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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, 1998
Commission File Number: 0-7568
TOTH ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
LOUISIANA 72-064658
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Highway 18, River Road, P. O. Box 250, Vacherie, LA 70090
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (225) 265-8181
Securities registered pursuant to Section 12(b) of the Act:
NONE
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the receding 12 months (or for such
shorter periods that the registrant was required to file reports),
and (2) has been subject to such filing requirements for the past 90
days: Yes X No
State the aggregate market value of the voting stock held by non-
affiliated of the registrant as of September 30, 1998; $531,500.
The aggregate market value was computed using the average between the
closing bid and ask prices as reported by NASDAQ and does not take
into account the fact that many of the outstanding shares of common
stock are restricted and may not be freely traded.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common stock, without par value 35,466,193
Class Outstanding at Sept. 30, 1998
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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,
1998, 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, 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. The 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 $68,473,960 from inception through August
31, 1998. 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 and 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 (225) 265-
8181, fax number is (225) 265-7795. The Company's Standard
Industrial Classification Code Number is 8890.
- Narrative description of business.
(1) Description of business done and intended to be done.
The Company had been engaged in the research and
development of processes and methods relating to clay carbo-
chlorination technology for the production of aluminum metal and
aluminum intermediates and other valuable separable metal and
chemical products. The Company is currently focusing on
commercializing a combination of its clay chlorination
technology with aluminum chloride smelting ("ACS") processing to
manufacture aluminum metal from clay. It has obtained certain
chemical and engineering patents relating to the technology in
the United States and in 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. 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, had produced market grade metal
chlorides including aluminum chloride and silicon tetrachloride,
but had 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 had 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.
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 had agreed to 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 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 engaged in
pursuing options to achieve this first level of
commercialization.
In August 1995, Fluor Daniel Inc. undertook a feasibility
study of a project to construct a commercial Metal Chlorides
Plant to manufacture aluminum chloride, silicon tetrachloride,
titanium tetrachloride and other products from clay using the
company's proprietary carbo-chlorination technology. Fluor
Daniel's assessment was highly favorable, but the Company has
not succeeded in raising the funding needed to complete the
project.
In March 1998, the Company negotiated with and entered
into an Engagement Agreement with a Denver, CO based financial
brokerage firm, Mercantile Resource Finance, Inc. (MRFI) for the
sole purpose of accelerating the efforts to fully commercialize
the TAC Process. The initial agreement has matured and was
renewed, with a new expiration date of December 31, 1998.
Through the end of the fiscal year, some interest had been shown
by prospective investors, but nothing significant and as of this
writing, nothing material or consequential has materialize.
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
feedstock. Due to a lack of funding, no activities are
currently underway in Canada.
Armant
The Armant Plant 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 had to be installed. Due
to a lack of funding, the required equipment was not installed.
While such installation is an 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 was 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
planed the design and construction of the commercial scale
oxidation unit, assuming funds would be available. Management
estimated 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 Clay-to-Aluminum 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 is
attempting to attract industrial partners, in a corporate
venture, suitable to all concerned, to employ 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 utilized 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 raised $3.5 million in cash commitments (of which
$3,459,000 was 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 $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 $22.9
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. 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 $148,200.
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 had been issued patents on significant aspects
of the TAC Process in the United States, and intends to apply
for a significant number of additional patents and/or
Continuations in Part. In addition, the Company had patents
registered in countries, such as England, Hungary, Venezuela and
Canada, and intends to apply, as above, in those and other
foreign countries.
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, 1998, the Company has spent and
depreciated an aggregate of $89,921 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,
1998 1997 1996
Research and development $12,400 $ 29,700 $47,821
Employees
At September 30, 1998, the Company had 4 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
----- ------
1998:
First Quarter, 1/16 3/32
Second Quarter, 1/16 3/32
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, 1998, 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 declared nor paid 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 unaudited 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, 1998 of approximately $68,473,960.
