern may be contingent upon the Company's success in negotiating
funding for its Canadian operation and/or DOE funding. However,
prices for both aluminum chloride and silicon tetrachloride has
increased over the last several years and the Company believes that
the interest in its Canadian project will be strong.
In light of the Company's net operating loss carry-forwards
of approximately $49,550,724 at August 31, 1996, 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
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.
1996 Compared to 1995
The net loss for the fiscal year ended August 31, 1996 was
$6,864,124 compared to $16,157,338 in 1995. The loss in 1995 occured
because the Company, due to prolonged delays in attaining funding was
forced to write off a major part of its investment in the Armant Partership.
Total expenses decreased from $2,490,204 in 1995 to $2,393,685 in 1996.
During the same period, promotional, general and administrative expenses
decreased to $375,421. During the year ended August 31, 1996, the company
recognized $1,974,483 in interest expense compared to $2,000,363 in
1995. Also, during fiscal year ended August 31, 1996, the company
recognized $4,470,439 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.
1995 Compared to 1994
The net loss for the fiscal year ended August 31, 1995 was
$16,157,338 compared to $2,313,295 in 1994. The increase was due
to an increase in interest expense. Total expenses increased from
$2,082,484 in 1994 to $2,159,424 in 1995. During the same period,
promotional, general and administrative expenses increased to
$424,457. During the year ended August 31, 1995, the company
recognized $2,000,363 in interest expense compared to $1,805,534 in
1994. Also, during fiscal year ended August 31, 1995, the company
recognized $13,997,914 loss from Armant. This significant increase
in loss from Armant is attributed to the prolonged delay in
obtaining the necessary funding to modify the Armant Plant and
reduced the collectability of the investment and advances to
Armant. Furthermore, the continued losses of Armant have reduced
the Company's equity position. Armant has had no operation during
this year except for routine maintenance and upkeep, and the
Company recognizes the related loss.
1994 Compared to 1993
The net loss for the fiscal year ended August 31, 1994 was
$2,313,295 compared to $2,204,346 in 1993. The increase was due to
an increase in interest expense. Total expenses increased from
$1,728,968 in 1993 to $2,082,484 in 1994. During the same period,
promotional, general and administrative expenses decreased to
$121,575. During the year ended August 31, 1994, the company
recognized $1,805,534 in interest expense compared to $1,316,922 in
1993. Also, during fiscal year ended August 31, 1994, the company
recognized $230,811 loss from Armant. 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.
Reference is made 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 64 Chairman of the Board of
Directors and Chief
Executive Officer
Gervase M. Chaplin 59 Sr. Vice President
Engineering and Technology
Glenn A. Nesty 84 Director
Calvin J. Laiche 65 Director
Russell Haas 59 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 has been with the Company since 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 Laiche, Attorney at Law, Member of Louisiana Bar,
Civil Practice, State and Federal Attorney for Jefferson Parish,
City Attorney and Magistrate for Town of Jean Lafitte, Registered
Mechanical Engineer State of Louisiana, Registered Patent Attorney,
former House Counsel for Kalvar Corporation and Toth Aluminum
Corporation, and former Project Engineer for Shell Chemical
Corporation.
Russell F. Haas, Director, has served as bank president for
two local banks, during his 36 year tenure in the industry. For
the past 5 years, 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.
Involvement in Legal Proceedings
To the best of the Company's knowledge and belief, no
director or executive officer of the Company has, during the past
five years, been involved in any bankruptcy or insolvency
proceedings, been convicted in a criminal proceeding (excluding
traffic and other minor violations), been the subject of a pending
criminal proceeding, been the subject of any order enjoining,
barring, or suspending him from engaging in any business, activity,
sale of any security, or association with any persons, or been
found to have violated any federal or state security law. However,
in August of 1985, the Board of Directors received an opinion of
counsel that Charles Toth was obligated to the Company for an
amount closely approximating $1,700,000, said amount representing
profits derived from the purchase and sale of stock of the
corporation. Exempt from the purview of the "short-swing profits"
rule are any securities "acquired in good faith in connection with
a debt previously contracted". In reviewing Mr. Toth's extensive
dealings in corporate stock between 1975 and 1984, and the
extensive loans he made to the Company, sales of equipment to the
Company, options to purchase stock he has received from the
Company, and salary due him which was deferred or not paid, the
Company believes that a part of his transactions are covered by the
exception, but that profits to him, as computed under Section
16(b), amounting to as much as $1,700,000, may not have been
covered by the exception to the rule. On December 1, 1987, the
Company filed suit against Mr. Toth in the United States District
Court, Eastern District of Louisiana, to recover from Mr. Toth any
and all profits realized in violation of the provisions of Section
16 (b).
On October 1, 1991, the Board of Directors of the Company
approved a settlement agreement proposed by the company to Mr. Toth
which he accepted and that settlement agreement is still before the
court. Recent opinions by the SEC indicate a possible change in
the interpretation of the application of Section 16-B to the facts
of the above matter whereby Mr. Toth's stock sales may be exempt
under the law.
Item 9. Executive Compensation
(a) Cash Compensation. The following table sets forth as of
the fiscal year ended August 31, 1995, 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 Vice President $96,000 (1)
Charles Toth Chairman of the $75,000 (1)
Board
(1) Due to the company's chronic cash shortage, these
officers elected to accrue all of their salaries.
(b) Other Compensation. On August 28, 1992, there was an
Executive Board Committee Meeting, and subsequently approved by the
Board of Directors in which Mr. Charles Toth, Chairman, received a one
time compensation package from Toth Aluminum. On August 31, 1992,
Mr. Toth was owed a total of $1,735,339. This sum is composed of three
figures, a) Accrued salary plus accrued interest of $489,375, b) Cash
advances plus accrued interest for a total of $590,139, c) Toth Aluminum's
expenses paid by Charles Toth plus accrued interest for a total of
$655,825.
