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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, 1997
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 receding 12 months (or
for such shorter periods that the registrant was required to file
reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes X No
State the aggregate market value of the voting stock held by non-
affiliated of the registrant as of September 30, 1997; $2,035,501.
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, 1997
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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 an aluminum
chloride smelting process may be economically superior to
traditional routes to the production of aluminum metal.
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, 1997, the Company has derived no continuing
revenues from the operations.
In 1980, the Company, together with its joint venture
partner, Indian Magsee Alloys, Pvt., Ltd. (IMA), a company
organized under the laws of India, undertook 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, and there are currently no
plans to restart the facility.
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, 1997. 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 metal and aluminum
intermediates and other valuable separable metal and chemical
products. The Company is currently focusing on
commercializing a combination of its clay chlorination
technology with aluminum chloride smelting ("ACS") processing
to manufacture aluminum metal from clay. 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. In the U.S., extensive deposits of
kaolin and flint clay occur in Georgia, South Carolina, Ohio,
Pennsylvania and Colorado and in western Canada. Extensive
deposits occur on all continents in the world, as for an
example in England, France, Germany, Russia 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
directly from raw materials, other than bauxite. Much of
this work was done at the University of Vesprem in Budapest,
Hungary during 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
metal 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.
From 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 25 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
126 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 sold approximately
122,000 pounds of purified aluminum chloride. In addition,
Armant has sold approximately 46,000 pounds of silicon
tetrachloride. Management believes that the tests runs at
Armant demonstrated the economics and feasibility of the TAC
process for the production of metal chlorides.
In 1993 and 1994, TAC evaluated the application of it's
clay carbo-chlorination technologies to the abundant raw
materials resources of western Canada. The Company retained
Cominco Engineering Services Ltd., (CESL), in Calgary,
Alberta, Canada as its engineering services sub-contractor in
Canada. And under their sponsorship, the Company was awarded
a Minerals Development Agreement ("MDA") contract by the
Canadian federal government to study western Canadian
resources. 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 1996 and evaluated at least
thirty-seven western Canadian clays and nine western Canadian
coke resources. 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
metal 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.
In August 1995, Fluor Daniel Inc. undertook a
feasibility study of a project to construct a commercial
Metal Chlorides Plant to manufacture aluminum chloride,
silicon tetrachloride, titanium tetrachloride and other
products from clay using the company's proprietary carbo-
chlorination technology. Fluor Daniel's assessment was
highly favorable, but the Company has not succeeded in
raising the funding needed to complete the project.
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. Due to a lack of funding no activities are
currently underway in Canada.
Armant
The Armant Plant, which was originally intended to be
constructed to operate on a continuous basis, but was only
capable of operating in a "batch" mode, when it was shutdown
in 1988. The plant was 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. Due to a lack of funding the required equipment
has not been installed. While such installation is still a
viable option, there are no current plans to upgrade the
Armant facility.
Additional Plans Subject to Success in Other Ventures
Plans for Alumina
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. In 1988, the Company completed
the design of a 150 ton per year oxidation pilot unit and
planned 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 was 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.
Plan for Aluminum Metal
The principal business goal of the Company is the
commercialization of its aluminum-from-clay technology.
This will involve the 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 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.
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 in North
America, and around the world.
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 then sent to a
calciner where heating drives off the remaining moisture and
activates the clay. The calcined clay, together with
lignite char, is fed continuously into a fluid bed
chlorinator where it reacts with chlorine gas. The oxide
compounds, present in the clay, react with chlorine and form
gaseous chloride compounds. These are condensed and
separated into aluminum chloride, silicon chloride and
titanium chloride. Aluminum chloride may be smelted by
electrolysis to produce aluminum, 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.
Titanium tetrachloride is used in the manufacture of
titanium metal and alloys and for production of titanium
dioxide pigment for paper and paints.
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 and the Company used the proceeds of
such sale, $1,965,000, to secure financing for Armant.
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.
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 totals
$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 metal, alumina, aluminum
trichloride, silicon tetrachloride and titanium tetrachloride
include larger, more established firms, some of which are
divisions of international corporations. These firms have
established markets, 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. Any plant that
TAC would construct will be in full compliance with all
relevant federal, state, and local permitting statutes.