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 recover ability of the Company's
investment in and receivables from Armant is dependent on the
applicable investee achieving sufficiently profitable
commercial operations. These factors, among others, may
indicate that the Company will be unable to continue in
existence. The financial statements do not include any
adjustments relating to the recover ability 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.
<TABLE>
<CAPTION>
Selected Financial Data
Years Ended August 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Total Assets..... $ 108,042 $195,040 $1,049,282 $4,507,997 $17,381,210
Net loss.........$ 3,496,071 $3,927,866 $6,864,124 $16,157,338 $2,313,295
Loss per share of
common stock.... $09 $.11 $.19 $.46 $.07
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 $19,866,905 $17,292,931 $14,292,931
Total
stockholders
equity.........($30,031,090) ($26,535,019)($22,607,153)($15,743,029) $414,309
</TABLE>
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, 1998, total assets decreased to
$108,042 from $195,040 at August 31, 1997 and $1,049,282 at August 31, 1996.
The recoverability of the Company's investment in and advances to Armant of
$58,450 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 $23,585,998 at August 31, 1996 to $26,709,622 at
August 31, 1997 to $30,139,132 at August 31, 1998. Cash on hand decreased from
$4,112 at August 31, 1997 to $918 at August 31, 1998.
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 apprized 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).
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, 1998, of approximately $68,473,960. 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, and is to 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 the 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 $56,172,863 at August 31, 1998,
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 had been considered a development stage
enterprise; start-up activities have commenced, but the
Company has received no revenue therefrom.
1998 Compared to 1997
The net loss for the fiscal year ended August 31, 1998 was
$3,496,071 compared to $3,927,866 in 1997. 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
increased to $3,320,510 in 1998 to $1,732,823 in 1997.
During the same period, promotional, general and
administrative expenses increased to $469,512. During the
year ended August 31, 1998, the company recognized $2,838,598
in interest expense, compared to $1,732,823 in 1997. Also,
during fiscal year ended August 31, 1998, the company
recognized $51,800 in loss from Armant. Armant has had no
operation during this year, except for routine maintenance
and upkeep, and the Company recognizes the related loss.
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 to $1,732,823 in 1997 from $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 in 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.
Item 7. Financial Statements and Supplementary Data.
Please refer to the Company's unaudited Financial
Statements attached.
PART III
Item 8. Directors and Officers of the Company.
The directors and officers of the Company and their ages
are as follows:
Name Age Position with the Company
------------------ ---- ---------------------------
Charles Toth 66 Chairman of the Board of
Directors and Chief
Executive Officer
Gervase M. Chaplin 61 Sr. Vice President
Engineering and Technology
Glenn A. Nesty 86 Director
Calvin J. Laiche 67 Director
Russell F. Haas 61 Director and Chief Financial Officer
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 J. Laiche, Director and Attorney at Law, Member of
Louisiana Bar, Civil Practice, State and Federal Attorney for
Jefferson Parish, City of Westwego Housing Authority Attorney
and Magistrate for the Town of Jean Lafitte, Registered
Mechanical Engineer State of Louisiana, Registered Patent
Attorney, House Counsel for Toth Aluminum Corporation, and
former Project Engineer for Shell Chemical Corporation.
Russell F. Haas, Director and Chief Financial Officer, has
served as bank president for two local banks, during his 36
year tenure in the industry. For the past 6 years, Mr. Haas
has turned his attention to management consulting, performing
work for local entrepreneurs. He brings to the board, a vast
array of knowledge in the financial and management field.
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 possible "short-swing profits" under Section 16
(b) of the Securities Exchange Act of 1934.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 believed 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).
The Company and Mr. Toth attempted to reach a settlement
of the litigation, but the proposed settlement was opposed by
an intervenor, C.R.A. Realty Corporation. The court allowed
the intervention and rejected the proposed settlement. After
that point, the intervenor actively prosecuted the Company's
claims in the litigation.