Mr. Toth was also awarded a one time compensation
equal to 15% of the total amount loaned to Toth Aluminum which
required Mr. Toth's personal endorsement and/or co-signature, to
effectuate the loaning of the money or continuance of the loan
until such time as Toth Aluminum has the availability of funds to
pay these obligations in full. As of August 31, 1992, this
compensation amount was equal to $1,140,000.
In addition, Mr. Toth was awarded a one time compensation for his
loss incurred while selling his personal assets below market value, at
"fire sale prices", on behalf of Toth Aluminum.
Finally, the Executive Committee determined and the Board of
Directors approved a settlement for the 16(b) lawsuit against Mr. Toth.
The lawsuit should be settled for the sum of $730,000. This amount
reflects the extenuating circumstances in which Mr. Toth had to go to
raise funds for the company. Furthermore, the Executive Committee believes
that no additional benefits would arise out of prolonging this lawsuit.
As part of this compensation package, the Executive Committee felt that Mr.
Toth's continued financial support of the Company was paramount,
without his financial support, Toth Aluminum would be unable to
survive. Mr. Toth accepted this compensation package with the
understanding that, 1) this entire compensation package of
$4,075,339 is to be issued under the company's Series "A"
Promissory Note, 2) the amounts represented herein are to be
audited where applicable and, 3) upon shareholder approval to
increase the authorized number of shares sufficient so that the
Series "A" debt could be converted into TAC common stock.
(c) 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.
(d) 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,
1995, 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 1,325,000 (2) 3.8%
Dr. Gervase M. Chaplin 140,000 *
Glenn A. Nesty 34,000 *
Calvin J. Laiche 22,160 *
Russell Haas 20,000(3) *
All officers and directors
as a group (5 persons) 1,541,160 4.3%
*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) Excludes 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.
As of August 31, 1996, Charles Toth, the Company's founder
and Chairman of the Board, had loaned the Company an aggregate of
$2,598,100, plus accruing interest of $793,549. The total
outstanding balance is accruing interest at twelve (12.0%) percent
and is payable on demand. Also see section Part III item 9,
subsection (b) Other Compensation.
See Involvement in legal proceeding - Part III, Item 8 for
information regarding suits filed by the Company against two
directors for alleged violation of Section 16 (b) of the Securities
Act of 1934, as amended.
PART IV
Item 12. Exhibits and financial statements.
a) Exhibits: Exhibits numbered one through eight and 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 requirments 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,
thereunto duly authorized.
TOTH ALUMINUM CORPORATION
BY: CHARLES TOTH
CHARLES TOTH
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHEIF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Actof
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 December 16, 1996
Charles Toth
Chairman of the Board
of Directors and Chief
Executive Officer
Charles Ernest Toth Jr. December 16, 1996
Charles Ernest Toth Jr.
Treasurer
Glenn Nesty
Director
Calvin J. Laiche December 16, 1996
Calvin J. Laiche
Director
Russell Haas December 16, 1996
Russell Haas
Director
TOTH ALUMINUM CORPORATION
FORM 10-K
ITEMS 8, 14(a)(1) AND (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of the Registrant required
to be included
in Item 8 and 14(a)(1) are listed below:
Financial Statements:
Balance Sheets..............................................
Statements of Operations and Deficit Accumulated During
the Development Stage......................................
Statements of Stockholders' Equity .........................
Statements of Cash Flows ...................................
Notes To Financial Statements...............................
The following financial statement schedule of the Registrant
is included in Item 14(a)(2):
IV - Indebtedness of and to Related 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 financial statements,
including the notes thereto.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) COMBINED
BALANCE SHEETS, AUGUST 31, 1996 AND 1995 (Unaudited)
1996 1995
------ ------
ASSETS
CURRENT ASSETS:
Cash ............................... $ 3,750 $ 5,051
Accounts receivable:
Officers and employees...........
Other............................ 10,787 10,787
Prepaid:
Leases ..........................
Other............................
Total current assets................ 14,537 15,838
INVESTMENTS IN AND ADVANCES TO:
TACMA India Limited..............
Armant Partnership............... 894,425 4,267,350
Total............................... 894,425 4,267,350
PROPERTY, PLANT AND
EQUIPMENT - Net.................. 103,159 156,384
PREPAID LEASES .....................