Patents
The Company has been issued 23 patents on significant
aspects of the TAC Process in the United States, and intends
to apply for a significant number of additional 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 Company's
current 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, 1997, the Company has spent and
depreciated an aggregate of $29,700 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,
1997 1996 1995
Research and development $ 29,700 $ 47,821 $65,384
Employees
At September 30, 1997, the Company had 3 full time
employees.
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
----- ------
1996:
First Quarter, 1/16 3/16
Second Quarter, 1/8 3/16
Third Quarter, 1/16 1/8
Fourth Quarter, 1/16 3/32
1997:
First Quarter, 1/16 3/32
Second Quarter, 1/16 3/32
Third Quarter, 1/16 1/8
Fourth Quarter, 1/16 3/32
As of September 30, 1997, 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, 1997 of approximately
$64,977,889. 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.
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Total assets......... $ 195,040 $1,049,282 $4,507,997 $17,381,210 $17,363,976
Net loss............. $3,927,866 $6,864,124 $16,157,338 $2,313,295 $2,204,346
Loss per share of
common stock......... $.11 $.19 $.46 $.07 $.06
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 $19,866,905 $17,292,931 $14,292,931
Total
stockholders
equity............... ($26,535,019) ($22,607,153) ($15,743,029) $414,309 $2,727,574
The significant decrease in the Total Stockholders Equity
in 1995 is directly attributed to the Company's forced write
down of its investment in Armant thereby increasing its loss
while it sought funding for either its 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, 1997, total
assets decreased to $195,040 from $1,049,282 at August 31,
1996 and $4,507,997 at August 31, 1995. The
recoverability of the Company's investment in and advances
to Armant of $110,250 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
$20,230,589 at August 31, 1995 to $23,585,998 at August 31,
1996 to $26,709,622 at August 31, 1997. Cash on hand
increased from $3,750 at August 31, 1996 to $4,112 at
August 31, 1997.
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, 1997, of approximately $64,977,889.
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 a project to
commercialize the Clay-to-Aluminum Process be undertaken in
two steps.
In the first step, which TAC has designated Phase 1, TAC
proposes that a semi-commercial demonstration plant be
built and operated. Operation of this semi-commercial
plant will permit engineers to fine tune the design of the
subsequent full commercial facility in Phase 2. Equally
important, the Phase 1 plant will provide a hands-on
training facility for commercial plant staff. Phase 2 of
the project will comprise the design and construction of a
full scale commercial Clay-to-Aluminum plant. Cost of
Phase 1 is estimated to be $45 million and the cost of phae
2 will be determined after Phase 1 has been completed.
There will be two principal goals in executing Phase 1.
The first goal is to refine TAC's clay chlorination
procedures for implementation in commercial production
facilities. TAC has already developed these procedures to
an advanced stage in its pilot plant, but the design of
that pilot plant did not permit long duration, continous
operation runs. Refinement of procedures will permit
confident scale-up to full scale commercial plant capacity.
The second goal will be generation of refined designs
for full scale commercial smelting cells. This will be
accomplished by constructing the operating a complete ACS
smelting facility which will consume a portion of the
aluminum chloride produced in clay chlorination. The
balance of production will be marketed as high purity
anhydrous aluminum chloride to generate revenues to help
defray plant operating costs. Smelting specialists foresee
rapid development of a final design for commercial cells in
Phase 1, and anticipate that this will consume nine to
twelve months of development time.
The project will start as soon as TAC has secured the
financing for Phase1. Initial tasks includes detailed
engineering design of clay chlorination and smelting
facilities, and the selection of a suitable plant site.
Construction will begin with site preparation,
approximately nine months after the project start. After
an initial ramp-up period the Phase 1 plant is expected to
reach full design capacity within 36 months after project
start.
After confirmation of the economic viability of the Clay-
to-Aluminum Process, work will begin on the second phase of
the project, namely the design, construction and operation
of a commercial Clay-to-Aluminum plant. TAC proposes that
a modular design concept be adopted for Phase 2, such that
the eventual full scale commercial plant will consist of a
set of duplicate plant modules, operating in parallel. TAC
estimates that the first plant module will be completed in
year seven of the project, with additional modules
constructed in parallel in subsequent years.
In light of the Company's net operating loss carry-
forwards of approximately $53,478,590 at August 31, 1997,
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.