Prior to the trial, Mr. Toth filed a motion seeking to
amend his answer in the lawsuit, to assert the defense of
compensation and/or set off against any liability that might
arise in the litigation. The basis for Mr. Toth's claim was
that the Company owed him unpaid compensation and other
amounts exceeding the claim under Section 16 (b). The court
denied Mr. Toth's motion to amend on the basis that it was
brought too late in the litigation.
After trial on the merits, the court entered an order on
January 26, 1998 determining that 739,357 shares of common
stock of the Company were "purchased", for purposes of Section
16 (b), by Mr. Toth in five transactions during 1982 and
1983, and that these purchases should be matched with sales
of common stock by Mr. Toth within six months before and
after each purchase, for the purpose of determining short-
swing profits, under the statute.
On February 26, 1998, at a hearing before the court to
determine Mr. Toth's liability, a settlement agreement was
reached and entered as a judgment in favor of the Company and
against Mr. Toth, in the amount of $1,700,000. Intervenor's
counsel was awarded legal fees and costs in the amount of
$250,000, payable by the Company. The parties agreed to a
moratorium on enforcement of the judgment and collection of
attorney's fees for a period of two years following the date
of the judgment.
Subsequent to the consent judgment, Mr. Toth has advised
the Company that he intends to assert a claim for
indemnification by the Company against the liability
resulting from the judgment pursuant to the By-Laws of the
Company and the provisions of Louisiana law permitting
indemnification of officers, directors, employees and agents,
under certain circumstances.
The Company's By-Laws provide that the Company shall
indemnify any person who is made party to a suit, including
actions by or in the right of the Company, by reason of the
fact that he was a director, officer, employee or agent of
the Company, against expenses, including judgments and
amounts paid in settlement actually and reasonable incurred
by him in connection with such suit, if that person acted in
good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interest of the Corporation. The
Louisiana Business Corporation Law specifically allows a
corporation to indemnify officers, directors, employees and
agents, under certain circumstances. The Company's
indemnification provision paraphrases the language of the
statute.
Mr. Toth claims that the "purchase" of Company stock, by
him, during the period in question, resulted from the
Company's issuing him stock in compensation for loans he made
to the Company, sales of equipment to the Company and salary
due him, which was deferred or not paid. Mr. Toth claims
that the transactions in question were made to help the
Company satisfy its commitments and were therefore in the
best interest of the Company. Mr. Toth further claims that
he was made a party to the suit solely by reason of the fact
that he was an officer and director of the Company, which he
claims falls within the coverage of the indemnification
statute and the Company's By-Laws.
Although the Company is aware of Mr. Toth's assertions
that he is entitled to indemnification, no formal claim or
demand has been made against the Company by Mr. Toth. The
Company has made no determination of the merits of any
possible claim by Mr. Toth for indemnification.
The Company is of the opinion that the $250,000 award of
attorney's fees is collectible out of any funds recovered by
the Company from Mr. Toth and is not a general debt of the
Company.
Item 9. Executive Compensation
(a) Cash Compensation.
The following table sets forth, as of the fiscal year
ended August 31, 1998, all remuneration paid by the Company
during the last fiscal year to each officer whose aggregate
cash compensation exceeded $60,000 to all officers of the
Company, as a group.
Other
Compensation
Cash Securities
Name of Individual Compensation Properties
or NO. of Persons Capacities in Salaries, Personal
in Group which served Fees, Bonus Benefits
------------------ -------------- ----------- -------------
Gervase M. Chaplin Sr. Vice. President $120,000 (1)
Technology &
Development
Charles Toth Chairman of the $150,000 (1)
Board & CEO
Russell F. Haas Director and CFO $1 (1&2)
(1) Due to the company's chronic cash shortage, these
officers elected to accrue all of their salaries.