PATENTS AND PATENT RIGHTS (net of
accumulated amortization: ....... 37,161 68,425
TOTAL.............................. $ 1,049,282 $ 4,507,997
See notes to financial statement
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) COMBINED
BALANCE SHEETS, AUGUST 31, 1996 AND 1995 (Unaudited)
1996 1995
LIABILITIES ------ ------
CURRENT LIABILITIES:
Notes payable-related parties...... $ - $ -
Notes payable-bank................. - -
Notes payable-other ............... 300,000 300,000
Accounts payable:
Trade........................... 391,246 334,375
Officers and employees.......... 187,361 108,062
Accrued salaries .................. 1,676,994 1,457,032
Accrued expenses .................. - -
Accrued interest payable........... 1,163,492 732,817
Total current liabilities.......... 3,719,093 2,932,286
DEFERRED CREDIT ................... 50,000 50,000
SERIES "A-1" Convertible
Promissory Note (CPN)1
CPN Related Parties
Principal..................... 7,398,265 6,726,150
Accrued interest payable...... 3,147,378 2,279,103
CPN Other Parties
Principal..................... 5,978,421 5,575,742
Accrued interest payable...... 3,342,841 2,667,308
Total Series "A-1" Notes...... 19,866,905 17,248,303
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 1996
and 35,466,193 shares in 1995.... 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............. (61,050,023) (54,185,899)
Total stockholders' equity.......... (22,607,153) (15,743,029)
TOTAL............................... $ 1,049,282 $ 4,507,997
*See section 11 of the "Notes to Financial Statements"
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS
OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE FOR
THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994 AND CUMULATIVE FOR THE
PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 1996 Unaudited)
FROM
INCEPTION TO
.....FOR THE YEARS ENDED AUGUST 31......... AUGUST 31,
1996 1995 1994 1996
------ ------ ------ ------
COSTS AND EXPENSES:
Research and
development..... $ 43,781 $ 65,384 $ 121,575 $7,687,440
Promotional,
general and
administrative.. 375,421 424,457 155,375 15,051,455
Interest.......... 1,974,483 2,000,363 1,805,534 10,599,468
---------- ---------- ---------- -----------
Total............. 2,393,685 2,490,204 2,082,484 33,307,688
========== ========== ========== ===========
OTHER (INCOME) EXPENSE:
Loss in Investment
and advances to
Armant.......... 3,458,715 12,774,110 A 16,232,825
Equity in Loss
in Armant....... 1,011,724 893,024 230,811 11,148,472
----------- ---------- ---------- -----------
NET LOSS.......... 6,864,124 16,157,338 2,313,295 61,050,023
=========== ========== ========== ===========
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
BEGINNING OF
PERIOD............ $54,185,899 $38,028,561 $35,715,266
----------- ---------- -----------
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
END OF PERIOD..... $61,050,023 $54,185,899 $38,028,561 $61,050,023
=========== =========== =========== ===========
LOSS PER COMMON SHARE $.19 $.46 $.07
==== ==== ====
A Due to the prolonged delay in attaining the necessary funding,
the company was forced to write down $16,232,825 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, 1996, 1995, AND 1994 AND CUMULATIVE FOR THE PERIOD FROM
INCEPTION (AUGUST 1966) TO AUGUST 31, 1996
............................FOR THE YEARS ENDED AUGUST 31............... FROM INCEPTION
..........1996....................1995..................1994............ TO AUGUST 31, 1996
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 35,446,193 38,428,176 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 sales................ 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)
........................FOR THE YEARS ENDED AUGUST 31.................... FROM INCEPTION
..............1996..................1995..................1994........... TO AUGUST 31, 1996
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................. (54,185,899) (38,028,561) (35,715,266)
New Loss.................... ( 6,864,124) (16,157,338) (2,313,295) (61,050,023)
----------- ----------- ------------ ------------
Balance, end of period...... (61,050,023) (54,185,899) (38,028,561) (61,050,023)
TOTAL STOCKHOLDERS EQUITY... (22,607,153) (15,743,029) 414,309 (22,607,153)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 1996, 1995,AND 1994
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 1996
FROM INCEPTION
.......FOR THE YEARS ENDED AUGUST 31...... TO AUGUST 31,
1996 1995 1994 1996
------ ------ ------ ------
OPERATING ACTIVITIES
NET LOSS.................... $(6,864,124) $(16,157,338) $(2,313,295) $(61,050,023)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and
amortization............ 53,225 53,225 23,910 1,081,916
Amortization and write
off of patents.......... 31,264 31,264 17,514 403,657
Amortization of
financing costs......... 95,000
Loss on divestiture
of subsidiaries......... 912,586
Amortization of prepaid
leases.................. 302,424
Losses from joint
venture................ 1,011,724 893,024 230,811 9,605,994
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.. (63,174) (10,787)
Decrease (Increase)in
prepaid expenses........ (7,350) (27,371)
Increase (Decrease) in
accounts payable........ 786,807 506,586 (82,762) 10,853,501
Increase (Decrease) in
notes payable........... 1,074,794 2,088,679 703,552 17,109,985
----------- --------- --------- ----------
$(3,906,310) $(12,584,566) $893,022 $(19,352,043)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS - (Continued)
FROM INCEPTION
......FOR THE YEARS ENDED AUGUST 31...... TO AUGUST 31,
1996 1995 1994 1996
------ ------ ------ ------
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment..... (1,159,046)
Acquisition of patents.... (3,208) (443,475)
Investment of certifi-
cates of deposit........ (3,995,000)
Cash investments in and
advances to TACMA....... (1,076,595)
Cash investments in and
advances to Armant...... 446,294 (203,226) (45,226) (21,065,589)
Write off of Investments
and Cash advances to
Armant................. 3,458,715 12,774,110 16,232,825
Redemption of certifi-
cates of deposit........ 3,995,000
Proceeds from sale of
net profit interest..... 50,000
---------- -------- --------- ------------
3,905,009 (45,226) (177,727) (7,459,278)
---------- -------- --------- ------------
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 convert-
ible 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 $ (1,301) (14,403) 18,879 (1,301)
CASH BEGINNING OF PERIOD 5,051 19,454 573
---------- -------- --------- ----------
CASH END OF PERIOD $ 3,750 $ 5,051 $ 19,454 $ 3,750
========== ========= ========== ==========
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 1996,
1995 AND 1994 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966)
TO AUGUST 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Going Concern Basis
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, 1996, and
August 31, 1995, of $61,050,023 and $54,185,899, respectively.
Although the Company's investees (TACMA and Armant) have constructed
facilities that will employ the Company's patented processes, TACMA
has been inactive and Armant has not achieved continuous commercial
production. The Company has determined that the operating plant of
each investee will require further modifications before commercial
production can be achieved. This will not occur at the TACMA facility
unless and until the Company directs its efforts and resources toward
TACMA. No such activities are currently planned at TACMA.