1997 Compared to 1996
The net loss for the fiscal year ended August 31, 1997
was $3,927,866 compared to $6,864,124 in 1996. The
decrease was due to an decrease in Loss in Investment and
advances to Armant. The Company has nearly written of its
entire investment in the Armant Partnership. Total
expenses decreased from $1,732,823 in 1997 to $2,393,685 in
1996. During the same period, promotional, general and
administrative expenses decreased to $419,421. During the
year ended August 31, 1997, the company recognized
$1,323,853 in interest expense compared to $1,974,483 in
1996. Also, during fiscal year ended August 31, 1997, the
company recognized $1,323,852 loss from Armant. Armant
has had no operation during this year except for routine
maintenance and upkeep, and the Company recognizes the
related loss.
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 occurred because the Company, due to prolonged
delays in attaining funding was forced to write off a major
part of its investment in the Armant Partnership. 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.
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 65 Chairman of the Board of
Directors and Chief
Executive Officer
Gervase M. Chaplin 60 Sr. Vice President
Engineering and Technology
Glenn A. Nesty 85 Director
Calvin J. Laiche 66 Director
Russell Haas 60 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, 1997, all remuneration paid by the Company
during the last fiscal year to each officer whose aggregate
cash compensation exceeded $60,000 to all officers of the
Company
as a group.
Other
Compensation
Cash Securities
Name of Individual Compensation Properties
or NO. of Persons Capacities in Salaries, Personal
in Group which served Fees, Bonus Benefits
------------------ -------------- ------------ ------------
Gervase M.Chaplin Sr. Vice. President $96,000 (1)
Technology &
Development
Charles Toth Chairman of the $75,000 (1)
Board & CEO
(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, 1997, 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 0 *
Russell Haas 20,000 (3) *
All officers and directors
as a group (5 persons)1,519,000 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, 1997, Charles Toth, the Company's
founder and Chairman of the Board, had loaned the Company
an aggregate of $2,677,350, plus accruing interest of
$1,111,661. 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 requirements of Section 13 of 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOTH ALUMINUM CORPORATION
BY: ___________________
CHARLES TOTH
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHEIF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the date indicated.
Charles Toth December 12, 1997
Charles Toth
Chairman of the Board
of Directors and Chief
Executive Officer
Charles Ernest Toth Jr. December 12, 1997
Charles Ernest Toth Jr.
Treasurer
Glenn Nesty December 12, 1997
Glenn Nesty
Director
Calvin J. Laiche December 12, 1997
Calvin J. Laiche
Director
Russell Haas December 12, 1997
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:
Page
Financial Statements:
Balance
Sheets............................................... 22
Statements of Operations and
Deficit Accumulated During
the Developmen Stage............................ 24
Statements of Stockholders' Equity................ 25
Statements of Cash Flows.......................... 27
Notes To Financial Statements..................... 29
The following financial statement schedule of the
Registrant
is included in Item 14(a)(2):
IV - Indebtedness of and to Related Parties.......... 45
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, 1997 AND 1996 (Unaudited)
1997 1996
------ ------
ASSETS
CURRENT ASSETS:
Cash ..................................... $ 4,112 $ 3,750
Accounts receivable:
Officers and employees.................
Other.................................. 0 10,787
Prepaid:
Leases ................................
Other..................................
Total current assets...................... 4,112 14,537
INVESTMENTS IN AND ADVANCES TO:
TACMA India Limited....................
Armant Partnership..................... 110,250 894,425
Total..................................... 110,250 894,425
PROPERTY, PLANT AND
EQUIPMENT - Net........................ 79,738 103,159
PREPAID LEASES ...........................