(2) Mr. Haas works for a management company that
currently performs work for the Company, on the basis of
$120,000 annually, but due to the company's cash position,
elected to accrue all of the fee, except for $4,000 per
month.
(b) Other Compensation.
On August 28, 1992, the Executive Board Committee
recommended and subsequently approved by the Board of
Directors a one time compensation package for Mr. Charles
Toth, Chairman, for which he 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-1" 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-
1" 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, 1998, with respect to the beneficial ownership
of the Company's common stock by all stockholders known by
the Company to be the beneficial owners of more than 5% of
its outstanding common stock, by directors who own common
stock and by all officers and directors as a group:
Number of Percent
Name Shares Owned (1) of Class
---------------------- ---------------- ---------
Charles Toth 1,416,750 (2) 4.0%
Dr. Gervase M. Chaplin 140,000 *
Glenn A. Nesty 34,000 *
Calvin J. Laiche 0 *
Russell F. Haas 20,000 (3) *
All officers and directors
as a group (5 persons) 1,519,000 4.5%
*Less than 1%
1 All shares are beneficially owned and the sole
investment and voting power is held by the person, except
as otherwise indicated.
2 Includes 91,570 shares originally issued and owned
by Mr. Toth but for which Mr. Toth no longer holds
certificates. Neither Mr. Toth's nor the Company's stock
transfer records indicate a disposition of these shares.
3 The 20,000 shares listed under Mr. Haas are owned
by his son.
Item 11. Certain relationships and related transactions.
As of August 31, 1998, Charles Toth, the Company's founder
and Chairman of the Board, had loaned the Company an
aggregate of $2,735,750, plus accruing interest of
$1,415,323. The total outstanding balance is accruing
interest at twelve (12.0%) percent and is payable on December
31, 2001, payable in Common Stock of TAC and as provided in
accordance with the separate document identified as Series
"A-1" Stock Rights Certificate. 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
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.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
TOTH ALUMINUM CORPORATION
BY: Charles Toth
CHARLES TOTH
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the date indicated.
Charles Toth December 14, 1998
Charles Toth
Chairman of the Board
of Directors and Chief
Executive Officer
Charles Ernest Toth Jr. December 14, 1998
Charles Ernest Toth Jr.
Treasurer
Glenn Nesty December 14, 1998
Glenn Nesty
Director
Calvin J. Laiche December 14, 1998
Calvin J. Laiche
Director
Russell F. Haas December 14, 1998
Russell F. Haas
Director and CFO
<PAGE>
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......................
Statements of Operations and
Deficit Accumulated During
the Development Stage...........
Statements of Stockholders' Equity.
Statements of Cash Flows...........
Notes To Financial Statements......
The following financial statement schedule of the
Registrant is included in Item 14(a)(2):
IV - Indebtedness of and to Related
Parties....................
Schedules, other than the above
mentioned, are omitted because the
conditions requiring their filing
do not exist or because the
required information is given in
the financial statements, including
the notes thereto.
<PAGE>
<TABLE>
<CAPTION>
TOTH ALUMINUM CORPORATION
COMBINED BALANCE SHEETS, AUGUST 31, 1997 AND 1996 (Unaudited)
<S> <C> <C>
1998 1997
------ ------
ASSETS
CURRENT ASSETS:
Cash .................................... $ 918 $ 4,112
Accounts receivable:
Officers and employees................
Other................................. 0 0
Prepaid:
Leases ...............................
Other.................................
Total current assets..................... $ 918 $4,112
INVESTMENTS IN AND ADVANCES TO:
TACMA India Limited...................
Armant Partnership.................... $ 58,460 $ 110,250
Total.................................... $ 58,460 $ 110,250
PROPERTY, PLANT AND
EQUIPMENT - Net....................... $ 48,354 $ 79,738
PREPAID LEASES ..........................