Expansion of the Armant plant (as discussed in Note 2) should
enable it to achieve continuous production of alumina as well as metal
chlorides. Management believes that the plant constructed by Armant
demonstrates that the production of metal chlorides and aluminum
intermediates through the Company's patented processes is possible
and that continuous production capabilities should enable it to attain
profitable operations. The Company plans to fund its operations
through short-term borrowing secured by the personal assets of the
Company's Chairman of the Board. The capital and operating needs
of Armant will be raised through a commercialization program sponsored
by the U.S. Department of Energy "DOE" and/or the formation of a joint
venture partner with Armant. The recoverability of the Company's
investments in and advances to Armant and the recoverability of the
capitalized cost of Armant is dependent on the investee achieving
sufficiently profitable commercial operations, as well as the Company's
ability to raise the funds indicated above to provide the necessary
capital and to support these operations.
The Company has actively evaluated the raw material resources
in Western Canada and is attempting to secure the necessary funding
to construct a metal chlorides plant in Canada. The Company intends to
fund the capital and operating needs of the Canadian operation through
the formation of a joint venture with either industrial or venture
partners in Canada. Management believes that a metal chlorides plant
in Canada will be of a size to be commercially viable and will earn
a significant profit. The metal chlorides plant being planned for
Canada will have a capacity of 50,000 metric tons per year (seven
times larger than the Armant plant) and will incorporate all of the
process knowledge and proposed modifications resulting from the
operation of the Armant facilities. Should the Company be able
to successfully raise the required funds for either or both the
Canadian operation and/or Armant, then the Company's existence will be
assured for the next twelve months.
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 of Armant, and to 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) for either
the Canadian operation or Armant, and/or funding from the DOE, it
may experience significant difficulty raising funds to complete
the required modifications to attain continuous production at Armant.
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, 1996 and 1995
arising from transactions with related parties:
August 31,
1996 1995
Advances to Armant (Note 2) $ 16,819,407 $17,245,407
Less write off due to the
Prolonged delay in
Obtaining funding (16,232,825) (12,774,110)
Prepaid leases (Note 4)
------------ ------------
Total $ 586,582 $ 4,267,350
============ ============
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;
start-up and pre-operating activities have commenced at the
Armant facility, but the Company has received no 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
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.
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, 1996, and 1995 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 in financial position for 1996, 1995 and
the statement from inception to August 31, 1996.
The Company considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
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 collectability of the advances to and
the recovery of the investment in Armant depends upon the affiliate
achieving successful commercial operations.
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. The Promotion Agreement provided for an initial capital
contribution by the Company of approximately $42,800 in exchange for
a 40% equity interest in TACMA. During the 1983 fiscal year, the
Company and TACMA's other stockholder assigned to a third party the
right to a 25% equity interest in TACMA in exchange for the third
party's $200,000 advance to TACMA. A transfer of equity interest
to the third party, which is subject to the prior approval of the
Indian government, would have reduced the Company's equity interest
in TACMA to 27 1/2%. The Company and the third party also entered into
a separate agreement which provided that the third party could convey
to the Company its right to the 25% equity interest in TACMA in
exchange for 200,000 shares of the Company's common stock. During July
1987, the Company issued 200,000 shares of its common stock valued
at $325,000 in exchange for the third party's rights to the additional
equity in TACMA. Under this agreement, the transfer to the Company of
the additional equity interest in TACMA, which is subject to the
prior approval of the Indian government, would increase the
Company's equity interest in TACMA to 52 1/2%.
As of August 31, 1984, the Company had also made cash advances
to TACMA totaling approximately $218,600. In addition, during
December 1984, the Company acquired from Empresas Lince, S.A., a
receivable from TACMA of $60,000 in exchange for 60,000 shares of
the Company's restricted common stock. The Company has also incurred
costs on TACMA's behalf which the Company considers reimbursable under
the terms of its service agreement with TACMA. At August 31, 1988 and
1987, the Company's receivable for such costs billed to TACMA was
approximately $815,000. TACMA has not recorded a corresponding payable
for such costs because the approval of the Indian government and
Reserve Bank of India is required before TACMA can make payment to
the Company. The collectability of this receivable is dependent on
obtaining approval of foreign authorities as well as TACMA commencing
and sustaining sufficiently profitable commercial operations, for which
the Company currently has no plans. 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.
Reference is made to Note 6 regarding a Swiss corporation's
advance to TACMA, in 1982, on the Company's behalf. The Company
recorded this advance as an additional investment in and advance to
TACMA. The Swiss corporation has not received payments equal
to $50,000, and in 1994 they have requested action requiring the
Company to replace or supplement its interest in TACMA. During 1995
the company issued a Series "A-1" Convertible Promissory Note to the
Swiss Corporation for the original $50,000 plus accrued interest of
$98,200 for a total of $148,000.
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 member of the Company's
Board of Directors. The Company is leasing the land from ELSA, as
more fully described in Note 4.
Under the terms of the original partnership agreement, the
Company was to have a 50% ownership interest in the partnership.
In March 1983, the partnership agreement was revised to provide the
Company a 2% ownership interest and under a separate license agreement,
a royalty payment based on net positive cash flow of the partnership.
The license agreement provides for royalty payments to the Company
equal to 28.6% of net positive cash flow until each limited partnership
unit has received $160,000 in cash, at which time royalty payments
increase to 49% of net positive cash flow.
The Company's capital contribution to Armant consisted of
certain improvements to the property, a non-exclusive licensing
agreement providing for Armant's use of the Company's carbo-chlorination
processes for producing metal chlorides, and prepaid leases as
described in Note 4.
Contributions to Armant by the limited partners, on the basis
of a single limited partnership unit, consisted of $25,000 in initial
cash deposits, $75,000 in cash to be paid in equal monthly installments
of $5,000 and either a $60,000 letter of credit or the purchase of $60,000
of the Company's restricted common stock. Armant has received
subscriptions for all thirty-five limited partnership units. At
August 31, 1988, Armant had received cash contributions of approximately
$ 3,459,000. The Chairman of the Company's Board of Directors holds
fifteen of the thirty-five units.
