10-Q 1 tenq01.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: November 30, 2001 Commission File Number: 0-7568 TOTH ALUMINUM CORPORATION (Exact name of registrant as specified in its charter) LOUISIANA 72-0646580 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) Highway 18,--River Road, P. O. Box 250, Vacherie, LA 70090 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code:(225) 265-8181 Securities registered pursuant to Section 12(b) of the Act: NONE (Title of each class) Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, WITHOUT PAR VALUE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Common stock, without par value 35,466,193 Class Outstanding at November 30, 2001 TOTH ALUMINUM CORPORATION INDEX TO FORM 10-Q For the Quarter Ended November 30, 2001 Page Part I Financial Information (Unaudited) Balance Sheets - November 30, 2001 and August 31, 2001.................................... Statements of Operations - Three Months Ended November 30, 2001 and 2000 ...................... Statements of Cash Flows - Three Months Ended November 30, 2001 and 2000....................... Notes to Financial Statements.......................... Management's Discussion and Analysis of the Financial Conditions and Results of Operations.......................................... Part II Other Information...................................... TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) COMBINED BALANCE SHEETS (Unaudited) November 30, August 31, 2001 2001 ASSETS CURRENT ASSETS: Cash .............................. $ 1,350 $2,431 Accounts receivable: Other........................... 0 0 Prepaid: Leases ......................... - - Other........................... _________ __________ Total current assets............... 1,350 2,431 INVESTMENTS IN AND ADVANCES TO: Armant Partnership.............. - - PROPERTY, PLANT AND EQUIPMENT - Net................. - - PREPAID LEASES..................... - - PATENTS AND PATENT RIGHTS (net of accumulated amortization:...... 15,961 16,217 TOTAL.............................. $ 17,311 $ 18,648

November 30, August 31, 2001 2000 LIABILITIES CURRENT LIABILITIES: Notes payable-related parties.... $ 23,100 23,100 Notes payable-bank.............. - - Notes payable-other ............ 300,000 300,000 Accounts payable: Trade.......................... 882,606 850,550 Officers and employees......... 787,676 616,510 Accrued salaries ............. 2,435,018 2,323,018 Accrued expenses .............. 691,744 640,863 Accrued interest payable...... 3,340,319 3,075,499 Total current liabilities....... 8,460,463 7,829,540 DEFERRED CREDIT ................... 0 0 Series "A-1" Convertible Promissory Note1 (CPN) CPN Related Parties Principal.................... 12,080,096 12,080,096 Accrued interest payable..... 7,714,959 7,352,557 CPN Other Parties Principal.................... 5,978,421 5,978,421 Accrued interest payable..... 7,566,353 7,387,001 Total Series "A-1" Notes.... 33,339,829 32,798,075 CONVERTIBLE DEBENTURES PAYABLE (net of discounts, commissions, and offering costs of:........ 20,437 20,437 STOCKHOLDERS' EQUITY: Common stock - no par value........ 38,258,096 38,258,096 Common stock warrants.............. Common stock subscribed............ 20,000 20,000 Paid in capital.................... 164,774 164,774 Deficit accumulated during the development stage...... (80,246,288) (79,072,274) Total stockholders' equity........ (41,803,418) (40,629,404) TOTAL............................... $ 17,311 $ 18,648

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE FOR THE QUARTER ENDED NOVEMBER 30, 2001 (Unaudited) Three Months Ended From Inception November 30 To November 30, 2001 2000 2001 COSTS AND EXPENSES: Research and Development........... $ 1,450 $ 2,430 $ 7,766,180 Promotional, general and administrative.................. 306,103 146,145 18,640,829 Interest.......................... 865,361 632,706 23,601,989 Total............................. $ 1,172,914 $ 781,281 $ 49,997,732 OTHER (INCOME) EXPENSE: Loss in Investment and Advances To Armant........................ 17,471,835 Equity in loss of Armant........ 1,100 2,048 12,765,445 NET LOSS............ .................. $ 1,174,014 $ 783,329 80,246,288 LOSS PER COMMON SHARE....................... $ .03 $ .02