PATENTS AND PATENT RIGHTS (net of
accumulated amortization: ............. 940 37,161
========== ===========
TOTAL..................................... $ 195,040 $ 1,049,282
See notes to financial statement
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
COMBINED BALANCE SHEETS, AUGUST 31, 1997 AND 1996 (Unaudited)
1997 1996
LIABILITIES ------ ------
CURRENT LIABILITIES:
Notes payable-related parties............ $ 23,100 $ -
Notes payable-bank....................... - -
Notes payable-other ..................... 300,000 300,000
Accounts payable:
Trade................................. 457,300 391,245
Officers and employees................ 279,560 187,361
Accrued salaries ........................ 1,948,961 1,676,994
Accrued expenses ........................ 89,450 -
Accrued interest payable................. 1,474,005 1,163,492
Total current liabilities................ 4,572,376 3,719,093
DEFERRED CREDIT ......................... 0 50,000
SERIES "A-1" Convertible
Promissory Note (CPN)1
CPN Related Parties
Principal........................... 7,398,265 7,398,265
Accrued interest payable............ 4,404,380 3,147,378
CPN Other Parties
Principal........................... 5,978,421 5,978,421
Accrued interest payable............ 4,356,180 3,342,841
Total Series "A-1" Notes............ 22,137,246 19,866,905
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 1997
and 35,466,193 shares in 1996......... 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.................. (64,977,889) (61,050,023)
Total stockholders' equity............... (26,535,019) (22,607,153)
============= =============
TOTAL.................................... $ 195,040 $ 1,049,282
*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, 1997, 1996, AND 1995 AND CUMULATIVE FOR THE
PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 1997 (Unaudited)
FROM
INCEPTION TO
.....FOR THE YEARS ENDED AUGUST 31......... AUGUST 31,
1997 1996 1995 1997
------ ------ ------ ------
COSTS AND EXPENSES:
Research and development..... $ 29,700 $ 43,781 $ 65,384 $7,717,140
Promotional, general and
administrative............. 379,271 375,421 424,457 15,430,726
Interest..................... 1,323,852 1,974,483 2,000,363 11,923,320
---------- ---------- ---------- ------------
Total........................ 1,732,823 2,393,685 2,490,204 35,071,186
========== ========== ========== ============
OTHER (INCOME) EXPENSE:
Loss in Investment
and advances to Armant....(A) 784,175 3,458,715 12,774,110 17,367,363
Equity in Loss in Armant.... 1,410,868 1,011,724 893,024 12,559,340
---------- ---------- ----------- ------------
NET LOSS.................... 3,927,866 6,864,124 16,157,338 64,977,889
========== ========== =========== ============
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
BEGINNING OF
PERIOD...................... $61,050,023 $54,185,899 $38,028,561
------------ ------------ ------------
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
END OF PERIOD............... $64,977,889 $61,050,023 $54,185,899 $64,977,889
=========== =========== =========== ============
LOSS PER
COMMON SHARE................ $.11 $.19 $.46
=========== =========== ===========
(A) Due to the prolonged delay in attaining the necessary
funding, the company was forced to write down $17,367,363 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, 1997, 1996, AND 1995 AND CUMULATIVE FOR THE PERIOD FROM
INCEPTION (AUGUST 1966) TO AUGUST 31,1997 (Unaudited)
........................FOR THE YEARS ENDED AUGUST 31.................. FROM INCEPTION
.........1997......................1996....................1995........ TO AUGUST 31, 1997
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 sale.......... 87,860 233,806
Issued for commission
on sales of Armant
Partnership units.......... 26,812 53,625
Issued in the acquisition
of subsidiary.............. 500,000 1,830,000
Returned on divestiture
of subsidiary.............. (500,000) (1,400,000)
Issued upon divestiture
of subsidiary.............. 131,854 482,586
Issued upon cancellation
of indebtedness............ 4,139,731 4,936,561
Issued upon conversion
of debenture............... 3,222,479 3,946,307
Issued upon exercise of
warrants and options....... 6,253,950 6,473,943
Issued for prepaid leases.... 497,353 778,706
Issued upon conversion
of preferred stock
to common stock............ 1,195,940 299,725
Issued for the
acquisition of assets...... 118,934 89,200
Issued in satisfaction
of prepaid royalties......... 200,000 172,760
Issued in settlement
of litigation............... 130,000 157,000
Common stock subject
to rescission.............. 1,096,900 1,371,125
-------- -------- -------- -------- -------- --------- ----------- ----------
Common stock subscribed......
-------- -------- -------- -------- -------- --------- ----------- ----------
Balance, end of period...... 35,466,193 38,428,176 35,466,193 38,428,176 35,446,193 38,428,176 35,466,193 38,428,176
========== ---------- ========== ---------- ========== ---------- =========== ----------
See notes to financial statements.