During November 1984, the Company loaned $3,995,000 to Armant,
resulting in the Company now having a receivable from Armant in the
amount of $3,995,000 bearing interest at 13.5% per annum. As of
August 31, 1988, the Company had made additional cash advances
to the Armant Partnership totaling $16,819,407, bearing interest at
12% per annum. The Company has also liquidated $240,000 of Armant's
notes payable plus accrued interest due to a corporation controlled
by a member of the Company's Board of Directors by issuing
240,000 shares of the Company's restricted common stock. As a
result the Company recorded a receivable from Armant of $276,000
bearing interest at 12% per annum. The Company had additional
non-interest bearing receivables from Armant totaling $173,000 which
were incurred in fiscal 1984, resulting from billing under a service
agreement. Subsequent to that date all costs, including general and
administrative cost, incurred by the Company related to the construction
and operation of the Armant Plant, have been absorbed by the Company
and expensed as incurred. As of August 31, 1990, the Company has
guaranteed $525,000 of Armant's bank debt plus accrued interest.
The initial phase of construction of the Armant Plant was
completed in December 1983. Since that time, numerous test runs
have been performed in an effort to achieve continuous commercial
production of market grade metal chlorides. Subsequent to the
Company's 1986 fiscal year end, Armant determined additional funding
would be required to sustain successful operations. Therefore,
because of unexpected construction delays and the continued lack
of commercial production at Armant, the Company elected to discontinue
accruing interest income on the Armant receivable and reversed, in
the fourth quarter of fiscal year 1986, all interest income
previously accrued which totaled $1,164,000 of which $551,000 was
accrued through August 31, 1986.
Further, Armant elected to discontinue capitalizing plant
start-up costs. The net loss recognized by Armant during the year
ended August 31, 1987, which primarily resulted from expensing
start-up costs, 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 limited
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 ofadvances to Armant. The Company's equity in the
loss of Armant for the years ended August 31, 1988 and 1987, was
$2,880,165 and $2,177,562, respectively. All of the loss for 1988
and $1,999,562 in 1987 was a result of Armant losses in excess of
total partnership equity and was recorded as a reduction in investment
in and advances to Armant.
Since the plant was shutdown in 1988 due to insufficient
capital to maintain operations, the Company has been attempting to
secure additional funds to enable it to modify and start-up the Armant
plant. Significant effort has been devoted in the period 1988 to
1994 to securing funding from the DOE under the "Steel and Aluminum
Energy Conservation and Technology Competitiveness Act of 1988".
During fiscal years 1995 and 1996, the prolonged delay in securing the
necessary funding to restart the Armant Pant forced the Company to
write off a significant portion of the Armant assets. Costs capitalized
and deferred by Armant consisted of the following:
August 31,
1996 1995
------ ------
Direct carbo-chlorination
plant costs:
Process equipment............... $ 5,473,000 $ 6,846,000
Other equipment................. 27,000 50,000
Leasehold improvements.......... 175,000 200,000
----------- -----------
5,675,000 7,096,000
Self-construction and start-up costs:
Salaries:
Engineering ................. 427,000 508,000
Plant construction and
operations................. 2,914,000 3,214,000
Indirect labor and overhead.. 425,000 585,000
--------- ---------
3,766,000 4,307,000
Related costs:
Plant operations............. - -
Direct and indirect plant
and material costs......... - -
Technical outside services... - -
Other........................ - -
--------- ---------
- -
Interest costs:
Payable to Toth
Aluminum Corporation...... - -
Other................................. - -
--------- ---------
- -
--------- ---------
$ 9,441,000 $11,403,000
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,
1996 1995
------ ------
Assets:
Plant and equipment............... $ 9,441,000 $11,403,000
Other............................. 737,000 945,000
----------- -----------
Total............................. $10,178,000 $12,348,000
=========== ===========
Liabilities and Equity:
Notes payable - Toth Aluminum
Corporation....................... $ 8,494,000 $ 9,625,000
Notes payable - Bank.............. 525,000 525,000
Payables - Toth Aluminum Corp..... 13,950,000 14,550,000
Other payables.................... 547,000 647,000
Equity - Toth Aluminum Corporation (13,325,000) (12,986,000)
- Other......................... (13,000) (13,000)
(13,338,000) (12,999,000)
------------ ------------
Total.............................. $ 10,178,000 $ 12,348,000
============ ============
Year Ended August 31,
1996 1995
------ ------
Statement of Plant Expenses
Direct plant costs................. $ 267,000 $ 247,000
Interest Expense................... 2,945,000 3,222,000
Interest Expensed Prior years......
General and administrative costs... 179,000 95,000
----------- -----------
Net loss $ 3,391,000 $ 3,700,000
=========== ===========
August 31,
1996 1995
------ ------
Payable to and Equity of Toth Aluminum
Corporation
Notes payable...................... $19,375,000 $22,602,000
Payables........................... 7,425,000 8,560,000
Beginning equity of the Company.... (5,560,000) (5,560,000)
Less: Loss from Armant....... (9,375,000) (8,594,000)
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....... (5,351,000) (7,121,000)
----------- ------------
Investment in and advances to
Armant.................... $ 894,000 $ 4,267,000
=========== ============
3. PROPERTY, PLANT AND EQUIPMENT
At August 31, 1996 and 1995, the Company's property, plant
and equipment consisted of the following:
1996 1995
------ ------
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....................... (406,726) (353,501)
--------- ----------
Property, plant and equipment - net. $ 103,159 $ 156,384
========= ==========
4. PREPAID LEASES
During 1982, the Company was leasing from ELSA 16 acres of
land, together with certain improvements, at the Armant site. The
Company had prepaid the first four years' rent on these five year
leases, which commenced June l, 1981, by issuing common stock to ELSA.