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF CASH FLOW Three Months Ended From Inception November 30, To November 30, 2001 2000 2001 OPERATING ACTIVITIES NET LOSS.......................... $(1,174,014) $ (783,329) ($ 80,246,288) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization.................... - 3,163 1,214,879 Amortization and write off of patents.................. 256 254 441,987 Amortization of prepaid leases... - - 302,424 Amortization of financing Cost... 95,000 Loss on divesture of Subsidiaries. 912,586 Loss from joint venture........... 1,100 2,040 11,131,535 Other............................. 111,616 Proceeds from royalty Prepayments..................... 172,760 Prepayment of Leases.............. (16,104) Disposition of property, Plant, and equipment............ 27,745 CHANGES IN OPERATING ASSETS AND LIABILITIES: Increases in accounts receivable..................... (10,787) Decrease (Increase) in Prepaid expenses............... (27,371) Increase in accounts payable and accrued expenses........... 306,103 144,130 17,130,593 Increase (decrease) in notes notes payable.................. 865,955 632,706 28,183,148 (600) (1,028) ($ 20,576,277) TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF CASH FLOWS Three Months Ended From Inception November 30, To November 30, 2001 2000 2001 INVESTING ACTIVITIES: Purchase of property, plant and equipment................ - - ($ 1,159,046) Acquisition of patents......... (443,475) Investment of Certificates of Deposit................... (3,995,000) Cash investment in and Advances to TACMA............ (1,076,595) Write off of Investments And Cash Advances to Armant.. 17,138,202 Cash investments in and advances to Armant........... (20,751,082) Redemption of Certificates of Deposit................... 3,995,000 Proceeds from sale of net Profit interest................ 50,000 ($6,241,996) FINANCING ACTIVITIES: Stock issued or subscribed For cash.................... 18,481,076 Preferred stock issued For cash.................... 266,400 Proceeds from long term Obligations................. 1,430,349 Proceeds from warrants Issued for cash............. 6,236,507 Common stock issuance cost........................ (166,550) Issuance of convertible Debentures.................. 1,913,963 Cash received upon Conversion of debentures To common stock............. 112,999 Payment of long term Obligations................. (1,457,071) - - 26,817,673 INCREASE (DECREASE) IN CASH (600) (1,028) (600) CASH BEGINNING OF PERIOD 2,431 1,538 CASH END OF PERIOD 1,831 510 1,831

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of Toth Aluminum Corporation (the Company) as of November 30, 2001, and the results of its operations and changes in financial position for the three months then ended. The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in Form 10- K, dated August 31, 2001. 2. The accompanying financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses from its inception in August 1966 through November 30, 2001, and August 31, 2001, of $79,072,274 and $80,246,288, respectively. The Company's continuation in existence is dependent upon its ability to generate sufficient cash flow to meet its continuing obligations on a timely basis, to fund the operating and capital needs, obtain additional financing as may be required, and ultimately to attain successful operations. Should the Company be unable to obtain a joint venture partner(s) it may experience significant difficulty raising funds. These factors, among others, may indicate that the Company will be unable to continue in existence. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue in existence. 3. The Company is general partner in a limited partnership (Armant) formed in 1982 to construct and operate a metal chlorides plant in Vacherie, Louisiana. The plant, which through August 31, 1989, has cost approximately $23 million to construct, has been built on land (the Armant site) owned by Empresas Lince, S.A., (ELSA), a Central American corporation controlled by a former member of the Company's Board of Directors. Costs Capitalized and deferred by Armant consisted of the following: November 30 August 31 2001 2001 Direct carbo-chlorination plant costs: Process equipment................. $ 1,030,000 $ 1,120,000 Other equipment................... 0 0 Leasehold improvements............ 6,000 8,000 1,036,000 1,128,000 Self-construction and start-up costs: Salaries Engineering....................... - - Plant construction and operations................. 115,000 147,000 Indirect labor and overhead....... - - 115,000 147,000 $ 1,151,000 $ 1,289,000 Presented below is summarized financial information of Armant. November 30, August 31, 2001 2001 Assets: Plant and equipment................. $ 1,151,000 $ 1,275,000 Other............................... - 14,000 Total............................... $ 1,151,000 $ 1,289,000 Liabilities and Equity Notes payable - Toth Aluminum Corporation..................... $ 3,240,000 $ 3,240,000 Notes payable - Banks............. 0 0 Payables - Toth Aluminum Corporation..................... 17,420,000 17,420,000 Other payables.................... 855,000 842,000 Equity - Toth Aluminum Corporation..................... (20,351,000) (20,200,000) - Others........................ (13,000) (13,000) (20,364,000) (20,213,000) Total........................... $ 1,151,000 $ 1,289,000 Three Months Ended November 30, 2001 2000 Statement of Plant Expenses Direct plant costs................. $ - $ 1,000 General and administrative costs... 