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY (Continued) (Unaudited)
.....................FOR THE YEARS ENDED AUGUST 31................ FROM INCEPTION
.........1997.................1996.................1995........... TO AUGUST 31, 1997
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...................... (61,050,023) (54,185,899) (38,028,561)
New Loss....................... (3,927,866) (6,864,124) (16,157,338) (64,977,889)
------------ ------------ ------------ ------------
Balance, end of period........... (64,977,889) (61,050,023) (54,185,899) (64,977,889)
TOTAL STOCKHOLDERS EQUITY........ (26,535,019) (22,607,153) (15,743,029) (26,535,019)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 1997, 1996, AND 1995
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31,1997
FROM INCEPTION
.......FOR THE YEARS ENDED AUGUST 31........ TO AUGUST 31,
1997 1996 1995 1997
------ ------ ------ ------
OPERATING ACTIVITIES
NET LOSS.................... $(3,927,866) $(6,864,124) $(16,157,338) $(64,977,889)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and
amortization............. 53,225 53,225 53,225 1,135,141
Amortization and write
off of patents........... 31,264 31,264 31,264 439,878
Amortization of
financing costs.......... 95,000
Loss on divestiture
of subsidiaries.......... 912,586
Amortization of prepaid
leases................... 302,424
Losses from joint
venture................. 1,410,868 1,011,724 893,024 11,016,862
Other..................... 111,616
Proceeds from royalty
prepayments.............. 172,760
Prepayment of leases...... (16,104)
Disposition of property,
plant and equipment...... 27,745
CHANGES IN OPERATING ASSETS
AND LIABILITIES:
Decrease (Increase)
in accounts receivable... (10,787)
Decrease (Increase)in
prepaid expenses......... (27,371)
Increase (Decrease) in
accounts payable......... 853,283 786,807 506,586 12,406,784
Increase (Decrease) in
notes payable............ 539,563 1,074,794 2,088,679 18,012,935
-------- ---------- ---------- -----------
$(1,039,663) $(3,906,310) $(12,584,566) $(20,398,420)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS - (Continued
FROM INCEPTION
......FOR THE YEARS ENDED AUGUST 31........ TO AUGUST 31,
1997 1996 1995 1997
------ ------ ------ ------
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment........ (1,159,046)
Acquisition of patents....... (443,475)
Investment of certificates
of deposit................ (3,995,000)
Cash investments in and
advances to TACMA.......... (1,076,595)
Cash investments in and
advances to Armant......... 257,850 446,294 (203,226) (20,807,739)
Write off of Investments and
Cash advances to Armant... 782,175 3,458,715 12,774,110 17,017,602
Redemption of certifi-
cates of deposit........... 3,995,000
Proceeds from sale of
net profit interest........ 50,000
-------- --------- ---------- -----------
1,040,025 3,905,000 (45,226) (6,419,253)
--------- --------- ---------- -----------
FINANCING ACTIVITIES:
Stock issued for cash........ 18,481,076
Preferred stock issued
for cash................... 266,400
Proceeds from long
term obligations........... 1,430,349
Proceeds from warrants
issued for cash............ 6,236,507
Common stock issuance costs.. (166,550)
Issuance of convertible
debentures................. 1,913,963
Cash received upon
conversion of debentures
to common stock............ 112,999
Payment of long term
obligations................ (1,457,071)
--------- --------- --------- -----------
26,817,673
--------- --------- --------- -----------
INCREASE (DECREASE) IN CASH $ 362 (1,301) (14,403) 362
CASH BEGINNING OF PERIOD 3,750 5,051 19,454
--------- --------- --------- -----------
CASH END OF PERIOD $ 4,112 $ 3,750 $ 5,051 $ 4,112
========= ========= ========= ===========
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31,
1997, 1996 AND 1995 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION
(AUGUST 1966) TO AUGUST 31, 1997 (Unaudited)
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, 1997, and
August 31, 1996, of $64,977,886 and $61,050,023, respectively.
Although the Company's investees (TACMA and Armant) have
constructed facilities that will employ the Company's patented
processes, both investees have been inactive. 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 or Armant facility
unless and until the Company directs its efforts and resources
toward either TACMA or Armant. No such activities are currently
planned for either TACMA or Armant.