In August 1983, the Company and ELSA agreed that ELSA would
purchase 281,353 shares of the Company's common stock for $562,706,
with the stipulation that the Company would repay the balance of ELSA's
mortgage note on the Armant property, which was approximately
equal to the funds received and would receive a ten year lease of
104 acres and improvements, together with the right to pledge the
leased property as security for a bank loan. In September 1983, the
Company paid the balance of ELSA's mortgage note and obtained a ten year
lease on the property commencing September 1983 and the right to pledge
the property as security for a bank loan. The Company has an option to
purchase the leased property, at a price determined by independent
appraisal, at any time during the ten year lease term. The prior five
year leases were canceled upon execution of the ten year lease,
and ELSA retained the common stock it had received in prepayment of
the five year leases.
Management concluded that the transactions described above
were essentially a non-monetary transaction consisting of the
acquisition of a ten year lease and the right to pledge the property
in exchange for common stock and the cancellation of the five year
leases, and should be recorded based on the fair value of the ten
year lease. An independent appraisal of the ten year lease established
that its fair value was between $600,000 and $700,000. Since the
aggregate of the unamortized prepayment of the canceled five year leases
(approximately $95,000 at August 31, 1983) and the balance (approximately
$562,000) of ELSA's mortgage note paid by the Company was within
the range of the ten year lease's fair value established by appraisal,
management used $657,000 as the basis for recording the transactions.
The Company has contributed to Armant a lease of 25 acres and
improvements for a period of approximately five years, commencing in
September 1983, and has retained for its use the remainder of the lease.
Of the $657,000 aggregate discussed above, the Company allocated
$138,000 to its capital contribution to Armant, and $519,000 to prepaid
leases at August 31, 1983.
During fiscal years 1985 and 1984 the Company, in its capacity as
general partner, negotiated loans of approximately $2.4 million for the
Armant Partnership using the property as collateral. Approximately
$525,000 of these loans remained outstanding at August 31, 1996.
5. NOTES PAYABLE
Notes payable consisted of the following:
August 31,
1996 1995
------ ------
Notes payable to bank,
collateralized(A):
At 12% ........................... $ - $ -
Demand notes payable to other
parties, unsecured (A):
At 12% ........................... - -
Demand notes, and payable to
related parties, unsecured (A):
At 12%............................ 2,555,601 2,199,469
---------- ----------
Series "A-1" Convertible
Promissory Notes
Payable to related parties........ 7,398,265 6,726,150
Payable to others................. 5,978,421 5,575,742
============ ===========
Total.................................. $ 15,932,287 $14,501,361
A) Partial or full collateralized by a pledge of personal assets
owned by the Company's Chairman of the Board.
Bank borrowings and applicable interest rates were as follows:
1996 1995 1994
Balance at end of period.......... $ -0- $ -0- $ -0-
Maximum amount outstanding........ -0- -0- -0-
Weighted average amount
outstanding.................... -0- -0- -0-
Weighted average interest rate
during the year................ - - -
Weighted average interest rate
at year end.................... - - -
The weighted average interest rate during the year was computed by
dividing applicable interest expense by average bank borrowings outstanding.
6. DEFERRED CREDIT
In May 1982, the Company and a Swiss corporation entered into an
agreement whereby the Swiss corporation obtained a portion of the Company's
net profits interest in TACMA as consideration for advancing $50,000 to TACMA
on behalf of the Company (see Note 2). The agreement defines net profits as
the excess of revenues over expenses, excluding depreciation expense. The
agreement, which has a 20-year term, provides that the Swiss corporation
will receive 10% of the Company's net profits interest in TACMA until
payments to the Swiss corporation total $50,000, at which point its net
profits interest decreases to 5%. Upon the occurrence of certain events
set forth in the agreement, the Swiss corporation may require that the
Company replace or supplement the Swiss corporation's interest in TACMA
with a similar interest in other entities in which the Company has an
interest. Despite the fact that an event set forth in the agreement has
occurred (payments to the Swiss corporation did not equal $50,000 within
the four year period ended May 1986). The Swiss corporation has not
received payments equal to $50,000, and in 1994 they have requested
action requiring the Company to replace or supplement its interest
in TACMA. During 1995 the company issued a Series "A-1" Convertible
Promissory Note to the Swiss Corporation for the original $50,000
accrued interest of $98,200 for a total of $148,000.
7. 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, 1995, the amounts
and expiration dates of the net operating loss carry-forwards were as
follows:
Expires in Year
Ending August 31, Amount
----------------- --------
1996 539,500
1997 262,300
1998 697,200
1999 767,700
2000 377,500
2001 1,608,600
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
-----------
Total $ 49,550,724
============
8. 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 1996 no options were exercised. The following information
is furnished with respect to options and warrants outstanding.
Number of Shares at
August 31, August 31,
1996 1995
-------- ---------
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
======= =======
During 1988, the Company commenced a private offering of 1,500,000
units of its securities. Each unit consisted of one share of the Company's
common stock and the right to acquire an option to purchase an additional
share at a price equal to the original purchase price of the unit. As of
August 31, 1988, the Company had sold 919,981 units and had issued option
rights to purchase 919,981 shares with an exercise price ranging from
$0.75 per share to $0.95 per share. The option is exercisable for a period
of three years, commencing on the date that the Company's shareholders
approve an increase in the authorized shares of the Company so as to
permit the exercise of all of the options offered hereby, but in no event
later than August 30, 1999. If no such authorization has been made prior
to that date, options will automatically be converted into the Company's
subordinated debt in a principal amount representing the difference
between the closing bid price of the Company's common stock on
August 30, 1999, and the exercise price of the option, bearing interest
at the rate of 1% per month until paid.
9. 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.
Refer to "Involvement in legal proceedings", Part III, Item 10,
page 21, for additional information on certain lawsuits related to
potential recoveries from alleged securities law violations.