PATENTS AND PATENT RIGHTS (net of
accumulated amortization: ............ $ 320 $ 940
========= ==========
TOTAL................................... $ 108,042 $ 195,040
See notes to financial statement
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTH ALUMINUM CORPORATION
COMBINED BALANCE SHEETS, AUGUST 31, 1998 AND 1997 (Unaudited)
<S> <C> <C>
1998 1997
LIABILITIES ------ ------
CURRENT LIABILITIES:
Notes payable-related parties............ $ 23,100 $ 23,100
Notes payable-bank....................... - -
Notes payable-other ..................... 300,000 300,000
Accounts payable:
Trade................................. 498,300 457,300
Officers and employees................ 357,491 279,560
Accrued salaries ........................ 2,246,955 1,948,961
Accrued expenses ........................ 243,000 89,450
Accrued interest payable................. 1,855,552 1,474,005
Total current liabilities................ 5,524,398 4,572,376
DEFERRED CREDIT ......................... 0 0
SERIES "A-1" Convertible
Promissory Note (CPN)1
CPN Related Parties
Principal........................... 7,398,265 7,398,265
Accrued interest payable............ 5,958,838 4,404,380
CPN Other Parties
Principal........................... 5,978,421 5,978,421
Accrued interest payable............ 5,258,773 4,356,180
Total Series "A-1" Notes............ 24,594,297 $22,137,246
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* $38,258,096*
Common stock subscribed.................. 20,000 20,000
Paid in capital.......................... 164,774 164,774
Deficit accumulated during
the development stage.................. (68,473,960) (64,977,889)
Total stockholders' equity............... (30,031,090) (26,535,019)
=========== ==========
TOTAL....................................$ 108,042 $ 195,040
*See section 11 of the "Notes to Financial Statements"
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTH ALUMINUM CORPORATION STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996 AND CUMULATIVE FOR THE
PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 1998 (Unaudited)
<S> <C> <C> <C> <C>
FROM
INCEPTION TO
.......FOR THE YEARS ENDED AUGUST 31 ... AUGUST 31,
1998 1997 1996 1998
---- ----- ---- ----
COSTS AND EXPENSES:
Research and
development...... $ 12,400 $ 29,700 $ 43,781 $7,729,540
Promotional,
general and
administrative... 469,512 379,271 375,421 15,900,238
Interest........... 2,838,598 1,323,852 1,974,483 14,761,918
--------- --------- --------- ----------
Total.............. 3,320,510 1,732,823 2,393,685 38,391,696
========== ========== ========== ==========
OTHER (INCOME) EXPENSE:
Loss in Investment
and advances to
Armant...........(A) 51,800 784,175 3,458,715 17,419,163
Equity in Loss
in Armant........ 123,761 1,410,868 1,011,724 12,683,101
-------- ---------- ---------- -----------
NET LOSS........... 3,496,071 3,927,866 6,864,124 68,493,960
========= ========== ========== ===========
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
BEGINNING OF
PERIOD............ $64,977,889 $61,050,023 $54,185,899
------------ ----------- -----------
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE,
END OF PERIOD..... $68,473,960 $64,977,889 $61,050,023 $68,493,960
=========== =========== =========== ===========
LOSS PER
COMMON SHARE $.09 $.11 $.19
=========== =========== ===========
(A) Due to the prolonged delay in attaining the necessary
funding, the company was forced to write down $17,419,163 of its
investment and advances in Armant.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF STOCKHOLDER'S
EQUITY FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996 AND CUMULATIVE FOR THE
PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31,1998
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
..............FOR THE YEARS ENDED AUGUST 31........................ FROM INCEPTION
.......1998...................1997....................1996 ........ TO AUGUST 31, 1998