500 4,000 Interest Expense................... 14,000 26,000 Net Loss........................... $ 14,500 $ 31,500 November 30, August 31, 2001 2001 Payable to and Equity of Toth Aluminum Corporation: Notes payable......................$ 20,013,000 $ 20,013,000 Payables........................... 4,689,000 4,689,000 Beginning equity of the Company................... (5,560,000) (5,560,000) Less:Loss from Armant.............. (10,989,000) (10,989,000) Capitalized by Armant, but not accrued by the Company....... (5,620,000) (5,620,000) Expensed by Armant but not accrued by the Company....... (2,533,000) (2,533,000) Investment in and advances to Armant............................. $ 0 $ 0 4. NOTES PAYABLE Notes payable consisted of the following: November 30, August 31, 2001 2001 Notes payable to bank, collateralized (A):............... - - Demand notes payable to related parties, unsecured (A): At 12%... 323,155 323,155 Demand notes payable to other parties, unsecured (A): At 12%............ - - Series "A-1" Convertible Promissory Notes Payable to related parties....... 12,080,096 12,080,096 Payable to others................ 5,978,421 5,978,421 Interest Payable................. 15,281,312 14,739,558 Total................................... $ 33,662,984 $ 32,798,075 A) Collateralized by a pledge of personal assets owned by the Company's Chairman of the Board. 5. The financial statements are summarized and reference is made to the "NOTES TO FINANCIAL STATEMENTS" included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, as filed with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources. During the quarter ended November 30, 2001, total assets decreased from $18,648 to $17,311.The primary asset of the Company is its proprietary technology, commonly referred to as the TAC-ACS process, the Clay-to-Aluminum Process. TAC has developed its proprietary clay chlorination and purification technology, the TAC Process, from laboratory, through bench scale, to large scale pilot plant and is now poised to commercialize its breakthrough, low cost continuous manufacturing process. Several prestigious engineering companies have evaluated the technology, and have declared it ready for commercialization. TAC intends to combine the TAC Process with other aluminum chloride smelting, ACS, technology, creating a new integrated TAC-ACS Process, the Clay-to-Aluminum Process, to manufacture primary aluminum and titanium tetrachloride from clays. TAC protects part of the technology as Trade Secrets under Intellectual Property Law. TAC has patented parts of the technology and applied for a patent of the continuous process and other parts of the Clay-to-Aluminum Process. Effectively, TAC has collected, created and maintains unique control over the information that will enable them to commercialize and exploit the Clay-to-Aluminum Process Technology more efficiently than any other party. Total Liabilities, including the Series "A-1" Convertible Promissory Note, increased from $40,648,052 to $41,760,729 during the same period. Working Capital Meeting Operating Needs and Commitments From inception, the Company has sustained its operations primarily through funds provided by private placements and public offerings of its common stock. Due to the length of its development stage activities, liquidity has always been a continuing concern. The Company has incurred net losses from its inception in 1966 through November 30, 2001, of approximately $80,246,288. These factors, among others, may indicate that the Company will be unable to continue in existence. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue in existence. The Company's continuation in existence is dependent upon its ability to generate sufficient cash flow to meet its continuing obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain successful operations. Management believes that the plants constructed by Armant and TACMA demonstrate that the production of metal chlorides and aluminum intermediates through the Company's patented processes is possible. TAC is committed to provide the highest-grade technology to empower the world's lowest cost, most energy efficient production of primary aluminum metal and titanium tetrachloride, and associated by-products, and to generate robust returns for its investors. Today, the world consumes approximately 20 million short tons of primary aluminum annually, with demand growing at approximately 3% to 5% per year, creating a need for 600,000 additional tons of primary aluminum, every year. TAC's initial goal is to capture the growth market with aluminum produced from clay via its new chloride processing technology. In the future, as existing Bayer-Hall aluminum plants eventually