The table below sets forth common stock issuances from inception
of the Company to August 31, 1996, 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
------------- ------------- ----- -------
From inception (August 1966)
to August 31, 1971:
Issued at inception (August 1966)
to the founders for patent
rights and services............. 4,400,000 $ 27,500 $.00625 $.00625
Issued for cash on initial
offering to Louisiana residents. 780,000 4,875 .00625 .00625
Issued for cash pursuant to
offering under Regulation A of
Securities Act of 1933.......... 232,740 290,925 l.25 l.25
Issued to officers, employees and
consultants for services........ 421,080 3,975 .00625- .00944
l.25
Issued upon conversion of
preferred stock................. 1,163,300 290,825 .25 .25
----------- ----------
Total............................ 6,997,120 $ 618,100
=========== ==========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September l, 1971 to
August 31,1976:
Issued for cash (net of issuance 1.00-
costs of $647,356).............. 977,813 $2,324,420 5.75 2.38
Issued to officers, employees,
directors and consultants for .9375-
services........................ 93,285 121,982 2.50 1.31
Issued for merchant banking
services........................ 98,800 247,000 2.50 2.50
Issued for underwriting commissions
on common stock sales........... 87,860 233,806 2.66 2.66
Issued in the acquisition of a
subsidiary...................... 500,000 1,830,000 3.66 3.66
Issued upon conversion of
preferred stock................. 31,900 7,975 .13-.50 .25
--------- ----------
Total............................ 1,789,658 $4,765,183
========= ==========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September l, 1976 to
August 31, 1983:
Issued for cash............... 3,022,014 $3,899,470 $ * $ 1.29
Issued to officers, employees,
directors and consultants for
services..................... 1,020,550 1,180,259 * 1.16
Returned on divestiture of
subsidiary................... (500,000) (1,400,000) 2.80 2.80
Issued upon divestiture of
subsidiary................... 131,854 482,586 3.66 3.66
Issued upon cancellation of
indebtedness................. 2,742,915 3,391,146** * 1.24
Issued upon conversion of
debentures................... 69,794 113,000 * 1.62
Issued upon exercise of
warrants..................... 534,790 551,804 * 1.03
Issued for rental prepayments
and investment............... 497,353 778,706 1.00-2.00 1.57
Issued for the acquisition
of assets.................... 118,934 89,200 .75 .75
---------- ----------
Total......................... 7,638,204 $9,086,171
========== ==========
* Range of issue price per share is not available.
** Of the above, 484,824 shares were issued to the Chairman of the
Board of Directors for his assumption of $550,950 of the Company's debt, and
130,000 were issued to ELSA in satisfaction of $130,000 of the Company's
debt to ELSA.
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September l, 1983 to
August 31, 1985:
Issued for cash.............. 1,181,800 $ 2,953,101 $1.08-3.02 $2.50
Issued to officers, employees,
directors and consultants for
services.................... 434,343 539,091 .70-3.00 1.24
Issued upon exercise of
options and warrants........ 285,583 303,562 1.00-3.70 1.06
Issued for commissions on
sale of Armant Partnership
units....................... 26,812 53,625 2.00 2.00
Issued upon conversion of
preferred stock to common
stock....................... 740 925 1.25 1.25
Issued upon cancellation of
indebtedness................ 693,216 665,915* .75-1.14 .96
Issued in satisfaction of
royalty prepayments......... 200,000 172,760 .86 .86
Issued in settlement of
litigation.................. 130,000 157,000 1.21 1.21
--------- ---------
Total 2,952,494 $4,845,979
========= ==========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1985 to
August 31, 1986:
Issued to officers, employees,
directors and consultants
for services................ 96,988 $ 74,023 .65-1.11 .76
Issued upon conversion of
debentures.................. 3,096,555 3,757,364 1.21 1.21
--------- ---------
Total 3,193,543 $3,831,387
========= ==========
* Issued to ELSA in satisfaction of $665,915 of debt plus accrued interest.
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September l, 1986 to
August 31, 1987:
Issued for cash.............. 4,929,000 $7,411,978 $1.25-1.88 $1.50
Issued to officers, employees,
directors and consultants for
services.................... 57,000 66,120 1.16 1.16
Issued upon exercise of
options and warrants........ 5,433,577* 5,618,577* 1.00-1.25 1.03
Issued upon cancellation
of indebtedness............. 703,600 879,500 1.25 1.25
Issued upon conversion of
debentures.................. 56,400 75,944 1.21-1.49 1.35
Private placements of
common stock reclassified
to common stock subject to
rescission ................. (1,096,900) (1,371,125) 1.25 1.25
Common stock subscribed...... (1,700,000) (1,700,000) 1.00 1.00
----------- ----------
Total 8,382,677 $10,980,994
=========== ===========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1987
to August 31, 1988:
Issued for cash ................ 919,981 652,416 .75-.95 .71
Issued to officers, employees,
directors and consultants for
services....................... 80,430 68,682 .62-1.44 .85
Issued upon payment of common
stock subscribed............... 1,700,000 1,700,000 1.00 1.00
To reclassify common stock
subject to rescission.......... 1,096,900 1,371,125 1.25 1.25
---------- ----------
Total........................... 3,797,311 3,792,223
---------- ----------
Total at August 31, 1988........ 34,751,007 $37,920,037
========== ===========
* Includes 2,468,677 options exercised by Charles Toth, the Company's
Chairman; 998,667 options exercised by Enrique Uribe, a member of the
Company's Board of Directors or through Empresas Lince, S.A., a company
controlled by Mr. Uribe and; 225,000 options exercised by James M. Gibbs,
a member of the Company's Board of Directors.
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1988
to August 31, 1989:
Issued for cash ................ 466,286 349,714 .75 .75
Issued to officers, employees,
directors and consultants for
services....................... 118,900 89,175 .75 .75
Issued upon payment of common
stock subscribed............... 40,000 20,000 .50 .50
Total........................... 625,186 405,984
----------- ----------
Total at August 31, 1989........ 35,376,193 $38,376,926
=========== ===========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1989
to August 31, 1990:
Issued for cash ................