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY (Continued) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
.............FOR THE YEARS ENDED AUGUST 31............................. FROM INCEPTION
.........1998.......................1997................1996........... TO AUGUST 31, 1998
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................ (64,977,889) (54,185,899) (54,185,899)
New Loss................... (3,496,071) (6,864,124) (6,864,124) (68,473,960)
------------ ------------ ------------ ------------
Balance, end of period..... (68,473,960) (64,977,889) (61,050,023) (68,473,960)
TOTAL STOCKHOLDERS EQUITY.. (30,031,090) (26,535,019) (22,607,153) (30,031,090)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 1998, 1997,AND
1996 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 1998
<S> <C> <C> <C> <C>
FROM INCEPTION
.......FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31,
1998 1997 1996 1998
------ ------ ------ ------
OPERATING ACTIVITIES
NET LOSS................ $(3,496,071) $(3,927,866) $(6,864,124) $(68,473,960)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and
amortization.......... 31,384 53,225 53,225 1,166,525
Amortization and write
off of patents........ 620 31,264 31,264 440,498
Amortization of
financing costs....... 95,000
Loss on divestiture
of subsidiaries....... 912,586
Amortization of prepaid
leases................ 302,424
Losses from joint
venture.............. 123,761 1,410,868 1,011,724 11,140,623
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...... 952,022 853,283 786,807 13,358,806
Increase (Decrease) in
notes payable......... 2,295,840 539,563 1,074,794 20,308,775
--------- -------- --------- ----------
$(92,444) $(1,039,663) $(3,906,310) $(20,490,864)
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS - (Continued
FROM INCEPTION
......FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31,
1998 1997 1996 1998
------ ------ ------ ------
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.... 37,450 257,820 (446,294) (20,770,289)
Write off of Investments
and Cash advances to
Armant................ 51,800 782,175 3,458,715 17,069,402
Redemption of certif.-
cates of deposit...... 3,995,000
Proceeds from sale of
net profit interest... 50,000
--------- ---------- ---------- ----------
89,250 1,040,025 3,905,000 (6,330,003)
--------- ---------- ---------- ----------
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 $ (3,194) 362 (1,301) (3,194)
CASH BEGINNING OF PERIOD 4,112 3,750 5,051
--------- --------- ---------- -----------
CASH END OF PERIOD $ 918 $ 4,112 $ 3,750 $ 918
========= ========= ========== ===========
</TABLE>
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31,
1998, 1997 AND 1996 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION
(AUGUST 1966) TO AUGUST 31, 1998
(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, 1998, and
August 31, 1997, of $68,473,960 and $64,977,886, 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,
1998, of approximately $68,473,960. 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 $56,172,863 at August 31, 1998, 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,
1998 1997
------- -------
Advances to Armant (Note 2) $ 17,127,870 $17,604,113
Less write off due to the
Prolonged delay in
Obtaining funding (17,069,420) (17,637,363)
Prepaid leases (Note 4) --- ---
---------- -----------
Total $ 58,450 $ 236,750
========== ===========
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.
Year Two Thousand
The Company anticipates no difficulties when the year 2000 arrives.
The Company utilizes Personal Computers which have been equipped with
2000 software.
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, 1998, and 1997 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 1998, 1997 and the statement from
inception to August 31, 1998.