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,
1997, of approximately $64,977,889. 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 a project to commercialize
the Clay-to-Aluminum Process be undertaken in two steps.
In the first step, which TAC has designated Phase 1, TAC
proposes that a semi-commercial demonstration plant be built and
operated. Operation of this semi-commercial plant will permit
engineers to fine tune the design of the subsequent full
commercial facility in Phase 2. Equally important, the Phase 1
plant will provide a hands-on training facility for commercial
plant staff. Phase 2 of the project will comprise the design and
construction of a full scale commercial Clay-to-Aluminum plant.
Cost of Phase 1 is estimated to be $45 million and the cost of
phase 2 will be determined after Phase 1 has been completed.
There will be two principal goals in executing Phase 1. The
first goal is to refine TAC's clay chlorination procedures for
implementation in commercial production facilities. TAC has
already developed these procedures to an advanced stage in its
pilot plant, but the design of that pilot plant did not permit
long duration, continuous operation runs. Refinement of
procedures will permit confident scale-up to full scale
commercial plant capacity.
The second goal will be generation of refined designs for
full scale commercial smelting cells. This will be accomplished
by constructing the operating a complete ACS smelting facility
which will consume a portion of the aluminum chloride produced in
clay chlorination. The balance of production will be marketed as
high purity anhydrous aluminum chloride to generate revenues to
help defray plant operating costs. Smelting specialists foresee
rapid development of a final design for commercial cells in Phase
1, and anticipate that this will consume nine to twelve months of
development time.
The project will start as soon as TAC has secured the
financing for Phase1. Initial tasks includes detailed
engineering design of clay chlorination and smelting facilities,
and the selection of a suitable plant site. Construction will
begin with site preparation, approximately nine months after the
project start. After an initial ramp-up period the Phase 1 plant
is expected to reach full design capacity within 36 months after
project start.
After confirmation of the economic viability of the Clay-to-
Aluminum Process, work will begin on the second phase of the
project, namely the design, construction and operation of a
commercial Clay-to-Aluminum plant. TAC proposes that a modular
design concept be adopted for Phase 2, such that the eventual
full scale commercial plant will consist of a set of duplicate
plant modules, operating in parallel. TAC estimates that the
first plant module will be completed in year seven of the
project, with additional modules constructed in parallel in
subsequent years.
In light of the Company's net operating loss carry-forwards
of approximately $53,478,590 at August 31, 1997, management
believes that none of the provisions of the Tax Reform Act of
1986 will, in any respect, have a material impact upon the
Company's liquidity or earnings for the foreseeable future.
The Company's continuation in existence is dependent upon
its ability to generate sufficient cash flow to meet its
continuing obligations on a timely basis, and to fund the
purposed projects and ultimately to attain successful operations.
These factors, among others, may indicate that the Company will
be unable to continue in existence. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Related Party Transactions
A significant aspect of the Company's business activities
consists of transactions with related parties. The following
summarizes significant assets at August 31, 1997 and 1996 arising
from transactions with related parties:
August 31,
1997 1996
-------- -------
Advances to Armant (Note 2) $ 17,604,113 $ 16,819,407
Less write off due to the
Prolonged delay in
Obtaining funding (17,637,363) (16,232,825)
Prepaid leases (Note 4) --- ---
----------- -----------
Total $ 236,750 $ 586,582
=========== ===========
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, 1997, and 1996 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 1997, 1996 and the statement from
inception to August 31, 1997.
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 of
advances 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 1995 to securing funding from the DOE under the
"Steel and Aluminum Energy Conservation and Technology
Competitiveness Act of 1988". Presently, the Company has
postponed its efforts to up grade the Armant Plant.