become uncompetitive, TAC foresees that they will be replaced with new Clay-to-Aluminum facilities. TAC intends to be the catalyst for this evolutionary change in the aluminum industry. TAC's plans include not only the provision of processing technology, but also the development and supply of operating know how, engineering designs and construction expertise, in order to accomplish this vision. TAC is totally committed to producing the highest quality of primary aluminum metal and associated chemical products, at lowest cost through conservation of energy and the use of abundant low cost raw materials. TAC intends that its Clay- to-Aluminum processing will become the recognized technology for manufacturing primary aluminum. TAC's future plans call for expanding its technology into other fields, including recovery of metals from wastes and extraction of other metals from their ores. TAC had endeavored to commercialize its technology since 1987 but despite the apparent advantages of clay based processing; the technology has yet to be commercially implemented. There are several reasons for TAC's lack of success in attracting development Participants, but two hurdles are clearly evident. Firstly, TAC is not a major player in aluminum and its financial condition does not promote confidence in its perceived ability to see the Project through to a successful conclusion. Secondly, in its past commercialization efforts, TAC had insisted on maintaining total ownership of the technology, which was not acceptable to some prospective participants. A third reason is that Clay-to-Aluminum technology does not enhance today's bauxite and alumina based aluminum processes-it replaces them instead. Successful commercialization of the Clay-to- Aluminum process would mean that industry's hugh investments in existing Bayer and Hall-Heroult plants would eventually be made obsolete, and the value of industry's installed capital assets, and the value of its bauxite reserves would be drastically reduced. A fourth hurdle results from Alcoa's decision to abandon its own chloride based ASP process. TAC's approach to potential project Participants has invariably elicited responses similar to the following: "Alcoa expensed enormous resources on their aluminum chloride smelting process, and yet they abandoned it. If the largest aluminum company in the world, Alcoa, will not support the technology, why should I?" While this is a logical response, Alcoa's approach was very different from TAC's, and our approach has some very significant cost and environmental advantages over Alcoa's, which make us confident of success. There are fundamental technical differences between TAC's Clay-to-Aluminum process and Alcoa's ASP technology. There were also marked differences between Alcoa's and TAC's research and development philosophies, especially in regard to the crucial question of purification of aluminum chloride. Several of the technical problems that contributed to Alcoa's cost escalations do not occur in TAC's processes. The Company's intention in the near-term is to focus its efforts and resources on completing a project to commercialize the Clay-to-Aluminum Process be undertaken in multiple steps. In August 1995, Fluor Daniel Inc. undertook a feasibility study of a project to construct a commercial Metal Chlorides Plant to manufacture aluminum chloride, silicon tetrachloride, titanium tetrachloride and other products from clay using the company's proprietary carbo-chlorination technology. Fluor Daniel's assessment was highly favorable, but the Company has not succeeded in raising the funding needed to complete the project. In March 1998, the Company negotiated with and entered into an Engagement Agreement with a Denver, CO based financial brokerage firm, Mercantile Resource Finance, Inc. (MRFI) for the sole purpose of accelerating the efforts to fully commercialize the TAC Process. Through the end of the fiscal year, some interest had been shown by prospective investors, but nothing significant and as of this writing, nothing material or consequential has materialized. In the first step, which TAC has designated as Phase 1,TAC proposes that a semi-commercial demonstration plant be built and operated. Operation of this semi-commercial plant will permit engineers to fine tune the design of the subsequent full commercial facility in Phase 2. Equally important, the Phase 1 plant will provide a hands-on training facility for commercial plant staff. Phase 2 of the project will comprise the design and construction of a full scale commercial Clay-to-Aluminum plant. Cost of Phase 1 is estimated to be $45 million and the cost of phase 2 will be determined after Phase 1 has been completed. There will be two principal goals in executing Phase 1. The first goal is to refine TAC's clay chlorination procedures for