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 collectibiilty 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
collectibiilty 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 1997 and 1998, 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,
1998 1997
------ ------
Direct carbo-chlorination
plant costs:
Process equipment............. $ 2,950,000 $4,110,000
Other equipment............... 0 14,000
Leasehold improvements........ 72,000 145,000
----------- ----------
3,022,000 4,269,000
Self-construction and start-up costs:
Salaries:
Engineering .................. 40,000 360,000
Plant construction and
operations................ 702,000 2,154,000
Indirect labor and
overhead.................. 35,000 367,000
----------- ----------
777,000 2,881,000
----------- ----------
$ 3,799,000 $7,150,000
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,
1998 1997
------ ------
Assets:
Plant and equipment........ $ 3,799,000 $ 7,150,000
Other...................... 100,000 525,000
----------- -----------
Total.................. $ 3,899,000 $ 7,732,000
=========== ===========
Liabilities and Equity:
Notes payable - Toth Aluminum
Corporation................. $ 4,740,000 $ 6,087,000
Notes payable - Bank.... 0 525,000
Payables - Toth
Aluminum Corp......... 16,970,000 12,100,000
Other payables.......... 710,000 550,000
Equity - Toth Aluminum
Corporation........... (18,508,000) (13,484,000)
- Other............... (13,000) (13,000)
(18,521,000) (13,497,000)
----------- -----------
Total.................... $ 3,899,000 $ 7,732,000
=========== ===========
Year Ended August 31,
1998 1997
------ ------
Statement of Plant Expenses
Direct plant costs........... $ 14,000 $ 220,000
Interest Expense.......... 195,000 2,547,000
General and
administrative costs.... 98,000 124,000
---------- -----------
Net loss $ 307,000 $ 2,891,000
========== ===========
August 31,
1998 1997
------ ------
Payable to and Equity of
Toth Aluminum Corporation
Notes payable.................... $19,842,000 $ 18,114,000
Payables......................... 5,240,000 6,013,000
Beginning equity of
the Company................... (5,560,000) (5,560,000)
Less: Loss from Armant.......... (11,650,000) (10,785,000)
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...... (2,310,000) (2,052,000)
----------- ------------
Investment in and advances to
Armant.................... $ 58,450 $ 110,250
=========== ============
3. PROPERTY, PLANT AND EQUIPMENT
At August 31, 1998 and 1997, the Company's property, plant
and equipment consisted of the following:
1998 1997
------ ------
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................... (461,534) (453,330)
-------- --------
Property, plant
and equipment - net............ $ 48,354 $ 56,558
========= =========
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.
5. NOTES PAYABLE
Notes payable consisted of the following:
August 31,
1998 1997
------ ------
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%.......................... 2,813,055 2,677,350
---------- ----------
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............................... $ 16,189,741 $16,054,036
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
------------------ ----------
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
2013 3,496,071
------- ------------
Total $ 56,172,863
===========
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 1998 no options were exercised. The
following information is furnished with respect to options and
warrants outstanding.
Number of Shares at
August 31, August 31,
1998 1997
-------- ---------
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.
<TABLE>
<S> <C> <C> <C> <C>
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, 1998:
Issued for cash................
Issued to officers, employees,
directors and consultants for
services......................
Issued upon payment of common
stock subscribed..............
Total
----------- ------------
Total at August 31, 1998 $35,466,193 $38,428,176
=========== ============
</TABLE>
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 apprized 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 $24,594,297, thereby
increasing the Common Stock to 98,377,188, 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.
<TABLE>
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
Schedule IV - Indebtedness of and too Related Parties - Not Current
<S> <C> <C> <C> <C>
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,
1998
Armant $ 8,494,000 $ - $ 5,240,000A $ 3,254,000
TACMA* $ - $ - $ - $ -
1997
Armant $ 25,788,136 $ - $ 17,294,136A $ 8,494,000
TACMA* $ - $ - $ - $ -
1996
Armant $ 38,562,246 $ - $ 12,774,110A $ 25,788,136
TACMA* $ - $ - $ - $ -
</TABLE>
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.
<TABLE>
TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
Schedule IV - Indebtedness of and to Related Parties - Not Current
(Continued)
<S> <C> <C> <C> <C>
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,
1998
Armant $ - - - -
TACMA $ - - - -
1997
Armant $ - - - -
TACMA $ - - - -
1996
Armant $ - - - -
TACMA $ - - - -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<PERIOD-TYPE> 12-MOS
<CASH> 918
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 918
<PP&E> 509,888
<DEPRECIATION> 461,534
<TOTAL-ASSETS> 108,042
<CURRENT-LIABILITIES> 5,524,398
<BONDS> 20,437
0
0
<COMMON> 38,258,096
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 195,040
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 657,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,838,598
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (3,496,071)
<EPS-DILUTED> .09
</TABLE>