Issued to officers, employees,
directors and consultants for
services....................... 40,000 20,000 .50 .50
Issued upon payment of common
stock subscribed...............
Total........................... 40,000 20,000
---------- ----------
Total at August 31, 1990........ 35,416,193 $38,396,926
========== ===========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1990
to August 31, 1991:
Issued for cash ................
Issued to officers, employees,
directors and consultants for
services.......................
Issued upon payment of common
stock subscribed...............
Total...........................
----------- ------------
Total at August 31, 1991........ 35,416,193 $38,396,926
=========== ============
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1991
to August 31, 1992:
Issued for cash ................ 50,000 31,250 .50-.75 .63
Issued to officers, employees,
directors and consultants for
services.......................
Issued upon payment of common
stock subscribed...............
Total........................... 50,000 31,250
---------- -----------
Total at August 31, 1992........ 35,466,193 $38,428,176
========== ===========
Number of Total Dollar Price Per Share
Shares Issued Consideration Range Average
------------- ------------- ----- -------
From September 1, 1992
to August 31, 1996:
Issued for cash................
Issued to officers, employees,
directors and consultants for
services......................
Issued upon payment of common
stock subscribed..............
Total
----------- ------------
Total at August 31, 1996 $35,466,193 $38,428,176
=========== ============
10. CONVERTIBLE DEBENTURES
On December 24, 1985, the Company commenced an offering of its
10% Convertible Debentures due August 1, 1990 (the "Debentures").
The offering contemplated the sale of a maximum of $4,320,000 of
Debentures, convertible, at the election of the Debenture holders
into 3,175,000 shares of common stock, no par value, of the
Company. The purchase price of each Debenture was $1,000 payable
in cash. No minimum offering of Debentures was established and
Offerees were apprised of the fact that the proceeds of the offering
would not be placed into escrow, but would be applied directly to the
Company.
The Debenture offering was closed as of May 31, 1986, resulting
in net proceeds of $3,852,963 after deducting offering costs of $467,037.
As of August 31, 1988, 4,298 debentures were converted into 3,152,955
shares of the Company's common stock, resulting in an increase in common
stock of $3,833,307 (net of offering costs of $464,693) and a
balance in debentures payable of $20,437 (net of offering costs of
$1,563).
The Board of Directors of the Company learned that not all of the
Debentures were sold for cash. Instead, of the maximum offering of
$4,320,000, $2,014,137 of Debentures were purchased in exchange for
the cancellation of pre-existing debt which the Company owed to these
purchasers. Of the $2,014,137 of Debentures sold in exchange for
cancellation of indebtedness, $1,957,137 or 97% were sold to or through
directors, officers or affiliates of the Company.
As a result of the sale of Debentures for consideration other
than cash, the proceeds of the Debenture offering were not directly
applied in the manner that the Company intended, or as the Company
would have applied the proceeds had the Debentures been sold entirely for
cash. The Debenture offering contemplated that net proceeds (after
deduction of sales commissions and offering costs) of $3,842,000
would be applied approximately $2,882,000 toward a loan to the Armant
Partnership (a Louisiana Partnership of which the Company is the General
Partner) for the repayment of the Partnership's loans, capital expenditures,
and working capital and development expenses. Instead, the net proceeds
of the Debenture offering were directly applied as follows: (I) $1,939,000
toward the retirement of debt, of which $1,045,000 was to retire the
Company's debt and the balance was to retire Armant's debt and (ii)
$1,902,000 was loaned to the Partnership for its working capital and for
capital expenditures.
This discrepancy is the result of the considerable delay which was
experienced in bringing the Debenture sale effective. As a result, the
Company, wishing to continue the operations of the Armant facility, and
to continue the Company's research activities, borrowed funds from directors,
affiliates and outside lenders, relying on the guarantee of certain directors
and affiliates for Armant and corporate purposes. When the Debenture offering
became effective, the proceeds of the offering were used substantially to
retire this debt. Consequently, the Company believes that the net proceeds
of the Debenture offering were applied, albeit indirectly, in the manner
contemplated by the Debenture offering.
However, if it were subsequently determined that this variance in
the terms of the offering would require the Company to make an offer of
rescission of the debenture offering, the Company has made no provision
in the financial statements for such an offering. To date, there have
been no claims against the Company with respect to this issue and the
Company is not aware that any such claims are planned or contemplated.
Because of the complex nature of securities law, legal counsel has not
formed an opinion on whether there is any potential or actual liability
to the Company.
11. SERIES "A-1" CONVERTIBLE PROMISSORY NOTE
In May of 1994, 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 $.30 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.
If as intended the holders of the Series "A-1" Convertible Promissory
Note were to convert today, this conversion would enhance the Stockholder's
Equity section by increasing the Common Stock by $15,893,524, thereby
increasing the Common Stock to 79,467,620, 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 Note holder 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 this Note.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
Schedule IV - Indebtedness of and too 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,
1996
Armant $ 25,788,136 $ - $ 17,294,136A $ 8,494,000
TACMA* $ - $ - $ - $ -
1995
Armant $ 38,562,246 $ - $ 12,774,110A $ 25,788,136
TACMA* $ - $ - $ - $ -
1994
Armant $ 34,999,756 $ 3,565,490 $ - $ 38,562,246
TACMA* $ - $ - $ - $ -
A Due to the continued delay in obtaining the necessary funding the company
Wrote off this amount.
* Due to continued delay in obtaining government approval, the
receivable from TACMA was reversed during the fiscal year ended
August 31, 1987.
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,
1996
Armant $ - - - -
TACMA $ - - - -
1995
Armant $ - - - -
TACMA $ - - - -
1994
Armant $ - - - -
TACMA $ - - - -