During fiscal years 1996 and 1997, 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,
1997 1996
------ ------
Direct carbo-chlorination
plant costs:
Process equipment.............. $ 4,110,000 $ 5,473,000
Other equipment................ 14,000 27,000
Leasehold improvements......... 145,000 175,000
---------- -----------
4,269,000 5,675,000
Self-construction and start-up costs:
Salaries:
Engineering .................. 360,000 427,000
Plant construction and
operations................. 2,154,000 2,914,000
Indirect labor and overhead... 367,000 425,000
--------- ---------
2,881,000 3,766,000
Related costs:
Plant operations.............. - -
Direct and indirect plant
and material costs........ - -
Technical outside services.... - -
Other......................... - -
--------- ---------
Interest costs:
Payable to Toth
Aluminum Corporation..... - -
Other......................... - -
---------- ---------
$ 7,150,000 $ 9,441,000
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,
1997 1996
------ ------
Assets:
Plant and equipment....... $ 7,150,000 $9,441,000
Other..................... 528,000 737,000
----------- ----------
Total................. $7,732,000 $10,178,000
=========== ===========
Liabilities and Equity:
Notes payable - Toth Aluminum
Corporation................ $ 6,087,000 $ 8,494,000
Notes payable - Bank....... 525,000 525,000
Payables - Toth
Aluminum Corp.......... 12,100,000 13,950,000
Other payables......... 550,000 547,000
Equity - Toth Aluminum
Corporation............ (13,484,000) (13,325,000)
- Other................ (13,000) (13,000)
(13,497,000) (13,338,000)
------------ ------------
Total........................... $ 7,732,000 $ 10,178,000
============ ============
Year Ended August 31,
1997 1996
------ ------
Statement of Plant Expenses
Direct plant costs................ $ 220,000 $ 267,000
Interest Expense.................. 2,547,000 2,945,000
Interest Expensed Prior years.....
General and administrative costs.. 124,000 175,000
--------- ---------
Net loss $ 2,891,000 $ 3,391,000
============ ===========
August 31,
1997 1996
------ ------
Payable to and Equity of
Toth Aluminum Corporation
Notes payable.................... $18,114,000 $19,375,000
Payables......................... 6,013,000 7,425,000
Beginning equity of the Company.. (5,560,000) (5,560,000)
Less: Loss from Armant.......... (10,785,000) (9,375,000)
Affiliates interest
capitalized by Armant, but
not accrued by the Company.. (5,620,000) (5,620,000)
Expensed by Armant, but not
accrued by the Company...... (2,052,000) (5,351,000)
----------- -----------
Investment in and advances to
Armant........................ $ 110,250 $ 894,000
=========== ===========
3. PROPERTY, PLANT AND EQUIPMENT
At August 31, 1997 and 1996, the Company's property, plant
and equipment consisted of the following:
1997 1996
------ ------
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................... (459,951) (406,726)
--------- ----------
Property, plant and
equipment - net............. $ 49,934 $ 103,159
========= =========
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, 1997.
5. NOTES PAYABLE
Notes payable consisted of the following:
August 31,
1997 1996
------ ------
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%........................ 2,677,350 2,555,601
---------- ----------
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........................... $ 16,054,036 $15,932,287
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:
1997 1996 1995
------ ------ ------
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, 1997, the amounts and expiration dates of the net
operating loss carry-forwards were as follows:
Expires in Year
Ending August 31, Amount
-------------------- ----------
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
2012 3,927,868
------- ------------
Total $53,478,592
===========
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 1997 no options were exercised. The
following information is furnished with respect to options and
warrants outstanding.
Number of Shares at
August 31, August 31,
1997 1996
-------- --------
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, 1997, 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, 1997:
Issued for cash................
Issued to officers, employees,
directors and consultants for
services......................
Issued upon payment of common
stock subscribed..............
Total
----------- ------------
Total at August 31, 1997 $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 1995, the Company elected to convert the
majority of its indebtedness into shareholder equity. At that
time there existed a Convertible Promissory Note, which provided
for the existing indebtedness to be converted into stock based
upon the conversion price of $.50 per share plus a warrant to
purchase an additional equal number of shares at $.75 per share.
The new Series "A-1" Convertible Promissory Note's conversion
price remains the same at $.50 per shares, with a warrant to
purchase an additional equal number of shares, however, the price
has changed and is now at $.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,
1997
Armant $ 25,788,136 $ - $ 17,294,136A $ 8,494,000
TACMA* $ - $ - $ - $ -
1996
Armant $ 38,562,246 $ - $ 12,774,110A $ 25,788,136
TACMA* $ - $ - $ - $ -
1995
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,
1997
Armant $ - - - -
TACMA $ - - - -
1996
Armant $ - - - -
TACMA $ - - - -
1995
Armant $ - - - -
TACMA $ - - - -