implementation in commercial production facilities. TAC has already developed these procedures to an advanced stage in its pilot plant, but the design of that pilot plant did not permit long duration continous operation runs. Refinement of procedures will permit confident scale-up to full scale commercial plant capacity. The second goal will be generation of refined designs for full scale commercial smelting cells. This will be accomplished by constructing and operating a complete ACS smelting facility which will consume a portion of the aluminum chloride produced in clay chlorination. The balance of production will be marketed as high purity anhydrous aluminum chloride to generate revenues to help defray plant operating costs. Smelting specialists foresee rapid development of a final design for commercial cells in Phase 1, and anticipate that this will consume nine to twelve months of development time. The project will start as soon as TAC has secured the financing for Phase 1. Initial tasks includes detailed engineering design of clay chlorination and smelting facilities, and the selection of a suitable plant site. Construction will begin with site preparation, approximately nine months after the project start. After an initial ramp-up period, the Phase 1 plant is expected to reach full design capacity within 36 months after project start. After confirmation of the economic viability of the Clay-to- Aluminum Process, work will begin on the second phase of the project, namely the design, construction and operation of a commercial Clay-to-Aluminum plant. TAC proposes that a modular design concept be adopted for Phase 2, such that the eventual full scale commercial plant will consist of a set of duplicate plant modules, operating in parallel. TAC estimates that the first plant module will be completed in year seven of the project, with additional modules constructed in parallel in subsequent years. Results of Operations TAC's Clay Chlorination Pilot Plant, at the Armant site in Vacherie, was completed in 1983 and was operated in block (continuous chlorination and condensation to produce crude aluminum chloride, followed by continuous operation of the purification system) mode through 1988. Approximately 150 pilot plant runs were made, and tonnage lots of high purity aluminum chloride and commercial grade silicon tetrachloride were successfully marketed. TAC made several major breakthroughs in systems operation, and the plant sections finally achieved smooth, controlled operation in 1987. In l988, the Pilot Plant was shut down and TAC planned to undertake the next stages of its process commercialization program (higher capacity, continuous mode clay chlorination, and aluminum chloride electrolysis) in expanded facilities to be acquired from Alcoa. The planned transaction with Alcoa was not completed, however, and no furthers Pilot Plant operations have occurred since then. TAC also undertook construction of an aluminum dross chlorination plant in New Delhi, India, in partnership with TACMA and a local secondary aluminum producer. The plant succeeded in demonstrating dross chlorination and the production of crude aluminum chloride from secondary aluminum dross, but the crude product was never purified. Due to a lack of local investor financing, the purification system and other sections of the plant were never completed, and TAC withdrew from the project. The Company had no operating revenues and reported net losses. The Company is considered to be a development stage enterprise; start-up activities have commenced, but the Company has received no revenue therefrom. The net loss for the three months ended November 30,2001, was $ 1,174,014 compared to $783,329 for the corresponding period in 2000. The net loss recognized by Armant during the three months ended November 30, 1987, resulted primarily from expensing start- up costs. The net loss recognized by Armant during the year ended August 31, 1987, was first allocated to the partners' equity accounts based upon their respective percentage interests in the total partnership equity. To the extent that this loss exceeded the total partners' equity, all additional losses were allocated to the Company's equity interest in the partnership, since the Company is the sole general partner in the limited partnership and is at risk for these losses in the form of advances to Armant. PART II. Other Information Item 1. Legal Proceedings See Item 10 of the Company's Form 10-K for the year ended August 31, 2001, concerning legal proceedings. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOTH ALUMINUM CORPORATION (Registrant) BY: Charles E. Toth Jr. Charles E. Toth Jr. Treasurer Date: January 15, 2002 BY: Charles Toth Charles Toth Chairman of the Board of Directors Date: January 15, 2002 and Chief Executive Officer

TOTH ALUMINUM CORP 10-Q